Weekly Results:
S&P 500 968.75 +10.49%
NASDAQ 1,720.95 +10.88%
Russell 2000 537.52 +14.09%
MSCI Emerging Markets 25.09 +24.11%
Big Picture:
As oddmakers begin to speculate on election results, the overall market conditions appear equally puzzling. Clearly, election results will shape policies and longer-term trends. That said, this cycle correction is ongoing and requires additional time. Similarly, one can expect a short-term market reaction in markets. Generally, knee- jerk trading responses do not necessarily indicate overall multi-year trend. Meanwhile, impact of interventions and search of bottoms heighten the degree of 'unknowns'. In addition to the election, further earnings and economic data can provide additional clues to "jittery" markets.
Seasonal/ Cycle Factors:
As we enter November, increase in market volatility, worsening economic conditions and beaten-up stock market are clearly evident. Outside of political landscape, the cycle outlook suggests favorable atmosphere for sectors related to healthcare and technology. Unfortunately, as the downtrend continues, investors are forced to closely monitor entry and exit points. Recent weeks, have seen major shifts towards extreme negative sentiment. The current environment continues to witness large swings and lack of longer-term commitment. Historically, this October was the 8th worst monthly performance for the S&P 500 (-16%). Interestingly, the last three months of the year have produced positive returns. From a macro viewpoint, we are entering an era of de-leveraging. This adjustment process is yet to be resolved in financial systems.
Portfolio/ Trading:
Given steep declines, several pundits have pointed out available bargains in equity markets. In fact, as risk appetite eventually increases there are opportunities to accumulate quality stocks. In addition, mean-reversion trades seem highly probable but require short-term management. Generally, investor fear creates panic and overselling. Timing the market is the ultimate challenge, but valuations signal a buy point. Nonetheless, restoring natural flow of markets and stabilization in credit markets are desperately needed.
In a market that has become undervalued, however, the strategy of waiting for a measurable improvement in market action historically has not performed nearly as well as a strategy of gradually increasing market exposure, on declines, as the market's valuation improves. Scaling in that way is certainly not comfortable, but the willingness to experience short-term discomfort is a scarce and ultimately well-compensated resource on Wall Street. The key is to scale gradually and in proportion to the expected return profile, rather than trying to "time" reversals that can't be predicted. (John P. Hussman - Risk Management and Hooke's Law - October 27, 2008)
Investment Ideas: Innovative related themes present select buying opportunities. Improving fundamentals and relative strength bode well for upcoming bullish cycle.
Healthcare:
GENZ (Genzyme), BLUD (Immucor), STE (Steris) and TECH (Techne)
Technology:
ORCL (Oracle), COMS (3Com) FORM (Formfactor Inc) and EMC (EMC Corp)
Macro Levels:
Crude: [$67.81] :Reverting back to 2007 levels, with next major support around $50. Specifically, Crude reached similar low on January 17th 2007 of $49.90.
Gold [730.35]: Attempting to bottom near $700. Established downtrend since March 2008 highs. This October marked annual lows of $712.50 as the commodity declined over 25% since mid-July.
US 10 Year Yield [3.96%]: Trading at a narrow range between 3.80-4%. Yields have risen 22% since September 16th lows .
DXY- US Dollar [85.63] : Recovering and holding above a key level of $84.
S&P 500 [968.75]: Consolidating between 850-1000. Early hints of stabilization after sharp declines.
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 futurinvestment performance of any securities or strategies discussed.
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