The Morning Call
7/22/14
The Market
Technical
After
an early morning selloff, the indices (DJIA 17051, S&P 1973) meandered at
lower levels the rest of the day.
Nonetheless, they finished above their 50 day moving averages and within
uptrends across all time frames: short (16202-17681, 1914-2080), intermediate
(16593-20891, 1854-2654) and long (5083-18464, 762-1999).
Volume
re-set to the lower levels that prevailed prior to last week’s heavy trading;
breadth was poor. The VIX rose,
confirming the break of the upper boundary of its very short term downtrend. It remains below its 50 day moving average
and within short and intermediate term downtrends.
The
long Treasury was up, breaking back above the upper boundary of its short term
trading range. A finish above this level
on Wednesday will confirm the break. TLT
is above its 50 day moving average and within an intermediate term trading
range.
And
(short):
GLD
increased, closing above its 50 day moving average, within a short term trading
range and an intermediate term downtrend.
Bottom line: as
expected, last Friday the Averages regained the loses sustained on Thursday as
investors realized that Israel/Gaza and the downing of MH17 were circumstances
that would likely remain contained and the Fed was still there as a back stop
if something untoward occurred. Over the
weekend, both situations worsened and that resulted in an early selloff. But once again, calm returned and the ‘buy
the dip’ crowd responded as it has for the last five years.
As long as that ‘buy
the dip’/’the Fed has your back’ mentality prevails, a bid will remain under
the Market. I think that the current
round of negative geopolitical risks will make any advance harder than it might
otherwise have been. But at this moment,
there seems little reason to assume that investor psychology is going to
change.
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.
The
diverging pin action of the large versus the small cap stocks (short):
Technical
update from Andrew Thrasher (medium):
Fundamental
Headlines
Just
one US economic datapoint yesterday: the Chicago Fed National Activity Index
came in below expectations. While not
alarming in and of itself, it does add to the portrait of a weakening economy
painted last by a series of disappointing stats from primary indicators. Clearly, it offers no reason to become less
concerned.
The
rest of the news flow was focused on international events: the growing fatality
rate in Gaza, the he said, he said back and forth over responsibility for the
destruction of that civilian airliner over Ukraine and a renewal of military successes
by ISIS in Iraq/Syria.
The latest on
the downing of MH17 over Ukraine (medium):
The latest from
Iraq (medium):
Bottom line: the
trend of poor US economic data from last week spilled over into yesterday’s report. It is still too soon to alter our forecast;
but at some point, we need some positive stats to retain out outlook. In the meantime, stocks are overvalued on our
own optimistic scenario. Clearly, they
will be even more so if economic growth starts to slip.
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 Doug Kass (medium):
The
latest from John Hussman (medium):
No comments:
Post a Comment