The Morning Call
10/1/14
The Market
Technical
The
indices (DJIA 17042, S&P 1972) drifted lower yesterday. 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. Intraday, it rose and touched
the upper boundary of the very short term downtrend that I mentioned in
yesterday’s Morning Call, but failed to penetrate it and fell back.
The S&P
ended within uptrends across all time: short term (1965-2156), intermediate
term (1935-2735) and long term (771-2020).
Like the Dow intraday, it touched the upper boundary of a very short
term downtrend and retreated. It also
fell below its 50 day moving average.
Volume rose
while breadth was poor. The VIX was up
again, staying within a very short term uptrend and above its 50 day moving average. It inched closer to the upper boundary of its
short term downtrend and remained well within an intermediate term downtrend.
The
long Treasury declined, finishing within short term and intermediate term
trading ranges and right on the lower boundary of its newly formed very short
term uptrend. It remained above its 50
day moving average.
GLD
continues to pounded, closing within a very short term, short term and
intermediate term downtrends and below its 50 day moving average.
Bottom line: the
volatility remained but the schizophrenia took a break because almost
everything was down---stocks down, bonds down, gold down, commodities down, REIT’s
down, foreign stocks down; but the dollar was up.
The major Averages
are holding on to their primary trends though virtually everything else is
breaking short and/or intermediate term trends.
As I keep saying, these divergences can resolve themselves either by the
weak entities strengthening or the strong weakening. The only problem is that the list of weak
performers keeps growing while the strong ones are shrinking.
That said, until
there is a resolution to this dichotomy of price action, it would be foolish,
in my opinion, to be making any bets of any size save continuing to pursue the
strategy that we have been following for the last year and a half: 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.
The
latest from Stock Traders’ Almanac (short):
Fundamental
Headlines
Yesterday
was not a good one for headlines of any kind.
US economic data was disappointing---weekly retail sales were mixed, the
July Case Shiller home price index was below expectations as were September
Chicago PMI and the September index of consumer sentiment.
International
stats were no better: Japanese household spending and industrial production
were well below estimates, Chinese industrial production was less than
anticipated and the EU CPI was the lowest in five years.
***overnight
German and EU PMI scored losses; and Draghi announced plans to buy junk rated
Greek and Cypriot bonds---oh, yeh, this is going to end well.
None
of this makes me feel any better about our forecast. As you know, my primary concern has been a
weak global economy infecting our own; and we got numbers supporting both
yesterday. And just to be clear, weak
foreign economies aren’t the only thing that can impact US data---a strong
dollar plays merry hell with corporate profits--- remember, roughly one half of
US corporate profits come from overseas.
Finally,
we got a wild card news event after the close---the first Ebola case in the US
was reported. I don’t know how this will
be received by investors; but the good news is that I won’t have to wait long
to find out. We will know by the close
today.
Bottom line: yesterday’s
data fed my concerns about the global economy and its potential impact on our
own. The only thing giving me hope right
now is that we got a couple of upbeat primary indicators in the last week that
offset a string of really lousy ones. Hope, of course, is not an investment strategy;
and as long as we keep getting poor numbers, it is not even a realistic
sentiment.
The other thing
that is bothersome is the chaos in the Markets right now. Yes, all appears well if one only looks at
the major indices. But digging deeper, a
number of markets are getting crushed; and even worse, there seems to be no single
logical economic/political scenario that explains the sum of all this action. The only thing that makes sense to me is that
investors in general are starting to run for the exit for no reason other than
risk reduction. Since I am more worried about mispriced assets
than I am about the economy, this only makes me that much more skittish.
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.
No comments:
Post a Comment