Tuesday, March 12, 2013

The Morning Call--All time high for the Market and Americans on food stamps

The Morning Call

3/12/13

The Market
           
    Technical

            Another day, another new Dow high.  It (14447) remains above the former all time high (14190) and the upper boundary of its short term uptrend (13636-14306).  However, the S&P (1555) has still not challenged either its all time high (1576) or the upper boundary of its short term uptrend (1486-1558).  As long as the Averages are out of sync, under our time and distance discipline, there is no confirmation of a Market break out.

            Both indices remain within their intermediate term uptrends (13481-18481, 1427-2021) and are not that far from the upper boundaries of their long term (80 years) uptrends (4783-17500, 688-1750).

            Volume fell; breadth deteriorated, though the flow of funds indicator continues strong.  The VIX (11.56) declined, remaining within both its short term and intermediate term downtrends.  However, it is approaching its all time low (9.75).

            GLD rose but remains near the lower boundary of its short term downtrend.  That said, it appears to be attempting to form a base---but it is too early to make that call.

            And (short):

Bottom line: the Averages remain out of sync though I think it likely that the S&P will at least trade up to the 1576 all time high.  As you know, my bet is that the S&P won’t succeed in breaking above that level and that stocks are in a topping process. 

Of course, I have been wrong about the current advance thus far; so I don’t have a lot of confidence in the aforementioned bet.  On the other hand, I feel a lot more comfortable betting that the Averages will not trade above the upper boundaries of their long term uptrends.  That means the max upside in S&P is around 10% while the downside (the lower boundary of that long term uptrend) is significantly larger. 

So, however wrong I may have been raising cash too soon, I am not going to compound it by chasing stocks up from here---although as I noted last Friday, I may make a small trade in the Aggressive Growth Portfolio as an experiment if the S&P breaks above 1576.

    Fundamental
    
     Headlines

            No US economic data yesterday; and the only international stats of importance were more weak numbers out of China.  I noted in last week’s Closing Bell that the trend of disappointing data was becoming worrisome---since China seems to be one of few of our major trading partners that is growing.  This is a factor that we have to keep a close eye on.

            We got lots of headlines on the budget process, though they were mostly political in nature.  Obama continued His charm offensive.  The Senate democrats announced that they would produce a budget---the first in four years; but most observers are of the opinion that it will include plenty of tax hikes.  In other words, a nonstarter.

            Paul Ryan is going to release his budget proposal today.  Again the DC tom toms are reporting that will be abolish Obamacare.  In other words, a nonstarter.

            Hence, despite the more recent cordial atmosphere, there is clearly a probability that this is all theatrics and everyone is girding themselves in anticipation that the 2014 elections will be focused on breaking the philosophical stalemate over fiscal policy.  If that is the case, then the economy is going to get no help from the ruling class.

Bottom line: ‘the economy is on track with our outlook---based on which stocks are overvalued.  As I noted yesterday, technically speaking the S&P could rise to circa 1750 and still be within its long term uptrend.  But (1) most of our stocks are ahead of that index, so their potential upside is likely less, (2) further, the downside represented by Fair Value to say nothing of the lower boundary of the S&P long term uptrend present a not all that attractive risk/reward equation, (3) plus, the tail risks resulting from  out of control Fed money printing and an unraveling of the eurozone are unknowable because we have never been here before and hence lend weight to the risk side.’

            I like our cash position.

            The latest from John Hussman (medium):

            The latest from Lance Roberts (medium and today’s must read):

            Comparing QE2 and QE3 (short/medium):

            And for those nonbelievers who poo poo the powerfully positive economic trends underlying the market’s move to all time highs: Americans’ on food stamps hit an all time high (short):

            And this (short/medium):

      Investing for Survival

            New tax law in Puerto Rico offers lower rates (medium):




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.

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