Weekly Results: S&P 500 -2.44%DJIA -2.10% NASDAQ -2.60% Russell 2000
-4.02% MSCI Emerging Markets 151.36 -5.16%
A negative finish following rate cuts by the Federal Reserve. 10 trading
days left as participants look ahead to 2008.
In the upcoming year, mainstream media will continue to focus on the slowing
economy and a potential recession. This is understandable, as we head into an
election year. Most of 2007 unraveled the fundamental weakness in Financial
Services. Some value managers are seeking to pick bottoms in Banks driven by
Central Bank's decision to inject liquidity into the financial system.
In fact, yearly highs reached in October 2007, seem far removed
to eclipse as we are left with few trading sessions. For example, the S&P
500 is 7% away from yearly and all-time highs. Let's not forget, the S&P 500
index is up over 86% since March 2003. Therefore, recent market declines are
viewed as a pause (top) in the current market cycle, especially among the
bearish crowd.
Volatility is poised to go higher in a period of uncertainty. Since October
11, VIX (Volatility Index) has shown signs of bottoming and is up 44%. At
this point, VIX is set to rise again following short-term declines. The
increase in volatility showcases that there is fear in the marketplace.
Index is above 20 for several weeks which historically suggests increased investor anxiety.
Finally, this turbulence signals a shift in market leadership.
Actionable Ideas:
Despite worries, concerns and additional noise there are stock specific
opportunities as usual. The challenge is timing just as much as it is
identifying the right catalyst. Past 4 + years, cycle leaders were mainly in
commodity and emerging markets led an upside rally. Now, the cycle is
poised for a trend shift into developed markets (US and
companies focused on "innovation".
For example, Growth oriented ideas are showing strength especially in Large
Cap. Healthcare and Technology are the key "growth" sectors and appear
favorable. Clearly, traditional value (such as: Banks and Energy) are poised
for a consolidation and lack relative strength. In fact, Large Cap Growth is
up 12% year to date and is the best performing style.
STOCK SPECIFIC IDEAS:
Technology:
FFIV (F5 Networks): Deeply oversold and offers value at current levels.
On-line video growth bodes well for the company as it maintains its
completive edge. Stock is 28% removed from 200 day moving average.
PAYX (Paychex): Strong consistent revenue growth yet stock is extremely
oversold. A leader as a payroll provider and no debt in the balance sheet,
upside promises are attractive. Again, value investors can enter long
positions around $38.
Staples:
ADM (Archer Daniels): Relative strength intact. Remains at a buy point, as
companies' agricultural exposure offers further growth. Current price range
offers buying opportunity.
Healthcare:
GENZ (Genzyme): Positive fundamentals and a technical breakout since October.
Buy on pullbacks. Above $70, existing trend is intact.
Telcom:
VZ (Verizon): Shares remain depressed as stock attempts to bottom.
Analysts expect further weakness, therefore there is less downside surprise
ahead. Accumulate between $44-42.
Macro Levels:
Crude: Consolidating between $90-95 ranges. In the fourth quarter, on
three occasions investors have kept the commodity above $90. Noticeably,
buying pressure is slowing down.
Gold: Near-term pause after an explosive 4+ month upside move. Trading
within a range $820-780.
US 10 Year Yield: Sharp recovery from November lows. Bottoming at current
levels (4.00-4.20%).
US Dollar (DXY): Similarly, bouncing higher from November lows. Attempting
to hold above $77. Early signs of recovery.
S&P 500: Slightly extended in the near-term. Next major support at 1440.
EEM (Emerging Markets):Pausing in the last 3+ months. Recently, Volume
has declined and buyers await pullbacks to add. Also, index is far removed from 200 day moving average, which suggests additional near-term declines.
No comments:
Post a Comment