Friday, September 09, 2011

Before the Bell 9/9/11


The Market

Technical


The Averages (DJIA 11295, S&P 1185) traded over a wide price range (again) yesterday, but remained well within their intermediate term trading ranges (10725-12919, 1101/1172-1372). The other support levels that I am watching are the lower boundaries of the short term up trends--which now intersect at 11117, 1143.

Volume was flat; breadth declined. The VIX rose and, therefore remains in the upper zone of its current trading range.


GLD again rebounded (sharply) off the lower boundary of its short term up trend, giving additional strength to this support line. I am now watching the 185.00 level which looks like a double top. If GLD can’t get through this level, it would be bothersome.

Bottom line: technically speaking, stocks are at a level where my focus is on Buying opportunities IF support levels are tested and hold. GLD’s volatility makes me nervous because it seems to be caught between the lower boundary of its short term up trend and what looks like a double top. Given our Portfolios’ relative full position, a break below the lower boundary of the short term up trend will likely prompt some sales while a break to the upside will only result in much joy.

Fundamental

Headlines


Yesterday’s economic data held both good news (a sharply lower July trade deficit) and bad news (higher weekly jobless claims). However, investors’ attention was dominated by the political class:

(1) the European Central Bank cited slowing growth rates among its members as a reason for halting its monetary tightening policy. It didn’t ease, mind you. But it declined to again raise interest rates. As I noted previously, when the global debate is whether Europe either implodes or simply slides into a recession, it is another of those Three Blind Mice imponderables that officialdom is still wedded to monetary tightness--not something that will bolster forecasts for global growth,

(2) the Italian senate and French lower house approved measures to strengthen the EFSF [an additional EU bail out fund]. While a full implementation [funding] for the EFSF is a ways away, a little progress is better than none.

P.S. today is D Day for the Greek bond swap, a critical part of the second rescue package (long):
http://www.zerohedge.com/news/d-day-greece-and-another-eurocalypse-report-goldman-sends-europe-tumbling-once-again

(3) Bernanke, in a much anticipated speech, basically said nothing. OK, not nothing. What he did say was that the Fed would consider additional steps in monetary easing while declining to mention any of those steps. Investors were not happy with that, i.e. it was generally credited with the late day sell off. I, on the other hand, said three Hail Mary’s. After all on this side of the Atlantic, we can’t agree on the number of billions/trillions of dollars that have already been thrown at the financial system. Granted much of it remains as bank reserves and therefore, at the moment, poses no inflationary threat. But clearly the risk here is not choking off economic activity via tight money; it is how quickly the Fed can withdraw all that liquidity once economic activity picks up. So I applaud the Ber-nank’s reticence and once again, I think investor sentiment wrong.

(4) finally, how can I not mention last night’s jobs speech by Obama? Yesterday, the air waves were choked with analysis of the text of His address which has already been leaked. As I noted, the principal proposal is a $450 billion stimulus bill consisting of tax cuts and infrastructure spending. Frankly, I am not sure what there is to analyze here. The political class has already given us an $800 billion dollar stimulus bill consisting of tax cuts and ‘shovel ready’ projects. How did that work out? So now a program half the size is somehow going to work better? I would have loved to have to re-write this portion of this morning’s notes because He announced something truly meaningful.


P.S. to His credit, He mentioned [operative word] [a] the three free trade agreements, [b] deregulation and [c] raising the mandatory spending to be enacted by November. The cynic in me suspects that this is election year rhetoric. If it happens, all the better for the American people; if not, all the worse for Him.

This was written before Obama’s speech; but since most of it was leaked, the analysis is right on. (medium):
http://www.thedailybeast.com/articles/2011/09/08/obama-s-300-billion-jobs-plan-will-fail-could-begin-end-of-his-presidency.html

And this on job creation (short):
http://cafehayek.com/2011/09/everything-thats-wrong-with-macroeconomics.html

Bottom line: the economy continues to stumble along amidst an uncertain data flow (poor jobs, improving trade deficit). Our political class continues to walk around with their thumbs up their collective a**es. It is likely that our only hope for a stronger economy is November 2012. The good news is that all this bad news is reflected in our Model. The bad news is that the EU political class is no better than our own and they face a much more significant challenge. The worse case end game of the EU scenario is not in our Model; but I think it is at least partially discounted in current stock prices. Not promising but this is all leading to a buying opportunity.

Stock buy backs are at the highest level since 2008 (short):
http://tickersense.typepad.com/ticker_sense/2011/09/share-buybacks-strongest-since-2008.html

Subscriber Alert

The stock price of Sigma Aldrich (SIAL) has fallen below the upper boundary of its Buy Value Range. Accordingly, it is being Added to both the Dividend Growth and Aggressive Growth Buy Lists. Both Portfolios own a full position in SIAL so no additional shares will be purchased.

The stock price of Blackrock (BLK) has fallen below the upper boundary of its Buy Value Range. Therefore, it is being Added to the Aggressive Growth Buy List. The Aggressive Growth Portfolio owns an 80% position in BLK. Additional shares may be Bought at a later date.



 


Original content Steve Cook, All American Investor