Thursday, May 17, 2012

The Morning Call-Warning! Oncoming Train

The Market


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).

Bottom line: I keep thinking that stocks are going to stage an oversold rally, especially when we get good economic news. But then, they just get hammered, again. I think that it makes little sense to try to get in front of this downward move. That said, I continue to see a mixed picture within our Universe of stocks, i.e. some breaking important support level while others seem to have found a bottom and are going flat. So once we have a bottom, there will be plenty of things to do.

No selling panic, just a buyers strike (medium):

Flash update of ‘the best stock market indicator ever’ (short):



Yesterday’s economic news was mixed to positive: (1) weekly mortgage applications up while purchase applications were down, (2) April housing starts rose but building permits fell, but (3) April industrial production and capacity utilization were much stronger than anticipated. Once again, these signs of a mildly improving economy juiced the bulls early in the day but then were offset by the continuing weight of a potential collapse in Europe plus the release of the minutes from the last FOMC meeting which indicated an ambivalent attitude to QEIII.

Goldman’s thoughts on the endgame in Greece (medium):

Don’t forget Italy (medium):

Meanwhile, lest we forget that we have our own ship of fools, the Senate yesterday voted on Obama’s FY2012 budget and it received............drum roll please..........0 votes. Make’s you kind of proud, doesn’t it?

Bottom line: yesterday was relatively quiet but sellers continued to put pressure on prices despite some very sound industrial production numbers. At the moment, it appears that good US news will remain meaningless until there is some visibility on the EU financial dilemma. That could happen any day; but until it does, the course of least resistance seems to be to stand out of the way and let stocks get cheaper. I have a Buy List that grows everyday but little inclination to act on it until the eurocrats get off their fat asses and so something to resolve an escalating problem.

A somewhat lengthy analysis of the current state of affairs in the EU and the global banking system:

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.