The Morning Call-When not if

The Market
Technical

The indices (DJIA 13117, S&P 1394) drifted up in a quiet day, closing within their primary trends: (1) short term trading ranges [12022-13302, 1266-1422] and (2) intermediate term uptrends [12117-17117, 1275-1855].

Volume was light; breadth declined. The VIX was up fractionally, remaining near the lower boundary of its intermediate term trading range (and the neckline of a developing head and shoulders pattern).

GLD was up in more directionless trading. It continues to trade above the lower boundary of its intermediate term trading range.

Bottom line: stocks continue to have a bid under them; so I would expect that a challenge of the 13302, 1422 upper boundaries of the Averages short term trading ranges is likely a matter of ‘when’ not ‘if’. Buying stocks at these technical levels has historically not been a wise move; indeed, we may be given the opportunity to lighten some positions if any stock trades into its Sell Half Range or is clearly overextended technically.


Last week’s lack of a Market sell off (short):
http://www.minyanville.com/business-news/markets/articles/S2526P-SPY-IWM-russell-market-sell/8/6/2012/id/42974

Ignore the noise, focus on price (short):
http://allstarcharts.com/ignore-the-noise-focus-on-price/

The latest from Kevin Lane at Fusion IQ (short):
http://www.investmentpostcards.com/2012/08/05/technical-talk-upside-breakout-for-sp/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+wordpress%2FVYxj+%28Investment+Postcards+from+Cape+Town%29

Stock Trader’s Almanac thinks that yesterday’s late in the day sell off could portend a short term top (short):
http://blog.stocktradersalmanac.com/post/Late-Day-Selloff-DJIA-Shooting-Star-Candle

The Shanghai Index is at a critical support level (short):
http://advisorperspectives.com/dshort/guest/Chris-Kimble-120806-Draghi-or-Shanghai.php

Fundamental

Headlines

There were no economic releases yesterday; and in fact, there will be few this entire week. So I expect no serious challenges to our forecast.

Adding to a dull news flow, congress started its summer break; so there was no one in Washington to lie or say something stupid that we could all make fun of. Of course, our political class has been working so hard fixing the ‘fiscal cliff’, working on an overhaul of the tax code, reviewing outdated regulations and closely monitoring the banksters, they need a break. I am sure that they are now at home working equally hard to get re-elected.

There was not much out of Europe either---in particular the Germans. Although S&P did lower the rating of fifteen Italian banks; and no one seemed to care. I will say that the narrative on Europe does seem to be improving (see the links below). I am just not sure if the narrative is driving stocks or the reverse.

***Over night, the economic data out of Europe was pretty bad (short):
http://www.zerohedge.com/news/europes-economic-contraction-continues-core-succumbs-peripheral-weakness

Bonds spreads indicate that Europe is OK---for the time being (short):
http://scottgrannis.blogspot.com/2012/08/risk-of-near-term-eurozone-collapse-is.html

This is a bit long; but it gives as good an analysis of the issues post Draghi speech facing Europe right now:
http://www.nakedcapitalism.com/2012/08/will-draghi-outmaneuver-the-bundesbank.html

Counterpoint (also long):
http://www.zerohedge.com/news/europes-beggars-bluffing-their-way-unity-and-propserity-hijacking-and-extortion

Bottom line: the economy is tracking as we expected, our political is AWOL for a month and most of Europe takes the month of August off. That should mean relative calm until September (I hate making statements like that because sure as hell, the world will come apart before the ink is dry). In the absence of news flow and with what seems a positive bias to the Market, prices are likely to rise over the short term. Nonetheless, they remain slightly overvalued which itself is not great inducement to put money to work; but given the magnitude of the level of unknown as well as the magnitude of the potential downside in the resolution of the EU bank/sovereign insolvencies, I believe extra care is warranted at this point. Hence, our large cash and gold positions.

The significance of Knight Capital’s near miss (short and today’s must read):
http://www.ritholtz.com/blog/2012/08/market-structure-the-near-miss/#more-82514

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.