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):
http://thefatpitch.tumblr.com/post/101504865566/a-bounce-seen-just-twice-before-in-75-years-equities
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):
Investing for Survival
The
most crucial factor in investing (medium):
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