The Morning Call---Don't get too jiggy + Subscriber Alert

The Morning Call

11/29/12

The Market

           

    Technical

            The indices (DJIA 12985, S&P 1409) spiked higher yesterday after an early morning decline.  They both (the S&P for the second time) traded above the upper boundary of their short term downtrends (12475-12965, 1349-1399).  Our time and distance discipline is now operative.  Closes above these upper boundaries on Friday will confirm a break.  Their 50 day moving averages remain overhead (13194/1420).  They also continue to trade within their intermediate term uptrends (12835-17835, 1354-1950).

            Volume rose; breadth improved.  The VIX fell, remaining 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.

            GLD got seriously whacked, closing below not only its 50 day moving average for the second day in a row but the lower boundary of its short term uptrend.  Tuesday’s purchase, however small, still looks like a very bad trade; and the best strategy for dealing with bad trades is to terminate them immediately.  So absent a big rally today, I will Sell the shares Bought on Tuesday at the close---with the full recognition that this was a trade and that I could re-initiate it at any time.

            http://www.zerohedge.com/news/2012-11-28/how-do-chinese-view-gold-market

            ***pre market open it looks like GLD has already recovered half of yesterday’s loss.

            Bottom line: I was being more prescient than I thought when I said yesterday that  ‘one big up day would alter that assessment’ that assessment being ‘re-syncing of the S&P with the Dow in their short term downtrends is obviously not a positive’.  That said, the break of those downtrends has not been confirmed; and the aforementioned statement regarding ‘one big up day’ applies equally to one big down day.  In other words, the Averages remain at a pivot point which, in my opinion, is not an occasion to be taking action whether buy or sell. 

    Fundamental

    

      Headlines

            Yesterday’s economic news was neutral: positive weekly mortgage purchase applications,  a very negative revision to September new home sales and a mixed to positive report from the latest Fed Beige Book.  The September home sales number was by far the most important but not enough to impact our forecast.

            Our political class was center stage with both Boehner and Obama mewing about a compromise on the fiscal cliff.  To say investors reacted positively would be an understatement; and they may be right.  To be sure, the electorate will get some sort of compromise on the fiscal cliff.  However, at the risk of being repetitious, the issues are what will be the terms of compromise and when will we get it. 

In my opinion, for the Market to move higher, the compromise needs to include at a minimum $2-3 of spending cuts for every $1 of tax increases, those cuts have to come largely from entitlements and it is clear that the timetable for agreement will yield a solution by 12/31/12.  This may all happen; my bet is that it won’t.  That, therefore, makes me very cautious---forgetting that the EU muddle through scenario gets iffier and iffier everyday.

            http://www.bloomberg.com/news/2012-11-28/bowles-says-fiscal-cliff-deal-unlikely-by-end-of-year.html

            Peter Orszag on tax cut proposals (medium):

            http://www.bloomberg.com/news/2012-11-27/vague-plans-to-limit-tax-breaks-will-soon-die.html

            More on tax cuts and revenues (medium):

            http://scottgrannis.blogspot.com/2012/11/the-laffer-curve-is-alive-and-well-in-uk.html

            More details on the latest Greek bailout scheme (medium):

            http://www.zerohedge.com/news/2012-11-28/greek-debt-buyback-another-idiotic-european-idea-or-step-toward-actual-solution

            And the first snag (medium):

            http://www.zerohedge.com/news/2012-11-29/first-greek-bailout-snag-greek-bankers-refuse-voluntarily-participate-critical-bond-

            One final joyous Holiday note, the WSJ reported that the Fed may be ready to provide more easing---I guess they missed the bankruptcy notice of the Bank of Japan. 

            http://www.zerohedge.com/news/2012-11-28/bank-japan-posts-whopping-%C2%A5233-billion-loss-its-soaring-balance-sheet-hits-record-%C2%A51

            And:

            http://www.zerohedge.com/news/2012-11-28/cost-kidding-yourself

Bottom line:  I don’t share yesterday’s investor euphoria.  I believe that getting the compromise will feel like a root canal but unfortunately the result will likely not bring the relief.  Further, virtually every day the eurocrats edge closer to economic suicide even on those days that they would have us believe they had just parted the Red Sea and were leading the EU into the Promised Land. 

Please.

I love our Portfolios’ cash and if I have to sell some GLD, they will just own more cash.

       Subscriber Alert

            Three stocks (Atrion [ATRI-$201], Balchem [BCPC-$35] and Sun Hydraulics [SNHY-$26]) on the Aggressive Growth Buy List traded above the upper boundaries of their respective Buy Value Ranges.  Accordingly, they are being Removed from that Buy List.

            The Aggressive Growth Portfolio owns shares of BCPC and SNHY.  No shares will be Sold.