The Morning Call
1/22/15
The Market
Technical
The huge
intraday swings continue; but still the indices (DJIA 17515, S&P 2022), closed
up only modestly and remained within uptrends across all timeframes: short term
(16443-19215, 1905-2886), intermediate term (16464-21619, 1732-2446) and long
term (5369-18860, 783-2083).
The Averages finished
back above the lower boundary of those pennant formations, suggesting that last
Wednesday/Thursday’s plunge was a false flag.
In addition, the S&P closed right on the upper boundary of its
pennant pattern. If that barrier is
successfully breached it makes moot the question over whether the lower boundary
was effectively broken.
Volume
fell; breadth improved. The VIX was
down, remaining within a very short term uptrend, a short term trading range,
an intermediate term downtrend and above its 50 day moving average.
The
long Treasury took a hit, ending on the lower boundary of its a very short term
uptrend, back below the upper boundary of its short term uptrend above the
upper boundary of its intermediate term uptrends, within its long term uptrend
and above its 50 day moving average. The
much needed consolidation of TLT seems to have begun. http://blog.stocktradersalmanac.com/post/Bonds-Are-the-Most-Overvalued-Asset-Class-SPY-TLT
GLD
rose again, closing in a very short term uptrend, a short term uptrend and
above the upper boundary of its intermediate term downtrend for the fourth day.
Under our time and distance discipline,
the intermediate term trend re-sets to a trading range. This chart looks more and more like a
bottom. However, while it certainly appears
that a bottom has been made, the winning streak GLD has been long enough with
sufficient magnitude that some consolidation seems almost inevitable. When that occurs, our Portfolios will likely
start to nibble.
Bottom line: this volatility is giving me a headache. Last year’s relative stability made trend
tracking reasonably easy. However, if
the Market is entering into a period of wider swings, it may take a longer time
or greater distance parameters in our discipline to confirm a trend ‘break’. At the
moment, the most important observation is that the indices are in uptrends
across all timeframes. Until one of
these trends is successfully violated, the current volatility makes confident assertions
about the very short term trend difficult and of limited technical significance.
On the other
hand, GLD has busted trends in two timeframes, making it likely that a change
in direction in gold has occurred.
However, I want to see some consolidation and a test of the newly re-set
trends before re-establishing a position.
Fundamental
Headlines
Yesterday’s
US economic news was mixed: weekly mortgage
applications were up but purchase applications were down, December housing
starts were up but building permits were down and weekly retail sales were up. I don’t think these stats do anything to
alter our forecast.
Though
falling lumber prices can’t be a great sign for housing (short):
There
was a lot of media time and space dedicated to Obama’s state of the union
address. However given its lack of
import on future policy, it deserves to be ignored---which I will.
We
also made it through a day without a negative earnings report/guidance from a
major player. Noise or a change in
trend?
Once again
though investor attention was focused overseas and in particular on today’s ECB
meeting and its widely anticipated QE announcement. In fact, during the day, the WSJ reported that
the new program would entail the ECB buying E50 billion in bonds each month over
the next two years. That pumped up
Market enthusiasm; though it seems likely that the response to the QE news would
be in yesterday’s pin action not today’s.
***Draghi just
announced the ECB’s new program that involves the purchase of E60 billion of
investment grade debt per month through September 2016 and it left interest
rates unchanged. So on the surface, this
appears to be a larger asset purchase program than rumored yesterday. However, the purchase program includes two
other programs already in existence, so the net new purchases will be less than
E60 billion.
Former BIS chief
discusses ECB QE (medium and a must read):
Elsewhere:
(1)
the Bank of Canada climbed on the QE wagon (short):
(2)
the Bank of
Japan announced that it would hold off expanding QE further, even though it
reduced its inflation outlook. Since the
primary goal of the Japanese QE was to get inflation up, it leaves me scratching
my head---unless the Japanese have finally figured out that QE was doing zero,
zilch, nada to raise inflation or more importantly the country’s level of
economic activity. Now that is a scary
thought,
(3)
and the Greek election draws ever closer,
ECB turns a cold shoulder to
Greece (4 minute video):
The Greek bail out programs are not
working and here is why (medium):
***overnight
in other news China injects $8 billion into its banking system.
Bottom line: we now have the new Draghi plan though not all
the details. In any case, he has at last
put his money where his mouth has been.
That said, the question is, will it work? Based the US and Japan’s experience, it seems
not bloody likely. However, even if we
get the best outcome that we can hope for---meaning Europe avoiding a recession
and just muddling through at a lesser growth rate than the US---that is the assumption
plugged into our Models. In short, we
have the best case scenario in our Valuation Model and stocks are still
extremely overvalued.
Asset
allocation among top money managers (medium):
Investing for Survival
Leverage
can kill (short):
Company Highlight
Nuveen Premium
Income Muni 2 seeks current income exempt from regular federal income tax. The
secondary investment objective is the enhancement of portfolio value.
The fund invests
approximately 93% of its assets in bonds and may be considered for investors
seeking a Municipal - National strategy.
NPM has returned an annual rate of 6.10% since inception. More recently,
the fund has generated a total return of 7.25% in the last five years, 4.32% in
the last three years, and 19.18% in the last year. In the last five years, it
has outperformed 58% of its peers. It has also outpaced 40% of its competitors
on a three year basis and 90% of them over the last year for the period ending
11/30/2014. On a year to date basis, NPM has returned 16.90%. Downside risk has been below average.
This fund has a three year
standard deviation of 10.3% and has had a low level of volatility in its
monthly performance over the last 36 months. As NPM is a closed end fund, it
has no front end or back end load. The
ETF Portfolio owns a full position in NPM.
News on Stocks in Our Portfolios
Economics
This Week’s Data
Weekly
jobless claims fell 10,000 versus expectation of down 16,000.
Other
Bank
lending surges (medium):
Politics
Domestic
Gross
disparities in achievement (short):
International
Three
cheers for democratic senator Robert Menendez (2 minute video and a must
watch):
The latest from Ukraine (medium):
No comments:
Post a Comment