Wednesday, June 13, 2012

The Morning Call + Subscriber Alert + The technical picture improves


The Market

Technical


Yesterday, the indices (DJIA 12573, 1324) closed within their intermediate term uptrends (11780-16780, 1238-1805). They also closed well above the upper boundary of their short term downtrends off the May high. As a result, the break of that downtrend is confirmed, re-setting the short term trend from down to a trading range, now defined by the boundaries of 12024-13302, 1266-1422.

I also note that the two Averages as well as many of the stocks in our Universe are developing well defined reverse head and shoulders pattern---a positive technical formation.

Volume was down; breadth was up with the flow of funds indicator beginning to show real improvement. The VIX was down but remains well above the lower boundaries of its short term uptrend and its intermediate term trading range.

GLD rose closing back above the upper boundary of its contested short term downtrend. The upside break of this trend is now confirmed. That re-sets the short term trend from down to a trading range---now with the same boundaries as its intermediate term trading range.

Bottom line: the short term trend has now re-set to a trading range from a down trend with the intermediate term in an up trend. That moves the overall technical bias from neutral to modestly positive. That said with Averages roughly in the middle of their new trading ranges, I don’t feel pressure to make any significant additions to our Portfolios’ equity positions. Any weakness to the lower zone of the new trading ranges would prompt new purchases.

I add the caveat that given the volatility of this Market, the discussion of the short term trend could quickly be proven wrong/irrelevant.

The significance of the 200 day moving average (unfortunately, this article only addresses its relevance as a leading indicator but not that of its strength as support or resistance):
http://www.marketwatch.com/story/significance-of-200-day-moving-average-2012-06-12?link=home_carousel

Fundamental

Headlines


Yesterday, there were almost no headlines. Only one secondary US economic indicator (weekly retail sales) was reported and it was neutral. There was some noise about a Fed easing; but that kind of speculation is not exactly new. Plus, whatever positive could be derived from it, it was offset by a lot of yakking back and forth in Europe about whether or not Italy is now in line for a bail out.

How that combo leads to a 1.2% lift is stock prices is a mystery to me---and I will leave it at that. Sometimes I don’t have a clue what just happened and this was one of them.

The latest from Mohamed El Erian (medium):
http://advisorperspectives.com/commentaries/pimco_61212a.php

JP Morgan on Europe’s choices (medium):
http://www.zerohedge.com/news/jpmorgan-explains-why-there-no-deus-grex-machina-europe

The latest from Charles Biderman (4 minute video):
http://www.zerohedge.com/news/biderman-central-banks-end-they-will-get-what-they-deserve

The ‘off season’ earnings ‘beat’ rate (short):
http://www.bespokeinvest.com/thinkbig/2012/6/12/earnings-beat-rate-over-last-month.html

***over night, Italian bond rates jump and the run on Greek banks kicked in the after burner.

More austerity for Spain (medium):
http://www.nakedcapitalism.com/2012/06/stealth-austerity-coming-to-spain.html

And more debt (short):
http://www.zerohedge.com/news/rosenberg-defines-european-insanity

Bottom line: coupling my cluelessness with the indices being (1) near the mid point of their short term trading ranges and (2) the S&P mid point is close to its current Fair Value [as computed by our Valuation Model], there is not a significant fundamental reason for Buying stocks---even though the technical picture has improved somewhat.

Subscriber Alert

On the other hand, I think the pin action in GLD (resetting the short term trend from down to flat) a positive; accordingly, our Portfolios are Adding this their GLD positions at the Market open.



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.