Griffin Account Talk

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The Ruskies are back tinkering with the EU's energy supply again. Last year, I thought it would effect the market, but it didn't. In fact, if it had not been for the Livedoor incident, the I-fund would have probably significantly outperformed the S-fund for the first half of the year as well. However, I am not going to dismiss this latest exchange. It's another brick in the wall building between energy exporting and energy importing regions. Someday this situation is going to become intolerable to the EU and more importantly Germany - these are dangerous games Belarus and Ukraine are playing - at some point sides are going to get picked - but not today.

I'm finding myself in the same position as October and November, having just sold at a low and looking at a potential bounce. As Pointman 72 can attest too, having held through the whole ordeal of the last six months was definitely the way to go. Question of the year - is it the way forward? My Philosphy for this year was based on a Yes to that question.

My goal is to nail the critical points and not get caught up in the onsies/twosies of the day to day, other then to adjust which stocks I was in. I didn't move to the G last Thursday because of this more long term approach and for better or worse, I intend to see this experiment through to the bitter or better end. With that philosophy in mind, I decided last Friday was a critical point. Now I am asking myself, how much flexibility do I allow before I except that it was not a critical point. The catch is, if I only give it a day or two, I might as well go right back to the process I was using last year.

It's a bit disconcerting, especially because I'm here for the exact same reason. Over the last 6 months, the channel of the S&P 500 has been a series of wedges, with the closing of each wedge, a slight deviation and shallowing of the slope has occurred. What is unique about this most recent low, is that it has now broken below the channel set by the lows in September and November. That is what ultimately swayed me into calling it a critical point. Even if it looks good today, I am not going to move back in because of the strategy. According to the broader picture approach, a couple of days one way or the other are not going to make a serious difference. If I wasn't following this strategy I would probably jump in if I see the S&P break away from the 1410 line.
 
Looking at the companies reporting earnings today on Yahoo's list, there is a definite bias toward the negative. Out of ten companies reporting yesterday, only one was solid green, a couple are relatively unchanged, but the majority are red. It's a fairly similiar situation for the companies reporting today.

http://biz.yahoo.com/ap/070109/wall_street.html?.v=33

Alcoa, (who reports after the bell tonight) seems to be the fulcrum point. Ultimately, one of two or both things has to happen, in order for the market to go higher,

1) Earnings come in on target or better

2) The market accepts higher P/E ratios

Earnings ain't lookin' to hot so far. Given yesterday's whooping doubling of the consumer credit report estimate and the market's subdued reaction, there seems to be a lot of skepticism about the profitibility of the holiday season. I recall hearing the talking heads saying after black Friday that November was relatively weak and they were looking forward to December. If 12.3 Billion couldn't pay the bills, I'm not sure there could be enough out there in gift cards to make up the difference.

Of course, the market could always except higher P/E ratios. I'm a bit skeptical of that given the inverted yield curve.
 
Nice report. The rest of the market doesn't seem as enthused - S&P and Naz futures are rather flat.
 
Griffin -

I like the new avatar. You from Philly? I'm from Olney - one of the many crappy neighborhoods of Philly.
 
tsptalk said:
Yes, let's call it even and give Griffin back his thread.
Click to expand...

I was reading an article that opined that Alcoa’s domestic sales were down and the majority of their gains in ’06 came from China. The indication was that the U.S. economy had slowed while Asia had picked up the slack. The question for the future was whether China could sustain such a hot economy and what was the future of the U.S. economy.
 
I haven't lived in the city since I was a kid, now I live in burbs out past the blue route with the "cultured folks". I still don't fit in :D

The closest I get to Olney is the zoo and the mann. I hope that doesn't make me a snob.

fabijo said:
Griffin -

I like the new avatar. You from Philly? I'm from Olney - one of the many crappy neighborhoods of Philly.
Click to expand...
 
If your source was correct, that could be useful info for tomorrow. I read something that was suggesting the down under's futures market was set for a rocky start. If the far east chokes, despite good earnings from Alcoa, that may be saying something. That's a broad generalization, but maybe there's something too it.

Oldcoin said:
I was reading an article that opined that Alcoa’s domestic sales were down and the majority of their gains in ’06 came from China. The indication was that the U.S. economy had slowed while Asia had picked up the slack. The question for the future was whether China could sustain such a hot economy and what was the future of the U.S. economy.
Click to expand...
 
You two live very close to a beautiful, historic area -- Valley Forge, Penna. Enjoy it!:)

Griffin said:
I haven't lived in the city since I was a kid, now I live in burbs out past the blue route with the "cultured folks". I still don't fit in :D

The closest I get to Olney is the zoo and the mann. I hope that doesn't make me a snob.
Click to expand...
 
I don't still live there. I'm in NYC now, but am trying to transfer back to the homeland.
 
A long time ago my uncle graduated in the 1st graduating class of a military high school -- Valley Forge Miltary Academy (1930 or so), and my brother followed his steps in the 1958 graduating class.
 
A fraternity brother of mine graduated from there, I forget the exact dynamics but he was something like the youngest first lieutenant in 20 years (I'm not sure if that is correct....I refer to my recollection of those days as the "fuzzy years") but for an old mustang it was amazing to meet a nineteen or twenty year old 1LT.

sponsor said:
A long time ago my uncle graduated in the 1st graduating class of a military high school -- Valley Forge Miltary Academy (1930 or so), and my brother followed his steps in the 1958 graduating class.
Click to expand...
 
So much for Alcoa being the catalyst. Makes me wonder what it would take for 4Q earnings reports to drive this market. If earnings aren't the ticket, then that leaves the Fed and a rate cut. That puts the PPI numbers in the spotlight.

Awhile ago I presented a case that the S&P would drop into the channel of early 2006. It seemed to make psychological sense -not too aggressive, not to weak - what I thought would be Goldilocks.

I am resurrecting that hypothesis not as a suggestion of will happen, but as a concept of what the market is debating. A drop to the bottom of that channel would constitute a 3.5% correction. At which point we could move forward with some sustainability and potentially yield about 15% or more for the year (net). However, the bulls are chanting pre-election year growth suggesting the current condition is the precursor negativity to a big springboard bounce. Is a 3.5% correction enough to get the market back on track, if that track would end up yielding a net of maybe 15% for the year? Are the bulls willing to give it up now for a better buying opportunity tomorrow?

I don't know which way it will go, by I think it is reasonable to conclude that when something happens, it will happen quick and volatile. The VIX is above 12 and seems to be trending upwards, a tad bit more and the pin action is going to start. Depending on your position (if you go 100% one way or the other) I think you have to be prepared to miss a 1.5% bounce or take a 1.5% loss, before you can have an opportunity to react. The closer we get to the PPI numbers without a break, the more I would ramp that up. If the S&P is still hovering around 1410 by next Wednesday, I'd expect it to be a 2.0% or more delta day.

One last thought: another week and we could quietly walk into that channel sideways without a whole lot of bloodshed and volatility.

View attachment 1281
 
At the end of every year, somebody points out that with just 3-5 moves here, here and here you would have generated xx% return....that strategy sounds good in theory but is not really practical. It's hard to pick exact tops or bottoms, especially when the market is shifting channels. Still I am going to continue to cut back on the moves in and out.


I went 100% I. I guess I am chasing the market, but I'm getting real tired of trying to second guess a pullback that may never come. I started to allude to yesterday's last comment is that we may not get any pullback, but a progressive step down like '04 when from January to August things broke even. In that type of scenario, the way to make money is stay flexible - and ride the waves an established channel.
 
LOL

Dave,

Your not the only person who doesn't take my advice, on almost every big mistake I made last year, I could point to a comment where I wrote days before not to do exactly what I did. :D

And here I am doing it again!

Wheels said:
Advice that you have given me many times.
Click to expand...
 
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