Thursday, July 26, 2012

The Morning Call + Subscriber Alert + All hail, Sandy Weill

The Market


The indices (DJIA 12676, S&P 1337) turned in a mixed performance yesterday (Dow up, S&P down) but remained within their primary trends: (1) their short term trading ranges [12022-13302, 1266-1422] and (2) their intermediate term uptrends [12043-17043, 1267-1847]. Within the short term trading ranges, additional support exists at 12345/1292, resistance at 12904/1364. Both of the Averages are hovering near their 50 day moving averages (12615/1332).

Volume declined, breadth improved. The VIX fell 5%, remaining above the lower boundary of its intermediate term trading range and continuing to develop the head and shoulders pattern.

GLD was up big. It is still (1) above the lower boundary of its intermediate term trading range (2) has not broken out of the ten month string of lower highs.

Bottom line: the indices are in the middle zone of their trading ranges which provides little reason to buy or sell stocks. The meandering around inside these ranges can go on for a long time, so patience is important right now. As noted above, the Averages are close to their 50 day moving averages which in turn are not that far away from their 200 day moving averages. Any move below these two moving averages could portend a downward bias. That is not a prediction, it is an observation.

For the bears amongst you (medium):

Lance Roberts sees a major sell signal (medium):



Two datapoints out of the housing market yesterday which in sum were negative: weekly mortgage applications were up but the more important purchase applications were down; June housing starts were very disappointing. However concerning these stats may have been if taken independently, they were outweighed, at least initially, by the residual enthusiasm over a possible Fed easing.

Stephen Roach of QEIII and the likelihood of its success (6 minute video):

In the end, that positive bias to prices soon spent itself and the market spent the rest of day trying to figure out the significance of Sandy Weill’s blockbuster suggestion on national TV (see our blog yesterday on his interview) that the banks should be separated from their investment banking businesses.

Hear, hear. As you know, I am no fan of the current kleptomaniac banking model, the regulators that (don’t) oversee its actions and the bought and paid for political class that allows it to privatize its successes and socialize its losses---so I only had to think about Mr. Weill’s suggestion for about one nanosecond to conclude it a winner. Whether it has a snowball’s chance in hell of being implemented, I haven’t a clue. But I have no doubt that as this is being written the phone lines are being burnt up between New York and Washington attempting to put this genie back in bottle ASAP. So I have no idea what kind of legs this story has.

Another corrupt bankster gets money instead of jail time (medium):

Bottom line: versus my expectations, yesterday’s pin action was a dud:

(1) the Apple earnings story never flowed over into the rest of the industry much less the Market in general,

(2) apparently the Fed easing story was either already discounted or quickly received the appropriate amount of skepticism. However, there is still risk here, i.e. if the Fed throws a party [QEIII] and nobody cares, then it may start raising doubts among investors that it can hold rates down forever---and if that happens, look out below.

In the meantime, Europe and the incredible ineptitude of its ruling class in dealing with its massive banking and sovereign insolvencies remain center stage and keep our Portfolios on the sidelines until we either get clarity or lower equity prices.

Germany---no longer a safe haven (medium):

A closer look at yesterday’s UK GDP report (short):

The latest from Morgan Stanley (medium):

The absurdity of current earnings estimates (short):

Subscriber Alert

Several stocks have traded below the upper boundary of their respective Buy Value Ranges and accordingly, are being Added to their respective Buy Lists. The shares of all these stocks are owned by their respective Portfolios; no additional shares will be purchased at this time.

In the High Yield Buy List: Kinder Morgan Energy Ptrs (KMP-$81) and Cato Corp (CATO-$28)

In both the Dividend Growth and Aggressive Growth Portfolios: Sigma Aldrich (SIAL-$67).

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.