The Morning Call
5/13/14
The Market
Technical
The
indices (DJIA 16695, S&P 1896) made a Titan III shot yesterday, driven, at
least in part, by short covering. The Dow
busted through the upper boundary of its short and intermediate term trading
ranges. That starts the clock on our
time and distance discipline. If it
remains above 16601 through the close Friday, the DJIA will re-set to short and
intermediate term uptrends. It will also
be back in sync with the S&P on those trends. At the moment, it remains above its 50 day
moving average and within short (15330-16601) and intermediate (14696-16601)
term trading ranges and a long term uptrend (5055-17405).
The
S&P closed very near its former all-time high (1899) but did negate that
developing head and shoulders formation.
It closed above its 50 day moving average and within uptrends across all
timeframes: short (1828-1995), intermediate (1780-2580) and long
(739-1910).
Volume
fell (back to the old pattern); breadth was positive. The VIX finished very near the lower boundary
of its short term trading range, below the 50day moving average and within its
intermediate term downtrend. A check of
our internal indicator showed that in a 144 stock Universe, 32 stocks are at or
above their all-time highs, 19 are below but close enough for government work
and 93 are discernibly short of their highs.
The
long Treasury was down again but remained within its short term uptrend, well
above its 50 day moving average and within an intermediate term downtrend. As an aside, the bulk of our long muni ETFs
continue to make new highs.
David
Rosenberg on bonds (medium):
While
up, GLD is still a broken chart. It
finished within short and intermediate term downtrends and below its 50 day
moving average.
Bottom line: yesterday’s
price move was anything but muddled or schizophrenic. The move up was decisive. That said, volume was puny and the indices
were in no way reflective of the stocks in our Universe.
I believe that
this pin action is very supportive of my expectation that the Averages will
challenge the upper boundaries of their long term uptrends but fail to break
above them; and hence our strategy remains to do nothing save taking advantage
of the current momentum to lighten up on stocks whose prices are pushed into
its Sell Half Range or whose underlying company’s fundamentals have
deteriorated.
This
article seems quite prescient of Monday’s rally (medium and a must read):
More
from Lance Roberts (medium):
Fundamental
Headlines
No
US economic news yesterday. However, we
got a lot from overseas: the March Japanese trade surplus plunged unexpectedly (not
supposed to happen in an easy money, weak currency environment) and Chinese
officials indicated more market reforms were on the way (still the only adults
in the room).
In addition, an
ECB official implied that more was needed to help the EU economy than just
lower interest rates. I assumed, as
apparently did most investors, that meant that the ECB would be joining the QE
club. The only difference is that I consider
it a negative while investors used the prospect as the rocket fuel for yesterday’s
rally. I have already linked to several
articles suggesting that the ECB has a much different agenda than portrayed to
the public. Here is another. This one a research piece from Goldman, Draghi’s
alma mater. (medium):
***overnight,
Chinese industrial output and retail sales softened. And this on EU corporate earnings:
Finally,
investors appear to have either become bored with or fully discounted conflict
in Ukraine/Russian territorial expansion/the prospect for higher oil prices and
their impact on global economic growth.
Whatever the explanation, I don’t think that this situation is going
away; and it still holds the potential, in my opinion, for serious disruptions
to the EU economy and higher energy prices.
The
latest from Ukraine:
Ron Paul on Ukraine
(medium):
Bottom line: the
economy continues to plug along. Unfortunately,
the daily international news flow generally contains nothing but threats to this
accomplishment. (1) despite an easy
money policy that puts our own to shame, Japanese stats continue to portray an
economy that not only isn’t improving but is displaying a worsening in all the
negative economic characteristics QE is supposed to be curing, (2) the Chinese
are maintaining their tough approach to unwinding speculation. That is great news for the long term, but
short term it is apt to bring pain, (3) the ECB is between a rock and a hard
place. If they go all in on QE, they
will likely get the same result as the Japanese, Chinese and Americans---with
the short term benefit of postponing the inevitable [recession] but making it
worse; if they hang tough, they get the inevitable up front. (4) Russia will soon control eastern Ukraine. The only questions are [a] who does Putin go
after next? and [b] will the US and EU ever draw a real line in the sand?
The latest from
John Hussman (medium):
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.
Update
on this season’s earnings and revenue ‘beat’ rates (short):
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