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
And (short):
http://blog.stocktradersalmanac.com/post/Seasonality-Says-Dont-Buy-GLD-Yet
Bottom line: the indices continue to challenge the lower boundaries of their short term trading ranges. While this process is going on, I see no reason to step into the fray. If they break, then the next level to watch is 12744, 1338. If 12919, 1372 hold, then the strength of this support level will be enhanced.
The latest from Trade Mike (short):
http://www.stocktradingtogo.com/2012/05/07/market-recap-bears-are-back-in-control/
Update on ‘best stock market indicator ever’:
http://advisorperspectives.com/dshort/guest/John-Carlucci-Best-Indicator-Ever-Update.php
Fundamental
Headlines
No economic news yesterday; though it probably wouldn’t have mattered. All eyes were on the French and Greek elections in Europe over the weekend. The outcomes---socialist win in France, anti bailout parties in Greece---were pretty much anticipated. Friday’s pin action anticipated those results and yesterday’s flattish performance confirmed it.
However, I don’t think that means the investors have discounted the longer term consequences of these events---primarily because I don’t think anyone has a clue what they will look like. Not that we don’t know what Hollande or the Greek anti bailout parties have said that they were going to do. But we don’t know (1) if they are actually going to do them and (2) how the Germans are going to react if they do, do them. This act of the play has just started, so there is much more to come. I am not suggesting that what follows will be all bad; I am saying no one knows how good or bad it will be.
The latest datapoints out of Greece (medium):
http://www.zerohedge.com/news/toxic-spiral-greek-office-vacancies-soar-tourism-industry-implodes
Bottom line: the $64,000 question is, given the fiscal train wreck that is Europe will the newly elected governments of France and Greece really be able to deliver on their campaign promises and drive their economies off the cliff in short order or will the Germans and the markets impose sufficient discipline that those promises are rendered empty and the EU economic crisis remains a Chinese water torture test but with a stick of dynamite stuck up its ass?
Neither alternative argues for an upward revision in Valuations.
Mohamed El Erian gives the positive case (medium):
http://advisorperspectives.com/commentaries/pimco_50612.php
Stratfor the negative (3 minute video):
http://www.zerohedge.com/news/stratfor-europes-growing-anti-establishmentism
And David Rosenberg (short):
http://www.zerohedge.com/news/david-rosenbergs-take-europe
The latest from Jim Grant (9 minute video):
http://www.investmentpostcards.com/2012/05/05/jim-grant-on-the-scream-painting-feds-hall-of-mirrors/
A look at current valuation levels (short):
http://www.zerohedge.com/news/five-reasons-caution-us-equities
As of the close Friday, first quarter’s earnings ‘beat’ rate has declined from 73% to 60%. Average for all quarters is 62%. So what seemed at first to be a positive economic indicator is now negative; and that doesn’t even address the much lower expectations built into the forecasts.
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