Tuesday, September 20, 2011

Before the Bell 9/20/11


The Market
Technical


The indices (DJIA 11401, S&P 1204) sold off yesterday but closed above the lower boundaries (11290, 1156) of their respective short term up trends and well within their intermediate term trading ranges (10725-12919, 1101-1372).

Volume and breadth were both down. As you might expect, the VIX rose and remains near the upper level of its current trading range.


GLD got whacked and closed below (1) not only the lower boundary of its short term up trend for the fourth trading day and hence, confirming the break of that trend, (2) but also below the initial support level. A further decline would prompt the sale of a portion of this position.

Bottom line: as ugly as the first hour of yesterday’s pin action was, the Averages finished the day in sound technical shape. Intraday, the DJIA actually touched the lower boundary of its short term up trend and bounced which I consider a good sign (the S&P never got close). Additional weakness down to the lower boundary of the short term up trend would likely prompt buying by our Portfolios.

Stocks above/below their 50 day moving average (charts):
http://www.bespokeinvest.com/thinkbig/2011/9/19/sp-500-and-sector-percentage-of-stocks-above-50-day-moving-a.html

Fundamental

There was no economic data reported yesterday. However, my guess is that even if there was, it wouldn’t have mattered. The Greek/EU financial crisis monopolized investor attention as once again the EU financial ministers in a weekend meeting couldn’t agree on the terms of a Greek bailout beyond the steps that were taken last week (a short term bridge loan for Greece and the dollar funding facility) and Greece continued to scramble to develop an austerity plan that is acceptable in those countries (Germany and France) providing that bridge loan. Those developments put stocks into a water fall formation in the first hour of trading.

Then later in the day, rumors swirled that Greece and the EU finance ministers were close to terms on the bail out of Greece. That got stocks moving higher. While they still ended down for the day, much of the initial damaged was mitigated.
http://www.hussman.net/wmc/wmc110919.htm

As a side show, Obama presented His ‘new budget’ which was not new; it was simply the same old sh** with some lipstick on it. It is DOA and everyone knows; just like they know it is a political not an economic agenda that sets the stage for the 2012 debate. To which I say, bring it on.

Yawn. Another new plan.
http://www.powerlineblog.com/archives/2011/09/1-5-trillion-in-new-taxes-ho-hum.php

Bottom line: look I said last week that the Greek/EU sovereign debt problem was not going away and that we were in for plenty of volatility even if the ‘wet dream’ scenario occurs. So we got some of that volatility yesterday. The good news is that (1) tiny steps continue to move resolution of Greek solvency forward, even if that means an orderly default [indeed I have argued that the bullish case is an orderly Greek default sooner rather than later], (2) gold was down big yesterday which suggests to me that somebody out there is getting more positive on the EU financial crisis and (3) lower stock prices equal better value. Our Portfolios will be Buying more soon.

Finally, Obama’s new budget proposal is meaningless blather. It has nothing to do with stock prices because, as you know, a sluggish economy and a second rate political class are the basic assumptions of our Valuation Model.

CNBC $1 million Challenge

As you know, I am anything but a trader. However, I enter this contest for grins and to see how our stocks perform in very short term time horizon. So each day I will provide a list of holdings.

Dividend Growth: GLD, TGT, CMR, IBM, SIAL

High Yield: GLD, CATO, SNY, FII, EMLC (Emerging Markets local currency bonds)

Aggressive Growth Portfolio: GLD, SEIC, LOW, APH

International; GLD, EWC, EPI, EMLC

All In: GLD, EMLC, CME, APH, MDVN (Medivation)