The Morning Call
10/3/14
I leave immediately to take care
of some family business. No Closing
Bell. See you Monday morning.
The Market
Technical
After
another roller coaster day, the indices (DJIA 16801, S&P 1946) closed flat. The Dow finished within its short
(16332-17158) and intermediate (15132-17158) term trading ranges and a long
term uptrend (5148-18484). It is also is
in a very short term downtrend and fell below its 50 day moving average.
The S&P
finished below the lower boundary of its short term uptrend (1965-2156) for a
second day. If it remains there through
the close today, the short term trend will re-set to a trading range. It remained within its intermediate term
(1935-2735) uptrend, though it penetrated its lower boundary intraday and
recovered. It is possible that this is
signaling that the 1935 will prove the low of the current decline. Time will tell. It is also within a long term uptrend
(771-2020). Finally, it finished below
its 50 day moving average.
Volume
fell; breadth was mixed. The VIX
declined but remained within its very short term uptrend and above its 50 day
moving average. However, it is also
still within short and intermediate term downtrends.
The
long Treasury was lower. It finished
within its very short term uptrend, its short and intermediate term trading
ranges and above its 50 day moving average.
GLD
was up fractionally but closed within its very short term, short term and
intermediate term downtrends and below its 50 day moving average.
Bottom line: the
Markets took a rest yesterday; though the S&P, the most important indicator
at the moment, remained below the lower boundary of its short term uptrend. On the other hand, it broke but couldn’t
sustain the lower boundary of its intermediate term uptrend. How this index trades near term should tell
us a lot about Market direction (the sustainability of the current very short
term downtrend).
Still as I noted
yesterday, even if the S&P confirms the break of both the short and
intermediate term uptrends, it will leave it in trading ranges; and if those
ranges are similar to the DJIA ranges and they hold, then the downside risk,
technically speaking, would be limited (2-4%).
That said,
confusion and schizophrenia now mark the pin action which I believe makes for a
dangerous market to take any action save for the most skilled and nimble
trader. Our strategy remains: ‘it
is not too late to Sell stocks that are near or at their Sell Half Range or
whose underlying company’s fundamentals have deteriorated.’
Fundamental
Headlines
Not
much US economic data yesterday: weekly jobless claims were somewhat disappointing
and factory orders, while down huge, simply reflected a reversal of a large
rise in aircraft orders the prior month.
Nothing here.
Overseas,
the big news was that the ECB left interest rates unchanged---which proves once
again that Draghi’s ‘whatever is necessary’ line was just bullshit. QE hasn’t worked, the Germans know it whether
Draghi does or not and they are not going to acquiesce to bailing out southern
sovereigns and their banks.
The
EU’s losing battle to recover (medium):
***overnight,
EU Markit nonmanufacturing PMI’s were down across almost all countries.
Bottom line: investors
spent the day mostly awaiting today’s nonfarm payroll number. So its report should set the tone for the
Market, at least in the very short term.
Long term, investors are still faced with, what in my opinion is, an
untenable investment equation: deteriorating fundamentals and overvalued assets.
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 Gary Shilling (medium):
More
on valuation (short):
Thoughts on Investing from Ned Davis
If you want to know if it’s worth
your time to spend an hour with this legendary technician, consider what Ned
calls the four basic traits of successful investors:
1. They look
at objective indicators. Removing the emotions from the
investing process, they focus on data instead of reacting to events;
2. They are Disciplined: The data drives decision making with pre-established rules. External factors do not influence them;
3. They have Flexibility: The best investors are open-minded to new ideas, or revisiting previous thoughts;
4. They are Risk adverse: Not always obvious to investors, it is a crucial part of successful investing.
2. They are Disciplined: The data drives decision making with pre-established rules. External factors do not influence them;
3. They have Flexibility: The best investors are open-minded to new ideas, or revisiting previous thoughts;
4. They are Risk adverse: Not always obvious to investors, it is a crucial part of successful investing.
News on Stocks in Our Portfolios
Economics
This Week’s Data
August
factory orders fell 10.1% versus expectations of a 9.3% decline. Recall that July orders soared 10.5% on a
surge in transportation (aircraft) orders.
Hence, the August reading isn’t nearly as bad as it appears on the
surface.
September
nonfarm payrolls rose 248,000 versus estimates of 215,000; the unemployment
rate fell to 5.9% versus forecasts of 6.1%; plus July and August numbers were
revised up.
Other
For
the optimists (short):
IMF
suddenly discovers disconnect between the global economy and the global markets
(short):
Politics
Domestic
International
Europe’s
coming collapse (medium):
