Friday, October 12, 2012

The Morning Call--Yesterday' pin action was not positive

As long time readers know, I am an avid OU fan.  Tomorrow is the Oklahoma/Texas game.  That means lots of friends arrive today and a party tonight.  Unfortunately for an old guy, the game starts at 11AM Saturday which means the bus leaves at 9AM which means the Saturday edition of the party starts really early---either that or it just doesn’t stop.  In any case, this is a long winded way of saying that there will be no Closing Bell this week.  Boomer, Sooner.

The Market
           
    Technical

            The indices (DJIA 13325, S&P 1432) were basically flat on the day (Dow down, S&P up).  This is the second day the DJIA finished below the lower boundary of its short term uptrend (13366-14197).  It remains above the (1) 13302 support level, (2) the 50 day moving average (13302) and (3) the lower boundary of its intermediate term uptrend [12521-17521].

            The S&P remained right on the lower boundary of its short term uptrend (1432-1524); but above (1) its 50 day moving average [1425] and (2) the lower boundary of its intermediate term uptrend [1321-1919].

            Volume was weak; breadth mixed.  The VIX was down, closing within the broad zone between the upper boundary of its short term downtrend and the lower boundary of its intermediate term trading range.  I read this as neutral.

            GLD rose modestly, remaining above (1) a secondary support level [168.4], (2) the lower boundary of its short term uptrend and (3) the lower boundary of its intermediate term trading range.

            Bottom line: the challenge to the lower boundary of the Dow’s short term uptrend continues while the S&P remains poised to mount its assault on its comparable boundary.  I mentioned yesterday that both were near several support levels, so that a bounce would not be surprising.  It looked like that was going to occur in yesterday’s early trading; then later in the day, prices declined to finish at or below Wednesday’s close.  That pin action could hardly be characterized as a ‘bounce’; indeed, it only served to work off an oversold position.  So my guess is with a little push, the Averages will resume their challenges.

The Market’s internal structure continues to weaken (see below).  I have noticed an increasing  number of stocks that have spiked to new highs, then instead of holding those heights, have immediately reversed direction.  That is not positive price action.  So I believe that we will see lower prices near term and accordingly I remain focused on our Sell Discipline.

            Optimism at a 10 week low (medium):

            Retail investors continue to head for the exits (short):

            Market performance in October (short):

    Fundamental
    
            Yesterday’s economic data was mixed to positive: the August trade deficit was larger than expected; on the other hand, weekly jobless claims fell a lot---although this number was tainted by some problems in the data collection. 

            And some analysis of the traded deficit (medium):

When the headline jobless claims figure was reported that put a lift under the Market.  The remainder of the day, stocks gave up most of this initial bit of euphoria as (1) the problem with the jobless claims figure got hashed out, (2) concerns about third quarter earnings suppressed investor enthusiasm and (3) the whackage in the tech sector continued.

            Why the IMF is so wrong (medium):

            The central bank ‘put bubble’ (medium and today’s must read):

            All we know may be invalid (medium):

            Germany hangs tough on Greece (medium):

            The resurgence of junk bonds (short):

            CDS markets suggest more credit downgrades are coming (short):

            Bottom line:  while stock prices are only modestly overvalued, if you read any of the above articles, to say nothing of all of them, then you can appreciate why I am concerned that the downside to stocks may be more than just a return to Fair Value.  That leaves me focused on our Sell Discipline and our GLD position.  That said, I think that a retreat of any consequence will provide a Buying opportunity.

            JPM on current equity valuations  (medium):

     Investing for Survival

            What assets to own in an environment of rising inflation (medium):

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