Wednesday, February 08, 2012

The Morning Call-How can we break out on such anemic volume?


The Market

Technical


The indices (DJIA 12878, S&P 1347) had another mildly positive day, closing near the upper boundary of their intermediate term trading ranges (10725-12919, 1101-1372) and well above the lower boundaries of their short term up trends (12368, 1279).

Volume was up fractionally but is still anemic; breadth improved slightly. The VIX fell and remains within a pronounced down trend.

In text book fashion, GLD bounced off the lower boundary of its short term up trend. Our Portfolios will Add to the positions at the Market open.


The case for gold (medium):
http://www.zerohedge.com/news/guest-post-fed-resumes-printing

Bottom line: the DJIA is a short hair away from the upper boundary of its intermediate term trading range with S&P not that much further behind. I can’t imagine the Averages successfully challenging this resistance level on the kind of anemic volume that we have seen of late. So I am sticking with my call that 12919, 1372 will Hold.
http://advisorperspectives.com/dshort/commentaries/Trading-Volume-in-the-SPX-120207.php

Fundamental

Headlines


Weekly retail sales, which were positive, were the only data points yesterday. This is a secondary indicator; but it did support our economic outlook. Two other events bear comment:

(1) Bernanke’s testimony before the senate which didn’t differ a great deal from his house appearance last week. He did say that the Fed didn’t rule out the additional stimulus, if needed--after which GLD got jiggy.

The developer of the ‘Taylor Rule’ comments on Fed policy (medium);
http://www.zerohedge.com/news/taylor-rule-founder-warns-us-debt-could-explode

(2) the Greeks announced that there would be an announcement of an agreement on a bailout by noon [yesterday]; then later postponed [again] it till today. I will believe it when I see it. For the moment that leaves our EU scenario [Greece goes bankrupt but the rest of Europe muddles through] in tact.

From Der Spiegel (medium):
http://www.zerohedge.com/news/spiegel-its-time-end-greek-rescue-farce

More fun facts on why Greece is toast (medium):
http://www.zerohedge.com/news/three-charts-confirm-greeces-death-even-after-restructuring

The Greek economy is imploding (medium):
http://www.zerohedge.com/news/greek-economy-implodes-budget-revenues-tumble-7-january-expectation-9-rise

Bottom line: even though an agreement between the Greeks and the bankers is being dragged out, it is still moving closer to the firm deadline of the next required roll over of Greek debt. As you know, I believe that how the EU sovereign debt crisis gets resolved is the biggest risk to our forecast; and apparently, I am considerably more uneasy than consensus about the resolution of the Greek portion of this problem. I may be totally wrong; but I am not convinced the Market has properly accounted for the dislocations that will arise from its disposition. We will know soon enough. Meanwhile, I feel comfortable being cautious.

Here is a good explanation of how the derivatives on Greek debt work and why I am so worried (today’s must read):
http://www.zerohedge.com/news/guest-post-has-derivatives-deleveraging-fueled-stock-rally

This is a fairly balanced look at the current Market, though a bit more optimistic than I am (medium):
http://advisorperspectives.com/commentaries/rj_20612.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.