Wait for Lower Prices
Steve Cook on Disciplined Investing

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Have You Seen This?


The Market
    
    Technical

    The Averages (DJIA 10680, S&P 1127) continue their advance off the July lows, but remain within a trading range likely bounded by 9645-10725, 1009-1149.  Volume again reflected the summer vacation season; breadth was OK.  And the VIX traded for the third day below its recent support level, though not very convincingly.  Nevertheless, another day or two and our time and distance requirement will be met.

    The TED spread is pointing to higher stock prices (chart):
    http://www.bespokeinvest.com/thinkbig/2010/8/4/ted-spread-continues-to-narrow.html

    Gold bounced above the support turned resistance level.  Our time and distance discipline are operative here also.

    Bottom line: stock prices are in the upper quadrant of their likely trading range; hence it makes no sense to do any aggressive buying.  Any sell off, assuming it holds 9645, 1009, will be used as a buying opportunity.  Gold prices could go either way and I will react when the trend becomes more obvious.

   Fundamental
        
     Headlines

    A potpourri of lesser items to write about. 

As reflected in yesterday’s Morning Call, ADP reported a positive employment number--but this is a secondary indicator and frequently deviates significantly from the Labor Department stat.  However, because there was no other economic data reported yesterday, the ADP report got more air time than it deserved.  On the other hand, it set up the nonfarm payrolls figure which gets reported Friday morning and, as has been the case for the last two years, is widely anticipated. 

    In a referendum on key provisions of Obamacare in Missouri, voters rejected it 71% to 29%.  While these issues are always subject to how the referendum is worded in the first place, that kind of margin suggests that barring outright deception on the ballot, the voters of Missouri (historically a swing state) are fairly united in opposition.  Hopefully, another incentive for political moderation from the dems.
    http://online.wsj.com/article/john_fund_on_the_trail.html

    Goldman also announced late in the day that it was spinning off its proprietary trading desk.  If so, that is a positive for the capital markets.
    http://www.zerohedge.com/article/zero-hedge-delighted-hear-goldman-plans-spin-its-prop-trading-desk


    Of a less positive nature is the recent heightening of tensions in the Middle East.  I did not spend a lot of time at the beach listening to the nonfinancial news; but when shots are fired and rockets launched (as they have been), the risks of a significant flare up rise and that is not likely to be good for stocks.
    http://www.zerohedge.com/article/guest-post-clash-israel-lebanon-border-holds-potential-strategic-escalation

    Bottom line: stock prices in general are close enough to Fair Value that there is little fundamental reason for a rush to Buy.  To be sure, the fundamentals have been improving modestly of late; but then so have valuations.  Barring a big positive exogenous event, the opportunity cost of holding cash is acceptable.

    If any of you own municipal debt, you need to read this and do the homework on the securities that you own (medium):
    http://www.american.com/archive/2010/august/the-next-sovereign-debt-crisis

    I have on several occasions referred to the level of cash on corporate balance sheets as a positive for the economy in that it represents the source of future investments.  This article pretty much destroys that argument (medium):
    http://pragcap.com/regarding-those-strong-corporate-balance-sheets

    The latest data on this quarter’s earnings and revenue ‘beat’ rate (short):
    http://www.bespokeinvest.com/thinkbig/2010/8/4/earnings-and-revenue-beat-rates.html

Economics

   This Week’s Data

    Weekly mortgage applications rose 1.3%.

    Weekly jobless claims increased 19,000 versus an expected decline of 2,000.
    http://www.calculatedriskblog.com/2010/08/weekly-initial-unemployment-claims.html

   Other

    Another look at the Federal debt disaster (chart):
    http://www.businessinsider.com/chart-of-the-day-federal-debt-held-by-the-public-2010-8

    Chinese government officials continue to demonstrate that they are the adults in the room (short):
    http://www.calculatedriskblog.com/2010/08/chinas-stress-tests-60-decline-in-house.html

Politics

  Domestic

The prospect of an aggressive ‘lame duck’ congressional session following the upcoming election--from my favorite liberal blogger (medium):
http://kaus.sitebuilder.completecampaigns.com/sbcc/blog_permalink.php?seq=1&id=735

  International War Against Radical Islam

    Tony Blankley on the Afghan leaks (medium):
    http://townhall.com/columnists/TonyBlankley/2010/08/04/wiki_espionage

    The threat of sharia (long):
    http://article.nationalreview.com/438932/its-about-sharia/andrew-c-mccarthy






Posted 08-05-2010 8:18 AM by Steve Cook