The Morning Call
I am going to fade the Closing
Bell again this week. OU plays Notre
Dame at home. So I leave after
publishing this note for another party/football weekend. See you on Monday morning. Go Sooners.
The Market
Technical
The
indices (DJIA 13103, S&P 1412) tried to rally again yesterday with a bit
more luck. However, the assault on the
triple support level (short term uptrend, 50 day moving average, 13302/1422
support) continued. The Dow closed for
the third day below 13302 and for the fourth day below its 50 day moving
average (13346). The S&P finished
for the third day below 1422 and its 50 day moving average (1433). Without more follow through to the upside, at
the close today, the Averages will confirm the break of all components of the
triple support level. That’s not
positive.
As
I noted yesterday, the task now is to identify the lower boundary of a newly
re-set short term trading range. The
nearest candidate is a minor support level at 12973/1395.
The
indices remain well within their intermediate term uptrends (12627-17627,
1331-1929).
Volume
declined; breadth improved somewhat. The
VIX fell slightly but remains near the upper boundary of its short term
downtrend and above both its 50 day and 200 day moving averages (not
positive). It is also above the lower
boundary of its intermediate term trading range.
GLD
was up a bit but is trading below the upper boundary of a developing very short
term downtrend. On the other hand, it is
well above the lower boundaries of its short term uptrend and its intermediate
term trading range.
Bottom
line: stocks tried to rally again
yesterday on the back of some pretty solid economic numbers reported early in
the day. Yet once again, even though the
indices ended up on the day, they could not finish any where near their
intraday highs nor did they recoup much of the ground lost since challenging
all components of the triple support levels.
So the underlying strength of this Market deteriorated further.
Support exists
at 12973/1395 (minor support), 12973/1375 (the 200 day moving averages) and the
lower boundaries of their intermediate term uptrends. If I had to guess, I would view the latter as
the most likely area to provide stabilization---all other things being equal
(i.e. no collapse in EU).
Fundamental
Headlines
The
day started with some positive economic news: weekly jobless claims fell more
than anticipated and, more important, September durable goods orders were
stronger than expected. The latter along
with Wednesday’s solid new home sales continues the string of better growth
among the primary economic indicators and helps to further the distance of the
economy from recession---at least for the near term. It also keeps me confident in our forecast.
Nevertheless,
it is important to point out that conditions could begin to change radically
after the elections. As I have noted, an
Obama victory will likely raise the odds that we will experience the ‘fiscal
cliff’, while a Romney win may improve the chances of some resolution to that
problem. On the other hand, if he gets
tough on bringing the budget deficit under control and fires Bernanke, we will
probably get a recession by mid 2013---though as I have said, that is really
the good news scenario (take less pain sooner versus more pain later).
David
Einhorn on Bernanke and Fed policy (long but a must read):
The
point here is that as happy as an improvement in the readings that we are
getting on the economy makes me, the country is nearing a policy crossroads
that could profoundly influence (assuming Romney does what he has said that he
is going to do) our forecast for 2013 and beyond.
Bottom line: ‘stocks are creeping back to Fair Value
which is a positive; and the primary economic indicators continue to turn in a
solid performance which makes our forecast right on.....but I continue to
believe that in the absence of clarity on how the eurocrats are going to hold
the eurozone together and maintain it as a viable economic entity, caution is
essential for the principal reason that the economic downside for the US and
its banking institutions is so great. At
the risk of being repetitious, I am not saying the EU will implode. I am saying that the probability of such is
high enough and the damage it would do to our economy is high enough, that an
above average cash position is warranted at current price levels.
We also can’t forget about the ‘fiscal
cliff’. As I noted yesterday, the odds
of it occurring have increased of late; however, I don’t think that it carries
the magnitude of downside that an implosion in the EU does. In addition, as I have also mentioned, a Romney
victory is more likely to lead to more immediate economic pain than an Obama
win---we should be so lucky. Investors
have to come to grips with this idea (Romney win, more immediate pain) and that
could cause stock price heartburn while it is happening.
All that said, a decline to the 1270-1330
zone would find me a buyer.’
The
latest from Hugh Hendry (medium):
Will
France Spain
Subscriber Alert
The
stock price of Sigma Aldrich (SIAL -$70) has
traded into its Buy Value
Range SIAL ,
so no new shares will be Bought.
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