Wednesday, April 25, 2012

The Morning Call-Don't get too jiggy over Apple's earnings

The Market


The Averages (DJIA 13001, S&P 1371) rallied a bit yesterday. They remain in a short term trading range. We just don’t know its lower boundary. Currently in the running are 12919, 1372 and 12744, 1332, with the former the clear favorite. The Dow finished the day above 12919; the S&P remains below its comparable level (1372). That clearly leaves this support level in question and the indices diverging; although, as noted, given the proximity of the S&P to 1372, it appears that 12919, 1372 has a better chance of becoming the lower boundary than 12744, 1332.

Both indices are solidly within their intermediate term uptrends (11502-16502, 1206-1773).

Volume fell; breadth improved. The VIX declined but continues within its short/intermediate term trading range and above the lower boundary of a very short term up trend.

GLD inched up, continuing the stabilization within its short term trading range.

Bottom line: the Market remains somewhat directionless, searching for a support level to its short term trading range. Until that boundary is set, I see little incentive to do anything other than set on my hands. GLD, on the other hand, seems to have set a new support level, though it seems to be meandering along its lower boundary with little inclination to bounce. I would like to Add to this holding; but I am going to wait for the visible return of buyers.



Investor attention shifted yesterday from Europe to the US. Early in the day, we got a number of economic datapoints: weekly retail sales which were mixed to positive; new home prices which were up more than anticipated; new home sales were up though the stats were a bit confusing; April consumer confidence came in below estimates; and the April Richmond Fed’s manufacturing index was very strong. All in all, a decent set of numbers. So a lift in investor sentiment wasn’t surprising

Stocks were also helped by the continuation of a surprisingly good earnings season with several big visible industrial firms reporting better than expected results.

Of course, however, positive one views the above, the S&P still couldn’t successfully challenge 1372. I suspect that anticipation of the Fed policy statement due at the close of the FOMC meeting today as well as residual concerns over Europe weighed on investor minds.

The debt of the PIIGS just keeps getting bigger (short):

John Mauldin looks at Spain (long):

And lest we take our eyes off of Greece (short):

**Overnight Germany experienced a failed 30 year bond auction and the UK reported a negative first quarter GDP (-0.2%). Of course, all of above is apparently being rendered irrelevant by the better than expected Apple earnings.

Bottom line: the economy continues to track our forecast; although earnings are coming in better than anticipated. This is a bit of cognitive dissonance and may re-open the possibility that the economy will be stronger than expected this year. On the other hand, the news out of Europe just keeps getting worse; and that too is giving me heartburn but of the complete opposite nature. With such contradictory signals, it is small wonder to me that stocks are having directional problems; and given that at current levels, our Model has equities prices above Fair Value, there is every reason to maintain caution.

What the Market needs to go higher (short):

Why Europe will fail (medium):

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.