Yesterday the Averages broke above the January to present down trend; can they hold?
Steve Cook on Disciplined Investing

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The Market
    
    Technical

    The indices (DJIA 10144, S&P 1078) remain in a trading range defined by (9645-10725, 1009-1150).  In yesterday’s pin action both Average traded above the upper boundary of the very short term down trend off the January 2010 high (10072, 1077).  As I noted previously, if this trend line is broken, it will strengthen my conviction that stocks are in a trading range and not resuming a major down trend.  However, our time and distance discipline still applies here; so we need a couple of days or more upward momentum before declaring the trend broken.
    http://www.bespokeinvest.com/thinkbig/2010/2/11/intraday-sp-500-chart-since-119.html

    Other factors in yesterday’s trading, volume was very weak (again probably weather related); breadth improved; the dollar declined (scoreboard: stocks up, gold up, oil up); and the VIX fell almost 5%--although it is in a short term up trend (that’s bad).

    Finally, I looked at our internal indicator last night.  Of 162 stocks in our Universe, 27 remain in their March to present up trend, 61 broke that up trend, formed a base and then broke above their January to present down trend (as the DJIA and S&P did yesterday), 49 broke their March to present up trend and have formed a base but remained below the January to present down trend, and only 25 have broken their March to present up trend and are in a down trend.  That is positive but in line with yesterday’s DJIA and S&P performance.  What makes me feel warm and fuzzy is percentage of stocks (85%) that are either in an up trend or have formed a base.  Again it supports the notion that stocks are in a trading range rather than being poised to go lower.
 
    Bottom line:  the indices move through the very short term down trend is a positive development; but we need some time/distance before considering the commitment of funds.

    The latest from Trader Mike:
    http://tradermike.net/2010/02/february_11_2010_stock_market_recap

   Fundamental
       
    Not only have fourth quarter earnings been coming in better than anticipated, guidance on 2010 earnings is also improving (chart):
    http://www.bespokeinvest.com/thinkbig/2010/2/11/positive-guidance-holds-steady.html

      Headlines
 
    Not much discussable news yesterday.  The EU said that they would bail out Greece but neglected to say how.  While the Market liked it (euro up, dollar down, stocks up) anyway, the bottom line hasn’t changed--with the exception of not rescuing Greece whatever plan that they come up with will likely not solve the problem. 
    http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7216363/Will-markets-call-EU-bluff-on-Greek-rescue.html   
   
    There was some chatter about an interview Obama did with Business Week in which He alleges that He is a dyed in the wool capitalist.  That apparently will get a lot of air time n the next couple of days.  Actions speak louder than words.

    Here is a re-hash of the interview:
    http://www.bloomberg.com/apps/news?pid=20601087&sid=aDLk0lPYaSa0&pos=1

    Bottom line: the Greek problem will probably not be solved; the more important issue is, is the rest of the world taking stock of Greece’s mistakes and acting to correct their own policies.

    The argument for letting Greece go belly up (medium):
    http://www.bloomberg.com/apps/news?pid=20601039&sid=a_l2qpfPWwAQ

      Thoughts on Investing--Lessons from the last decade from Jeremy Grantham

“What a Decade!” follows, providing Grantham’s thoughts on the past decade including the following list of lessons learned:

• The Fed wields even more financial influence than we thought.

• Low rates have a more powerful effect on driving financial assets than on driving the economy.

• The Fed is capable of being extremely out of touch with the real world - “What housing bubble?” - plus more doctrinaire - “No, the low rates had no effect on housing” - than anyone could have imagined.

• Congress is nearly dysfunctional, primarily controlled by large corporations, and hamstrung by the supermajority now routinely required in the Senate.

• Government administrations can be incompetent for long periods.

• Poor leadership can really damage a country’s hard-won reputation in a mere 10 years.

• Obama is not a miracle worker!

• The leadership of major corporations can be very lacking in insight and competence on a fairly routine basis.

• The two time-tested investment tools, value (P/E ratios and P/B ratios) and price momentum, are now much more heavily used and not so reliable as they once were, say from 1977 to 1997.

• Asset classes really are more inefficiently priced than individual stocks on average, and therefore offer greater opportunities for adding value and reducing risk.

• Developed countries, including the US, are past their prime compared with developing countries: it is indeed a new world order.

• Education and training are the keys to increasing wealth on a sustainable basis and the US is in danger of losing its once large edge here.

• We all live on an island, which can be overexploited and turned into a barren Easter Island if we are not careful. Resources are finite and biodiversity is fragile, and both must be protected. Carbon emissions are the single greatest threat.

• Being a global policeman is expensive, and somewhere between difficult and impossible.

• The Fed learns no lessons!

    News on Stocks in Our Portfolios

    More fourth quarter earnings per share reports:

                                 Reported        Expected

Pepisco                    $.90            $.91
Phillip Morris Int’l      .81              .78
VF Corp                  1.62              1.47

 Economics

   This Week’s Data

    January retail sales were up 0.5% versus estimates of a 0.2% rise.
    http://www.calculatedriskblog.com/2010/02/retail-sales-increase-05-in-january.html

   Other

    Developments in the mortgage (foreclosure) market (short):
    http://www.ritholtz.com/blog/2010/02/strategic-non-foreclosure-becomes-official-policy/

    Update on the Fed balance sheet (chart):
    http://www.zerohedge.com/article/federal-reserve-balance-sheet-update-week-february-11

    The latest data on rail traffic (chart):
    http://pragcap.com/rail-traffic-continues-to-trend-higher

Politics

  Domestic

History lessons on solving high government debt problem (medium):
http://www.capitalspectator.com/archives/2010/02/history_lessons_1.html#more

  International War Against Radical Islam

    How to avoid the coming clash between the US and China (long):
    http://www.ritholtz.com/blog/2010/02/andy-xie-steering-out-of-a-smash-up-no-one-wants/









Posted 02-12-2010 8:30 AM by Steve Cook