Friday, May 04, 2012

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

Bottom line: while the Averages are within their short term trading range, I continue to believe that the range is at too elevated a level to be sustained. Indeed, a number of stocks are in the process of breaking down through major technical support. Coupled with our internal indicator, I think that this suggests lower prices.

That said, even if the lower boundary of the current trading range is re-set to a lower level, there is so much technical support at slightly to moderately lower prices that I don’t see the dire Market scenario espoused by the bears. I just think stocks are presently over extended.

GLD remains in a trading range and continues to build a reverse head and shoulders. A bounce off the neckline (the lower boundary of its short term trading range) will prompt a modest addition to this holding.

Bullish sentiment rises but still low (short):
http://www.bespokeinvest.com/thinkbig/2012/5/3/big-jump-in-bullish-sentiment.html

Fundamental

Headlines


Yesterday was another lousy news today. Overnight China and the UK reported disappointing service PMI numbers (***they were joined last night by equally poor EU service PMI’s); and Spain held a somewhat unsuccessful bond auction. In the US, fourth quarter productivity came in slightly below expectations while the April ISM nonmanufacturing index was really substandard. There was a very positive weekly jobless claims stat.

The latter seemed to keep investor optimism up in early trading; but the cumulative affect of the news flow of the last couple of days finally overwhelmed them and stocks traded down for the rest of the day.

Meanwhile, everyone seems to be on the edge of their seat awaiting this morning’s nonfarm payroll report---like somehow it will make the difference between recession and growth (***it came in below expectations but the prior two months were revised up). Clearly, we all want to see continued growth in the labor force; but it is a single number in a continuous flow of what has been a fairly erratic fact pattern.

Whether it is a blow out or a bomb, I think that its true meaning can only be measured within the context of all the other data---and if all the other data is erratic, then all it is, is another piece of erratic data. It is only really good news if we see a pattern of really good news (which we haven’t) and visa versa (which we also haven’t).

The only reason I can see that it could have a real impact is if it triggers a sudden change in perceptions (an emperor’s new clothes moment). We’ll have to wait for the trading day to get into full swing to know that (***not likely).

Bottom line: our economy appears to be making the kind of slow, sluggish progress envisioned by the results of our Model. The political class both here and abroad continue to prove their incompetency on a daily basis. Our own elected officials are wasting precious time replaying the killing of Osama bin Laden. It reminds of being in junior high school and arguing over who was most responsible for a football victory the prior year. Who gives a s**t? Meanwhile, our government is stepping all over its dick on this a blind Chinese dissident, running a $100 billion a month deficit and huge tax and spending cuts will terminate in seven months. But these assholes are too busy campaigning to worry about the welfare of this country.

Across the pond, the European political class is AWOL and they are so much deeper in ka ka than we are, that it makes the current crew in Washington look the Founders. As I noted yesterday, I fear that Wylie Coyote may be close to or already have run off the cliff---he just hasn’t looked down yet. If so, I’ll need to revise our Models.

The latest from Jim Rogers (6 minute video):
http://www.investmentpostcards.com/2012/05/03/jim-rogers-markets-headed-for-disaster-in-2013/

Subscriber Alert

In the meantime, as I noted above, several of the stocks in our Portfolios have broken critical technical levels. So at the opening this morning, the following positions will be reduced to one half size:

In the Dividend Growth Portfolio: CME Group, Marathon Oil.

In the High Yield Portfolio: CME Group, CH Robinson, Rockwell Collins




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.