The Morning Call
2/6/15
The Market
Technical
The indices
(DJIA 17884, S&P 2062) finally had a nondirectionally challenged up day, ending
within uptrends across all timeframes: short term (16536-19312, 1921-2902),
intermediate term (16571-21726, 1750-2464) and long term (5369-18860,
783-2083). Both (1) finished above its
50 day moving averages and (2) penetrated the downtrend off their December
highs on the upside. If they remain
above those trend lines today, then we start looking at the mid-December highs
[17986/2080] as the next resistance level.
Volume
declined (continuing the trend of down volume on up days); breadth improved. The VIX fell, closing within a short term
trading range, an intermediate term downtrend but back below its 50 day moving
average---generally supportive of the pin action in stocks.
Update
on margin debt (short):
The
long Treasury dropped but remained within short term, intermediate term and
long term uptrends and above its 50 day moving average. However, it does appear the moon shot is
over. Now we wait to see where TLT finds
initial support.
Money
continues to flow into bonds (short):
GLD
was up, ending within its short term uptrend, an intermediate term trading
range and above its 50 day moving average.
Bottom
line: the technical signals improved
again yesterday---as long as the indices can confirm the break of the
downtrends off their December highs. If
that occurs, it seems likely that the short term underlying momentum in the
Market has re-gained strength to the upside---though the low volume is a bit
bothersome.
The spike in
bond prices seems to be fading. As much
fun as the ride up was, the task now is to be sure the underlying momentum continues
to the upside. My initial support level
is 131.3 (versus current price of 133.3).
GLD continued
its meek bounce; our Portfolios did nothing.
Fundamental
Headlines
The
US economic data yesterday was mixed: positive---January retail chain store
sales and weekly jobless claims; negative---the December US trade deficit and
fourth quarter productivity and unit labor costs. Certainly, the most important stats were the
productivity and unit labor cost numbers.
That extends what has been a pretty lousy week for dataflow; and this
follows a not so hot set of measures last week.
It is too soon to be revising our outlook; but it is concerning, especially
with the yellow light already flashing.
The
improvement in this season’s earnings reports and forward guidance continued. With over 75% of S&P companies reporting that
suggests that we are going to get a better final result than I thought a week
ago. That said, S&P GAAP profits
this quarter to date are down roughly 5%.
That is not terrible, economically speaking; but with P/E’s near record
levels, it probably should give pause to investors.
International
economic data was upbeat (surprise, surprise).
German industrial orders rose substantially and the EU raised in 2015
growth forecast. I am suspect of the
latter because historically these guys always make lofty and virtually unattainable
forecasts.
***overnight,
Denmark lowered its key interest rate for the fourth time this year; Australia lowered
its 2015 growth and inflation forecasts.
However,
Greece and its financial problems continue to dominate the headlines. At the moment, the rhetoric has turn more adversarial;
though that is most likely just negotiation verbiage. As I noted previously, we have no idea where
the negotiating ‘uncle’ points are for either the new Greek government or the
ECB. So at my pay grade, the outlook of
this situation is very much in question and, at this point in time, the day to
day rhetoric is just part of the process not a sign of the outcome. Hence, making bets either way, in my opinion,
is a dice roll. Of course, just because
we don’t know the outcome doesn’t mean that we should ignore the process. So here is the latest:
The
latest from the Greek people (short):
Whispers
of Greek capital controls (medium):
The
latest on Greece from Yves Smith (medium):
Another
perspective from Deutsche Bank (medium):
***overnight,
Greek PM and Putin agree to boost economic cooperation (short):
Bottom
line: this week’s US economic stats
continue to be disappointing though it is too early to get negative on the
outlook. Furthermore, the improvement in
earnings/guidance as well as the better numbers out of Europe are something of
a counterbalance to our own lousy numbers.
Can the US
decouple? (a counterintuitive thought that may have some merit; short and a must
read):
On the other
hand, the Greek/ECB faceoff will likely continue to induce volatility into the
Markets, though at this point, I don’t think anyone knows how this will play
out including the Greeks and the ECB. I
caution against taking any one day’s headline too seriously.
All that said,
US corporate profit growth is ostensively slowing and current stock valuations
are in the stratosphere. Not a good
combination for future pin action, especially as the global central banks
continue their game of ‘beggar thy neighbor’.
The easy money may keep the punch bowl filled short term; but sooner or
later, the consequences of global competitive devaluations will catch up to the
central bankers (and the Markets) just like it has every other time they tried
it.
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.
Thoughts on Investing from John Templeton
Here’s a good list of legendary investor
John Templeton’s investment rules. Barry Ritholtz has more details on
each rule at his site (see here), but the summary is below. It’s a nice
addition to our growing list of rules and guidelines (see
here).1. Invest for maximum total real return
2. Invest — Don’t trade or speculate
3. Remain flexible and open minded about types of investment
4. Buy Low
5. When buying stocks, search for bargains among quality stocks.
6. Buy value, not market trends or the economic outlook
7. Diversify. In stocks and bonds, as in much else, there is safety in numbers
8. Do your homework or hire wise experts to help you
9. Aggressively monitor your investments
10. Don’t Panic
11. Learn from your mistakes
12. Begin with a Prayer
13. Outperforming the market is a difficult task
14. An investor who has all the answers doesn’t even understand all the questions
15. There’s no free lunch
16. Do not be fearful or negative too often
News on Stocks in Our Portfolios
·
Revenue of $7.2B (-7.6%
Y/Y) beats by $80M.
Economics
This Week’s Data
January
retail chain store sales were up both month over month and year over year.
January
nonfarm payrolls rose 257,000 versus expectations of 230,000; but unemployment
rose to 5.7% versus the prior reading of 5.6% (an increase in the labor force
participation rate?)
Other
The
unemployment rate is a lie (medium):
Politics
Domestic
Quote of the day
(short):
Bonus quote of
the day (short):
International War Against Radical Islam
Obama’s
failed Iraq policy (medium):
Russia puts its nuclear
ICBM’s on ‘combat patrol’ as Kerry offers aid to Ukraine (medium and not a good
sign):
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