The Morning Call-What a difference a day makes

The Market

Technical

Rough day, yesterday. The indices (DJIA 12573, S&P 1325) suffered some serious whackage but remained well within both their short term trading ranges (12022-13302, 1266-1422) and their intermediate term uptrends (11845-16845, 1245-1825). That’s the good news.

The bad news is that they smashed through:

(1) the lower boundaries of newly developing short term uptrends [12813, 1345]. Given the infancy of this uptrend and the distance element of our time and distance discipline, that uptrend has been negated,

(2) the ‘neckline’ [12744, 1338] of the completed reverse head and shoulders formation. This is something of a tricky situation, technically speaking because the Averages remained above the ‘neckline’ for only four trading days---which under our trading discipline raises two scenarios [a] if there is an immediate snap back in prices, then it could keep the 13400, 1440 as an upside objective, [b] if not, it negates the strength of the formation and the follow through.

Barring a quick powerful bounce, the focus is now on 12744, 1338 as resistance and 12344/1292 and 12022/1266 as support.

Volume rose; breadth plunged. The VIX spiked 16%, trading back over the lower boundary of its short term uptrend on the fourth trading day. That keeps the uptrend in tact---not a positive for stocks. It did remain above the lower boundary of its intermediate term trading range.

GLD (152.0) got stepped on hard. The distance element of our time and distance discipline now confirms the break of the short term uptrend. Support remains at the lower boundary (148.3) of its intermediate term trading range.

Bottom line: our internal indicator gave us a good reading this time around, helping to keep us on the sidelines after the break in the neckline of reverse h&s pattern. Hopefully, yesterday was a precursor to a test of one or more of the 1292, 1266 or 1245 support levels. Those are all ‘nibbling’ territories.

Individual investor sentiment declining (short):
http://www.bespokeinvest.com/thinkbig/2012/6/21/individual-investor-optimism-back-on-the-decline.html

Fundamental

Headlines

Yesterday’s economic stats were basically mixed: weekly jobless claims and existing home sales came in as expected; the Philly Fed index was terrible while the leading economic indicators were positive. All other things being equal, there is nothing about which to be that negative.

Unfortunately, all other things are not equal. Specifically, the Philly Fed index came on top of the disappointing PMI numbers out of Germany and China; and that coupled with the failure of the Fed to implement a QEIII got investors spooked about a global economic slowdown.

The bear case (medium):
http://advisorperspectives.com/dshort/guest/Shedlock-120621-Recession-Forecast.php

That set a negative tone for the day which then accelerated as two prominent Street technicians made a Sell call on the Market. The coup de grace was rumors (that proved true) that Moody’s was downgrading the bond ratings of the fifteen banks including the six largest US banks.

I don’t consider most of the above any more negative than I did the Greek elections and the latest Spanish bailout deal positive. The current volatile reactions to non-news (to me) is simply reflective of the prevailing high level of investor schizophrenia.

On the other hand, I do have sympathy with the mounting recession concerns raised by Wednesday’s FOMC statement and yesterday’s Philly Fed report. As you know, the more negative data flow of late is worrying to me and the aforementioned don’t help. That said, the current erratic data flow mirrors similar circumstances in the second and third quarters of 2010 and 2011. So I am not ready to jump off a bridge. 2012 may prove similar to the prior two years; but it is too soon to tell.

The case for no more monetary easing (medium):
http://scottgrannis.blogspot.com/2012/06/no-more-quantitative-easing-is-good.html

Greece: new government, but the same old song (medium):
http://www.spiegel.de/international/europe/parties-form-new-greek-government-a-840047.html

And the political problems with austerity (medium):
http://www.zerohedge.com/news/austerians-versus-keynesians

Bottom line: that investors have gone from tip toeing through the tulips to slashing their wrists in a matter of hours produces the kind of volatility that can be taken advantage of. In the absence of any substantive change in our forecast, our Portfolio will use any further weakness to again ‘nibble’ at their Buy Lists.

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

#19 Don’t ‘Dollar Cost Average’--Buy on Dips

Dollar cost averaging, which involves consistent regular investing over time, may not be the best option in the current volatile environment. Instead use market dips or seemingly irrational sell offs to buy stocks or funds you have researched and think to be good values. Former drugstore chain owner Bob Matteucci of San Marcos, Calif. loaded up on shares of Nordstrom and Saks during the depths of the financial crisis at $8 and $2 per share respectively. “These were diamonds among retailer” says Matteucci, 67, who sums up his current approach as “Life is not about waiting for the storms to pass, its about learning to dance in the rain”.

News on Stocks in Our Portfolios

5:20 PM Medtronic (MDT) boosts its cash dividend by 7% to $0.26 per share. The company's dividend has more than doubled over the past five years, and today's announcement marks the company's 35th consecutive year of increased dividend payments.

Economics

This Week’s Data

Other

The inflation trigger (medium):
http://advisorperspectives.com/commentaries/schroder_62112.php

EU export growth plunges (short):
http://www.zerohedge.com/news/europes-economic-implosion-one-chart

Politics

Domestic

Here is the perfect example of why republican super stars are no better the dems:
http://mjperry.blogspot.com/2012/06/twisted-political-logic-of-trade.html

The case for a major cut in government spending (medium):
http://www.hoover.org/publications/defining-ideas/article/120481

International War Against Radical Islam

The problem with multiculturalism (medium):
http://www.nationalreview.com/articles/303529/trouble-multiculturalism-clifford-d-may

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.