Monday, June 04, 2012

The Morning Call-Don't assume the jobs number lessens Europe's importance

The Market


Monday Morning Chartology

Last week was reasonably calm, that is, until Friday---when the bottom dropped out. The S&P (1276) broke the 1292 support level and kept going through the 200 day moving average (1285). Of course, our time and distance discipline technically kicks in. I say ‘technically’ since 1292 never really achieved true support level status. On the other hand the 200 day moving average is a viable support level; so it is the moving average that I will focus on as support. However, this break won’t be confirmed until either Friday (time) or it closes below 1259 (distance).

As you know, there remain three additional potential support levels: (1) the neckline of the reverse head and shoulders pattern [1266], the lower boundary of its intermediate term up trend [1232] (3) the old resistance/support level [1230]---note the proximity to the intermediate term up trend lower boundary

With the indices now in shaky, ‘unconfirmed’ territory, our Portfolios will suspend their ‘nibbling’.

Friday, GLD broke its short term positive correlation with stocks and soared---busting through the lower boundary of its former short term trading range as well as the upper boundary of a short term down trend. Once again our time and distance discipline becomes operative. However, given that the lower boundary of its intermediate term trading range held, our Portfolios will likely Add to this position on any weakness.

The VIX smoked to the upside, eliminating all questions as to the viability of the resistance offered by the upper boundary of a short term trading range. The short term is now re-set to an up trend---not a hopeful sign for stocks.

Update on ‘the best stock market indicator ever’:


Friday’s jobs report topped off a pretty dismal week of economic data and was instructive in the sense that it shows that investors can focus on something besides Europe. It clearly was not a welcomed number, though it does nothing to alter our forecast. That said, the data out of China continues to worsen and when combined with what is almost certainly a recession in Europe, the result could be slower more sluggish recovery than our own outlook.

Here is an interesting take of Friday’s report from Art Cashin (short):

However, none of this means that Europe has relinquished center stage. Over the weekend, Portugal injected 6 billion euros into its banks while Spain asked the ECB to bail out its entire banking system. Mini bank runs continue a pace.

The latest from Citigroup: the eurocrats will do nothing until forced to by the Markets; look out below (medium):

Now bank runs in China (medium):


This Week’s Data


Santelli and Kaminsky on how the government has screwed us all (6 minute video):

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.