The Morning Call
2/20/14
The Market
Technical
The indices
(DJIA 17985, S&P 2097) continued to rest yesterday, ending within uptrends
across all timeframes: short term (16613-19385, 1932-2913), intermediate term
(16672-21827, 1757-2471) and long term (5369-18860, 797-2093). They both closed above their 50 day moving
averages. However, they are out of sync
on a couple of points: (1) the Dow is back below its mid-December high while
the S&P remains above its high, and (2) the S&P is above the upper boundary
of its long term uptrend [though it has not confirmed the break] while the Dow
is still 5% below its comparable level. As
you know, under our time and distance discipline, the Averages need to be in
sync to validate a trend.
Volume
was flat; breadth poor. The VIX
declined, ending within its short term trading range, its intermediate term
downtrend and below its 50 day moving average.
The
long Treasury resumed its downward move, finishing below its 50 day moving average,
back below the lower boundary of its short term uptrend and within a very short
term downtrend, an intermediate and long term uptrend. The clock on our time and distance discipline
now re-sets on the short term trend; if TLT remains below the lower boundary of
its short term uptrend through the close on Monday, the trend will re-set to a
trading range.
GLD’s
also declined, leaving it near but above the lower boundary of its a short term
uptrend, below its 50 day moving average and within an intermediate term
trading range and a developing a very short term downtrend. A close below the lower boundary of its short
term uptrend will prompt the sale of the remainder of our Portfolios’ positions
in GLD.
Bottom
line: the Market’s sluggishness over the
last two days hardly seems surprising (1) because the Greek/ECB bailout
standoff is changing by the minute; and trying to bet money on every headline
is a fool’s game and (2) most investors seem
to be operating under the assumption that all will end well. So why sweat the small stuff?
I continue to
focus the upper boundaries of the indices long term uptrends as the best source
of any ‘tell’ on future Market movement.
Just remember under out time and distance discipline that they have to
trade in sync in order to have a read on price direction.
Fundamental
Headlines
Yesterday’s
economic data contained good (weekly jobless claims) and bad (the Philly Fed
index and January leading economic indicators) news. However, the latter was by far the most
important; so not only was the volume of news negative, but also the weight---thus
keeping alive a four week trend of disappointing stats.
Making
this sting just a bit more, Goldman released its initial February global
leading economic indicator which portrayed a world slipping into recession
(short):
As
you know, I had been taking some hope in a slightly more positive tilt to the international
economic stats that I can get off the news wires. However, I clearly don’t have the research
heft to cover the global economy as Goldman does. So I read this new information as both more
comprehensive and more symptomatic of the global economy than my more limited representation.
***overnight,
German and French February manufacturing and services PMI’s were all above
estimates while UK retail sales were below expectations.
The
Greek/EU bailout negotiations continued to dominate the headlines though it was
difficult to keep up with all the offers and counteroffers and how they addressed
either sides’ concerns. It almost didn’t
matter because the minute you had a handle on the latest positions, they
changed. The bottom line seems to be
that all this is just negotiating and we have no clue what an ultimate
settlement looks like if indeed we get one.
However, the Market is clearly assuming a favorable outcome.
The
latest as of yesterday afternoon (medium):
German
response to latest Greek proposal (medium):
Greece’s
leverage (medium):
Greek
bank deposit run accelerates (short):
This
morning---peak bluffing (medium):
Bottom
line: there was not much in yesterday’s
news flow about which to be upbeat. The
US economic numbers remain disappointing; and while we got nothing specific
from overseas, Goldman did release its global leading economic indicator which
pointed at global recession---and just as I was starting to get a bit less
negative about international economic growth prospects. Well, needless to say that makes our case for
continued economic progress here as well as abroad a wee bit weaker. It also does nothing to improve stock
valuations.
Nor does the
Greek/EU standoff. Our Models assume
that the EU ‘muddles through’. So if
there is workable settlement, our forecast remains intact, Fair Value unchanged. If not, then there is apt to be trouble right
here in River City. Not that the Street
agrees with that assessment. I listened to a host of pundits yesterday telling
the world that EU banks had little exposure if a Greek default occurs and
therefore, there was little risk in stock prices. I guess they forgot to consider that the sovereign
banks don’t have exposure because the ECB/EU arranged to have all the risk laid
on the taxpayers. That surely won’t
cause the ruling class any electoral heartburn.
They also seemed to have forgotten that if Greece goes into default, [a]
who knows the ramifications of the anti-austerity politics in Spain, Portugal, Italy
and Ireland and [b] the impact on their bonds.
And guess who owns all those bonds?
Hint---it’s the banks.
As I have said
before, the final act may see a workable compromise and everyone lives happily
ever after. But I think it a mistake to
assume that if Greece defaults, everything will be just hunky dory.
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 Kid Dynamite
Josh Brown, last week, wrote a great post skewering just these kinds of clichés, which we hear repeated ad-infinitum in the financial press:
“Always seek out differing opinions and challenge your beliefs. Except when you know you’re right, then that other bullshit just becomes a distraction. Good luck with that.
It is very important to be flexible and open-minded. But invest with set rules and an iron discipline. Good luck with that.
Technical analysis and charts only tell you about what has already happened in the past. It’s much better to use the information from the future that we have when making decisions. Good luck with that.
Never run with the herd. It’s much better to be all alone on open ground, running in the wrong direction and wholly conspicuous to predators. Good luck with that.
Take your losses quickly. But don’t get scared out of a good position. Good luck with that.
Amateurs trade in the morning, pros trade in the afternoon, junkies trade overnight and lots of guys on TV just trade on paper. Good luck with that.
Be tactical and stay informed! But don’t try to time the market. Good luck with that.”
Josh’s point, I believe, is that trading and investing is hard. You can’t just implement a laundry list of cliché talking points and expect to succeed. What’s interesting is that as I coach high school soccer, I realize that there really are a lot of clichés that we try to implement in order to win: Train harder than the other team in practice. Work harder than the other team during the game. Be smart on the field. Give it 100%. Play as a team. Treat this game like any other game.
In the investing world, however, clichés will often be full of hot air.
News on Stocks in Our Portfolios
Economics
This Week’s Data
The
February Philadelphia Fed manufacturing index came in at 5.2 versus expectations
of 8.2.
January
leading economic indicators rose 0.2% versus estimates of up 0.3%.
Other
Politics
Domestic
Apologizing for America
(short):
International War Against Radical Islam
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