Friday, March 30, 2012

The Morning Call + Subscriber Alert + The Bulls still rule


Note: our number one grandson arrives tomorrow morning on his spring break and will be here a week. That means a lot of fun and joy for me but also no Morning Calls or Closing Bells until April 9. As always I will be monitoring the Market closely; so if any action is called for, I will be in touch via Subscriber Alerts.

The Market

Technical


The indices (DJIA 13145, S&P 1403) were mixed yesterday (Dow up, S&P down). The DJIA tested the lower boundary of its short term up trend (13125-14557) and bounced; it remains within its intermediate term up trend (11352-16352). The S&P is well within both its short term (1386-1494) and intermediate term (1190-1757) up trends.

Volume was flat; breadth improved modestly: the VIX was down slightly but again closed right on the lower boundary of its intermediate term trading range.

GLD was off fractionally, finishing above the lower boundary of its short term trading range but below its 200 day moving average.

Bottom line: the bulls remain in control. I had thought that with the recent flow of economic/political news souring a bit, there might be a chance of the Market losing its upward momentum. It made an attempt intraday yesterday, but could not sustain anything to the downside. I remain as nervous as ever about trading this Market to the upside; but so far, it has given no reason to unwind this trade.

Looking at leading stock market indicators (medium):
http://ivanhoff.com/2012/03/28/the-most-important-stock-market-leading-indicator-today/

Speaking of which, here is another divergence in trends about which to be concerned (short):
http://allstarcharts.com/about-that-divergence-in-new-highs/

A look at some long term trends (medium):
http://www.ritholtz.com/blog/2012/03/sp-cycles-1928/

More on seasonal stock performance (short):
http://blog.stocktradersalmanac.com/post/Killer-Q1-Whats-Next-for-SPX-DJIA-COMPQ-SPY-DIA-QQQ

Bullish sentiment unchanged (short):
http://www.bespokeinvest.com/thinkbig/2012/3/29/bullish-sentiment-unchanged.html

Fundamental

Headlines


Yesterday witnessed some conflicting data. On the positive side, weekly jobless claims continued to decline and the final revision of fourth quarter 2011 GDP came in pretty much as expected. On the other hand, overnight the Shanghai stock market continued to get hammered on worries about the Chinese economy and the European markets suffered some severe whackage.

These negatives held the initial sway on investor sentiment and were aided later in the day by another Obama bashing of the oil industry (this time its tax breaks). Yet in the end the bears couldn’t sustain any downward follow through and the day ended in a draw.

Bottom line: we got some decent US economic news yesterday, which is as it should be after a couple of days of poor numbers--if your assumption is a sluggishly growing economy; Obama maintains His Don Quixote tilting at the oil industry windmill; Europe is not getting any better (overnight Greece announced that it may need another bailout; and lo and behold the EU financial ministers are working on increasing the current bail out fund); China remains a big question mark and we are getting close to the point where we have to start building our 2013 models which, at the moment, has to include the huge tax increase that is scheduled to go into effect 1/1/13.

All of the above more or less fits with our current Models; and our Valuation Model suggests that stocks (as defined by the S&P) are now selling at Year End 2012 Fair Value. That means that on March 31, they may be a bit overvalued; and with Market momentum now to the upside, equities may get more overvalued (as defined by our Model).

At the moment I am struggling to balance a cash position that has grown over the last six months because some our holdings have traded into their Sell Half Ranges with the opportunity cost of being underinvested in upward trending Market. As you know, my solution is to ride the trend with a Market ETF while maintaining a tight stop.

Subscriber Alert

The EPA is doing its dead level best to put the coal industry out of existence. I have no clue whether or not it will be successful. I do know that coal related stocks are breaking down technically. I think this is another instance of discretion being the better part of valor; so at the open this morning, the High Yield Portfolio will Sell its position in Alliance Resource Ptrs and the Aggressive Growth Portfolio will Sell its position in Peabody Energy. When the smoke clears (no pun intended), these stocks may be Bought back; but until it does, I would rather not have the exposure.

Thoughts on Investing--New Rules of Money courtesy of Forbes

#9 Invest to Meet Goals, Not Beat Indexes

You may be hearing this form your financial advisor. It is often used as a way to get you to by annuities and other fee based products that provide a guarantee of income in the future. But there is a lot of sense in focusing on one’s specific income and capital needs rather than on beating an index like the S&P. It is not whether you beat an index, it is whether you can afford life goals, like college or a comfortable retirement.


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.