The Morning Call
9/16/14
The Market
Technical
The
indices (DJIA 17031, S&P 1984) had another mixed day (Dow up, S&P down;
but the Russell and NASDAQ were weak). The
S&P remained in uptrends across all timeframes; short term (1944-2145),
intermediate term (1915-2715) and long term (762-2014); it also closed above
its 50 day moving average. The Dow
finished within its short term trading range (16331-17158), its intermediate
term trading range (15132-17158), its long term uptrend (5101-18464) and above
its 50 day moving average.
Volume
fell; breadth improved slightly. The VIX
rose, closing above its 50 day moving average (a mild negative). However, it remains within short and
intermediate term downtrends. As long as
that is the case, the assumption is that stocks will continue on the upside.
The
long Treasury was up fractionally, finishing within short and intermediate term
trading ranges and below its 50 day moving average. However, TLT positive performance was not
reflective of the pin action in other fixed income sectors which continue to
get beaten up.
GLD
increased but still closed below the lower boundary of its short term trading
range for the second day. If it remains
there thru the close today, the short term trend will re-set to down. It is already in an intermediate term downtrend
and is trading below its 50 day moving average.
Not much good to say about GLD.
Bottom line: the
Averages traded quietly yesterday. I
assume largely as a function of investors wanting to stay on the sidelines
awaiting the FOMC meeting and the Scottish independence vote. That said, there was plenty of bad news
around (US industrial production along with lousy numbers out of China and the
EU over the weekend). So there was
plenty of excuses to go down. That the
Averages closed basically flat suggests that there is still plenty of support
for stocks. That keeps my technical
assumption intact: the Dow will ultimately successfully challenge the upper
boundaries of its short and intermediate term trading ranges and then along
with the S&P attack the upper boundaries of their long term uptrends.
That said, bonds
are acting sick, ditto oil and gold, ditto emerging market stocks; and US small
caps seem to be joining this crowd. With
all these markets rolling over, one has to wonder when stocks in general will
follow suit.
Our strategy
remains to Sell stocks that are near or at their Sell Half Range or whose
underlying company’s fundamentals have deteriorated.
For
the bulls (short):
Weekly
technical update from Andrew Thrasher (medium):
Fundamental
Headlines
US
economic news yesterday was mixed: the NY Fed manufacturing index was a gangbusters
number; on the other hand, August industrial production was very disappointing. Given that the latter is a primary indicator
and the former a secondary one, the weight of the news was on the negative
side.
Overseas,
Chinese industrial production also came in below estimates.
***overnight,
August Chinese foreign direct investments (i.e. capital inflows) fell 14%.
That
said, investors’ attention was and will remain on the outcome of the FOMC
meeting and the Scottish independence vote.
I covered these subjects last week; but in brief, (1) the focus on the FOMC
meeting will be on a rumored change in language which would suggest a rise in
interest rates earlier than previously expected and (2) investors are concerned
that a Scottish secession could lead to problems in both the Scottish and
English economies, in the Scottish banks and potentially precipitate similar
movements by other independence groups in Europe.
Bottom line: while
the major indices are performing well, the hiccups in the bond, oil, gold and
emerging markets look like warning signs on top of the already growing number
of internal divergences within the Averages themselves. As you know, I think that valuations have
been in nose bleed territory for the last year.
On the other hand, there remains a relentless bid under the Averages;
and for better or worse, that is the dominating factor pricing stocks.
The strong dollar may explain
all of the above (medium and a must read):
As I opined last
week, I believe that a major asset re-pricing is coming; our Portfolios are positioned
for that occurrence; but I have no idea when it happens.
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.
How
often do stocks and bonds decline at the same time (short)?
The
illusion of permanent liquidity (medium):
Investing for Survival from Lance
Roberts
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