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Note: One of closet friends passed away Tuesday.  The funeral is Saturday morning in Philadelphia.  We leave tomorrow morning and get back Sunday.  There will be a Morning Call tomorrow, but no Closing Bell on Saturday

The Market
    
    Technical

    The rally continued yesterday with the DJIA (10733) also crossing the upper boundary of the latest trading range (9645-10725); the S&P (1166) finished its second day above its comparable boundary (1150). 

    Volume was up; breadth was not that impressive except for the Money Flow indicator which was very positive.  The dollar was down; indeed, it traded below the lower boundary of its recent up trend (scoreboard: stocks up, gold down, oil up).  If time and distance confirm the dollar breakdown and the inverse linkage remains between the dollar and stocks that is a positive sign for equities.  The VIX closed right on its last support level.  Again, a successful challenge of that support would be a plus for stocks.  Finally, our internal indicator is mildly positive: in a Universe of 170 stocks, (1) 89 have either remained in or have reset the up trend off their March 2009 lows, 81 have not, (2) 90 are trading above their January 2010 high [the upper boundary of the recent trading range]; 80 are not.

Bottom line: while the overall weight of evidence as of the close last night is postulating that stocks have reset their uptrend off the March 2009 lows, it is not overwhelming.  One bad day and many of the above indicators drop back into trading range territory.  So I am going to hold off making the trend ‘re-set’ call for at least one more day in order to incorporate more of the time element. 

    The latest from TraderFeed:
    http://traderfeed.blogspot.com/2010/03/quick-indicator-update.html
    http://traderfeed.blogspot.com/2010/03/look-at-stock-market-strength-new-highs.html

    New 52 week highs (chart):
    http://www.bespokeinvest.com/thinkbig/2010/3/17/52-week-highs-explode.html

    Percent of stocks above their 50 day moving average (charts)
    http://www.bespokeinvest.com/thinkbig/2010/3/17/percentage-of-stocks-above-50-day-moving-averages.html

   Fundamental

    Gold and the gold ETF (chart):
    http://www.businessinsider.com/chart-of-the-day-how-etfs-took-the-gold-market-hostage-and-wont-let-go-2010-3?utm_source=Triggermail&utm_medium=email&utm_campaign=CS_COTD_0317100

    The latest from Mohamed El Erian of PIMCO (9 minute video; today’s must read/watch):
    http://www.investmentpostcards.com/2010/03/18/el-erian-investors-must-keep-cash-retain-optionality/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+wordpress%2FVYxj+%28Investment+Postcards+from+Cape+Town%29&utm_content=Yahoo!+Mail

    Headlines

    While Bernanke and Volcker chewed up a good deal of the air time yesterday, most of the Street chatter was on the Market itself and whether or not stock prices were breaking out to the upside.  Bulls were pitted in the media face offs against the Bears all day long.  Since I am a hesitant Bull technically and a down right skeptic fundamentally, I am only going to give you the most common Bull arguments in this post.

(1)    yesterday’s mild February headline PPI number suggests inflation is well under control; and when coupled with the recent positive growth indicators, it suggests better than expected real growth and corporate profits, making stocks undervalued.

Steve here.  the year over year PPI number was +4.4%.  That’s not great.  Plus to keep the economy going at the same clip as the 2009 fourth quarter, one has to assume that banks will start lending [no sign of that], that the Fed’s withdrawal from the mortgage market will be seamless and that the fiscal drag from rising spending and the expiration of the Bush tax cuts won’t act a restraint on growth [excluding any extra spending and tax increases that might arise from a healthcare bill].

           Inflation is alive and well (short):
           http://scottgrannis.blogspot.com/2010/03/inflation-is-alive-and-well.html

(2)    it’s a gridlock rally.

Steve here.  We should all be so lucky.  The In trade betting as of the close last night placed the likelihood of passage of the healthcare bill at 68%.  That may be wrong.  But you would be a fool to bet money that it isn’t.

(3)    the end of the first quarter is nigh.  Institutions are underinvested; and with many of them having been criticized for being so at the end of the 2009 fiscal year, there is no way that they can afford to be under invested after another great quarter.  Hence, the buying is end of period window dressing.

Steve here.  If so, beware April Fool’s Day.

Bottom line:  I may be guilty of complete stupidity for totally missing something on the fundamentals.  While I believe that the economy is recovering, there are too many clouds on the horizon (healthcare, growing US protectionism, sovereign debt issues that have only been papered over) to suggest that the rebound will be anything but sluggish and that stocks are not fairly valued at current levels.

    Greece is not going away (short):
    http://www.creditwritedowns.com/2010/03/germany-backtracking-on-imf-involvement-in-greece.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+creditwritedowns+%28Credit+Writedowns%29

Economics

   This Week’s Data

    Weekly jobless claims fell 5,000 versus expectations of a 12,000 decline.
    http://www.calculatedriskblog.com/2010/03/weekly-initial-unemployment-claims_18.html

    The February consumer price index (CPI) was unchanged as expected; core CPI rose 0.1% versus estimates of up 0.2%.
    http://econompicdata.blogspot.com/2010/03/cpi-shows-lack-of-inflationary-pressure.html

   Other

    What’s going to happen with the Chinese Yuan? (short):
    http://www.investmentpostcards.com/2010/03/18/the-yuan-currency-play/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+wordpress%2FVYxj+%28Investment+Postcards+from+Cape+Town%29&utm_content=Yahoo!+Mail











Posted 03-18-2010 8:30 AM by Steve Cook