The S&P 500 has erased losses from this summer and currently trading near all-time highs. Volatility continues to decline as the bullish uptrend remains in tact. Despite negative news from Financial companies, the US markets closed positive on the week. Perhaps, investors have "priced in" concerns over credit risks. Nevertheless, broad markets are overbought in the near-term.
For the upcoming weeks, look for consolidations, especially as we enter a heavy part of the earnings season. There is plenty of noise ahead as participants speculate on Fed cuts, "recession" and broad market peak.
In terms of managing portfolio, balanced exposure seems appropriate for positioning towards year-end. As commodity related themes retrace from escalated levels, other areas in the market place are worth a look. In looking ahead, most Technology and Healthcare themes are poised to outperform.
Sector allocation chart below.
Technology:
As the sector makes multi-year highs, positive trend remains in tact and pullbacks offer buying opportunities. Investment bankers continue to finance M&A activities in the sector. At the same time, valuations are relatively attractive, favoring upside moves.
BRCM (Broadcom): Demonstrating further strength in the last 3+ months. Holding above key levels and a sustainable idea. Additional bullish include, improving long-term fundamentals along with investments in growth related areas.
FFIV (F5 Networks): Add on pullbacks closer to $40. Also, strength in core business and increasing demand growth favor additional upside move.
NICE (Nice-Systems): Holding above $36. Appealing entry point at these levels.
FDRY (Foundry Networks) Stretched in the near-term but strong relative strength since summer 2006. Use weakness to accumulate.
PAY (VeriFone Inc): Long term uptrend in tact for the electronic payment company. Accumulate closer to $40, given the solid fundamentals and growth potential.
MOT (Motorola): From an intermediate-term view, early indications of a bottom. At this point, consolidation ahead between $18-20 range. Company is poised for a turnaround following a weak 2007. Improving product mix along with pleasing valuations create buying opportunities.
Media:
DTV (Direct TV): Breaking out from multi-month consolidation. Key support at $22. Further expansion in consumer related space presents a bullish outlook.
Healthcare:
CBST (Cubist Pharma): Bouncing from key support level at $21. Early stages of a recovery as stock attempts to breakout of 2+ year trading range between $24-26.
MATK (Martek Bio): Bottoming at current levels and deeply oversold from a long-term standpoint. Opportunistic entry point especially with growth in sales and expanding margins.
Industrials:
LYV (Live Nation): Holding above key support $20. Add on any pullbacks as company continues to expand in the concert promotion business.
CAL (Continental Airline): Recovering from oversold levels. Also, a decline in Crude prices can lift shares of airline stocks.
Financials:
Despite recent recoveries group is relatively vulnerable. Favor insurance related themes over REITS and Lenders. At this point, sector presents more of a trading rather than investing opportunities. Plus, any near-term Fed cuts should not alleviate weakness at this stage of the business cycle.
MACRO INDICATORS:
Crude: Holding above $80, while pullbacks ahead from elevated levels. Major resistance at $83.76.
Gold: Uptrend in tact. $720 near-term support with pending pullbacks ahead.
Natural Gas: Consolidating between $6-8 range. Upward bias at current levels for months ahead.
US 10 Year Yield: Stabilizing near 4.60% range with major support at 4.40%.
Dollar (DXY): Early signs of trend reversal. Attempting to hold above all time lows $77.66 reached on September 28, 2007.
Emerging Markets (EEM): Due for near-term pullbacks. Key resistance at $157.77.
S&P 500: Overbought in the near-term. Further consolidation between 1540-1500.
