A pot pourri of minor events
Steve Cook on Disciplined Investing


Have You Seen This?


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Have You Seen This?

The Market

    The indices (DJIA 12197, S&P 1310) sold off modestly yesterday; but they remain within their intermediate term up trend (11722-15146, 1228-1657) and short term trading range (11554-12405, 1247-1345).

    Volume continues low; breadth deteriorated.  The VIX jumped 8% but still closed below the former upper boundary of a trading range (resistance), turned support, now turned resistance again--in words, no help in pointing at future direction.

    The cumulative advance/decline line moves to new highs (chart):

    Gold (GLD) finished down on the day but is still above the lower boundary of its intermediate term up trend.  I know that I sound like a broken record, but before taking action, I await a break either below the lower boundary of the intermediate term up trend or above the quintuple top.

    Is gold a short? (medium):

    Bottom line: the intermediate and short term trends need to resolve their differences; though the strength that stocks have demonstrated in face of a steady flow of negative news suggests that short term trading range will re-set to an up trend sooner or later. While I am not comfortable with valuations, the momentum has been so powerful that I am doing my best to sit back and enjoy the rise.  That said, it doesn’t mean that we ignore our Sell Half Discipline or the tight Stops that have been set to protect our profits.


    Relative to the last two weeks, yesterday was pretty tame on the news front:, although there was a lot happening on the periphery of many issues:
(1)    the economic data was mixed: personal income was up slightly less than expected, personal spending slightly better than anticipated, pending home sales were up modestly,

(2)    in Libya the air bombardment seems to be helping the rebels to advance; though I am still confused about the protestors’ agenda and what it might mean for the US as well as oil supplies and prices.  The good news is that Qatar announced that it would assist the rebels in marketing the oil production from the fields in eastern Libya.

Obama weighed in last night and clarified US objectives--a little.   He said that removal of Gaddafi was not the end game; protecting innocent civilians was.  However, now that the rebels are attacking Gaddafi’s home town, where as I understand it, he has much support, won’t the rebels be killing innocent civilians?  And just to extend this argument a bit further, what happens if the rebels win and there are reprisals?  The point here is that ‘ a little’ are the operative words.

In Syria, the death toll among the protestors has reached 61.  Which begs the question, if we are bombing Libya to save the ‘innocent’ civilians, what is so different about Syria?  And not to continue to rag on Obama--but I will.  Why are we trying to get rid of a ruthless dictator [Gaddafi] who basically gave up his WMD’s and got out of the terrorist business and we are abiding a ruthless dictator [Assad] that facilitated the main route for foreign fighters into Iraq, built a WMD plant [the Israelis obliterated it, you will recall], remains in the terrorist business via active support of Hezbollah and Hamas, interferes in the internal affairs of another sovereign nation [Lebanon] and is suck buddies with Iran?

(3)    in the ongoing see saw information flow on the level of radioactivity [it’s rising, it’s under control, it’s rising, it’s under control] in Japan, the latest headlines are that it is getting worse.  I don’t know whether to believe this or not.

(4)    congress is back in session and the rhetoric is already heating up on spending cuts [the current short term funding resolution ends on April 8th].  How this problem is resolved could impact the assumptions in our Models; but I have no confidence in what that will be.

(5)    Fed bank presidents from every direction are expressing concern about QE2 [Bullard of St. Louis] or about inflation [Fisher of Dallas and Plosser of Philadelphia]--which I find encouraging.  On the other hand, Gentle Ben has yet to advocate any deviation in his balls to wall strategy of monetary expansion.  That doesn’t mean that there isn’t increasing internal pressure to stop the explosion in reserves; and if there is, that would be good news.  At the moment, all we can do is hope.

(6)    finally, the ECB has started ‘stress test’ number two on the European banks.  Let’s hope it a bit more stressful that number one.

Bottom line: stocks are overvalued and if the current momentum is sustained, they will get more overvalued.  However, nothing in the flow of either domestic or international economic data or political events provides any reason to alter the assumptions in our Models.  Indeed, as I have noted previously, if anything, I am concerned that our economic forecast and our Valuation Model may be too optimistic.

Right now, I am dealing with this lack of consistency by trying my best to enjoy this ride while being very sensitive to our Sell Discipline.



  International War Against Radical Islam

    The Libyan tab (short):

    The end is coming?  This can’t be good news. (medium):

Posted 03-29-2011 8:19 AM by Steve Cook
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