If stocks don't fall on news like this, what happens if we get really positive news
Steve Cook on Disciplined Investing


Have You Seen This?


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Have You Seen This?

The Market

    The Averages (DJIA 12018, S&P 1293) closed modestly lower yesterday; but they remain within their intermediate term up trend (11662-15086, 1223-1652) and their short term trading range (11554-12045, 1247-1345). From a technical perspective, the question now is, does the short term trading range re-set to an up trend or does the intermediate term up trend re-set to trading range.  At the moment, I think that the weight of technical evidence is on the side of a re-set of the short term trading range; though as you know, that is not supported by our Valuation Model.

    Volume was even lower than it was on Monday; breadth weakened; the VIX was down but closed right on the upper boundary of its recent trading range which is now acting as support.  If this indicator bounces from current levels, it could be a good hedge for a weaker market.

    Gold (GLD) was off fractionally, leaving it between the quadruple (quintuple?) top and the lower boundary of its intermediate term up trend.  I am still waiting for a move through one of these two trend lines before acting.

    Bottom line: whether I understand it or not; whether not our Valuation Model supports it or not; this Market has had and still has a bid under it despite news that I would have thought would take prices to much lower levels.  Supporting this underlying strength, when I look at individual charts of stocks in our Universe, there are almost no indications of any kind of internal weakness.

    On the other hand, there are very few stocks that are in their Buy Range; so there is little to prompt spending a lot of cash. Our Portfolios did put a little cash to work yesterday in recognition of strong technicals; but again only in stocks that are in their Buy Value Ranges.  That done, there is really nothing left to do but sit back, enjoy the ride and pay close attention to the Sell Half Ranges and the previously tight Stop Losses.


    There was a pot pourri of news events yesterday, though none seem to command a lot of investor attention:

(1)    the economic data was poor [weak retail sales, a poor manufacturing indicator and declining housing prices]; although all these stats are secondary indicators,

(2)    the Japanese keep telling us that they are gaining control of the situation at the damaged nuclear plants; but there are also reports of radioactivity in their food and water supplies.  If it gets worse, food prices will likely be affected,

The horror story of the day:

(3)    the EU sovereign debt crisis is percolating again: Irish interest rates are rising, the Greek budget deficit came in [surprise] larger than expected, the Portuguese parliament votes today on proposed austerity measures of the current administration,

(4)    turmoil continues in Libya, Yemen, Gaza and Syria; and no one knows who’s on first.

STRATFOR on Libya (a bit long but today’s must read):

Bottom line: if the technicals are pointing at higher stock prices, which they seem to be, then it won’t be long before the S&P is again noticeably overvalued, as calculated by our Valuation Model.  I still have found nothing that would cause me to alter our Model to remedy this potential discrepancy.  Indeed, how many times have I said in these comments that I don’t have a clue why stocks are going up?
I have suggested an answer to my dilemma, i.e. that the liquidity flowing out of QE2 is the primary driving force behind rising prices. If true, I may not like it, but that doesn’t change the facts on the ground; and unfortunately it means that (1) valuations [our Valuation Model} have nothing to do with the price of eggs and (2) the only thing that matters is whether or not there will be a QE3.  Unfortunately, the Fed has been very circumspect about committing itself one way or the other.

So our task, as I implied in the Technical section, is sit back and let all those dollars drive stock prices up while having our hand on the Exit door--paying very close attention to our Sell Half discipline and those tight Stops that have already been set.

    The latest from David Rosenberg (long):

    Update on one valuation method (market cap as a % of GDP):


   This Week’s Data

    The International Council of Shopping Centers reported weekly sales of major retailers down 0.1% versus the prior week but up 3.0% versus the comparable period a year ago; Redbook Research reported month to date retail chain store sales down 0.4% versus the similar timeframe a month ago but up 2.4% on a year over year basis.

    The Richmond Fed reported its March index of manufacturing activity at 20.0 versus 26.0 recorded in February.

    January housing prices declined 0.3%.

    Weekly mortgage applications rose 2.7%, as did purchase applications.


    The latest results from the MIT billion price project (short):

    Household balance sheets continue to improve (short):

    More on the dollar (medium):



Public ignorance and the coming budget crisis (medium):

  International War Against Radical Islam

    Democratic senator Jim Webb on Libya (4 minute video):

Posted 03-23-2011 8:08 AM by Steve Cook