The Morning Call
1/13/15
The Market
Technical
The indices
(DJIA 17640, S&P 2028) were slammed again yesterday, closing below their 50
day moving averages but within uptrends across all timeframes: short term (16387-19157,
1889-2251), intermediate term (16401-21570, 1729-2443) and long term
(5369-18860, 783-2083). Both remain
within the pennant formations that I described yesterday. However, they are sitting right on the lower
boundaries of these patterns. A move
below would be a short term technical negative.
Volume
was flat; breadth was negative. The VIX jumped,
finishing above its 50 day moving average and within its short term trading
range and intermediate term downtrend.
The
long Treasury continues its phenomenal performance, ending up for the day
within uptrends across all timeframes and above its 50 day moving average.
GLD
was also up, closing within its very short term uptrend, its short term trading
range and right on the upper boundary of its intermediate term downtrend. A confirmed break of this boundary would
likely mean that a bottom has been made.
Bottom line: both
of the Averages closed back below their 50 day moving averages and right on the
lower boundaries of developing pennant formations---neither all that positive, technically
speaking. Also important, given Friday’s
and yesterday’s sound retreats, is whether last Thursday’s moon shot that eked
out a positive outcome to the first five trading days of January indicator as a
false flag. If so, then the technical situation
would have three turn of the year indicators (Santa Claus rally, first two
trading days, first five trading days) all negative. If it is not, then we need to see some sort of
reasonable rebound and quickly. As I noted
in the Closing Bell, the continuing schizophrenic pin action leaves me
directionally clueless.
Andrew
Thrasher’s weekly technical update (medium):
Fundamental
No
US economic indicators were released yesterday, though we got lots of news from
abroad and it was mostly dismal. Fitch
cut Russia’s credit rating, Japan announced a record FY 2015 fiscal year
deficit and a Chinese real estate developer failed to make a scheduled interest
payment. The one ‘bright spot’ was an
ECB statement that it is ‘planning to design’ a sovereign debt purchase program
based on paid in capital ‘contributions’ made by big EU central banks---my emphasis
on ‘bright spot’ because it had to make the QE crowd fell all warm and fuzzy. Color me doubtful.
Adding
to the sour note from overseas: (1) oil was down big, again [continuing to lose
its ‘unmitigated positive’ moniker], (2) Goldman Sachs lowered its 2015 economic
outlook for the US [oops] and (3) the first day of earnings season marked big
disappointments in Tiffany’s [I thought the 1% were spending freely], SanDisk [I
thought technology was recession proof] and American Airlines [another stake
through the heart of the ‘lower oil is an “unmitigated positive”’ crowd].
Uh
oh, now Goldman and BofA are crawfishing on ‘unmitigated positive’ (medium and
a must read):
Uh
oh, analysts are cutting earnings estimates (short):
Bottom
line: in short, it was not a good news day and keeps the risks to our forecast on
which I frequently dwell, front and center.
Of particular concern is the Market’s earnings expectations. If the Tiffany, SanDisk, American Airlines
trifecta is a sign of things to come this earnings season, investors could be
in for some discomfort. Of course, one
day does not a trend make; so it is far too early to be poor mouthing this
season’s results.
Investing for Survival
The
risk/return relationship has been upended (medium):
ETF Highlights
The YieldShares High Income ETF (YYY) provides investors with yet
another way to maximize yield, namely a fund-of-closed-end-funds. YYY holds
about 30 closed-end funds, selected and weighted based on three criteria:
yield, YYY has seen a slow but steady increase in AUM and liquidity discount to NAV, and trading volume. The
concept hinges on the success of buying discounted closed end funds with big
yields and enough liquidity to minimize trading costs within the basket. YYY
can hold closed-end funds focused on any of the major asset classes, capping
the weight at a maximum of 4.5% each at rebalance. The fund competes directly
with PCEF and a 2x version of its own index, CEFL. YYY’s headline fee includes
the expense of its constituent funds, but investors aren’t fazed by it judging
from the slow but steady increase in AUM and liquidity. A footnote: YYY
launched in June 2013 by grafting itself onto a moribund ETF—SNDS—that had a
completely different strategy, so any performance history prior to that date is
unrelated. The fund’s expense ratio is 1.66%
and its yield is 9.21%. I would like to
own this in the ETF Portfolio but so far have delayed any purchase due to its
deteriorating technical picture.
News on Stocks in Our Portfolios
Economics
This Week’s Data
Other
Europe’s
slow motion descent into deflation (short):
The
bubble in central bank credibility (medium):
Update
on big four economic indicators (medium):
Politics
Domestic
International War Against Radical Islam
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