Before the Bell 9/14/11

The Market

Technical

The Averages (DJIA 11105, 1172) experienced at relatively calm day, ending the day well within their respective intermediate term trading ranges (10725-12919, 1101-1372). While prices recovered, the DJIA could not regain the lower boundary of its short term up trend (11185). The S&P remains above its comparable level (1149). Net, net, the indices remain out of sync.

Volume declined; breadth improved. The VIX fell but closed in the upper zone of its current trading range (not positive).

Short interest is soaring (short):
http://www.zerohedge.com/news/nyse-short-interest-soars-highest-july-2009-epic-squeeze-forming-bank-america-shares


GLD recovered, closing right on the lower boundary of its short term up trend. That negates Monday’s penetration.

Bottom line: while the DJIA rebounded yesterday, the increase was insufficient to regain the lower boundary of its short term up trend. Under our time and distance discipline, it has two more days before that trend is confirmed as broken. As long as it remains out of sync with the S&P, I am hesitant to commit cash.

Fundamental

Headlines


The ho hum Market performance yesterday at least partially reflected the lack of news flow. In the US, a couple of secondary economic indicators were reported: weekly retail sales which were positive, import/export prices which were favorable and news out of a trucking industry conference (tonnage and pricing are up). In Europe, which has been the volatility trigger of late, there were some modestly positive mumblings out of Angela Merkel and the French banks. Clearly nothing wildly optimistic but good enough to move prices up.

Bottom line: yesterday witnessed some investor relief that Greece didn’t go bankrupt nor did any of the major EU zone banks. It was welcome but it doesn’t mean that neither will happen. As you know, I believe that the financial demise of Greece and some impairment of the EU banking system are in the price of stocks. But we still have to live through both, at a minimum; and the risk to our Portfolios is that this situation will be worse than I expected. The point here is that the volatility that will be wrought by the occurrence of these events has not gone away even though a Market bottom may have been put in. So I remain cautious in putting cash to work especially with the indices out of sync.

Can Europe sink the US? (medium):
http://www.thedailybeast.com/articles/2011/09/12/europe-s-economic-crisis-can-default-in-greece-eurozone-sink-u-s.html

Dutch finance minister says Greece is going down (medium):
http://www.zerohedge.com/news/dutch-finance-ministry-says-greek-default-unavoidable-immediately-retracts