The Morning Call
10/16/14
The Market
Technical
The
indices (DJIA 16141, S&P 1862) took a ride on the Wild Mouse
yesterday. The Dow remained below the
lower boundary of its short term trading range (16331-17158) for the third day. That confirms the break of its short term
trading range, re-setting to a downtrend (15802-16933). If finished within an
intermediate term trading range (15132-17158) and a long term uptrend
(5148-18484). It also ended below its
200 day moving average.
The S&P
closed below the lower boundary of its newly re-set short term trading range
(1904-2019) for the third day. That
confirms the break of this range and re-sets it to a downtrend (1818-1951). It also finished within an intermediate term
trading range (1740-2019), a long term uptrend (771-2020) and below its 200 day
moving average.
Volume was up
big; breadth was terrible. The VIX soared,
ending above the upper boundary of the newly re-set short term trading range
for a third day. This confirms the break
and re-sets the short term trend to up.
It also closed back above the upper boundary of its intermediate term
downtrend. That re-starts the clock on
our time and distance discipline; if it remains above this boundary through the
bell on Monday, the intermediate term trend will re-set to a trading range. It
also finished above its 50 day moving average.
The
long Treasury was up. Intraday, it
spiked through the upper boundary of its intermediate term trading range but
close back below it. That leaves it in
very short term and short term uptrends, an intermediate term trading range and
above its 200 day moving average.
And
(short):
GLD
rose, closing within a very short term trading range, short and intermediate
term downtrends and below its 50 day moving average.
Bottom line:
lousy economic news coupled with margin calls got the ball rolling to the
downside yesterday despite its already oversold condition. When prices hit their depths of the day, that
oversold state exerted itself and we got a decent intraday rally.
I would not be
surprised to see a follow through to the upside on a very short term
basis---remember rallies in down markets can be quite vicious. However, this Market is breaking---witness
all the re-sets described above; and nothing in the pin action looked like
capitulation. Hence, it seems poised to
go lower. Therefore, I would resist any
temptation of spend cash and if we do get a lift in the Market, I would be
lightening up on all positions that are overpriced or the underlying company’s
fundamentals are deteriorating as possible sale candidates.
Rocky
October’s followed by solid November/December’s (short):
Fundamental
Headlines
Not
a great day in US economic stat land: weekly mortgage applications rose but
purchase applications dropped, September PPI was down, September retail sales
fell and ex autos and gas, they were
negative and the October New York Fed manufacturing index was substantially
below expectations. Not great news for
the economic recovery dream weavers; but also not good for our own sluggish
growth outlook. If this weakness
continues to be reflected in poor September housing, industrial production,
personal income and spending numbers, then I will likely have to lower our
forecast.
Finally,
perhaps to make matters worse, the latest Fed Beige Book stuck with its modest
recovery theme, suggesting that there is nothing obvious in these anecdotal
data to warrant a reversal of current policy.
Overseas,
the news wasn’t any better: Chinese inflation was reported at a five year low
(not good amidst fears of disinflation/deflation concerns); and a former
director of the Bank of Japan said that it was time to taper (that’s got cause
some heartburn).
Meanwhile,
Germany made clear that it was not softening its austerity stance (medium):
Then
Putin piled on (short):
Bottom line: disappointing
news was the theme of the day yesterday---the preponderance of which reinforced
my primary worry about our forecast, a weakening global economy. Throw in a third Dallas Ebola victim, soaring
bond prices, saber rattling out of Russia and a potential busted risk arb deal,
the scata really hit the fan, followed by the margin clerks.
It certainly
appears that the buy the dippers are a thing of the past, that the underlying
theme of the Market is now in flux (I don’t know what it is but I know what it
is not---don’t fight the Fed) and the Market internals are in disarray. Unfortunately, as witnessed by yesterday’s
aforementioned news flow, the fundamentals, which have never been great, are likely
becoming worse. And most important,
valuations remain well north of Fair Value though admittedly less so than a
month ago.
My
bottom line is that for current prices to continue 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.
Conditions
have changed (medium):
For
the optimists (medium):
MLP’s
getting crushed. Time to Buy?
Subscriber Alert
Two
more stocks entered their Buy Value Ranges yesterday and, accordingly, are
being Added to our Buy Lists. As a
reminder, our Portfolios are not Buying at this time. They are: Proctor and Gamble (PG-$83) is
being Added to the Dividend Growth Buy List and Petsmart (PETM-$65) is being
Added to the Aggressive Growth Buy List.
Investing for Survival
The
four most important words in investor lexicon (medium):
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