The Morning Call
4/7/16
The
Market
Technical
The indices
(DJIA 17716, S&P 2066) rallied on the back of dovish March FOMC minutes,
though not enough to regain their very short term uptrends thereby voiding them. Volume declined while breadth improved. The
VIX fell 8 ½%, finishing back below the upper boundary of its very short term
downtrend, negating Tuesday’s break. In
addition, it remained below its 100 day moving average.
The Dow closed
[a] above its 100 day moving average, now support, [b] above its 200 day moving
average, now support, [c] back below the upper boundary of its short term
trading range {15431-17758}, negating Friday’s break, [c] in an intermediate
term trading range {15842-18295} and [d] in a long term uptrend {5471-19343}.
The S&P
finished [a] above its 100 day moving average, now support, [b] above its 200
day moving average, now support, [c] within a short term trading range
{1867-2081}, [d] in an intermediate term trading range {1867-2134} and [e] in a
long term uptrend {800-2161}.
The long
Treasury declined, but still closed within a very short term uptrend, a short
term uptrend, above its 100 day moving average and above a Fibonacci support
level.
The
coming wave of defaults (medium):
GLD continued to
churn, ending within a very short term downtrend and below a key Fibonacci
support level.
Bottom
line: investors’ love affair with an
easy Fed just won’t be denied as the Averages recouped most of Tuesday’s loses on
FOMC minutes that proved sufficiently dovish.
However, nothing really changed my major technical takeaways; (1) stocks
are at a level of heavy congestion and so it makes sense that some momentum
would be lost and (2) my assumption is that the Averages will challenge their
all-time highs.
Fundamental
Headlines
Only
one minor US datapoint was released yesterday: weekly mortgage applications
improved but purchase applications fell.
Nonetheless,
investors still had plenty to get jiggy about:
(1)
Kuwait and Russia suggested that an agreement on an oil
production freeze could be reached at the upcoming OPEC meeting. I have
this vision of US investors dressed as Charlie Brown and OPEC as Lucy in the cartoon
in which Lucy is holding a football for Charlie Brown to kick and promises time
after time that she won’t jerk it just before he is to kick---but always does
to the laughter of all [except Charlie Brown].
(2)
the minutes from the last FOMC meeting were released
and helped bring some clarity to the recent seeming contradiction of the
several Fed officials hawkish speeches and that of a very dovish Yellen---the
most important point being that some of those hawkish Fed members were not
‘voting’ members [voting rotates among Fed officials]. So while a rate hike in April was debated,
concern about the global economy was the more predominant theme. The result was that most voting members
seemed to think a very slow rise in rates through 2018 was appropriate. In short, whatever imagined ‘rebellion’
within the Fed to Yellen’s dovishness did not show up in the voting.
The Fed can’t save us (medium):
Bottom
line: investors have the good news---the
wet dream of higher oil prices and fairy tale offered easy money forever. And stocks are seemingly reflecting that good
news while ignoring a deteriorating global economy and an upcoming earnings
season that is not likely to provide a lot of great headlines.
Today I want to discuss
a corollary to my theme yesterday---which was to raise cash at current
nosebleed valuation levels. That is to
pre-plan the level at which you put that cash back to work. What I call our Buy Discipline. Mine is to wait until a stock I want to own
is at or near a historically low relative and absolute low. If that is too extreme for you, then decide
to put 20% of your cash to work when a stock you want to own is down 10% and
another 20% when it is down 20%. Change
either of these percentages anyway you want.
The point is to have them. This
discipline allows you to make your investment decision in an unemotional
environment, rather than waiting till a time when all those about you are
panicking.
In short, have a
Buy Discipline that forces you to invest cash at a time when you may least want
to; just like having a Sell Discipline that forces you to raise cash at a time
that you may least want to.
Update on
valuation (short):
The impact of
stock buybacks on intrinsic value (medium):
Investing for Survival
Bubbles
do exist.
News on Stocks in Our Portfolios
·
Automatic Data
Processing (NASDAQ:ADP) declares $0.53/share
quarterly dividend in line with previous.
·
Forward yield 2.34%
Economics
This Week’s Data
Weekly
jobless claims fell 9,000 versus expectations of a 4,000 decline.
Other
Here
is a counterpoint to yesterday’s post on auto loans (medium):
Politics
Domestic
International
Is
this Dutch referendum another step in the breakup of the EU? (medium):
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
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