The Morning Call---I can't make the numbers work

The Morning Call

11/4/14

The Market

           

    Technical

            The indices (DJIA 17366, S&P 2017) paused yesterday---which is actually quite positive when you consider just how dramatically overbought stocks (still) are.  Working off an overbought conditions by sideways backing and filling is a lot less stressful than a sharp reaction. 

The Dow finished above the upper boundary of its short term (15857-17158) for the third day; that confirms the break and re-sets the short term trend to up (15979-18725).  If the Dow closes above 17158 today, the intermediate term trading range (15132-17158) will re-set to an uptrend.   It also ended within a long term uptrend (5159-18521) and above its 50 day moving average.

The S&P closed right on the upper boundaries of its short and intermediate term trading ranges (1820-2019, 1740-2019), within a long term uptrend (775-2032) and above its 50 day moving average.

Volume fell; breadth worsened. The VIX rose, finishing within a short term uptrend, an intermediate term downtrend and above its 50 day moving average.   

 

The long Treasury was down, closing within a very short term trading range, a short term uptrend, an intermediate term trading range and above its 50 day moving average.  

GLD got whacked again, ending below the lower boundaries of its short term and intermediate term down trends, below the lower boundary of its long term trading range and below its 50 day moving average.  If GLD continues to trade below the lower boundary of its long term trading range through the close on Thursday, the long term trend will re-set to down.  It remained within a very short term downtrend.

Bottom line: equity prices’ recess was not surprising, given the extreme overbought condition of the Market.  Since stocks remain very overbought, more consolidation should be expected.  However, if yesterday’s pin action was prophetic in any sense, we could get nothing more than a week of sideways price movement.

Nevertheless, I would use the current spike in prices to Sell stocks that are near or at their Sell Half Range or whose underlying company’s fundamentals have deteriorated. 

            Technical update from Andrew Thrasher (medium):

            http://www.athrasher.com/weekly-technical-market-outlook-1132014-2/

            More technical analysis from Urban Carmel (medium):

            http://thefatpitch.tumblr.com/post/101504865566/a-bounce-seen-just-twice-before-in-75-years-equities

                Stock performance mid-term election week (short):

            http://blog.stocktradersalmanac.com/post/Midterm-Election-Day-and-Day-After-SPY-Up-73-of-the-Time

    Fundamental

 

        Headlines

            Yesterday’s US economic news mostly negative: October light vehicle sales were unchanged, October Markit PMI was slightly below expectations and September construction spending was awful; on the other hand, the October ISM manufacturing index was much better than anticipated.  Nothing terrible here, but nothing to get jiggy about.

            Overseas, the PMI’s from the Eurozone and China were up slightly.  Given my concerns about a faltering world economy, I am more pleased with the marginal improvement in data here than I am upset by the more negative US stats.

            ***overnight, the European commission revised down its forecast for GDP and inflation and revised up its outlook for unemployment.

Bottom line: over the weekend, I spent more time fiddling with our Models in an attempt to find an economic growth, profit growth, inflation and interest rate combo that could deliver an equity valuation that would place the indices at current prices and within normalized historical P/E ratios at, near or even close to Fair Value.  To this point, I simply can’t make the numbers work.

So while I have to concede that I was wrong on the ‘trigger’ event that would prompt investors to a more realistic assessment of stock values, I am still stuck with a richly valued market. 

I have no idea what starts the process of adjusting price to value; I just know that our Models have never been at such odds with reality that a correction didn’t re-set what was a very considerable difference between price and value.

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 bankster fraud (medium):

            http://www.zerohedge.com/news/2014-11-03/how-much-does-it-cost-keep-jpmorgan-fx-riggers-out-jail

            The latest from Bill Gross (medium):

            http://www.zerohedge.com/news/2014-11-03/bill-gross-warns-global-economy-financial-markets-are-insecurely-grounded

            The latest from John Hussman (medium):

            http://advisorperspectives.com/commentaries/hussman_110314.php

            The latest from Marc Faber (medium):

            http://www.zerohedge.com/news/2014-11-03/alan-greenspan-marc-faber-i-never-said-fed-was-independent

            Update on valuation (medium):

            http://dshort.com/

       Investing for Survival

            The most crucial factor in investing (medium):

            http://pragcap.com/the-most-crucial-factor-for-investing-success-is-cost-false

The Morning Call---We have seen this before

The Morning Call

7/9/14

The Market

           

    Technical

The indices (DJIA 16906, S&P 1963) got smacked yesterday. Not enough to do any technical damage; so the assumption remains that the momentum is to the upside. The Averages closed above their 50 day moving averages and within uptrends across all time frames: short (16168-17647, 1901-2068), intermediate (16422-20781, 1843-2643) and long (5083-18464, 762-1999). 

            Volume inched higher; breadth was lack luster.  The VIX rose, finishing above the upper boundary of its very short term downtrend.  A close above that boundary today will confirm the break.  In the meantime, it remains within short and intermediate term downtrends and below its 50 day moving average.

            http://www.capitalspectator.com/sorting-out-market-volatilitys-lessons/#more-3778

            The level of short selling is declining (medium):

            http://www.ft.com/intl/cms/s/0/b5445190-069c-11e4-8c0e-00144feab7de.html#axzz36yJmhjPG

            The long Treasury had another strong up day.  It closed within short and intermediate term trading ranges and above its 50 day moving average.  In addition, it is nearing the upper boundary of a very short term downtrend.  If it fails to push through that boundary, it will set a third lower high which would strengthen that downtrend.  If it does break above it, then it is setting up to test the upper boundary of its short term trading range. 

            GLD inched higher for a second day, remaining above its 50 day moving average and within a short term trading range and an intermediate term downtrend.

Bottom line: yesterday’s pelting of stocks is not unusual, given last week’s advance (consolidation).  On the other hand, with the Averages’ proximity to their all-time highs, a battle over valuation is also not surprising.

I have opined that while I think that the indices will challenge the upper boundaries of their long term uptrends, they are not likely to confirm any penetration.  The recent confusing pin action in bonds and gold supports that notion. 

That said, it takes a lot more than a couple of down days to break a trend as powerful as the current one. 

 As far as stocks are concerned, our strategy remains to do nothing save taking advantage of the current momentum to lighten up on stocks whose prices are pushed into their Sell Half Range or whose underlying company’s fundamentals have deteriorated.

            Two out of three low volatility ramps end in a decline (short):

            http://blog.stocktradersalmanac.com/post/2-Out-Of-3-SPY-Low-Volatility-Periods-End-With-a-Decline

   Fundamentals

     Headlines

            Yesterday’s US economic news consisted of two secondary indicators: weekly retail sales were mixed while the June small business optimism index was below estimates.  While nobody likes disappointing data, two minor indicators are certainly not enough to move the needle on any forecast.

            Overseas, the UK factory output and German industrial production were below expectations.  Those stats are a bit more important in that they are primary indicators and they come from two of the strongest economies in Europe---strongest being a relative term. 

            Alcoa kicked off the earnings season with a beat.  At the moment, expectations for second quarter are sanguine and no one seems to be anticipating any surprises.  So it is probably reasonable to assume that the upcoming weeks will be filled with good news and countless pretexts for higher prices.

            Finally, remember that the minutes from the last FOMC meeting will be released today; so we could have a moment of joy or angst this afternoon depending on how they read.

            Bottom line: equities (as defined by the S&P) are overvalued (as defined by our Model).  But nothing has occurred that forces investors to re-examine the assumptions that have driven prices from Fair Value to the current elevated state.  Until we get that event, momentum will remain to the upside.  To be sure, there are numerous divergences that suggest some distress in the bowels of the Market; but that means nothing until the investors get hit between the eyes with a two by four.

My bottom line is that for current prices to hold, it requires a perfect outcome to the numerous problems facing the US and global economies AND investor willingness to accept the compression of future potential returns into current prices.

 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.

        

            It is a cautionary note not to chase this rally.

            The latest from Marc Faber:

            http://www.zerohedge.com/news/2014-07-08/marc-faber-stocks-could-crash-30-because-obamas-very-poor-president

The case for stocks being reasonably valued (short):

            http://www.ritholtz.com/blog/2014/07/how-expensive-are-stocks-not-terribly/

            It is not different this time (medium):

            http://www.zerohedge.com/news/2014-07-08/saxo-bank-warns-not-different-times

            More on valuation (medium):

            http://advisorperspectives.com/dshort/guest/Lance-Roberts-140708-Mid-Year-Update.php

The Morning Call--Yellen believes that she is being helpful

The Morning Call

5/9/14

The Market

           

    Technical

            The indices (DJIA 16550 [up], S&P 1875 [down]) had another volatile day.  Both ended above their respective 50 day moving averages and their April lows---leaving them in very short term uptrends.  On a more sober note, the Dow rose to and touched its all-time high and backed off for the fourth time; the S&P continued to build a head and shoulders formation.

The S&P closed within uptrends across all timeframes: short (1828-1995), intermediate (1780-2580) and long (739-1910).  The Dow remains within short (15330-16601) and intermediate (14696-16601) term trading ranges and a long term uptrend (5055-17405).  They continue out of sync in their short and intermediate term trends.

Volume declined; breadth was mixed.  The VIX rose fractionally, closing within its short term trading range, below its 50 day moving average and within an intermediate term downtrend.

            More divergences:

            http://dynamichedge.com/2014/05/07/marketview-lost-steam/

            http://www.zerohedge.com/news/2014-05-08/bofa-warns-big-trouble-small-caps-if-line-crossed

            The long Treasury was down, after a poor 30 year bond auction.  I am not sure how to interpret this in the light of its recent performance; but I wasn’t sure why bond prices were rising in the first place.  I worry that there is information in its pin action and I am too stupid to figure it out; so TLT will remain at the top of my list of indicators to watch

            http://www.zerohedge.com/news/2014-05-08/bonds-slide-following-huge-tail-30-year-auction-lowest-bid-cover-august-2011

            GLD was unchanged and ugly.  It is in short and intermediate term downtrends and below its 50 day moving average.

Bottom line: the technicals continue to become more muddled which is reflected in the current highly volatile but directionless Market.  The Averages are bouncing off both resistance and support levels like a pinball.

While that says nothing about the direction in which prices resolve themselves, my default position in situations like this is to stick with the major trends of the senior indices which are flat (Dow, though it is close to breaking above the upper boundary of a trading range) to up (S&P), recognizing that the breakdown in the small cap averages is likely telling us something about future direction. 

In the end, what I think about the ultimate direction the Market takes is a lot less important than recognizing that, at the moment, any opinion about direction is nothing more than a wild assed guess---which is a big determinant of our strategy to do nothing save taking advantage of the current momentum to lighten up on stocks whose prices are pushed into its Sell Half Range or whose underlying company’s fundamentals have deteriorated.

                        The latest from Stock Trader’s Almanac (short):

            http://blog.stocktradersalmanac.com/post/Tech-and-Small-Caps-Drag-DJIA-and-SP-500-Lower-Again-SPY-IWM

                        Update on sentiment (short):

            http://www.bespokeinvest.com/thinkbig/2014/5/8/fewer-bulls-than-bears.html

    Fundamental

     Headlines

            Yesterday’s US economic data was upbeat: weekly jobless claims and April chain store sales were better than expected.  Overseas, the April Chinese trade data was much improved from March and the ECB left rates unchanged.

            On the latter, it is important to note that the issue with the ECB is whether they lower rates---exactly the opposite of the US, Japanese and Chinese central banks.  The ECB’s problem being potential recession/deflation.  Of course, as I have tried to cover in these notes, any decline in rates/easier money policy is not likely to be any more effective at stimulating EU growth than it has been in the US or Japan---for many of the same reasons: (1) over leveraged banks too fearful to lend and cautious businesses and tapped out consumers unwilling to borrow (2) the negative impact of higher imported oil [raw material] prices more than offsetting the benefit of cheaper exports.  In short, if the ECB lowered rates, it would simply be joining in the largely ineffective global QE circle jerk.

            Here is more analysis of the ECB’s latest non-move and Draghi’s press conference (medium):

            http://www.zerohedge.com/news/2014-05-08/not-doing-anything-next-month-would-completely-shatter-ecb%E2%80%99s-credibility

            Yellen completed her testimony before the senate without injecting anymore confusion into the Fed’s monetary policy than was already there.  I continue to believe that she is blowing smoke up all our collective skirts by mouthing easy money while continuing to taper.  What’s more, she will almost assuredly continue to do so as long as the majority believes her bullshit.

            This is an excellent analysis of Fed policy (or lack thereof) and Market expectations (medium and today’s must read):

            http://www.zerohedge.com/news/2014-05-08/new-russia-what-east-ukraine-will-soon-look

            Putin continues his strategy of world domination (just kidding), re-establishing the boundaries of the former Soviet Union and garnering the adulation of the Russian people.  Meanwhile, the US dreams about stopping him by applying sanctions to which the Europeans and likely the rest of the world will at best pay lip service.  My bottom line remains that Putin will get what he wants, when he wants it and from whom he wants it.

            Latest from Ukraine:

            http://www.zerohedge.com/news/2014-05-08/new-russia-what-east-ukraine-will-soon-look

                http://www.zerohedge.com/news/2014-05-08/russia-says-forced-respond-warns-sanctions-not-our-method

                http://www.zerohedge.com/news/2014-05-09/russia-celebrates-victory-over-nazi-germany-putin-visits-newly-acquired-crimea

Bottom line: the economy continues to plug along; the global central bankers, with the notable exception of the Chinese, are living in a dream world in which they believe their policies are not only helpful but can be fine-tuned.  While in times past, central bank policies have been a positive, they certainly aren’t now and fine tuning is a skill these guys have never learned. 

Nonetheless, investors hang on their every syllable, written or spoken, and, in effect, create an environment in which not fighting the Fed becomes a self-fulfilling prophesy.  At some point, either the bond and/or currency markets will call bullshit on QEInfinity or one of the gross mispricing of asset bubbles will explode in the central bankers’ face. The question is, is the recent bond market pin action a precursor of the former?

 http://www.zerohedge.com/news/2014-05-08/art-bubble-also-cracking-21-71-works-fail-sell-latest-sothebys-auction

My bottom line is that for current prices to hold, it requires a perfect outcome to the numerous problems facing the US and global economies AND investor willingness to accept the compression of future potential returns into current prices.

http://advisorperspectives.com/dshort/guest/Lance-Roberts-140508-Expected-Returns.php

 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.

        

            It is a cautionary note not to chase this rally.

               

            Update on the Macro Markets Risk Index (short):

            http://www.capitalspectator.com/macro-markets-risk-index-dips-to-7-8/

            What kills bull markets (medium)?

            http://finance.yahoo.com/blogs/the-exchange/what-kills-bull-markets-150159636.html

            The latest from Marc Faber:

            http://www.zerohedge.com/news/2014-05-08/beware-distortions-ministry-truth-warns-cash-heavy-marc-faber

The Morning Call & Subscriber Alert--The Fed and the declining yield conundrum

The Morning Call

5/8/14

The Market

           

    Technical

            More schizophrenia yesterday as the indices (DJIA 16518, S&P 1878) rallied.  Intraday, the Dow touched and the S&P penetrated its 50 day moving average, but both bounced strongly.  Both finished above their late April lows---keeping their very short term uptrends in place.  On the other hand, the DJIA still hasn’t surpassed its all-time high and the S&P continues to build a head and shoulders pattern.

The S&P closed within uptrends across all timeframes: short (1826-1993), intermediate (1780-2580) and long (739-1910).  The Dow remains within short (15330-16601) and intermediate (14696-16601) term trading ranges and a long term uptrend (5055-17405).  They continue out of sync in their short and intermediate term trends.

Volume was up (contrary to recent trading); breadth was much improved.  The VIX fell, ending within its short term trading range, below its 50 day moving average and within its intermediate term downtrend.  Finally, while I don’t regularly mention the NASDAQ or Russell small cap indices, they are both getting slaughtered.  Can you say divergence?

            http://www.thereformedbroker.com/2014/05/07/russell-breaks-down-negative-divergence-in-nyse-new-highs/

            http://www.zerohedge.com/news/2014-05-07/almost-half-russell-2000-members-are-bear-market

                The long Treasury declined.  It remains within a short term uptrend, above its 50 day moving average and within an intermediate term downtrend.

            GLD continues to perform very poorly, finishing within short and intermediate term downtrends and below the 50 day moving average.

Bottom line: the Averages continue to yo yo within the ranges that they have traded within since the first of the year.  To be sure, they are nearing the upper boundaries of those trading ranges; but they have been there three other times.  As confusing as the increasing number of divergences and the recent bond market performance are, the indices aren’t close to breaking down.  So my assumption remains that the momentum will continue to the upside. 

Meanwhile, our strategy remains to take advantage of this momentum to lighten up on stocks whose prices are pushed into its Sell Half Range or whose underlying company’s fundamentals have deteriorated.

    Fundamental

    

     Headlines

            Yesterday was another slow day for data both here and abroad.  In the US, the good news is that weekly mortgage and purchase applications improved; the bad news is that (1) fourth quarter nonfarm productivity and unit labor costs were awful and (2) consumer credit expanded, driven largely by student loans and auto loans.  Overseas, German factory orders fell 2.3% while French industrial production dropped 0.7%.  All this data is pretty much within the bounds of our forecast.  It would appear that investors greeted the news similarly.

            ***overnight, both Chinese imports and exports grew in April versus a decline in March; and the ECB left interest rates unchanged.

            http://www.bloomberg.com/news/2014-05-07/new-draghi-era-seen-on-hold-at-ecb-as-euro-area-recovers.html

            Or it could be that they only had eyes for Janet.  As you probably know, Yellen testified before the house (she is at the senate today).  Her major points: (1) the economy is improving but (2) given the slack in the labor market and the current low rate of inflation, policy will remain easy. 

            http://www.calculatedriskblog.com/2014/05/fed-chair-janet-yellen-expects-growth.html

Two other points: (1) she avoided committing to the six month timeframe for tightening money [which you will recall she more or less affirmed in her first congressional testimony and it caused all kinds of Market spasms]---a clear sign that she is a fast learner.  That said, it doesn’t mean that the Fed won’t raise rates in six months; it is just not going to commit to it today.  (2) having said that the Fed would remain easy, no one asked [a] isn’t tapering tightening? [b] if not, why not end it completely today? [c] isn’t being easy destroying the savings class? and [d] hasn’t being easy distorted price discovery within all asset classes?  The point here is that the Fed can say anything and no one challenges it.  Investors just want to have fun.

            http://advisorperspectives.com/commentaries/gavekal_050714.php

            Another excellent piece by Lance Roberts; this discussing Fed policy and the declining yield conundrum (medium and today’s must read):

            http://advisorperspectives.com/dshort/guest/Lance-Roberts-140507-Yield-Spread.php

            Putin was out pulling the world’s collective chain, claiming Russia is withdrawing troops from the eastern border of Ukraine.  Yeh, right.  I have this image in my mind of Putin sitting back with his feet up on his desk with a couple of advisors, drinking vodka, smoking cigars and laughing their collective asses off.  ‘Hey, Ivan, what do we do today to jerk these clowns around?  I know, let’s announce that we are withdrawing troops from the Ukrainian border.  If those idiots believe us, we can short the shit out of the rally and then we’ll invade.  We will make a bundle.  Oh and how about this?  Ukraine just got a loan from the IMF.  Let’s raise the price of gas, so the Ukrainians will owe all that money to us.  Is that a good one or what?  Those guys won’t know whether to shit or go blind.  You want another drink?’

            Latest from Ukraine:

            http://www.zerohedge.com/news/2014-05-07/gazprom-boosts-ukraine-overdue-invoice-35-billion-after-kiev-forgot-pay-april-bill

                        http://www.zerohedge.com/news/2014-05-08/east-ukraine-will-hold-independence-referendum-despite-putin-plea-postpone

                        http://www.zerohedge.com/news/2014-05-08/russia-launches-two-icbms-rebuffs-simulated-massive-nuclear-strike-part-military-dri

Bottom line: Yesterday’s economic news was not all that great but the data is well within the parameters of our outlook.  Yellen testimony proved that (1) she is a quick study in being honest [not] and (2) the herd has banked its financial future on the Fed and hence, it will believe anything to rationalize its current investment position.  Which wouldn’t be so bad if stocks weren’t overvalued.  That said until investors get really worried about something for more than a day or two, prices will likely continue to rise.  The question is, is the bond market telling us that ‘something to worry about’ is upon us.  We will know soon enough.

My bottom line is that for current prices to hold, it requires a perfect outcome to the numerous problems facing the US and global economies AND investor willingness to accept the compression of future potential returns into current prices.

 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.

        

            It is a cautionary note not to chase this rally.

               

            Fundamentals haven’t mattered for two years (medium):

            http://www.zerohedge.com/news/2014-05-07/citi-calmly-explains-why-fundamentals-havent-mattered-2-years

            The latest from Marc Faber (medium):

            http://www.zerohedge.com/news/2014-05-07/marc-faber-redux-i-dont-trust-anyone-hold-gold-outside-us

     Subscriber Alert

            In our most recent review of Cato’s (CATO) fundamentals, it failed to meet the minimum criteria for inclusion in the High Yield Universe.  Accordingly, it is being dropped from the High Yield Universe and the High Yield Portfolio will Sell its position at the Market open.

      Investing for Survival

            Seven tips to make your retirement saving last:

            http://www.usatoday.com/story/money/columnist/brooks/2014/05/06/retirement-401k-pension-savings/8695897/

The Morning Call---Schizophrenia and follow through

The Morning Call

4/11/14

The Market

           

    Technical

            Who woulda thunk?  After a gangbusters Wednesday, the indices (DJIA 16170, S&P 1833) got shellacked yesterday.  Nevertheless, little changed in their primary trends; although the S&P broke below its 50 day moving average and the Dow closed right on its.  Other than that, the S&P closed within uptrends across all timeframes: short (1802-1979), intermediate (1752-2552) and long (739-1920). The Dow remained within short (15330-16601) and intermediate (14696-16601) term trading ranges and a long term uptrend (5050-17400).  The question now, will there be any follow through to the downside or was yesterday just another reflection that volatility is increasing but directionless. 

            Volume rose (the pattern continues); breadth was terrible.  The VIX soared 15%, finishing within a short term trading range and an intermediate term downtrend and above its 50 day moving average.

            The long Treasury popped above the upper boundary of its short term trading range.  As a result, I am making the call, confirming the break of the short term trading range, re-setting with the very short term uptrend becoming the short term uptrend.  It remains above its 50 day moving average but within an intermediate term downtrend.

            GLD rose, it continues to trade within short and intermediate downtrends.  It did manage to close above its 50 day moving average.

Bottom line:  I noted in yesterday’s Morning Call that the key technically was follow through to the upside.  Schizophrenia being what it is, the key today is also follow through although this time to the downside.  Clearly, stocks for the moment remain in directionless volatility; although I would add that yesterday’s pin action did nothing to improve the problem of growing divergences.

Direction aside, given the proximity of the Averages to the upper boundaries of their long term uptrends and the degree of stock overvaluation (as calculated by our Model), there is really not much to do save using any price strength that pushes one of our stocks into its Sell Half Range and to act accordingly.

            Bears 2, Bulls 1 (short):

            http://humblestudentofthemarkets.blogspot.com/2014/04/bears-2-bulls-1.html

    Fundamental

    

       Headlines

            The only US economic datapoint released yesterday was weekly jobless claims which fell much more than anticipated.  That’s good and supportive of our forecast.

            But it was the overseas developments that held my attention:

(1)   Greece floated its first long bond issue in a couple of years and, astonishingly, below the 5% level.  To me, that was a stunner.  Not that Greece hasn’t made some progress from its darkest hour.  Not that I would argue with investors that follow a contrary opinion strategy being interested in buying Greece on the cheap.  But this offering wasn’t cheap and it was oversubscribed by a factor of three, suggesting to me that this wasn’t a bunch of contrary opinionists; this was more of the same old carry trade, yield chasing crowd.  You want a definition of ‘irrational exuberance’, you got it---which by the way is not a plus sign for the Market,

(2)   Chinese March exports and imports were down significantly---pointing to continuing economic weakness.  Further, another bond issue moved into default.  And finally, the Chinese premier said that there was no plans for stimulus.  Now I will concede that these guys lie---a lot; but for the moment none of the above is good news for China, the EU or the US,

http://www.zerohedge.com/news/2014-04-10/china-premier-li-no-major-stimulus

(3)   Japanese machinery orders were very disappointing, indicating that the economy continues to deteriorate.  The government’s solution?  QEInfinity squared.  Why?  Because the ruling class thinks that it is smarter than the Market---generally a prescription for disaster,

(4)   the tensions in Ukraine are intensifying.  Fingers are pointing; activists in both camps [Ukraine, Russia] are taking to the streets; and sabers are rattling.    Clearly, diplomacy could keep this crisis under control.  That said, I keep remembering Putin’s ‘greatest tragedy of the twentieth century’ comments.  Combined with his healthy disrespect for Obama, I can’t help thinking this situation is going to end the way Putin wants it to end---fuck diplomacy.

           

                 Latest from Ukraine:

                 http://www.zerohedge.com/news/2014-04-10/donetsk-creates-peoples-army

                http://www.zerohedge.com/news/2014-04-10/satellite-photos-released-revealing-russian-military-build

                The big question of the day was, what in the world happened to Wednesday’s ‘money for nothing’ euphoria?   Most likely it was my second hypothesis, i.e. the dovish FOMC minutes were just a convenient excuse for relieving an oversold condition.  I assume that this means that the Market is as confused as ever about Fed policy---and for good reason because I believe that the Fed is as confused as ever about Fed policy.  That is not a positive, in my opinion, in that it likely increases the odds of the Fed bungling the transition process to tighter money and the risks that this process will not end well for the Markets.

            Comments from another Fed member (short):

            http://www.zerohedge.com/news/2014-04-10/fed-blame-bursting-tech-bubble

            The Market is rigged and the Fed is the biggest rigger (medium):

            http://www.marketwatch.com/story/flash-boys-forever-rigging-stocks-is-the-american-way-2014-04-09?pagenumber=1

Bottom line: thank God for American business, because its outstanding execution is keeping the economy improving, however sluggishly.  That is about the only positive thing I can say.  Our ruling class keeps throwing monkey wrenches in the wheels of economic progress; the Fed is making matters worse by adding confusion to the mix.  Overseas, the Chinese are doing the right thing for the long term but assuming they stick to their guns, the short term effects will be negative.  Everywhere else, the ruling classes are, pursuing the same old ineffective policies they have followed for years---except for Russia who, if indeed it is turning over a new leaf, will increase the heat in global tensions.  And none of this is being reflected in stock prices (well, maybe yesterday was a precursor).

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.

        

            It is a cautionary note not to chase this rally.

            The latest from Marc Faber (2 minute video):

            http://www.zerohedge.com/news/2014-04-10/marc-faber-warns-market-waking-how-clueless-fed

            Timing is extremely important (medium):

            http://advisorperspectives.com/commentaries/tocqueville_041014.php

            The latest from Keith McCullough (4 minute video):

            http://app.hedgeye.com/media/945-mccullough-what-s-working-right-now-and-what-s-not

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Investing For Survival is to help other investors build wealth and benefit from the investing lessons he learned the hard way.

Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Investing For Survival is to help other investors build wealth and benefit from the investing lessons he learned the hard way.

The Morning Call--Yellen makes a stick save

The Morning Call

4/1/14

The Market

           

    Technical

Yesterday was a great one for the indices (DJIA 16457, S&P 1872).  The S&P closed within uptrends across all timeframes: short (1789-1966), intermediate (1747-2547) and long (739-1910).  The Dow remains within short (15330-16601) and intermediate (14696-16601) term trading ranges and a long term uptrend (5050-17400).  They continue out of sync in their short and intermediate term trends---which leaves the Market trendless.

Volume was up fractionally; breadth was mixed.  The VIX got whacked, finishing within its short term trading range and its intermediate term downtrend and breaking below its 50 day moving average.

The long Treasury was down, closing right on the upper boundary of its short term trading range; so I am again putting off re-setting a trend change.  It is also in an intermediate term downtrend but remained above its 50 day moving average.

http://blogs.wsj.com/moneybeat/2014/03/30/parsing-interest-rates-surprise-decline/

GLD fell again, staying within a short and intermediate term downtrend and below its 50 day moving average.

Bottom line:  at the risk of sounding like a party pooper, yesterday was the end of the quarter and typically the time that fund managers ‘paint the tape’ in order to make their quarterly performance look good and help out with the bonuses.  Further, volume remained low, breadth was mixed (only 50 out of 156 stocks in our Universe are above, at or near their prior highs), the NASDAQ is getting pulverized and the Averages still didn’t make it above their last lower high. 

That said, the Market’s historically turn in their best performance in the March/April period.  So I still argue that the upper boundaries of the Averages long term uptrends will likely be challenged; and yesterday could well be the start of that process.  But the factors listed above suggest a lessening in the underlying strength of equities and in the likelihood that those boundaries can be challenged successfully.

            http://www.zerohedge.com/news/2014-03-31/242-billion-how-much-record-window-dressing-banks-got-today-thanks-fed

Meanwhile, we have a trendless Market; so there is really not much to do save using any price strength that pushes one of our stocks into its Sell Half Range and to act accordingly.

            US funds raising cash (medium):

            http://www.reuters.com/article/2014/03/31/us-funds-poll-usa-idUSBREA2U0ML20140331?feedType=RSS&feedName=businessNews

            Secular bull and bear markets (medium):

            http://advisorperspectives.com/dshort/updates/Secular-Bull-and-Bear-Markets.php

    Fundamental

     Headlines

            Yesterday’s US economic data was mixed: the March Chicago PMI was below expectations while the Dallas Fed manufacturing index was above (mixed is OK). 

            Overseas, Japan’s March industrial output and PMI were disappointing (not what Abe wanted to hear), EU inflation was below estimates (not what the ECB wanted to hear) and the Greek parliament passed some painful legislation in order to receive the next tranche of aid (not what the Greek electorate wanted to hear).

            ***overnight, another Chinese company defaults (medium):

            http://www.zerohedge.com/news/2014-04-01/second-chinese-bond-company-defaults-first-high-yield-bond-issuer

            Not a lot for the Market to be pleased with---but Yellen made a stick save by giving what was probably her most dovish speech in some time.  If all the prior confusing signals from the Fed were ignored, then it would appear that Fed policy is back to its ‘free money to infinity’ policy.  Of course, you can’t exactly ignore all that prior rhetoric.  So I continue to (1) rate Fed policy as ‘confused’, (2) believe that [a] it is because the Fed is confused and [b] it increases the already substantial probability that the Fed will bungle the transition process to normalized monetary policy.

            I knew the ruling class wouldn’t be quiet for long.  Today, the senate will begin investigating Caterpillar because it hired a high powered tax accounting firm to devise a strategy to exploit the US tax law (i.e. avoid taxes) to its maximum extent---something that it has every right to do.  But rather than working on simplifying the tax law, our senators would rather grandstand by beating up on a corporation for taking advantage of the laws that they passed.  That ought to help stimulate capital spending and create jobs---what a bunch of morons.                        

Bottom line: Yellen further muddied the Fed policy discussion by sounding quite dovish in a speech yesterday.  With all the conflicting signals, you would think that investors wouldn’t know whether to shit or go blind.  But ever the optimists, they continue to view any news as good news.  I don’t think that a great prescription for determining investment strategy---but what do I know?  As I said above, I think that the conflicting signals are just a disguise of the Fed’s own uncertainty and that this episode is not likely to end well.  

Meanwhile, the bad economic news continues out of Japan and the EU, the Chinese have yet to make those stimulative policy changes promised last week and Putin is playing Obama like a Stradivarius.  To date, policy makers have been able to keep these simmering crisis under control; and may very well be able to do so forever.  But, in my opinion, stocks have no potential for these negative factors priced in.  Indeed, the only thing they seem to have priced in is higher growth and greater stability into the next decade.  I am sorry, I don’t have the balls to bet all my money on such an outcome.

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.

        

            It is a cautionary note not to chase this rally.

             The latest from John Hussman (medium):

            http://advisorperspectives.com/commentaries/hussman_033114.php

            Tapering and loan growth (short):

            http://soberlook.com/2014/03/us-benefiting-from-reduced-policy.html

            EU banking system time bomb (medium):

            http://www.commondreams.org/view/2014/03/29-4

            More:

            http://pragcap.com/eurozones-credit-contraction-continues

            The latest from Marc Faber (medium):

            http://www.zerohedge.com/news/2014-03-31/mark-faber-old-world-order-over

            The latest from David Stockman (medium):

            http://www.zerohedge.com/news/2014-03-31/david-stockman-why-we-are-plagued-drivel-masquerading-financial-reporting

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Investing For Survival is to help other investors build wealth and benefit from the investing lessons he learned the hard way.