The Morning Call--The eurocrats are giving me a headache

The Market

Technical

The Averages (DJIA 11541, S&P 1215) gave us another roller coaster day. They finished the day well within their intermediate term trading ranges (10725-12919, 1101-1372); however, they remained below the 11548, 1219 resistance level.

Volume was down (back to the old pattern); breadth was up. The VIX was up fractionally, closing within the upper zone of its current trading range (negative for stocks).

GLD was off and finished below the lower boundary of its intermediate term up trend. Checking with traders, I could find no explanation for the sell off; nevertheless, our time and distance discipline is now operative.

Bottom line: my focus is on (1) the bull/bear battle over the 11548/11719, 1219/1230 resistance zone. As I have noted, an upside break likely means a sprint to the 12919/1372 area while failure to do so suggests additional downside.

The Shanghai indicator (short):
http://advisorperspectives.com/dshort/guest/Chris-Kimble-111020-Shanghai-Indicator.php

Fundamental
Headlines

The economic data was generally neutral (jobless claims basically unchanged, leading economic indicators up slightly less than expected, existing home sales down more than estimates) though the Philly Fed’s October reading was a blow out (+8.7 versus a forecast -10.0) That coupled with the overnight news (Greek parliament take first step in approving austerity measures [positive], poor bond auctions in Spain and France [negative] and plunging copper prices [a mixed blessing] led to a flat Market opening which continued in the early hours.

Europe took over again. Late morning comments from German officials stated that there would be no agreement on a resolution to the EU crisis at the EU summit meeting this weekend. Prices headed down. Then late in the afternoon, the leader of the German parliament said that they would have a plan by next Wednesday. Stocks spiked.

What Germany needs to do in order to resolve the sovereign debt problem (medium):
http://www.nakedcapitalism.com/2011/10/philip-pilkington-exorcising-the-inflation-ghost-%E2%80%93-an-attempt-to-cure-our-european-compatriots-of-their-inflation-phobia-through-regression-therapy.html

Bottom line: if all this ‘we got a plan’, ‘we don’t have plan’, we might have a plan’, ‘we have a plan to have a plan’, ‘nah, just kidding’ back and forth is giving you a headache, join the crowd. Regrettably, investors are stuck with two facts: (1) the US stock market is being held hostage by the EU financial crisis and (2) the EU political class is better at jerking itself off than facing up to the hard choices presented by the EU financial crisis.

However, judging by the recent pin action, investors are clearly becoming more optimistic that somehow a solution may be found. Indeed, I have suggested as much. Nevertheless, I have also made clear that the biggest risk to Your Money is that the eurocrats can’t/won’t/don’t have the cojones to act fast enough to avoid the Market imposing its own far more harsh solution.

That said and to be fair, the eurocrats are trying to at least slap a band aid on the festering sore; and that likely lessens the odds of our ‘every man for himself’ scenario. Thus, I am gravitating to the Japan 2.0 alternative (the EU muddles through but doesn’t actually fix the underlying problem [fiscal irresponsibility] leading to a decade or two of stagnant growth) as the most likely outcome--which would in turn keep our own economy on its current (below average secular growth) path unless we trade in the group of morons now running Washington for some who understand the underlying principles of capitalism.

For the moment, that means that no matter what the headline out of Europe, respond with caution until the details are clear. You can’t trust these guys.

Barry Ridholtz is reducing cash, buying stocks (short):
http://www.ritholtz.com/blog/2011/10/tactical-shift-in-portfolios-reducing-cash/