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].


Meanwhile, they remain well within their intermediate term up trends (11641-16641, 1222-1789).

Volume was up a tad; breadth was ugly. The VIX jumped 10% and finished above the upper boundary of its short term trading range for the second day.

GLD did a Titan III impersonation yesterday, bouncing hard and staying above the lower boundary of its intermediate term trading range. However, it is still below the former lower boundary of its short term trading range.
http://www.zerohedge.com/news/guest-post-gold-tells-truth

Bottom line: in the absence of any kind of visible support, I am assuming any bounce from these levels would simply to a reaction from an oversold position. So I remain very cautious technically speaking. That said, as I noted yesterday, some of our stocks are only starting to break down while others appear to have found support. My inclination is to do some small trades at these levels selling some shares of the former while nibbling at the latter.

The one thing that did appear to hit solid support was GLD which rebounded rather dramatically off the lower boundary of its intermediate term trading range. Further the present decline is almost an exact duplicate of this January’s sell off and bounce. So as wishy washy as it seems, our Portfolios will buy back the shares of GLD sold earlier this week.

The latest AAII Sentiment Survey (short):
http://pragcap.com/bullish-sentiment-nears-a-two-year-low

Fundamental

Headlines


Yesterday’s economic news was not that positive: (1) weekly jobless claims were flat with the prior week---not great but not horrible, (2) the leading economic indicators were disappointing and (3) the Philly Fed index was a disaster.

Of course, given that investors have ignored them of late, it probably didn’t matter. Although there was plenty of bad news from virtually every other direction to keep sentiment in the tank:

(1) in Europe, Moody’s downgraded Spanish bank ratings and it appeared that the Greek bank run was moving to Spain as the funds outflow jumped noticeably,

The current European crisis in historical perspective (medium):
http://www.nationalreview.com/articles/300149/let-sleeping-germans-lie-victor-davis-hanson

Europe’s dilemma in 4 minutes:
http://www.zerohedge.com/news/everything-you-need-know-about-europes-dilemma-4-minutes

(2) JP Morgan announced the losses from its prop trading department had grown to $3 billion. Do I hear $4 billion?

(3) the morons in Washington announced that they were so upset, nay, outraged that they were working on legislation to bar anyone who renounced their citizenship to avoid paying taxes from ever returning to the US. This in response to one of the [Brazilian born] Facebook founders pulling up stakes and moving the Singapore. This is such bulls**t on so many levels, I don’t even know where to start. But I’ll try.

First of all, if one renounces one’s citizenship, one is automatically assessed a tax one’s assets. Secondly, if the renunciation is part of a trend, why not deal with the issues that are causing Americans to leave in the first place---rather than react with some whining butt, sour grapes legislation. Finally, where is the outrage amongst the political class about having no federal budget for three years, about the non-stop bail out spending of our tax dollars and printing of fiat money, about the budget busting healthcare legislation that [according to Nancy Pelosi] needed to be passed ‘so we can find out what’s in it’, about the billions wasted on ‘green energy’ while prohibiting the building of the Keystone pipeline?

OK, I feel better now---but you get the picture.

However, I am not the only one pissed (short):
http://cafehayek.com/2012/05/20340.html

Bottom line: as disappointing as today’s economic news was, it really did nothing to alter our outlook. Likewise, the JP Morgan news was not unexpected; as you know, I have been yakking about the lack of transparency of our banking system’s balance sheet since 2007. And as much as I fume about the magnitude of incompetency of those worthless turds in Washington, that is not a sudden revelation. All in all, I believe that stocks are undervalued knowing all this.

What scares the living daylights out of me is the mounting prospect of a run on the banks of the southern European countries. If it is starting to happen in Spain, then it is only a matter of time till Italy follows suit. And if that happens then we are really talking about (1) financial chaos in Europe, at least for a short period of time and (2) the prospect that all those derivative trades that our own banks have on their books with the EU banks as counterparties will meet the JP Morgan fate only to the tenth power.

It is enough to make you want to just grab dates and run. What is curious though is the performance of GLD yesterday. The sudden inverse correlation suggests that either somebody knows or strongly suspects that an EU rescue package is in the works and/or that QEIII is coming very soon. If the former, I have said before that I believed that the eurocrats would do something. It has always been a matter of magnitude and timing. Granted nothing short a return to fiscal responsibility is not going to cure what ails Europe; but perhaps the ‘something’ will be sufficient to allow an orderly exit of Greece from the euro and to prevent the kind of explosive unwinding of the EU that would be the ‘disaster scenario.

The problem, of course, is that we simply don’t know what these guys are going to do; so for the moment, it is difficult to handicap what the potential outcomes will be. So our Portfolios continue to hold lots of cash.
http://www.project-syndicate.org/commentary/greece-must-exit

Subscriber Alert

The stock price of Expeditors Int’l ($38) has traded below the lower boundary of it Buy Value Range as well as its Stop Loss Price. Accordingly, it is being Removed from the Aggressive Growth Buy List. Approximately, one half of this position will be Sold and the proceeds re-invested in Quality Systems ($30). You will re-call that earlier the Aggressive Growth Portfolio had made a trading sale of QSII at $34-35.

The stock price of T Rowe Price ($58) has traded below major support. The Dividend Growth and High Yield Portfolios are reducing the size of this position. In the Dividend Growth Portfolio the proceeds will be re-invested in South Jersey Industries ($47). A trading sale in this stock had been made at $51.

All of our Portfolios will Buy back the shares of GLD that had been sold on Monday.

Thoughts on Investing--New Rules of Money courtesy of Forbes

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There are nearly 1100 exchange traded funds holding over $1 billion in assets. Not al ETF’s are good for you--leverage and inverse funds are particularly dangerous--but ETF’s are still the cheapest way to invest in broad indexes like the S&P and Russell 2000. They are also give individual investors easy access to foreign currencies like the Swiss franc and yen, and commodities ranging from timber to platinum. They open a world of foreign investing opportunities from China and Brazil to Turkey and Africa.

News on Stocks in Our Portfolios

Tiffany (TIF) increases its quarterly dividend payout by 10% to $0.32 a share.

More earnings per share reports:

Reported Expected

Quality Systems $.25 $.27
Donaldson .46 .43

Economics

This Week’s Data


April leading economic indicators fell 0.1% versus expectations of an increase of 0.1%.
http://advisorperspectives.com/dshort/updates/Conference-Board-Leading-Economic-Index.php

The May Philadelphia Fed manufacturing index came in at -5.8 versus estimates of +10.0 and April’s reading of +6.5.
http://www.calculatedriskblog.com/2012/05/philly-fed-regional-manufacturing.html

Other

Foreclosures have ground to a halt (medium):
http://www.zerohedge.com/news/american-foreclosure-process-has-ground-halt

Politics

Domestic


The consequences of centralized planning-a glimpse of Europe’s future (medium and today’s must read):
http://american.com/archive/2012/may/the-hayek-effect-the-political-consequences-of-planned-austerity

I have never been a ‘birther’ (i.e. one who questions Obama’s origins); however, you have to read this. It does mean that He wasn’t lying in this presentation; but it does mean that He was either lying in the pamphlet or has been lying to all of us from the beginning:
http://www.breitbart.com/Big-Government/2012/05/17/The-Vetting-Barack-Obama-Literary-Agent-1991-Born-in-Kenya-Raised-Indonesia-Hawaii

The problem is not the lack of bipartisanship in congress, the problem is too much (i.e. all these assholes want to do is spend Your Money):
http://www.jewishworldreview.com/cols/will051712.php3

More senseless drivel from our political class (medium):
http://www.zerohedge.com/news/guest-post-regardless-what-propaganda-says-not-how-free-society-treats-people



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.