The Morning Call--Moonshot

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The Morning Call

1/2/13

The Market

           

    Technical

      Wednesday Morning Chartology

            The pin action of late has been schizophrenic, driven mostly by the off again, on again drama of the fiscal cliff. Friday the S&P executed a Titan III formation and the futures are saying that today, stocks are going to the moon as a compromise has been reached to the cliff.  However, just to review what has happened during my Xmas hiatus---the S&P broke the lower boundary of a newly re-set short term uptrend (black lines) closing back below the 1424 level long enough to suggest the prior move up was a false breakout of the short term trading range (brown lines) and broke below its 50 day moving average (wiggly red line); Friday’s move put the S&P back above 1424.  The question for today is will it re-set again to a short term uptrend? 

           

            GLD has done a little better lately.  However, it is still in a short term downtrend (brown lines).  It remains in an intermediate term trading range.

            How about the below chart as a poster child for volatility.  For all that, the VIX remains above the upper boundary of its short term downtrend, seemingly negating that trend though today will probably change that.

 

    Fundamental

  

            As you probably know, the House passed the Senate’s version of extension of the Bush tax cuts for most taxpayers.  The bill included: (1) raising rates on individuals [families] making more than $400,000 [$450,000] a year to 39.6%, (2) raising capital gains and dividends rates to 20% on the same group, (3) adjusting the AMT, (4) extending the cuts on gift and estate taxes over $5 million, but (5) allowing the payroll tax cuts to lapse and (6) returning the social security tax back to 6.2%.

            Clearly, I was right that we would get solution to the fiscal cliff, wrong that it would take a ‘root canal’ to get it and right that there would be no spending cuts---hence, no fix to our longer term economic problem of too much spending.  That means that, the current Market euphoria notwithstanding, nothing changes in our Models which leaves Fair Value for the S&P at 1400.

            Despite the temptation to chase stocks up, I see no sound fundamental reason for doing so.  Our fiscal policy is broken and nothing in the resolution of the fiscal cliff suggests that a fix is on the way.  Our monetary policy is also broken---it will simply be used to pay the continuing deficits with printed money.

            Bottom line: our Portfolios will likely be sellers into this rally.

            Meanwhile, the European problem is still with us.  Here is how those governments are now dealing with deficits.

            http://www.zerohedge.com/news/2013-01-02/chart-day-europes-resolution-unpaid-bills-ignore-them

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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.