Thursday, March 22, 2012

The Morning Call - Holding my nose and going along


The Market
Technical


The Averages (DJIA 13124, S&P 1402) spent another meandering lower. Nonetheless, both indices remained within their short term up trend (12981-14328, 1369-1479). Just to be clear, (1) I think that the intermediate term up trends (11183-16618, 1185-1724) are far more important in citing direction, however, (2) our Portfolios will be trading the VIG ETF off the short term trend.

Volume fell again; breadth was mixed. The VIX remains in its short term down trend and sold down again breaking below the lower boundary of its intermediate term trading range. This re-starts the clock of our time and distance discipline for the break of the trading range.

GLD traded up fractionally, but finished right on the upper boundary of its short term down trend. The trend lines of the short term down trend and the secondary support level are converging. Any move today will likely break one of these two trend lines.

Bottom line: stocks are in an up trend. This week’s economic news hasn’t been that positive, providing something of a test of investor sentiment. So far, equities have acquitted themselves fairly well. Any additional weakness holding above the lower boundaries of the short term up trends, our Portfolios will go to 25% cash; a break of that trend line will prompt the sale of the VIG ETF.

Retail money continues to exit the Market (short):
http://www.zerohedge.com/news/dumb-money-refuses-be-dumb-money-yet-another-week

Fundamental

Headlines


Yesterday’s economic news featured several housing related numbers: weekly mortgage applications were down big, though purchase applications were off less; February housing sales were mixed--down but over a big upward revision to January’s reading. Once again, iffy though not negative data. Sounds like--a slow sluggish recovery.

Two other minor items:

(1) His Energyness is now embracing an ‘all of the above’ strategy [i.e. urging at fast track approval for the lower half of the Keystone pipeline], at least for today’s photo opt:
http://www.zerohedge.com/news/obama-now-scrambles-approve-transcanada-pipeline-or-least-half-it-environmentalists-furious

(2) EU bonds rates are starting to inch back up:
http://www.zerohedge.com/news/european-sovereign-debt-shows-first-weakness-3-months

Bottom line: the news flow remains docile. Certainly nothing to re-ignite fears related to the principal risks (recession, oil prices, EU sovereign risk) facing our economy or the equity market. That said, the economic data is not overwhelming positive, oil prices remain at unsustainable levels for the long term and the eurocrats......well, seem to be resting on their laurels.

The questions are (1) how long will it take for either enough evidence to accumulate that conditions are better than our forecast or......not, and (2) how high can valuations rise in the meantime? Lacking omniscience, I believe a hedged bet is the best solution to this dilemma--increase your equity position with a highly liquid, easily tradable Market ETF that can be Sold in a nanosecond when, as and if the trend turns.

For the bulls (medium):
http://www.minyanville.com/business-news/markets/articles/markets-financials-Fall-Melt-Up-Utilities/3/21/2012/id/40014

Thoughts about P/E (short):
http://www.ritholtz.com/blog/2012/03/why-using-pe-ratios-can-be-misleading/

The latest from Trim Tabs (4 minute video):
http://www.zerohedge.com/news/waking-third-consecutive-false-dawn-stocks-charles-biderman



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.