OK, I am a little conflicted
Steve Cook on Disciplined Investing

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Economics

   This Week’s Data

    The July Institute for Supply Management manufacturing index jumped to 48.9 versus expectations of 46.5 and the June reading of 44.8.

    June construction spending rose 0.3% versus estimates of a 0.5% decline.

    July vehicle sales were slightly better than forecasts:
    http://www.calculatedriskblog.com/2009/08/light-vehicle-sales-over-11-million.html

    June personal income fell 1.3% versus expectations of a 1.2% decline.  An end to a specific federal stimulus program accounted for much of the drop.
    http://econompicdata.blogspot.com/2009/08/income-down-savings-up-consumption-down.html

    June consumer spending rose 0.4% versus estimates of a 0.2% increase.  Higher gasoline prices were responsible for the larger than anticipated jump.

    The June personal consumption expenditure index (PCE) gained 0.5%; core PCE rose 0.2%, in line with forecasts.

   Other

    This a little long, but worth the read:
    http://economistsview.typepad.com/economistsview/2009/08/fed-watch-is-a-jobless-recovery-your-best-friend.html

    Update on credit indicators:
    http://www.calculatedriskblog.com/2009/08/market-and-credit-indicators.html

Politics

  Domestic

10 reasons why American healthcare is in better shape than Obama would have you believe:
http://www.hoover.org/publications/digest/49525427.html

Socialized medicine in action:
http://www.powerlineblog.com/archives/2009/08/024188.php

    ABC takes on healthcare:
    http://mjperry.blogspot.com/2009/08/john-stossel-2020-special-on-health.html
   
    Tuesday morning entertainment.  For those of you who haven’t seen the JK Wedding Dance on You Tube:
    http://www.youtube.com/watch?v=4-94JhLEiN0

  International War Against Radical Islam

The Market
    
    Technical

    The Averages (DJIA 9286, S&P 1002) closed within their current up trend defined as of the close last night by 8414-10094, S&P 916-1121.  The S&P did finish right on its November 2008 high (1004).  I have suggested that stock prices would meet some resistance at this level; and I haven’t changed my opinion.

    That said, I am somewhat conflicted right now.  As I noted above, 1004 looks like firm resistance to me.  Second, I got one of those calls yesterday that I always view as a great anecdotal reverse indicator.  My dad called (three times) and just had to buy stocks.  I love my dad; but his track record is that of a gold plated contrary indicator.  If he simply has to buy then I have to be a seller or at the least neutral.  So that reinforces my inclination to be patient. 

On the other hand, as I note every week in The Closing Bell, stocks are undervalued at least as calculated by our Valuation Model.  In addition, the power in the breadth indicators suggests that S&P is going to blow through 1004 without touching the brakes.  Even more disconcerting is that technically speaking, if it does, I see no identifiable resistance till (1) stocks hit the upper boundary of their current up trend [1121] or (2) circa 1201 [the downtrend off the October 2007 high] and  I don’t want a 23% cash position. 
http://traderfeed.blogspot.com/2009/08/nyse-tick-and-buying-sentiment.html
http://traderfeed.blogspot.com/2009/08/stock-market-sentiment-and-cumulative.html
http://bespokeinvest.typepad.com/bespoke/2009/08/melting-up-in-the-summer-heat.html

Bottom line: stock prices are too close to 1004 to start second guessing our original strategy; but if the S&P smokes 1004, our Portfolios will definitely get more aggressive buying stocks.

   Fundamental
   
Dougie Kass’ latest thoughts:
    http://www.thestreet.com/story/10561440/1/kass-dousing-the-fire-with-kerosene.html

    And another reason to be more circumspect;
    http://article.nationalreview.com/?q=NGQzYjJjMWViZjljYTZlOWY1MjdhNjMxMTg4YzhlNGI=

     Headlines

    The major driving force behind stock prices yesterday was the economic stats.  These numbers all reinforce the notion that the economy is through the bottom and will soon start to improve (though anemically).

(1)    the China PMI reported in yesterday’s Morning Call,

(2)    the July ISM manufacturing index [see above],

(3)    June construction spending [see above].

In addition, the Treasury announced its next round of financing and it was less than expected.  The talking heads were suggesting (perhaps erroneously?) that it could be a sign that the Treasury is getting a handle on the deficit.

    Finally, SEC announced a complaint against Bank of America claiming that the bank hadn’t disclosed Merrill Lynch employee bonuses. Thirty minutes later, it announced a settlement for $33 million---which is chump change for B of A.  So whatever violations there were couldn’t have been too egregious.  Then the bank announced management personnel changes.  Investors breathed a sigh of relief.





Posted 08-04-2009 8:26 AM by Steve Cook