The Morning Call
9/23/14
The Market
Technical
The
indices (DJIA 17172, S&P 1994) has a rough day. The Dow did manage to close above the upper
boundary of its short term trading range (17158) for the requisite time
period---though not by much. I am going
to re-set the short term trend to up (16608-19000). It must close above 17158 today to re-set
the intermediate term trend to up.
However, if today, DJIA has another day like Monday and finishes well
below 17158, I will crawfish on the short term call and leave it as a trading range. The Dow is still above its 50 day moving
average.
The
S&P remained in uptrends across all time frames: short term (1955-2146),
intermediate term (1922-2722) and long term (771-20200.
Volume
was below last Thursday’s (Friday quadruple expiration doesn’t count); breadth
continued to deteriorate. The VIX spiked
13% and ended above its 50 day moving average; however, it remains within short
and intermediate term downtrends.
The
long Treasury was up fractionally; so the initial pounding it took following
the FOMC meeting seems stalled at the least.
It finished within short and intermediate term trading ranges and above
its 50 day moving average.
GLD
(116.50) can’t catch a break. It was off
again, closing within short and intermediate term downtrends, below its 50 day
moving average and near the lower boundary of its long term trading range
(114.40).
Bottom line: despite
yesterday’s sell off the Dow still finished above the upper boundary of its
short term uptrend for the time stipulated by our time and distance
discipline. Hence, I re-set the short
term trend to up; although if the DJIA mirrors Monday’s performance today, I will
return the short term trend to a trading range.
I will observe
again that following the post-FOMC dichotomy of stocks up (easier Fed) and bonds
down (tighter Fed) performance, the trade has reversed in the last two trading
days, i.e. stocks down, bonds up.
I am no less confused
than I was on Saturday---although stocks down and bonds up fit with my number
one risk scenario---global economic slowdown/recession. However, as I noted, it is too soon to make
any changes in our forecast.
Our strategy
remains to Sell stocks that are near or at their Sell Half Range or whose
underlying company’s fundamentals have deteriorated.
From
a long time bull (short):
Fundamental
Headlines
US
economic data was not good: the August Chicago National Activity Index
registered a negative reading versus estimates of a positive one; further
August existing home sales fell versus expectations of a slight rise. That doesn’t inspire confidence after the
disappointing industrial production and housing starts stats last week.
Not
helping matters was a host of lousy developments overseas: ‘(1) Japan announced that it intended to go ahead with the second step
of raising its consumption tax [which re-begs the question, what are these guys
thinking about?], the Bank of China stated there would be no more monetary
easing [remember, they lie a lot], (3) the ECB said it may not do anymore
easing, given that its first try was a bust, and (4) the global leading
economic indicator just did a triple back flip with a two and one half twists
in the pike position.’
More
problems for China (medium):
More
problems from a continually weakening yen (medium):
***overnight,
September European PMI’s were down, again; however, the Chinese PMI rose.
As I noted above, it is
too soon to start wringing our hands; but the longer this string of poor
numbers goes on, the closer we get.
Bottom line: the
negative economic data from around the global continues unabated. As you know, I think this is now the major
threat to our own progress.
Unfortunately, whether coincidentally or not, the US has hit its own
rough patch in the stats defining its recovery.
For the moment, I am not going to blow this into a dire scenario. Although some upbeat economic news would
certainly ease my concerns. We still
need at least another two to three more weeks of convincing (poor) data before I
alter out forecast. But the yellow light
is flashing.
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 Mauldin (a bit long but a must read):
Subscriber Alert
I
will take luck over skill any day.
Yesterday, Sigma Aldrich (SIAL) received an offer from Merck (Germany)
and the stock popped about 33%. That is
a gift. At the Market open this morning,
the Dividend and Aggressive Growth Portfolios will Sell their positions.
Investing for Survival
Stay
humble and grow wealthy (medium):
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