The Morning Call
7/8/14
The Market
Technical
Yesterday, the
indices (DJIA 17024, S&P 1977) paused to digest last week’s gains. They remain above their 50 day moving
averages and within uptrends across all time frames: short (16145-17624,
1901-2068), intermediate (16422-20781, 1843-2643) and long (5083-18464,
762-1999).
Volume fell;
breadth was really terrible---much worse than seems normal for small down
day. The VIX popped 10%, but remained
within very short term, short term and intermediate term downtrends and below
its 50 day moving average
The long
Treasury recovered some of its losses from last week, bouncing off what is the
lower boundary of its new short term trading range. However, it remained below its 50 day moving
average. It is also within an
intermediate term trading range.
GLD was off
fractionally. While it is in a very
short term uptrend and above its 50 day moving average, it is in a short term
trading range and an intermediate term downtrend.
Bottom line:
yesterday’s quiet down day was to be expected after last week’s robust
performance. Volume was low, as you
might think, though I was struck with how very poor the breadth numbers
were. I have no idea whether that is a
sign of things to come; but until we get some serious whackage to prices, it is
best to assume that it was an outlier.
So my expectation remains that the Averages will assault the upper
boundaries of their long term uptrends.
That said, the
pin action in the bond and gold markets continues to create enough uncertainty
that I don’t think an upside spike is in the offing. As I noted in last weekend’s Closing Bell,
our ETF Portfolio did lighten up on its bond position, but I have done nothing
with GLD.
As far as stocks are concerned, 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.
Update
on sentiment (short):
Fundamental
Headlines
No
economic releases yesterday. That starts
a week that will be very light on economic data, save the release of the
minutes of the last FOMC meeting---which I am sure will be entertaining and
regale the masses.
With
the ruling class on break, there is also not likely to be much news
domestically except for the usual election posturing.
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 latest from John
Hussman (medium):
Systematic
suckers (short):
An
interview with three legendary investors (medium):
The
Buffett indicator (medium):
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