Saturday, March 24, 2012

The Closing Bell -- The Market-Disciplined Investing --Technical 324

The Market-Disciplined Investing


The indices (DJIA 13080, S&P 1397) experienced a little indigestion this week. The Dow looked like it was going to test the lower boundary of its short term up trend (13025-14366) but bounced; while the S&P confirmed the break out above the upper boundary of its intermediate term trading range and re-set to a short term up trend (1374-1484).

Both of the Averages are well within their respective intermediate term up trends (11300-16300, 1188-1755).

Aside from the upper boundaries of their short and intermediate term up trends, the next visible resistance is at the old October 2007 highs (14190, 1561).

Further strengthening the overall technical picture are numerous support levels in addition to the lower boundaries of their short and intermediate term up trends. They include: (1) the former resistance now support levels [12919, 1372], (2) their 200 day moving averages [12058, 1263], (3) the neckline of the reverse head and shoulders pattern [12287, 1266] and (4) the old resistance/support level [11741, 1230].

Slightly muting this overall positive trend, a check of our internal indicator produced the following results: as of the close Friday in a Universe of 156 stocks, 69 had exceeded their comparable 12919/1372 level, 54 had not and 33 were too close to call--that is a deterioration from last week. However, I would continue to characterize it as slightly positive. Notice that with both indices over their 12919/1372 levels, less than one half of our stocks are over their comparable levels. That hardly signifies a broad based rally.

Volume on Friday was light; breadth improved. The VIX once again finished below the lower boundary of its intermediate term trading range, re-starting the clock (for the third time) on our time and distance discipline for a potential break and re-set to an intermediate term down trend--something that would be quite positive for stocks.

As you know after being declared wrong (on the call that the 12919, 1372 resistance level would hold) at the close Monday, I made a hedged adjustment to our strategy, buying a very liquid, easily traded Market ETF (VIG) and reducing cash by approximately 2.5%. With the DJIA having bounced off a close encounter with the lower boundary of its short term up trend on Friday, our Portfolios will reduce cash another 1% Monday at the opening.

GLD basically meandered all week, vacillating between the upper boundary of its short term down trend and its secondary support level. However on Friday, it did make a determined move above both the short term down trend and the support level. That is a positive sign, in my opinion, and if there is any follow through Monday, our Portfolios will Add to this position.

Bottom line:

(1) the DJIA and the S&P are in a short term up trends (13025-14366, 1374-1484) and intermediate term up trends (11310-16300, 1188-1755),

(2) long term, the Averages are in a very long term [78 years] up trend defined by the 4187-14789, 644-2000 and a shorter but still long term [13 years] trading range defined by 7148-14198, 766-1575.

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, managing a risk arbitrage hedge fund and an investment banking boutique specializing in funding second stage private companies. Through his involvement with Strategic Stock Investments, Steve hopes that his experience can help other investors build their wealth while avoiding tough lessons that he learned the hard way.