Friday, December 16, 2011

Technical Take-Do nothing till the indices are in sync


The indices (DJIA 11868, S&P 1215) rallied feebly yesterday, but finished the day well within their intermediate term trading ranges (10725-12919, 1101-1372). Barring a strong advance, today the S&P will confirm the break below the 1230 support level and its 50 day moving average (also 1230). In addition, further downside will negate the developing reverse head and shoulders formation. Next visible support is circa 1158.

The DJIA remains above its comparable 1230 support level (11741) as well as its 50 day moving average. As long as the Averages are out of sync (S&P below 1230, DJIA above 11741), even the short term trend is not discernable--making it an occasion to do nothing.


Volume was lower; breadth improved. The VIX fell, leaving it outside the upper zone of its trading range. In addition, on a very short term basis it is now in a easily definable down trend--a positive.

GLD was off again though the downward momentum slowed. It did open to the upside and our Portfolios Sold the remainder of their holding as I indicated they would in yesterday’s Morning Call. I continue to believe that GLD’s long term story is in tact; however, the risks to the downside are sufficient to warrant sitting on the sidelines at this time. Areas of support to watch are (1) 149--the 300 day moving average [see below], (2) 143--the next definable support level, (3) 130--the target created by its recent break down from the pennant formation and (4) 103--the lower boundary of its long term up trend.

This technician suggests looking at GLD’s 300 (versus 200) day moving average as the best indicator of long term price support. If he is correct, that level is now circa 149:
http://www.ritholtz.com/blog/2011/12/griess-use-golds-300-day-moving-average/

The longer term outlook for gold (short):
http://pragcap.com/the-gold-break-down

Bottom line: the S&P looks sick, technically speaking. It is on the verge of confirming its break below the 1230 support level and its 50 day moving average as well as negating the reverse head and shoulders pattern. On the other hand, the DJIA has yet to break either its 50 day moving average or the comparable 1230 support level (11741). Until the indices are in sync, our Portfolios are on the sidelines.

GLD is still looking for a bottom. When that occurs, our Portfolios will likely re-start the process of building a position.

The Time Magazine “Person of the Year” indicator (short):
http://www.minyanville.com/businessmarkets/articles/stock-market-social-mood-person-of/12/15/2011/id/38396

The latest individual investor sentiment indicator (short):
http://www.bespokeinvest.com/thinkbig/2011/12/15/individual-investors-remain-calm.html




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.