The Morning Call
6/10/14
My busy schedule continues. We leave bright and early for number one
grandson’s high school graduation. No
Morning Calls or Closing Bell for the rest of the week.
The Market
Technical
The
indices (DJIA 16943, S&P 1951) continued their relentless advance, though
yesterday was more of a baby step. They closed
above their 50 day moving averages and in uptrends across all time frames: short
(16045-17524, 1868-2035), intermediate (16170-20527, 1813-2613) and long (5081-18193,
757-1974).
Volume,
as usual, was anemic; breadth mixed, although the flow of funds indicator continues
quite strong. The VIX rose but it is
developing a very short term downtrend and remains within short and
intermediate term downtrends. It is also
below its 50 day moving average.
The
long Treasury again finished in a technically precarious position. It closed below the lower boundary of its
former very short term uptrend and the upper boundary of its former
intermediate term downtrend. Further, it
is sitting right on the lower boundary of its short term uptrend. The point here is that it has fallen below
levels broken in a recent run up in price, raising the question of a head
fake. As you know, I have of late lamented
the confusing, somewhat contradictory performance of bonds. While the pin action the last week is
suggesting that the equity and fixed income investors may be getting back in
sync, we are witnessing an even more unusual occurrence---the bonds of
financially weak European countries (Spain and Italy) are now trading at yields
BELOW US Treasuries of comparable maturities.
I have no idea what to make of all these disconnects. I am sure that in the fullness of time, we
will know.
GLD
(120.65) was up fractionally, but remains solidly within very short term, short
term and intermediate term downtrends and below its 50 day moving average. It is nearing the lower boundary of its long
term trading ranges (114.4) which should provide much needed support; but I wouldn’t
bet money on it.
Bottom
line: the Averages continue to work off
an overbought condition exactly as the bulls would want---doing little and
letting time relieve the problem. That
is not too big a surprise in as much as the Markets got what they wanted last
week (ECB easing and a decent nonfarm payrolls number) and this week is dead in
the water with little news, economic or otherwise, expected. So the Market has a peaceful easy feeling about
it and in the absence of some truly unexpected negative surprise, the Averages remain
on track to challenge the upper boundaries of their long term uptrends. Indeed, all the happy talk now is about the
indices busting through the ‘round number’ barriers (Dow 18,000/S&P 2000).
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.
Are
we near a blow off top? (medium):
Chart
of the day (short):
The
S&P just broke another record (short):
For
the bulls:
Fundamental
Headlines
To
be brief, there were no headlines save the steady wave of corporate
takeovers. Of course, that in itself
could be interpreted very positively.
After all if corporate America believes itself cheap, why shouldn’t we
all? The answer lies in the currency
being used to make said takeovers. If
company A’s stock is overvalued, why wouldn’t company A use that paper to go
buy a company or assets cheaper than it could ever build those same
assets. As long as stocks are overpriced
this activity can go on forever, driving stock prices even higher. I hate to mention that this type of activity
picks up and eventually culminates as part of the feeding frenzy characteristic
of Market blow offs.
Bottom line: I
am not suggesting that we are in or about to be in a Market blow off. I am listing one more factor that should make
you take a tighter grip on your money. I
know that it is painful not being fully invested when stocks are acting as they
presently are. And it is disconcerting
having no idea when this merry-go-round ends.
But end it will. I am content to
suffer an opportunity cost today to avoid being trampled on the way out the
door when the music does end---if this current low volume tells us nothing, it
is that when it picks up and everyone is hitting the bid, prices are likely to
decline very rapidly.
Fundamentally,
nothing has changed. ECB’s actions last
week were a day late and dollar short. Economic
conditions are not improving in China or Japan, though admittedly, there has
been radio silence out of Ukraine (oops, overnight it was announced that they
failed to reach agreement on the new gas contract---not good if you are
Ukrainian and cold); and while the US keeps on, keepin’ on, this more favorable
outlook is already well reflected in stock prices.
Multiple
copper re-hypothecation scandal spreads to second port (medium/long but a must
read):
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.
Another
great article by Lance Roberts (medium):
The
latest from John Hussman (medium):
The
latest from Jim Grant (medium):
Subscriber
Alert
In
a periodic review of Ecolabs (ECL) it failed to meet the financial hurdles for
inclusion in the Aggressive Growth Universe.
Hence, it is being Removed from the Aggressive Growth Universe and will
be Sold by the Aggressive Growth Portfolio at the Market open.
However,
it did continue to meet the standards for inclusion in the Dividend Growth Universe
and will remain. The Dividend Growth
Portfolio does not own ECL.
Investing for Survival
Bonds
have a role in your portfolio (medium):
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