The Morning Call
9/11/14
The Market
Technical
The
indices (DJIA 17068, S&P 1995) rebounded yesterday. The S&P remained in uptrends across all
timeframes; short term (1941-2142), intermediate term (1904-2704) 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
rose, though it is still at anemic levels; breadth improved. The VIX fell, closing back below its 50 day
moving average---a slight plus for stocks.
It remained in short and intermediate term downtrends.
The
long Treasury declined, finishing below the lower boundary of its short term
uptrend. Under our time and distance
discipline, if it trades under that trend line through the close on Friday, TLT
will confirm the break and re-set to a trading range. It remained within its intermediate term
trading range and above its 50 day moving average.
So TLT appears to be joining other technically
weak segments of the fixed income market.
A
look at the charts of the two year and five year notes (short):
This
pin action makes no sense if investors are worried about (1) global recession
or (2) a significant geopolitical event [Russia/Ukraine or ISIS]. Poor performance of gold backs that up. What would drive both gold and bond prices
down (yields up)?
Fears of a Fed
interest rate hike seems like the most logical explanation; and indeed the
media/pundits debated all day long about a potential change in Fed language
(i.e. moving forward the timing of an interest rate hike) at its meeting in
October.
Could be;
although my thinking was that the sluggish economic data flow from the rest of
the world would give the Fed pause because of the potential spill over effect
on the US economy. Don’t get me wrong. If the Fed starts raising interest rates
sooner than expected, I am good with that.
I just wouldn’t expect it given Yellen’s dovish proclivities.
In any case, the
pin action in the bond market is causing some confusion, calling into question
the global QE forever thesis among the stock guys. I don’t know how this works out; and that has
the yellow Market light flashing.
As I noted
above, GLD was down (again). It is very
near the lower boundary of its short term trading range, is well within an
intermediate term downtrend and is below its 50 day moving average.
Bottom line: the
Averages bounced back yesterday from a modestly oversold condition, showing us
that the bid under the Market remains firm.
Despite a growing number of divergences, the facts that the Averages remain
out of sync and the Dow has been unable to successfully challenge the upper
boundaries of its short and intermediate term trading ranges, this momentum
seems strong enough to push the DJIA through the upper boundaries of its short
and intermediate term trading ranges.
The only thing that could prevent that from happening being that the
bond market is indeed starting to discount something untoward that the rest of
us just aren’t seeing.
That aside, it
seems likely that the indices will attack the upper boundaries of their long
term uptrends but with even odds at best that this challenge will be
successful.
Our strategy
remains to Sell stocks that are near or at their Sell Half Range or whose
underlying company’s fundamentals have deteriorated.
Fundamental
Headlines
Yesterday’s
US economic data were slightly negative:
weekly mortgage and purchase applications were down and wholesale
inventories fell. The bright spot being
that wholesale sales increased. Not
great news but nothing damaging to our forecast.
As
I noted above, there was a lively discussion in the media about a potential
change in Fed language (policy) viz a viz tightening at the upcoming FOMC
meeting in October. What spawned the
debate were comments by CNBC economist Steve Leisman. I have never considered him a great Fed
policy forecaster; so I am not sure how much credence to afford it. Certainly the bond market acted there was a
high probability that this might occur.
For the moment, I am on the sidelines on this issue.
The
rest of the news flow consisted of more hand wringing over the
Russia/EU/Ukraine conflict/sanctions and the possible Scottish secession from
the UK. Here is the latest:
More on the
potential consequences of Scottish secession (medium):
And
(medium):
` Russian retaliation to EU sanctions
begins (medium):
Plus:
***overnight, Chinese PPI and CPI
came in below expectations.
Bottom line: the
buyers were back yesterday as they have been for the last four years; so my
scenario of the Dow re-setting its short and intermediate term trends to up and
both indices challenging the upper boundaries of their long term uptrends
appears to be on track. That said, I am
confused about the current pin action in the bond market; and I think that it
could be portending a potentially negative exogenous event---the operative word
being ‘confused’.
Of course, our
Portfolios are set for a sell off. So
being confused is not the same thing as being worried about the integrity of
our Portfolios’ principle.
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.
What is happening with
Dr. Copper? (medium):
Subscriber Alert
As
part of our ongoing research process, our holdings in the oil industry were
reviewed this week. Two of our holdings:
(1) Murphy Oil (MUR) in the Dividend Growth Portfolio and (2) Holly Frontier
(FTO) in the Aggressive Growth Portfolio failed to meet the minimum fundamental
criteria for inclusion in their respective Universes. Accordingly, both companies are being Removed
from those Universes and both stocks will be Sold at the Market open.
In
addition, our ETF Portfolio will Sell roughly 10% of its long bond position.
Investing for Survival
Great
11 minute video with Howard Marks discussing market risk.
No comments:
Post a Comment