Wednesday, February 20, 2013

The Morning Call + Subscriber Alert + Hopium Rules

The Morning Call

2/20/13
The Market
           
    Technical

            The indices (DJIA 14035, S&P 1530) had another great day, finishing (1) right on the upper boundaries of their short term uptrends [13409-14059, 1460-1529] and (2) within their intermediate term uptrends [13370-18370, 1415-2010].

            Volume fell but breadth was very strong.  The VIX declined, remaining within its intermediate term downtrend.

            GLD dropped again, closing within its short term downtrend and its intermediate term trading range.

Bottom line: ‘the technical story remains unchanged---(1) the Averages tracking the upper boundary of their respective short term uptrend, (2) 14140/1576 continues to be a reasonable technical price objective and (3) our Portfolios will continue to Sell as prices advance.’

            S&P performance before and after a seven week winning streak (short):

            Visualizing Bob Farrell’s ten investing rules (medium and today’s must read):

    Fundamental
    
     Headlines

            No US economic numbers yesterday.  Overseas, the German equivalent of consumer sentiment scored a big gain; and that got investors’ juices going which propelled prices the rest of the day.  However, as usual, investors were somewhat selective:

            The G20 agreement (medium):

            Spain is hit by second largest bank insolvency (medium):

            And has even more problems (medium):

            Italian loans plunge (medium):

            Meanwhile, in Athens (medium):

            ***overnight, the French and Swiss consumer sentiment reports were well above expectations (hopium) while Italian industrial production plunged (reality).

            Meanwhile, Obama has started His drive to the sequestration hoop, masterfully ignoring His own role in this measure and laying the blame for the horrendous burdens of sequestration on the GOP’s doorstep.  Once again, I can’t get at the math.  Remember the sequestration is a reduction in the rate of spending.  In other words, spending is going up, just not as fast as Obama wants.  It would be enlightening for Him to explain how more spending results in all those job loses, school closings, airport shutdowns, etc.  (BS meter now in the red zone).

Bottom line:  I have yet to see a valuation study that has stocks undervalued.  Nor is there anything in the economic numbers to suggest that condition could change anytime soon. Certainly, the Fed has its d**k in a wringer doubling down on a monetary policy that will ultimately lead to either recession or much higher inflation. 

True, if (operative word) sequestration occurs and if (operative word) additional spending cuts are made that will lead to a decline in the debt to GDP and government spending to GDP ratios, then I can see a return to a more normal (higher) economic growth rate two to four years from now. 

But much can slip between the cup and the lip; so I am not comfortable making a 24 to 48 month bet today especially when the bet hinges on our ruling class doing the right thing.  I continue to believe that it is smarter to forego the existing opportunity cost of not being fully invested in a euphoric Market in exchange for protecting principal when this moon shot comes to a screeching halt.

            The latest from John Hussman (medium):

            Coming to a broker near you (short):

     Subscriber Alert

            At the Market open this morning, small portions of the following holdings will be Sold:

            In the High Yield Portfolio: VFC Corp

            In the Dividend Growth Portfolio: General Mills, Hormel, Nucor

            In the Aggressive Growth Portfolio: Medivation

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