Tuesday, July 10, 2012

The Morning Call-Germany throws a monkeywrench in the bailout, again


The Market

Technical


The indices (DJIA 12736, S&P 1352) were off yesterday, but remained within (1) their short term trading ranges (12022-13302, 1266-1422) and (2) their intermediate term uptrends (11935-16935, 1256-1836). Within the short term trading ranges, secondary support exists at 12344/1292 and resistance at 12903/1384. A very short term downtrend off the April 2012 high is currently at 12761/1368.

Volume was flattish; breadth improved slightly, though the flow of funds indicator has turned quite negative. The VIX rose, staying above the lower boundary of its intermediate term trading range. A head and shoulders formation continues to develop (a positive for stocks).

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



Global money supply and gold (short):
http://www.zerohedge.com/news/effects-increasing-global-money-supply-gold

Bottom line: the Averages are currently trading near the mid-zone of the short term trading ranges which, from a strictly technical standpoint, doesn’t argue for either buying or selling stocks. I think that the S&P 1250-1300 level is the right place for our Portfolios to Add to their holdings.

The Shanghai Composite is taking out secondary support (chart):
http://www.thereformedbroker.com/2012/07/09/the-shanghai-at-secondary-support-now-what/

And why that may be happening (medium):
http://www.nytimes.com/2012/07/10/business/global/prices-tumble-across-the-chinese-economy.html?_r=1

Fundamental

Headlines


Monday was a relatively uneventful day:

(1) consumer credit spiked but maybe not for the right reasons [see below],

(2) Obama proposed extending the Bush tax cuts for all those making less than $250,000 annually. The political season being in full swing and He being a master practitioner, everyone in the universe knows that this is DOA. I continue to maintain that all the ‘fiscal cliff’ issues will be dealt with but not until after November. So this plan simply becomes part of the political debate,

(3) earnings season kicked off with Alcoa beating estimates and AMD disappointing. Consensus seems to be that overall second quarter profits will be below revised expectations. How they actually get reported could be the directional determinant of the Market short term,

Second quarter earnings season is upon us and it may not be that great (medium):
http://www.businessinsider.com/jp-morgan-negative-earnings-preannouncement-three-years-2012-7

And (medium):
http://www.zerohedge.com/news/earnings-season-preview-97-2012-eps-growth-still-too-high

(4) Spanish bonds took it in the snoot as projections of its budget deficit continue to rise. This situation is simply a repeat of every other bailout for the last three years, i.e. it is not working, As you know, I don’t believe that Act III of the EU sovereign/bank debt solvency tragedy has even started.

Meanwhile in Germany, the latest bailout attempt will remain in limbo till 2013 (medium):
http://www.zerohedge.com/news/will-german-constitutional-court-esm-delay-today-cripple-euphoria

A great 4 minute clip featuring Rick Santelli and Neil Farage on the hopelessness of the EU financial predicament:
http://www.zerohedge.com/news/perfect-storm-santelli-meets-farage

Bottom line: equities (as defined by the S&P) are fairly valued (as defined by our Model). Ordinarily, such a price environment would prompt our Portfolios to Buy stocks when they fall into their Buy Value Range. However, the risks of a crisis erupting in Europe are high enough and the consequences severe enough, that it seems prudent to make any purchases starting at lower price levels.

Why JP Morgan and Goldman are liabilities not assets to our financial system (medium):
http://www.nakedcapitalism.com/2012/07/satyajit-das-mr-smith-goes-to-leaves-wall-street.html

And (medium):
http://www.ritholtz.com/blog/2012/07/big-banks-are-rotten-to-the-core/

And finally, another $200 million goes missing (short):
http://www.zerohedge.com/news/pfgbest-now-mf-global-part-2-220-million-segregated-client-money-has-just-vaporized

Tuesday morning humor (5 brief videos)
http://www.zerohedge.com/news/daily-show-correspondents-explain-economy

Ten reasons to like stocks in the second half (medium):
http://www.thereformedbroker.com/2012/07/09/ten-reasons-i-like-stocks-for-the-second-half/



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.