Thursday, January 12, 2012

The Morning Call + Subscriber Alert

The Market

The indices (DJIA 12249, S&P 1292) were directionless yesterday (DJIA down, S&P up), closing within their intermediate term trading ranges (10725-12919, 1101-1372). Little resistance exists between current levels and 12919, 1372; support is found at 11741, 1230.

Volume was down slightly; breadth deteriorated. The VIX rose but it is still trending down.

GLD rose, closing for the second day above the 200 day moving average. If this break is confirmed, our Portfolios will Add to their positions.

Bottom line: equities retain their positive bias and will likely continue to advance. The big question is, by how much will it rise? I don’t think much; and that leaves the current risk/reward equation (3-6% up, 14-15% down) tilted toward risk. I remain content to sit on the sidelines.

Cramer on the Market (medium):

A slightly different take on overhead resistance (short):



The economic news yesterday was good: mortgage and purchase applications rebounded after poor performance for a couple of weeks and the latest Fed Beige Book report was more positive than any in a long time. This keeps the trend of somewhat stronger than anticipated data going. That clearly supports our forecast of a continuing recovery while at the same time keeps open the question as to whether economic activity this year will be better than expected.

I would like more data before making any revisions; but what I really want is a resolution to the conflicting outlooks from the ECRI and the leading economic indicator. Until that occurs, I am probably going to stand pat on our forecast.

In the meantime, investors didn’t seem all that impressed. Perhaps because of some lousy numbers on the German economy; or perhaps because to the extent that this rebound is coming in ahead of the printed consensus, it just may already be in stock prices.

Bottom line: barring a much stronger US economy or a miracle in Europe, I can’t get stock valuations much higher than current levels. The former has a chance of coming to fruition but more data is needed before I can get the probably high enough to impact either Model. The latter speaks for itself. If you want to bet on a miracle, be my guest.

So with the S&P Fair Value at 1336, the close last night at 1292 and more of our stocks approaching their Sell Half Range, I am perfectly comfortable leaving the last couple percent of upside to those more nimble, intelligent, handsome and wealthy traders.

Understanding irrational expectations (medium):

Subscriber Alert

The stock price of Eli Lilly ($40) has traded over the upper boundary of its Buy Value Range. Accordingly, it is being Removed from the High Yield Buy List. The High Yield Portfolio will continue to Hold LLY.

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.