Thursday, August 30, 2012

The Morning Call--the odds of an EU crisis have not diminished

The Market

The indices (DJIA 13107, S&P 1410) continued to drift yesterday, finishing the day slightly to the upside. The remain within (1) their short term trading ranges [12022-13302, 1266-1422] though they are in a position to challenge the upper boundaries and (2) their intermediate term uptrends [12266-17266, 1291-1871].

Volume was up modestly; breadth improved. The VIX rose again but is still below the upper boundary of its short term downtrend. However, its recent spike is a bit incongruous with stock prices meandering in a tight range---suggesting that investors are anticipating more volatility in the near future. It remains above the recently re-set lower boundary of its intermediate term trading range.

Don’t worry about the low volume (short):

GLD declined, falling below the upper boundary of its short term downtrend. Under our time and distance discipline, this close negates the recent break, leaving the downtrend in tact.

The technical picture on gold looks good (medium):

Bottom line: stocks seem to be in suspended animation right now awaiting news from Jackson Hole on Friday and from Europe in September. I am a bit surprised that investors are willing to hold equities when the most positive outcome is fully priced in. Clearly I could be wrong on that judgment; but I can’t come up with a plausible scenario that is more positive that which is currently expected. So I am holding to the position that stocks are near their near term highs and focusing on the Sell side in our Portfolios.