The Morning Call
4/8/16
The
Market
Technical
The indices
(DJIA 17541, S&P 2041) gave back all of Wednesday’s gain yesterday, setting
lower highs from the late December highs, which are also the upper boundaries
of their short term trade ranges. Volume declined and breadth weakened. The VIX spiked 15% finishing above below the
upper boundary of its very short term downtrend; if it remains there through
the close today, that trend will be negated.
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 was up 1 ¼%, closing within a very short term uptrend, a short term
uptrend, above its 100 day moving average and above a Fibonacci support
level.
GLD finally had
a good day, ending within a short term uptrend, above its 100 day moving
average and a key Fibonacci support level. However, it remains in a very short
term downtrend.
Bottom
line: investors’ euphoria over an easy
Fed seems to have had a very short half-life.
I am not that concerned about big
down day; I have already noted that the Averages are at a level of heavy
congestion. However, the facts that (1) they
couldn’t successfully challenge their first real obstacle [the upper boundaries
of the short term trading ranges] and (2) there has been a noticeable change in
intraday trading, to wit, this week, early morning price weakness has not been
bought as it has been throughout the rally off the February lows, should be worrisome
to the bulls. That said, it is too soon
to alter my current, 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
Yesterday’s
US economic data was weighted to the downside: weekly jobless claims were less
than expected but March retail chain store sales grew less than in February and
consumer credit is spiking on higher student and auto loans.
***overnight,
Fed to hold expedited meeting on Monday to review interest rates.
While
there was no international economic data, the ink was hardly try on comments
from Kuwait and Russia that an oil production freeze could occur at the
upcoming meeting in Doha when the Saudi’s (again) poured cold water on yet
another investor wet dream. Oil reacted
accordingly and everybody (in OPEC) covered their shorts.
Bottom
line: it looks like this week will be
another minus on the economic front both here and abroad, the easy money
fantasy took a hit yesterday, earnings season is fast approaching and stocks
remain in nosebleed valuation territory. Over the last couple of days I have been
trying to make the case for establishing a cash position but at the same time
set buy prices for those stocks you want to own at lower levels.
Dancing
on a live volcano (medium):
http://www.telegraph.co.uk/business/2016/04/06/time-to-stop-dancing-with-equities-on-a-live-volcano/
I wanted to
focus today on diversification which is particularly critical when stock prices
are at or near extremes. The best way to
know if you are properly diversified is to ask yourself the question, if (you
fill in the name of a stock or an industry group) gets halved tomorrow as a
result of an unexpected event, will it impact my financial health? If that stock (industry group) is 50% of your
portfolio, the answer is obvious. It is
probably also obvious at 30% or 20%.
Yes, you may say,
I own a large position in (you fill in the name) but I did my homework. I reply that is what investors said that owned
Sears and Fannie Mae. My point being
that no matter how much you think that you know, you don’t know
everything. Otherwise you would be on
the beach in Bermuda and not wasting your time reading this.
Once you accept
that negative events can occur unexpectedly (especially in periods of overextended
valuations) then the issue of position sizing becomes critical---which gets us
back to the question I posed above. How many
different positions do you need to have so that a significant loss in any one
of them doesn’t keep you up at night? Markowitz
showed that a portfolio of ten stocks diversified away the specific risk
associated with any one holding. That’s
too aggressive for me; I am more comfortable with twenty to thirty positions. What
is important though is not my risk profile but your’s. Size your positions so that a single event
doesn’t severely impact your life savings.
Investing for Survival
Smart
things people do to maximize their tax refund.
News on Stocks in Our Portfolios
Economics
This Week’s Data
Monthly
retail chain store sales growth in March slowed from their pace in February.
February
consumer credit roared up $17.2 billion versus expectations of up $14.0
billion. The January number was revised
from up $10.5 billion to up $14.9 billion.
Student and auto loans accounted for the bulk of the increase.
Other
Truck
orders plunge 37% (short):
The
world draws ever closer to helicopter money (medium):
Politics
Domestic
International
Panama
Papers observations (short):
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