The Morning Call--Today could be significant, technically speaking

The Morning Call

7/12/13

The Market

           

    Technical

            All, hail, Bernanke.  The indices (DJIA 15460, S&P 1675) soared on Wednesday afternoon’s comments from the Fed chief.  However, on the basis of intraday highs, both remained below the upper boundaries of their short term trading ranges (14190-15550, 1567-1687).  Those boundaries will almost surely be challenged near term; but for the moment they represent resistance.  The Averages also closed well with their intermediate term (14335-19335, 1520-2108) and long term uptrends (4783-17500, 688-1750).

            Volume was up, though not as much as one would expect on a blow out day; breadth was strong.  The VIX closed right on the lower boundary of a very short term uptrend; a close below this boundary would be a good sign for stocks.  It remains within its intermediate term downtrend.

            http://www.ritholtz.com/blog/2013/07/advance-declines-break-out-to-new-highs/

            Short covering rally? (short):

            http://www.bespokeinvest.com/thinkbig/2013/7/11/short-covering-rally.html

            GLD rose again.  It finished above the lower boundary of its intermediate term downtrend---but that is not saying much.  It is still below the lower boundary of its short term downtrend and even a very short term downtrend.            http://advisorperspectives.com/dshort/guest/Chris-Kimble-130711-Metals-Update.php

Bottom line:  stocks are now a short hair away from the important May 22 highs.  I think that this sets today up as a very interesting day.  If stocks can get through the 15550/1687 levels with any authority, stocks are probably off on another leg up.  If they hold, then the best that can be said is that they are in the upper zone of a trading range and the worse is that a double or even triple top could be forming.

Either way, a long term investor like me isn’t really going to be tempted to do anything---save if one of our stocks enters its Sell Half Range.  As a trader, I might consider buying the VIX if stocks roll over or a global multi asset class ETF (IYLD) if they spike.

            Inflation adjusted Dow (short):

            http://www.thereformedbroker.com/2013/07/11/chart-o-the-day-the-inflation-adjusted-dow/

            You know, I like the author of this piece and read his blog everyday.  But consider----two days ago he was arguing that it made no sense to own cash.  Today, he hopes the market goes down, so he can buy.  Question: with what?

            http://www.thereformedbroker.com/2013/07/10/double-top/

    Fundamental

    

      Headlines

            Yesterday’s US economic news was mixed: weekly jobless claims rose much more than anticipated though many apologists are pointing at the auto industry’s seasonal re-tooling as a major cause; and June chain store sales were better than expected.  There was little news overseas.

            Bottom line: this left investors to continue getting jiggy with Bernanke’s walk back of ‘tapering’; and they did get jiggy.  This current obsession with every Fed utterance is likely to continue.  However, I still believe that the more important issue is whether investors have developed a healthy skepticism toward Fed policy or remain in a state of euphoric adoration.  The initial pin action would suggest the latter; and if it is so, then clearly my ‘healthy skepticism’ thesis will have been proven wrong.  However, one day’s performance isn’t generally insufficient to prove or disprove any thesis.  So I think that the jury is still out---though admittedly I am not brimming with confidence.

            Here is some analysis attempting to part the curtains of confusing brought on by Wednesday’s FOMC minutes and Bernanke’s comments (medium):

            http://www.nakedcapitalism.com/2013/07/the-fed-sort-of-speaks-but-is-the-bond-market-really-listening.html

            Is Bernanke, God? (medium and today’s must read):

            http://www.minyanville.com/special-features/random-thoughts/articles/Does-Ben-Bernanke-Have-a-God/7/11/2013/id/50726

            Don’t be a yield pig (medium):

            http://www.zerohedge.com/news/2013-07-11/seth-klarman-dont-be-yield-pig

     Investing for Survival

            Risks in the banking system (medium):

            http://www.american.com/archive/2013/july/no-virginia-nothing-is-really-risk-free

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