The Morning Call
1/7/15
The Market
Technical
The indices (DJIA 17371, S&P 2002) closed
down big again but nowhere near their intraday lows. Hence, they remained below their 50 day
moving averages. However, they are still
within uptrends across all timeframes: short term (16344-19144, 1889-2251),
intermediate term (16344-21509, 1727-2343) and long term (5369-18860,
783-2083).
Volume
fell; breadth was mixed. The VIX rose but
still finished within its short term trading range (though it is nearing the
upper boundary of that trading range) and intermediate term downtrend.
The
predictive power of the first two trading days of January (short):
The
long Treasury (circa 131) soared again and continues in uptrends across all
timeframes. It is approaching the upper
boundary of its long term uptrend (circa 140).
As it nears that boundary, it will face the same technical problem as
stocks, especially the S&P, do today.
GLD
was also up, closing within a very short term uptrend, a short term trading
range and an intermediate term downtrend.
Bottom line: based
on the above link on the first two trading days of January, stocks are off to
an ominous start to the year. However,
there remains the first five trading days and the full month indicators to
complete before getting too beared up, technically speaking. Further, the Averages remain firmly within
uptrends across all timeframes. On the other hand, both are below their 50 day
moving averages and the pin action in both TLT and GLD are not endorsing a
strong equity scenario. Clearly, it is a
technically muddled picture and, therefore, a time to be cautious.
Fundamental
Yesterday’s
US economic data was weak on balance: the December Markit service index and
November factory orders came in below forecasts, weekly retail sales were mixed
while the December ISM nonmanufacturing index was better than anticipated. Not the kind of numbers that I would like to
see but nothing unexpected in the context of a sluggish economic recovery.
Overseas,
December EU composite PMI came in below expectations while December Chinese
services PMI was better than estimates. Though
this is not a lot of data, I view a day of mixed international economic results
as a relative positive---given the recent flow of stats.
***overnight,
the December Eurozone CPI fell 0.2%; November Italian unemployment rose to
13.4%, EU to 11.5% while German unemployment declined slightly.
However,
the Greek/EU standoff and declining oil prices remained foremost in investors’
minds:
An
excellent but simple explanation of the Greek dilemma (medium):
More
(medium):
And
(medium):
German
newspaper reports government worried about effects of Greek exit of EU
(medium):
David
Stockman on ECB monetary policy (medium and a must read):
Declining
oil prices---too much of a good thing? (medium):
Bottom line: Greece,
oil prices and the strong dollar continue to weight on the Market. It is too soon to know whether or not these
just are short term concerns that provide a justifiable reason for some consolidation.
However, I have long argued that sooner
or later all the greater fools will own all the stock that they can and then
some event will reverse the process that has driven stock prices into nosebleed
territory. That said, I have no clue if
one of the aforementioned factors represent such a pivotal event. What I do know is that the risk of an
explosive sell off remains based on current valuations. All that is needed is a match.
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
from Jeff Gundlach (medium and today’s must read):
More
on valuation from Lance Roberts (medium):
The
latest AAII asset allocation survey (short):
The
latest from Bill Gross (medium):
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