Wednesday, July 11, 2012

The Morning Call-Our financial system is still at risk


The Market

Technical


The indices (DJIA 12653, S&P 1341) were off again yesterday, though they remain within their (1) short term trading ranges [12022-13302, 1266-1422] and (2) intermediate term uptrends [11949-16949, 1256-1836]. Within the short term trading ranges, additional support exists at 12344, 1292 and resistance at 12903, 1384. Both of the Averages closed very near their 50 day moving average; a move below this support would suggest additional downside.

Volume rose; but breadth was weak. The VIX traded up, finishing above the lower boundary of its intermediate term trading range. Importantly, it did nothing to negate the developing the head and shoulders pattern.
http://www.zerohedge.com/news/bearish-enough-buy-real-fear-index-says-not-so-fast

GLD (152.2) was down but closed above the lower boundary (148.2) of its intermediate term trading range.
http://www.zerohedge.com/news/china-imports-more-gold-hong-kong-five-months-all-uk-combined-gold-holdings

And:
http://www.zerohedge.com/news/guest-post-propping-gold-price

Bottom line: the weak current short term trading is bringing stocks closer to a buying range which I am presently defining as S&P 1250-1300. Until stocks reach that level, our Portfolios are doing nothing. If GLD challenges the 148.2 level, our Portfolios will Buy additional shares if that challenge is unsuccessful but reduce their positions if successful.

Is the summer rally fizzling (short):
http://blog.stocktradersalmanac.com/post/DJIA-Summer-Rally-Fizzles-Will-Earnings-be-the-Last-Shoe

Fundamental

Headlines


The economic news yesterday was a bit disappointing:

(1) weekly retail sales were positive while the small business sentiment survey was quite negative. Internationally, China trade numbers were a disappointment. This latter factor garnered the most investor attention and set a negative tone to early trading.

Is China headed for deflation? (medium):
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100018475/china-heads-for-a-deflationary-shock/

(2) later in the day, poor guidance from Cummins Inc [on our Buy List] deepened the gloom on the Street [even though the company raised its dividend 25%] as the stocks of companies in its space suffered some severe whackage.

Five charts on second quarter earnings (medium):
http://www.zerohedge.com/news/four-ominous-charts-q2-earnings

(3) not helping, the CFTC sued PFG [MF Global, part deux]---reminding us again of the dangers embedded in our financial system.
http://www.zerohedge.com/news/cftc-finally-gets-memo-regulator-sues-pfg-says-firm-has-200-million-customer-fund-shortfall

Under the category of ‘do the regulators have a clue’:
http://www.zerohedge.com/news/inept-cftc-get-away-driver-pfg

And (medium):
http://www.zerohedge.com/news/pfgs-chairman-was-forging-bank-documents-years-even-cftc-gave-all-clear

Under the category of ‘if Jamie Dimon doesn’t know’:
http://www.zerohedge.com/news/jpmorgan-clawback-bonuses-will-announce-cio-loss-just-over-5-billion

(4) finally, in an interview on Bloomberg, the founder of the ECRI index re-iterated his recession call.
http://www.zerohedge.com/news/ecris-achuthan-us-recession-already

This is a bit long, but it is an excellent counterpoint to the ECRI recession call:
http://advisorperspectives.com/dshort/guest/Dwaine-van-Vuuren-120710-Recession-is-Not-Imminent.php

Keeping the ball rolling downhill, the German high court said that in may take three months to rule on the Spanish bank bail out (medium):
http://www.zerohedge.com/news/german-constitutional-court-says-may-need-three-months-deliver-esm-verdict

Here is a rather detailed analysis of the Spanish bail out agreement. If you don’t want to read the whole thing, there is a summary (long):
http://www.zerohedge.com/news/pfgs-chairman-was-forging-bank-documents-years-even-cftc-gave-all-clear

Bottom line: all in all, none of this makes me feel warm and fuzzy about our forecast. That said, it is one day of news. The good news is that stocks are headed for undervalued territory. At the technical S&P 1250-1300 level, stocks will be 4-6% undervalued, which is a reasonable point to start committing cash.

The latest from Charles Biderman (5 minute video):
http://www.zerohedge.com/news/biderman-blasts-bernanke-put-and-questions-qe-hopers



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.