Stocks need to recover to 11985, 1294 quickly; otherwise look out below.
Steve Cook on Disciplined Investing


Have You Seen This?


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Have You Seen This?

The Market

    The Averages (DJIA 11855, S&P 1281) had another rough day.  Both index confirmed the break of its short term up trend (12215-13192, 1329-1428); however, they remain well within their intermediate term up trend (11593-15016, 1216-1645).  The big question now is, what happens to the short term support at 11985, 1294.  Clearly, prices closed below that level; but our time and distance discipline is now applicable.  It seems likely that today stocks will get some reflective follow through to yesterday afternoon’s rebound; and that should give us an indication of its strength.  If this level doesn’t hold, the next stop is the lower boundaries of the intermediate term up trends (11593, 1216).

    Volume increased; breadth declined and it appears that the flow of funds indicator has rolled over.  The VIX spiked, finishing the day well above the upper boundary of its recent trading range.  It is also tracking a trend of consecutive higher lows, suggesting a developing up trend--not good for stocks.

    Gold (GLD) fell and closed below the lower boundary of its intermediate term up trend--but just barely.  I want to watch trading this morning before deciding if action is needed.

    Bottom line:  this correction has evolved into something more than a pause that refreshes.  On the other hand, it still doesn’t have all the trappings of a top. The key in the very short term is whether or not stocks can recover above the 11985, 1294 level.  If prices can rebound and hold, I may want to nibble.  If not, then I want to lighten up on stocks that are challenging crucial support levels.
    The latest from Fusion IQ (short):!+Mail

    Want to get really depressed? Read this (medium):

    The latest from Trader Mike (short):

    Here are a couple of interesting charts that help put current market levels into perspective:


(1)    the Japanese tragedy continued to dominate the headlines.  The problem remains that there is no end in sight.  Indeed, as time goes on, the more apparent it is that authorities do not have control of the situation.  That doesn’t mean we are facing a disaster scenario; it does mean that we don’t know how this will play out. So despite our Markets rather sanguine response to date, I think caution is the order of the day.

An estimate of the impact of the Japanese tragedy on the global economy (medium):!+Mail

       And on oil prices (medium):!+Mail

(2)    the FOMC met yesterday.  In the statement released afterward, the Fed didn’t provide any surprises.  It left rates unchanged; opined that the recovery is progressing; but also promised that QE2 will remain in place [which seemed to spark the afternoon rally bringing stocks well off their lows] and assured us all the high oil prices won’t cause inflation.  On the latter, it may have caught a break short term--with the Japanese demand temporarily diminished and speculators barfing out oil futures contracts, the price of oil has taken a hit.  The operative words being ‘short term’; longer term every nuclear plant on the planet will likely come up suspicion and drive energy creation toward petroleum based fuels.

(3)    finally, house passed a continuing resolution extending the debt ceiling for three weeks and adding another $6 billion in budget cuts.  Senate and presidential approval are required but it looks like a crisis has been averted again.  As far as I am concerned, they could keep doing this forever--cutting a $100 billion per year with no new programs, what a concept.  Unfortunately, political reality will impose itself sooner or later and then the real budget battle begins.  I give the republicans credit for what they have done so far; but the heavy lifting still lies ahead.

    Bottom line: the risks to the global economy have increased over the last couple of weeks.  That is a double edged sword.  If the risks materialize, then they jeopardize the US recovery.  If they don’t, they have prompted investors to bring stocks down  to Fair Value as calculated by our Model; and that gives us a chance to Buy great companies at attractive prices.  So I am feeling more comfortable making purchases if events suggest that course--they are just not doing so yet.   

    The latest from Richard Russell (8 minute video):!+Mail


   This Week’s Data

    The International Council of Shopping Centers reported weekly sales of major retailer rose 0.1% versus the prior week and 3.1% versus the comparable period a year ago; Redbook Research reported month to date retail chain store sales fell 0.5% versus the similar timeframe last month but were up 2.0% on a year over year basis.

    The February import price index was up 1.4% versus expectations of up 0.8%; the reason for the larger than anticipated increase was, not surprisingly, oil.

    Weekly mortgage applications fell 0.7% while purchase applications dropped 4.0%.

    February housing starts plunged 19.6% versus forecasts of a 5.2% decline; building permits were off 8.1% versus expectations of a 1.2% increase.

    The February producer price index (PPI) came in at +1.6% versus estimates of +0.6%; core PPI was reported at +0.2% in line with forecasts.

    This is a very long article by David Stockman in which he looks at the financial crisis, its roots and consequences.  It is not very optimistic.

    The supply/demand outlook for Treasury debt (medium):

    Here is an addendum to the above on the risks to the economy of all that liquidity (short):
    Early warning of recession? (medium):!+Mail

    Global economic activity looks positive for the moment (short):



George Will on Obamacare and recent court decisions (medium):

    This woman is only decent regulator in DC; for them all to be like her (medium):


    More on the EU problems (medium and a must read):

    The long term strategic implications of the nuclear disaster in Japan ( a bit long but worth the read):

Posted 03-16-2011 8:20 AM by Steve Cook