The Morning Call
6/4/13
Just a reminder that I have a
cataract operation on my second eye tomorrow.
I don’t have a surgery time yet.
If it is late, then there will be a Morning Call. If early, no.
There will be no Morning Call on Friday and no Closing Bell.
The Market
Technical
The
indices (DJIA 16772, S&P 1924) rested yesterday, closing above their 50 day
moving averages and in uptrends across all time frames: short (16021-17500, 1859-2026),
intermediate (16162-20519, 1808-2608) and long (5081-18193, 748-1960).
Volume
was up, but only marginally; breadth was poor.
The VIX rose but remains within short and intermediate term downtrends
and below its 50 day moving average.
The
long Treasury fell again, this time closing below the lower boundary of its
very short term uptrend. It remained
within its short term uptrend and intermediate term trading range and above its
50 day moving average. It is too early
to be questioning whether the combination of a retreat back below the upper boundary
of its former intermediate downtrend (remember it negated that downtrend and
re-set to a trading range) plus the potential break of the short term uptrend (1)
are setting up the break of the intermediate term downtrend as a head fake and
(2) constitute the beginning of a major trend reversal. If so, it would make a lot sense technically,
in that, it would put the bond and stocks markets back in sync more or less. I am not saying that this is occurring; I am
just saying it is something to watch.
GLD
finally got an uptick. Nevertheless, it
remains within very short term, short term and intermediate term downtrends and
below its 50 day moving average.
Bottom line: the Averages rested yesterday; but that was
to be expected in that they are pretty overbought. Certainly, there was nothing to suggest that
our base assumption isn’t intact: the indices will assault the upper boundaries
of their long term uptrends but fail to break above them. If anything, the rather abrupt turnaround in
the bond market could be hinting at a stronger economy and, thereby, provide
support for at least the initial part of that forecast (i.e. the challenge of
the long term uptrends).
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,
the US economic data was fairly upbeat: weekly retail sales were up while April
factory orders and May light vehicle sales were better than anticipated. It is nice to have a day like this in which
solid improvement is evident in a couple of major indicators (factory orders
and vehicle sales). Clearly, it leaves
our outlook intact and takes some of the sting out of last week’s data.
Little
else of note occurred. There were
several relevant articles on issues dealing with some of my concerns:
Hilsenrath
on the Fed’s anger (incompetency) (medium and a must read):
More
perspective on the recent EU elections (medium):
http://www.nakedcapitalism.com/2014/06/mathew-d-rose-european-politicians-read-handwriting-wall.html
Latest from
Ukraine:
And finally, what
is fast becoming the most talked about event: Bergdahl’s return.
Bottom line: all
is quiet on the western front. While the
potential exists that any one of the multiple worries I stew over every day
could blow up in our collective faces, no one seems concerned. This wouldn’t be all that bad if stocks were
at least near Fair Value (S&P 1455).
But the combination of generously valued equities and problems that
could force a significant revision to Street earnings estimates is like going
to bed with a stick of dynamite stuck up my ass. Nothing may happen; but it sure makes me
nervous.
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.
For
the bulls: there is no bubble (medium):
And
this perhaps more analytical approach (medium):
On
the other hand, the increasing willingness to accept decreasing quality in the
search for yield (medium):
Wednesday
morning humor (short):
http://www.ritholtz.com/blog/2014/06/why-are-treasury-yields-falling/
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