Weekly Results:
S&P 500 1,298.20 +.14%
NASDAQ 2,452.52 +1.59%
Russell 2000 753.37 +2.60%
MSCI Emerging Markets 40.40 -1.68%
In the past few weeks, markets are readjusting from extreme levels. Plenty of moving parts with Commodities declining, the Dollar strengthening and on-going concerns in credit markets. As many investors seek a turning point, the current landscape requires one to distinguish long versus short term behavior. In an attempt to decipher this puzzle, other questions are worth asking.
Key Market questions:
- Given recent declines in Commodities does one sell Commodity stocks?
- Should a Dollar recovery correlate with a bottoming US Stock Market?
- Does one continue to bet against Financials?
- Are US stocks relatively attractive versus Global stocks?
Commodities/Currency:
Despite these steep near-term declines, the Long-term uptrend in commodities appears intact. (Crude above $80 and Gold over $700). That said, bulls are taking profits as the asset class corrects from overbought ranges. In addition, the macro dynamics of inflation and slowing global demands serve as a negative catalyst. Inversely, this is benefiting the US dollar as investors seek alternative options.
At this point, select stocks offer shorting opportunities especially in "overheated" emerging markets.
Short Ideas: TS (Tenaris SA): STLD (Steel Dynamics), SID (Companhia Siderurgica Nacional ADR) and GGB (Gerdau S.A),
Crude [$113.77]: Holding slightly above a 200 day moving average of $110.14. A break below $110, sets the stage for next key support of $100. From a psychological and technical perspective, the recovery in next few weeks can test the overall buying demand.
Gold [$786.50]: Making annual lows after whipping out 2008 gains. Clearly, oversold in the near-term given steep sell-offs. Finally, $700 is a long-term support level, last reached in fall of 2007.
US Dollar Index -DXY: [77.18] : Up over 8% since March 17th lows. Explosive recovery in the month of August. Macro driver includes speculation of a potential US rate hikes versus a cut in rates by foreign central banks. Stabilization ahead between $74-78 ranges.
Financials:
Despite the first wave of a recovery, Financials' long-term downtrend presents a less than favorable odds for buyers. Credit concerns remain in mortgages, credit cards and commercial related areas. On that note, rate direction and pending interventions provide better guidance for entry point. At this stage, buying seems rather premature.
Short Ideas: STD (Banco Santander SA) and AIB (Allied Irish Bank).
US Markets :
U.S. stocks pulled ahead of Brazil, Russia, India and China this week for the first time in 2008, spurred by the Federal Reserve's efforts to cut borrowing costs even as the biggest developing countries are raising theirs.
(Eric Martin – Bloomberg.com August 13th 2008).
On a relative basis, there are opportunities in US markets despite overall bearish sentiment. Given a slowing environment in the Euro region and cooling Emerging Markets, investors are seeking quality ideas.
Long Healthcare:
BLUD (Immucor), GENZ (Genzyme), JNJ (Johnson & Johnson) and TECH (Techne).
Consumer Long: Majority of consumer related areas attempt to recover in a difficult period. Nonetheless, WMT (Wal-Mart), SBUX (Starbucks) are worth a look from a long-term entry point.
