Tuesday, August 21, 2012

The Morning Call--The new investing paradigm


The Market
Technical


The indices (DJIA 13127, S&P 1418) had another lazy, hazy day of summer, finishing down fractionally, but (1) still within striking distance of the upper boundaries of their short term trading ranges [12022-13302, 1266-1422] and (2) well within the boundaries of their intermediate term uptrends [12202-17202, 1283-1863].

Volume remains anemic; breadth weakened. The VIX rose but remained within its short term downtrend (a positive for stocks).

GLD rose, closing above the lower boundary of its intermediate term trading range and once again approaching the level of the last of the lower highs.


Bottom line: the Averages remain in the upper quadrant of their short term trading ranges---a territory that, as I have been monotonously pointing out, is not attractive for committing funds. Indeed, I consider stock prices at current levels better sales than buys. My main strategy at this point is to focus on those stocks nearing their Sell Half Range or trading highs.

A declining number of new highs (short):
http://www.thereformedbroker.com/2012/08/20/a-participation-indicator-you-cannot-ignore/

More signals that a top could be close (medium):
http://www.minyanville.com/business-news/markets/articles/elliott-wave-s2526p500-spx-spy-elliott/8/20/2012/id/43319

Short term market outlook from Nomura (medium):
http://www.zerohedge.com/news/bob-janjuah-goes-risk-effective-immediately-advance-major-risk-phase

Fundamental

Headlines


No US economic news yesterday and very little to report from overseas. With respect to the latter, there was some early morning chatter about a weekend article in Der Spiegle reporting that the ECB was considering setting interest rate limits on bonds that it purchased from sovereigns---as an example, it would buy Spanish ten year bonds at say 5%, even though the current market price was 7%. That rumor was quickly shot down by every German politician not on vacation.

The latest from Mohamed El Erian (medium):
http://advisorperspectives.com/commentaries/pimco_82012.php

Merkel suggests possibility of Greek concessions (medium):
http://www.bloomberg.com/news/2012-08-21/germany-s-barthle-says-small-concessions-possible-for-greece.html

Investors spent the rest of the day:

(1) marveling at Apple’s strong price up move and its arrival as the highest valued company in history. That is great for Apple stockholders; but one stock does not a market make. The internal structure and strength of the Market continues to deteriorate as witnessed by our internal indicator as well as numerous others [see the above links in the Technical section],
http://www.zerohedge.com/news/guest-post-apple-really-worth-more-sum-microsoft-dell-google-facebook-and-hp

(2) applauding the Augusta National Golf Club at last offering membership to women. Politically correct but economically irrelevant.

Bottom line: stocks as measured by the S&P are overvalued as measured by our Model even based on our Year End Fair Value. By itself, that is enough to keep me on the sidelines. However, as I have pointed out previously, September is going to be a big month for events that could determine Fed as well as ECB policy. The uncertainty regarding the spread of potential outcomes of those events as well as the upcoming election and a more volatile bond market simply adds to my desire to lay low.

Treasury spasms (short/medium):
http://www.zerohedge.com/news/treasury-spasms

The new investing paradigm (medium/long but today’s must read):
http://www.zerohedge.com/news/so-you-say-you-want-revolution-real-new-normal

Buffett halves his municipal CDS position (medium):
http://www.zerohedge.com/news/buffett-joins-team-whitney-sees-muni-pain-ahead-he-unwinds-half-his-bullish-exposure-ahead-time


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.