Tuesday, July 23, 2013

The Morning Call--The S&P re-sets to an uptrend

The Morning Call

7/23/13

The Market
           
    Technical

            The indices (DJIA 15545, S&P 1695) continued to inch higher.  The S&P confirmed the break of the upper boundary of its short term trading range, re-setting it to a short term uptrend (1633-1750).  On the other hand, the Dow challenged the upper boundary of its short term trading range (14140-15550) but fell back, unable to hold above.

            Both of the Averages finished within their intermediate term (14397-19397, 1530-2118) and long term uptrends (4918-17000, 715-1800).

            Volume dropped; breadth was mixed.  The VIX declined again, closing very near the lower boundary of its short term trading range.  It remains within an intermediate term downtrend and a long term trading range.

            Gold streaked higher and finished above that very short term downtrend.  It has now returned to being solidly within its short and intermediate term downtrend.  Now that the waterfall formation seems to have ended, we can at least start looking for an entry point.

            Bottom line: the assault on the May highs is progressing.  The S&P has now re-set to a short term uptrend; while the Dow hasn’t even closed above its comparable boundary, though it did manage to penetrate it intraday yesterday.  This leaves the Averages out of sync, meaning there is no confirmation of the break out above the May highs.

            If this challenge is ultimately successful, resistance is marked by the upper boundary of major uptrends: S&P short term---1750, intermediate term---2118, long term ---1800. 

            Stocks and the Misery Index (short):
            http://blog.yardeni.com/

    Fundamental
    
      Headlines

            Yesterday’s economic did not make good reading: the Chicago National Activity Index was negative versus estimates of a positive reading, while June existing home sales were also disappointing.

            Of course, we are in the thick of earnings season and that is where investor attention is focused.  So far, the balance of reports have been better than expected (which is a bit deceptive because so many companies lowered estimates earlier).

            In a time when bad news is good news (CNAI and home sales) and good news is good news (earnings reports), that means that stocks almost have to be up.  And indeed, they did.  

            Bottom line:  it would seem that investors have completely forgiven Bernanke for his ‘tapering’ comments and are eagerly re-embracing QEInfinity, making my thesis that they had experienced an ‘emperor’s new clothes’ moment wrong. 

            Meanwhile, I continue to struggle with valuation---not just fundamentally (so many of our stocks hitting their Sell Half Ranges) but also technically (given the resistance posed by the upper boundaries of the S&P short and long term uptrends, the upside is limited versus the downside if the S&P trades to the lower boundaries of the short and long term uptrends).

            In the end, I am sticking with our discipline, focusing on lightening up on those stocks that hit their Sell Half Range.  

            The struggle with owning cash (medium):

            And why you should (medium):

            The latest from Jim Rogers (medium):

            The Grantham quarterly letter (medium):

            The latest from John Hussman (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

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