Tuesday, March 27, 2012

The Morning Call + Subscriber Alert + QEIII?

The Market

The indices (DJIA 13241, S&P 1416) had a great day finishing within both their short term (13047-14328, 1370-1515) and intermediate term (11332-15201, 1189-1615) up trends.

Volume was light; breadth improved/ The VIX declined and closed (1) within its short term down trend and (2) below the lower boundary of its intermediate term trading range for the second day in a row.

GLD spiked, demonstrating great follow through from last Friday’s bounce off its secondary support level.

Bottom line: stocks continue their relentless move up; and our Portfolios continue to nibble at cash, adding to the Vanguard Dividend Appreciation ETF (VIG). GLD appears to have found a base and that to prompts me to rebuild this holding.

End of March window dressing (short):

Is the S&P decoupling or getting dangerously overextended? (medium):


No economic news yesterday, though there was a steady flow of headlines:

(1) positive leading economic indicator reports out of China and Europe. This is the first good news out of either in a couple of weeks. We need some good news, if our forecast is going to hold,

(2) rumors of general strikes in Spain later this week. This is not likely to make great reading/viewing. That said, investors seem to be assuming that the worst is over in Europe. As long as they believe that perceptions will continue to triumph over reality, Europe won’t matter,

Another look at the derivative exposure of US banks (medium):

(3) the Supreme Court began hearing the arguments on the constitutionality of Obamacare. I am quite anxious about the potential impact of this decision, in particular, giving Congress the power to force an individual to enter a contract against his/her will.

George Will on Obamacare (medium):

(4) our commander in chief appears ready to be ‘flexible’ with the Russians. Let’s hope that works out better than ‘hope and change’.

(5) finally and most important at least to investors, the Ber-nank made a speech yesterday morning in which he expressed concern about the strength in the economy and employment, the generally accepted interpretation of which was that QEIII wasn’t that far away. Stocks laid rubber for the rest of the day. Frankly, I did not read his comments that positively. But as we all know, I am not in tune with Market sentiment right now. Nonetheless, as long as investors perceive that the printing presses will continue to run all out, stocks will likely retain their upward bias.

Bottom line: investors want to bid stock prices up; and however much I may disagree with their rationale, as long as prices rise, I am wrong. The good news is that I am not running hundreds of millions of dollars where investment flexibility is limited by friction created by size.

So our Portfolios’ long term investment position is approximately 65-70%; but to date they have established a 5-10% trading position to ‘play’ what now appears to me to be irrational exuberance. As long as stocks remain in the short term up trends, I will continue to follow that strategy and will likely Add to the trading position during sell offs that hold the lower boundaries of those up trends.

That said, the aforementioned flexibility means that my finger is on the trigger and any dip below the lower boundary of the short term up trend means instant liquidation.

15 minutes with Jim Rogers:

The latest from John Hussman (medium):

Subscriber Alert

This morning at the open, our Portfolios will raise their positions in GLD to 5%.

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.