Thursday, August 18, 2011

The Morning Call (8-18)


By Steve Cook
All American Investor

I have to have my wife at the hospital tomorrow morning at 5am for an out patient procedure and will be there till 11-12. So tonight is an abbreviated Morning Call.


The Market

Technical

The indices (DJIA 11410, S&P 1193) had a calm day (for a change), finished the day basically flat and, therefore, remain in the lower quadrant of their recently re-set trading ranges (10725-12919, 1172-1372). I view the lack of follow through from Tuesday’s decline (on seemingly bad news) as a positive.

Volume has back to very low levels; breadth improved somewhat. The VIX was down again but remains relatively high (not good).

GLD was up fractionally and remains the bright spot in our Portfolios. It is close to being a bit overextended to the upside; so our Portfolios will likely make another trading sale, recognizing that the last one was clearly premature.

Bottom line: a little price stability like we experienced today is a welcomed respite from the volatility of the last 10 days. But I am not sure it will continue. I still think that there is a decent probability of at least a test of the recent lows; so I only want to Buy stocks on weakness.

Fundamental

Headlines

Today’s economic data was not that great--lousy mortgage purchase applications as well as unexpectedly hot headline and core PPI numbers. However, the good news seems to have been that there was no new bad news out of the EU; so that gave investors a chance to take a breadth.

The only other news was the media focus on Obama’s bus tour and His persistent stump speech that He has a new plan to create jobs and cut the budget deficit. He still seems to be able to send a thrill down the media’s leg when He pontificates on His coming grand proposals. If He does it, then no one will be happier than and me; and I will be the first to apologize for my skepticism. BUT Obama has never done anything to reduce the budget (oh, I forgot His healthcare plan will reduce Medicare costs) and I don’t think that either He or the crowd that advices Him have a clue about how to create anything other than more government jobs. In other words, the proof of the pudding is in the eating; and He has yet to put anything on the table.

Bottom line: stocks are undervalued as calculated by our Model. As yet, I see nothing in the US economic data that would cause me to question it. However, the EU sovereign debt issue is still in a state of flux and could very well be worse than the current assumptions. The question that I posed yesterday was, how much of that potential bad news is already in the price of stocks? I gave no answer except that I want to be circumspect in my current reinvestment process.



Original content Steve Cook, All American Investor