The Morning Call
9/30/14
The Market
Technical
The
roller coaster ride continued with the indices (DJIA 17071, S&P 1977)
closing down but well off its intraday lows.
The Dow finished within its short (16332-17158) and intermediate
(15132-17158) term trading ranges, a long term uptrend (5148-18484) and above
its 50 day moving average. One note of
caution---it is building a very short term downtrend.
The S&P
ended within uptrends across all time: short term (1965-2156), intermediate
term (1935-2735) and long term (771-2020). Intraday, it touched the lower boundary of its
short term uptrend but then bounced. It also
closed right on its 50 day moving average; and like the Dow, it is in the
process of building a very short term downtrend.
Volume fell;
breadth was terrible. The VIX jumped 8%,
continuing in a very short term uptrend and above its 50 day moving average but
within short and intermediate term downtrends.
It is, however, getting very near the upper boundary of its short term downtrend.
Update on
sentiment (short):
The long
Treasury rallied hard, primarily on international unrest (see below). It finished within its short and intermediate
term trading ranges and above its 50 day moving average.
GLD
was off fractionally, closing within very short term, short term and
intermediate term downtrends and below its 50 day moving average.
Bottom line: the
volatility continues, witness yesterday’s powerful selloff, then major intraday
recovery; and the schizophrenia remains---bonds up, gold down, the dollar down. There was also some pretty violent pin action
in REIT’s and overseas markets. Some of
this can be explained by strains in the international markets; but not all.
The good news is
that the S&P bounced off the lower boundary of its short term uptrend; and
to be clear, however unnerving yesterday’s early morning sinking spell, the
S&P is still up across all timeframes.
So as of the close, all the bearish rhetoric is just that---all talk. The bad news is that both of the indices are
in very short term downtrends. Of
course, it won’t take a huge rally to change all that.
The point of all
this is complacency is probably not good for your Portfolios health at the
moment. Our strategy remains to do
nothing. Although it is not too late to
Sell stocks that are near or at their Sell Half Range or whose underlying company’s
fundamentals have deteriorated.
This
week’s technical review from Andrew Thrasher (medium):
Fundamental
Headlines
Yesterday’s
US economic news was generally upbeat: the September Dallas Fed manufacturing index
was slightly above estimates, August personal income and spending were both up
and in line with expectations, August pending home sales were below
forecasts. As primary indicators, the personal
income and spending numbers were the most important stats. Given the rough run that we have had of late
among the primary indicators, I view them as a victory. But that doesn’t mean that I am any less
concerned, especially till we get through the heavy economic calendar this week.
However,
most of the world was focused on international events yesterday. The most important were the massive protests
in Hong Kong. They are being spawned by
a recent announcement from the Chinese government that was perceived as
reneging on a promise---following the Chinese assumption of control of Hong
Kong, it promised free elections in 2017; but it has now said that it will
determine all candidates in those elections.
Hence, no free elections. Aside
from the sheer size of the protests, the other concerning factor is that they
are over events to occur in three years i.e. if they are this intense now, how disruptive
will they be in a year?
Then
the president of Catalonia promised a referendum on independence on November 9th---which
raised again all the fears associated with Scotland’s independence vote.
***overnight, Japan reported falling household spending and industrial production, China reported a disappointing industrial production number and EU inflation hit the lowest level in five years.
Bottom line: in
the end, I am not sure the situations in either Hong Kong or Catalonia are
going to impact the US economy that much.
So it is not surprising to me that stocks bounced hard intraday. Indeed, I thought that the personal income
and spending numbers were a lot more relevant.
At least they reflect a consumer that continues to seem will to spend;
and we are not apt to get a recession when Americans’ incomes are increasing
and they are willing to spend it.
That said, I continue
to believe that our biggest potential problem is not the economy but rather
mispriced assets. Some of that
mispricing was visible yesterday as foreign assets which have been a favorite
of the carry trade crowd got bitch slapped.
How much longer that may last and how much it impacts our own markets is
an unknown. But make no mistake it will
affect US asset prices because when the margin calls start coming, it is the
liquid assets (US stocks and bonds) not the illiquid ones (emerging market
stocks and bonds) causing the problem that get sold.
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.
Market
indecisiveness (medium):
Investing for Survival
Why
averaging down is not such a good idea (medium):
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