Market Outlook - January 20, 2009

Weekly Results:

S&P 500 850.12 -4.52% 
NASDAQ 1,529.33 -2.69% 
Russell 2000 466.45 -3.08% 
MSCI Emerging Markets 23.28 -6.47%

New Era! New Cycle?

The last six months have presented historical events for financial  participants. Yet, another watershed event awaits today.  Perhaps, a change in government leadership sets the stage for a cycle shift and trend reversal. That said, at this moment, not many compelling reasons for a sustainable recovery. In fact, the S&P 500 is down nearly 6%  in 2009.  To be fair, its rather early to judge. However, ongoing interventions and bailout packages remain unclear. At this point, negative economic and earnings results are not  much of a surprise. A low spirited signals are visible when viewing results from sentiment indicators (VIX and Put/Call Ratio). For that reason,  limited opportunities appear in select areas. Market reactions remind us that bubbles are still bursting in Commodities, Emerging Markets and Credit related groups. Again, trading prospects resurface in various forms given daily noise. In taking a step back one notices simple consolidation.

Plenty to Decipher:

The landscape for Financials continues to change as risk assessment becomes a challenging task. This puzzle is evident in figuring out the conditions of the Chinese economy and valuation of beaten up assets.  Additional rescue plans by the UK government raises more questions on the severity of credit weakness. The fallout from the bullish run of 2003-2007 is playing out and shapes the next cycle run. The Financial index (XLF) is approaching all-time lows from November 21, 2008.  Interestingly, Crude  and US 10 year yields are attempting to uniformly recover after making lows in late December.  Amazingly, a sharp and longer-term recovery in these themes is picking up momentum. As usual, betting on consensus alone does not tell the full story.

Stock Specific:

·         BLUD (Immucor) :  Presents attractive entry points closer or above $25.The maker of blood-testing equipment witnessed an increase in sales to $73 million. Momentum combined with core fundamentals present a bullish bias.
 
·         CELG (Celgene): Despite less than expected sales growth for 2009, stock price showcases relative strength. Secondly, a 35% earnings growth is  appealing for money managers.  Finally, the technicals signal a bottoming range between $50-55.
 
·         CREE (Cree Inc): Investors await further details from upcoming  earnings report. The long-term outlook of energy-efficient lighting seems promising.  A near-term sell-off around $14 permits buyers to step in.  The company stands to benefit from infrastructure spending as well as various government projects.

                                                                                          

KEY MACRO LEVELS:

Crude [$36.51] Flirting with a $10 range between $30 and $40. Overall downtrend requires additional time to shakeout. The lowest point in recent sell-off stands at $32.40 last reached on December 19, 2008.

Gold [$833.75] Strong base forming around $760. Heavy resistance at $880 and 30 points above its 200 day moving average.

DXY – US Dollar [84.21] The Dollar index maintains its uptrend that started in March 2008. During the global credit crisis, investors continue to view the dollar as a safe haven. In the short-term, there are increasing odds for a pause within a positive long-term move.

US 10 Year Yields [2.318%]  Near-term evidence suggests a  bottoming process between 2.03-2.20%.  Downside pressure exists given Fed’s uncertain policy. Nonetheless,  in the near-term, the best case scenario stands around 2.75% which is the current  50 day moving average.

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 future investment performance of any securities or strategies discussed.