– Stock Market Companion – Current Holdings –

Nr.	Co.	Ticker	Action	Entry Date	Current Gain (Loss)
1	Gentiva Health	GTIV	Holding	11/15/2011	+4%

 

– Markets “At a Glance” –

 

(Please scroll down to the end of the report to see your favorite benchmarks – Dollar, Oil, Gold … closing prices and daily direction.)

(AS of 15:00 EST on Wednesday, December 7, 2011)

Market	Price (Today’s Close)	Unit of Measure	Today’s Direction
SP-500	1,219.66	Index	UP = +3.91 points
DOW-30	11,866.39	Index	Flat = -2.42 points
NASDAQ	2,555.33	Index	UP = +14.32 points

 

– Market Trends –

 

Trend	SP-500	DJ-30	NASDAQ
Short Term	Down	Down	Down
Intermediate	Flat	Flat	Flat
Long Term	Lateral	Lateral	Lateral

 

*Summary of terms from Trader Vic II-Principles of Professional Speculation (pg. 140-141)
*_________* Represents a change in trend rating.

 

– Market Perspectives –

 

For your added perspective, we’ve included this chart of the broader market (Successful stock investors develop and start with a minds-eye view of the broader market and keep it clear) –

 

SMC SP-500 ETF Daily Chart

 

 

Please click on the chart to view it in a larger size.

 

 

 

– Today’s Highlights –

On Wednesday we wrote that fear is on the increase in the markets.  We haven’t changed our opinion, even though the market has found quiet support here in the upper third of its lateral range established since the beginning of August.

We wrote, “Fear in the equities and financial markets is increasing today.  Here’s a short list of what market participants are afraid of –

• Total collapse of the European financial system involving with the euro.
• Further downgrades of European sovereign debt – Today the concern was that France was going to be downgraded.
• Austerity measures required to improve European sovereign nation balance sheets and lower their borrowing costs may cause a severe recession in 2012 and beyond.
• Inability of Europe to solve its problems on its own.
• Depth of recession in 2012.
• Diminishing corporate profits in 2012 as global economy cools further.”

Keynesian economics has led many countries into an abyss that no one understands how to really get out of, aside from a currency reset (default).

In very short summary – Without fiscal responsibility during times of growth and expansion – which means paying-off debt incurred by stimulus measures applied during economic contractions – countries now have their backs against the wall.  They are indebted up beyond their heads, and it costs a lot more for them to borrow on the bond markets because of risk of default.

So countries are implementing austerity measures in order to show the capital markets that they are serious about lowering deficit spending and thereby hoping for lower costs of borrowing from the bond markets.  Unfortunately, it doesn’t work to use austerity measures to get out of a recession within a measurable period of time.  Regular ol’ pork-barrel spending doesn’t work either.  Surgical, purposeful stimulus does work, but not just plain spending or sending every family $500 in the mail.

The fear that we describe above concerning Europe and the global economy is due largely by the uncertainty of how far the austerity measures will cut growth, combined with the absolute uncertainty of how the capital markets will respond if a European Monetary Union country defaults.

Bond rating agencies that just a few years ago were liberal in their thinking and lax in reassessing their ratings are now continuously updating the markets concerning their negative assessments of sovereign nation debt and large bank performance.  This renewed vigilance is contributing to putting the markets on edge.  For example, all this week market participants were waiting to see if France would have its debt rating downgraded, much like the USA had their bond rating downgraded during the summer.

While all the above is painfully accurate, we can’t lose sight of hope.  While all this negative news has gripped the market, this week in the USA we have POSITIVE data –

• Initial jobless claims for last week measured the LOWEST LEVEL since 2008.  This means that our initial jobless claims are currently in a down-trend.  That’s good.  If job growth measurably increased, it would be fantastic.  For now, the data is telling us that fewer are losing jobs now.
• Manufacturing data measured by the federal reserve banks  in Philadelphia and New York are indicating increased demand.

We have included some interesting stock investment ideas below.  Remember, the markets are always looking as far into the future as reasonable in an attempt to know where the “ball is going to land”, instead of following each bounce.

– Story-Stock Investing –

 

The short term trend of the broader market is down and fear is increasing, so we are very cautious about putting our money to work in this climate.  Here’s a Barron’s article about how market participants usually measure fear. It’s a good one.  Nonetheless our hunt for excellent ideas continues.

Here’s an more detail to an idea that we have already brought to your attention over the past weeks.  Many of you have perhaps been shocked by the surprisingly high cost of airfare this holiday season.  Airline tickets are in many cases expensive, AND additional fees for baggage are adding to the cost of travel.  While these developments are unfavorable for the individual traveler in terms of travel cost, the airlines are busy improving their financial performance.  Here are some details and thoughts –

• American Airlines’ bankruptcy last week has brought with it hope that further capacity cuts will be made in the industry.  Capacity cuts means less supply.   In anticipation that demand will remain steady, reduced capacity will result in airline prices remaining firm.  Friends, in my adult lifetime (I am now almost 50 years old) there have been few instances when the airlines have had any pricing power.  There was always one airline or another that was willing to break ranks and offer rebates and discounts that over time removed the overall industry’s  pricing power.  Not now.  At the moment, no one is breaking ranks.  Prices are firm.
• Airlines have become very successful and focused on passing on additional costs to the customer.  Those baggage fees add-up and go right to the bottom line.
• They have removed costly services like food service.
• Airlines have renegotiated tough labor contracts.
• They have removed themselves from unprofitable travel segments and destinations.
• Airlines have found ways to increase revenue – in addition to baggage handling fees.  In-flight internet services and movies add to the bottom line.  Higher cost, premium seats are helping too.
• Fuel prices are stable.

It seems like an absolute paradox to consider investing in airline companies just as American Airlines heads into bankruptcy, but the charts are saying that investors are warming up to the sector.  Hawaiian Airlines (HA), United Airlines (UAL), and Southwest Airlines (LUV) and others are showing strong improvement.

Please see our SMC Daily Chart of Southwest Airlines, below.  When you click on the chart, it will expand into a larger chart on a separate browser tab.  Doesn’t the ticker for Southwest make you laugh.  A smart marketer sure saw that opportunity and didn’t miss it.  You have to Love Southwest Airlines!

On the above SMC Southwest Airlines (LUV) Daily chart, look at how nice today’s volume looks on what a very lackluster day for the market.  This phenomenon is an example of what we call divergence.  Southwest’s price movement today is divergent with the overall market in that the overall market was tepid, but Southwest’s action strong.  In fact Southwest’s  entire stock price performance over the last two weeks has been divergent to the weakness in the overall market.  Today is proof that investors are favoring the airlines.  We are bringing Southwest to your attention because it is a low price stock.  Alaska Airlines (ALK) (in our minds, THE premier American airline) is shooting tremendously higher today, on strong volume.  The stock costs $76.16/share.  Alaska Airlines is trading today at new 52 week highs, AND at all-time highs.  Southwest airlines is mired in the single digits and is way off its all-time high’s of $22/share back in 2000.  That’s another example of divergence.

We have made very good money over the years purchasing stocks that are pressing into all-time highs.  It may be that all many airline stocks will be doing well for the near term.

Some investors stay away from airline stocks because of their exaggerated moves in the face of geo-political and terrorist events.  It is wise to remember this when investing in airline stocks, but at the same time not be afraid to invest a certain amount for a measured period of time.

We also would like to bring your attention again to Dex-One Corporation (DEXO $1.53) with these two SMC charts.  This company too is very intriguing –

 

– Benchmarks “At a Glance” –

 

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