The Morning Call
11/20/14
The Market
Technical
The indices
(DJIA 17685, S&P 2048) ended basically flat yesterday (Dow up slightly,
S&P down a tad). Both remained
within uptrends across all timeframes: short term (16077-18823, 1846-2212),
intermediate term (16053-20153, 1697-2413) and long term (5159-18521,
783-2062). They are also finished above
their 50 day moving averages.
Volume fell; breadth
was really poor. The VIX was up modestly, finishing within a short term
uptrend, an intermediate term downtrend and remained on its 50 day moving
average.
The long
Treasury was down, closing within a very narrow short term trading range, a
short term uptrend, an intermediate term trading range and above its 50 day
moving average. I mentioned yesterday
that the rising dollar was a source of strength for US asset prices.
GLD fell. It ended back below the lower boundary of its
former long term trading range for the second time, clearly demonstrating the
strength of its resistance. That doesn’t
mean that it won’t ultimately be violated; but for the moment, it pushes off
any thought that GLD has bottomed.
Meanwhile, it finished within short, intermediate and long term
downtrends and below its 50 day moving average.
Bottom line: the
Averages paused again yesterday, though they remained well within uptrends across
all timeframes. However, divergences
continue (as the link above shows), breadth is lousy and the S&P is bumping
up against the upper boundary of its long term uptrend. I continue to think that the key technical factor
at this time is how the S&P handles the long term trend’s upper boundary.
Three
lessons on assuming past indicators of market action will work in the future
(medium):
Seasonal
small cap performance (short):
Fundamental
Headlines
More
news on US housing yesterday: both weekly mortgage and purchase applications
were up; October housing starts were disappointing although permits were better
than expected. The latter two numbers
are by far the more important and they depict a housing market that is
struggling just like the entire economy.
***overnight,
UK grocery store sales fell for the first time in 20 years; EU November PMI’s were
down across the board, including Germany: the Chinese Markit November PMI was
lower.
There
was no international news to digest. But
there was plenty happening here to keep the newswires humming. First, the Fed released the minutes of its
October FOMC meeting. Dispensing with
the mind numbing ‘on the one hand’ and ‘other the other hand’ summary of the
discussions, I would characterize the overall theme of the minutes as follows:
we (the Fed) are about to raise interest rates, but we are not sure of the exact
conditions under which we will do so and the global slowdown is really making
us nervous (my translation of the latter point is that it will used as the
crutch not to raise interest rates if conditions are not perfect). Here is a discussion of the full text if you
want to wade through it.
On
the political front, apparently Obama will announce His new executive order on
immigration tonight. Rumors are that it
will extend protection from deportations to 5 million illegals and provide them
with work permits. However, they will
not be eligible for social backstop benefits: healthcare, food stamps, etc.
benefits. Whether you like this or not,
the problems will be (1) no actions are included to secure the border and (2) it
is a step too far [in my opinion] in the expansion and exercise of executive
authority. What the congress, whose
power has been usurped, does about this is anyone’s guess. Mine is, a lot of bluster, little action and
a further loss of freedom for the electorate.
And (medium):
In addition, a senate
panel will investigate commodity price manipulation by JP Morgan and Goldman
Sachs. The crimes are not new news, we
have covered the regulators’ investigation and fines for these misdeeds in
prior notes. What is new is that
congress is starting to take an interest which could potentially lead to additional
penalties. That said, given the massive
influence Wall Street exerts on our political process, nothing is likely to
come out of this save for some showboating by the pols.
Bottom line: the
US economy continues to advance albeit at a tortured pace. Foreign economies
are not nearly so lucky---Japan is a mess and the electorate is now going to be
given the chance to vote on whether they want to go down with the ship; Europe
is also a mess but has too many conflicting constituencies to come up with
coherent, workable monetary/fiscal policies, even assuming that the ruling
class can figure out coherent, workable fiscal/monetary policies which to date
they haven’t.
***overnight
the European Commission is considering fining France for failure to cut its
budget deficit.
On a longer term
basis, that leaves US corporate profit growth at risk and as a result the
dollar’s current competitive advantage of being the best house on a lousy
block. While seasonal biases will be
around for another 45 days, stocks are still having to fight other difficult
and longer lasting technical problems.
Over all of this,
hangs a really poor price/value equation which sooner or later will likely be
rectified. And given the magnitude of
the downside when, as and if it does occur, it seems reasonable to me that
portfolio protection makes sense.
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.
Current
asset allocation among fund managers (medium and a must read):
Investing for Survival
Building
in a margin of safety (medium):
No comments:
Post a Comment