The Morning Call
4/24/14
The Market
Technical
After lifting
well into overbought territory, the indices (DJIA 16501, S&P 1875) took a
breather yesterday. Both remained above
their 50 day moving average and the last lower high (16484, 1873). This was a very docile performance given the magnitude
of its overbought condition and suggests a decent bid under the Market. The S&P closed within uptrends across all
timeframes: short (1813-1990), intermediate (1770-2570) and long
(739-1910). The Dow remains within short
(15330-16601) and intermediate (14696-16601) term trading ranges and a long
term uptrend (5055-17405). They continue
out of sync in their short and intermediate term trends; but clearly the Dow remains
close to the upper boundary of its short/intermediate term trading range (s).
Volume was down
slightly; breadth deteriorated. The VIX
rose fractionally, finishing within its short term trading range, its
intermediate term downtrend and below its 50 day moving average.
The long
Treasury rose, closing within a short term uptrend, above its 50 day moving
average and within an intermediate term downtrend. As a reminder, the very positive recent pin
action of TLT suggests deflation/recession or a flight to safety (Ukraine).
GLD continues to
trade dreadfully. It remains in short
and intermediate term downtrends and below its 50 day moving average.
Bottom
line: I think yesterday’s mild pullback
from a very overbought condition and in the face of lousy economic numbers both
here and abroad was a positive tell on the Market; that is, there is still buying
momentum though the internal data suggests that that investors are focusing on
fewer and fewer stocks. While the Averages
still need to bust through their former all-time highs (16601/1898), the odds
seem to favor an assault on the upper boundaries of their long term
uptrends. Nevertheless, if the current Market
divergences keep growing, I think that the indices will be unable to break
above those levels.
Meanwhile, we
have a trendless Market; so there is really not much to do save using any price
strength that pushes one of our stocks into its Sell Half Range and to act
accordingly.
Sell
in May and go away (short):
Close
to a Dow Theory buy signal (short):
Update
on sentiment (short):
Fundamental
Headlines
Yesterday’s
US economic news was mostly negative: weekly mortgage and purchase applications
were down, the April Markit PMI was disappointing and March new home sales were
absolutely terrible. They clearly don’t
support our outlook; but this was one day’s data, so nothing to be concerned
about for the time being.
Overseas,
the EU April PMI rose but Chinese manufacturing fell. In addition, concerns continue to rise about
the Chinese real estate market.
Meanwhile,
no lessening in the tensions in Ukraine:
***overnight, the ECB
promised asset purchases (again) if necessary, the Chinese yuan fell (again)
and fighting broke out in Ukraine (again).
And:
Bottom line: economic
and political events seem to have no impact on investor psychology. Good news, bad news; it is all the same. Momentum is up; and there is no point in
arguing. Certainly, the continuing
sluggish improvement in the US economy helps; but it is facing some pretty
stiff headwinds both domestically (the politicians, the bureaucrats and the
Fed) and internationally (China, Japan, the EU, Ukraine).
The Market faces
an added hurdle: a terrible risk (Fair Value, as calculated by our
Model)/reward (upper boundaries of the Averages long term uptrends) equation.
My
bottom line is that for current prices to hold, it requires a perfect outcome
to the numerous problems facing the US and global economies AND investor
willingness to accept the compression of future potential returns into current
prices.
I can’t emphasize strongly enough that I
believe that the key investment strategy today is to take advantage of the
current high prices to sell any stock that has been a disappointment or no
longer fits your investment criteria and to trim the holding of any stock that
has doubled or more in price.
Bear
in mind, this is not a recommendation to run for the hills. Our Portfolios are still 55-60% invested and
their cash position is a function of individual stocks either hitting their
Sell Half Prices or their underlying company failing to meet the requisite
minimum financial criteria needed for inclusion in our Universe.
It
is a cautionary note not to chase this rally.
The
Fed’s disastrous monetary policy and those who benefit/suffer (medium):
Where
the consensus stands (medium and today’s must read):
Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Investing For Survival is to help other investors build wealth and benefit from the investing lessons he learned the hard way.
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