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TGIF February 10, 2012

By February 11, 2012Weekly TGIF

Thank God It’s Friday                                         February 10, 2012


The Greek tragedy is getting more complicated as their Parliament is balking at austerity, and the Greek people have staged another violent rally in protest, something we haven’t seen in months. European concerns are back weighing down this market which is already over-bought.

To bail-out Europe from recession, dysfunction and illiquidity, the International Monetary Fund (IMF) is utilizing KEYNESIAN policies to repair the European economies.  You may recall learning in ECONOMICS 101 class that Keynesian Economics embraces the theory that recessionary economies can be made to grow and unemployment reduced by increasing government spending and making reductions in interest rates.  It is a theory based on the ideas of economist John Maynard Keynes that optimum economic performance could be achieved by influencing aggregate demand through government fiscal (public spending and taxation) policy, not through the free market philosophy characterized by the classical and neo-classical schools.

While the drama in Europe continues to frighten American investors, we were hitting some important price resistance levels on the S&P-500 Index and DOW.  This seems like an appropriate time for markets to cool-off.  The spectacular rally we’ve seen to start the year is really an extension of the rally launched in October with little contraction nor consolidation.  The timing is ominous since historically February is amongst the toughest months of the year, rivaling September.  We had anticipated some profit taking, which is why we have been trimming positions on strength, and writing calls.  We are expecting 2011-like volatility to kick in a bit for the first time in 2012… and we are ready. 

Even with the broad market unraveling a bit, Apple stock has gone parabolic: Up nearly 25% on the year, and has blown through resistance.  Aside from Apple, the Market feels heavy, and a healthy correction is on the horizon.  Price weakness should be buyable, but we don’t necessarily need to jump in quickly.  We continue to let the Market be our guide, and the Market internals have been quite strong in 2012, and suggest ultimately more upside ahead.  But Europe and Iran are two menacing risks that cannot be taken lightly.

By: Jude Bedell