Will this breakout be confirmed?
Steve Cook on Disciplined Investing

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Have You Seen This?


The Market
    
    Technical

    The Averages (DJIA 12595, S&P 1347) had a great day.  Both index remains well within its intermediate term up trend (11972-15392, 1257-1686).  Under our time and distance discipline, the DJIA is one day away from confirming that its short term trend (11554-12405) is re-setting from a trading range to an up trend.  The S&P broke above the upper boundary of its short term trading range (1247-1345); so our time and distance discipline is now operative for the S&P.

    As positive as the above seems, I did another check of our internal indicator which had actually deteriorated since the last test.  Out of a 149 stock Universe, 63 are trading above their February highs (comparables to 12405, 1345), 42 are not and 44 are too close to call.  I wouldn’t call this a negative reading; I am just saying it is not as positive as it was a week ago which is a negative (relatively).

    Volume rose; breadth improved.  The VIX fell but remained above the lower boundary of its trading range (therefore not confirming the break out of the S&P).

    Gold (GLD) declined but closed well within its intermediate up trend as well as a developing short term up trend.

    Bottom line: Yesterday was potentially the first step in resolving the several divergences that we have been monitoring of late.  As I noted in yesterday’s Morning Call, until our time and distance discipline confirms (or not) the reset of the DJIA and S&P to an up trend, I remain on the sidelines.  This inclination is bolstered by the deterioration of our internal indicator. 

   Fundamental
      
     Headlines

    The chattering class continued to dwell on the Fed meeting and Bernanke’s press conference this afternoon.  As near as I can tell after talking with guys who know a lot more than me about the Fed, even though Bernanke’s press conference is unprecedented, nothing else has changed; that is, the he intends to maintain an easy money policy.  So if Fed generated liquidity is the primary force behind rising stock prices, then the Market is going higher.

    The other focus was more quarterly earnings reports.  While they were generally mixed, the big names--3M, Ford, UPS--were positive and this really added fuel to the upward surge in prices.  Overall though, to date this quarter continues to come in ahead of my expectations and may require an adjustment to our Model.

    In the economic news, weekly retail sales were up and the Conference Board’s index of consumer confidence came in better than expected, continuing last week’s run of positive numbers.  On the other hand, the February Case Shiller home price index was down; and that’s not so good.

    Finally, on the political front, nothing is new.  Geithner had the audacity to claim that a strong dollar is a key US policy.  I know that this guy isn’t that stupid.  What p***es me off is that he thinks that the US electorate is.  The US dollar is an unmitigated disaster and will be until we get more responsible fiscal/monetary policies. 

Obama elected the course of so many of His predecessors--instead of proposing policies that would help ameliorate the oil supply problem, He blames the oil companies , speculators etc for high prices and begins another fruitless search for bad guys.  He needs to look in the mirror.  How can economic conditions improve with leadership like this?

    Bottom line: both the technicals and fundamentals are potentially pointing at valuations higher than those calculated by our Model.  We are not there yet, so for the moment, our Portfolios are taking no action.  However, it clearly is looking more likely that I will have been wrong.  If so, I have outlined our response which our Portfolios will pursue when appropriate.

 
Economics

   This Week’s Data

    The International Council of Shopping Centers reported weekly sales of major retailers up 0.4% versus the prior week and up 3.2% versus the comparable period last year: Redbook Research reported month to date retail chain store sales up 1.2% versus the similar time frame last month and up 5.3% on a year over year basis.

    The Conference Board reported its April index of consumer confidence at 65.4 versus expectations of 65.0 and 63.4 recorded in March.
    http://dshort.com/articles/Conference-Board-Consumer-Confidence-Index.html

    The February Case Shiller Home Price Index declined 3.3%.
    http://www.businessinsider.com/chart-of-the-day-case-shiller-february-2011-4?utm_source=Triggermail&utm_medium=email&utm_term=Clusterstock%20Chart%20Of%20The%20Day&utm_campaign=Clusterstock_COTD_042611

    Weekly mortgage applications fell 5.6% while purchase applications dropped 13.6%.
    http://www.calculatedriskblog.com/2011/04/mba-mortgage-purchase-application_27.html

   Other

    I have posted several articles by this author who argues against an immediate reduction in government spending but for a cessation of printing money.  I am beginning to appreciate his thesis.  The only issue that he doesn’t address adequately is business and consumer reaction to a more fiscally responsible, less regulatory government.  I think that response would be increased spending and investment which would take the place of government spending.  In any case, I will continue to follow his arguments because we are rapidly approaching the time in which they will be very relevant.
    http://pragcap.com/austerity-doesnt-shrink-the-debt-in-a-balance-sheet-recession

    Geithner in clueless (short):
    http://scottgrannis.blogspot.com/2011/04/geithners-cognitive-dissonance.html

Politics

  Domestic

  International War Against Radical Islam

    On Muslim charity (long):
    http://www.nationalreview.com/articles/265437/uncharitable-andrew-c-mccarthy








Posted 04-27-2011 8:19 AM by Steve Cook