Friday, January 18, 2013

The Morning Call & Subscriber Alert

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The Morning Call

1/18/13

The Market
           
    Technical

            Momentum resumed to the upside yesterday with the S&P (1480) busting through the September 2012 resistance level (1474).  While the  DJIA (13590) had a good day too, it is still short of its comparable 9/12 resistance level (13682).  So (1) the time and distance discipline is now operative for the S&P and (2) the indices are once again out of sync.

            I have said for sometime now that the technicals were pointing to a successful challenge of the 13682/1474 level and a move to at least 14140/1576.  That said, the upper boundaries of the indices short term uptrends (13091-13757, 1420-1489)  could act as a governor on the rate of ascent.

            Both of the Averages also remain within their intermediate term uptrends (13165-18165, 1392-1987).

            Volume was up dramatically (a positive indicator on a break out day); breadth improved.  The VIX popped up---unusual for a day of a strong Market advance. 

            A reversal in the flow of funds (medium):

            GLD had another up day, but remains well within its short term downtrend and its intermediate term trading range.  It did, however, close above the upper boundary of that very short term downtrend for the third day.

Bottom line:  it looks like the consolidation period for the Averages is now behind us.  To be sure, one day doesn’t a trend make.  But the technicals have been signaling such a move; so I have little basis for assuming that this S&P break out won’t ultimately be confirmed.  Were I a trader, I would be looking to put on some trades on the Buy side with a stop at S&P 1474.  For better or worse, I am not a trader.  On the contrary, as a long term investor, I remain a better Seller for those stocks trading into their Sell Half Range or are technically overextended.

Bullish sentiment declines slightly (short):

    Fundamental
    
     Headlines

            Yesterday’s economic news presented some bad news (the Philly Fed manufacturing index); but the balance of stats were quite strong (weekly jobless claims and housing starts).  This keeps the trend in the major economic indicators (housing, industrial production, retail sales and employment) pointed to the upside; and, hence, lends additional support to our forecast.

            ***overnight Chinese GDP, industrial production and retail sales came in above expectations.

            For the rest of the day, the Market’s focus was on itself and whether the pin action signified ignition for the next move up.  As you know, I think that prices are probably going higher; although I would characterize the upcoming move as likely a last gasp effort before trending back toward Fair Value.  How far can it go? 1576 on the S&P immediately comes to mind.  It is a powerful technical barrier and at that level, it would put the S&P 12%+ overvalued---which is getting a bit overextended.

Bottom line:  stock prices are heading deeper into overvalued territory, at least as calculated by our Model.  In the absence of a fiscal compromise that will meaningfully reduce our budget deficit and a more responsible monetary policy that will increase the incentive to save, I can’t get economic growth or profit growth to a level that would justify current prices.   Hence, I think it unwise to chase stock prices higher for anyone other than experienced traders. 

GOP backing away from brinksmanship (medium):

     Subscriber Alert

            The stock price of Sanofi American (SNY-$49) has traded into its Sell Half Range.  Hence, the High Yield Portfolio will reduce the size of this position to 50% of normal. 

            As I stated the last time that our Portfolios Sold stocks, their current cash position is as high as I want to go.  So the proceeds generated from the sale of the SNY shares will be reinvested in Pioneer Southwest Energy (PSE)..



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.

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