Before the Bell 10/14/11

The Market

Technical

The indices (DJIA 11476, S&P 1203) traded off yesterday, though I was a bit surprised by how little. They remain within their intermediate term trading ranges (10725-12919, 1101-1372); and despite a return of some volatility, neither even attempted to challenge the ‘lower high’ level (11548, 1219) that I mentioned yesterday.

Volume fell; breadth weakened. The VIX was off fractionally; so it again finished the day inside the upper zone of its current trading range.

GLD declined but remains well within its intermediate term up trend.

Bottom line: further weakness would not be surprising just because stocks have run so far so fast. Indeed, as I noted above, I had expected a bigger drop yesterday than we got. Nevertheless, given the seasonal bias of October, lower prices are likely.

Bullish sentiment continues to rise (short):
http://www.bespokeinvest.com/thinkbig/2011/10/13/investor-sentiment-rises-for-third-straight-week.html


Fundamental

Headlines

Again, not much economic data to digest yesterday: both weekly jobless claims and the August trade deficit inched up but by less than anticipated. Zzzzzzzzzzzz

The day started out on a down note following the early morning very disappointing earnings release of JP Morgan. It along with the rest of the financial sector headed down hard and took the rest of stocks with them.

Later in the morning, the eurocrats started making positive noises in response to the earlier passage of the EFSF expansion vote by the Slovakian parliament. There are a number of trial balloons being floated. This gives a summation of them (medium):
http://www.zerohedge.com/news/van-rompuy-and-barroso-announce-%E2%82%AC440-billion-efsf-fully-functional-now-how-do-they-expand-it-%E2%82%AC3

More on the EU bank ‘stress’ test and the likely resulting capital requirements (medium):
http://www.zerohedge.com/news/credit-suisse-buries-europeam-banks-sees-deutsche-bank-and-65-other-bank-failing-latest-stress-

While that wasn’t enough recoup the losses initially incurred with JP Morgan announcement, equities still rallied into the close.

Overnight: the bad news: Fitch downgraded numerous EU banks while S&P downgraded Spanish debt; the good news: the G20 meeting began in Paris amidst much hope of more positive developments on the EU financial system, the BRIC’s announced that they are considering ways to provide additional funding to the EU and Google reported a blow out third quarter.

Bottom line: the macro US economic data don’t seem to be having much impact on investors; however in addition to Europe, earnings seem to matter for investors. Certainly the reaction to the JPM and GOOG profits reports would suggest so.

Actually, I think that properly stated, it appears that third quarter earnings could be Market moving, in the absence of substantive news from Europe. The eurocrats clearly are on a sizz now with every new policy announcement receiving hugs and kisses from the Market. However, my guess is that we are only one stupid statement or moronic policy move away from another down draft.

So while our Model indicates that stocks are undervalued, I want more progress in solving the EU sovereign debt problem before getting to aggressive on the buy side.

The latest from Van Hoisington (medium):
http://advisorperspectives.com/commentaries/hois_101011.php

A summary of all that is wrong with the world (medium):
http://www.minyanville.com/businessmarkets/articles/robert-barone-buy-and-hold-buy/10/12/2011/id/37343