The Morning Call
The Market
Technical
The
indices (DJIA 16558, S&P 1883) rested yesterday, with the S&P ending
flat on the day and the Dow down fractionally.
Both closed above their 50 day moving averages. The S&P continues to build a head and shoulders
pattern.
The S&P
closed within uptrends across all timeframes: short (1822-1999), intermediate
(1776-2576) and long (739-1910). The Dow
remains within short (15330-16601) and intermediate (14696-16601) term trading
ranges (though clearly it remains near the upper boundary of its short and
intermediate term trading ranges) and a long term uptrend (5055-17405). They continue out of sync in their short and
intermediate term trends.
Volume
fell, as did breadth. The VIX declined,
nearing the lower boundary of its short term trading range. It is below its 50 day moving average and
within an intermediate term downtrend.
The
long Treasury (111.8) rose sharply. It
is in a short term uptrend, nearing the upper boundary (113.7) of an
intermediate term downtrend and above its 50 day moving average. TLT continues to be perhaps the most
important indicator/divergence to watch.
Bonds are telling us that the stock market is wrong. Of course, the opposite could be true. Either way, we don’t know yet why this
divergence---but we will, probably, soon.
http://www.zerohedge.com/news/2014-05-01/why-stock-market-bulls-should-hope-interest-rates-dont-rise
GLD
remains a sick puppy. It is in short and
intermediate term downtrends and below its 50 day moving average.
Bottom line: the
good news is that a brief rest by the Averages isn’t surprising in light of (1)
its recent run up and (2) investors wanting to sit on the sidelines ahead of
today’s nonfarm payroll report. The bad
news is that they both stopped short of recent highs; and the S&P hasn’t gotten
above the high representing the right shoulder of a head and shoulders
pattern.
That said, I see
nothing significant in yesterday’s pin action.
On the other hand, I am very alert to what is transpiring in the bond
markets. As I noted above, something is
occurring that would lead to the contradictory performance of the stock and
bond markets. I can offer a couple of
reasons; but at the moment have no proof of any. So until we get some clarity on if and what
maybe be happening, I stick with my thought that the Averages will assault the
upper boundaries of their long term uptrends---although I still believe that
the many current internal Market divergences (which includes our own internal
indicator) will act as a governor on the pace of advance as well as the
Averages ability to penetrate those long term upper boundaries.
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.
Pattern
recognition (short):
Who’s
buying and who’s selling (short):
Fundamental
Headlines
We
got a lot of economic data yesterday to which there was little direction:
weekly jobless claims were disappointing; March construction spending was well
below estimates; April US vehicle sales, April ISM manufacturing index and the April
Markit PMI were all basically in line; while April Chicago PMI and March
personal income and spending were better than anticipated. I think these stats encouraging; and certainly
support the notion that the Wednesday first quarter GDP number will prove to be
something of an outlier.
***overnight,
EU PMI rose, Japanese unemployment held steady while Japanese real incomes
declined.
The
latest from Ukraine:
***overnight,
Ukraine launches an attack to re-take eastern city:
Bottom line: all
quiet in the stock market while prices exploded in the bond market. Of course, the bond market’s pin action could
just be random noise; on the other hand, it may not be and it is probably worth
waiting to find out. Certainly, there is
a host of risks out there that could materialize and explain the incongruity in
stock/bond trading. Given that stocks appear priced for
perfection, I would want some clarity to this conundrum before making any
trading/investment decisions.
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.
More
on a likely low return environment (medium):
The
Buffett indicator (short):
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