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The Market
    
    Technical

    The Averages (DJIA 10229, S&P 1083) surprised me yesterday. After poor IBM earnings and the lousy housing start number, equities sold off early on then rallied big time to close up strong on the day.  Nevertheless, they remained within their current down trend (9039-10266, 965-1085), though clearly they closed near the upper boundary.

 I said in yesterday’s Morning Call we needed to let the Market tell us if Monday’s bounce was a relief rally or the initial trade off a higher low (from 9645, 1009).  With prices rising on bad news and on higher volume and improved breadth, it suggests that the latter may very well be the case.  Supporting this notion is our internal indicator which continues to improve.  The only hold out is the VIX--it sold off yesterday but stayed above support.

    How the S&P has performed following other days like yesterday (short):
    http://tickersense.typepad.com/ticker_sense/2010/07/not-many-days-like-today.html

    In addition, GLD rebounded in yesterday’s trading, closing above recent support which takes it off the potential critical list.

    Bottom line: yesterday’s reversal shouldn’t be ignored.  On the other hand, given the recent volatility, today could be just a mirror image of yesterday.  That said, if stocks break decisively above the upper boundary of the current down trend, I am going to assume that our internal indicator has been spot on, that Tuesday’s intraday low was indeed the higher low that I had hoped it might be and our Portfolios will start to nibble.

   Fundamental
      
    Headlines

    Not much occurred during the early Market hours yesterday save an ostensively poor Goldman earnings report.  As noted above, the news Monday night (IBM earnings) and pre-open Tuesday (June housing starts) seemed to determine sentiment and trading early on; but they soon lost their impact.  The rest of day was spent contemplating:

(1)    the likelihood that Bernanke will announce an easing in Fed policy during congressional hearings today. The rumor was that the Fed will cut its interest rate on bank reserves from 0.25% to 0% to incentivize banks to increase lending.  Since this is one of the few bullets that the Fed has left in its arsenal if economic conditions don’t improve, Angel based on current economic data, I can’t imagine the Fed wasting one of its few remaining resources at this moment, Beer unless of course, Ben knows something that we don’t, in which case, such a move would be about as bad a news as we could get,

(2)    rumors out of Europe that the Spanish banks had passed the ‘stress test’ [actual results get reported Friday].  The only problem is we don’t yet quite know what the ‘test’ entailed and, therefore’ what ‘passing’ it means.  I repeat, the last chapter to the EU sovereign debt crisis has not been written,

(3)    a big overnight bounce in the Chinese stock market being attributed to a report from a major Chinese investment firm that the country is headed for a ‘soft’ landing.  That gave rise to the expectation/anticipation by US investors of improved Chinese demand.  I doubt that this will quell the debate on the strength of the Chinese economy; however, on a broader note, it does appear there are significant chunks of the rest of the world that are doing much better than the US economically speaking.  That suggests to me that   major US companies selling abroad can prosper even in an anemic domestic US market,

(4)    anticipating Apple’s earnings report after the close, which were a blow out.  But as I noted above, it raises the question that based on the trading subsequent to IBM and TXN’s profit report Monday night, Angel will there be any Market follow through to Apple’s earnings this morning or Beer will today be a mirror image of yesterday?

Bottom line: I don’t want to get stampeded in one direction by a single day’s dramatic volatility.  But there are positive events happening out there, stocks are undervalued and as I said yesterday, every day gets us closer to a potential revolution on November 2.  If our technicals will confirm what I think is an improving scenario, our Portfolios will become better buyers.

    The latest from Doug Kass (medium):
    http://www.thestreet.com/story/10811525/1/kass-growth-is-giving-way-to-value.html

    The latest from David Rosenberg (long):
    http://www.zerohedge.com/article/qa-david-rosenberg-bearish-outlook

Economics

   This Week’s Data
 
    The International Council of Shopping Centers reported monthly sales of major retailers rose 1.4% versus the prior week 4.2% versus the comparable period a year ago; Redbook Research reported month to date retail chain store sales fell 0.6% versus the similar timeframe last month and increased 2.7% on a year over year basis.

    Weekly mortgage applications rose 7.6%.
    http://www.calculatedriskblog.com/2010/07/mba-mortgage-purchase-applications_21.html

   Other

    The rise in temporary employment continues (chart):
    http://mjperry.blogspot.com/2010/07/asa-staffing-index-24-above-same-week.html

    A ten minute (video) discussion on fiscal policy with two of my favorites: Barry Ridholtz and Keith McCullough:
    http://www.ritholtz.com/blog/2010/07/stimulus-battle-how-to-fix-the-economy/

    Here is another of those long but informative articles; this one on sovereign debt and how to assess the likelihood of default:
    http://mpettis.com/2010/07/do-sovereign-debt-ratios-matter/

Politics

  Domestic

    Another 2000+ page piece of legislation; brought by an elected representative near you:
    http://mjperry.blogspot.com/2010/07/high-stakes-test-can-big-government.html

    More insight into how the budget process works (short):
    http://gregmankiw.blogspot.com/2010/07/government-spending-by-another-name.html

    This is a bit long but it is a great look at the workings of the Department of Justice:
    http://article.nationalreview.com/438362/the-case-against-the-new-black-panthers/andrew-c-mccarthy

    For some reason, today’s missive is loaded with long articles.  This one addresses Obama’s antibusiness policies and their consequences:
    http://politics.usnews.com/opinion/mzuckerman/articles/2010/07/16/obamas-anti-business-policies-are-our-economic-katrina.html











Posted 07-21-2010 8:19 AM by Steve Cook
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