Wednesday, November 09, 2011

The Morning Call This won't last

The MarketTechnical

The indices (DJIA 12170, S&P 1275) had another good day and finished within both their intermediate term trading ranges (10725-12919, 1101-1372) and their short term up trends (11479-12440, 1220-1332).

Volume increased; breadth improved. Potentially significant, the VIX once again traded below the upper zone of its current trading range. This is good news; but our time and distance discipline is now operative. Before getting too jiggy about a declining VIX, remember that the VIX plunged out of that upper zone in late October and then quickly rallied back.

GLD traded down but remains well within its intermediate term up trend.

Bottom line: the S&P closed right on its 200 day moving average. A move above that level opens even wider the way to 1372. Enjoy the ride; however, I think that 1372 is as good as its going to get, at least for a while. As stocks get closer, I will be working on a list of potential sales candidates.

Sentiment is starting to get overly bullish (short):



The only economic news was weekly retail sales; and they were good. In fact, it is the first time in over a month when all indicators were positive. That said, weekly retail sales are not stats for which investors in general await breathlessly.

Never mind though, because Italy remained the primary focus of investors; and here too we received good news. Berlusconi agreed to step down following the passage of an austerity plan the vote for which is scheduled for next week. This keeps the ball rolling in the direction of more fiscal responsibility on the part of the PIIGS, qualifying them for financial assistance from the rest of the EU and, at least in the short term, holds the EU together.

The Italian endgame (medium):

Goldman’s take on the most likely outcomes (medium(:

P.S. overnight Chinese inflation came in at 5.5%, in line with expectations. However, margin requirements on Italian bonds were doubled. The result is the spreads on both Italian and French bonds are exploding and the equity markets are taking it in the snoot.

Bottom line: the euros seem to be doing enough to manage their debt crisis to allay Market fears, at least in the short term. Nevertheless, I don’t doubt that (1) there won’t be more hiccups in the current process and (2) unless the steps being taken don’t force considerably more fiscal responsibility on the PIIGS than has been to date, then the can will simply be kicked down the road and the world have to face this issue again in six to twelve months.

At home, our economy is chugging along--nothing spectacular, but few signs of recession. Lingering in the background is the ECRI forecast of a ‘double dip’; but given the lead time of this indicator, a decline in economic activity could still be months away--assuming it happens at all.

The major potential negative for the short term is the ‘super committee’ budget compromise (due 11/23). I say negative because if history repeats itself, there won’t be an agreement by the deadline which means that we could have another debt ceiling crisis before this group of clowns come up with a deal.

Finally, in the interest of putting all potential problems on the table, the IAEA report of Iran’s nuclear program is due out soon and current speculation is that it will show that Iran has resumed the production of nuclear ‘bomb quality’ material. Not that this would lead to any problems near term. Certainly, given Obama’s track record on confronting global pariahs, we needn’t fear any confrontation. Nonetheless, if rumors are correct, the report is not going to make good reading and may add to investor hesitation to invest for the long term.

In short, while the news flow has been in our favor (1) it may not last and (2) even if it does, there are no real equity values out there that our Portfolios don’t already own.