Thursday, August 11, 2011


By Steve Cook
All American Investor

The Averages (DJIA 10719, S&P 1120) had another rough day. Both took out another support level (10725, 1172). The problem now is that there is no further visible support until 9645, 1041. So technically speaking, there is nothing to suggest that this Market will bottom anytime soon.

Fundamentally, the US economy continues to limp along--not crater. The EU remains a problem and could ultimately impact US economic growth if the worse (multiple sovereign/bank bankruptcies) happens--although we need to keep in mind that our own financial institutions are in decent shape today; certainly more so than 2008. I continue to believe this sell off reflects the complete loss of confidence in the western political class--which in my opinion is warranted.

That implies that what turns this Market around is either this lack of confidence gets fully reflected in price or a move by Obama/congress to rationalize the US tax system (lowering rates) and institute spending cuts larger than those contained in the recent debt ceiling agreement. I am not sure when, as or if either of these occur; but if one or the other does, it will likely be impossible to buy stocks anywhere near current levels.

Gold is now off the charts in terms of any normal trend analysis. Historically, this suggests that we should be scaling back further in this holding--not because the financial conditions aren’t currently in place that would drive gold prices higher in the long term; but because current prices are discounting so far into the future that the risk of a change in fundamentals could alter its value.

Bottom line: barring a dramatic rebound from current price levels, the technical risks remain substantial. Another big down day and our Portfolios will resume nibbling. In addition, they will likely take further profits in gold. I got a lot of hate mail when we took our initial step reducing our gold position. So for the true believers please don’t write again. I am aware of your opinion and passion. However, I have to remain true to my own Price Discipline, your arguments notwithstanding.

Original content Steve Cook, All American Investor