Tuesday, January 10, 2012

The Morning Call, Awaiting earnings season

The Market

The indices (DJIA 12392, S&P 1280) had another quietly up day, remaining well within their intermediate term trading ranges (10725-12919, 1101-1372). There is not much resistance between current levels and the upper boundaries of the trading ranges. Support exists at 11741, 1230.

Volume fell; breadth rose modestly. The VIX jumped 3% but remains in a solidly defined down trend.

GLD declined, having unsuccessfully challenged its 200 day moving average. As you know, our Portfolios Bought a one third position back last week; but no further additions will be made until the 200 day moving average is penetrated and that break is confirmed.

Bottom line: technically speaking, equities appear poised for further moves to the upside. Furthermore, there is little resistance before the upper boundaries of the current trading ranges are attained. That said, I have fundamental reservations about whether those heights can be achieved; and feel even stronger that 12919, 1372 won’t be surpassed. Therefore, buying stocks at current prices is only for more aggressive investors. As you know, I am tempted to make a trading buy in the Aggressive Growth Portfolio, but have not yet done so.

Stock performance after an up First Five Days (short):



The only economic news yesterday was November consumer credit which was up a lot. There is good news (consumers are spending) and bad news (they are also more in debt) there, depending on how you want to look at it. In the end, investors didn’t care much.

Last night marked the beginning of earnings season (Alcoa); and I think that the recent inactivity in the Market is explained by investors electing to stay on the sidelines until they see the trend in reports, i.e. whether they are coming in above or below expectations. There is lots of noise out there right now suggesting that fourth quarter profits, which are already expected to show the lowest rate of increase in over a year, could be even worse; and I am sure that contributes to the hesitancy to commit funds.

There were some mumblings out of Europe by Merkel/Sarkozy yesterday. While investors seemingly showed little interest, the EU sovereign debt problem remains a monster and one that will likely have a big influence on our markets this year.

Will the Irish demand a bailout (medium):

Guess what the Greeks are going to spend the second bailout money on, if they get it? Weapons. No wonder these morons are bankrupt (medium):

John Hussman on five risks in 2012 (long but a must read)

Finally, the resignation of William Daley as the White House Chief of Staff (an advocate of compromise) pretty much confirms that this year will be one of partisan strife--not that this bit of news is a shocker. But it does lock in one of the assumptions in our Model.

Bottom line: the current benign Market atmosphere is encouraging and supports the notion that stocks could make a stab at attacking the 12919, 1372 level. However, while there may be a bit more confidence in the strength of the US economic recovery, virtually none of the European problems that plagued stocks in 2011 have been resolved. In addition, the number of stocks entering or near their Sell Half Range is sufficiently large to raise doubts about the magnitude of any upside. When coupled with the S&P’s proximity to Fair Value, there is just not enough incentive for me to want to spend cash.

Here is another analysts estimates of Fair Value (short):

Calender of earnings reports for this quarter (short):

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.