The Morning Call
The Market
Technical
The
indices (DJIA 16698, S&P 1920) had a decent day. They both remain above their recent all-time
highs; both are above their 50 day moving averages. The Dow again closed above the upper boundaries
of its short (15330-16601) and intermediate (14696-16601) trading ranges. As a result, the short term trend re-set from
a trading range to an uptrend (16021-17500).
A finish above 16601 today will re-set the intermediate term trend to up. Its long term uptrend is now defined by 5081-18193.
The
S&P remains within uptrends across all trends: short (1854-2021),
intermediate (1803-2603) and long (748-1960).
Volume
fell even closer to zero; breadth improved.
The VIX declined, finishing within short and intermediate term downtrends
and below its 50 day moving average.
The
long Treasury was lower. However, it
remained above the upper boundary of its intermediate term downtrend for the
third day. A similar close today will
re-set that trend to a trading range. It
also closed within very short and short term uptrends and above its 50 day
moving average.
And:
GLD
continues to drift lower, remaining within very short, short and intermediate
term downtrends and below its 50 day moving average. The lower boundary of its long term trading
range (114.4) looms ahead.
Bottom line: the Averages continued their advance toward
the upper boundaries of their long term uptrend, though divergences continue to
exist. Of course, price is truth; but the truth is
that a limited number of large cap stocks are at highs and could go higher
while the remaining universe of stocks are not; all of this on historically
anemic volume. As you know, I think that
unless this ‘remaining universe’ catches up to the indices, it will likely act
as a governor to the upward momentum of the Averages.
Our strategy remains to do nothing save taking
advantage of the current momentum to lighten up on stocks whose prices are
pushed into their Sell Half Range or whose underlying company’s fundamentals
have deteriorated.
Fundamental
Headlines
Yesterday’s
US economic news was mixed: revised first quarter GDP fell 1% and April pending
home sales were below expectations while weekly jobless claims and revised
first quarter corporate profits were above estimate. Most investor attention focused on (1) the
GDP number which pundit after pundit pronounced as irrelevant because, you
know, it was cold in January and February.
Who woulda thunk? and (2) weekly jobless claims because it is a true
barometer of the economy. What few investors
there are that give a shit and aren’t asleep or on vacation were apparently
pleased.
On
the international scene, most of the chatter is about the coming ECB meeting in
which most experts seem to think that it will ease monetary policy. Not mentioned is the failure of easy money to
help the US or Japanese economies; or the ongoing flush in the Chinese real
estate market; or the ongoing violence in Ukraine and the rapidly approaching gas
price negotiations with Russia:
***overnight,
Japan reported terrible household spending, industrial production and inflation
numbers.
And
in China, developers are now offering ‘buy one floor, get one free’:
Bottom line: it
seems useless to read the news or analyze the impact of reported events because
everything is positive (or irrelevant). As long as this mindset prevails, any contrary
analysis is meaningless---at least to the price of stocks. Someday this will all end either as a result
of an event that hits the Market in the mouth and can no longer be ignored or
rationalized away or, more benignly, because that last greater fool spends his
last dollar to buy stocks.
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
chase for yield (medium and a must read):
The
latest from Lance Roberts (medium):
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