Market Outlook | April 13, 2009

Weekly Results:

S&P 500 856.56 +2.66%

DJIA 8,083.38 +1.32%

NASDAQ 1,652.54 +3.11%

Russell 2000 468.20 +4.0%

MSCI Emerging Markets 27.53 +2.79%

Semi-defined uptrend:

As earnings season approaches, observers seek a balance between optimism and weakening fundamentals. Since the start of the year, reported economic numbers led to upside surprises. Perhaps, the surprise element serves as a key catalyst for upside moves. In upcoming weeks expectations can shape stock and index performance. Similarly declining volatility creates an increase in risk appetite. The VIX (Volatility index) has sharply fallen from turbulent and extreme levels. In addition, some macroeconomic issues remain unsettled. More clarity is required on regulatory changes, pending bailouts and emerging political tension. Combining these factors  partially explains a semi-defined uptrend within a bear market.

Four recent economic data points (ISM data, New Home Sales, Existing Home Sales, and Non Farm Payroll) were all spun by Wall Street as if they were positive; if you dug beneath the headlines to review the actual data, they were all terrible. (Barry Ritholtz - April 12th, 2009)

Innovative Themes:

Leadership in Small Cap and Technology present bullish potential. So far this year, NASDAQ is up 4.8% and Semiconductor index is higher by 20%. Few interpret this as an early indication of a recovery in technology after multi-year underperformance. On the other hand, the Biotech Index (IBB) has yet to participate in the recent recovery.  

Some optimists are not fully convinced on the upside potential of Technology and Healthcare. Sharp sell-offs in the past 6 months contribute to this skeptical view. On a relative basis, commodity linked groups are poised for pullbacks. For example, Gold has reached elevated levels and Crude remains in a cycle downturn. Meanwhile, credit related themes are too risky and speculative. That said, innovation based themes in technology and healthcare appear favorable. At this point, additional clues are needed to examine  sustainability of core fundamentals. Most pundits and investors are eager to make directional and timely bets. Nonetheless, identifying themes and changing dynamics can be more rewarding.

 

Macro Levels:

S&P 500 [856.56] Index holding above 800 which signifies a psychological point. Technical indicators suggest next upside potential is around 1000. Overall uptrend is unclear despite recent market recovery.

Crude [$52.24] Long-term charts point to an established downturn. Recently, buyers showed interest around $40 but now the commodity is overbought. A move close to $60 can provide a better gauge of investor attitude.

Gold [$880.50] Multi-week declines after peaking on February 20^th at 989. Strong support around $840.

DXY – US Dollar [85.78] Intermediate term momentum is positive. Index is on the brink of retesting highs from March 2009.

US 10 Year Yield [2.91%] Tight trading range forming between 2.60-3%. Yields have failed to break above 3% several times in 2009. 

 

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