The Market
Technical
The
indices (DJIA 13575, S&P 1461) had another decent day yesterday, closing
well within their primary trends (1) short term uptrends [13268-14038,
1423-1513] and (2) intermediate term uptrends [12484-17464, 1316-1916]. Additional major resistance exists at
14190/1576 and support at 13302/1422.
Minor resistance has developed in the 13653/1469 area.
Volume
was flat; breadth (advance/decline, flow of funds, up/down volume)
improved. The VIX fell but still
finished within the zone between the upper boundary of its short term downtrend
and the lower boundary of its intermediate term trading range.
GLD
(173.6) jumped, closing near the upper boundary of its intermediate term
trading range (175.2). This resistance
level has been tested twice before and held; so it clearly brings out the
sellers. If GLD were to break this
level, the August 2011 highs (circa 186) mark the next area of resistance.
Bottom
line: the primary price trends continue to the upside as investor psychology
remains ebullient. Good news and bad
news alike are interpreted as good news; and the ‘tail risks’ associated with
the ‘fiscal cliff’, an EU crisis, accelerating inflation and war in the Middle
East are being largely ignored.
Investors have
certainly been right thus far to make those kind of interpretations. However,
given the extent that the internal market structure is weaker (in my analysis)
than is obvious in the price of the indices and my unwillingness to discount
the odds or magnitude of the aforementioned ‘tail risks’, our Portfolios are
carrying higher than normal level of cash and my focus is on our Sell versus
our Buy Discipline.
Bullish
sentiment drops (short):
Fundamental
Headlines
Yesterday’s
economic news was tilted to the negative side: weekly jobless claims were over
expectations and August factory orders were pretty rotten. On the other hand, September chain store
sales were acceptable though not great.
However,
once again early news out of Europe got all the
headlines. In yesterday’s case, Draghi
was out making grandiose statements again---this time, he pronounced that the
EU crisis countries were making progress (he clearly didn’t check with Greek
longshoremen who stormed government offices) and that he was ready to start
bailing out, so come on down. That
caused stocks to surge initially and they held the morning levels throughout
the remainder of the day.
Some
pundits opined that Romney’s debate performance was a contributing factor to
the early morning up tick presumably on the assumptions that:
(1)
the odds of a GOP November victory had improved. I am not going to agree or disagree with this
notion. Clearly, yesterday’s intrade pin
action [odds of an Obama victory declined] supports this point. And to be sure, I hope this interpretation is
correct.
That said,
there is still plenty of time and two more debates before the election for the
Romney to screw up; and that assumes that he doesn’t slide back into his Casper
Milquetoast persona as he did after the Ryan nomination. So to me, buying stocks based on one good
debate performance may be a bit premature.
(2)
and the GOP is more likely to cure our fiscal ills than
the dems. I will agree with this notion but with prejudice. Talk is cheap and the last time the republicans
controlled the purse strings, their record was an abomination. I haven’t run a check on how many republicans
who were in congress then that will also be there in January 2013; but I have
an uneasy feeling that answer is ‘a lot’.
If that same worthless crew remains in place, I am hesitant to get jiggy
about a sudden reversal fiscal, monetary and regulatory policies.
To be clear,
I hope Romney wins; I hope the GOP has been reborn; I hope they win the
presidency and the majority in both chambers---and if all of that all comes
true, then it would remove my concerns that the US
Later
on, the Fed released the minutes from its last FOMC meeting. As usual, we didn’t learn much from the
document; although I was a bit surprised that there wasn’t more disagreement
over the new ‘all in’ policy. Those
minutes are linked below for those of you into early morning self torture.
The
problem with QEIII (medium):
Bottom
line: as I said in yesterday’s Morning Call, I would love to believe that
Romney will win and that he will bring change to DC. But with so much for him and the rest of the GOP yet to prove and with stocks
already overvalued, I have a tough time making a bet on that outcome. Doesn’t mean I don’t want it; doesn’t mean it
wouldn’t lift the P/E on stocks if it happened.
It does mean that I am not going to risk my money on it until I see at
the least the reasonable prospect of the needed results.
In the meantime,
Draghi is no closer to solving the EU sovereign/bank debt problems, Greece Spain
Equities
as an inflation hedge (short):
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