Weekly Results:
S&P 500 -4.6% NASDAQ -4.5% Russell 2000 -4.3% MSCI Emerging Markets -3.9%
Recent market action requires more patience and selective approach when picking ideas. A difficult period to earn desired returns, for the risk one is taking. The drivers behind this include lack of established trends and wide daily swings in stock prices. Last week, VIX (Volatility Index) rose by 16% as broad markets drifted lower. All these factors contribute to growing fear in a period of trend shift.
Evaluating risk/reward odds has confused many traders. Therefore, riskier bets appear not to make sense for most participants. Clearly, the Federal Reserve is aware of these conditions as demonstrated by aggressive rate cuts. One of the intentions is an attempt to lift the perception of "reward" for investors in the marketplace. That said "rate cuts" alone might not be sufficient to create a bottoming process. Market timing is even more challenging in an election year with looming credit concerns.
Despite a gloomy picture, there are opportunities to enter in longer-term investments. As volatility subsides the trend is favorable for innovative themes, cheaper value in neglected areas, and quality companies with steady growth. Given this approach, there are actionable ideas even before signs of a major market "bottom".
MACRO LEVELS:
Crude: Following a strong upside move in 2007 currently index is pausing. 3+ month consolidation between $85-$95.
Gold: Long-term momentum is positive but elevated in the near-term. Index is trading at all-time highs following an explosive run. Key trading range is between $880-920.
US 10 Year Yield: Attempting to bottom at current levels. Major support level at $3.28 as overall downtrend pressure continues to linger.
Dollar (DXY): Holding above all-time lows set in November of 2007. The last three months demonstrate a pause in sharp declines.
S&P 500: Next upside hurdle is around 1400 as its 200 day moving average is at 1480. From a longer-term perspective, index is oversold and reaching a buy point below 1350.
FXI (
Stock Specific Ideas:
Technology:
CREE (Cree Inc): Stretched in the near-term but pullbacks offer buying opportunity for longer-term investors. Recent acquisition improves revenue outlook despite short-term impact on company's earnings.
PSEM (Pericom Semiconductor): Surging revenues driven by higher demand for video related products. Following 7+ year of consolidation, stock is poised to outperform. Major support at $14.
WFR (MEMC Electronic Materials): Core fundamentals are in-line with expectations, long-term rewards are relatively appealing. Add on pullbacks between $70-75 ranges.
Healthcare:
PPDI (Pharmaceutical Products): Positive momentum and relative strength. Fundamentals are solid as profits came in line. Plus, growth in new business areas creates a sustainable upside potential.
GENZ (Genzyme): Trend is favorable from a technical perspective. Overall, prospects of growth remain bright based on company's pipeline. Potential decline to $75 range presents a buy point.
