Tuesday, January 31, 2012

The Morning Call-I am continuing to Sell


The Market
Technical


The indices (DJIA 12653, S&P 1313) sold off strongly at the open yesterday, then fought back the rest of the day. They closed within their intermediate term trading ranges (10725-12919, 1101-1372) and well above the lower boundary of their recent short term up trend (1220, 1264).

Volume continues to be light; breadth was off. The VIX rose 5% but remains firmly within its current down trend.

GLD was off fractionally but maintained its short term up trend.


Bottom line: the initial sell off yesterday morning was on bad news out of Europe (the eurocrats still can’t agree of the structure of Greek default) but as I noted above, investors shook off these concerns as the day progressed. As difficult as I find it to believe, the Market seems to think that it has discounted the likelihood of the EU disaster scenario. As long as this condition exists, the upward momentum in prices is probably not going to subside.

Some stats on the ‘golden cross’ which is getting close (short):
http://www.ritholtz.com/blog/2012/01/how-bullish-is-the-golden-cross/

First half highs in election years (short):
http://blog.stocktradersalmanac.com/post/First-Half-Highs-Negative-in-Election-Years

Fundamental

Headlines


Going into yesterday’s open, the eurocrats’ inaction on Greece and spiking Portuguese bond rates (fear that Portugal will quickly follow Greece down the chute) had prices down big. The economic news didn’t offer enough incentive to reverse that sentiment: December personal income came in a bit higher than expected; though spending was short of estimates and the PCE index a bit hotter than anticipated. Really nothing there to shake up our or anyone else’s forecast.

Bottom line: every factor that I believe will have an impact on economic growth and equity valuations is developing much as anticipated in our Models. That means that the fundamentals don’t support prices above the 12919. 1372 level (upper boundary of the Averages current trading ranges). In addition, there are some stocks that are overvalued. At the moment, I have no reason to believe that anything just said is not correct except that investor mood seems a bit more frisky than I think appropriate.

Of course, I could be wrong. But I intend to continue to focus on our Sell Discipline and chip away at richly valued holdings.

A new form of debt forgiveness in Greece. This can’t be good (medium):
http://www.zerohedge.com/news/landmark-case-greek-court-writes-employed-bank-customers-debt

The latest from John Hussman (medium):
http://advisorperspectives.com/commentaries/hussman_13012.php

Subscriber Alert

Continuing our strategy of chipping away at stocks that are either fundamentally or technically overextended, this morning the Dividend Growth and Aggressive Growth Portfolios will reduce their holding of Qualcomm (QUAL-$58) to 75% position.