Tuesday, August 14, 2012

The Morning Call-Investors unimpressed by Ryan selection

The Market


The indices (DJIA 13169, S&P 1404) had another boring day, finishing just slightly to the downside. They remain (1) near the upper boundaries of their short term trading ranges [12022-13302, 1266-1422] and (2) within their intermediate term uptrends [12153-17153, 1279-1859].

Volume was down; breadth deteriorated. Surprisingly, the VIX was down 7% on a down Market day (usually the VIX is up on a fall in prices). This is the fourth day in our time and distance discipline challenge. Generally, that would mark confirmation of the break; however, as I noted last week, the first two days of this break were just pennies below the support level. I am going to wait one more day before making the ‘confirmation’ call.

What is volume telling us? (short):

GLD was off but remains well above the lower boundary of its intermediate term trading range. However, it backed off the level of the last in a series of lower highs.

Bottom line: yesterday was another typical late summer vacation day characterized by low volatility and low volume. I had thought that the Ryan VP selection might energize investors; wrong again. As a result, my original thought is probably correct; that is, we are likely to experience a typical late summer snooze fest through the Labor Day holiday.

The Averages remain in the upper quadrant of their short term trading ranges---not a level at which I want to be Buying. Indeed, my focus is on the Sell side---monitoring those holdings that are near to either their Sell Half Ranges or trading highs.

Dick Arms thinks that this chart forebodes a sell off (short):

Cooper’s head and shoulders (short):

What to expect in August’s option expiration week (short):



No US economic news yesterday. Overnight Sunday Japan reported a disappointing GDP number; that gave a slight negative tilt to Market at the open and carried through for the rest of the day.

As you might expect, the talking heads spent the day analyzing the Ryan VP selection from every possible angle. I heard nothing that would alter the opinion that I expressed in the weekend’s Closing Bell, to wit, (1) it creates a clear choice for voters between two differing economic philosophies and (2) the November decision will clarify investment strategy for the next four years.

The WSJ on Ryan (medium):

And Bill Gross (short):

And Mohamed El Erian on US politics in general (medium):

Bottom line: Romney’ selection of Ryan for VP not only gives definition to his campaign but also provides the electorate a clear choice between more of less government intrusion in our lives. While the ‘less’ alternative potentially introduces a more upbeat alternative to our longer term economic forecast, I have no clue on the election outcome. Hence, it is difficult to make any changes to economic or valuation assumptions or bets on a more positive scenario until we know how the electorate is going to react to the choice it is being given.

Until that happens, nothing changes. Europe will remain the biggest single variable in our Models; and that means higher than normal cash positions and a willingness to Buy only at lower levels.

For the bulls amongst you (medium):

And there are all those bulls in Europe (short):

The latest from John Hussman (medium):

Spiegle on the coming collapse of the euro (medium):

***overnight European GDP came in at -0.2%

New lawsuit could delay German High Court ruling (short/medium):

A depressing update on Spanish and Italian borrowings (medium):

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.