The Morning Call---Business as usual in Reid's Senate

The Morning Call

11/28/12

The Market

           

    Technical

            The indices (DJIA 12878, S&P 1398) sold off a bit yesterday.  Importantly, the S&P finished the day below the upper boundary of its short term downtrend after trading two days above it.  That (1) negates the threat of a break of this boundary and (2) brings it back in sync with the DJIA.  Now both are within the boundaries of (1) their short term downtrends [12495-12979, 132-1401] and (2) their intermediate term uptrends [12820-17820, 1354-1950] ---note the proximity of the Dow to the lower boundary of this trend.  Both are well below their 50 day moving averages (13213, 1424).

            Volume was flat; breadth continued to falter.  The VIX bounced but remained below its 50 day moving average and between the upper boundary of its short term downtrend and the lower boundary of its intermediate term trading range---basically neutral.

            GLD traded down, closing below the 50 day moving average for the first day but continuing to trade above the lower boundaries of a very short term up trend, a short term uptrend and an intermediate term trading range. 

            The move back below the 50 day moving average is a bit disconcerting after the small addition our Portfolios made to their holdings.  For the moment, nothing will be done unless GLD breaks below the lower boundary of the very short term uptrend.

            Point:

            http://scottgrannis.blogspot.com/2012/11/gold-looks-expensive.html

            Counterpoint:

            http://www.minyanville.com/sectors/precious-metals/articles/Gold-as-Insurance-precious-metals-precious/11/27/2012/id/46129

            Bottom line: yesterday’s re-syncing of the S&P with the Dow in their short term downtrends is obviously not a positive.  On the other hand, one big up day would alter that assessment.  So the Averages remain close to a pivot area which, in my opinion, is not an occasion to be taking action whether buy or sell.  Patience.

            Stock Trader’s Almanac reviews December’s past (short):

            http://blog.stocktradersalmanac.com/post/Election-Year-Forces-Temper-Decembers-Bullishness-SPY-QQQ

    Fundamental

    

       Headlines

            Yesterday’s economic data were generally upbeat: weekly retail sales were strong but that was a function of the seasonal effect of Thanksgiving and Black Friday; durable goods orders were not that great although ex transportation, the number was good; the Case Shiller home price index, consumer confidence and the Richmond Fed’s manufacturing index were all positive.  That’s a good day and certainly supports our forecast.

            So why were stocks down?  Two guesses:

(1)    the announced ‘bail out’ deal of Greece [a] was highly conditional and [b] if every thing comes up roses, it is still in reality a restructuring/default---you pick the term.  You may recall that a Greek bankruptcy is part of our EU ‘muddle through’ scenario.  The problem here is that the eurocrats are pretending that it is not.  So instead of facing the situation straight up and allowing the markets to enforce the consequences, the eurocrats are dancing around the terms of the deal, obfuscating what will really occur, allowing underlying economic conditions to continue to deteriorate and ultimately making the situation worse than it already is.  If Spain, Portugal, Cyprus and Italy weren’t waiting in the wings for their turn at a bailout, this might not be so bad.  But...........

***over night: having just heaped a mound of steaming scata on the eurocrats, it appears that at least in the case of Spain’s banks they are trying to do the right thing, i.e. downsize/cease operations and force losses on the bondholders.  Let’s see if they follow through.

http://www.reuters.com/article/2012/11/28/us-eu-spain-banks-idUSBRE8AR09S20121128

(2)    Harry Reid, that silver tongued devil, held a news conference and whined that the republicans weren’t cooperating in the fiscal cliff talks.  What he failed to mention is that it is his f**king job as majority leader to produce an agreement---like it has been his job to produce a budget for the last three years.  Pardon my ranting, but no CEO, coach, military officer would last a nanosecond in his job if he/she consistently failed to perform a major function of that job.  This guy is an incompetent weasel.  Instead of whining, he needs to be hammering out the terms of a compromise.  That said, this is likely just a part of a kabuki dance that will lead to what I think will be the ultimate solution---a half baked compromise that screws all but the growing dependent class.

http://www.zerohedge.com/news/2012-11-27/guest-post-definition-insanity

            Bottom line:  it is amazing that the Market wasn’t down more.  But in the end, as annoying as it is to deal with the news flow out of the political class both here and in Europe, nothing really happened yesterday.  The eurocrats keep pretending to address their sovereign and bank debt problems but just create confusion.  Our own elected representatives seem to be looking over the eurocrats’ shoulders for clues on what to do next.   In other words, business as usual. 

I still believe that we will get a solution to the fiscal cliff; we are just not going to like it.  ‘Muddle through’ is still our assumed scenario for Europe; but a big reason is that I simply don’t know how to quantify the alternative.  My solution to this problem is to hold lots of cash and gold and wait for prices to discount what I can’t.

            The latest from John Mauldin (medium and today’s must read):

            http://advisorperspectives.com/commentaries/millennium_112712.php