The Morning Call
4/1/15
The Market
Technical
The indices
(DJIA 17776, S&P 2067) turned on a dime yesterday---which means either
quarter end window dressers are very confused or they have been a nonfactor. In the process, both fell back below their 50
day moving averages and both made a second lower high---setting up a potential
downtrend. On the other hand, the Dow
closed right on its 100 day moving average
and above the lower boundary of its very short term uptrend while the S&P
remained above its 100 day moving average but below the lower boundary of its
very short term uptrend. On a very short
term basis, that leaves a somewhat confusing technical picture but with the 100
day moving average acting as strong support.
Longer term, they remained well within their uptrends across all
timeframes: short term (16872-19654, 1971-2952), intermediate term (16977-22138,
1785-2543 and long term (5369-18860, 797-2122).
Volume rose;
breadth was negative. The VIX was up, finishing within its short term trading
range, its intermediate term downtrend, its long term trading range, back below
its 50 day moving average and within a developing pennant formation. I continue to think that it remains a
reasonably priced hedge.
The long Treasury
recovered, but remained within its short term trading range, intermediate and
long term uptrends and above its 50 day moving average. This chart keeps improving.
GLD’s price dropped,
closing within its short and intermediate term trading ranges, its long term
downtrend and below its 50 day moving average.
GLD has a number of tough resistance levels yet to overcome before we
can assume that the worst is over.
Bottom line: the
Averages failed to provide any follow through from Monday’s gangbuster’s
day. Since late February they have been
creating a pattern of higher lows and lower highs and doing so on a good deal
of volatility. These ‘pennant’ formations eventually have to get
resolved by breaking one of the two trends; and generally follow through in the
direction of the break. From this point,
it would seem that the risk/reward is weighted to the risk side; that is, the distance
that the indices can decline (the lower boundaries of the short term uptrends)
without doing any technical damage is greater than the distance they can
advance (the upper boundaries of their long term uptrends) without a break out.
Stock
Traders’ Almanac looks at trading in April and what we should be watching
(short):
Stock
market performance following a disappointing Chicago PMI (like we got
yesterday):
Fundamental
Headlines
Yesterday
was another mixed day for US economic stats: month to date retail sales
improved, the January Case Shiller home price index moved higher than expected,
and the March Chicago PMI was as bad as March consumer confidence was good.
Overseas, the
numbers were all good and were all from Europe: the March EU price deflator
improved from -0.3% in February to -0.1% and unemployment went from 11.4% in
February to 11.3% in March. We are
starting to see better data out of Europe though (1) it is only out of Europe;
no plus signs from Japan or China, (2) if this trend holds this week, it will
only be the third week of better stats; so more time is needed before we can
assume Europe has turned and (3) there are two geopolitical problems that could
potentially trash any recovery: Greece and Ukraine.
Update on Greek
bail out talks (medium):
And
Greek talks with Russia (medium):
***overnight,
the March EU manufacturing PMI came in better than expected (52.2 versus 51.9);
the March Chinese manufacturing PMI fell below 50 (sign of contraction) to 49.7
versus the February reading of 50.7; and Japanese manufacturing data were
abysmal.
Meanwhile, in
the greatest QE in history, liquidity drains from the Japanese government bond
market:
And
global inflation falls to a new 5 year low (short):
Bottom line: the
economic data showed another day of improvement in the sense that the US
numbers were mixed not completely downbeat and Europe’s (not the rest of the world’s)
stats have perked up in the last couple of weeks. While I don’t think either a cause for altering
our economic outlook at the moment, clearly we need to pay attention. In the meantime, (1) the Greek bail out and
Iranian nuke talks are coming to a head---either could add some spice to our
lives and (2) the global central banks have painted themselves in a corner and
are clueless how to get out.
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 Stockman on Fed policy (medium):
The
latest from John Hussman (medium):
Thoughts on Investing from Shelby Davis
Who the hell is
Shelby Davis? That was my first thought after I heard the name from a reader’s
comment on recommended
investing books. So I added it to my
growing wish list to check out later. Later finally happened and here’s
the answer. He’s probably the best investor you never heard of.
The story of Shelby
Davis is reminiscent of today. Interest rates were at all-time lows. Bonds were
loved and stocks were loathed. Davis did the one thing most investors
wouldn’t do. He bought the most hated, boring stocks he could find and stuck
with it his entire life.
Davis was an unknown.
He didn’t build a company or manage a fund. He avoided the media. He only
managed his money wisely. He was THE millionaire next door until the Forbes 400
list of richest Americans outed him in ’88.
Davis lived by the
principles we so often forget or ignore. The Davis Dynasty shows us what’s possible even if we get started late.
10. Save to invest more, not invest to save less.
Shelby Davis was
extremely frugal. He saved old shoes with tape and glue. Their old stove was so
rusty flakes sometimes fell in the food. The kids hounded him for a swimming
pool. He agreed, only if they dug it themselves.
But he wasn’t being
frugal for the sake of saving
money. He hated being wasteful. Why waste money that could be
invested? He understood the future value of his dollar, invested wisely, was
worth far more than today.
9. The power of compounding compels you.
Davis’ grandson tells
the story of the day he asked for a dollar to buy a hot dog. Davis responded:
Do you realize if
you invest that dollar wisely it will double every five years? By the time you
reach my age, in 50 years, your dollar will be worth $1,024. Are you so hungry
you need to eat a $1,000 hot dog?
Every dollar you earn
has value today but don’t ignore its future potential. The critical ingredient is
time. Luck and stock tips might help win the short-term trading game
for a while. Nothing beats time and the power of compounding returns. Wise, winning investing requires years of appreciation.
News on Stocks in Our Portfolios
Economics
This Week’s Data
Month
to date retail chain store sales rose 3.0% versus the comparable period a year
ago---an improvement from last week.
The
January Case Shiller home price index was reported up 0.9% versus expectations
of up 0.7%.
The
March Chicago PMI came in at 46.3 versus consensus of 50.2.
March
consumer confidence index was 101.3 versus estimates of 95.5.
Weekly
mortgage applications rose4.6% while purchase applications were up 6.0%.
The
March ADP private payrolls report showed a decline of 25,000 from February
versus forecasts of an 18,000 increase.
Other
Bernanke’s
first blog post (medium):
More
on the fallout from that insolvent Austrian bank (medium):
Politics
Domestic
International War Against Radical Islam
Iran
moves the goal posts again (short):
The latest from Yemen (medium):
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