Another missed opportunity for the bears
Steve Cook on Disciplined Investing

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Have You Seen This?


The Market
    
    Technical

    The Averages (DJIA 11094, S&P 1173) experienced some volatility--down early in the trading day but closing near the flat line.  They remain within their current trading ranges (9645-11257, 1042-1220) and within the potential re-set up trend off the March 2009 low (10345-13584, 1078-1482).

    Volume was over 5 billion shares traded for the second day in a row; breadth was mixed; and the VIX rose but did nothing to call into question its newly re-set down trend.

    Bottom line: the question in my mind now is, are stocks in a trading range or re-setting to an up trend?  Key points to watch are (1) the upper boundaries of the indices trading ranges [11257-1220] to see if they hold, (2) the former upper boundaries of the current range which were resistance now turned support levels [10725, 1149] and (3) the rising lower boundary of the hypothetical new up trend [10345, 1078]. 

Clearly from yesterday’s closing prices, there is considerable room in both directions for stocks to trade before challenging any meaningful resistance/support.  So technically speaking, there is nothing to put us on high alert.  We watch.

    A very bullish technical look at gold (medium):
    http://www.minyanville.com/businessmarkets/articles/gold-prices-currency-debasement-dollar-collapse/10/12/2010/id/30500?camp=featuredslidealso&medium=home&from=minyanville

    Here is another one.  Lots of technicians telling me that I was wrong to take some money off the table (chart):
    http://dshort.com/articles/Kimble/101015-Gold.html

    A different perspective on the post November stock market (medium):
    http://pragcap.com/gridlock-good-market

    A look at market sector money flows (charts):
    http://tickersense.typepad.com/ticker_sense/2010/10/market-sector-money-flows.html

   Fundamental
     
     Headlines

    Several items that bear mentioning:

(1)    stocks were off early, according to the talking heads because of economic news which was not good: Angel jobless claims were worse than anticipated--to which I would ask, if QE2 is driving this Market and bad economic news increases the probability of an aggressive QE2, then wouldn’t a bad jobs report be good news? Beer the producer price index came in much higher than expected--to which I would ask, if one of the goals of QE2 is to raise inflationary expectations, as the Fed says it is, then wouldn’t a higher inflation number be good news?  Exactly, stocks should have been up on this news if QE2 is the force pushing prices up.

More on why QE2 isn’t necessary (short):
http://scottgrannis.blogspot.com/2010/10/qe2-is-not-only-unnecessary-but-foolish_14.html

(2)    later the Treasury’s 30 year note auction did not go well.  A first sign that the rest of the world is starting to have reservations about financially supporting erratic, irresponsible US monetary/fiscal policy?  It is way too soon to make that call; but it does bring that risk into sharper focus and put us on alert for further signals that would support that notion.  Were that to happen, it would mean rising interest rates, perhaps rapidly rising interest rates which would not be good for US debt service, the mortgage market, bond investors and probably stock prices.

http://www.zerohedge.com/article/13-billion-30-year-auction-results-primary-dealer-stick-save-prevents-rout

(3)    the foreclosure fraud issue is really starting to weigh on investors.  In the last two weeks, I have tried to include as much sound analysis on this subject as possible through the links in the Economics section of Morning Calls. I think that this problem like the European sovereign debt crisis has the potential of driving another stake in the heart of the banks.  Not that it necessary will; but investors won’t care.  Just look at the performance of the bank stocks yesterday.

The foreclosure crisis and the Fed (long but today’s must read):
http://www.zerohedge.com/article/guest-post-why-white-house-against-freezing-foreclosures-look-feds-suddenly-worthless-trilli

          The potential size of the foreclosure problem (short):
          http://www.zerohedge.com/article/quanitying-full-impact-foreclosure-gate-hundreds-billions-start

              The mortgage foreclosure fraud problem keeps getting uglier (medium):
           http://www.bloomberg.com/news/2010-10-14/it-isn-t-insider-trading-when-congressmen-do-it-commentary-by-ann-woolner.html

         And (medium):
          http://www.nakedcapitalism.com/2010/10/are-the-bank-foreclosure-moratoriums-more-pr-than-real.html


(4)    there was some good news: a Florida judge ruled that 20 states could pursue their suit to have Obamacare declared unconstitutional.  Wouldn’t it be joyfully ironic if after doing so much nefarious liberal legislating from the bench over the last five decades that the courts would then undue one of the most damaging pieces of liberal legislation ever?  Then we wouldn’t have to worry about the new congress having the stones to do it.  Aaah, hope springs eternal.

Bottom line:  yesterday was another one where investors had plenty of reasons to tank stock prices; but it just didn’t happen. Plus there was volume to boot.  How many times in the last year have I observed that stocks were going up on no volume but down on heavy volume?  Now the volume is coming in on the buy side.  However skeptical I may be about QE2 and the re-birth of a fiscally conservative republican establishment, the Market continues to tell me that I am wrong.  This cognitive dissonance won’t be relieved anytime soon.  Till it is, my strategy will be to respond positively but in a hedged manner as the Market pushes through technical barriers.  However, our Portfolios will act according to our Sell discipline when stocks enter their Sell Half Range.
 
     Thoughts on Investing--from the Apprenticed Investor


Most investors do not have the tools to play a bottom-guessing game. They lack the ability to wait for lows, and they lack the skill set to see the bottom when it's there. Too few employ stop losses or risk management. Worst of all, even when they do, they lack the discipline to follow their own rules.


So you ask: Is it safe yet?


Unless you know -- and can avoid the dentists drill -- waiting for a major downtrend to be broken is the best way to preserve capital and redeploy cash intelligently.


One of the key differences between individual investors and institutions is their respective job descriptions. Mutual funds, pension plans, hedge funds get paid to take extraordinary risks in order to improve their returns.


Individuals, on the other hand, do not...


Might today be the bottom? My best guess is that we are getting nearer a tradeable low -- the oversold point where a rally can run a few days to a few weeks. But my instinct is that we are nowhere near the 2008/2009 recession bottom (This was written in June 2010). But why guess? Why not wait until the downtrend is decisively broken?


The advantages of nailing a bottom precisely right for the individual are quite minor, especially relative to the disadvantages of being too early and losing precious capital.

 News on Stocks in Our Portfolios

    WW Grainger (Dividend Growth Portfolio) reported third quarter earnings per share of $1.99 versus expectations of $1.82.

Economics

   This Week’s Data

    Key excerpts from Bernanke’s early morning speech (medium):
    http://www.calculatedriskblog.com/2010/10/bernanke-appears-to-be-case-for-further.html

    The September consumer price index (CPI) rose 0.1% versus expectations of a 0.2% increase;  core CPI was unchanged versus forecasts of up 0.1%.
    http://econompicdata.blogspot.com/2010/10/threat-of-consumer-disinflation.html

    September retail sales  jumped 0.6% versus estimates of +0.5%; ex autos, they rose 0.4% versus an anticipated increase of 0.3%.

    The October New York Fed index of general business conditions soared to 15.73 versus expectations of 5.0 and a September reading of 4.14.

   Other

    Weekly rail traffic continues to improve (short):
   
http://mjperry.blogspot.com/2010/10/weekly-rail-traffic-port-of-savannah.html
\

    A different take on yesterday’s trade numbers (medium):
    http://mjperry.blogspot.com/2010/10/us-international-trade-exports-imports.html

    An updated chart on who is paying US taxes (short):   
    http://scottgrannis.blogspot.com/2010/10/our-highly-progressive-tax-code.html

Politics

  Domestic

More ‘do what I say and not what I do’ from the power elite (medium):
http://www.bloomberg.com/news/2010-10-14/it-isn-t-insider-trading-when-congressmen-do-it-commentary-by-ann-woolner.html











Posted 10-15-2010 8:20 AM by Steve Cook