Friday, August 17, 2012

The Morning Call-Will 1422 hold?


The Market
Technical


The indices (DJIA 13250. S&P 1415) finally showed a little life yesterday, closing a short hair away from the upper boundaries of the short term trading ranges (12022-13302, 1266-1422) and well within their intermediate term uptrends (12184-17184, 1281-1861).

Volume was up; breadth improved. The VIX was down, making it the seventh day closing below the lower boundary of its intermediate term trading range. I continue to believe the trading in this index sufficiently schizophrenic to avoid making a call confirming a break for at least another day.

Given the proximity of the Averages to the 13302, 1422 April 2012 trading high, I checked with our internal indicator to see if there was any sign of a penetration to the upside. In our 161 stock Universe, 58 are now trading above their comparable April price highs, 72 are not and 31 are too close to call. This is a fairly neutral reading; but clearly there is no hint of a break above 13302, 1422.


GLD rose a bit, finishing above the lower boundary of its intermediate term trading range but still below the level of the last lower high.
http://www.zerohedge.com/news/portuguese-run-out-gold-sell

And (medium):
http://www.zerohedge.com/news/gold-continues-be-money-cme-europe-now-accepts-gold-clearing-collateral

Bottom line: with the indices nearing the 13302/1422 level and our internal indicator giving little sign that a break to the upside is likely, focusing on those stocks near their Sell Half Price remains my near term strategy.

For the bulls (short):
http://www.minyanville.com/business-news/markets/articles/indicator-traders-trading-spy-255Egspc-trading/8/16/2012/id/43264

Fundamental

Headlines


Yesterday’s economic news was mixed: July housing starts were disappointing while building permits were very good; weekly jobless claims were up slightly; the Philly Fed August manufacturing index was well below expectations. Not much to hang our hat on, so no thoughts on changes to our forecast.

The airwaves were full of:

(1) more analysis of what Ryan means to the election and the budget. This is great exercise for the chattering class; but is likely a lot of sound meaning nothing. This guy already symbolizes the policy differences between Dems and the GOP [however little there may be] and that is what will count in the voting booth,

The debt bomb (short/medium):
http://www.zerohedge.com/news/deleveraging-needed-next-4-years-28-trillion

(2) Jon Corzine’s ‘get out of jail free’ pass. What else is new? How are we ever going to get the public confident enough to ‘invest in America’ when the horse thieves walk free?

(3) September events that could be Market moving: the German high court ruling [approving Draghi’s plan], the Jackson Hole conference [QEIII]---both certainly worth contemplating but I am not sure a reason to lift stock prices, especially from current levels.

Merkel’s latest statement (medium):
http://www.businessweek.com/news/2012-08-16/merkel-says-germany-backs-draghi-s-conditionality-for-ecb-aid

Don’t forget the Finns (short):
http://www.zerohedge.com/news/finns-prepare-euros-end-deeply-suspicious-eus-gang-four

Spain out of options (medium):
http://www.nakedcapitalism.com/2012/08/spain-out-of-options.html

And the convoluted logic driving the next Fed move (medium):
http://www.zerohedge.com/news/will-bernanke-bail-out-incompetent-congress-once-more

Bottom line: equities are more overvalued this morning than they were yesterday morning---with ‘hope’ seemingly the driving investment thesis. Those hoping could very well be proven correct and I can even see how. The issues are the probability of the positive scenario occurring and price risk if it doesn’t. At the moment, I feel content to incur the opportunity cost of being wrong for the benefit of clarity.



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.