Stocks hold Tuesday's gains
Steve Cook on Disciplined Investing

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The Market
    
    Technical

    The Averages (DJIA 10309, S&P 1099) held the gains of yesterday, including remaining above the former support turned resistance level of 10238, 1084.  That keeps them in a trading range defined by 9645-10725, 1009-1150.  On a short term basis, I am watching a prior resistance level (10320, 1104) as a test of the strength of the current move up.

    Other factors in yesterday’s trading: volume was even more pathetic than Tuesday’s, breadth actually weakened, the dollar was up (scoreboard: stocks up [what’s with that?], gold down, oil up) and the VIX was not surprisingly down, though is still in a trading range.

    Bottom line: the pin action continues to suggest that stocks will hold much of their gains off the March 2009 low.  The lower boundary of this consolidation effort is not as well defined as I would like; but I think that it will be no worse than 9645, 1009.

    TraderFeed on Market breaks (short):
    http://traderfeed.blogspot.com/2010/02/what-happens-after-strong-stock-market.html

    Percentage of overbought versus oversold stocks (chart):
    http://www.bespokeinvest.com/thinkbig/2010/2/17/percentage-of-overbought-stocks-exceeds-oversold-stocks.html

    Percentage of stocks over their 50 day moving average (chart):
    http://www.bespokeinvest.com/thinkbig/2010/2/17/another-breadth-measure-ticks-higher.html

   Fundamental
        
    I noted in yesterday’s Morning Call that Doug Kass was pointing at partisan bickering over the solutions to current problems as a reason for the January sell off.  Jonah Goldberg at National Review addresses this issue:
    http://article.nationalreview.com/425196/brennan-politics-and-national-security/jonah-goldberg

     Headlines

    Not much capturing the headlines.  Better than expected housing starts and the solid industrial production number (see below) put investors in a reasonably positive mood early on and it lasted the day.  Later, the Fed released the minutes of its last FOMC meeting and that kept the chattering class busy.  However, there wasn’t all that much worth talking about.  The minutes indicated that the committee wanted to shrink the Fed balance sheet (thanks for stating the obvious) and that it should be comprised of only US Treasuries--in other words, no mortgage backed securities (again obvious).  But then two sentences later, it noted that it may have to continue to hold mortgage related securities for some time (?).  In sum, the Fed keeps talking about all the tools it has to implement its ‘exit’ strategy but gives nary a peep about when.  Sorta like me telling you that I am going to stop hitting you over the head with my hammer, but I just don’t know when.

    Here is a different (and more depressing) opinion (medium):
    http://www.nakedcapitalism.com/2010/02/iacono-is-all-this-exit-strategy-talk-warranted.html

    Bottom line:  there is plenty of things about which to worry (sovereign debt risk, China’s monetary tightening, US fiscal profligacy, nonexistent bank lending) but Mr. Market knows them and if he is not exactly clear on their magnitude, surely he will be by the time stocks reach the 9645, 1009 level. 

Economics

   This Week’s Data

    The International Council of Shopping Centers reported weekly sales of major retailers fell 1.6% versus the prior week and 0.7% versus the comparable period a year ago; Redbook Research reported month to date retail chain store sales rose 1.6% versus the prior month and 1.8% on a year over year basis.

    January industrial production increased 0.9% in line with estimates; capacity utilization increased to 72.6 versus 72.0 in December and was in line with forecasts.  Each of these links is short but provides a slightly different angle on the industrial production number.
    http://mjperry.blogspot.com/2010/02/v-shaped-rebound-in-industrial.html
    http://mjperry.blogspot.com/2010/02/us-manufacturing-ouput-per-worker.html
    http://mjperry.blogspot.com/2010/02/first-annual-growth-in-mfg-output-in-22.html

    Weekly jobless claims jumped 31,000 versus expectations of a rise of only 2,000.
    http://www.calculatedriskblog.com/2010/02/weekly-initial-unemployment-claims_18.html

    The January producer price index rose 1.4% versus estimates of a 0.9% increase; the core number increased 0.3% versus forecasts of up 0.1%.
    http://econompicdata.blogspot.com/2010/02/producer-prices-jump-from-year-ago.html
   
   Other

    Obama was on TV again yesterday trumpeting the impact of the stimulus bill on the economy.  If He is right, then you ain’t seen nothin’ yet (short):
    http://www.businessinsider.com/chart-of-the-day-stimulus-spending-update-2010-2?utm_source=Triggermail&utm_medium=email&utm_campaign=CS_COTD_021710

    Federal budget update (short):
    http://scottgrannis.blogspot.com/2010/02/federal-budget-update.html

    Another ‘sovereign’ debt problem coming to a city or state near you (short):
    http://www.ritholtz.com/blog/2010/02/coming-soon-chapter-9-municipal-bankruptcies/

    Have we really been deleveraging (medium)?
    http://www.ritholtz.com/blog/2010/02/is-the-second-leg-of-the-credit-crisis-starting/

    An interesting perspective on the Fed’s strategy (medium and today’s must read):
    http://www.zerohedge.com/article/deleveraging-though-deflation-has-ending-qe-been-ulterior-motive-all-along-andrew-smithers-t











Posted 02-18-2010 8:34 AM by Steve Cook