Market Update - September 22, 2008

Weekly Results:

S&P 500 1,255.08 +.27% 
NASDAQ 2,273.90 +.56% 
Russell 2000 753.74 +4.65%
MSCI Emerging Markets 36.29 +.52%                                                                                                                                                                                                         

A memorable and historic week!  In an election year, investors react to temporary policies while digesting intense headlines. Since last Sunday, anxiety increased for banks, regulators and money managers. At times, traditional risk assessment were being challenged. Especially, with interventions playing a greater force. Clearly, macro indicators reached significant multi-year ranges. For example, flight to safety and spike in volatility reached extreme levels. For optimists, these events can set the stage for a turnaround. As for the sustainability, it appears too early to call. In fact, confidence restoration might have led to more confusion. For the most part, "panic" was the dominant theme. Some characteristics of last week were a reminder of previous market crisis.

Importantly, the old adage "Don't fight the Fed" holds true. Friday's relief announcement sparked a sharp rally. Of course, most trading disciplines seemed not applicable given these violent swings. Nonetheless, effective money management requires one to adapt to changing landscape. The challenge ahead is not to overreact and overtrade in this unclear regulatory and market environment. Perhaps, this is another inflection point in global markets. This year, we've witnessed a series of events pertaining to cycle tops. 

In taking a step back, there are few things to consider in these times. The financial meltdown in this capacity was unprecedented. Nonetheless, from an investor's view, hints of a cycle peak were mildly visible from various angles. Leading up to this decline, homebuilders peaked in 2005. Hard assets (Gold/Crude) soared most of this decade while "paper assets" were out of favor. Credit concerns and weakening economy have been a reality for the past year and a half. In March, the Bear Sterns failure sent alarms with lingering effect. This Summer lows were not enough to create a market bottom. At the same time, mid week sentiment and panic selling further decelerated an oversold market. Therefore, interventions have contributed to short-term recoveries. This time, the compounding effects resulted in a reaction of higher magnitude.

Looking Ahead:

As the dust clears, there are cycle/sector themes are poised to reestablish. Interestingly, despite wild swings, weekly results don't reflect impact of recent events. For example, S&P +0.27%, Nasdaq 0.56%  and CRB (Commodity Index) -.12%. 

From a regulatory perspective there are lots of moving parts. This includes weekends approval of Goldman and Morgan Stanley becoming bank holding companies. Most portfolios look to readjust to liquidity injections by Federal Reserve. Indexes tracking US financials have seen major changes in the past few weeks (Ie. AIG, Merrill, Lehman, Fannie and Freddie).Chart readers can observe that BKX (Bank Index) is showcasing a bottoming recovery since July 15. In fact, a stunning 79% gain for the index since the summer lows. Therefore, those reassessing risk and tracking relative strength can view this as a recovering signal. Similarly, (RLX) Retail index is up over 25% since July 15. Next few weeks, will showcase if positive sentiment continues to unfold.

 

Stock Specific Ideas:

Consumer related Long:

HSY (Hersheys), LUV (Southwest Airlines), WMT (Wal-Mart) and SBUX (Starbucks).

Healthcare Long:

BLUD (Immucor), GENZ (Genzyme) and ILMN (Illumina Inc), and TECH (Techne)

MACRO LEVELS :

Crude [104.55]:  Sharp recovery from annual lows of $90.80.  Next resistance level at 200 day near $111 as it remains oversold in the near-term.

Gold [869]: Intermediate-term downtrend intact despite a two week rise. Attempting to stabilize around $850-900.

US 10 Year Yield [3.81] : Up 9 basis points last week. Trading at a lower end of a multi-year range. In the near term, 200 day avg is the same as Friday's close.

US Dollar DXY [77.68]: Retracing from yearly highs of 80.25. Overbought in the near-term with next major support at 76.

S&P 500 [1255.08] Attempting to stabilize around 1250. Holding above extreme lows of 1133 (Sep 18) and July 15th lowest point of 1200.

 

Dear Readers:

The positions and strategies discussed on MarketTakers are offered for entertainment purposes only and are in no way intended to serve as personal investing advice. Readers should not make any investment decision without first conducting their own thorough due diligence. Readers should assume the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any way, considered liable for the future investment performance of any securities or strategies discussed.