Tuesday, June 26, 2012

The Morning Call-It won't be long now

The Market


The indices (DJIA 12502, S&P 1313) continued their volatile, schizophrenic ways; yesterday it was on the downside. However, both remain well within both their short term trading ranges (12202-13302, 1266-1422) and their intermediate term uptrend (11872-16872, 1246-1826). If there is any follow through to the downside, the initial support level to watch is 12344, 1292.

Volume declined, breadth was weak. The VIX spiked back above the lower boundary of its short term uptrend, negating Friday’s break (for the second time).

GLD rose, finishing above the lower boundary of its intermediate term trading range.

Bottom line: short term, the levels to watch are 12744/1338 (the former reverse h&s ‘neckline’) on the upside and 12344, 1292 on the downside. The key is where the technical strength exists. If it is resistance (12744/1338), then it is reasonable to conclude the bias is to the downside; if it is support (12344/1292), the opposite. In the meantime, prices are getting close to the levels where I want to take advantage of the current downside volatility.

Tracking past election years (short):



After lamenting in last weekend’s Closing Bell that we hadn’t seen any really positive data flow of late, we had a great day yesterday: May new home sales were very strong while the Dallas Fed’s June manufacturing index came in much better than estimates. This does nothing for the long term; but if these stats anticipate a more positive data flow, I will a bit more confident in our forecast. Clearly, these upbeat numbers meant little to investors.

The majority of the Street chatter focused on:

(1) the coming Supreme Court ruling on Obamacare. There had been hope that the decision would come yesterday. It didn’t; and that was a bit disappointing. That said, consensus appears to be that at least the ‘individual mandate’ will be ruled unconstitutional; and again, consensus seems to consider that a positive.

(2) drum roll.............Europe. Specifically, Spain asked for a bail out for its banks, Moody’s downgraded the ratings of 28 Spanish banks, Greek politicians stated that they wanted to renegotiate the terms of their last bail out and, perhaps, most important (or not), the eurocrats are getting together again this Thursday and Friday. Given their past performance, investors appeared ready to be disappointed.

**overnight rumors: (1) congress considering delaying the implementation of 1/1/13 spending cuts and tax increases to 3/31/13, (2) China says June trade improved [remember they lie a lot].

Bottom line: at yesterday’s close, the S&P is roughly 4-5% undervalued (as calculated by our Model. To be sure, all the problems that I have been concerned about over the last six months are still with us. However, as I noted in last weekend’s Closing Bell, I am not smart enough to pick a bottom. So I want to ‘nibble’ over an extended time and distance and hope that my ‘average’ acquisition price will look good as the current problems we face resolve themselves. As stocks approach the 1292 level, our Portfolios will take a first tenuous step.

Add a monetary ledge to the fiscal cliff problem (medium):

Five worries of money managers from the Morningstar conference (medium):

The latest from John Hussman (medium):

Charles Biderman on the Bernanke put (4 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.