Thursday, September 01, 2011

Before the Bell 9/1/11


The Market

Technical


The Averages (DJIA 11613, S&P 1218) finished the day well within their intermediate term trading ranges (10725-12919, 1101/1172-1372) and at the upper zone of their very short term up trend. As I noted yesterday, what I am now focused on is the lower boundaries of those up trends (circa 10995, 1134) as well as the lower boundaries of the intermediate term trading ranges.

Where stocks find support on the next sell off will tell us a lot about bias of the Market; and make no mistake, I believe that there will be another test of support: (1) in a technical sense, stocks are getting overbought , (2) September/October are seasonally the worse performing months on the calendar by a wide margin.

Volume picked up; breadth improved. The VIX was off and closed right on a very short term support level. If that support holds, that is probably not good for stocks.


GLD sold off a bit but remains well within the boundaries of all (short, intermediate and long) of its trends.

Bottom line: stock prices look a bit over extended technically speaking; so some weakness in the near future would not be surprising. What is important is the level of the next low. I will be watching that and assuming equities at least hold the early August lows; our Portfolios will put additional money to work.

A great article by Doug Kass on how high frequency trading is killing the Market (medium and today’s must read):
http://www.thestreet.com/story/11235772/1/kass-the-newest-financial-weapons-of-mass-destruction.html

Here is Streettalk Advisors technical review of the Market’s current status (medium):
http://www.zerohedge.com/news/guest-post-bear-market-bounce-or-new-bull-market

And some stats on September to December performance following a lousy summer (short):
http://tickersense.typepad.com/ticker_sense/2011/08/september-after-a-summer-slide.html

And this (short):
http://www.bespokeinvest.com/thinkbig/2011/8/31/wake-me-up-when-september-ends.html

Finally, some charts plotting breadth (short):
http://www.bespokeinvest.com/thinkbig/2011/8/31/sp-500-and-sector-breadth.html

Fundamental

Headlines


We got a couple of welcome surprises on the economic front yesterday: (1) the August Chicago purchasing managers survey came in at 56.5 which while lower than the July reading of 58.8 was nonetheless higher than expected [54.0], (2) July factory orders were up 2.4% versus expectations of up 2.0%. So the industrial sector continues to carry the recovery however meager it may be overall. That news set the tone for the day and it carried through to the close.

There were a couple of other news items worth mentioning:

(1) the Justice Department filed to block the merger of ATT and T Mobile. I am not a lawyer and know enough from my day in risk arbitrage about anti trust to be dangerous; but I don’t understand this move on political grounds. As a condition for this deal going through ATT had pledged to bring 5,000 overseas jobs back to the US. In addition, it pledged to invest billions in wireless infrastructure; and experts say that each $1 million in infrastructure spending will create 15 jobs. You do the math. Unless I am mistaken, Obama is about to make a speech in which He will emphasize expanding the economy and jobs by investing in infrastructure. His [taxpayer] cost in the ATT merger is $0. I am sure there are costly antitrust implications in this merger or DOJ wouldn’t have done what they did. But if my number one objective was to create jobs, I would be busting my hump to make this transaction work.

(2) and speaking of Obama’s jobs speech [and I wish that I hadn’t], the pettiness factor has reached an all time high among our elected representatives. Obama wants to give His speech Wednesday which happens to be the night of a republican presidential debate and Boehner wants Him to give Thursday, the kick off night for NFL football [Packers vs. Saints]. Personally, I don’t give s*** when He makes the speech because He isn’t going to say anything worthwhile anyway. But what do you think this trite bickering means in terms of our political class coming together to solve our much more complex economic problems? And you wonder why I am cynical about any substantive improvement in the economy before November 2012?

Bottom line: stocks are undervalued based on our economic forecast; consequently as I have noted, now that the technical picture has improved, I want our Portfolios to be Buying stocks. That said, given that the Three Stooges reign supreme, I think patience and cash will be rewarded with an opportunity to continue to nibble at lower prices.