The Morning Call
The Market
Technical
Momentum
resumed to the upside yesterday with the S&P (1480) busting through the
September 2012 resistance level (1474). While
the DJIA (13590) had a good day too, it is
still short of its comparable 9/12 resistance level (13682). So (1) the time and distance discipline is
now operative for the S&P and (2) the indices are once again out of sync.
I
have said for sometime now that the technicals were pointing to a successful
challenge of the 13682/1474 level and a move to at least 14140/1576. That said, the upper boundaries of the
indices short term uptrends (13091-13757, 1420-1489) could act as a governor on the rate of
ascent.
Both
of the Averages also remain within their intermediate term uptrends
(13165-18165, 1392-1987).
Volume
was up dramatically (a positive indicator on a break out day); breadth
improved. The VIX popped up---unusual
for a day of a strong Market advance.
A
reversal in the flow of funds (medium):
GLD
had another up day, but remains well within its short term downtrend and its
intermediate term trading range. It did,
however, close above the upper boundary of that very short term downtrend for
the third day.
Bottom
line: it looks like the consolidation
period for the Averages is now behind us.
To be sure, one day doesn’t a trend make. But the technicals have been signaling such a
move; so I have little basis for assuming that this S&P break out won’t
ultimately be confirmed. Were I a
trader, I would be looking to put on some trades on the Buy side with a stop at
S&P 1474. For better or worse, I am
not a trader. On the contrary, as a long
term investor, I remain a better Seller for those stocks trading into their Sell
Half Range
Bullish
sentiment declines slightly (short):
Fundamental
Headlines
Yesterday’s
economic news presented some bad news (the Philly Fed manufacturing index); but
the balance of stats were quite strong (weekly jobless claims and housing
starts). This keeps the trend in the
major economic indicators (housing, industrial production, retail sales and
employment) pointed to the upside; and, hence, lends additional support to our
forecast.
***overnight
Chinese GDP , industrial production and
retail sales came in above expectations.
For
the rest of the day, the Market’s focus was on itself and whether the pin
action signified ignition for the next move up.
As you know, I think that prices are probably going higher; although I
would characterize the upcoming move as likely a last gasp effort before
trending back toward Fair Value. How far
can it go? 1576 on the S&P immediately comes to mind. It is a powerful technical barrier and at
that level, it would put the S&P 12%+ overvalued---which is getting a bit
overextended.
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.
GOP backing away
from brinksmanship (medium):
Subscriber Alert
The
stock price of Sanofi American (SNY-$49) has traded into its Sell
Half Range
As
I stated the last time that our Portfolios Sold stocks, their current cash
position is as high as I want to go. So
the proceeds generated from the sale of the SNY shares will be reinvested in
Pioneer Southwest Energy (PSE)..
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