The Morning Call
The Market
Technical
The
indices (DJIA 16550 [up], S&P 1875 [down]) had another volatile day. Both ended above their respective 50 day
moving averages and their April lows---leaving them in very short term uptrends. On a more sober note, the Dow rose to and
touched its all-time high and backed off for the fourth time; the S&P
continued to build a head and shoulders formation.
The S&P
closed within uptrends across all timeframes: short (1828-1995), intermediate
(1780-2580) 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.
Volume declined;
breadth was mixed. The VIX rose
fractionally, closing within its short term trading range, below its 50 day
moving average and within an intermediate term downtrend.
More
divergences:
The
long Treasury was down, after a poor 30 year bond auction. I am not sure how to interpret this in the
light of its recent performance; but I wasn’t sure why bond prices were rising
in the first place. I worry that there
is information in its pin action and I am too stupid to figure it out; so TLT will
remain at the top of my list of indicators to watch
GLD
was unchanged and ugly. It is in short
and intermediate term downtrends and below its 50 day moving average.
Bottom line: the
technicals continue to become more muddled which is reflected in the current highly
volatile but directionless Market. The
Averages are bouncing off both resistance and support levels like a pinball.
While that says
nothing about the direction in which prices resolve themselves, my default
position in situations like this is to stick with the major trends of the
senior indices which are flat (Dow, though it is close to breaking above the
upper boundary of a trading range) to up (S&P), recognizing that the
breakdown in the small cap averages is likely telling us something about future
direction.
In the end, what
I think about the ultimate direction the Market takes is a lot less important
than recognizing that, at the moment, any opinion about direction is nothing
more than a wild assed guess---which is a big determinant of our strategy 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.
The latest from
Stock Trader’s Almanac (short):
Update on
sentiment (short):
Fundamental
Headlines
Yesterday’s
US economic data was upbeat: weekly jobless claims and April chain store sales
were better than expected. Overseas, the
April Chinese trade data was much improved from March and the ECB left rates
unchanged.
On
the latter, it is important to note that the issue with the ECB is whether they
lower rates---exactly the opposite of the US, Japanese and Chinese central
banks. The ECB’s problem being potential
recession/deflation. Of course, as I have
tried to cover in these notes, any decline in rates/easier money policy is not likely
to be any more effective at stimulating EU growth than it has been in the US or
Japan---for many of the same reasons: (1) over leveraged banks too fearful to
lend and cautious businesses and tapped out consumers unwilling to borrow (2)
the negative impact of higher imported oil [raw material] prices more than offsetting
the benefit of cheaper exports. In
short, if the ECB lowered rates, it would simply be joining in the largely ineffective
global QE circle jerk.
Here is more analysis of the ECB’s
latest non-move and Draghi’s press conference (medium):
Yellen
completed her testimony before the senate without injecting anymore confusion
into the Fed’s monetary policy than was already there. I continue to believe that she is blowing
smoke up all our collective skirts by mouthing easy money while continuing to
taper. What’s more, she will almost assuredly
continue to do so as long as the majority believes her bullshit.
This
is an excellent analysis of Fed policy (or lack thereof) and Market
expectations (medium and today’s must read):
Putin
continues his strategy of world domination (just kidding), re-establishing the
boundaries of the former Soviet Union and garnering the adulation of the
Russian people. Meanwhile, the US dreams
about stopping him by applying sanctions to which the Europeans and likely the
rest of the world will at best pay lip service.
My bottom line remains that Putin will get what he wants, when he wants
it and from whom he wants it.
Latest
from Ukraine:
Bottom line: the
economy continues to plug along; the global central bankers, with the notable exception
of the Chinese, are living in a dream world in which they believe their
policies are not only helpful but can be fine-tuned. While in times past, central bank policies have
been a positive, they certainly aren’t now and fine tuning is a skill these
guys have never learned.
Nonetheless,
investors hang on their every syllable, written or spoken, and, in effect,
create an environment in which not fighting the Fed becomes a self-fulfilling
prophesy. At some point, either the bond
and/or currency markets will call bullshit on QEInfinity or one of the gross mispricing
of asset bubbles will explode in the central bankers’ face. The question is, is
the recent bond market pin action a precursor of the former?
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 the Macro Markets Risk Index (short):
What
kills bull markets (medium)?
The
latest from Marc Faber:
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