Weekly Results:
S&P 500 -1.81%
DJIA -2.39%
NASDAQ -1.27%
MSCI Emerging Markets -1.31%
Last week's action confirmed the multi-year trend of rising Crude and weakening Financials. It was a reminder for investors of the ongoing credit risk and a powerful cycle in the commodity markets. Growing speculation and a lack of trust are prevailing themes for Global investors. Similarly, the S&P 500 continues to trade sideways as investors ponder between a bottoming housing market and unclear economic data. A difficult period to make directional bets for the broad market. Recently, a stock specific approach appears reasonable given the lack of trend. Similarly, many participants are seeking further stability while remaining on the sidelines. In addition, sector rotation alone is not enough to produce desired returns. Consequently, there are plenty of headline materials, but limited ways to produce returns.
Unlike the first quarter, Volatility (VIX) is much lower as it trades slightly below 20. Perhaps, a bullish signal for equity markets on a short-term basis. Nonetheless, damages from the credit crisis are difficult to underestimate. For example, AIG's disappointing earnings confirmed shaky fundamentals. At the same time, Small Cap banks remain vulnerable and REITS are poised for pullbacks. Recent optimism faces a challenge in the weeks ahead at the conclusion of the quarterly earning season. Sentiment indicators turned less pessimistic and shifted from extreme bearishness in the first quarter. Again, recent complacency combined with overbought technicals sets the stage for a downside surprise.
Portfolio Management:
A sharp decline in commodity related themes can fuel cash inflow to innovation based themes. At this point, Crude relegated groups continue to benefit from momentum, speculation and relative strength. On the other hand, Healthcare and Technology offer value especially on pending market corrections. In both cases, identifying the right stock is critical. In technology many analysts remain pessimistic leaving room for upside surprises. "According to Zacks.com data, 56% of the 183 analyst ratings on the NWX [AMEX Networking Index] components are a 'hold' or worse." (Forbes -5-9-2008).
STOCK SPECIFIC IDEAS:
Financials:
Use bounces as opportunity to reenter short positions. FED (First Federal)and DSL (
Healthcare:
Biotech more favorable than Pharmaceuticals.
TECH (Techne): Relative strength is positive so far in 2008. A 24% increase in Sales from its biotechnology segments presents solid fundamentals.
Other ideas: GENZ (Genzyme) and STJ (St Jude)
Technology:
CSCO (Cisco), LSI (LSI Corp), ORCL (Oracle), CREE (Cree Inc) and FLEX: (Flextronics)
Macro Levels:
Crude: Trading at all-time highs. Friday's intra-day high of $126.05 serves as a key level – at least for the week ahead.
Gold: In the short-term, downtrend in palace following March 17th peak. Attempting to bottom between $860-880.
US 10 Year Yield: Pausing near 3.80% from a near-term perspective.
Dollar (DXY): 2+ months of stabilization underway. Nonetheless, long-term downtrend is intact.
S&P 500: Facing major resistance at 1400. Near-term momentum is extended. 50 day average (1352) is a key test on further pullbacks.
