The Morning Call--1/23/13

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The Morning Call

1/2313

The Market

           

    Technical

            The indices (DJIA 13712, S&P 1492) moved higher again yesterday.  They remained within their short term uptrends (13113-14302, 1423-1492) and their intermediate term uptrends (13179-18179, 1395-1990).  

The S&P closed above the 1474 resistance level for the third day; while the Dow finished above its comparable level (13682) for the first day.  Our time and distance discipline is still operative; but clearly the momentum is to the upside.  I continue to believe that the 13682/1474 will be taken out; however, a further advance may be governed by the upper boundaries on the Averages short term uptrends.

Volume fell; breadth was mixed; although the flow of funds indicator was very strong.  The VIX continued to decline and closed within its intermediate term downtrend.

http://www.bespokeinvest.com/thinkbig/2013/1/22/796-of-sp-500-stocks-overbought.html

GLD increased in price but it still within its short term downtrend and its intermediate term trading range.  Positively, it also remained above the lower boundary of a very short term uptrend and the upper boundary of a very short term downtrend.

            http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100022332/a-new-gold-standard-is-being-born/

            Bottom line:  investor optimism continues to push prices higher.  The S&P will confirm the break of the 1474 resistance level at the close today; while the DJIA now seems destined to follow suit.  If that happens, then minor resistance should be offered by the upper boundaries of the indices short term uptrends---which won’t halt any advance but rather could just slow the rate of ascent.  Major resistance exists at 14140/1576. 

Traders may want to participate in this anticipated rise.  Our Portfolios will continue to use the strength to lighten up on stocks in their Sell Half Range.

    Fundamental

    

      Headlines

            The US economic news was all lousy yesterday: the Chicago Fed National Activity Index, December existing home sales and the Richmond Fed’s manufacturing index were all disappointing.  While I am not happy about these stats, they are not unexpected after several weeks of almost universally positive data---that is, if our forecast is correct.

            The central banks continued their race to see who can create the most phony money in the shortest period of time.  I mentioned the Bank of Japan’s announcement on Monday; while the UK joined the party yesterday.

            Welcome the UK to the currency wars (short):

            http://www.zerohedge.com/news/2013-01-22/please-welcome-uk-global-currency-wars

            While Germany and Japan butt heads (medium):

            http://www.zerohedge.com/news/2013-01-22/germany-vs-japan-currency-war-heats

            Finally, the house republicans have apparently come up with a plan to extend the debt ceiling by three months but have attached a requirement to balance the budget in ten years.  In addition, this plan requires the senate to pass a budget by April 15^th or not get paid until they do.

            I am sure the debt ceiling extension will enhance investor euphoria.  The problem is that there is no specificity to the balance budget proposal; and bear in mind that the Ryan budget which the house has passed twice didn’t achieve a balanced budget for more than twenty years.  So before getting jiggy about coming fiscal responsibility, we best wait to see how this debate concludes.

Bottom line:  ‘stock prices are heading deeper into overvalued territory, at least as calculated by our Model.  In the absence of a fiscal compromise that will meaningfully reduce our budget deficit and a more responsible monetary policy that will increase the incentive to save, I can’t get economic growth or profit growth to a level that would justify current prices.   Hence, I think it unwise to chase stock prices higher for anyone other than experienced traders.’ 

            The latest from John Hussman (medium):

            http://advisorperspectives.com/commentaries/hussman_012213.php

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.