Quick summary: Looking ahead to second half opportunities, retail shorts, healthcare longs, macro influences and myths.
Equity Thoughts:
Given the elevated levels at current conditions, one has to readjust second half expectations. At this point, there are areas to add on pullbacks. In revising the 2007 thesis, I like communication, media, networkers and telco. Also, healthcare is an interesting play that can create upside potential with sustainability. As sated last week, there are opportunities in Healthcare – Continue to favor XLV. Consumer offers few trades, mainly focused on the short side.
So sticking with risk/reward here are few points.
Reits: RWR: Wilshire Reits index: Stalling since mid February and struggling to recover. Least favorite REITS include, SPG, BXP, HST and VNO. From a cycle perspective, a strong run and setting up for a sharper correction.
Retail: Continue to watch FDO as it faces heavy resistance around the $33 level. Following recent recovery stock is vulnerable despite net positive analyst view.
Other names to watch as short candidates --KSS, SHLD and TJX.
Healthcare: In terms of large cap names: AMGN, BMY and MRK – monitor for second half long ideas and enter on pending pullbacks.
Insurance: another area to consider given its recent pullbacks. – Specifically, the group has underperformed the S&P 500. An area to add, especially relative to other groups in financials.
Technology: Semi’s- AMD – deeply oversold with support at $15. It has been a value trap before but interesting comments from NVDA’s managment.
We are seeing the sell-through of AMD processors picking up significantly in this channel, and I am sure many of you see that as well. And it reflects the fact that it's replenished the channel with Athlon processors. It is now price positioned in the right place and it’s a great product. There is no reason why it went so, and so we are expecting the pick up again.
Chart attached below.
Energy: XLE- uptrend remains intact, strong run up in the past two months. Next resistance of 243.97 – May 4th highs. OSX long –term strength continues- One can trim on pullbacks but above 180 – the long term cycle is intact.
Macro/Levels:
Crude: Key resistance at $66 level –momentum slowing. Range forming $62-66 levels. Expect down/pause action in the near-term.
10 year yield: Intermediate-term trading range between the 4.40-4.80 level. In recent near-term trading there is a close range 4.62 and 4.68. Lets not lose focus on the uptrend that started 4.00
DXY-Dollar index: Recovering from April 27 lows of $81.26. Next near-term resistance closer to $83. As stated before, I am expecting further recovery from deeply oversold levels.
Gold: Near-term downtrend continues with further correction from overbought levels. Next support rests around the 660 level with a momentum attempting to bottom. At early stages of a pair trade with declining gold and recovering dollar.
Commentary:
Despite growing bearish sentiment due to extended markets – the upside move has paid off for those who stayed long. Especially, a differentiated view from consensus. A study showed that 60% of individual investors were expecting a recession. Such a high number versus other periods and more than institutional participants. A lesson learned but does not deny the overbought levels.
Clearly, this “extended” market just keeps going higher as many don’t want to admit mistakes. Interestingly, the growing bearish sentiment has driven an increase into money market funds. With fewer participants in equity market, the market keeps going higher without the influence of net bearish “pundits”. Lets not confuse traders with media. The first quarter displayed the disconnect between noise and actual data.
From a macro level, oil stalled at $65 range, econ-talk is interpreted as positive news for markets, and overall net positive earnings. Important to watch a recovery in the dollar, 10 year yield behavior and cooling of emerging markets. Regardless, the simple question is profit taking versus adding on pullbacks. A global perspective offers the building bubble of credit and increase in major asset classes. Although, not actionable these points are accepted and as close to reality.
