Wednesday, August 01, 2012

The Morning Call + Subscriber Alert + Patience

The Market

The indices (DJIA 13008, S&P 1379) meandered lower yesterday, but remained within their primary trends (1) short term trading ranges [12022-13302, 1266-1422] and (2) intermediate term uptrends [12075-17075, 1273-1853].

Volume improved but breadth declined. The VIX rose and remains above the lower boundary of its intermediate term trading range and within the developing head and shoulders.

GLD fell, but continues to trade above the lower boundary of its intermediate term trading range. This decline comes off the level of the last in a string of lower highs; hence the trend of downward bias continues.

Bottom line: the Averages remain in the upper quadrant of the short term trading ranges; and as I have made clear, this is not a level at which I want our Portfolios chasing stocks. However, if the recent rally continues, then our Portfolios could become a Seller.

Stock market regression to trend (short):



Yesterday’s economic data was pretty darn good, all things considered: June personal income was up versus expectations while spending was flat, so wage earners are saving a bit more---that’s a positive; July Chicago PMI was stronger than anticipated; as was the July Conference Board’s consumer confidence index; as was the May Case Shiller home price index. The only bad news was weekly retail sales. Nonetheless, these stats keeps the data flow relatively positive and hence the risk of recession at bay.

That said, the Market’s attention remained on the results of the Fed meeting (it ends today), the results of the ECB meeting (that’s tomorrow) and Friday’s nonfarm payroll report. Consequently, investors were sitting on their hands. The action should pick up today and could potentially be quite volatile for the rest of the week depending on how well events meet expectations.

Along those lines:

(1) recent flow of positive US economic data is going to make a QEIII announcement more difficult,

(2) the news out of Europe is not looking supportive of Draghi’s recent grandiose pronouncement,

Greece still in very deep do do (short):

An analysis of the full text of what Draghi said (medium/long):

And even more analysis (medium):

And the latest from Germany, i.e. the only vote that counts (short):

Late in the day, we received some good news---congress agreed to terms on financing the government through March 2013. This removes the threat of a showdown right before the elections, thus taking the issue of irresponsible fiscal policy off the table. However, it does nothing to solve the ‘fiscal cliff’.

Bottom line: I continue to lack the courage to make a bet in front of the Fed and ECB meetings especially with stocks at Fair Value, as defined by our Model. Patience is at a premium.

Update on the ‘big four’ economic indicators (short):

Subscriber Alert

The stock price of Coach (COH-$49) got whacked yesterday on disappointing earnings. The stock closed below the lower boundary of its Buy Value Range as well as its Stop Loss Price. It is being Removed from the Aggressive Growth Buy List. Since the Aggressive Growth Portfolio never Bought COH, no action is required.

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.