Thursday, April 25, 2013

The Morning Call---Hovering at an important technical juncture


The Morning Call

4/25/13

The Market
           
    Technical

            The indices (DJIA 14676, S&P 1578) took a breather yesterday and closed within their major uptrends: short term (14137-14828, 1550-1624), intermediate term (13772-18772, 1459-2053), and long term (4783-17500, 688-1750).  The S&P finished above its former all time high (1576) for the second day in a row.  If it remains above this level through the close Monday, it will move back in sync with the Dow as having broken above the prior highs.

            Since the Average ended the day basically unchanged, those developing head and shoulders formation remain in tact.  However, as I noted yesterday, a move higher will destroy the pattern.  To complete the formation, the indices need to penetrate below the ‘necklines’ (14435, 1540).

            Volume was flat; breadth weakened.  The VIX continues to meander directionlessly but remains within both its short term and intermediate term downtrends.

            GLD was up again.  It is still trading below the lower boundaries of its short and intermediate term downtrends but above the lower boundary of its long term uptrend.

Bottom line:  yesterday’s pin action did little to illuminate the current technical issues: (1) the red light is flashing on that head and shoulders formation and (2) the clock is ticking on the confirmation by the S&P of a break to all time highs.

Sell in May in post election years (short):

    Fundamental
    
      Headlines

            Yesterday’s economic news was something of a downer: weekly mortgage and purchase were up modestly; that’s OK, but they are secondary indicators.  Meanwhile, March durable goods orders (both the headline and ex transportation numbers) were very disappointing.  This is more of the same weak data that we have received of late.  It is not going to prompt me to alter our forecast; but there is a cumulative factor at work.

            In any case, investors didn’t care.  The Market maintained its upside bias as speculation continues that the ECB will ease monetary policy at its meeting next week. 

            Pimco on what needs to occur to heal Europe (hint: it is not an easy ECB) medium:

Bottom line: stocks are overvalued (as defined by our Valuation Model) based on our economic scenario which is in the process of moving from roughly the consensus forecast to one that is above estimates.  The EU economies are a mess; and I am becoming more concerned that China won’t provide the offsetting economic strength that I had originally assumed. 

***overnight, the UK reported first quarter GDP rose more than anticipated.

Central bank monetary expansion seems to be the fuel propelling stock prices higher because I sure can’t justify them on fundamentals.  Being a lousy trader, I am not good at rationalizing prices that are too far divorced from my version of reality.  It is particularly difficult this time around because of the extremes to which the central banks have taken monetary policy and the lack of any sound explanation of how they are going to unwind these measures without causing severe disruptions.

Until someone can ‘splain’ to me a reasonable end game, I am content to under perform as a price to avoid disaster.

            The trend in operating earnings (short):

            Update on this season’s earnings and revenue ‘beat’ rates (short):

            The latest from Doug Kass (medium):

            What the smart money is doing with EU debt (short):

            Santelli on Tuesday’s flash crash and high frequency trading in general (two videos):

      Subscriber Alert

            The stock price of Target (TGT-$70) has risen above the upper boundary of its Buy Value Range.  According, it is being Removed from the Dividend Growth Buy List.  The Dividend Growth Portfolio will continue to Hold TGT.

            The stock price of CF Industries (CF-$187) has risen above the upper boundary of its Buy Value Range.  Therefore, it is being Removed from the Aggressive Growth Buy List.  The Aggressive Growth Portfolio will continue to Hold CF.

      Investing for Survival

            This is the first five programs in the series The Retirement Gamble:




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

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