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Have You Seen This?

Believe it or not, technical problems that took until this morning to fix have prevented me from posting.  So I start with this morning's post.  The only action that our Portfolio have taken in my absence has been for the Dividend Growth and Aggressive Growth Portfolios to Sell their positions in McDonald's down to a one half position as a result of the price of the stock hitting its Sell Half Price.


The Market
    
    Technical

    The Averages (DJIA 10858, S&P 1147) had a decent day yesterday but remain conflicted.  The DJIA has met its time and distance discipline from the 10725 level; so (1) the upper boundary of the trading range has been shifted to 11257 which is the ‘head’ of the recent head and shoulders formation and (2) that same head and shoulders formation has now been negated as an influencing factor.  However, while the S&P closed up, it is still below the 1149 (the ‘left shoulder’ of the comparable DJIA head and shoulders formation).

    Volume picked up a bit; breadth improved; the VIX inched higher closing for a second day in a row above the upper boundary of the current pennant formation.; and our internal indicator has been improving--not enough for warrant a positive call, but getting closer.
 
    Bottom line: as long as the indices are not confirming each other, I am not going to make a directional or upper boundary call.  We wait.

   Fundamental
     
     Headlines

    The economic data made for rough reading for some yesterday (see below).  One would have thought that the shouts of ‘double dip’ would have been reverberating through the airwaves.  Nope.  After an initial decline, the bulls prevailed.  I can make three  arguments to explain this pin action: (1) it is a manifestation of the same schizophrenic behavior [stocks up on bad news and visa versa] we see at inflection points and indeed have witnessed of late, (2) it is in line with yesterday morning’s comments [prices up big on Tepper’s comments but down only a little on Prechter’s forecast] that the bulls may be gaining control in the current stand off or (3) it may be that investors just didn’t see a lot significance to the data: (a) in every study that I have ever seen, there is no correlation between consumer confidence and consumer spending, (b) the Case Shiller index was up, just not quite as much as anticipated--hardly bearish, (c) yes, the Richmond Fed’s index was worrisome; but the weekly retail sales numbers were a positive surprise.

    Here is another explanation (short):
    http://www.zerohedge.com/article/todays-vwap-distortion

Which one is the correct?  I have no idea; but the technicals will probably tell us soon enough; and, as I noted above, there is no percentages in acting ahead of the resolution of the balance of power in sentiment.

Bottom line:  while the fundamentals continue to point away from a ‘double dip’, they are not suggesting anything different than our forecast (a slow painful recovery).  Further, the political environment (which, at the moment, I think is critical) is murkier than I would like; although Jim DeMint clearly gets the picture (see below).  I want to be optimistic; but without a clear signal from the Market that I am missing something, I can’t rationalize a higher Valuation from current levels
   
    Barry Ridholtz on the flash crash (medium):
    http://www.ritholtz.com/blog/2010/09/dereg-structure-caused-the-flash-crash/

    The latest from Ed Yardini (long; but you should read the section on the money multiplier as it has a significant bearing on the likelihood of QE II being successful):
    http://www.ritholtz.com/blog/2010/09/all-qe2-all-the-time/

Economics

   This Week’s Data

    The International Council of Shopping Centers reported weekly sales of major retailers were up 0.4% versus the prior week and up 3.6% on a year over year basis; Redbook Research reported month to date retail chain store sales up 2.5% versus the comparable period a year ago.

    The Conference Board’s September index of consumer confidence came in at 48.5 versus expectations of 52.0 and August’s reading of 53.5.
    http://scottgrannis.blogspot.com/2010/09/confidence-remains-low-and-thats-good.html

    The Richmond Fed’s September manufacturing index was reported a -2.0 versus August report of +11.0.

    The June Case Shiller home price index rose 3.1% versus estimates of +3.3% and June’s reading of +4.2%.
    http://scottgrannis.blogspot.com/2010/09/housing-market-has-adjusted-to-new.html

    Weekly mortgage applications fell 0.8%.
    http://www.calculatedriskblog.com/2010/09/mba-mortgage-applications-purchase.html

   Other

    The latest from Meredith Whitney (medium and today’s must read):
    http://finance.fortune.cnn.com/2010/09/28/meredith-whitneys-new-target-the-states/

    Deflation and discouragement (medium):
    http://pragcap.com/deflation-and-discouragement

    Temporary employment, a precursor to new job creation, keeps on rising (chart):
    http://mjperry.blogspot.com/2010/09/asa-staffing-index-reaches-two-year.html

    Global air traffic near historic highs (chart):
    http://mjperry.blogspot.com/2010/09/global-air-traffic-remains-above-pre.html

    NY Fed model suggests little chance of ‘double dip’ (short):
    http://mjperry.blogspot.com/2010/09/ny-fed-model-chance-of-double-dip-in.html

    The real life argument for tax cuts (short):
    http://scottgrannis.blogspot.com/2010/09/lets-follow-lead-of-sweden.html

    August truck tonnage plunges (short):
    http://www.calculatedriskblog.com/2010/09/ata-truck-tonnage-index-plunged-27.html

Politics

  Domestic

DeMint to shut down the Senate (short):
http://www.clubforgrowth.org/perm/?postID=14150

The new political dichotomy (medium):
http://www.ritholtz.com/blog/2010/09/you-vs-corporations/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29

    Congress just can’t help demagoguing free trade (medium):
    http://cafehayek.com/2010/09/an-open-letter-to-sen-sherrod-brown.html

    And yet (short):
    http://mjperry.blogspot.com/2010/09/us-has-more-than-12000-tariffs.html











Posted 09-29-2010 10:11 AM by Steve Cook
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