Friday, June 15, 2012

The Morning Call-If yesterday's pin action was confusing, join the crowd.



The Market

Technical


Yesterday, stock prices were again quite volatile. The indices (DJIA 12651, S&P 1329) closed above the lower boundaries of their intermediate term uptrends (11806-16806, 1240-1807) and their short term trading ranges (12022-13302, 1266-1422).

Very short term, I am watching to two key levels associated with the reverse head and shoulders patterns that I have referred to in prior posts. The first is the necklines (12731, 1338); a move above those levels would represent the fulfillment of the formations and point to higher prices. The second level is the patterns’ shoulder line (12344, 1292). If prices retreat, then these levels need to hold for the formation to continue to develop properly.

Volume rose as did breadth. The VIX fell 11% but remained above the lower boundaries of its short term uptrend and its intermediate term trading range.

GLD rose, closing above the lower boundary of its intermediate (and short) term trading range.


Emerging markets drive gold prices (short):
http://www.ritholtz.com/blog/2012/06/emerging-markets-drives-gold/

Bottom line: the daily triple digit schizophrenic volatility we have experienced this week makes any kind of directional judgments very difficult and negates the usefulness of technical analysis in assisting with buy/sell decisions. Typically that suggests that investors sit on their hands until the Market calms down. We have done that and will continue to do so. Nevertheless. I have pin pointed two levels (discussed above) associated with the developing head and shoulders that could provide a clue to Market direction. Our Portfolios will do nothing until one of these levels come into play and either holds or breaks.

A tradable bottom ? (medium):
http://www.marketwatch.com/story/dow-appears-to-be-carving-a-bottom-2012-06-14?link=home_carousel

Individual investor sentiment rebounds (short):
http://www.bespokeinvest.com/thinkbig/2012/6/14/individual-investor-sentiment-rebounds.html

Fundamental

Headlines


The US economic news yesterday was mixed. The good news was that the headline CPI number was down largely due to lower energy prices (gasoline and residential natural gas); the bad news was higher weekly jobless claims.

While not all that great, investors ignored the data anyway and focused on the rumors of more Fed easing (QEIII or extension of Operation Twist). So equity prices lifted in early trading..

Then late in the afternoon rumors began circulating that the world’s central banks were contemplating a coordinated effort to provide liquidity in case of negative fallout in the global financial markets if panic develops after the results of the Greek election (Sunday) are announced.

To be sure, if such a plan is in place, it would undoubtedly be a positive; plus, letting the world know ahead of time will help mitigate any fear that could result from turmoil in Greece.

However:

(1) the rumors seem to be coming from treasury officials not the central banks. Not that it won’t happen; but consider the reaction if Geithner were to announce Fed policy. So the veracity of these rumors seems a bit suspect to me.

(2) even so, it doesn’t take a rocket scientist to recognize the potential for some kind of financial panic following the Greek elections. The entire global financial leadership should have contingency plans in place going into the weekend; and if they don’t, they should be hung from the highest yardarm. So why is the rumor that they may have a plan news?

(3) and just to be clear, liquidity does nothing to solve EU bank and sovereign debt problems. No matter how much money the bankers pump into the financial system, it is just another liability that has to be paid back. It does nothing to address the long term problem, which is that its banks and nations owe more money than they can pay back and they just keep piling on more debt. So any liquidity infusion is very short term in its impact and does nothing to fix the problem.

Credit Suisse thinks the eurocrats have only accomplished 40% of what actually needs to be done to solve Europe’s problems (medium):
http://www.zerohedge.com/news/european-scorecard-2-out-5

Meanwhile, back in the real world, Egan Jones downgraded France’s credit rating and Moody’s downgraded the big Dutch banks.

Bottom line: while it is nice to know that global financial officials are alert enough to the potential liquidity problems that could occur if political/social unrest occurs after the Greek elections, but that is their job. How can the knowledge of that be worth 1.2% additional market value?

As I noted above, the last five day trading roller coaster is confusing; just as confusing are the headlines driving this erratic behavior---yesterday being a perfect example. Experience suggests that the sidelines are always the best place in times of confusion and high volatility.

The consequences of profligate spending (think Obamacare-medium):
http://www.zerohedge.com/news/matter-life-and-death-collapsing-greek-health-care-system-critical-condition

The EU smiled while Spain’s banks cooked their books (medium):
http://www.bloomberg.com/news/2012-06-14/the-eu-smiled-while-spain-s-banks-cooked-the-books.html

The crisis shifts to Italy (medium):
http://www.nakedcapitalism.com/2012/06/the-crisis-shifts-to-italy.html

The latest from Stratfor on a EU banking union (4 minute video):
http://www.zerohedge.com/news/why-european-banking-union-far-imminent

Finally, the Greek and French elections this weekend may not be the most significant one (medium):
http://www.zerohedge.com/news/egypt-verge-military-coup-and-martial-law-art-cashin-issues-warning

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

#18 Go Global for Growth

The US may be headed for a long period of slow economic growth. If capital gains are your bag, then it’s prudent to invest in faster growing markets around the world like Brazil and China. Many investors still think multinationals are the best way to play overseas markets, but these stocks trade like domestic US stocks. The easy way to invest in exotic, fast growing regions of the world is via ETFs, using your e-broker and research sites like ETFchannel.com.


Economics

This Week’s Data


The New York Fed’s June manufacturing index came in at 2.29 versus expectations of 10.5.
http://www.calculatedriskblog.com/2012/06/ny-fed-regional-manufacturing-activity.html

Other

Rail traffic still expanding (short):
http://pragcap.com/rail-traffic-still-expanding-modestly-2

Politics

Domestic

International War Against Radical Islam


Thoughts on the US role in the Middle East (medium):
http://www.zerohedge.com/news/guest-post-time-get-out-middle-east



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.