Friday notwithstanding, we got more clarification last week and that's good
Steve Cook on Disciplined Investing

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Have You Seen This?


The Market
    
    Technical

    The indices (DJIA 10097, S&P 1064) bounced (down) off the upper boundary of their down trend line, leaving them well within their current down trend (9014-10298, 967-1090).  Volume was the higher than any day during the recent leg up and breadth was horrendous.  In addition, the VIX bounced off a support level--not a positive for stocks.  On the other hand, our internal indicator is giving a very up beat reading: in our Universe of 157 stocks, 98 are trading above their April/June down trend, 52 are not, and 7 are too close to call.  This is so strong a reading, that I am assuming that it means that stocks are returning to a trading range and that 9645, 1009 will prove to be the low.

    Bottom line: I am encouraged by our internal indicator; my inclination will be to Buy on a bounce (a higher low than 9645, 1009).

       Monday Morning Chartology

    The S&P touched the upper boundary of the down trend then rolled over.




 

    Gold broke the lower boundary of its up trend.  I marked a very short term support level.  If gold breaks that level and fulfills our time and distance discipline, our Portfolios will likely lighten up to protect profits.





 

    The VIX traded close to a support level and bounced--a sign the stocks are likely to go lower.




 

   Fundamental
        
    Headlines

    We received clarification on a number of issues last week, many related to the ‘head winds’ that we have followed over the last month.

(1)    surprisingly strong earnings reports with guidance suggesting that the risk of a ‘double dip’ is lessening,

(2)    Obama nominated Jack Lew as His new budget director.  This gentleman held the same position in the Clinton administration and oversaw three budget surpluses--another sign that Obama may be starting to understand just how precarious is the state of US fiscal policy,

(3)    the latest BP effort to the cap the leaking well appears to be working.  We still don’t know if the permanent fix [the relief well] is going to work; nor do we know the magnitude of the ultimate cost of the clean up.  But if the leak has indeed been stopped, then conditions at least aren’t going to get any worse,

(4)    the financial regulation bill passed.  Setting aside that it does nothing to cure the causes of the original crisis and that it contains provisions for the institution of approximately 500 new regulations, it does remove an uncertainty impacting the Market,

(5)    China released its second quarter GDP numbers.  While they showed that its economic growth is slowing, it remains at an enviable level.  Plus the slowdown is a function of the Chinese government’s efforts to avoid overheating the economy--something that our own government should note, if it wants to grow up and be a big boy,

(6)    Goldman Sachs settled charges from the SEC removing another negative over hang to the Market.

Though Barry Ridholtz is none to happy (medium):
http://www.ritholtz.com/blog/2010/07/its-the-law-bitches/

Bottom line: I believe that the sum total of the above news points to less risk of a ‘double dip’ and a greater probability that our (long term) economic scenario will occur.  To be sure, my earlier move to raise complete 2010 results higher was ill advised.  Nevertheless, it appears that the second half will witness economic growth; it will just be below average.

That will negatively impact our Valuation Model’s Year End Fair Value by about 5%; but that still leaves the S&P undervalued. 

    Data on the first week of this earnings season (short):
    http://www.bespokeinvest.com/thinkbig/2010/7/15/earnings-season-stats.html

    News on Stocks in Our Portfolios

    Genuine Parts (Dividend Growth and High Yield Portfolio) reported second quarter earnings per share of $.78 versus expectations of $.71.

    Chas Schwab (Dividend Growth and Aggressive Growth Portfolio) reported second quarter earnings per share of $.17 versus estimates of $.15.
 
Economics

   This Week’s Data

   Other

    The mean duration of unemployment and what it may mean for inflation (short):
    http://gregmankiw.blogspot.com/2010/07/median-duration-of-unemployment.html

    A look at the pace of economic recovery in the past four cycles versus today’s rebound (short):
    http://www.investmentpostcards.com/2010/07/18/real-gdp-growth-in-the-nascent-stages-of-a-recovery-history-vs-today/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+wordpress%2FVYxj+%28Investment+Postcards+from+Cape+Town%29&utm_content=Yahoo!+Mail

    The other side of job losses in the manufacturing area (short):
    http://mjperry.blogspot.com/2010/07/increased-worker-productivity-has.html
   
Politics

  Domestic

A note from Bobby Jindal to Obama (medium):
http://www.washingtonpost.com/wp-dyn/content/article/2010/07/16/AR2010071605180.html

The Dodd/Frank lawyers’ unemployment act of 2010 (short):
http://mjperry.blogspot.com/2010/07/dodd-frank-aka-lawyers-and-consultants.html











Posted 07-19-2010 8:24 AM by Steve Cook