Tuesday, July 31, 2012

The Morning Call-Double the pleasure


The Market
Technical


The indices (DJIA 13073, S&P 1385) were basically flat yesterday, closing within their primary trends: (1) short term trading ranges [12022-13302, 1266-1422] and (2) the intermediate term uptrends [12075-17075, 1271-1851]. By holding recent gains, the 12904/1364 interim resistance level has been negated, leaving the short term trading range upper boundaries as the nearest resistance.

Volume was anemic; breadth deteriorated. The VIX sold off 8% but remains well above the lower boundary of its intermediate term trading range and the neckline of the developing head and shoulders pattern.

GLD was down fractionally, finishing above the lower boundary of its intermediate term trading range.

Bottom line: the Averages are trading in the upper quadrant of their short term trading range. That is not a technical level at which I want to be putting cash to work. However, a further advance could move some of our stocks into their Sell Half Range or into technically overextended territory. So if this rally continues, our Portfolios will likely be better sellers than buyers.

Market at a long term decision point? (medium):
http://www.minyanville.com/business-news/markets/articles/elliott-wave-elliott-wave-theory-jason/7/30/2012/id/42779

This chart is eerie (short):
http://www.bespokeinvest.com/thinkbig/2012/7/29/can-it-really-be-that-easy.html

Fundamental

Headlines


Only one secondary economic indicator was reported yesterday---the July Dallas Fed manufacturing index which was really bad. But again, investor attention was on bigger issues, namely the Fed’s meeting on Tuesday/Wednesday and the ECB’s meeting on Thursday. Judging by last week’s Market spike, investors are clearly expecting a lot (in terms of monetary accommodation) out of these two get-togethers. As you know, I have:

(1) always assumed that we would get a QEIII in some form, but doubted that it would have much impact on the Market after the original thrill went down investors’ legs. I am sticking with that position; but certainly we will know just how right/wrong I am by week’s end.

Another Fed easing will do little to increase bank lending (short):
http://www.ritholtz.com/blog/2012/07/bn-fed-easing-may-do-little-to-lift-bank-lending-chart-of-the-day/

Nor help stocks (short):
http://www.zerohedge.com/news/charting-diminishing-multiple-expansion-benefits-fed-action

(2) assumed that somehow the Europeans would do enough to hold the EU together but just barely and that would lead to a decade of slow to no growth [the muddle through scenario]. However, I believed the odds of that occurring were only slightly better than 50/50 and the risks if it didn’t occur were enormous. I am sticking with that position also. So far, nothing tangible has been said or has occurred to back up Draghi’s bluster last week about doing everything possible to save the euro. We may get something on Thursday; and if so, nobody will be happier than me. But I have had enough of their yapping; until these euroclowns walk the walk, I am holding on to my cash like drowning man to a life preserver.

Recent polls of German citizens do not bode well for the euro (medium):
http://www.nakedcapitalism.com/2012/07/germans-getting-even-more-opposed-to-being-in-the-eurozone.html

Bottom line: we live in interesting times and this week could prove more interesting than most. However, I misplaced my omniscience this weekend, so I have no desire to make a bet ahead of (1) Fed action and the Market’s response and (2) clarity to Draghi’s plan and the German’s response. Today, I think it better to be safe than sorry.

The latest from Doug Kass (medium):
http://www.thestreet.com/story/11643972/1/kass-olympic-sabre-rattling.html

The latest from Bill Gross (medium and today’s must read):
http://www.zerohedge.com/news/bill-gross-cult-equity-may-be-dying-cult-inflation-may-only-have-just-begun


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.