Thursday, August 16, 2012

The Morning Call + Subscriber Alert

The Market


Is it getting boring to have me say, the indices (DJIA 13164, S&P 1405) had another flat, uneventful day (Dow down, S&P up)? Sorry, but they did, finishing (1) near the upper boundary of their short term trading ranges [12022-13302, 1266-1422] and (2) within their intermediate term uptrends [12176-17176, 1281-1851].

Volume decline; breadth was mixed. The VIX continues to perplex me, closing down slightly---the sixth day below the lower boundary of its intermediate term trading range. As I have made clear, I am not convinced its performance is confirming a break. I am holding off for another day before making the call.

GLD was up a bit, remaining well above the lower boundary of its intermediate term trading range but still no challenge to the level of the last in a series of lower highs.

Bottom line: price movement on no volume equals no change in conclusion (except to raise the question, have the bulls given it their best shot?): with the Averages at the upper end of their short term trading ranges, Buying makes little sense. But Selling those stocks trading into their Sell Half Range does---see below.

Another look at election year stock performance (short):



It was a busy day for economic data yesterday; and basically a replay of Tuesday, i.e. (1) there was one really big number being better than expected: July industrial production---big because most economists look at this indicator as very important and (2) the rest of the stats were mixed: weekly mortgage and purchase applications and the August NY Fed manufacturing index were negative while July CPI was positive.

Other than the economic data, there was nothing much occurring except for the continuing low level rumblings about Ryan and the US election as well as the ongoing circus in Europe. But no specific developments; hence, another day of drifting prices.

Nigel Farage unloads on Draghi and the rest of the eurocrats (6 minute video):

This author makes a very important point; one that sadly I hadn’t thought of, to wit, the euro is ceasing to function as a currency and therefore, a good deal of the damage that would be done by a breakup of the euro is already occurring.

Bottom line: stocks in general are slightly overvalued; some stocks in particular are very overvalued---consider the list of stocks that have been reduced by one half this year with SNY now being the latest (see below). This assumes Europe ‘muddles through’ which I estimate at being only slightly better than even odds. If I am wrong on that assumption then my economic forecast and our valuation model are too optimistic; though I think that the points made in the above linked article are valid ones and that may mean that in a worse case scenario, our valuations would not be as overly optimistic as I fear.

Another win for the banksters, another screw job on the public (medium/long and today’s must read):

Taking on the ‘stocks are cheap’ argument (medium):

Pimco on protecting your portfolio against inflation (medium):

Morgan Stanley on current level of uncertainty (medium):

Subscriber Alert

The stock price of Sanofi Aventis (SNY-$42) has traded into its Sell Half Range. Accordingly, the High Yield Portfolio will Sell one half of its position at the Market open this morning.

Staples (SPLS-$11) got whacked yesterday and traded below its Stop Loss Price. Accordingly, it is being Removed from the Aggressive Growth Buy List and Sold by the Aggressive Growth Portfolio. Because the Aggressive Growth Portfolio’s cash position is as large as I want (33%), a portion of the funds will be reinvested in Coach (COH-$56).

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.