Tuesday, November 18, 2014

The Morning Call & Subscriber Alert--Stocks had plenty of reasons to sell off

The Morning Call

11/18/14

The Market
           
    Technical

The indices (DJIA 17647, S&P 2041) had another quiet day, lifting slightly; but they have succeeded in unwinding their overbought condition.  Both closed within uptrends across all timeframes: short term (16053-18810, 1846-2212), intermediate term (16053-20153, 1697-2413) and long term (5159-18521, 783-2056).  They are also finished above their 50 day moving averages.

Volume fell; breadth was weaker. The VIX rose, ending within a short term uptrend, an intermediate term downtrend and right on its 50 day moving average.   

The long Treasury declined, 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 was lower, finishing within short, intermediate and long term downtrends and below its 50 day moving average.  It retreated from the lower boundary of its former long term trading range---so on GLD’s first try to regain this level, it proved itself as resistance.

Bottom line: yesterday’s quiet rise was more significant than the magnitude of move itself because it did so in the face of the lousy economic data (see below)---another promising sign of strong underlying momentum.  On the other hand, as I noted previously the S&P is near a formidable barrier (upper boundary of its long term uptrend) which historically has acted, at a minimum, as a governor on the rate of any future upward price movement.
           
            More on the Santa Claus rally (short and a must read):

    Fundamental
 
            Yesterday was a rough day on the news front: in the US, October industrial production was very disappointing while the NY Fed manufacturing was modestly below forecasts.  Overseas, Japanese third quarter GDP fell 1.6% which put it officially in a recession; and Putin warned that he would not allow rebels in eastern Ukraine to be defeated by government forces.

            ***overnight, Abe officially delayed the second tax increase.  He also dissolved parliament and called for elections later this month; and he proposed new fiscal spending measures---with the Japanese debt/GDP ratio at 220%, another stellar idea from the Japanese ruling class.
           
Bottom line:    so stocks had all excuses they needed to sell off.  But of course, as I remind you daily, they have had plenty of reasons to sell off for the last year plus.  On the other hand, we still have ‘money for nothing’ and corporate profits have yet to roll over.  Plus the seasonal bias keeps investors optimistic.  Nonetheless, our strategy remains the same---when a stock’s price moves into its Sell Half Range, our Portfolios will act accordingly.

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 on valuation (medium):
           
            The latest from JP Morgan (medium):

            Deutschebank exiting a portion of its derivatives trading activities (medium):

                Carl Icahn on the Market (short):

       Subscriber Alert

            The ETF Portfolio will at the open this morning Buy a 25% position in First Trust Multi-Asset Diversified Income ETF (MDIV) which tracks an index comprising dividend-paying equities (25%), REITs (20%), preferred securities (20%), MLPs (20%) and a high-yield bond ETF (15%).  MDIV differs from some competitors in that it takes direct positions in securities for 4 of the 5 asset buckets and relies on an ETF (iShares’ HYG) only for its junk bond exposure. This overall structure reduces diversity somewhat within each bucket and places an emphasis on bottom-up security selection rather than top-down allocation. That said, MDIV’s overall allocation favors nontraditional assets (MLPs, REITs) more than some competing funds, which could give it the diversification edge in the context of an investor’s portfolio. Judging by AUM, investors love what they see, and liquidity is strong too. MDIV’s fee may sound steep next to some plain-Jane equity ETFs, but represents low all-in costs in the multi-asset income space. Its current yield in 5.76%

       Investing for Survival

            Don’t buy expensive stocks (short):

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