Yesterday was probably only a relief rally
Steve Cook on Disciplined Investing

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Have You Seen This?


The Market
    
    Technical

    The indices (DJIA 10154, S&P 1071) remain in a down trend defined at the close yesterday by 9039-10211, 969-1087.  Volume was down materially from Friday’s pin action though breadth was pretty good.  The VIX was down but is still positioned above its near term support.

    Bottom line: after a big down day Friday, a modest bounce on Monday is not surprising.  Let’s see how stocks trade today before judging if yesterday’s performance marked a higher low or just a brief relief rally.

    Gold traded below its initial support level following the break in its up trend.  Time and distance suggest some patience at this point; however, our Portfolios are poised to lighten up their GLD position on further weakness.

    The latest from Fusion IQ (medium):
    http://www.investmentpostcards.com/2010/07/20/technical-talk-bias-remains-cautious/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+wordpress%2FVYxj+%28Investment+Postcards+from+Cape+Town%29&utm_content=Yahoo!+Mail

   Fundamental
     
     Headlines

    Yesterday started with some positive earnings reports from Delta Airlines and Halliburton.  That helped lift stock prices which were already set to bounce as a reaction from Friday’s mega down day.  The subsequent absence of news and volume for the rest of the day left stocks in positive territory.

    However, after the close, two high profile tech firms, IBM and Texas Instruments, reported disappointing earnings which will likely weight on this morning’s open.

    Bottom line: last night’s IBM and TXN news and what are some lousy housing numbers (see below) this morning notwithstanding, the economic news is not all bad and generally suggests that while the second half will not be a blockbuster, it will also not be a disaster.  Furthermore, everyday that goes by is one day closer to the November elections; and current polls suggest that Washington could be headed for gridlock which would likely result in a major improvement in the fiscal, tax, regulatory, trade policies. I believe (hope) that means that 9645, 1009 will prove to be the low.  While I am certainly not forecasting any significant lift in stock prices, if we can just get them in a trading range, then buying stocks with 2-4% yields would be a huge step up from the less than 1% return we are currently earning on short term fixed income securities.

    Valuation of emerging markets versus the markets in developed countries:
    http://www.investmentpostcards.com/2010/07/19/emerging-markets-showing-mature-markets-a-clean-pair-of-heels/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+wordpress%2FVYxj+%28Investment+Postcards+from+Cape+Town%29&utm_content=Yahoo!+Mail

    Here is a summary of a McKinsey study which concludes something we all knew: sell side analysts are too optimistic (short):
    http://www.investmentpostcards.com/2010/07/20/picture-du-jour-a-generation-of-overoptimistic-equity-analysts/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+wordpress%2FVYxj+%28Investment+Postcards+from+Cape+Town%29&utm_content=Yahoo!+Mail

    An 8 minute interview with Robert Shiller (Case Shiller):
    http://www.investmentpostcards.com/2010/07/20/shiller-%E2%80%93-double-dip-concern-is-growing/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+wordpress%2FVYxj+%28Investment+Postcards+from+Cape+Town%29&utm_content=Yahoo!+Mail
   

   
Economics

   This Week’s Data

    June housing starts fell 5% versus an expected decline of 2%; in addition, May’s number was revised down by 3%; June building permits were in line with estimates.
    http://www.calculatedriskblog.com/2010/07/housing-starts-decline-in-june.html

   Other

    This is not a particularly bright look at the housing dilemma (short):
    http://www.ritholtz.com/blog/2010/07/chart-of-day-4-trillion-hangover/











Posted 07-20-2010 8:18 AM by Steve Cook