Tuesday, April 17, 2012

The Morning Call -- No time for getting jiggy


The Market

Technical


The Averages (DJIA 12921, S&P 1369) had a mixed day--the Dow up, the S&P down. Both remain in short term trading ranges (12919/12744-13302, 1372/1228-1422) and intermediate term uptrends (11489-16489, 1201-1768). As you can see, the DJIA finished the day above its 12919 level while the S&P stayed below its comparable level (1372). That potentially sets up a divergence--which must be noted; but I am sure it will be resolved soon. Finally, both remained below their 50 day moving averages (12995, 1376).

Despite the negative divergence and the resistance of the 50 day moving average, there are still plenty of positives; one of the most important is multiple support levels: (1) their 200 day moving averages [12124, 1271], (2) the neckline of the reverse head and shoulders pattern [12287, 1266] and (3) the old resistance/support level [11741, 1230].


Volume declined; breadth improved. The VIX was flat on the day, leaving it in its newly re-set short term trading range.

GLD fell fractionally but still closed above the upper boundary of its very short term downtrend for the third day. I said Friday that a close above the very short term downtrend on Monday would likely prompt some action. However, GLD has remained above its downtrend by virtue of declining at a lesser rate than the trend line. That is not nearly as positive as would be if GLD was flat to up; so I am still sitting on my hands.

Bottom line: the indices are in an intermediate term uptrend and in the process of setting a lower boundary of a short term trading range. Until we know what that boundary is, I see little reason for any action save responding to our Price Disciplines.

GLD is trading with barely enough strength to stay just above a very short term downtrend. Until that changes, I am doing nothing.

A long term chart of the CRB:
http://www.ritholtz.com/blog/2012/04/crb-index-back-to-1749-present/

The argument for not ‘selling in May and going away’ (medium):
http://www.ritholtz.com/blog/2012/04/sell-in-may-9-trillion-reasons-to-say-no/

Fundamental

Headlines


Yesterday’s news flow was mixed; so it is not surprising that the Market pin action would reflect that. On the US economic front, March retail sales were unexpected strong as were the February business inventory and sales numbers. On the other hand, the NY Fed manufacturing survey was quite weak.

A contrary view of the retail sales data (short video):
http://www.zerohedge.com/news/ignorance-bls

And:
http://advisorperspectives.com/dshort/updates/Retail-Sales-in-Review.php

In political news, the Senate finally did something half way intelligent, voting down the legislation implementing the ‘Buffett rule.

In Europe, it is clear that the economic problems in Spain are only worsening.
http://www.zerohedge.com/news/spain-goes-irish-regions

The latest from John Mauldin (long):
http://www.minyanville.com/business-news/the-economy/articles/Spain-too-big-to-fail-european/4/16/2012/id/40431?page=1

Italy isn’t much better (short):
http://www.zerohedge.com/news/least-one-italian-export-soaring-gold

Meanwhile down south, it looks like Argentina is going toes up--again:
http://www.zerohedge.com/news/argentina-default-risk-surges-ypf-nationalization-cds-approach-1000-bps

Bottom line: in no way diminishing the positive-ness of the March retail sales number, the news was basically balanced yesterday. The US economy is struggling upward. Our political class is wasting its time on......politics. And Europe is in the s**ter.

At current prices, stocks reflect most of this (assuming our Model is correct), though they are still slightly overvalued. I think that means that we wait for weakness, hope that additional stocks trade back into their Buy Value Range and Buy when the Averages find support.

The latest from Mohamed El Erian (medium):
http://advisorperspectives.com/commentaries/pimco_41612.php



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.