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On Day One of Q4 2012, Consider the 'Disney Theme Park Concept of Investing'


Have fun, manage your expectations, bring a raincoat, and carry a bottle of Pepto -- the rides are often more perilous than you think.

The quality of our expectations is directly proportional to the quality of our actions.
– Andre Godin

Our firm's editorial last week discussed evaluating secondary indices in order to help ascertain whether the market is going to confirm its newfound bull trend, or if it's simply a false-positive. As such, we outlined the PHLX Semiconductor Index (INDEXNASDAQ:SOX), the Dow Jones Transportation Average (INDEXDJX:DJT), the PHLX Bank Index (INDEXDJX:BKX) and the PHLX Housing Index (INDEXNASDAQ:HGX); two not so good, one good, and the other… well let's just say, a little high, considering. We proclaimed that a pullback to 1,420 or 1,400 wouldn't be out of the question and potentially positive if held, as successful retests characteristically prove validity through strength -- continued buying support in the face of short-term weakness.

The week began on a good note right until Tuesday afternoon when Charles Plosser (Philadelphia Fed Bank Chief) came out swinging like an underdog in a prize fight. It was in a speech to the CFA society and Bond Club of Philadelphia that Mr. Plosser, when describing QE3, used terms and snippets such as "risky," "unlikely to spur growth," and "consequences similar to those of the Great Depression." Woops! This, for all intents and purposes, provided the catalyst which began the market's correction toward the aforementioned retest numbers.

Following "Negative Nancy's" commentary, the markets, saddled with traditional quarter-end volatility, were also smattered with global economics for the remainder of the week. This included the US' Q2 GDP revision downward to 1.3% from 1.7% and Spain's Cabinet approving their 2012 budget. They stated a budget reduction of €40B ($51B) through government cuts, rather than increasing taxes on a dwindling economy. This lead to speculation of postponing further assistance from the EU.
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No positions in stocks mentioned.

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