Tuesday, February 07, 2012

The Morning Call-Use this strength to cut your losers

The Market


The Market was all yawns yesterday with the indices (DJIA 12845, S&P 1344) finishing within their intermediate term trading ranges (10725-12919, 1101-1372) and above the lower boundary of their short term up trends (12348, 1278).

Volume was off, as was breadth. The VIX rose 4% but remains firmly within its down trend,

GLD sold down to the lower boundary of its short term up trend. If it bounces, our Portfolios will Add to their positions.

Bottom line: with prices holding on to Friday’s gains on an otherwise boring and quiet day, I would assume the assault of 12919, 1372 will persist. I still believe that this level will Hold and, therefore, our Portfolios will continue chipping away at fundamentally and technically over extended stocks as well as those stocks of companies that no longer fundamentally qualify for inclusion in our Universe (APH, LLY and MSA--see below).

More on the January effect (short):



There was no economic news yesterday. Most of the New York based talking heads spent plenty of time reviewing the Super Bowl. I can’t blame them; and of course, there was something positive and Market related to yak about--the old adage that if an NFC or former NFC team wins the Super Bowl, the Market will be up for the year. Since investors are finding a silver lining in almost any bit of data however irrelevant, I am sure this will be added to some investors’ list of Market positives.

The other news item, which has ceased to be news, was that the eurocrats still haven’t agreed on the terms of a Greek bailout/default. I have opined that there is no real pressure for an agreement since Greece doesn’t run out of money till March; so expect more procrastination and dim witted headlines.

What is the ECB thinking (medium):

Bottom line: the US economy is unfolding much as I expected (sluggish growth) with the positive caveat that the data over the last two months is strongly suggesting that the risk of recession is off the table. Our domestic political environment is also reflecting the assumptions in our Models (frozen in a myriad of irresponsible taxing, spending and regulatory policies). Eurocrats are doing as expected--nothing; for the moment, they are muddling through as our outlook calls for; but that is the most tenuous of our assumptions and therefore what I am most worried about.

All that said, the S&P is trading right on Fair Value; so I have no strong argument for either a decline or an advance. On the other hand, within this Fair Value environment there are stocks that have become richly valued and our Sell Discipline forces us to cut those positions. In addition, there are several companies that in our recent fundamental review have failed to qualify for inclusion in our Universe. Those stocks need to be eliminated from our Portfolios. As a general statement, when the Market is at or near highs, it is an excellent time to get rid of losers and other forms of dead wood. Enough said?

For the bulls (short):

Greece: shoot it and get this circus over with (medium):

Subscriber Alert

At the Market open this morning, the High Yield Portfolio will Sell share of Eli Lilly and Mine Safety Appliances and the Aggressive Growth Portfolio will Sell shares of Amphenol as per our above discussion.

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.