Score: political class 0, investors,voters,taxpayers minus 2
Steve Cook on Disciplined Investing

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News

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Have You Seen This?

The Market
    
    Technical

    The Averages (DJIA 11985, S&P 1296) had another good day, leaving both well within both their intermediate term up trend (11162-14695, 1170-1605) and short term up trend (11623-12520, 1257-1362). 

The S&P still hasn’t challenged the 1311 resistance level though the DJIA blew through its comparable level (11811) some time ago.  I tend to give more weight to the S&P in divergences like this simply because it is a broader Average.  However, a check with our internal indicator reveals that in our 163 stock universe, 95 are trading above their comparable 11811, 1311 level, 49 are not and 19 are too close to call.  This is clearly a strong reading and suggests that, at the very least, there is more upside to the S&P.

Volume was down (with prices up, why not continue to frustrate and confuse investors?); breadth improved; the VIX sold off but remains in neutral territory.

Gold (GLD) rallied but closed below the lower boundary of its intermediate term up trend for the third day.  Another day or two that trend line will negate the trend itself.

The World Gold Council’s fourth quarter update (long):
http://www.zerohedge.com/article/world-gold-council-q4-gold-digest

Bottom line: I hate it when my own internal indicator tells me that my fundamental assumptions are wrong.  I spend every day looking for a reason to resolve this conflict but have been unable to date.  While historically I have been quite willing to reconsider my fundamental position when the pin action suggests; and at current price levels, I simply can’t justify taking the risk until there is some concrete evidence that responsible fiscal/monetary policies are at hand.  So my focus remains on those stocks nearing their Sell Half Range and my migraine gets worse. 

    The latest from Fusion IQ (medium):
    http://www.investmentpostcards.com/2011/01/26/technical-talk-shift-from-small-to-large-caps-under-way/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+wordpress%2FVYxj+%28Investment+Postcards+from+Cape+Town%29&utm_content=Yahoo!+Mail

    Are commodity prices an early warning for stocks (medium):   
    http://online.barrons.com/article/SB50001424052970204331604576105141675981046.html?mod=BOL_hpp_dc

    Another sign the Market is over extended; this by the way is the work of a big time long term bull (short):
    http://tickersense.typepad.com/ticker_sense/2011/01/djia-is-overbought.html

   Fundamental
      
    Headlines

    As you might expect, investor attention centered on The Speech and The Fed yesterday.  While The Speech got a wide range of reviews, I rate it a dud.  Wait, I won’t rate it a dud.  I’ll give a 10 as a 2012 campaign speech; and I’ll give a 0 for fiscal leadership.  This country is up to its neck in debt that is endangering its future growth and this Guy gives a campaign speech.  I thought we elected this Him to lead this country; better we should have elected the Pied Piper.

    This is a great analysis of The Speech; however, I completely disagrees with the author’s Alfred Hitchcock ending (medium):
    http://scottgrannis.blogspot.com/2011/01/coach-obama-still-doesnt-understand.html

    On the other hand, the Fed didn’t do diddly.  I give it an ‘incomplete’.  Nothing about the price of food and energy.  I don’t know about you; but those items impact of my family budget. Nothing about a significant number of governments around the world imposing higher interest rates and monetary tightening because US monetary policy is exporting inflation to them.  Nope, not a word.  Just a statement repeating those of the past, leaving interest rates unchanged and assuring (?) us that QE2 will proceed post haste.
    http://www.zerohedge.com/article/wheat-futures-29-month-high-developing-country-demand-surges-aftermath-tunisia-revolution
http://www.zerohedge.com/article/wage-inflation-rampant-china-more-provinces-plan-minimum-salary-hikes

Bottom line: as you know, I believe that the only way to justify current equity valuations is to assume that the political class changes the course of monetary/fiscal policies sufficiently to (1) began correcting the imbalances in our economy and (2) thereby improve business and consumer confidence enough to prompt investment, hiring and spending.  I noted Monday that The Speech and The Fed had the potential to begin those changes.  But they struck out.  Score: political class 0, voters/taxpayers/investors minus 2.

    Is QE2 working? (medium) This is an interesting counterpoint to the two links above on the Fed.
    http://pragcap.com/is-qe-actually-working

Economics

   This Week’s Data

    Weekly mortgage applications fell 12.9% with purchase applications down 8.7%.

    December new home sales soared 13.4% versus expectations of a rise of 3.4%.

    The Congressional Budget Office now estimates the FY 2011 budget deficit of $1.5 trillion (short):
    http://www.businessinsider.com/chart-of-the-day-15-trillion-deficit-2011-1?utm_source=Triggermail&utm_medium=email&utm_term=Clusterstock+Chart+Of+The+Day&utm_campaign=Clusterstock_COTD_012611

    The latest FOMC meeting ended yesterday afternoon and the standard release including any changes in monetary policy and statement outlining the rationale for those changes (or not).  The statement sounded very much like prior ones: the economy is recovering but not enough to lower unemployment; therefore, interest rates were left unchanged and QE2 will continue apace.
    http://www.zerohedge.com/article/goldmans-take-fomc-statement-0  (medium)

    Weekly jobless claims soar to 51,000 versus expectations of a 1,000 increase.   As with retail sales, weather likely played a role.
    http://dshort.com/articles/weekly-unemployment-claims.html

    December durable goods orders fell 2.5% versus estimates of a 1.4% rise.

   Other

    Peter Schiff on Chinese currency policy (3 minute video):
    http://www.investmentpostcards.com/2011/01/26/china-could-unleash-inflationary-nightmare-in-u-s-warns-schiff/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+wordpress%2FVYxj+%28Investment+Postcards+from+Cape+Town%29&utm_content=Yahoo!+Mail

    Households continue to delever--at least somebody gets the concept (short):
    http://scottgrannis.blogspot.com/2011/01/households-continue-to-deleverage.html

    The Chicago Fed’s national activity index shows improvement (medium):
    http://dshort.com/articles/Chicago-Fed-National-Activity-Index.html

Politics

  Domestic

    More on Obama’s move to de-regulation (medium):
    http://townhall.com/columnists/TonyBlankley/2011/01/26/regulations_and_rhetoric

    Speaking of moronic regulation (medium):
    http://www.powerlineblog.com/archives/2011/01/028215.php

    Analysis of The Speech from my favorite liberal blogger (medium):
    http://www.newsweek.com/blogs/kausfiles/2011/01/26/sotu-nobody-said-civility-was-exciting.html

    And this from David Stockman (medium):
    http://www.minyanville.com/businessmarkets/articles/state-of-the-union-economic-recovery/1/26/2011/id/32394?camp=featuredslide&medium=home&from=minyanville


   








Posted 01-27-2011 8:24 AM by Steve Cook