The Morning Call
5/20/14
The Market
Technical
The
indices (DJIA 16511, S&P 1885) ended higher on the day. The Dow closed above its 50 day moving
average and within its short (15330-16601) and intermediate (14696-16601) term
trading ranges and within a long term uptrend (5055-17405). The S&P finished above its 50 day moving
average and within uptrends across all timeframes: short (1832-1999),
intermediate (1784-2584) and long (739-1910).
They remain out of sync in their short and intermediate term trends.
Volume
was abysmal; breadth mixed, though the flow of funds indicator continues to do
well. The VIX fell slightly. It continues to trade near the lower boundary
of its short term trading range, below its 50 day moving average and within an
intermediate term downtrend.
The
long Treasury was hit hard, ending back below the upper boundary of its intermediate
term downtrend and, hence, negating last Thursday’s break above that resistance
level. However, it closed above its 50
day moving average and within a short term uptrend.
More theories on
rising bond prices (medium):
GLD
rose fractionally, but still finished within short and intermediate term
downtrends and below its 50 day moving average.
Bottom line: while
the small cap averages continue to act sickly, both of the major senior indices
are now stuck between their all-time highs and their rising 50 day moving
averages. This narrowing trading range
will, by definition, resolve itself. My
best guess remains that it will be to the upside, leading to a challenge of the
upper boundaries of their long term uptrends.
Of course, that is not a particularly courageous forecast given their current
proximity to those uptrends. On the
other hand, it defines our strategy 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.
What
tops look like (medium):
An
analysis of the technicals by Andrew Thrasher (medium):
Fundamental
Headlines
Yesterday
was dead, news wise. No US or foreign
data of significance. There were a
couple of speeches by regional Fed chiefs warning of the historical inadequacies
of Fed policy---which isn’t exactly news.
Overseas, Putin once
again feinted an attempt to calm concerns over Ukraine (moving troops away from
Ukrainian border) which will likely prove just as hollow as prior promises.
Latest
from Ukraine:
Meanwhile, China is garnering a number of
headlines:
(1) massing
troops on the Vietnamese border over a dispute concerning sovereignty over potential
offshore oil resources. Somehow this
sounds familiar.
(2) getting
whacked by the DOJ over corporate [intellectual property] spying. It is about time. Let’s hope the DOJ is carrying a bigger stick
than the president.
(3) nearing a
final agreement with Russia on energy and currency. More fallout from a limp wristed foreign
policy.
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 valuation (short):
Investing for Survival
Analyzing
your tolerance for complexity (medium):
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