Watch the downtrend line off the recent high on any bounce
Steve Cook on Disciplined Investing


Have You Seen This?


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Have You Seen This?

The Market

    Yesterday, the Averages (DJIA 12356, S&P 1316) closed within their intermediate term up trends (11240-15658, 1287-1716).  Short term,  they are now in the process of re-setting to a trading range; the upper boundaries are 12919, 1372.  However, resistance also exists at the very short term down trend upper boundaries (12537, 1338--this is the level that I am watching the closest for a sign of direction).  Support clearly exists at the lower boundary of the current intermediate term up trend (11240, 1287), though it is also visible at the shoulder line of the recent inverse head and shoulders formation (11995, 1293).

    Volume was light; breadth mixed.  The VIX traded down but remains well within its current trading range.
    The advance/decline line is getting very oversold (chart):

    GLD rose again; but again only enough to stay just ahead of the rising lower boundary of its former short term up trend.  If it continues this kind of progress, it will re-set the short term trend to up.

    The EU parliament approves gold as collateral (medium):

    Bottom line:  while the headlines were mixed yesterday, I still thought that on a relatively uneventful day following three down days (two of which were big down days), stocks would bounce however meagerly.  Well, they tried and couldn’t even close the day flat.  This again addresses the issue of underlying momentum which continues to slip slide away.  The indices are approaching the lower boundary of their intermediate term up trends.  Holding those support levels is the next test for stocks.  


    While the Greek fiasco/EU sovereign debt problem remains in the forefront of most investors’ minds, there was little news flow on the subject yesterday.  Rather the chatter on Wall Street centered around the economic numbers: new homes sales--very good; weekly retail sales--so, so; the Richmond Fed economic index--a big disappointment.  Frankly, I thought that there was enough good news in these stats to prompt a rebound in stock prices; that is, if the bulls still had any life in them.  They tried and failed; and I think that this says more about the Market [losing internal strength] than it does about the economy [more of the same erratic growth data].  This gets me all warm and fuzzy, at least for a day, since it supports our view that stocks are over valued based on our slow growth economic scenario.

Bottom line:  Fair Value on the S&P is currently around 1275-1280 which is not all that far away.  That said, save for the stocks on our Buy Lists, there are only a few stocks approaching a Buy level.  So even though a test of the 1283 area might prompt me to put a little money to work, I am not persuaded to any major move in as long as our Buy Lists contain a dearth of names. 

    For those of you who want to own bank stocks (short):

    For the bear’s amongst you (charts):


   This Week’s Data

    The International Council of Shopping Centers reported weekly sales of major retailers down 1.1% versus the prior week but up 3.1% versus the comparable period a year ago; Redbook Research reported month to date retail chain store sales up 2.6% versus the similar timeframe in April and up 3.4% on a year over year basis.

    April new home sales rose 7.6% versus expectations that they would be unchanged.

    The May Richmond Fed business conditions report came in at -6 versus estimates of +9.

    Weekly mortgage applications rose 1.1% while purchase applications were up 1.5%.

    April durable goods orders declined 3.6% versus expectations of a 2.5% decline and March’s reading of +4.1%.


    The latest from Pimco’s Bill Gross (7 minute video):

    An in depth look at the latest Consumer Metrics Institute’s data (long):



More evidence of the Wall Street/Washington connection (short):

Posted 05-25-2011 8:16 AM by Steve Cook