What Happened--Part II
Steve Cook on Disciplined Investing

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Economics

   This Week’s Data

    The International Council of Shopping Centers reported last week’s sales of major retailers down .4% versus the prior week and down .1% versus the comparable period in 2008 (the strongest report to date of this year); Redbook Research reported month to date retail chain store sales up .1% on a year over year basis.  Both data series were impacted positively by the timing of the Easter/Passover holiday.

   Other

    Housing starts in historical perspective:
    http://www.ritholtz.com/blog/2009/04/total-housing-starts-1959-2009/

Politics

  Domestic

Earth Day statistics:
http://mjperry.blogspot.com/2009/04/earth-day-2009-air-qualitys-better-than.html

  International War Against Radical Islam

    Another decision by our Philosopher King where politics trumps national security:
    http://article.nationalreview.com/?q=NzI2ZTA1MDUzYjU0MjVhMDFiOWIwMzFhNjIyYmRjOTE

The Market
    
    Technical

    I begin with my technical comments in yesterday’s Morning Call:

Barring a big reversal today, (1) it appears that volatility isn’t likely going to continue its downward move to levels characterized by upward trending markets, (2) the DJIA 8401, S&P 876 level becomes the new resistance level, at least for the short term and (3) most important, we should hopefully get a feel for where support exists. 

Clearly, the March lows (6432, 666) represent one major support area as does the November 2008 lows (7437, 740).  In addition, there are a couple of other levels where minor support could exist.  Wherever the test occurs, I hope that it has high volume and a soaring VIX, just so we can confirm that the bottom has been made.

    Certainly, the most intelligent thing I said was ‘barring a big reversal tomorrow’.  At the time I didn’t think that it would that prescient.  But it is a great example of why I insist on the need for time or distance in order to make the Market prove that it has changed direction/penetrated a resistance/support level. 

    That said, (1) the VIX closed right on its prior support level, so we must await at least another day to see whether it will continue its ‘downward move’, (2) DJIA 8401, 876 remains a new short term resistance level and (3) any test of a support level is now open to question.

    My bottom line is: (1) DJIA 8401, S&P 876 is now a resistance level and the March lows ((6432, 666) are the most identifiable support level, (2) our Portfolios will move to 28% in cash at the S&P 900 level and 24% in cash at the S&P 740 level (they are now at 27%) and finally (3) it could be that all of the above was useless blather and that Monday and Tuesday’s pin action was simply part of the same struggle of the preceding week between buyers and sellers around the S&P 840 area. 

   Fundamental
   

    Why capital structure matters from Mike Milken:
    http://online.wsj.com/article/SB124027187331937083.html

    Those bank earnings that gave the Market happy feet were not all they were cracked up to be:
    http://www.ritholtz.com/blog/2009/04/magic-bank-profits/

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    Another aspect of yesterday’s pin action that bears comment is the impact that Treasury Secretary Geithner’s testimony before congress in which he said at one point that the banks had enough capital, most don’t need more and he expects to get a plenty of money back from returning TARP funds.  But then at another juncture, he seemed to suggest otherwise. 

Investors clearly chose to hear the first version.  Me, I am confused as are a couple of guys that are a lot smarter than me that I talked to after the testimony.  The good news is that we will know his intent soon enough; and we also know that investors are not going to be favorably disposed to more government control of the banking system.





Posted 04-22-2009 8:31 AM by Steve Cook