Thursday, September 06, 2012

The Morning Call + Buying gold


The Market

Technical


The indices (DJIA 13047, S&P 1403) turned in a mixed performance yesterday (Dow up, S&P down), finishing within both their (1) short term trading ranges [12022-13302, 1266-1422] and (2) intermediate term uptrends [12304-17304, 1295-1875].

Volume dropped again; breadth was mixed. The VIX was down slightly and therefore, remains between the upper boundary of a short term downtrend and the lower boundary of its intermediate term trading range. I should note though that its recent rise unaccompanied by any move in the Market is not a positive sign.

GLD was off fractionally but continued to trade above upper boundary of its short term downtrend for the third day. That confirms the break of this trend. Additional shares will be Bought at the Market open this morning (upping positions to 17% of total Portfolio). GLD remains well above the lower boundaries of a very short term uptrend and of its intermediate term trading range.

Bottom line: the Averages remain on auto pilot, avoiding a serious challenge to either the upper boundaries of their short term trading ranges or the lower boundaries of their very short term uptrends. Until we know which of these trends will dominate the other, my inclination remains to do nothing, largely as a result of lousy breadth numbers and the rising VIX.

The transports have broken down (short):
http://advisorperspectives.com/dshort/guest/Chris-Kimble-120905-Transports-and-Dow-Theory.php

Fundamental

Headlines


Yesterday’s economic news was neutral: weekly retail sales were mixed; second quarter productivity came in better than expected while unit labor costs were higher than forecast---nothing Market moving.

Indeed, investors were looking through the day and focusing on the big news items today (the ECB meeting) and tomorrow (nonfarm payrolls)---and as I noted in Tuesday’s Morning Call, the focus on the former is on any change the ECB may make in interest rates (***didn’t happen) and/or further comments by Draghi on his new plan (***press conference due any minute now).

The math of Europe’s (Draghi’s) dilemma (medium):
http://www.nakedcapitalism.com/2012/09/a-breakthrough-in-europe.html

Spain’s bankruptcy hell (short):
http://www.zerohedge.com/news/spains-hell-bankruptcy-lawyers-heaven

Greece’s unemployment rate climbing (short):
http://www.zerohedge.com/news/economic-death-greek-unemployment-rises-1-one-month

Ireland still has its problems (medium):
http://uk.reuters.com/article/2012/09/05/us-ireland-imf-idUKBRE8841IW20120905

Bottom line: the pre Labor Day trading lethargy extended through the early part of this week awaiting today---the first really big news day of what should be a busy September. How stocks react to today’s news out of the ECB could give a hint of the likely Market direction into the November election.

If all that occurs is more ECB money printing, it will do nothing to solve the EU sovereign/bank debt problems. So, the question will be whether investors will continue excuse the eurocrats from making fiscally responsible decisions. I speculated in yesterday’s Morning Call, that that game may be coming to an end; but clearly that is just my guess. In any case, I don’t consider easier money a viable solution to what ails Europe. Therefore, I would not be a buyer of stocks but I would be of GLD.

If the eurocrats actually take an adult action, I would consider it a positive in that it would support our ‘muddle through’ scenario. However, since that already is built into our Valuation Model, it likewise provides little reason to lift our Portfolios’ equity exposure; though I would have to reconsider the size of our GLD position.

In other words, whatever the ECB does, our Portfolios are not Buyers of stock except at lower price levels. However, if the policy is one of more money printing, they will likely Add even more to their GLD holdings.

The latest from Bill Gross (medium):
http://www.pimco.com/EN/Insights/Pages/The-Lending-Lindy.aspx

The latest from Todd Harrison (medium):
http://www.minyanville.com/special-features/random-thoughts/articles/todd-harrison-todd-harrison-minyanville-todd/9/5/2012/id/43715



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.