Market Overview: September 17, 2007
An eventful week ahead, as financial markets await results from the Federal
Reserve. Aggressive participants are looking to speculate and take advantage of volatility. Likewise, many investors are looking to dissect the language from Fed's announcement. However, all these factors should not dramatically change the long-term outlook.
Once again, investor sentiment remains overly negative as most participants expect a downside move in equity markets. Investors continue to rotate into risk-averse instruments and defensive themes. (Last week, Restaurants rose by 6.50% and were the top performing group in the market.)
Meanwhile, corporate insiders continue to accumulate stocks while companies continue to announce share buybacks. In addition, other areas of the stock market offer timely entry points. Therefore, plenty of mixed signals.
Besides the obvious, there is always room for surprises meaning its vital to examine
core ideas.
At this point of the credit cycle, Financials remain vulnerable. Despite, any recovery, fundamentals are not favorable for a sustainable upside move.
Attractive areas include, 'Growth' oriented themes especially in Technology and Healthcare. At the same time, Gold remains in an uptrend especially with growing uncertainties in the currency, credit and equity markets.
MACRO REVIEW:
S&P 500: Trading in a narrow range between 1440 -1500. Look for further consolidation before any upside move.
US 10 Year Yield: Attempting to bottom near 4.40% range.
Dollar (DXY): Less than 2% removed from all-time lows, reached 15 years ago. Deeply oversold in the near-term, as the dollar remains 3.7% removed from its 200 day moving average.
Crude: Nearing elevated levels, following a 16%+ move since August 22. Key resistance near $80.
Gold: Intermediate-term uptrend remains intact. Next resistance level $725. (May 2006 highs).
Natural Gas: Deeply oversold with major support at$6. Early indication of a recovery.
MSCI Emerging Market (EEM): Overbought and poised for consolidation between 135-125 range.
Stock Ideas:
Telecommunication:
VZ: (Verizon): Relative strength continues to improve. Accumulate closer to $40.
SKM (SK Telecom): Strength developing and poised for an upside move. South Korean wireless operator presents a timely entry point and improving fundamentals.
Healthcare:
JNJ (Johnson & Johnson): Remains attractive as value buyers continue to accumulate. Add on pullbacks.
WAT (Waters): Although extended in the near-term, any weakness offers better entry points.
SSRX (3SBIO): A Chinese biotech company that is deeply oversold. Buy point near $10-12 levels.
Technology:
NICE (Nice Systems): Look for near-term declines as buying opportunity. Above $36 trend remains positive.
KNM (Konami Digital): Recovering from oversold levels. Since mid 2006, uptrend remains in intact.
