Tuesday, September 13, 2011

Before the Bell 9/13/11



The Market

Technical


The indices (DJIA 11061, S&P 1146) started the day to the downside in response to some rough news out of the EU (Greece near default, Germany developing a plan to protect its banks were this to occur), see sawed through most of the day and then rallied on the close. They finished the day within their intermediated term trading ranges (10725-12919, 1101-1372). While the intraday bounce left the S&P above the lower boundary of its short term up trend (1146), it didn’t have enough mustard to get the DJIA back above the lower boundary (11169) of its short term up trend. That leaves the Averages out of sync.

Volume was flat; breadth improved. The VIX fell but still closed in the upper zone of its current trading range (not a positive for stocks).


GLD got whacked hard and closed below the lower boundary of its short term up trend. That is not good for GLD; but our time and distance discipline applies here; so for the very short term, our Portfolios are taking no action.

Bottom line: if the DJIA can recover above the lower boundary of its short term up trend, then that lower boundary will have held through four unsuccessful challenges. While that doesn’t mean that August (10725, 1101) marked the low of the current sell off, it certainly increases the likelihood. A little improvement in the DJIA and our Portfolios will begin nibbling again.

Fundamental

Headlines


No economic data yesterday. As I suggested above, all eyes remain on Europe. Over the weekend, Greece rolled relentlessly toward default, rumors abounded that Moody’s was going to downgrade the ratings of the large French banks and Germany was working on a plan to protect its banks if Greece defaulted/restructured. Meanwhile, the G7 was wining, dining and watch the girls in Marseilles and otherwise doing nothing but wasting taxpayer money. No wonder the EU bourses were down 3-4% on the day.
http://advisorperspectives.com/commentaries/pimco_91211.php

However, Mighty Mouse was on the way to save the Three Blind Mice, i.e. China is purportedly negotiating with Italy on the purchase of its debt; and that turned our Market. Before getting all oogy boogy, remember that (1) China did the same thing with Greece and Portugal earlier this year with a diminimus result and (2) even if it happens, the immediate problem is Greece and buying Italian bonds does nothing to solve that.

Well, maybe not (short):
http://www.zerohedge.com/news/reminder-here-what-china-really-thinks-about-italian-bond-purchases

P.S. the over night auction of Italian bonds was a bust (medium):
http://www.zerohedge.com/news/europe-imploding-again-following-another-ugly-italian-bond-auction-wsj-article-discussing-frenc

The difference between the EU debt crisis and Lehman Bros (medium):
http://scottgrannis.blogspot.com/2011/09/is-greece-another-lehman.html

Back in the good ol’ US of A our taxer-in-chief revealed how He would pay for all those jobs that His new and improved stimulus program will create (as opposed to the jobs His former/discredited stimulus plan created). Not. Jesus, this is painful.
http://www.zerohedge.com/news/cost-obamas-stimulus-plan-312500-job-vote-created-or-saved-and-guess-who-paying-it

And (medium):
http://www.zerohedge.com/news/rosenberg-latest-helping-smoke-and-mirrors-obama

Bottom line: a Greek bankruptcy seems inevitable and the precarious position of the EU banking system is being publicized in two inch headlines. So this is not new news; and yet stock prices couldn’t even challenge their August lows. I think that this suggests that a Greek default/restructuring and serious heartburn in the EU banking system is in the price of equities. Certainly, there is nothing pointing to lower volatility; so our collective blood pressures are apt to stay in the red zone. However, I am gaining confidence that August marked the lows. That said, I don’t want to commit cash till the DJIA and the S&P are in sync.