Friday, September 21, 2012

The Morning Call--It's a tough Market

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The Market
           
    Technical

            The indices (DJIA 13596, S&P 1460) had a mixed day (Dow up, S&P down), closing well within their primary trends: (1) short term uptrends [13265-14093, 1406-1484] and (2) intermediate term uptrends [12395-17395, 1305-1905].  I am also watching the 14190/1576 levels (the 2007 highs) as resistance.

            Volume fell as did breadth; although the flow of funds indicator is very strong.  The VIX rose, bringing it back to the lower boundary of its intermediate term trading range---thereby negating Tuesday’s break.  It remains below the upper boundaries of both its very short term downtrend and short term downtrend.

            GLD declined fractionally but (1) made the golden cross and (2) finished above the lower boundaries of its very short term uptrend, its short term uptrend and its intermediate term trading range.

            A look at one man’s gold pricing model (short):

            The golden cross in gold (short):

            Bottom line: first a correction: I said in yesterday’s Morning Call that our Portfolios’ cash position was 18%.  In fact, it is 26%---making my point, i.e. that we own too much cash at this moment in a rising Market, even worse.  

            Yesterday, the Market ended its one day joy fest after the Bank of Japan joined the Fed and ECB in the new money printing orgy.  I would have thought that it would have lasted more than a couple of hours.  On the other hand, most of the news was negative and yet stocks closed basically flat on the day.  I am not sure whether this is just a period of consolidation or if investors are waiting around for some encore before committing additional cash.  Whatever the case, the technical indicators to which I pay attention don’t make me feel all warm and fuzzy about the prospects for more upside.  So while I remain highly conflicted about our cash position in the current Market, I am sticking with my strategy.

            The seasonal trade (short):

    Fundamental
    
     Headlines

            Yesterday’s economic reports got things started on the wrong foot: weekly jobless claims as well as the August leading economic indicators were disappointing; and while the September Philly Fed index was better than anticipated, it was still in negative territory.

            In addition, we got some rough news from overseas as European PMI’s were disappointing and the Chinese PMI while a tad better than forecast was still below 50.0.
           
            Eurozone PMI (short):

            Plus, bad GDP numbers out of Italy:

            And to add to the general malaise,  there was a report out the continuing growth in popularity of the Greek neo Nazi party (short):

            Meanwhile, the debate goes on over the efficacy of QEIII:

            Bernanke fails.............again (short):

            Plus (short):

            The argument for why QEIII won’t cause inflation (short/medium):

            Bottom line: it is amazing to me that with non-stop debates raging over QEIII, Draghi’s plan, the outcome of the election, the likelihood of the ‘fiscal cliff’, the wisdom of current foreign policy especially as it relates to the Middle East, stocks could behave so calmly (volatility near lows) and at the same time be overvalued (at least as defined by our Model).  This is one of those times when I have no clue what investors in general are thinking about.  It happens now and then; usually when stocks are getting over extended in one direction or the other.  I cling to that.


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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