Market Observations:
Summary: 10 year yield rising slowly, as it sits around 4.80 range, perhaps a negative catalyst for markets. Select tech longs reviewed. Early signs of vulnerability in REITS.
Key level: SPX is approaching March 2000 highs of 1552.87. Few years ago, an illusive mark but here we are few points away. I am sure this will get press as a follow up to Dow Jones new highs. The overbought argument is becoming old news but charts illustrate something else. The NASDAQ, is more than 2X removed from 2000 highs. This makes a compelling case for underinvested technology stocks. Regardless, of broad market theories and hype, there is opportunity in technology. I suspect quality stock selection at current levels can be sustainable for year-end returns. (Healthcare as well). Unlike, other areas of the market, tech related stocks are relatively attractive to weather unexpected macro risks. Technology has become a broad sector therefore continue to favor niche areas within the sector.
CNTM (communication, Networkers, Telco and Media). Sticking to the 2007 game plan:
MOT: Slowly recovering, patience required for higher reward. Remains too removed from 200 day mva.
COMS: Strength continues to develop. Add on pullbacks.
SNDK: Holding above support level at $40. Slowly, begin to build long position.
SIMO: Oversold in the near term offers an attractive entry point.
AMD: remains positive and poised for near-term recovery.
In media, BLC and CMCSA. Add on any pullbacks. Continue to favor the media theme for the rest of the year.
MCCC bottoming from a long-term perspective.
Financials are a weak point in the market and this week the REIT short ideas began to materialize.
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 the group is setting up for sharper corrections.
XBD: Stalling around 260 levels, a sign of slowing leadership in the group.
US 10 year yield – At a higher end of previous trading range. 4.40-4.80. After consolidating for several months upsides move developing. Currently removed from 5.25 level reached in the summer of 2006. Impact on equity markets: Keep an eye on this recovery and its sustainability as a macro catalyst. If yields recover accelerates, it might fuel a market downturn.
Crude: Tight trading range between $60-$65. Overall, uptrend remains in tact, given the run from Q1 lows of $50 to recent highs around $65. Perhaps further consolidation ahead with a positive bias.
Natural Gas: Slowly trending higher as it approaches key resistance level at $8. Next hurdle point is near the $10 range.
Dollar: Remains oversold, interesting to watch the relationship with 10 year yield in the near-term. Perhaps, both are poised to move higher from “dead” levels.
Gold: Near-term downtrend continues with further correction from overbought levels. Took out recent support level of 660.
