The number of Americans signing contracts to buy previously owned homes fell in April by the most in a year, indicating the U.S. housing recovery remains uneven.
All American Investor
The index of pending home resales dropped 5.5 percent following a revised 3.8 percent gain the prior month, figures from the National Association of Realtors showed today in Washington. The median forecast of 42 economists surveyed by Bloomberg News called for no change in the measure.
Wednesday, May 30, 2012
Saturday, May 26, 2012
The Closing Bell-Will the eurocrats ever offer a solution; if so, how much is priced in?
The summer is upon us and that means beach time. I leave this Sunday and will return the following Saturday. That means no Morning Calls or a Closing Bell next week. As always, I will have my computer with me and will be in touch via Subscriber Alerts if action is required.
Statistical Summary
Current Economic Forecast
2011
Real Growth in Gross Domestic Product: +1.5- +2.5%
Inflation: 2-3 %
Growth in Corporate Profits: 7-12%
2012
Real Growth in Gross Domestic Product (revised): +1.0- +2.0%
Inflation (revised): 2.5-3.5 %
Growth in Corporate Profits (revised): 5-10%
Statistical Summary
Current Economic Forecast
2011
Real Growth in Gross Domestic Product: +1.5- +2.5%
Inflation: 2-3 %
Growth in Corporate Profits: 7-12%
2012
Real Growth in Gross Domestic Product (revised): +1.0- +2.0%
Inflation (revised): 2.5-3.5 %
Growth in Corporate Profits (revised): 5-10%
Friday, May 25, 2012
Subscriber Alert-Averaging down
SUBSCRIBER ALERT
5/25/12
Checking the cash levels in our Portfolios, they have grown as a percentage of the total value as the total value as declined in recent weeks. I don’t really want a larger cash position, so our Portfolios are going to nibble in order to bring the percentages back to those levels reflected in our Closing Bell (Dividend Growth 31%, High Yield 34%, Aggressive Growth 35%). Our purchase candidates include both stocks on our Buy Lists and those in which we had earlier made trading sales at prices higher than those at present.
In the Dividend Growth Portfolio: Tiffany, Paychex, Occidental Petroleum.
In the High Yield Portfolio: Caterpillar, NuSkin Enterprises, Amerigas, Western Gas Ptrs.
In Aggressive Growth Portfolio: Fastenal, Quality Systems, Oracle, Tim Horton.
5/25/12
Checking the cash levels in our Portfolios, they have grown as a percentage of the total value as the total value as declined in recent weeks. I don’t really want a larger cash position, so our Portfolios are going to nibble in order to bring the percentages back to those levels reflected in our Closing Bell (Dividend Growth 31%, High Yield 34%, Aggressive Growth 35%). Our purchase candidates include both stocks on our Buy Lists and those in which we had earlier made trading sales at prices higher than those at present.
In the Dividend Growth Portfolio: Tiffany, Paychex, Occidental Petroleum.
In the High Yield Portfolio: Caterpillar, NuSkin Enterprises, Amerigas, Western Gas Ptrs.
In Aggressive Growth Portfolio: Fastenal, Quality Systems, Oracle, Tim Horton.
The Morning Call--Good vs Bad Austerity
The Market
Technical
The indices (DJIA 12529, S&P 1320) had another schizophrenic day---down early, then rallying late in the day. They remain well within their intermediate term uptrends (11686-16686, 1226-1793) and closed for the second day above their very short term downtrends. The longer the Averages remain above 12344, 1292, the more authority this level gains as the lower boundary of the short term trading ranges.
Volume was down, as was breadth. The VIX fell and while it is well above the lower boundary of its intermediate term trading range, it finished below the former upper boundary of its short term trading range---adding to the overall confusion in the Market.
GLD declined fractionally, remaining above the lower boundary of its intermediate term trading range.
Bottom line: yesterday’s pin action didn’t do a lot to reduce my confusion; although it seems that while investors are nervous about Europe (stocks trade down early in the day), they don’t want to be short over night (stocks rally late in the day)---apparently because they think (hope?) that the eurocrats will do something to prevent a disaster. Could be; but I would like more clarity before taking any action.
Bullish sentiment increases (short):
http://pragcap.com/bullish-sentiment-rebounds-5
Thursday, May 24, 2012
Morning Journal-More government shenanigans
Economics
This Week’s Data
April new home sales rose 11,000 versus expectations of a 7,000 increase.
http://www.ritholtz.com/blog/2012/05/housing-permits-starts-completions-2/
Weekly jobless claims came in flat as anticipated.
http://www.calculatedriskblog.com/2012/05/weekly-initial-unemployment-claims_24.html
April durable goods orders rose 0.2% versus estimates of up 0.5%; ex transportation, they fell 0.6% versus forecasts of an increase of 0.7%.
This Week’s Data
April new home sales rose 11,000 versus expectations of a 7,000 increase.
http://www.ritholtz.com/blog/2012/05/housing-permits-starts-completions-2/
Weekly jobless claims came in flat as anticipated.
http://www.calculatedriskblog.com/2012/05/weekly-initial-unemployment-claims_24.html
April durable goods orders rose 0.2% versus estimates of up 0.5%; ex transportation, they fell 0.6% versus forecasts of an increase of 0.7%.
The Morning Call + Subscriber Alert + OK, I am confused
The Market
Technical
The indices (DJIA 12496, S&P 1318) pin action the last two days has been about as confusing (to me) as it could be. Before going into that, it is important to note that they remain well within their intermediate term uptrends (11668-16668, 1226-1793).
As for the short term, recall that Tuesday, the Averages traded above the descending very short term downtrend, then failed to hold. I concluded that pin action pointed to more downside. And yesterday the trading for the first 75% of the day confirmed that with the indices falling big time, trading down to the lows of last Friday (12344, 1292). Then late in the day, they bounced hard and finished the day over that very short term downtrend (12489, 1315).
So it would seem that (1) the 12344, 1292 level gained some strength as a new support level for the short term trading range while (2) the very short term downtrend lost strength. However, the dramatic intraday reversals of the last couple of days gives those conclusions an ‘iffy’ feel. Nevertheless, in a broader sense, the current level has apparently become the battleground for the bulls and bears.
Technical
The indices (DJIA 12496, S&P 1318) pin action the last two days has been about as confusing (to me) as it could be. Before going into that, it is important to note that they remain well within their intermediate term uptrends (11668-16668, 1226-1793).
As for the short term, recall that Tuesday, the Averages traded above the descending very short term downtrend, then failed to hold. I concluded that pin action pointed to more downside. And yesterday the trading for the first 75% of the day confirmed that with the indices falling big time, trading down to the lows of last Friday (12344, 1292). Then late in the day, they bounced hard and finished the day over that very short term downtrend (12489, 1315).
So it would seem that (1) the 12344, 1292 level gained some strength as a new support level for the short term trading range while (2) the very short term downtrend lost strength. However, the dramatic intraday reversals of the last couple of days gives those conclusions an ‘iffy’ feel. Nevertheless, in a broader sense, the current level has apparently become the battleground for the bulls and bears.
Wednesday, May 23, 2012
Morning Journal - The Philly Fed ADS Business Conditions Index
Economics
This Week’s Data
The International Council of Shopping Centers reported weekly sales to major retailers down 1.7% versus the prior week but up 3.8% versus the comparable period last year; Redbook Research reported month to date retail chain store sales up 2.7% on a year over year basis.
April existing home sales rose 3.4% versus expectations of an increase of 2.6%.
http://scottgrannis.blogspot.com/2012/05/more-signs-of-housing-upturn.html
http://www.ritholtz.com/blog/2012/05/existing-home-sales-without-forclosures-prices-pop-10-1/
The May Richmond Fed manufacturing index came in at 4.0 versus estimates of 11.0 and April’s reading of 14.0.
Weekly mortgage applications rose 3.8% but purchase applications once again fell (-3.0%).
The Philly Fed ADS business conditions Index (short):
http://advisorperspectives.com/dshort/updates/Philly-Fed-ADS-Index.php
This Week’s Data
The International Council of Shopping Centers reported weekly sales to major retailers down 1.7% versus the prior week but up 3.8% versus the comparable period last year; Redbook Research reported month to date retail chain store sales up 2.7% on a year over year basis.
April existing home sales rose 3.4% versus expectations of an increase of 2.6%.
http://scottgrannis.blogspot.com/2012/05/more-signs-of-housing-upturn.html
http://www.ritholtz.com/blog/2012/05/existing-home-sales-without-forclosures-prices-pop-10-1/
The May Richmond Fed manufacturing index came in at 4.0 versus estimates of 11.0 and April’s reading of 14.0.
Weekly mortgage applications rose 3.8% but purchase applications once again fell (-3.0%).
The Philly Fed ADS business conditions Index (short):
http://advisorperspectives.com/dshort/updates/Philly-Fed-ADS-Index.php
The Morning Call + Subscriber Alert + A pretty pathetic rally
The Market
Technical
After spending most of the day in plus territory, the indices (DJIA 12502, S&P 1316) finished flat on the day. They both (1) remain well within their intermediate term uptrends (11664-16664, 1225-1792) and (2) continue to probe for a lower boundary to their short term trading ranges (?-13302, ?-1422).
In addition, they both challenged the very short term downtrend (12513, 1320) and failed to hold above those resistance points.
Volume weakened, as did breadth. The VIX rose above the upper boundary of its short term trading range. As you know in yesterday’s Morning Call, I reversed/delayed a call regarding the confirmation of the violation of that boundary. Yesterday’s pin action seemed to re-confirm that break---not good for stocks.
GLD got whacked but remained above the lower boundary of its intermediate term trading range. However, yesterday’s very weak trading may indicate that we are in for another challenge to that lower boundary (148.20).
http://blog.stocktradersalmanac.com/post/Is-This-The-Year-DJIA-Beats-GLD
Bottom line: yesterday’s unsuccessful challenge by the Averages of the very short term downtrend suggests that Monday may have been little more than a relief rally and that the pressure remains to the downside. While stocks may once again challenge near in resistance, the pin action prompts me to chip away at technically broken stocks.
Leading indicators of a Market top. The longer term trend is positive; but that doesn’t mean, stocks won’t test 11651, 1224. (medium)
http://www.marketwatch.com/story/leading-indicators-of-a-market-top-2012-05-22?link=home_carousel
Are the bond markets sending us a warning (short):
http://www.ritholtz.com/blog/2012/05/gayedare-markets-in-a-crash/
The panic/euphoria model (short):
http://pragcap.com/the-return-of-fear
Fundamental
Headlines
Yesterday’s economic news was neutral: existing home sales-positive; weekly retail sales-mixed; the Richmond Fed manufacturing index-negative. However, neutral was good enough to get stock prices moving up in the absence of news out of Europe. Then the inevitable occurred---news out of Europe; the former Greek Prime Minister was quoted as saying that the probability of Greece leaving the euro was high (well, duh), casting doubts that anything can be accomplished in the big EU pow wow today; and that little bit of patently obvious news was enough for stocks to quickly give up all the gains earned earlier.
Greek bonds crashing (even further) (medium):
http://www.zerohedge.com/news/new-greek-bonds-crash-all-time-lows-negative-pledge-fears-emerge-portugal-case
The latest from David Rosenberg (medium):
http://www.zerohedge.com/news/growing-tensions-spreading-global-downturn-and-dead-end-greek-resolution
The suicide watch in Europe is not over (medium):
http://www.telegraph.co.uk/comment/columnists/borisjohnson/9278862/Europe-is-driving-full-tilt-foot-on-the-pedal-into-a-brick-wall.html
And speaking of suicide, which I wish that I wasn’t (4 minute video):
http://www.zerohedge.com/news/nigel-farage-europes-economic-suicide
Bottom line: with our economy continuing to stumble forward, Europe poses the major problem to our economic outlook and stock valuations. There, of course, is some probability that the worse case is largely reflected in current prices, especially since they have traded down of late. However, in my opinion, it is less than many hope.
At the moment, lines are being drawn in the sand: Germany has said no more money; and since they are the only Europeans that have any, that is significant; Greece has said no more austerity. This is like the gunfight at OK corral. Everyone is going to lose something; the only question is, how much. And yet nobody is doing anything to attempt to find the least painful alternative (Greece leaves the euro and Germany/ECB helps ease it through the transition). It may happen at the last minute, but (1) there is no sign of it, (2) the more time that lapses, the greater the chances that events could spin out of control and render it impossible to implement and (3) there are so many alternative scenarios to this ‘least painful’ course that potentially hold much greater negative consequences, that I just don’t believe are being discounted. Cash is a comfort.
The cure for JP Morgan and our banking system (medium):
http://www.nakedcapitalism.com/2012/05/for-starters-reinstate-glass-steagall.html
Subscriber Alert
Given the failure of yesterday’s rally, I am assuming that we are in for more downside. Today at the open, the following actions will be taken on stocks that have experienced a technical breakdown.
In the Dividend Growth Portfolio, a small portion of Qualcomm will be Sold.
In the High Yield Portfotio, a small portion of Sanofi Aventis will be Sold.
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.
Technical
After spending most of the day in plus territory, the indices (DJIA 12502, S&P 1316) finished flat on the day. They both (1) remain well within their intermediate term uptrends (11664-16664, 1225-1792) and (2) continue to probe for a lower boundary to their short term trading ranges (?-13302, ?-1422).
In addition, they both challenged the very short term downtrend (12513, 1320) and failed to hold above those resistance points.
Volume weakened, as did breadth. The VIX rose above the upper boundary of its short term trading range. As you know in yesterday’s Morning Call, I reversed/delayed a call regarding the confirmation of the violation of that boundary. Yesterday’s pin action seemed to re-confirm that break---not good for stocks.
GLD got whacked but remained above the lower boundary of its intermediate term trading range. However, yesterday’s very weak trading may indicate that we are in for another challenge to that lower boundary (148.20).
http://blog.stocktradersalmanac.com/post/Is-This-The-Year-DJIA-Beats-GLD
Bottom line: yesterday’s unsuccessful challenge by the Averages of the very short term downtrend suggests that Monday may have been little more than a relief rally and that the pressure remains to the downside. While stocks may once again challenge near in resistance, the pin action prompts me to chip away at technically broken stocks.
Leading indicators of a Market top. The longer term trend is positive; but that doesn’t mean, stocks won’t test 11651, 1224. (medium)
http://www.marketwatch.com/story/leading-indicators-of-a-market-top-2012-05-22?link=home_carousel
Are the bond markets sending us a warning (short):
http://www.ritholtz.com/blog/2012/05/gayedare-markets-in-a-crash/
The panic/euphoria model (short):
http://pragcap.com/the-return-of-fear
Fundamental
Headlines
Yesterday’s economic news was neutral: existing home sales-positive; weekly retail sales-mixed; the Richmond Fed manufacturing index-negative. However, neutral was good enough to get stock prices moving up in the absence of news out of Europe. Then the inevitable occurred---news out of Europe; the former Greek Prime Minister was quoted as saying that the probability of Greece leaving the euro was high (well, duh), casting doubts that anything can be accomplished in the big EU pow wow today; and that little bit of patently obvious news was enough for stocks to quickly give up all the gains earned earlier.
Greek bonds crashing (even further) (medium):
http://www.zerohedge.com/news/new-greek-bonds-crash-all-time-lows-negative-pledge-fears-emerge-portugal-case
The latest from David Rosenberg (medium):
http://www.zerohedge.com/news/growing-tensions-spreading-global-downturn-and-dead-end-greek-resolution
The suicide watch in Europe is not over (medium):
http://www.telegraph.co.uk/comment/columnists/borisjohnson/9278862/Europe-is-driving-full-tilt-foot-on-the-pedal-into-a-brick-wall.html
And speaking of suicide, which I wish that I wasn’t (4 minute video):
http://www.zerohedge.com/news/nigel-farage-europes-economic-suicide
Bottom line: with our economy continuing to stumble forward, Europe poses the major problem to our economic outlook and stock valuations. There, of course, is some probability that the worse case is largely reflected in current prices, especially since they have traded down of late. However, in my opinion, it is less than many hope.
At the moment, lines are being drawn in the sand: Germany has said no more money; and since they are the only Europeans that have any, that is significant; Greece has said no more austerity. This is like the gunfight at OK corral. Everyone is going to lose something; the only question is, how much. And yet nobody is doing anything to attempt to find the least painful alternative (Greece leaves the euro and Germany/ECB helps ease it through the transition). It may happen at the last minute, but (1) there is no sign of it, (2) the more time that lapses, the greater the chances that events could spin out of control and render it impossible to implement and (3) there are so many alternative scenarios to this ‘least painful’ course that potentially hold much greater negative consequences, that I just don’t believe are being discounted. Cash is a comfort.
The cure for JP Morgan and our banking system (medium):
http://www.nakedcapitalism.com/2012/05/for-starters-reinstate-glass-steagall.html
Subscriber Alert
Given the failure of yesterday’s rally, I am assuming that we are in for more downside. Today at the open, the following actions will be taken on stocks that have experienced a technical breakdown.
In the Dividend Growth Portfolio, a small portion of Qualcomm will be Sold.
In the High Yield Portfotio, a small portion of Sanofi Aventis will be Sold.
Tuesday, May 22, 2012
Morning Journal-Smaller government and the political class
Economics
This Week’s Data
Other
Chinese buyers defaulting on commodity shipments (medium):
http://www.zerohedge.com/news/chinese-buyers-defaulting-commodity-shipments-prices-plunge
Weekly gasoline update (short):
http://advisorperspectives.com/dshort/updates/Gasoline-Update.php
Vehicle miles driven (short):
http://advisorperspectives.com/dshort/updates/DOT-Miles-Driven.php
Politics
Domestic
More on the tax math of ‘ex-patriot’ Facebook founder (short):
http://www.powerlineblog.com/archives/2012/05/punitive-liberalism-updated.php
The congressional threat to us all (medium):
http://www.ritholtz.com/blog/2012/05/congressional-threat-to-every-investor-business-owner-and-citizen/
Smaller government and the political class (medium):
http://www.zerohedge.com/news/guest-post-americans-want-smaller-government-and-lower-taxes
News on Stocks in Our Portfolios
More earnings per share reports:
Reported Expected
Lowe’s $.44 $.41
Medtronic .99 .98
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.
This Week’s Data
Other
Chinese buyers defaulting on commodity shipments (medium):
http://www.zerohedge.com/news/chinese-buyers-defaulting-commodity-shipments-prices-plunge
Weekly gasoline update (short):
http://advisorperspectives.com/dshort/updates/Gasoline-Update.php
Vehicle miles driven (short):
http://advisorperspectives.com/dshort/updates/DOT-Miles-Driven.php
Politics
Domestic
More on the tax math of ‘ex-patriot’ Facebook founder (short):
http://www.powerlineblog.com/archives/2012/05/punitive-liberalism-updated.php
The congressional threat to us all (medium):
http://www.ritholtz.com/blog/2012/05/congressional-threat-to-every-investor-business-owner-and-citizen/
Smaller government and the political class (medium):
http://www.zerohedge.com/news/guest-post-americans-want-smaller-government-and-lower-taxes
News on Stocks in Our Portfolios
More earnings per share reports:
Reported Expected
Lowe’s $.44 $.41
Medtronic .99 .98
The Morning Call--Use this rally to Sell broken stocks
The Market
Technical
The indices (DJIA 12504, S&P 1315) finally rallied, remaining within their intermediate term uptrend (11651-16651, 1224-1791). However, they are searching for a lower boundary to their short term trading range (?-13302, ?-1422).
Yesterday had all the feel of a relief rally/short covering; and we could very well witness some follow through before stocks again resume their search for a short term lower boundary. The key levels to watch as price rise are 12548, 1329---which are the upper boundaries of their very short term downtrends.
At the moment, I don’t believe that Friday’s low will prove to be the new lower boundary (12344, 1292). That said, there were a number of our stocks that bounced off easily defined support levels---hinting that there is some outside chance that equities have found a bottom; hence I am not totally ruling them out as new lower boundaries
As a reminder, the other support levels that I am watching (1) their 200 day moving averages [12198, 1277], (2) the neckline of the reverse head and shoulders pattern [12287, 1266] and (3) the old resistance/support level [11741, 1230].
Volume was down; breadth snap back solidly. The VIX plunged and closed right on the upper boundary of its short term trading range. You will remember that in Saturday’s Closing Bell, I moved forward the call for a break above this boundary based primarily on the distance element of our time and distance discipline. Yesterday, the VIX recouped the entire distance; so I am going to hedge a bit and re-open the confirmation period for at least another day.
GLD moved up slightly, remaining above the lower boundary of its intermediate term trading range.
Bottom line: at the moment, I am operating on the thesis that the current decline isn’t over; that the either the aforementioned upper boundaries of the very short term downtrends or the former 12744, 1338 resistance levels will hold; and when that occurs, our Portfolios will lighten up on some technically broken stocks.
If I am wrong and 12344, 1292 prove the bottom, then there are plenty of stocks on our Buy Lists to Add to.
Corrections take time (short):
http://www.chrisperruna.com/2012/05/20/corrections-take-time-be-patient/
Trader Mike on yesterday’s pin action (short):
http://www.stocktradingtogo.com/2012/05/21/market-recap-rebound-begins-education-tips-apple-and-facebook-updates/
Fundamental
Headlines
No economic news yesterday. In addition, there was little out of Europe over the weekend. The focus of investor/media attention was the disappointing trading in Facebook after its equally disappointing Friday offering. That it didn’t have any impact on the rest of the Market was somewhat surprising. But I think that only reaffirms that all eyes are on Europe and with no new bad news, there was a sigh of relief.
***over night, Germany said ‘no way, Jose’ to ECB issued bonds and the OECD
said Europe is now in recession.
A vision of the Greek endgame (medium and today’s must read):
http://www.zerohedge.com/news/forget-bazookas-here-come-tomahawks-and-howitzers-r-rated-walk-thru-greek-endgame
Will a eurozone crisis lead to another Lehman moment (medium):
http://www.nakedcapitalism.com/2012/05/could-the-eurozone-crisis-cause-another-lehman-moment.html
And:
http://www.minyanville.com/special-features/random-thoughts/articles/todd-harrison-todd-harrison-minyanville-todd/5/21/2012/id/41085
More on potential bank runs (medium):
http://www.zerohedge.com/news/elephant-room-european-capital-outflows-and-another-%E2%82%AC215-billion-spanish-deposit-flight
Bottom line: if investors were buying stocks just because there was no bad news out of Europe, I believe that they will be very unhappy with their purchases. Now perhaps the buying was because all the bad news from Europe was reflected at 12344, 1292. I doubt it; but it can’t be ruled out.
This is one of those times where the technicals guide my action. 12344, 1292 are either the bottom or they are not; we just have to wait for the Market to reveal its wisdom.
The latest from John Hussman (medium):
http://www.hussman.net/wmc/wmc120521.htm
Tuesday morning humor (3 minute video):
http://www.zerohedge.com/news/blast-past-snl-explains-wall-street
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.
Technical
The indices (DJIA 12504, S&P 1315) finally rallied, remaining within their intermediate term uptrend (11651-16651, 1224-1791). However, they are searching for a lower boundary to their short term trading range (?-13302, ?-1422).
Yesterday had all the feel of a relief rally/short covering; and we could very well witness some follow through before stocks again resume their search for a short term lower boundary. The key levels to watch as price rise are 12548, 1329---which are the upper boundaries of their very short term downtrends.
At the moment, I don’t believe that Friday’s low will prove to be the new lower boundary (12344, 1292). That said, there were a number of our stocks that bounced off easily defined support levels---hinting that there is some outside chance that equities have found a bottom; hence I am not totally ruling them out as new lower boundaries
As a reminder, the other support levels that I am watching (1) their 200 day moving averages [12198, 1277], (2) the neckline of the reverse head and shoulders pattern [12287, 1266] and (3) the old resistance/support level [11741, 1230].
Volume was down; breadth snap back solidly. The VIX plunged and closed right on the upper boundary of its short term trading range. You will remember that in Saturday’s Closing Bell, I moved forward the call for a break above this boundary based primarily on the distance element of our time and distance discipline. Yesterday, the VIX recouped the entire distance; so I am going to hedge a bit and re-open the confirmation period for at least another day.
GLD moved up slightly, remaining above the lower boundary of its intermediate term trading range.
Bottom line: at the moment, I am operating on the thesis that the current decline isn’t over; that the either the aforementioned upper boundaries of the very short term downtrends or the former 12744, 1338 resistance levels will hold; and when that occurs, our Portfolios will lighten up on some technically broken stocks.
If I am wrong and 12344, 1292 prove the bottom, then there are plenty of stocks on our Buy Lists to Add to.
Corrections take time (short):
http://www.chrisperruna.com/2012/05/20/corrections-take-time-be-patient/
Trader Mike on yesterday’s pin action (short):
http://www.stocktradingtogo.com/2012/05/21/market-recap-rebound-begins-education-tips-apple-and-facebook-updates/
Fundamental
Headlines
No economic news yesterday. In addition, there was little out of Europe over the weekend. The focus of investor/media attention was the disappointing trading in Facebook after its equally disappointing Friday offering. That it didn’t have any impact on the rest of the Market was somewhat surprising. But I think that only reaffirms that all eyes are on Europe and with no new bad news, there was a sigh of relief.
***over night, Germany said ‘no way, Jose’ to ECB issued bonds and the OECD
said Europe is now in recession.
A vision of the Greek endgame (medium and today’s must read):
http://www.zerohedge.com/news/forget-bazookas-here-come-tomahawks-and-howitzers-r-rated-walk-thru-greek-endgame
Will a eurozone crisis lead to another Lehman moment (medium):
http://www.nakedcapitalism.com/2012/05/could-the-eurozone-crisis-cause-another-lehman-moment.html
And:
http://www.minyanville.com/special-features/random-thoughts/articles/todd-harrison-todd-harrison-minyanville-todd/5/21/2012/id/41085
More on potential bank runs (medium):
http://www.zerohedge.com/news/elephant-room-european-capital-outflows-and-another-%E2%82%AC215-billion-spanish-deposit-flight
Bottom line: if investors were buying stocks just because there was no bad news out of Europe, I believe that they will be very unhappy with their purchases. Now perhaps the buying was because all the bad news from Europe was reflected at 12344, 1292. I doubt it; but it can’t be ruled out.
This is one of those times where the technicals guide my action. 12344, 1292 are either the bottom or they are not; we just have to wait for the Market to reveal its wisdom.
The latest from John Hussman (medium):
http://www.hussman.net/wmc/wmc120521.htm
Tuesday morning humor (3 minute video):
http://www.zerohedge.com/news/blast-past-snl-explains-wall-street
Monday, May 21, 2012
Carbo Ceramics (CRR) 2012 Review
Carbo Ceramics Inc manufactures and sell ceramic and resin coated sand propellants designed for hydraulic fracturing of oil and natural gas wells. The company has grown profits and dividends 13-14% over the last ten years earning a 15-20% return of equity. This performance should continue because:
(1) because its propellants are needed in oil as well as gas plays, the shift in exploration for liquids should not impact the company’s growth,
(2) its move into spill prevention and containment solutions should accelerate growth as environmental concerns get more attention,
(3) acquisitions.
(1) because its propellants are needed in oil as well as gas plays, the shift in exploration for liquids should not impact the company’s growth,
(2) its move into spill prevention and containment solutions should accelerate growth as environmental concerns get more attention,
(3) acquisitions.
The Morning Call + Subscriber Alert + A classic Dow Sell signal
The Market
Technical
Monday Morning Chartology
As you can see, the S&P is approaching a range with multiple support levels. With this kind of congestion, I expect a slow down in the rate of decline and, hopefully, the establishment of a new lower boundary of its short term trading range.
GLD makes a great rebound. Notice the similarity to the late December/early January sell off and bounce.
http://www.zerohedge.com/news/why-has-gold-fallen-price-and-what-outlook
Saturday, May 19, 2012
The Closing Bell-It ain't over, till it's over
Statistical Summary
Current Economic Forecast
2011
Real Growth in Gross Domestic Product: +1.5- +2.5%
Inflation: 2-3 %
Growth in Corporate Profits: 7-12%
2012
Real Growth in Gross Domestic Product (revised): +1.0- +2.0%
Inflation (revised): 2.5-3.5 %
Growth in Corporate Profits (revised): 5-10%
Friday, May 18, 2012
The Morning Call + Subscriber Alert + QEIII?
The Market
Technical
The indices (DJIA 12442, S&P 1304) had another ugly day, the Dow closing below 12744 for the fourth day, the S&P below 1338 for the third day. The DJIA has now satisfied its time element of our time and distance discipline (thereby confirming the break below 12744) while the S&P will follow suit at the close today.
Assuming that occurs the following are the next likely support levels: (1) their 200 day moving averages [12198, 1278], (2) the neckline of the reverse head and shoulders pattern [12287, 1266] and (3) the old resistance/support level [11741, 1230].
Technical
The indices (DJIA 12442, S&P 1304) had another ugly day, the Dow closing below 12744 for the fourth day, the S&P below 1338 for the third day. The DJIA has now satisfied its time element of our time and distance discipline (thereby confirming the break below 12744) while the S&P will follow suit at the close today.
Assuming that occurs the following are the next likely support levels: (1) their 200 day moving averages [12198, 1278], (2) the neckline of the reverse head and shoulders pattern [12287, 1266] and (3) the old resistance/support level [11741, 1230].
Thursday, May 17, 2012
Morning Journal-Must see video of Alan Simpson
Economics
This Week’s Data
April industrial production rose 1.1% versus expectations of up 0.6%; capacity utilization came in at 79.2 versus forecasts of 79.0.
http://mjperry.blogspot.com/2012/05/industrial-production-rebounds-in-april.html
With some perspective (short):
http://scottgrannis.blogspot.com/2012/05/some-additional-perspective-on-europe.html
The minutes from the last Fed meeting were released but contained very little new information. The committee did dance the QEIII issue but there was no indication of a policy change anytime soon.
Weekly jobless claims were unchanged versus estimates of a 5,000 decline.
http://www.calculatedriskblog.com/2012/05/weekly-initial-unemployment-claims-at_17.html
This Week’s Data
April industrial production rose 1.1% versus expectations of up 0.6%; capacity utilization came in at 79.2 versus forecasts of 79.0.
http://mjperry.blogspot.com/2012/05/industrial-production-rebounds-in-april.html
With some perspective (short):
http://scottgrannis.blogspot.com/2012/05/some-additional-perspective-on-europe.html
The minutes from the last Fed meeting were released but contained very little new information. The committee did dance the QEIII issue but there was no indication of a policy change anytime soon.
Weekly jobless claims were unchanged versus estimates of a 5,000 decline.
http://www.calculatedriskblog.com/2012/05/weekly-initial-unemployment-claims-at_17.html
The Morning Call-Warning! Oncoming Train
The Market
Technical
The indices (DJIA 12598, S&P 1324) continue in their challenge of the 12744, 1338 support level---the Dow for the third day, the S&P for its second. However, they both remain within their intermediate term up trends (11624-16624, 1221-1788).
Volume declined; breadth was mixed again, but the flow of funds indicator continues to crash. The VIX traded up and closed above the upper boundary of its short term trading range. Our time and distance discipline is now operative; but if the break is confirmed it will not be a good sign for stocks.
Gold fell but remains above the lower boundary of its intermediate term trading range (148.20).
http://www.zerohedge.com/news/canary-gold-mine-historic-move-japanese-pension-fund-switches-gold-first-time-ever
Technical
The indices (DJIA 12598, S&P 1324) continue in their challenge of the 12744, 1338 support level---the Dow for the third day, the S&P for its second. However, they both remain within their intermediate term up trends (11624-16624, 1221-1788).
Volume declined; breadth was mixed again, but the flow of funds indicator continues to crash. The VIX traded up and closed above the upper boundary of its short term trading range. Our time and distance discipline is now operative; but if the break is confirmed it will not be a good sign for stocks.
Gold fell but remains above the lower boundary of its intermediate term trading range (148.20).
http://www.zerohedge.com/news/canary-gold-mine-historic-move-japanese-pension-fund-switches-gold-first-time-ever
Wednesday, May 16, 2012
Morning Journal-A closer look at the 'fiscal cliff'
Economics
This Week’s Data
The International Council of Shopping Centers reported weekly sales of major retailers fell 0.8% versus the prior week while rising 4.5% versus the comparable period a year ago: Redbook Research reported month to date retail chain store sales up 3.7% on a year over year basis.
March business inventories rose by 0.3% versus expectations of up 0.4%; importantly, business sales were up 0.6%.
The National Association of Home Builders confidence index came in at 29 versus estimates of 26.
http://www.calculatedriskblog.com/2012/05/nahb-builder-confidence-increases-in.html
Weekly mortgage applications increased 9.2%, however, purchase applications declined 2.4%.
April housing starts jumped 9.6% versus forecasts of up 4.7%: however, building permits fell 6.4% versus expectations of 4.4% decrease.
http://www.calculatedriskblog.com/2012/05/housing-starts-increase-to-717000-in.html
This Week’s Data
The International Council of Shopping Centers reported weekly sales of major retailers fell 0.8% versus the prior week while rising 4.5% versus the comparable period a year ago: Redbook Research reported month to date retail chain store sales up 3.7% on a year over year basis.
March business inventories rose by 0.3% versus expectations of up 0.4%; importantly, business sales were up 0.6%.
The National Association of Home Builders confidence index came in at 29 versus estimates of 26.
http://www.calculatedriskblog.com/2012/05/nahb-builder-confidence-increases-in.html
Weekly mortgage applications increased 9.2%, however, purchase applications declined 2.4%.
April housing starts jumped 9.6% versus forecasts of up 4.7%: however, building permits fell 6.4% versus expectations of 4.4% decrease.
http://www.calculatedriskblog.com/2012/05/housing-starts-increase-to-717000-in.html
The Morning Call-Stocks are the hands of the EU
Note: I am on jury duty today; so I have no idea what tomorrow’s Morning Call will look like.
The Market
Technical
The indices (12632, S&P 1330) are in the midst of a challenge of the 12744, 1338 support level---the Dow for the second day, the S&P for the first. Absent a huge price drop (the distance element), the time element of our Discipline will confirm the penetration of the 12744, 1338 level on Friday.
To repeat the parameters of any new short term trading range:
On the downside (1) their 200 day moving averages [12190, 1277], (2) the neckline of the reverse head and shoulders pattern [12287, 1266] and (3) the old resistance/support level [11741, 1230].
As for resistance, we are now looking at (1) the 12919, 1372 former support level, (2) the 50 day moving averages [13039, 1384] and (3) upper boundaries of their short term trading ranges [13302, 1422].
Intermediate term, the Averages are well within their up trend (11624-16624, 1219-1786).
Volume rose; breadth was mixed, though the flow of funds indicator is getting downright ugly. The VIX was up and closed right on the upper boundary of its short term trading range. A confirmed break above this level would be negative for stocks.
GLD fell again, but remains above the lower boundary of its intermediate term trading range (148.20).
Bottom line: even though I am not bearish on stock prices at current levels, if 12744, 1338 can’t hold, then among the other visible support levels the closest is 4.5% percent away. So we could be in for some more pain near term. In this atmosphere, I continue to focus on our Stop Loss and trading discipline. However, a number of stocks that our Portfolios made trading sales in earlier this year are approaching attractive re-entry levels. That raises the potential that our Portfolios could be both buying and selling if prices continue to decline.
Fundamental
Headlines
Pre-opening the data flow was pretty darn good yesterday: (1) on the economic front, April CPI was flat, retail sales were up and the NY Fed manufacturing index was a blow out, and (2) over night the EU chiefs suggested that Greece deserved some leniency in solving its fiscal problems; and while the PMI’s across most of Europe were negative, Germany was in the plus column and talking heads were getting jiggy with that info. Later in the morning, we got more good news as March business inventories were up with sales growing at twice that rate; and the home builders’ confidence index improved. That kept prices above the flat line for the first half of the day.
Then the Greek political parties announced that they couldn’t form a coalition government, the finance ministry estimated that 700 million euros had been withdrawn from the Greek banking system in recent days (raising fears of similar actions in Portugal, Spain and Italy) and not surprisingly, sovereign debt across the EU traded down. Confirming that US economic data is meaningless however positive, stocks got the willies and finished off for the day.
http://www.zerohedge.com/news/has-greek-bank-run-started
More on what happens if Greece leaves the euro (medium):
http://www.ritholtz.com/blog/2012/05/what-happens-if-greece-leaves/
JP Morgan’s recent trading losses seem to be fading for the moment---partly because the $2 billion loss is manageable, partly because Jamie Dimon still commands respect (and the benefit of the doubt). That said, the risk in this situation is not that Morgan’s losses could disrupt our financial system but that it could represent the tip of an iceberg that incorporates not just US banks but European banks as well. If it turns out that Morgan is an isolated incident, then it will continue to receive less and less attention. But the risk is that the problem is more systemic and there are other shoes to drop.
Part two of the Biderman/Bianco discussion (9 minute video):
http://www.zerohedge.com/news/biderman-and-bianco-black-swan-bonanza
Satyajit Das looks at JP Morgan (medium/long):
http://www.nakedcapitalism.com/2012/05/satyajit-das-topiary-lessons-jp-morgans-us-2-billion-loss.html
The real problem with JP Morgan (medium and today’s must read):
http://www.zerohedge.com/news/guest-post-president-obama-view-and-false-notion-too-big-fail
Bottom line:
The economy is progressing much as I expected---slow and uneven; but it is moving forward. Under that assumption, stocks (as measured by the S&P) are slightly undervalued. Given that equities tend to vacillate around Fair Value, sometimes in quite volatile swings, it is not surprising that prices could move lower. In the process, it is likely that within our universe of stocks values will be created---that’s the good news.
The bad news is the current political inertia in Europe in dealing with the fiscal problems of its southern states. The risk is that the eurocrats delay any action too long and events overwhelm whatever curative measures they attempt to implement at the last minute---and Europe sinks into a major recession and/or its financial system becomes partially or completely dysfunctional. That won’t be good for the US economy or for US stocks. I can’t believe the eurocrats will be that stupid and so I have not yet factored an EU debacle into our forecast. But that moment is not that far away.
The latest from Mohamed El Erian (medium):
http://advisorperspectives.com/commentaries/pimco_51312.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.
The Market
Technical
The indices (12632, S&P 1330) are in the midst of a challenge of the 12744, 1338 support level---the Dow for the second day, the S&P for the first. Absent a huge price drop (the distance element), the time element of our Discipline will confirm the penetration of the 12744, 1338 level on Friday.
To repeat the parameters of any new short term trading range:
On the downside (1) their 200 day moving averages [12190, 1277], (2) the neckline of the reverse head and shoulders pattern [12287, 1266] and (3) the old resistance/support level [11741, 1230].
As for resistance, we are now looking at (1) the 12919, 1372 former support level, (2) the 50 day moving averages [13039, 1384] and (3) upper boundaries of their short term trading ranges [13302, 1422].
Intermediate term, the Averages are well within their up trend (11624-16624, 1219-1786).
Volume rose; breadth was mixed, though the flow of funds indicator is getting downright ugly. The VIX was up and closed right on the upper boundary of its short term trading range. A confirmed break above this level would be negative for stocks.
GLD fell again, but remains above the lower boundary of its intermediate term trading range (148.20).
Bottom line: even though I am not bearish on stock prices at current levels, if 12744, 1338 can’t hold, then among the other visible support levels the closest is 4.5% percent away. So we could be in for some more pain near term. In this atmosphere, I continue to focus on our Stop Loss and trading discipline. However, a number of stocks that our Portfolios made trading sales in earlier this year are approaching attractive re-entry levels. That raises the potential that our Portfolios could be both buying and selling if prices continue to decline.
Fundamental
Headlines
Pre-opening the data flow was pretty darn good yesterday: (1) on the economic front, April CPI was flat, retail sales were up and the NY Fed manufacturing index was a blow out, and (2) over night the EU chiefs suggested that Greece deserved some leniency in solving its fiscal problems; and while the PMI’s across most of Europe were negative, Germany was in the plus column and talking heads were getting jiggy with that info. Later in the morning, we got more good news as March business inventories were up with sales growing at twice that rate; and the home builders’ confidence index improved. That kept prices above the flat line for the first half of the day.
Then the Greek political parties announced that they couldn’t form a coalition government, the finance ministry estimated that 700 million euros had been withdrawn from the Greek banking system in recent days (raising fears of similar actions in Portugal, Spain and Italy) and not surprisingly, sovereign debt across the EU traded down. Confirming that US economic data is meaningless however positive, stocks got the willies and finished off for the day.
http://www.zerohedge.com/news/has-greek-bank-run-started
More on what happens if Greece leaves the euro (medium):
http://www.ritholtz.com/blog/2012/05/what-happens-if-greece-leaves/
JP Morgan’s recent trading losses seem to be fading for the moment---partly because the $2 billion loss is manageable, partly because Jamie Dimon still commands respect (and the benefit of the doubt). That said, the risk in this situation is not that Morgan’s losses could disrupt our financial system but that it could represent the tip of an iceberg that incorporates not just US banks but European banks as well. If it turns out that Morgan is an isolated incident, then it will continue to receive less and less attention. But the risk is that the problem is more systemic and there are other shoes to drop.
Part two of the Biderman/Bianco discussion (9 minute video):
http://www.zerohedge.com/news/biderman-and-bianco-black-swan-bonanza
Satyajit Das looks at JP Morgan (medium/long):
http://www.nakedcapitalism.com/2012/05/satyajit-das-topiary-lessons-jp-morgans-us-2-billion-loss.html
The real problem with JP Morgan (medium and today’s must read):
http://www.zerohedge.com/news/guest-post-president-obama-view-and-false-notion-too-big-fail
Bottom line:
The economy is progressing much as I expected---slow and uneven; but it is moving forward. Under that assumption, stocks (as measured by the S&P) are slightly undervalued. Given that equities tend to vacillate around Fair Value, sometimes in quite volatile swings, it is not surprising that prices could move lower. In the process, it is likely that within our universe of stocks values will be created---that’s the good news.
The bad news is the current political inertia in Europe in dealing with the fiscal problems of its southern states. The risk is that the eurocrats delay any action too long and events overwhelm whatever curative measures they attempt to implement at the last minute---and Europe sinks into a major recession and/or its financial system becomes partially or completely dysfunctional. That won’t be good for the US economy or for US stocks. I can’t believe the eurocrats will be that stupid and so I have not yet factored an EU debacle into our forecast. But that moment is not that far away.
The latest from Mohamed El Erian (medium):
http://advisorperspectives.com/commentaries/pimco_51312.php
Tuesday, May 15, 2012
Morning Journal-Biderman and Bianco on Fed policy
Economics
This Week’s Data
The April consumer price index came in unchanged, in line with expectations; core CPI rose 0.2% also as anticipated.
April retail sales were up 0.1%, in line with estimates; ex autos, they were up 0.1% versus forecasts of up 0.2%.
The May New York Fed manufacturing index soared to 17.09 versus expectations of 10.0 and 6.6 recorded in April.
Other
C&I loans continue to grow (short):
http://mjperry.blogspot.com/2012/05/commercial-loan-volume-back-to-2007.html
Biderman and Bianco on Fed policy (6 minute video):
http://www.zerohedge.com/news/biderman-and-bianco-bury-bernankes-bond-bull-market-backbone
Weekly update on gasoline prices (short):
http://advisorperspectives.com/dshort/updates/Gasoline-Update.php
Politics
Domestic
The left’s lament against Obama (medium):
http://www.nakedcapitalism.com/2012/05/barack-obama-the-great-deceiver.html
News on Stocks in Our Portfolios
More quarterly earnings per share reports:
Reported Expected
Home Depot $.65 $.65
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.
This Week’s Data
The April consumer price index came in unchanged, in line with expectations; core CPI rose 0.2% also as anticipated.
April retail sales were up 0.1%, in line with estimates; ex autos, they were up 0.1% versus forecasts of up 0.2%.
The May New York Fed manufacturing index soared to 17.09 versus expectations of 10.0 and 6.6 recorded in April.
Other
C&I loans continue to grow (short):
http://mjperry.blogspot.com/2012/05/commercial-loan-volume-back-to-2007.html
Biderman and Bianco on Fed policy (6 minute video):
http://www.zerohedge.com/news/biderman-and-bianco-bury-bernankes-bond-bull-market-backbone
Weekly update on gasoline prices (short):
http://advisorperspectives.com/dshort/updates/Gasoline-Update.php
Politics
Domestic
The left’s lament against Obama (medium):
http://www.nakedcapitalism.com/2012/05/barack-obama-the-great-deceiver.html
News on Stocks in Our Portfolios
More quarterly earnings per share reports:
Reported Expected
Home Depot $.65 $.65
The Morning Call-Will 12744/1338 hold?
The Market
Technical
After a rough day, the indices (DJIA 12695, S&P 1338) are challenging the secondary support level and my initial candidate for a new lower boundary to their short term trading ranges (12744-13302, 1338-1422). Our time and distance discipline is now operative on the DJIA. As dismal as this sounds, both of the Averages are well within their intermediate term up trends (11604-16604, 1219-1786).
Right now I think the crucial levels to watch are S&P 1338 for support and S&P 1359 for resistance---which is the upper boundary of its very short term down trend.
Volume fell; breadth deteriorated. The VIX was up and remained within its short and intermediate term trading ranges. However, last night’s close was very near the upper boundary of its short term trading range.
GLD got whacked---again. For the second day, it was below the lower boundary of its secondary support level of its short term trading range. Yesterday our Portfolios reduced their positions to 4-5%. The lower boundary of its intermediate term trading range is at 148.10. A break of that level will prompt additional sales.
http://www.zerohedge.com/news/meet-latest-converted-gold-bug-imf
Bottom line: the technical picture keeps getting uglier. In that atmosphere, our Sell and trading disciplines increase in importance.
Fundamental
Headlines
No economic data released yesterday. Again, even if there were, it is unlikely investors would have noticed. Front and center were:
(1) the unfolding fiasco at JP Morgan. Heads are rolling and the size of the losses keep inching up---although to be fair, the total estimated loss at present is well within Morgan’s capability to absorb. The problem is that [a] no one knows what evil lurks on the balance sheets of other US financial institutions, [b] there is an uneasy feeling that the US big banks are simply too big to manage and too big to regulate and no one seems to want to think about how to correct it, and [c] forget that no one knows how many landmines there are on US bank balance sheets, the potential for a couple of nuclear bombs on the euro banking systems books is almost heart stopping.
http://www.ritholtz.com/blog/2012/05/everything-is-a-hedge/
Why the big banks need to be broken apart (medium):
http://www.nypost.com/p/news/opinion/opedcolumnists/break_up_the_banks_NoZue6C7k34jZqUcjnTzYM
(2) Europe, Europe, Europe. [a] the Greeks can’t form a government. A new round of elections in June is likely and so the slow torture from this source continues, [b] Angela Merkel’s party lost elections in Germany largest state, creating additional uncertainty from Europe’s most stable and best economy and [c] Spain had another poorly received bond auction. More gruel for this witch’s brew. And yet, the political class is AWOL. If this is a sign that this crowd has resigned itself to letting events run their course, we are likely in for a very rough ride.
The latest from John Mauldin on Europe (medium/long):
http://www.minyanville.com/business-news/the-economy/articles/euros-France-debt-Germany-Spanish-banks/5/14/2012/id/40974
Bottom line: stocks are getting cheaper as investors realize that the US economy is no where near a normal rebound and the financial system still has enough problems to prevent it from financing any higher rate of growth. At least in our forecast, that is not bad news. Indeed, equities at current prices reflect all that; so based on domestic events, there is no reason to anticipate a lower Market.
Europe may be another story. It is coming unraveled; and the eurocrats seem to be frozen in the headlights. They may come up with a solution that allows Europe to continue to ‘muddle through’; and they may not. However, until something happens all I can assume is that the risks to our Portfolios are rising; hence, their current high cash position helps me sleep at night. I am building a list of potential buy candidates while at the same time watching our trading stops very closely. I fear our Portfolios may have more selling to do before they get the opportunity to buy.
The latest from John Hussman (medium/long):
http://advisorperspectives.com/commentaries/hussman_51412.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.
Technical
After a rough day, the indices (DJIA 12695, S&P 1338) are challenging the secondary support level and my initial candidate for a new lower boundary to their short term trading ranges (12744-13302, 1338-1422). Our time and distance discipline is now operative on the DJIA. As dismal as this sounds, both of the Averages are well within their intermediate term up trends (11604-16604, 1219-1786).
Right now I think the crucial levels to watch are S&P 1338 for support and S&P 1359 for resistance---which is the upper boundary of its very short term down trend.
Volume fell; breadth deteriorated. The VIX was up and remained within its short and intermediate term trading ranges. However, last night’s close was very near the upper boundary of its short term trading range.
GLD got whacked---again. For the second day, it was below the lower boundary of its secondary support level of its short term trading range. Yesterday our Portfolios reduced their positions to 4-5%. The lower boundary of its intermediate term trading range is at 148.10. A break of that level will prompt additional sales.
http://www.zerohedge.com/news/meet-latest-converted-gold-bug-imf
Bottom line: the technical picture keeps getting uglier. In that atmosphere, our Sell and trading disciplines increase in importance.
Fundamental
Headlines
No economic data released yesterday. Again, even if there were, it is unlikely investors would have noticed. Front and center were:
(1) the unfolding fiasco at JP Morgan. Heads are rolling and the size of the losses keep inching up---although to be fair, the total estimated loss at present is well within Morgan’s capability to absorb. The problem is that [a] no one knows what evil lurks on the balance sheets of other US financial institutions, [b] there is an uneasy feeling that the US big banks are simply too big to manage and too big to regulate and no one seems to want to think about how to correct it, and [c] forget that no one knows how many landmines there are on US bank balance sheets, the potential for a couple of nuclear bombs on the euro banking systems books is almost heart stopping.
http://www.ritholtz.com/blog/2012/05/everything-is-a-hedge/
Why the big banks need to be broken apart (medium):
http://www.nypost.com/p/news/opinion/opedcolumnists/break_up_the_banks_NoZue6C7k34jZqUcjnTzYM
(2) Europe, Europe, Europe. [a] the Greeks can’t form a government. A new round of elections in June is likely and so the slow torture from this source continues, [b] Angela Merkel’s party lost elections in Germany largest state, creating additional uncertainty from Europe’s most stable and best economy and [c] Spain had another poorly received bond auction. More gruel for this witch’s brew. And yet, the political class is AWOL. If this is a sign that this crowd has resigned itself to letting events run their course, we are likely in for a very rough ride.
The latest from John Mauldin on Europe (medium/long):
http://www.minyanville.com/business-news/the-economy/articles/euros-France-debt-Germany-Spanish-banks/5/14/2012/id/40974
Bottom line: stocks are getting cheaper as investors realize that the US economy is no where near a normal rebound and the financial system still has enough problems to prevent it from financing any higher rate of growth. At least in our forecast, that is not bad news. Indeed, equities at current prices reflect all that; so based on domestic events, there is no reason to anticipate a lower Market.
Europe may be another story. It is coming unraveled; and the eurocrats seem to be frozen in the headlights. They may come up with a solution that allows Europe to continue to ‘muddle through’; and they may not. However, until something happens all I can assume is that the risks to our Portfolios are rising; hence, their current high cash position helps me sleep at night. I am building a list of potential buy candidates while at the same time watching our trading stops very closely. I fear our Portfolios may have more selling to do before they get the opportunity to buy.
The latest from John Hussman (medium/long):
http://advisorperspectives.com/commentaries/hussman_51412.php
Monday, May 14, 2012
The Morning Call + Subscriber Alert + What unity in Israel likely means
The Market
Technical
Monday Morning Chartology
The question for the S&P right now is, will be break 1338 and probe for a lower, lower boundary or will it break the very short term down trend and lend strength to 1338 as the new lower boundary?
GLD broke the 154.10 level Friday. Our time and distance discipline kicks in; but since there is a trading component to this position, our Portfolios will reduce their GLD holdings to 4-5% at the Market open this morning. The lower boundary of its intermediate trading range is at 148.20.
The VIX remains in a trading range.
Update on ‘the best stock market indicator ever’ (short):
http://advisorperspectives.com/dshort/guest/John-Carlucci-Best-Indicator-Ever-Update.php
Fundamental
The estimated cost of Greece leaving the euro (medium):
http://www.zerohedge.com/news/jpmorgan-estimates-immediate-losses-greek-exit-could-reach-400-billion
Economics
This Week’s Data
Other
A positive take on the latest budget deficit (short):
http://scottgrannis.blogspot.com/2012/05/federal-budget-outlook-continues-to.html
What’s different globally this time (short):
http://advisorperspectives.com/commentaries/global_51112.php
Politics
Domestic
Monday Morning Wake Up (3 minute video):
http://gregmankiw.blogspot.com/2012/05/from-harvard-baseball-team.html
International War Against Radical Islam
Israel unites (medium):
http://www.washingtonpost.com/opinions/echoes-of-67-israel-unites/2012/05/10/gIQA9tUaGU_story.html
Saturday, May 12, 2012
The Closing Bell-Is the 'best in breed' less than best?
Statistical Summary
Current Economic Forecast
2011
Real Growth in Gross Domestic Product: +1.5- +2.5%
Inflation: 2-3 %
Growth in Corporate Profits: 7-12%
2012
Real Growth in Gross Domestic Product (revised): +1.0- +2.0%
Inflation (revised): 2.5-3.5 %
Growth in Corporate Profits (revised): 5-10%
Current Market Forecast
Dow Jones Industrial Average
Current Trend (revised):
Short Term Trading Range (?)-13302
Intermediate Up Trend 11604-16604
Long Term Trading Range 7148-14180
Very LT Up Trend 4187-14789
2011 Year End Fair Value 10750-10770
2012 Year End Fair Value 11290-11310
Standard & Poor’s 500
Current Trend (revised):
Short Term Trading Range (?)-1422
Intermediate Term Up Trend 1218-1785
Long Term Trading Range 766-1575
Very LT Up Trend 644-2000
2011 Year End Fair Value 1320-1340
2012 Year End Fair Value 1390-1410
Percentage Cash in Our Portfolios
Dividend Growth Portfolio 30%
High Yield Portfolio 33%
Aggressive Growth Portfolio 34%
Economics
The economy is a modest positive for Your Money. It was a very slow week for economic data. Most of it was mixed (retail sales, jobless claims and March wholesale inventories/sales) to positive (mortgage and purchase applications, the April PPI headline number and the University of Michigan’s preliminary May index of consumer sentiment) with one negative stat (the March trade deficit). While limited, there is nothing in these figures to warrant questioning our forecast.
However, what does cause me to question our outlook is the latest doozy from JP Morgan; that is, its prop trading desk took too much risk in the derivatives market, didn’t understand (or care about) the extent of the risk and lost a boat load of money. As I noted in yesterday’s Morning Call, coming out of the 2007/2008 financial crisis, one of my primary concerns was the soundness of the US banking system’s balance sheet. My reasoning was that in addition to the losses that they had to write off (that weakened their balance sheet), there likely remained plenty risk (losses) that they either didn’t know existed or they knew and were lying about it. As a result, in the summary of our economic forecast was the phrase ‘and a financial system with an impaired balance sheet’.
I was later duped by all the bright and rosy bulls**t from the Fed, the Treasury and the banks that they (the banks) had worked hard to get rid of or wrote off the poor assets and had strengthened their financial condition with the result that I mistakenly edited that aforementioned phrase out. Clearly, the huge loses from derivatives trading by the supposedly ‘best in breed’ bank suggest that I was premature in that judgment. That is bad enough; however, given that many European banks are on the precipice of bankruptcy, the question arises, how much exposure do our banks have to their EU counterparts and, like Morgan, have no clue (or are lying) about? Certainly, I don’t know; but this risk prompts me to re-add the statement regarding our financial system to our forecast summary---which also means my confidence in that forecast has been downgraded.
‘a below average secular rate of recovery resulting from too much government spending, too much government debt to service, too much government regulation, a financial system with an impaired balance sheet. and a business community unwilling to hire and invest because the aforementioned along with the likelihood a rising and potentially corrosive rate of inflation due to excessive money creation and the historic inability of the Fed to properly time the reversal of that monetary policy.’
Another in depth but not so technical look at JP Morgan prop trading fiasco (medium):
http://www.nakedcapitalism.com/2012/05/jp-morgan-loss-bomb-confirms-that-its-time-to-kill-var.html
And the bottom line on the whole system of prop trading (medium):
http://www.ritholtz.com/blog/2012/05/imperfect-bankers/
As for the risks facing this outlook:
(1) as you know, I had previously re-established ‘a stronger than expected recovery’ on this list given the better than anticipated profit ‘beat’ rate in the initial weeks of first quarter earnings season. I stated that ‘while I think it a meaningless exercise....., I am going to leave ‘a better than expected economic growth rate’ as a possible risk to our own forecast--at least until no reasonable doubt remains that this quarter’s ‘beat’ rate is anything but a function of unnecessarily low analyst expectations.’
However, last week, the ‘beat’ rate stat reversed itself dramatically falling from 73% to 60%, the latter being below the average of recent quarters [62%]. I think that in light of this latest tally, we have reached the aforementioned threshold. Accordingly, I am removing ‘a stronger than expected recovery’ as a risk to our forecast.
(2) while oil prices are still too high, they continue to decline [Mr. President, aren’t you going to give speculators credit for that? Just asking.]. Clearly, the more they fall, the less the risk that that high energy prices could stifle consumer spending and shrink corporate profit margins. Indeed at some point, energy prices will transition from being a negative for the economy to a positive as consumer disposable income rises and the cost of a key production component falls. We are not there yet; but the trend is certainly going our way.
http://www.zerohedge.com/news/crudes-crash-conundrum-explained
That said, a blow up in the Middle East could change that in an instant.
(3) the ECRI weekly index was basically flat this week. I continue to not take this indicator too seriously. However, I am keeping it on our list of risks because of [a] its track record for calling economic downturns and [b] the adamancy of its founder regarding this particular call---which he reiterated again this week [see below]. Furthermore, it has a long time horizon; so until the founder cries ‘uncle’, I leave it as a risk to our outlook.
http://advisorperspectives.com/dshort/updates/ECRI-Weekly-Leading-Index.php
(4) finally, the sovereign and bank debt problems in Europe remain the biggest risk to our forecast; and as you know, following last weekend’s French and Greek elections, it returned to center stage as the newly elected politicians promise that austerity is a thing of the past [as if]. Meanwhile, the economic data were grim, Greece is completely unraveling and the Spanish banks are a whisker away from the trash bin.
At the moment, the problem with all of this is the seeming inability of the political class to properly deal with a single critical issue. As a result, the euro is increasingly at risk of becoming a failed concept. What is so frustrating is that the evidence of its demise is right in front of the eurocrats’ eyes and it is never ending. This week, for example, in the face of the fallout from last weekend’s elections [and the excoriation of austerity] there was absolutely nothing [at least to date] in the way of a possible solution forthcoming from the EU establishment---not even the usual ‘everything is fine; there are no problems we can’t fix’ bulls**t they normally give out.
Once again, I am not saying that they won’t pull another rabbit out of the hat this time around. But their current ‘deer in the headlights’ response is not comforting. Hence, our ‘muddle through’ scenario probably has no better than an even chance of occurring. If it does not then, our forecast will have to deal with the increased likelihood of a severe recession if not a depression in Europe over the short term with the chance that the EU banking system seizes up and spreading to the global markets.
Not to end this on too dreary a note, the worse case [dissolve the euro or redefine the euro by kicking southern European countries out or something comparable] for the EU short term is actually the most positive case, in my opinion, longer term. Better to admit failure, cease compounding the error with more harmful fiscal/monetary policies and remove the drag from the economically responsible countries than bet the whole enchilada on what is fast becoming a bankrupt ideal.
A more sanguine look at Europe (medium):
http://pragcap.com/10-points-on-the-comity-of-europe
And a not so sanguine one (medium):
http://www.ritholtz.com/blog/2012/05/imperfect-bankers/
Bottom line: the economy continues to stumble along making slow but steady progress---just as depicted by our Model.
Our political class spent this week arguing over gay marriage while both our trade and budget deficit grow and 1/1/13 is a week closer. Discouraging as this all is, it too is in our Model.
As far as the major risk to our forecast, things have only gotten worse. To emphasize my conclusion, I considered putting the following in all caps or in bold italics or just repeating a couple more times. But since you have already read several times, I will leave it as it is:
‘Across the pond, the eurocrats are doing what they do best--smoking cigars, drinking wine, chasing skirts and laying on the beach; in other words, doing everything possible to ignore their problem. My obvious concern is that this strategy is not a formula for correcting an acute case insolvency. They may ultimately solve it but it appears that it will take an emergency to generate the necessary action; and given the progressive worsening of the situation, the risk is that conditions will simply deteriorate to the point where the problem is unfixable. In any case, it appears that a crisis is needed to prod action. We just don’t know when and the extent of the economic fallout’.
This week’s data:
(1) housing: weekly mortgage and purchase applications rose,
(2) consumer: weekly retail sales were mixed; weekly jobless claims were basically flat with the prior week; the preliminary May University of Michigan index of consumer sentiment came in at 77.8 versus expectations of 76.2,
(3) industry: March wholesale inventories fell but sales rose; small business sentiment rose in April,
(4) macroeconomic: the March trade deficit was larger than anticipated; the April producer price index headline number fell while the core rose as expected.
The Economic Risks:
(1) the economy is weaker [stronger] than expected.
(2) Fed policy (reading the data correctly).
(3) a disruption in global oil supplies (It is not the price of oil but its availability that will cause severe economic dislocation.).
(4) protectionism (Free trade is a major positive for world and US economic growth.).
(5) fiscal profligacy (Government spending as a percent of GDP is too high and the looming explosion in entitlement expenditures will make it worse. There is no good solution save spending discipline.).
(6) a rising tax and regulatory burden (Government has never proven that it could solve economic problems efficiently or satisfactorily.)
Politics
The domestic political environment is a neutral but could be improving for Your Money while the international political environment remains a negative.
The Market-Disciplined Investing
Technical
The indices (DJIA 12820, S&P 1353) closed solidly within their intermediate term up trends (11604-16604, 1218-1785); however, they are struggling with the reset of the lower boundary to their short term trading ranges (?-13302, ?-1422).
While the 12744, 1338 levels look to be decent candidates for the new lower boundary, there are plenty of others including (1) their 200 day moving averages [12183, 1276], (2) the neckline of the reverse head and shoulders pattern [12287, 1266] and (3) the old resistance/support level [11741, 1230].
As for resistance, we are now looking at (1) the 12919, 1372 former support level, (2) the 50 day moving averages [13062, 1386] and (3) upper boundaries of their short term trading ranges [13302, 1422]
Just to reiterate, I don’t believe the current Market weakness is a precursor to a bear market; it is simply probing for a lower boundary that will establish a wider trading range incorporating a more reasonable spread around Fair Value. The worse case would be a challenge of the lower boundaries of their intermediate term up trends
Volume on Friday was flat; breadth was down. The VIX was up, closing within its short/intermediate term trading ranges and continuing to build a reverse head and shoulders formation.
GLD closed down and below the secondary support level of 154.10. Our time and distance discipline kicks in here; but since there is a trading component to this holding, our Portfolios will Sell a portion of their GLD holdings Monday morning, barring an over night/early morning snap back above the 154.10 level. The lower boundary of the intermediate term trading range is 148.20.
Bottom line:
(1) the indices are probing for new lower boundaries to the short term trading ranges [?-13302, ?-1422] but remain well within their intermediate term up trends (11604-16604, 1218-1785],
(2) long term, the Averages are in a very long term [78 years] up trend defined by the 4187-14789, 644-2000 and a shorter but still long term [13 years] trading range defined by 7148-14198, 766-1575.
Fundamental-A Dividend Growth Investment Strategy
The DJIA (12820) finished this week about 16.7% above Fair Value (10985) while the S&P (1353) closed 0.4% under valued (1358). Incorporated in that ‘Fair Value’ judgment is a ‘muddle through’ scenario in Europe and a sluggish recovery at home that isn’t likely to improve until we change the personnel in Washington.
This week’s economic data supports the anemic recovery forecasted by our Model. The good news is that it may soon be getting additional help from declining oil prices. The bad news is that even the best CEO in our financial system can’t manage his ‘too big to fail’ bank, which adds an extra element of risk to our outlook. All that said, I haven’t altered the economic inputs to our Valuation Model.
Our political class continues to do absolutely nothing to solve our fiscal problems. This week they wasted their time debating gay marriage and whether an Arizona sheriff is a racist----you know, critically important s**t. Once again no mention much less action on spending, taxes, the deficit or the explosion in fiat money---just like we assumed in our Models.
With respect to Europe, I keep hoping that somebody will put on their big boy pants and take the steps needed to start the EU down the road to fiscal responsibility. But that is not happening; indeed I am reminded of Munich 1938 when the eurocrats ignored the risks and prayed their latest action would prevent catastrophe. We know how that worked out.
‘The problem is not that we don’t understand the size and scope of this crisis, the problem is that no one seemingly has the balls to do anything about it--which clearly threatens our ‘muddle through’ scenario. To be sure, the eurocrats have acted to pull back from the brink on prior occasions. However, the risk is that because Spain and Italy are so much larger than Greece, the momentum towards default may be impossible to stop once it gathers speed. That raises the probability that either a misstep will lead to a very severe recession and/or a counterparty default in the CDS market snowballs out of control throughout the global financial system.’
The risk to the financial system, I might add, is all the greater now that we know our own banks are not as financially sound as we had thought; and if they aren’t, how bad do think the eurosystem is?
My investment conclusion: if it weren’t for Europe, I would be resting easy, unconcerned about the economic outlook and equity values portrayed by our Models. Unfortunately, the EU political class seems incapable of seriously addressing the problems facing both their countries and their financial systems. Their only solution seems to be doing more of the same which (aside from being very little) only brings us to the classic definition of insanity (i.e. doing the same thing and expecting a different outcome).
http://www.telegraph.co.uk/news/worldnews/europe/greece/9257302/Its-too-late-for-Germany-to-save-the-euro.html
The good news is that stocks are at least starting to recognize that all is not well in Denmark. The bad news is that we don’t know how awful things can get; and unfortunately that has been made worse by the recent disclosure that our own banking system isn’t quite as swell as we thought.
That continues to argue for a big cash position and strict attention to our Price and trading Disciplines. I leave GLD as an asterisk to this strategy. Not because I don’t believe that it will ultimately prove to be a great hedge; but because right now the price action seems to be suggesting that I am in the minority on that judgment. In this Market, I am not going to stand in front of an oncoming train.
This week, our Portfolios did nothing.
Bottom line:
(1) our Portfolios will carry a high cash balance,
(2) we continue to include gold and foreign ETF’s in our asset mix because we continue to believe that inflation is a major long term risk. An investment in gold is an inflation hedge and holdings in other countries provide exposure to better growth opportunities. However, the likelihood of a continued strengthening in the dollar argues for less emphasis on these investment alternatives over the intermediate term.
(3) defense is still important.
DJIA S&P
Current 2012 Year End Fair Value* 11300 1400
Fair Value as of 5/31/12 10985 1358
Close this week 12820 1353
Over Valuation vs. 5/31 Close
5% overvalued 11534 1425
10% overvalued 12083 1493
15% overvalued 12632 1561
20% overvalued 13182 1629
Under Valuation vs. 5/31 Close
5% undervalued 10435 1290
10%undervalued 9886 1222 15%undervalued 9337 1154
* Just a reminder that the Year End Fair Value number is based on the long term secular growth of the earning power of productive capacity of the US economy not the near term cyclical influences. The model is now accounting for somewhat below average secular growth for the next 3 to 5 years with somewhat higher inflation.
The Portfolios and Buy Lists are up to date.
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, managing a risk arbitrage hedge fund and an investment banking boutique specializing in funding second stage private companies. Through his involvement with Strategic Stock Investments, Steve hopes that his experience can help other investors build their wealth while avoiding tough lessons that he learned the hard way.
Friday, May 11, 2012
The Morning Call - Liar, liar, pants on fire
The Market
Technical
The DJIA (12885) closed below the lower boundary of its short term trading range (12919-13302) for the second day. Should this challenge be confirmed, 12744 looks to be a logical candidate for a re-set lower boundary. It does however remain firmly within its intermediate term up trend (11597-16597).
The S&P (1357) is now in a short term down trend with an upper boundary at 1368. However, I continue to believe that this index is in a transition to a wider trading range with a lower, lower boundary (1338). Like the Dow, it is safely within its intermediate term up trend (1218-1785).
Each index remains below its 50 day moving average (13055/1386). Volume rose again; breadth also improved. The VIX fell but is trading well above the lower boundary of its short/intermediate term trading range.
Technical
The DJIA (12885) closed below the lower boundary of its short term trading range (12919-13302) for the second day. Should this challenge be confirmed, 12744 looks to be a logical candidate for a re-set lower boundary. It does however remain firmly within its intermediate term up trend (11597-16597).
The S&P (1357) is now in a short term down trend with an upper boundary at 1368. However, I continue to believe that this index is in a transition to a wider trading range with a lower, lower boundary (1338). Like the Dow, it is safely within its intermediate term up trend (1218-1785).
Each index remains below its 50 day moving average (13055/1386). Volume rose again; breadth also improved. The VIX fell but is trading well above the lower boundary of its short/intermediate term trading range.
Thursday, May 10, 2012
Morning Journal-The latest government screw job
Economics
This Week’s Data
March wholesale inventories were up 0.3% versus expectations of up 0.6%; wholesale sales were up 0.5%.
The US March trade deficit was $51.8 billion versus estimates of $49.5 billion.
Weekly jobless claims rose 2,000 versus forecasts of a decline of 1,000; however, the prior week was revised up 3,000, so the net was down 1,000.
http://www.calculatedriskblog.com/2012/05/weekly-initial-unemployment-claims-at.html
Other
Tax cuts versus spending increases---a side by side comparison (medium):
http://mjperry.blogspot.com/2012/05/anti-keynesian-supply-side-tax-and.html
Citigroup Economic Surprise Index (short):
http://pragcap.com/a-nosedive-in-the-cesi
The latest from Charles Biderman (3 minute video):
http://www.zerohedge.com/news/europe-has-started-endgame-and-biderman-says-us-next
Politics
Domestic
More mischief from our political class (medium):
http://www.jewishworldreview.com/cols/will050512.php3
And this from the IRS. Hint: if you don’t want to be outraged, don’t watch this 6 minute video:
http://www.wthr.com/video?clipId=7054149&topVideoCatNo=103348&autoStart=true
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.
This Week’s Data
March wholesale inventories were up 0.3% versus expectations of up 0.6%; wholesale sales were up 0.5%.
The US March trade deficit was $51.8 billion versus estimates of $49.5 billion.
Weekly jobless claims rose 2,000 versus forecasts of a decline of 1,000; however, the prior week was revised up 3,000, so the net was down 1,000.
http://www.calculatedriskblog.com/2012/05/weekly-initial-unemployment-claims-at.html
Other
Tax cuts versus spending increases---a side by side comparison (medium):
http://mjperry.blogspot.com/2012/05/anti-keynesian-supply-side-tax-and.html
Citigroup Economic Surprise Index (short):
http://pragcap.com/a-nosedive-in-the-cesi
The latest from Charles Biderman (3 minute video):
http://www.zerohedge.com/news/europe-has-started-endgame-and-biderman-says-us-next
Politics
Domestic
More mischief from our political class (medium):
http://www.jewishworldreview.com/cols/will050512.php3
And this from the IRS. Hint: if you don’t want to be outraged, don’t watch this 6 minute video:
http://www.wthr.com/video?clipId=7054149&topVideoCatNo=103348&autoStart=true
The Morning Call-Oversold bounce?
The Market
Technical
The DJIA (12835) broke the lower boundary of its short term trading range (12919-13302), starting our time and distance discipline; however, it does but potentially put the Dow back in sync with the S&P. The DJIA remains well within its intermediate term uptrend (11597-16597).
At the close yesterday, the S&P (1354) confirmed the break of the lower boundary of its short term trading range. By definition that means that the short term trend is down with an upper boundary of 1374. That said, as you know I think that this is not the start of a big down move but rather a probe for a lower boundary to a trading range. This index is also within its intermediate term uptrend (1218-1785).
Both the Averages are well below their 50 day moving averages (13055-1386). Volume rose; breadth was mixed. The VIX was up but remains within its short and intermediate term trading ranges. As long as it stays within its short term trading range, it is mildly positive for stocks.
GLD fell again and closed for the second day below the lower boundary of its short term trading range though it remains within its intermediate term trading and the developing reverse head and shoulders formation..
http://dragonflycap.com/2012/05/09/gold-is-doing-the-limbo/
http://www.zerohedge.com/news/goldman-sees-%E2%80%9Ccurrency-last-resort%E2%80%9D-15-1840oz-6-months
Bottom line: despite what has been the pattern of a big sell off early in the day and a rally later substantially reducing early losses, prices continue to decline with the S&P now having broken below the lower boundary of its short term trading range and the DJIA threatening to do the same.
Sooner or later, equities will at the very least stage an oversold rally. When that happens, the point at which it fizzles out should give us some information about the relative strength of the bulls versus the bears. However, with the exception of seeing an attack on 12744/1338 (a strong contender for the new lower boundary of the short term trading range) and a strong bounce, I don’t want to be trying to second guess the winner of the current bull/bear struggle.
http://www.bespokeinvest.com/thinkbig/2012/5/9/oversold-stocks-piling-up.html
Here is a bullish take on the Market (medium):
http://www.marketwatch.com/story/major-correction-unlikely-2012-05-09
The latest from Trader Mike (short):
http://www.stocktradingtogo.com/2012/05/09/market-recap-19000-subscribers/
Fundamental
Headlines
Yesterday was another meager economic stat day: weekly mortgage and purchase applications both turned positive for the first time in several weeks and March wholesale inventories came in lower than expected though sales grew more than inventories.
Again, I don’t think investors even noticed as the news out of Europe dominated headlines and psychology. Spanish bond yields moved higher when it became clear that the Spanish government was waffling on its proposal for shoring up bank balance sheets. In addition, EU officials issued a series of off, on again statements regarding whether or not the EU would fund the next bail out tranche to Greece due today. Again, the risk here is not that we don’t know what alternatives are available to each party in this charade. We know them all too well. The risk is that we have no idea what the weak, leaderless, cowardly group of morons making the decisions will do, when they will do it and what the counter party response will be.
More on the choices that both Greece and Germany face (medium):
http://www.bloomberg.com/news/2012-05-08/greek-elections-force-germany-to-weigh-austerity-endgame.html
I would title this Thursday Morning Humor if it weren’t so serious (3 minute video):
http://www.zerohedge.com/news/nigel-farage-eu-titanic-has-now-hit-iceberg
The Spanish bank bailout looks like a dud (medium):
http://www.zerohedge.com/news/spains-bank-bailout-complete-dud-allows-banks-opt-out
How long will Germany continue to finance the EU (medium):
http://www.zerohedge.com/news/europes-most-parabolic-chart-goes-probolic-er
Bottom line: if we only had to deal with the current flow of US economic data and incompetencies of our own political class, then it would be easy to observe that stocks are now slightly below Fair Value, that our Portfolio Buy Lists are growing and that we need to be making our plans for putting money to work. Of course, it is never easy; although I am making a list---and checking it twice.
However, the European crisis is so fraught with known unknowns that we have to worry about a misguided group of eurocrats taking steps that lead to either a severe EU recession or a nonfunctioning financial system (think Neville Chamberlain). To be clear, I don’t think Greece departing the euro is among those unknowns; not because it isn’t an unknown, but because even if it occurs it will have the macroeconomic affect of a gnat on a goat’s ass. I worry that it happens and then southern Europe decides to follow it.
Not that the eurocrats won’t pull a goal out with two seconds left ala the NY Rangers. Indeed that still is perhaps foolishly our scenario. But Europe is clearly starting to rain on our parade and carries with it tail risk that we have to be hedged against.
That said, on the thesis that I can’t bet our entire Portfolio on a tail risk, I have my list and our Portfolios will likely start to nibble when the technical picture clears.
Another bull argument---7 in fact (medium):
http://www.minyanville.com/trading-and-investing/stocks/articles/bull-market-bull-market-prediction-bear/5/8/2012/id/40859
A potential bear case (short):
http://www.capitalspectator.com/archives/2012/05/is_the_recent_f.html#more
Subscriber Alert
The stock price of Oracle ($28) has traded below the upper boundary of its Buy Value Range. Accordingly, it is being Added to the Aggressive Growth Buy List. The Aggressive Growth Portfolio owns a 75% position in ORCL. No additional shares will be purchased at this time.
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.
Technical
The DJIA (12835) broke the lower boundary of its short term trading range (12919-13302), starting our time and distance discipline; however, it does but potentially put the Dow back in sync with the S&P. The DJIA remains well within its intermediate term uptrend (11597-16597).
At the close yesterday, the S&P (1354) confirmed the break of the lower boundary of its short term trading range. By definition that means that the short term trend is down with an upper boundary of 1374. That said, as you know I think that this is not the start of a big down move but rather a probe for a lower boundary to a trading range. This index is also within its intermediate term uptrend (1218-1785).
Both the Averages are well below their 50 day moving averages (13055-1386). Volume rose; breadth was mixed. The VIX was up but remains within its short and intermediate term trading ranges. As long as it stays within its short term trading range, it is mildly positive for stocks.
GLD fell again and closed for the second day below the lower boundary of its short term trading range though it remains within its intermediate term trading and the developing reverse head and shoulders formation..
http://dragonflycap.com/2012/05/09/gold-is-doing-the-limbo/
http://www.zerohedge.com/news/goldman-sees-%E2%80%9Ccurrency-last-resort%E2%80%9D-15-1840oz-6-months
Bottom line: despite what has been the pattern of a big sell off early in the day and a rally later substantially reducing early losses, prices continue to decline with the S&P now having broken below the lower boundary of its short term trading range and the DJIA threatening to do the same.
Sooner or later, equities will at the very least stage an oversold rally. When that happens, the point at which it fizzles out should give us some information about the relative strength of the bulls versus the bears. However, with the exception of seeing an attack on 12744/1338 (a strong contender for the new lower boundary of the short term trading range) and a strong bounce, I don’t want to be trying to second guess the winner of the current bull/bear struggle.
http://www.bespokeinvest.com/thinkbig/2012/5/9/oversold-stocks-piling-up.html
Here is a bullish take on the Market (medium):
http://www.marketwatch.com/story/major-correction-unlikely-2012-05-09
The latest from Trader Mike (short):
http://www.stocktradingtogo.com/2012/05/09/market-recap-19000-subscribers/
Fundamental
Headlines
Yesterday was another meager economic stat day: weekly mortgage and purchase applications both turned positive for the first time in several weeks and March wholesale inventories came in lower than expected though sales grew more than inventories.
Again, I don’t think investors even noticed as the news out of Europe dominated headlines and psychology. Spanish bond yields moved higher when it became clear that the Spanish government was waffling on its proposal for shoring up bank balance sheets. In addition, EU officials issued a series of off, on again statements regarding whether or not the EU would fund the next bail out tranche to Greece due today. Again, the risk here is not that we don’t know what alternatives are available to each party in this charade. We know them all too well. The risk is that we have no idea what the weak, leaderless, cowardly group of morons making the decisions will do, when they will do it and what the counter party response will be.
More on the choices that both Greece and Germany face (medium):
http://www.bloomberg.com/news/2012-05-08/greek-elections-force-germany-to-weigh-austerity-endgame.html
I would title this Thursday Morning Humor if it weren’t so serious (3 minute video):
http://www.zerohedge.com/news/nigel-farage-eu-titanic-has-now-hit-iceberg
The Spanish bank bailout looks like a dud (medium):
http://www.zerohedge.com/news/spains-bank-bailout-complete-dud-allows-banks-opt-out
How long will Germany continue to finance the EU (medium):
http://www.zerohedge.com/news/europes-most-parabolic-chart-goes-probolic-er
Bottom line: if we only had to deal with the current flow of US economic data and incompetencies of our own political class, then it would be easy to observe that stocks are now slightly below Fair Value, that our Portfolio Buy Lists are growing and that we need to be making our plans for putting money to work. Of course, it is never easy; although I am making a list---and checking it twice.
However, the European crisis is so fraught with known unknowns that we have to worry about a misguided group of eurocrats taking steps that lead to either a severe EU recession or a nonfunctioning financial system (think Neville Chamberlain). To be clear, I don’t think Greece departing the euro is among those unknowns; not because it isn’t an unknown, but because even if it occurs it will have the macroeconomic affect of a gnat on a goat’s ass. I worry that it happens and then southern Europe decides to follow it.
Not that the eurocrats won’t pull a goal out with two seconds left ala the NY Rangers. Indeed that still is perhaps foolishly our scenario. But Europe is clearly starting to rain on our parade and carries with it tail risk that we have to be hedged against.
That said, on the thesis that I can’t bet our entire Portfolio on a tail risk, I have my list and our Portfolios will likely start to nibble when the technical picture clears.
Another bull argument---7 in fact (medium):
http://www.minyanville.com/trading-and-investing/stocks/articles/bull-market-bull-market-prediction-bear/5/8/2012/id/40859
A potential bear case (short):
http://www.capitalspectator.com/archives/2012/05/is_the_recent_f.html#more
Subscriber Alert
The stock price of Oracle ($28) has traded below the upper boundary of its Buy Value Range. Accordingly, it is being Added to the Aggressive Growth Buy List. The Aggressive Growth Portfolio owns a 75% position in ORCL. No additional shares will be purchased at this time.
Wednesday, May 09, 2012
Morning Journal-Austerity hasn't worked because it was never tried
Economics
This Week’s Data
The International Council of Shopping Centers reported weekly sales of major retailers down 0.8% versus the prior week but up 3.3% versus the comparable period last year; Redbook Research reported month to date retail chain store sales up 1.3% versus the similar timeframe a month ago and up 2.6% on a year over year basis.
Weekly mortgage applications rose 1.7% while purchase applications increased by 3.4%.
http://www.calculatedriskblog.com/2012/05/mba-mortgage-purchase-activity.html
This Week’s Data
The International Council of Shopping Centers reported weekly sales of major retailers down 0.8% versus the prior week but up 3.3% versus the comparable period last year; Redbook Research reported month to date retail chain store sales up 1.3% versus the similar timeframe a month ago and up 2.6% on a year over year basis.
Weekly mortgage applications rose 1.7% while purchase applications increased by 3.4%.
http://www.calculatedriskblog.com/2012/05/mba-mortgage-purchase-activity.html
The Morning Call-The sidelines are the place to be
The Market
Technical
Despite a very volatile day, little changed technically. The Dow (12932) remains within its short term trading range (12919-13302), though it challenged 12919 intraday and bounced---a modestly positive sign. It also continued to trade well within its intermediate term uptrend (11593-16593).
The S&P (1363) finished below the lower boundary of its short term trading range (1372-1422) for the third day. If it remains below it by the close today, the break of 1372 will be confirmed. However, the DJIA is still above its comparable level (12919); so assuming an S&P close below 1372 today, they will be out of sync. That keeps the short term technical picture somewhat muddied. On the other hand, the S&P is trading within its intermediate term uptrend (1216-1783).
Both index remained below their respective 50 day moving averages (13065, 1386). Volume rose; breadth fell with the flow of funds looking particularly ugly. The VIX was up fractionally, surprisingly small for such volatile and negative day. It closed well above the lower boundary its short/intermediate term trading ranges.
Technical
Despite a very volatile day, little changed technically. The Dow (12932) remains within its short term trading range (12919-13302), though it challenged 12919 intraday and bounced---a modestly positive sign. It also continued to trade well within its intermediate term uptrend (11593-16593).
The S&P (1363) finished below the lower boundary of its short term trading range (1372-1422) for the third day. If it remains below it by the close today, the break of 1372 will be confirmed. However, the DJIA is still above its comparable level (12919); so assuming an S&P close below 1372 today, they will be out of sync. That keeps the short term technical picture somewhat muddied. On the other hand, the S&P is trading within its intermediate term uptrend (1216-1783).
Both index remained below their respective 50 day moving averages (13065, 1386). Volume rose; breadth fell with the flow of funds looking particularly ugly. The VIX was up fractionally, surprisingly small for such volatile and negative day. It closed well above the lower boundary its short/intermediate term trading ranges.
Tuesday, May 08, 2012
Morning Journal-The latest from Rogoff and Reinhart
Economics
This Week’s Data
Other
Part of the recent decline in the labor force is explained by demographics (baby boomer retiring):
http://mjperry.blogspot.com/2012/05/demographics-account-for-50-of-decline.html
The latest from Rogoff and Reinhart (medium and today’s must read):
http://www.zerohedge.com/news/reinharts-and-rogoff-why-debt-overhang-matters
Consumer credit soars as auto loans and student loans increase (medium):
http://www.zerohedge.com/news/consumer-credit-soars-us-encourages-student-car-loan-bubbles
This Week’s Data
Other
Part of the recent decline in the labor force is explained by demographics (baby boomer retiring):
http://mjperry.blogspot.com/2012/05/demographics-account-for-50-of-decline.html
The latest from Rogoff and Reinhart (medium and today’s must read):
http://www.zerohedge.com/news/reinharts-and-rogoff-why-debt-overhang-matters
Consumer credit soars as auto loans and student loans increase (medium):
http://www.zerohedge.com/news/consumer-credit-soars-us-encourages-student-car-loan-bubbles
The Morning Call-First quarter earnings 'beat' rate tanks
The Market
Technical
The indices (DJIA 13008, S&P 1369) had a volatile day but closed near the flat line. The Dow remains within its short term trading range (12919-13302) and its intermediate term uptrend (11570-16570). The S&P closed below the lower boundary of its short term trading range (1372-1422) for the second day but is still within its intermediate term uptrend (1215-1782). Both the Averages stayed below their 50 day moving average (13047, 1386) for the second day.
Volume was flat; breadth mixed. The VIX fell but continues to trade above the lower boundary of its short/intermediate term trading ranges.
http://www.bespokeinvest.com/thinkbig/2012/5/7/market-breadth.html
GLD declined slightly but remains above the lower boundaries of its short and intermediate term trading ranges.
http://www.zerohedge.com/news/turkey-exports-%E2%80%9Cmassive-quantities-gold%E2%80%9D-iran-and-arab-spring-nations
Monday, May 07, 2012
The Morning Call + Monday Morning Chartology + Subscriber Alert
The Market
Technical
Monday Morning Chartology
The S&P is now challenging the 1372 support level; it will be mid to late this week before we know if it is successful. The index has also busted through the 50 day moving average (wiggly red line).
Sunday, May 06, 2012
Pepsico (PEP) 2012 Review
Pepsico Inc (PEO) is a global participant in the soft drink, snack food, ready to eat cereals and rice and pasta products. Its brand names include Pepsi, Mountain Dew, Gatorade, Tropicana, Sierra Mist, Aquafina, Lay’s, Doritos Tostitos, Cheetos, Ruffles, Captain Crunch, Quaker Oats.
The company has grown profits and dividends at a 11-12% pace over the last 10 years earning a 25-30% return on equity. PEP should continue to grow at an above average rate because:
(1) a strong new product pipeline which is being augmented by initiatives such as ‘Smart Spot’ which marks healthy choice products,
(2) rapidly expanding international sales. PEP is aggressively introducing its products into China, India, the Middle East, Africa and Latin America,
(3) improving productivity by increasing its merchandising effectiveness and lowering costs,
(4) acquisitions,
(5) stock buy back program.
Saturday, May 05, 2012
The Closing Bell-More reasonable valuations ahead?
Statistical Summary
Current Economic Forecast
2011
Real Growth in Gross Domestic Product: +1.5- +2.5%
Inflation: 2-3 %
Growth in Corporate Profits: 7-12%
2012
Real Growth in Gross Domestic Product (revised): +1.0- +2.0%
Inflation (revised): 2.5-3.5 %
Growth in Corporate Profits (revised): 5-10%
Current Economic Forecast
2011
Real Growth in Gross Domestic Product: +1.5- +2.5%
Inflation: 2-3 %
Growth in Corporate Profits: 7-12%
2012
Real Growth in Gross Domestic Product (revised): +1.0- +2.0%
Inflation (revised): 2.5-3.5 %
Growth in Corporate Profits (revised): 5-10%
Friday, May 04, 2012
Morning Journal-Budget math from the Heritage Foundation
Economics
This Week’s Data
The April Institute for Supply Management’s nonmanufacturing index was reported at 53.5 versus expectations of 56.0.
April retail sales increases came one half of estimates.
April nonfarm payrolls were reported at 115,000 versus forecasts of 159,000; however, the prior two months were revised up. Counting the revisions, the number would have been flat. The unemployment rate was 8.1% versus expectations of 8.2%.
http://www.calculatedriskblog.com/2012/05/april-employment-report-115000-jobs-81.html
This Week’s Data
The April Institute for Supply Management’s nonmanufacturing index was reported at 53.5 versus expectations of 56.0.
April retail sales increases came one half of estimates.
April nonfarm payrolls were reported at 115,000 versus forecasts of 159,000; however, the prior two months were revised up. Counting the revisions, the number would have been flat. The unemployment rate was 8.1% versus expectations of 8.2%.
http://www.calculatedriskblog.com/2012/05/april-employment-report-115000-jobs-81.html
The Morning Call + Subscriber Alert + Some of our holdings are breaking key techincal support levels
The Market
Technical
The indices (DJIA 13206, S&P 1391) were off yesterday, but remained within their short term trading ranges (12919-13302, 1372-1422) and their intermediate term uptrends (11550-16550, 1213-1780) as well as above their 50 day moving averages (13055, 1395).
Volume was flat, breadth down. The VIX was up, closing within its short and intermediate term trading ranges.
GLD fell but finished the day above the lower boundaries of its short and intermediate term trading ranges. It did close near the short term trading range’s lower boundary. If it bounces, our Portfolios will Add to this position.
http://www.minyanville.com/sectors/precious-metals/articles/gold-gold-producers-commodities-precious-metals/5/2/2012/id/40761
Technical
The indices (DJIA 13206, S&P 1391) were off yesterday, but remained within their short term trading ranges (12919-13302, 1372-1422) and their intermediate term uptrends (11550-16550, 1213-1780) as well as above their 50 day moving averages (13055, 1395).
Volume was flat, breadth down. The VIX was up, closing within its short and intermediate term trading ranges.
GLD fell but finished the day above the lower boundaries of its short and intermediate term trading ranges. It did close near the short term trading range’s lower boundary. If it bounces, our Portfolios will Add to this position.
http://www.minyanville.com/sectors/precious-metals/articles/gold-gold-producers-commodities-precious-metals/5/2/2012/id/40761
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