Wednesday, January 25, 2012

The Morning Call-What did He just say?

The Market

The indices (DJIA 12675, S&P 1314) had a mildly negative day, closing within their intermediate term trading ranges (10725-12919, 1101-1372) and above the lower boundary of their short term up trends (12145, 1253).

There is no resistance between current levels and the 12919, 1372 level; and both of the Averages have multiple support levels, including the neckline of the reverse head and shoulders pattern (12287, 1266), their 200 day moving averages (11967, 1257), the lower boundary of their short term up trends (12145, 1253) and the old resistance/support level (11741, 1230). In addition, the S&P 50 day moving average (1250) continues to close on the 200 day moving average [1257] for a possible ‘golden cross’.

Finally, I ran a check of our internal indicator, comparing individual stock current levels with the comparable 12919, 1372 boundaries; out of a Universe of 158 stocks, 52 were above the 12919, 1372 level, 78 were not and 28 were too close to call. That is actually a much stronger reading than I had expected; however, it is not strong enough at the moment to have predictive value. I will be monitoring this indicator closely if prices continue to advance.

Volume declined as did breadth. The VIX rose a bit but remains in a down trend.

GLD sold off and closed right on its 50 day moving average. If it holds above this trend line and successfully challenges the short term down trend off its September 2011 high, our Portfolios will Add to this position.

Bottom line: the last two day’s performance notwithstanding, the moment remains to the upside. So I think that there is a good chance that the 12919, 1372 level will be challenged; but I don’t think that it will be successful. Of course, it is always hairy making calls at critical technical junctures and clearly I could be wrong. However, until proven so, our strategy assumes the upper boundaries of the trading ranges will hold.

A look at the Market from the perspective of the Elliott Wave theory (short):

The seasonal tendency of stock prices in February (short):



Yesterday was another slow day, news flow wise. On the economic front, weekly retail sales were a bit of a disappointment. Earnings season continued apace and results are pretty much in line with the expectation that there would be a clear slowdown in the rate of growth (see below). The theme for the day I think was waiting: (1) the FOMC was meeting but we won’t get the results until after the close today, (2) the state of the union was last night, (3) the eurocrats can’t figure out how to put Greece into bankruptcy and (4) Apple, probably the most visible and widely followed company in America, was scheduled to report financial results after the close.

On the last point, Apple’s results were absolutely a blow out. The stock was up big in after hours trading and will probably impact the pin action today. Indeed, it could be the propellant for the Market’s challenge of the 12919, 1372 level.

Bottom line:

(1) while little new is expected from the Fed, that is not the same thing as saying that there shouldn’t be. Mistakes have been made and they need to be addressed in order to insure that the current fragile recovery doesn’t roll over on us.

Where the Fed is wrong (medium):

(2) the magnitude of the known unknowns in the EU are significant; and the longer eurocrats dally, the greater the possibility of investors tiring of the procrastination or panicking and precipitating a financial crisis.

Here are but two examples (first short, second medium):

Thoughts of the former chief economist of the IMF on Europe (medium):

Can the US grow amidst a European recession? (short):

(3) judging by last night’s speech, Obama is either living on a different planet than I am, is delusional or thinks that He can bulls**t passed the truth. For all the soaring rhetoric, I didn’t hear a single word about His signature accomplishments and how much they have helped America: Obamacare, Dodd Frank, the stimulus package. Whatever His mental state, I can only conclude that nothing in the tax code, the regulatory system or the outrageous budget expenditures is going to change, at least not this year.

The point here is that much of the good news (a recovering economy, Europe ‘muddles through’) seems priced into stocks. So what is left to Buy? I don’t’ have answer for that and that is why I see no reason to be chasing stock prices at these levels.

Here is a little contrary thinking on the EU sovereign debt problem (medium):

The fourth quarter earnings and revenues ‘beat’ rates are declining (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.