Wednesday, January 11, 2012

The Morning Call, The Market may be going higher; but without me


The Market
Technical


The indices (DJIA 12462, S&P 1292) were up nicely yesterday, closing within their intermediate term trading ranges (10725-12919, 1101-1372). I continue to think that the upper boundaries of those ranges will be challenged sooner probably than later. Support exists at 11741, 1230.

Volume rose; breadth improved. The VIX fell again and remains in a solid down trend.

GLD rose and closed just slightly above its 200 day moving average. Our time and distance discipline kicks in now; if the break is confirmed, our Portfolios will Add to their holdings.

Bottom line: investors are positive and stocks are lifting. But I think that the upside is limited. Aggressive investors could buy for a trade to the 12919, 1372 level and will likely make money. However, I am not an adroit trader, so I am await cheaper prices to Buy.


If you are a bear, you will love this (medium):
http://advisorperspectives.com/dshort//guest/John-Carlucci-120110-The-Great-Repression-Update.php

The latest data on breadth (charts):
http://www.bespokeinvest.com/thinkbig/2012/1/10/sp-500-breadth.html

Retail investors are very negative; probably a good sign for the Market near term (short):
http://www.bespokeinvest.com/thinkbig/2012/1/10/yales-crash-confidence-index-shows-just-how-fearful-investor.html

Fundamental

Headlines


Yesterday’s economic news was mixed: weekly retail sales were lousy, but wholesale sales were strong. I rate that a neutral. There were a number of earnings reports and anticipatory guidance. We saw reactions particular to the individual company stocks; but nothing that impacted the Market.

What seems to have driven investor enthusiasm was news reports that China was easing monetary policy and encouraging its institutions and citizens to invest in stocks. Investors interpreted this to mean a jolt to the global economy--which it might be. I am not that sure.

Bottom line: the economy is improving and may be progressing better than our forecast. But we need more data before making any adjustments especially with the ECRI index turning down again. Any easing in Chinese monetary policy may contribute to further global growth. However, again, it seems a bit early to be revising our growth numbers.

On the other hand, we are certainly way too early in this earnings season to be getting jiggy about better than expect profits. Our own political environment certainly isn’t getting any better. Europe is still faced with huge problems.

Further, stock valuations (as defined by the S&P) are very close to Fair Value; and on top of that, an unusually large number of stocks are at or near their Sell Half Values.

That is all too much for me to want to chase prices at current levels especially when our Portfolios are already circa 75% invested.

The latest from Doug Kass (medium):
http://www.thestreet.com/story/11370303/1/kass-where-i-now-stand-2012-edition.html?kval=dontmiss

And from Pimco’s Neel Kashkari (medium to long):
http://www.zerohedge.com/news/hyperdeflation-vs-hyperinflation-exercise-chaos-theory-dynamics

As you know, a component of our investment strategy is to concentrate on low beta stock; that is the reason that the betas on our Portfolios, even the Aggressive Growth Portfolio are well below 1. The below article by another member of the Pimco staff is the very best justification for pursuing this strategy that I have ever found (a bit long but today’s must read)
http://advisorperspectives.com/commentaries/pimco_11012.php





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.