The Morning Call
The Market
Technical
The
indices (DJIA 12967, S&P 1406) rested yesterday, trading off slightly. Both of the Averages took out their very
short term downtrend last week. The Dow
finished the day just below the upper boundary of its short term downtrend
(12518-12997); however, the S&P closed a tad over its comparable boundary
(1353-1404) for the second day in a row.
Given its continued proximity to this resistance point, I am going to
wait till the end of trading today to confirm the break of the short term
downtrend. That said, this would put the
indices out of sync and would have less significance as long as the Dow remains
within its own short term downtrend.
Both
of the Averages remain within their intermediate term uptrends---the bounce
last week provides additional strength to these support levels.
Volume
as up---no surprise; breadth looks pretty rotten especially the flow of funds
indicator. The VIX rose but not enough
to penetrate its 50 day moving average. It remains between the upper boundary of its
short term downtrend and the lower boundary of its intermediate term trading
range.
GLD
was off fractionally but remained above its 50 day moving average as well as
the lower boundaries of a very short term uptrend, a short term uptrend and the
intermediate term trading range.
Bottom
line: last week’s moon shot notwithstanding, the DJIA remains within its short
term downtrend and the S&P has only slightly penetrated the upper boundary
of its comparable downtrend. To be sure,
if it closes above that boundary today, it will confirm a break. But that carries much less weight when it is
not supported by the Dow. In other
words, the Averages are at a pivot point and we just need to wait till
direction is confirmed.
Our
Portfolios will make a modest addition to their GLD positions at the open this
morning.
Fundamental
Headlines
Yesterday’s
economic news did not make pleasant reading: the Chicago Fed national economic
activity index and the Dallas Fed manufacturing index were both very
disappointing. The Chicago Sandy Dallas
With
congress back in session, the fiscal cliff reclaimed the center stage. Unfortunately, the administration said that
it was taking social security off the table (for potential cost cuts). This is a negative for two reasons: (1)
social security is the easiest of all the social welfare programs to put on a
sound financial footing. If Obama is
unwilling to compromise on this issue, dealing with Medicare and Medicaid will
be almost impossible. Yes, this could
just be a negotiating position. But if
that is the starting point, then getting a resolution to the fiscal cliff by
December 31 may not be doable, (2) coming out Day one and stating a hardened
position on a critical cost reduction issue is not likely to encourage the
republicans to cooperate.
Meanwhile,
no one in Europe seems capable of facing reality. Yesterday evening after finishing off a big
fat doobie, the eurocrats announced that they have a plan to reduce Greek debt
to 124% of GDP by 2020. The only problem is that it assumes (once
again the operative word) a here to fore unachievable Greek economic growth
rate that in the end will send this same cast of characters back to the drawing
boards as the country sinks into the River Styx. Nicely done; break out the cognac and cigars. I continue to believe that this situation in
the 800 pound gorilla in the investment outlook.
Soc Gen’s take (medium):
Bottom
line: I continue to believe that the
electorate will get a solution to the fiscal cliff. However, I think it will be half assed, sorry
excuse for an answer to our fiscal problem---that in the end will solve little;
and I doubt we will get it until the eleventh hour, 59th minute, 59th
second that will serve to scare the living s**t out of investors.
If you want a blueprint for our political
class’s resolution of the fiscal cliff, all you have to do is look at those
morons across the pond, i.e. they will parade out, slap each other on the
backs, smoke cigars and praise their own pathetic solution that will be based
on impossible to achieve assumptions.
The
good news is that the latter is in our Model.
The bad news is that the former is not.
I await lower prices.
10
near term uncertainties from David Rosenberg (medium):
The
latest and very good piece from John Hussman (medium):
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