Tuesday, November 4, 2014

The Morning Call---I can't make the numbers work

The Morning Call

11/4/14

The Market
           
    Technical

            The indices (DJIA 17366, S&P 2017) paused yesterday---which is actually quite positive when you consider just how dramatically overbought stocks (still) are.  Working off an overbought conditions by sideways backing and filling is a lot less stressful than a sharp reaction. 

The Dow finished above the upper boundary of its short term (15857-17158) for the third day; that confirms the break and re-sets the short term trend to up (15979-18725).  If the Dow closes above 17158 today, the intermediate term trading range (15132-17158) will re-set to an uptrend.   It also ended within a long term uptrend (5159-18521) and above its 50 day moving average.

The S&P closed right on the upper boundaries of its short and intermediate term trading ranges (1820-2019, 1740-2019), within a long term uptrend (775-2032) and above its 50 day moving average.

Volume fell; breadth worsened. The VIX rose, finishing within a short term uptrend, an intermediate term downtrend and above its 50 day moving average.   
 
The long Treasury was down, closing within a very short term trading range, a short term uptrend, an intermediate term trading range and above its 50 day moving average.  

GLD got whacked again, ending below the lower boundaries of its short term and intermediate term down trends, below the lower boundary of its long term trading range and below its 50 day moving average.  If GLD continues to trade below the lower boundary of its long term trading range through the close on Thursday, the long term trend will re-set to down.  It remained within a very short term downtrend.

Bottom line: equity prices’ recess was not surprising, given the extreme overbought condition of the Market.  Since stocks remain very overbought, more consolidation should be expected.  However, if yesterday’s pin action was prophetic in any sense, we could get nothing more than a week of sideways price movement.

Nevertheless, I would use the current spike in prices to Sell stocks that are near or at their Sell Half Range or whose underlying company’s fundamentals have deteriorated. 


            Technical update from Andrew Thrasher (medium):

            More technical analysis from Urban Carmel (medium):

                Stock performance mid-term election week (short):

    Fundamental
 
        Headlines

            Yesterday’s US economic news mostly negative: October light vehicle sales were unchanged, October Markit PMI was slightly below expectations and September construction spending was awful; on the other hand, the October ISM manufacturing index was much better than anticipated.  Nothing terrible here, but nothing to get jiggy about.

            Overseas, the PMI’s from the Eurozone and China were up slightly.  Given my concerns about a faltering world economy, I am more pleased with the marginal improvement in data here than I am upset by the more negative US stats.

            ***overnight, the European commission revised down its forecast for GDP and inflation and revised up its outlook for unemployment.

Bottom line: over the weekend, I spent more time fiddling with our Models in an attempt to find an economic growth, profit growth, inflation and interest rate combo that could deliver an equity valuation that would place the indices at current prices and within normalized historical P/E ratios at, near or even close to Fair Value.  To this point, I simply can’t make the numbers work.

So while I have to concede that I was wrong on the ‘trigger’ event that would prompt investors to a more realistic assessment of stock values, I am still stuck with a richly valued market. 

I have no idea what starts the process of adjusting price to value; I just know that our Models have never been at such odds with reality that a correction didn’t re-set what was a very considerable difference between price and value.

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.

            More bankster fraud (medium):

            The latest from Bill Gross (medium):

            The latest from John Hussman (medium):

            The latest from Marc Faber (medium):

            Update on valuation (medium):
            http://dshort.com/

       Investing for Survival

            The most crucial factor in investing (medium):


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