The Market
Technical
The
indices (DJIA 13558, S&P 1456) had another typical negative Monday (down in
15 of the last 16 Mondays). However,
damage was not that bad and both index ended within its (1) short term uptrend
[13265-14035, 1407-1485] and (2) intermediate term uptrend [12410-17410,
1307-1907].
Volume
fell while breadth deteriorated significantly.
The VIX rallied, closing once again above the lower boundary of its
intermediate term trading range---negating the violation of this trend for the
second time. It remains well below the
upper boundaries of both its very short term and short term downtrends.
Here
is a long but thorough look at the technical underpinning of the Market:
GLD
declined fractionally but finished above the lower boundaries of its very short
term and short term uptrends and the intermediate term trading range.
Buyer
beware (medium):
Bottom
line: given that it is becoming an established pattern for stock prices to
decline on Mondays, there is no reason to read anything into yesterday’s pin
action. Both primary trends are up and
the Averages are well above the lower boundaries of those trends. However, the structural indicators are
weakening and our internal indicator is not pointing to a strong uptrend. In addition, the fundamentals suggest that
stocks in general are overvalued. Our
Portfolios have lightened up on those equities whose prices have entered
overvalued territory and are closely monitoring those that are close but not
quite there.
Fundamental
Headlines
We
got a couple of secondary indicators yesterday morning---the August Chicago Fed
national activity index and the September Dallas Fed manufacturing index. Both were a disappointment. That may have helped to set the tone for the
day; but as I said above, Mondays in general have been down of late. That this data didn’t make a normally down
day worse, tells us that the bulls are still in control.
Other
than the above, there really wasn’t a lot happening.
(1)
there were some news stories out of Spain
(2)
the debate on the goodness or badness of QEIII
continued. As you know, I think that it
is bad.
The
dividends of an easy Fed (medium):
(3)
and the election is now starting to come into
focus. If you believe the polls, in
particular intrade, then you are now coming to the realization that an Obama
victory is the most likely outcome---at least if voting were to occur today.
That’s OK, in
the sense that every citizen gets to vote and the outcome is what it is. That’s way democracy works. On the other hand, if an Obama second term is
a continuation of His first [and I see no reason assume anything to the
contrary], then the economy will continue to face the burdens of too much
government spending, too much regulation and too few incentives to
invest---none of which are likely to have a positive impact on corporate
earnings.
It also means
that Bernanke will get another term; and God only knows what that means for
monetary policy; though I am fearful about what it means for inflation.
***overnight
the Bank of China joined the money easing parade.
Bottom
line: stocks remain overvalued (as defined by our Model). While the economy continues to plug along,
its progress is below average from an historical perspective. For this short term forecast to avoid
becoming long term, government spending as a percent of GDP
has to decline, industry needs less government regulation, fiscal policy needs
to incent investment and monetary policy needs to become much lass
activist. This economy is suffering from
a huge overdose of government; and in my opinion, won’t show long term
improvement until we get less of it.
And
if Obama is re-elected, don’t count on less government. As an individual voter, you may want
that. All I am saying is that it will
play ‘hell’ with your Portfolio. That
doesn’t mean that this country is going down the drain; it just means that it
terms of economic growth and innovation, its best days are in the past (think England France
It
also doesn’t mean that at some price US stocks aren’t attractive; but it is
just not at current levels. So I
continue to work our Sell Discipline and derive comfort from our cash and GLD
holdings.
The
latest from David Rosenberg (medium):
The
latest from John Hussman (medium):
Beware
complacency (medium):
What’s
priced into stocks (medium):
Here
is the argument for a strong market.
While our forecast is in line with his fundamental assumptions, he
misses the critical point of market valuation, i.e. what do you pay for the
good news. Further, he admits there
could be problems but apparently doesn’t want to account for that either in the
valuation.
http://www.businessinsider.com/the-myth-of-the-central-bank-driven-rally-2012-9
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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