Wednesday, November 16, 2011

The Morning Call A new investor psychology? + update on the $1 million challenge

The Market


The indices (DJIA 12096, S&P 1257) inched higher yesterday, remaining within their intermediate term trading ranges (10725-12919, 1101-1372) and their short term up trends (11565-12478, 1227-1341). I continue to believe that the important ‘areas to watch’ near term are S&P 1230 on the down side and 1275-1285 on the upside.

Something else to which to pay attention (chart):

Volume improved a bit, as did breadth. The VIX traded up slightly, staying within the upper zone of its current trading range (a negative for stocks).

GLD rose fractionally, closing within its intermediate term up trend.

Bottom line: I thought that yesterday’s pin action exemplified the notion that there is a bid under the Market. That along with the seasonal bias (Santa Claus rally) suggests further movement to the upside. However, I still believe that 1372 is as good as it is going to get.

More stats on sentiment (medium):

SEC goes after the ‘dark pools’. One small step for mankind (medium):

Here’s a scary chart:



The Monday night news out of Europe (Monti may be unable to form cabinet, poor Spanish bond auction, rising French interest rates) had the futures down prior to the open.

However, a morning of great economic news (PPI fell more than anticipated, retail sales were stronger than expected, the NY Fed business index much better than estimates and business sales up better than forecast) turned that all around and kept stocks on the plus side for the rest of the day.

Helping during the day, Italian PM Monti announced that he had formed a cabinet, reducing investor concerns.

The question that yesterday’s news/pin action raises, are improving US economic stats starting to out weight the continuing melodrama in Europe? Or perhaps, said another way, are investors finally feeling comfortable that they have adequately discounted a worse case scenario in Europe while realizing that in ignoring US data of late, they missed that the likelihood of a recession has declined? I don’t pretend to know the answer; and clearly one day’s experience is not a trend.

Of course, yesterday’s action could just be noise and mean nothing. But I raise the issue because (1) we have been getting better economic data of late, not just yesterday and (2) every time the bond vigilantes force an issue in Europe, the political class has stumbled to an acceptable solution [at least in the short term], just as Monti did yesterday.

Another look at the problem of netting US banks’ CDS exposure to euro debt (medium):

The risks of monetizing Italian debt (medium):

Who is going to absorb the $3 trillion in bad EU debt (medium):

Kyle Bass comments on the very problem (3 minute video and today’s must see)

P.S. overnight Monti announced his cabinet; Italian and Spanish bond auctions went poorly.

Unfortunately, there are 104 auctions left in 2011. Here’s the schedule:

Bottom line: as I noted yesterday, the two biggest risks to our forecast were disaster in Europe and recession at home. One day’s Market action doesn’t negate either. So my comments are not arguing that the worst in Europe is over or that investors have discounted the worse or that a US recession is suddenly off the table; and I wouldn’t bet a nickel on any of them. But given yesterday’s surprising (I thought) news/pin action, I want to be open to the possibility of some substance to one or more of the above, for at least a day or two, as I interpret new news going forward.

Here is the bear case for a do nothing super committee, although as you know, I disagree with the conclusions:

Corporate buybacks are surging (medium):

CNBC $1 million Challenge

As you may know, CNBC halted the challenge a month or so ago due to certain individuals unfairly gaming the system. It re-started two weeks ago. I thought I would bring you an update on our portfolios and their ranking in the contest. Keep in mind, I am not following a trading strategy or using any exotic leveraged ETF’s. But I like to do this to give me a feel for how well our picks can do against the aggressive trading world.

Quality Growth Portfolio (98.22%): CME, GLD, SIAL, TGT
High Yield Portfolio (96.55%) EMR, FII, GLD, MSA
Aggressive Growth Portfolio (98.63%) BLK, CME, GLD, SU
International Portfolio (96.04%) DEM, EPI, GDX, GLD
All In (99.01%) BLK, GDX, GLD, SLV