The Morning Call--Who is on first?

The Market

           

    Technical

            The indices (DJIA 13482, S&P 1445) turned in a mixed performance yesterday (Dow down, S&P up) but both remained well within their primary trends: (1) short term uptrends [13265-14035, 1420-1510] and (2) intermediate term uptrends [12457-17457, 1314-1914].  Additional resistance exists at 14170/1576 (October 2007 high) and support at 13302/1422 (April 2012 high---resistance now support).

            Volume fell, breadth was mixed.  The VIX was down but trades within the gap bordered by the upper boundary of its short term downtrend and the lower boundary of its intermediate term trading range.

            GLD fell slightly but remains above the lower boundaries of its very short term and short term uptrends and the intermediate term trading range.   GLD appears to be consolidating after an awfully nice run to the upside.  Any weakness and our Portfolios will add to their holdings.

            Gold and the debt ceiling (chart):

            http://www.thereformedbroker.com/2012/10/02/chart-o-the-day-gold-vs-the-debt-ceiling/

            Bottom line:  the primary price trends remain up.  Investors appear unconcerned about either my oft expressed fundamental concerns and/or the increasing technical divergences that are occurring.   That keeps me focused on the Sell side but only to the extent the current euphoria carries our stocks into their Sell Half Range.  At Market extremes, this strategy can be psychologically unsatisfactory in that our Portfolios are selling as stock prices rise and, in the first instance, they leave some money on the table. 

            That said, I am not smart enough to call a Market top; and our Sell Discipline is the most effective system that I have found to deal with the issues of portfolio rebalancing, preservation of capital and stability of principal.  Patience.

            Market peaks versus business cycles (short):

            http://www.ritholtz.com/blog/2012/10/how-much-do-market-peaks-lead-business-cycles/

            And this (short):

            http://www.zerohedge.com/news/2012-10-02/one-chart-no-equity-portfolio-manager-wants-see

            Market performance when incumbents win (short):

            http://www.zerohedge.com/news/2012-10-02/incumbent-presidential-winners-be-careful-what-you-wish

    Fundamental

    

     Headlines

            It was pretty dull reading for US economic data yesterday: weekly retail sales were mixed though September vehicle sales were quite strong.  However, Europe, specifically Spain, was the focus of investor attention. 

            Early news was that Spain was ready to ask for a bailout; that got stocks going to the upside as investors assumed that Spain would get the funds necessary to keep solvent.  But later in the day, PM Rajoy poo pooed the idea, saying he didn’t expect to seek funds anything soon---and markets sold off.  This is illustrative of an all too typical pattern of eurocrat communications---nobody seems to know who’s on first.  And that, of course, leads to an even worse problem, i.e. investor and electorate uncertainty, which results in increased volatility and social unrest.

            The aforementioned tomfoolery notwithstanding, the universe knows that Spain is bankrupt and that the recent bank stress tests were no more ‘stressful’ than in prior occurrences in which the EU elite swore the banks were solvent only to have to back pedal later.  What it doesn’t know is how this all gets resolved and yesterday’s on again, off again bailout comments didn’t help.

           

            And speaking of the bank stress test (medium and today’s must read):

            http://www.zerohedge.com/news/2012-10-02/european-banks-still-treat-their-sovereign-debt-holdings-risk-free-bis-finds

            As I have said many times, as long as investors cut the euros some slack, they (the euros) can continue to obfuscate and procrastinate.  I am not smart enough to know when that door slams shut; but when, as and if it does, in the absence of considerably more broad based reforms than we have had to date, look out below.

            Math problems in the EU---E22 trillion is missing (medium):

            http://www.zerohedge.com/news/2012-10-02/ecb-eur22-trillion-missing

            Meanwhile in Greece, missing Swiss bank account information is coming to light; and it may contain the names of......drum roll..........politicians (medium):

            http://www.zerohedge.com/news/2012-10-02/troika-target-truculence-greek-tax-evaders-terrified

            China puts an end to any notion that it will bail out the EU (short):

            http://www.zerohedge.com/news/2012-10-02/china-just-killed-all-china-bails-out-europe-rumors-good

            Bottom line: I said it as succinctly as I could yesterday:  ‘at this point, I have no feel for this Market.  I am at odds with the technicals.  I have lost my empathy with a Market where good news is good news one day, but bad news the next and visa versa.  This isn’t the first time in my career that this has happened; and when it has, I have found that the best thing to do in nothing---which is what I am doing.’

            David Rosenberg on when to get positive on stocks (short):

            http://www.businessinsider.com/rosenberg-true-market-indicator-2012-10

            Valuation and election year rallies (short):

            http://www.zerohedge.com/news/2012-10-02/it-different-time

            CEO expectations plunge (short):

            http://advisorperspectives.com/dshort/guest/Shedlock-121002-Plunge-in-CEO-Expectations.php