Friday, August 10, 2012

The Morning Call--A top or not?

The Market


The indices (DJIA 13165, S&P 1402) snoozed through another day (Dow down, S&P up), closing (1) near the upper boundaries of their short term trading ranges [12022-13302, 1266-1422] and (2) well within their intermediate term uptrends [12131-17131, 1278-1858].

Volume was very low; breadth mixed. The VIX was down for a second day---both closes being just fractionally below the lower boundary of its intermediate term trading range (and neckline of the developing head and shoulders pattern). If this level is broken, it would be a plus for stocks. However, two closes in a row just $.12 below lower boundary may be pushing the notion of a ‘break’ a bit too far. For the moment, I am calling this the second day of a penetration but highly subject to an alternative interpretation.

GLD moved up again, finishing above the lower boundary of its intermediate term trading range but still not threatening a challenge to the series of lower highs.

Bottom line: stocks are in a technical ‘no buy’ zone. Even for investors far more sanguine about the near term Market outlook, it still makes no sense to risk new money this close to a major resistance level---better to wait a break and pay up fractionally than commit cash and have the Market roll over on you.

My task at these levels is to carefully watch those stocks that are either near their Sell Half Range or becoming technically overextended.

Signs of a top? (medium):

Bullish sentiment now larger than bearish sentiment (short):

Peak complacency is back (short):

A somewhat different analysis of the current market (medium):

A yellow flag (short):

Most S&P sectors are overbought (short):



Weekly jobless claims and our trade balance came in better than anticipated. While this makes me feel all warm and fuzzy about our forecast, it doesn’t inspire any change.

The only other news worth mentioning was that the shape of the Standard Chartered $250 billion Iranian money laundering scheme is starting to become clearer. Unfortunately, what is really clear is that it is just another link in the ongoing narrative of a corrupt banking system and an enabling bureaucracy. The question is how much more of this will the electorate take before it either jumps ship or mutinies?

Yesterday’s Bottom line is as good as any: ‘with all the critical players on break, the next couple of weeks will likely be boring. So we all should sit back and enjoy the Olympics, the PGA championship and the new Bourne movie. Maybe go to the beach or mountains.

Certainly from a portfolio strategy point of view, with stocks above Fair Value, there is little to do except to monitor our holdings should any of them penetrate their Sell Half Range.’

A second look at Jeremy Siegel’s Stocks For the Long Run’ (medium):

The disappearance of the individual investor (short):

The tenor of the news out of Europe is turning a bit more positive---again (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.