Stock prices are free of the January sell off
Steve Cook on Disciplined Investing

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The Market
    
    Technical

    Yesterday would have been really impressive if we had just had some volume.  The Averages (DJIA 10268, S&P 1094) soared, putting clear distance between themselves and the down trend off the January high (9995, 1069).  They even pushed through the former 10238, 1084 support turned resistance level.  This action takes the January to present down trend out of consideration; and as I suggested in a prior post, lifts my comfort level that stocks are now in a trading range (9645-10725, 1009-1150)--even  though the lower boundary is a bit iffy, that is, it could be the recently made lows (9827, 1043).

    As noted above, volume was weak, breadth was good but not as strong as I would have thought on such a strong day, the dollar was down though it remains firmly in an up trend (scoreboard: stocks up, gold up [it broke a December 2009 to present down trend], oil up) and the VIX was down big though it is still in a trading range.

     Bottom line: I think that stocks have confirmed that they are in a trading range and we know the rough parameters of that range.  The big issue is how long will prices remain in that range.  My initial best guess is that it will be a while.  But the operative word is ‘guess’; so we want to take advantage of lower prices when Market forces drive our stocks into their Buy Value Ranges.

   Fundamental
        
       Headlines

    Given the Market’s recent sensitivity to the sovereign debt problems in Greece, stocks’ response yesterday to the more soothing noises coming out of the EU is understandable. Although I thought in sum the statement of the officialdom at all levels amounted to little more than platitudes that just kick the can down the road.  We are not likely done with bad news out of Greece.
    http://www.ritholtz.com/blog/2010/02/the-greek-cockroach/  (medium)

So I am having difficulty reconciling yesterday’s pin action with what appear to be relatively unchanged fundamentals. 

    The other item that caught my attention was the announcement by Indiana democratic senator Evan Bayh that he would retire and not run again this November.  There is a lot of cynical speculation as to his motives for such a move; but the more obvious noncynical conclusion is that in the first instance, this is another seat that will likely become republican (Indiana has traditionally been a red state.)--which could push the senate ever closer to a 50/50 standoff.

    I have over the years been an ardent supporter of standoffs (gridlock); so at first plush this would seem a positive economically.  However, there is a thesis going around propounded by Doug Kass (for whom I have great admiration) that the Market has been going down since Scott Brown’s election because investors don’t want gridlock, they want problems fixed.  That may be true.  But it seems to me that the first step toward that end is to take away the majority rule from an administration that seems woefully out of touch with the wishes of the electorate (first, do no harm).  I just don’t see how is it possible to not have rancorous partisan bickering and to fix problems in a right of center country when the solutions proposed are coming from the most left of center regime since Jimmy Carter.  Problems get fixed in a right center country by right center solutions.

Once the electorate gets the political establishment in line with its wishes, we can start thinking about bipartisan measures to solve the current budget, regulatory and trade problems.  That, however, is not going to happen before November.  So if Doug is correct and investors are upset that there are no solutions forthcoming for the difficulties we face and they will remain so until the solutions come forth, this will likely be a stomach churning Market till the fall.  

    Bottom line: despite the convincing technical performance of the Market yesterday, I had a tough time discerning the fundamental reasons.  Of course, Mr. Market often knows things long before I do.

      
Economics

   This Week’s Data

    Weekly mortgage applications dropped 2.1%.
    http://www.calculatedriskblog.com/2010/02/mba-mortgage-purchase-applications_17.html

    January housing starts rose 2.8% versus expectations of a 2.1% increase,
    http://www.calculatedriskblog.com/2010/02/housing-starts-increase-slightly-in.html

   Other

    A great piece on why a decrease in foreign holdings of US Treasuries is not necessarily a bad thing:
    http://scottgrannis.blogspot.com/2010/02/too-much-hoopla-over-foreigners.html

Politics

  Domestic

Here is a summary of the Rep. Paul Ryan’s (ranking member of the House Budget Committee) plan for fixing the budget problem (long):
http://www.realclearmarkets.com/articles/2010/02/16/rep_ryans_economic_road_map_is_a_good_start_98347.html











Posted 02-17-2010 8:33 AM by Steve Cook