The Morning Call--2/1/13

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The Morning Call

2/1/13

The Market

           

    Technical

            The indices (DJIA 13860, S&P 1498) actually had their second down day in a row.  Each closed below the upper boundary of its short term uptrend (13217-13872, 1437-1506) and within their intermediate term uptrends (13254-18254, 1401-1996).

            Volume increased; breadth was mixed.  The VIX fell fractionally, finishing within its intermediate term downtrend.

            GLD took back much of Wednesday’s gain but still managed to close above the lower boundary a very short term uptrend.  It continues to trade within a short term downtrend and an intermediate term trading range.

Bottom line: two consecutive down days is hardly a reason to doubt that stock prices won’t go higher, especially since the magnitude of each decline was fractional.  There is nothing to suggest that the Averages can’t reach the 14140/1576 level.  And there is nothing to cause me to demure on our current strategy of lightening up as prices rise.

            The Market’s historical performance in February (short):

            http://blog.stocktradersalmanac.com/post/February-Worst-Month-of-Post-Election-Years-DIA-SPY-QQQ-IWM

            Update on sentiment (short):

            http://www.bespokeinvest.com/thinkbig/2013/1/31/bullish-sentiment-drops-back-below-50.html

    Fundamental

    

      Headlines

            Yesterday’s economic stats were basically mixed: weekly jobless claims were disappointing, personal income was very strong but largely as a result of all those big dividend and bonus payments in December anticipating tax increases in January and personal spending was slightly below estimates.  On the bright side, Chicago PMI was well ahead of forecast.  As long as the data is mixed, our outlook is intact.

            Most of the day’s narrative was focused on this morning’s nonfarm payroll number with sentiment generally upbeat---what else is new?

Bottom line:  stocks remain overvalued.  Nothing in the economic data suggests otherwise.  However, if sequestration actually takes place March 1, that would be a positive for our long term outlook; and if Wednesday’s GDP report is illustrative that government spending can be reduced without impacting housing, consumer spending and business investment, that would be a short term positive.

The operative word in the prior statement is ‘if’.  I won’t bet money on straight sequestration until it is on the books.  In addition, one example (the GDP data) does not guarantee its repetition.  Finally, we have yet to see the impact of the January tax hikes on the economy.

So I am not dancing a jig; but I am more hopeful.

Financial conditions in Europe are starting to deteriorate again highlighting the fact that the eurocrats have done nothing to solve the underlying sovereign and bank debt problems.  Investors appear to have come to believe that this ‘fat tail’ has been eliminated---no way, Melvin.

      Investing for Survival

            The latest from Bill Gross (today’s must read):

            http://advisorperspectives.com/commentaries/pimco_013113.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.