Market Thoughts | December 29, 2008

Weekly results:

S&P 500 872.80 -1.41%
NASDAQ 1,530.24 -1.43%
Russell 2000 476.77 -.50%
MSCI Emerging Markets 22.93 -6.51%


Few thoughts and questions. A historic year Indeed! A Happy, Healthy and Fruitful year to all!!

Times of general calamity and confusion create great minds. The purest ore is produced from the hottest furnace, and the brightest thunderbolt is elicited from the darkest storms. Charles Caleb Colton ((1780 - 1832)

Synchronized Sinking Second half of 2008

Usually, seeking extremes and betting on reversal is a well practiced strategy. Once, an unusual move is identified, next step is to seek catalyst for a trend. After examining risks the trader lets the market do the rest. Today, most asset classes and global markets are lower and at or near some extremes. Generally, movements in less correlated assets leads to market dislocations. That attracts different opinions between buyers and sellers. Now this basic concept does not seem too obvious given recent downturn.

What are the odds for a uniform recovery? Perhaps, a rise in Crude, US Dollar, Real Estate, and Stocks. Sounds rather silly and too risky. Interestingly, few envisioned a decline in all asset classes in the fall of 2007. In fact, most market experts did not envision a simultaneous decline in Oil and S&P 500. Finally, the argument for diversification was based on correlation. These abnormal and historic times tested conventional wisdom. Again, a message for markets to fathom the unfathomable.


No Trend or New Trend:

Increasing volatility and inter-linked markets increase demand for financial products, extended trading hours and faster trading tools. On one hand, financial system's core is being tested. At the same time, innovations and technical expertise are in high demand. It's rather awkward for those reading latest news headlines. Nonetheless, the human desire to innovate, to speculate and to grow is a powerful force. These lessons are visible in across various eras and time frames.

Non-U.S. index markets (and of course) currency markets are available for trading outside of the cash session period for U.S. equity markets. However, financial markets continue to become more global and directly correlated all the time. That trend will only continue, at a faster pace than ever before. A growing number of traders around the world will continue flowing into the U.S. markets during off-peak hours. That continual trend will in turn make trading the globex periods more active and fruitful. It's a self-perpetuating trend. (Austin Passamonte - Trading Markets Dec 2008)

An extended period of sideways markets appear strange especially for recent participants. Nonetheless, evolution in global markets have slowly changed the landscape. This year, ongoing intervention and implementation of government policies have formed new investment vehicles. In other words, plenty of products to learn, trade and improve. This creation can serve as an upside catalyst for the next bullish run. Ironically, the outcry for regulation enables a new market for eager investors. Of course, the faith of this resides in investor confidence. Again, in due time as cycles teach us that recoveries are inevitable.

Clients have diverse needs, risk appetite and return requirements. Wealth managers are needed more than ever before. But the new tasks are more demanding and require better education and training. There is a demand for better-equipped wealth managers in a globalised world of finance. Finance and banking are very necessary in our modern world, but now they require more knowledge than before. More education is required, not less. (Francis Koh and Klaus Spremann - The Business Times on December 22, 2008)

Market Mechanics:

Lightly traded volume but similar message in the past few weeks. Mainly, some improvements in sentiment, and declining volatility. Of course, the economic data is slowing. Mainly, this early bottom presents an opportunity to distinguish various themes. Some will prefer to sit on sidelines, for further evidence. Those seeking higher risk/reward are considering entry points in this consolidation phase. Again, the Federal Reserves recent move is designed to increase investors risk appetite. First quarter, can provide further clues to the depth of economic concern and impact of bailout plans.

Ideas:

Healthcare: Sector stands to benefit in pending cycle based on relative strength, fundamental outlook and favorable government policy.

GENZ (Genzyme), CELG (Celgene), MHS (Medco) and BLUD (Immucor)

Financials: Exchanges are poised to benefit from increasing trading activity and introduction of new products. Also, deeply oversold at these levels and worth a look. Further sell-offs in CME (CME Group) presents entry points especially a move below 2008 lows of 155.49 present entry points.

KEY MACRO LEVELS:

Gold [843.50] Index failed to move above its 50 day moving average since April 2008. Currently, facing key resistance around 870-900 following a rally from October lows.

Crude [37.71] Down 78% from annual peak to intra-day lows. Attempting to stabilize with a new range forming between $30-40.

S&P 500 [872.80] Potential bottom near 800. Technically, oversold as seen by rally from November 21.

DXY - US Dollar [80.89] Giving up gains from a multi-month rally. Staying above 200 day moving average of 77.10. Again, reaction to Federal Reserve policies attribute to recent moves. Major support at 78.

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