The Morning Call - I am less worried about oil than Greece

The Market
Technical

The indices (DJIA 12985, S&P 1363) rebounded yesterday with the Dow closing for the fourth day above the 12919 resistance level but the S&P remaining within its intermediate term trading range. If the DJIA finishes today above 12919, then it will re-set to an intermediate term up trend.

However, if it occurs that won’t mean that our directional call on the Market will change. As I have noted repeatedly, under our discipline the Averages have to be in sync in order to confirm a trend change. At the moment, the S&P hasn’t really even tried to bust through 1372. So all we have is increased uncertainty. I am not saying that the Market won’t ultimately re-set to an up trend (though as you know I believe that it won’t), I am saying that it is far too early to be making a bet on such an occurrence.

Volume was down, though breadth improved. The VIX got whacked; and while it is still in its short term down trend, it is also near to an intermediate term support level. How it handles that support level may be a clue as to future Market direction, i.e. if it holds, stocks remain in a trading range; if it breaks through that support, the Market could be headed higher.


GLD rose again, closing for the second day above the upper boundary of the recently re-set trading range. If GLD finishes today above that upper boundary, it will re-set to a short term up trend; and our Portfolios will likely Add to their GLD positions.

Bottom line: even if the Dow closes above 12919 this afternoon, it won’t alter the ‘out of sync’ condition of the indices. Until harmony is restored, our discipline scores the trend as directionless. That won’t change until either the S&P confirms a break over 1372 or the DJIA rolls over and re-sets to trading range.

A finish this afternoon by GLD over the upper boundary of its current trading range will confirm a break and re-set to an uptrend.

March has been a challenge in election years (short):
http://blog.stocktradersalmanac.com/post/March-Has-Been-Challenging-in-Election-Years

The S&P and sector breadth (charts):
http://www.bespokeinvest.com/thinkbig/2012/2/23/sp-500-and-sector-breadth.html

Fundamental

Headlines

Only one economic datapoint yesterday and that was weekly jobless claims which was basically neutral. To be sure, claims levels held near recent lows which is a positive; but there was no real improvement.

Judging by yesterday’s the lack of print and media coverage, investors and the MSM seemed to have shifted their attention away from the ongoing debacle in Europe, at least temporarily. ‘Temporarily’ being the operative word. This tragedy is not over by a long shot; and I fear that the longer that it is not over, the more tragic outcome.

More unworkable provisions of the Greek bailout plan (medium):
http://www.zerohedge.com/news/behold-greek-debt-slavery-do-checklist-permitting-it-bail-out-europes-insolvent-banks

A Greek history lesson (medium):
http://www.zerohedge.com/news/guest-post-greek-tragedy-and-great-depression-lessons-not-learned

Instead of Greece, rising oil prices moved to center stage of Wall Street chatter. The potential problem is that an Iranian/Israeli conflict would lead to lower oil production/shipments, raising energy prices which in turn would throttle the global economic recovery.
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Of course, just like the Greek bankruptcy, rising oil (and gasoline) prices not are discouraging the bulls--at least not yesterday. But unlike Greece, I don’t see the inevitability of the endgame in this situation. That is not to say that Israel won’t bomb Iran; but there is a decent probability that it is not going to happen. However, what I think doesn’t matter, it is what the oil market participants think or fear. And right now, they think or fear hostilities enough to drive oil prices up.

What is confounding is that the Market seems immune to all potential bad news whether (1) in the case of Greece, where a final outcome will almost assuredly be more negative than the current supposed resolution--the only question being whether a prospective disorderly bankruptcy will torch the EU financial system or (2) in the case of oil, where the disaster scenario may have a small likelihood, but industry participants are sufficiently concerned that they are taking major steps to insure that they are protected. Clearly, I can’t change investor sentiment; but I don’t have to accept it.

Bottom line: as potentially damaging as a Middle East conflict could be, I think that the probabilities of its occurrence is low enough that it ranks way down the scale of exogenous events that could wreck the Market; and even if it does happen, our Portfolios’ large oil, gold and cash positions provide great insurance.

More important, our economy continues to make slow progress and our political class are too busy with their own re-election process to have time to enact any new economically crippling spending, taxes or regulations. That is not a ‘tiptoe through the tulips’ scenario but it is positive enough to justify equity values only slightly lower than current levels. My biggest fear is that the eurocrats botch the resolution of their sovereign debt crisis.

Our Portfolios will continue to focus on their Sell Discipline.

The S&P and the price of gasoline (short):
http://advisorperspectives.com/dshort/commentaries/Gasoline-Wild-Card-120223.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.