Did Wednesday's low mark a trading low?
Steve Cook on Disciplined Investing

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Economics

   This Week’s Data

    Helped by government transfer payments, May personal income jumped 1.4% versus estimates of a 0.2% increase; May personal spending rose 0.3% versus expectations of a 0.4% advance.
    http://www.calculatedriskblog.com/2009/06/personal-income-and-outlays-boosted-by.html
    http://econompicdata.blogspot.com/2009/06/personal-income-saved-by-unemployment.html

    May personal consumption expenditure index (inflation) rose 0.1%, in line with forecasts.

   Other

    The level of equity in household real estate (graph):
    http://www.ritholtz.com/blog/2009/06/equity-in-household-real-estate/

    The housing bubble and consumer spending:
    http://www.calculatedriskblog.com/2009/06/wsj-real-time-economics-housing-bubble.html

    Nonresidential investment is a problem:
    http://econompicdata.blogspot.com/2009/06/worrying-i-in-c-i-g-nx.html

Politics

  Domestic

Anecdotal evidence from Spain that spending on alternative energy sources is not all that it is cracked up to be:
http://jewishworldreview.com/cols/will062509.php3

    The WSJ analysis of ‘cap and trade’.  (The House could vote on this bill as early as today):
    http://online.wsj.com/article/SB124588837560750781.html

    Government healthcare always includes rationing:
    http://mjperry.blogspot.com/2009/06/government-health-plans-always-ration.html

  International War Against Radical Islam

The Market
    
    Technical

    The current bull/bear spread:
    http://bespokeinvest.typepad.com/bespoke/2009/06/bulls-as-elusive-as-a-maria-belen-shapur-photo.html

    The Averages (DJIA 8472, S&P 920) bounced nicely yesterday.  The question is, does the recent lows represent the support level for which I have been looking?  As you know, I thought it a decent chance that the 8220, 876 level would ultimately prove to be that support level.  A look at the DJIA chart would suggest that stocks got there (Wednesday’s close was 8297 which is close enough for government work).  On the other hand, the lowest close for the S&P was Wednesday’s 900 final reading--not exactly 876.

    If yesterday’s move had been on volume, I would be solidly convinced that the 8220, 876 was now the lower boundary of the new trading range; unfortunately, volume remained light.  In addition, while the volume/breadth indicators improved, it was not by much.  Certainly nothing to give me any conviction.  On the other hand, one would have expected some price weakness following yesterday morning’s poor weekly jobless claims number; and yet stock prices powered forward.  Perhaps more important, the VIX has traded down to a support level.  If it were to break below that level, it would be a major positive and would, in my opinion, support the notion that the lower boundary had been found. 
    http://bespokeinvest.typepad.com/bespoke/2009/06/vix-makes-a-new-shortterm-low.html

Looking at our stocks: out of 98 stocks owned in our Portfolios, nothing changed following yesterday’s pin action:

    29  remain above the lower boundary of their uptrend off the March low
     63  have traded out of the March to present uptrend but have established a                      
             trading range and remain within it
       6   are in clear down trends

    My bottom line: despite yesterday being a great day, I would like to see some follow through before assuming that 8220, 876 level has withstood its first solid test. 

    Not to be repetitious; but if it becomes clear that a successful test has been made, then short term, we will have a trading range defined by (S&P) 876-947.  However, my bet is that 947 gets taken out.  A more likely upper boundary would be the November 2008 high (1004).  That would give us a trading range of 876-1004.  In addition, our investment strategy will shift cash from 20-30% of a Portfolio to 15-25%.

   Fundamental
   

         Headlines

(1)    Bernanke by all accounts did well in his testimony before the House Oversight Committee.  As the proceedings [they were 4.5 hours long] went on, the Market pushed up, suggesting investor relief that Uncle Ben will stay on the job.

(2)    Less noticed was the last successful auction of a series of Treasury financings this week.  [All auctions went well.]  I posed the question in yesterday’s Morning Call as to whether the Fed’s statement [which in many investors’ minds failed to address how the Fed would unwind the massive injection of liquidity into the financial system] would re-ignite the inflation trade.  Yesterday auction results suggest that there are plenty of investors who aren’t worried about it.  One reason why, perhaps:

(3)    To be completely fair to the Fed, I would point out that in another less noticed news item yesterday, the Fed released a statement covering the status of the myriad of lending programs it is now sponsoring, the bottom line of which was that total lending had declined--thus providing some indication that the Fed is indeed working on unwinding the huge bubble it created in the money supply.
http://www.calculatedriskblog.com/2009/06/fed-extends-some-emergency-lending.html






Posted 06-26-2009 8:37 AM by Steve Cook