The Market
Technical
The
indices (DJIA 13344, S&P 1432) fell again yesterday. The Dow closed below the lower boundary of
its short term uptrend (13347-14178), while the S&P finished right on the
comparable level (1432-1524). This
starts the time element of our time and distance discipline for the DJIA. The S&P has now been two days below the
1442 minor support level.
Additional
support exists slightly below yesterday’s closes (1) the April resistance now
support level [13302, 1422], (2) the indices 50 day moving averages [13302,
1424] and (3) the lower boundaries of Averages intermediate term uptrends
[12521-17521, 1319-1917].
Volume
slipped a bit; breadth surprisingly improved.
The VIX, also amazing enough, fell slightly, remaining in the rather
wide zone between the upper boundary of its short term downtrend and the lower
boundary of its intermediate term trading range.
GLD
(170.9) was off fractionally. That makes
the third day since it broke the lower boundary of its very short term uptrend
and, therefore, negates that trend. It
continues to trade well above the lower boundaries of its short term uptrend
and the intermediate term trading range.
Key support is marked at 168.4---a level that our Portfolios will likely
use as a signal to lighten up on this holding.
Bottom line: the
Averages short term uptrend are now being seriously challenged. While our
Portfolios are structured on the assumption that prices will go lower, there is
substantial technical support at or near the indices’ closing prices
yesterday. So at the very least, I would
expect some bounce before another assault.
The Market’s
internal structure continues to weaken (see below); so I believe that we will
see lower prices near term and accordingly I remain focused on our Sell
Discipline.
Insiders
betting on a market decline (short):
The
latest data on corporate stock repurchase activity (short):
Fundamental
Headlines
The
economic news yesterday was mixed: mortgage applications down, but purchase
applications up; wholesale inventories were up but sales were up more; and the
latest Fed Beige Book really didn’t tell us anything new, i.e. the economy is
still struggling forward. Nothing Market
moving there.
Capex
as a recession indicator (short):
With
a lack of news out of Europe (late in the day, S&P downgraded Spain’s
credit rating---but that move was only matter of when not if; overnight, Greece
reported a 25% unemployment rate---time to pull the plug?) and the
aforementioned plain vanilla economic data, investors were focused on the start
of earnings season---which was not all that auspicious, i.e. Alcoa, Chevron,
Cummins and Avnet all gave poor profit guidance (there were some positive
reports, e.g. Yum Brands, but investors apparently wanted to focus on the
negative---which in and of itself is a negative). That got the Market’s morning session off to
a rough start and the sour attitude lasted the rest of the day.
***also
overnight, Brazil
Fiscal
compliance in the EU (medium and a must read):
http://www.zerohedge.com/news/2012-10-10/guest-post-toothless-euro-tiger-and-issue-fiscal-compliance
Bottom
line: despite the recent minor downturn,
stocks remain overvalued (Fair Value: S&P 1388) though clearly not
dramatically so. As I have noted
previously, a move down to the high 1300’s would lead normally to a reduction
in our Portfolios’ cash positions to around 15%. However, the ‘tail risk’ associated with a
ruinous event in the EU is sufficiently substantial to warrant an extra cushion
of cash. Hence our current circa 24%
cash position. Nevertheless, another
7-10% move to the downside would start to discount enough potential bad news
that our Portfolios would begin to put money to work.
Subscriber Alert
The
stock price of Lorillard (LO) has fallen below the upper boundary of its Buy
Value Range
Investing for Survival
IMF
now recommending capital controls (medium):
Legalized
plunder of the American people (12 minute video):
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