Thursday, December 08, 2011

The Morning Call Are We There Yet? + Subscriber Alert

The Market

The indices (DJIA 12196, S&P 1261) had another quietly up day, closing within their intermediate term trading ranges (10725-12919, 1101-1372). The S&P confirmed its break above the down trend off the October highs; one more day and the DJIA will follow suit.

Initial upside resistance exists at 12293, 1292 (the October highs) and initial support at 11741, 1230. The S&P closed right on its 200 day moving average (circa 1261); the DJIA has already moved above its 200 day moving average.

Volume rose a bit; breadth was mixed though the flow of funds indicator remains strong. The VIX closed up for the fourth day in a row. While it is still below the upper zone of its current trading range, the rather steady move back towards this area is bit concerning.

GLD moved up, finishing within its intermediate term up trend. Disturbingly, it is in the process of building a pennant formation (a series of lower highs and higher lows); you will recall that depending on the break out of that pennant most often sets the future direction of prices.

Bottom line: the Market bias remains guardedly up. If this continues, the S&P will likely successfully challenge its 200 day moving average and after that the 1292 resistance level. That puts it on the path to the upper boundary of its intermediate term trading range which, as you know, I believe will be as good as it gets.



Yesterday was another slow one for economic stats: weekly mortgage and purchase applications rebounded from the Thanksgiving week low and November consumer credit rose confirming what we already knew from the retail sales numbers. Neither was meaningful enough to attract much attention.

In particular with Europe continuing to be the center of global investor focus. The two main headlines yesterday were:

(1) that the G20 would support the IMF creating a $600 billion lending facility to euro countries [later denied as most have been]. Whether or not this part of the measures instituted to ease EU credit problems is probably less important than the fact that the globe is attempting to pitch in and give the euros a hand, if they will address their fiscal profligacy and institutional liquidity problems.

(2) the ECB said that it was considering instituting measures that would encourage bank lending. Recall that I have listed policies that encourage growth as an important ingredient in allowing Europe to ultimately solve its debt/spending problem; and on the surface this addresses that issue. I am not sure exactly what the aforementioned ‘measures’ are; but again the ECB is reviewing and considering policies that will assist the individual countries in working their way out of their current dilemma.

P.S. overnight the ECB dropped its lending rate by 25 basis points as anticipated.

Bottom line: the ECB meeting today and the EU summit tomorrow which is supposed to produce a framework for solving the EU’s current liquidity and solvency problems. If history is any guide, the odds of a comprehensive set of proposals are probably slim to none. However, if progress is made with visibility for future advances (muddle through), Markets will likely be happy.

If we were to get some ‘shock and awe’ program (meaningful restructuring of PIIGS sovereign, coupled with reasoned cut backs in social programs and pro growth measures), I think that Markets would rejoice even though there would be a short term negative impact of growth.

If the EU political class proves incapable of developing measures that will allow Europe to at least muddle through, equity prices are vulnerable.

Goldman’s Jim O’Neill on this week’s developments in Europe:

Today’s must read looks at the rules for shadow banking industry in the UK and how they have/are/will potentially lead to disaster:

A not very promising history of EU summit meetings and the Market performance following (short):

How to invest in a new EU fiscal union (medium):

Waiting for central bank easing (medium):

A look at 2012 (medium):

Subscriber Alert

The stock price of Lowe’s ($25) has traded above the upper boundary of its Buy Value Range. Accordingly, it is being Removed from the Dividend Growth and Aggressive Growth Buy Lists. Both Portfolios own a full position in Lowe’s.

The stock price of Blackrock ($174) has traded above the upper boundary of its Buy Value Range. Therefore, it is being Removed from the Aggressive Growth Buy List. The Aggressive Growth Portfolio owns a full position in BLK.

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.