Market Notes | May 4, 2009

Weekly Results:

S&P 500 877.52 +1.30%

DJIA 8,212.41 +1.69%

NASDAQ 1,719.20 +1.47%

Russell 2000 486.98 +1.72%

MSCI Emerging Markets 28.99 +4.19%

Recent optimism

In this recent rally, global investors increased overall desire to speculate. Investor psychology and Federal Reserve actions provide clues to this multi-week recovery. Volatility remains in a six month downturn. Similarly, treasury yields continue to rise. Both factors confirm early optimism and suggest market stabilization. The shift towards risky assets benefits higher beta groups. For example, consumer, commodities and interest sensitive themes resulted in higher absolute returns. In addition, positive technicals in Technology and Consumer Discretionary indicates clues to new cycle leaders.

So far in 2009, NASDAQ is up 9% and few points removed from its 200 day moving average. That said, Gold peaked in late February 2009 and US Dollar topped in early March 2009. This illustrates an early rotation out of “safe” areas. Similarly, healthcare and staple witnessed sharp sell-offs. Now, the faith of this relationship (risky vs. defensive) will be tested on pending economic data and earnings announcements. Nonetheless, odds are increasing for a broad market pullback.

Clearly, a reshuffling period for managers and participants. Intervention and unclear guidance from policymakers create a semi-defined trend. Importantly, the Federal Reserve language determines investor psychology. At this point, anxiety is less visable but economic outlook is mixed. Therefore, one can expect more short-term oriented trading with higher turnover. At the same time, patience is required for value seekers especially when evaluating groups related to credit.

Macro Levels:

S&P 500 [877.52] Recent uptrend is approaching resistance levels between 880 and 960 (near the 200 day moving average).

Crude [$53.20] Positive trend intact as the index remains above $48. Crude closed below previous highs of $54.66 reached on March 26.

Gold [$884.50] A 3+ month downtrend continues as Gold broke below $900. Mostly a sell-off driven by a movement towards risky assets.

DXY – US Dollar [84.54] Nearly, a two month decline following a 1 + year run that began in March 2008.

US 10 Year Treasury Yield [3.16%] Broke above 3% and heading towards 50 day average of 3.34%. Yields bottomed at the end of 2008. Investors await for the second stage of rising yields.

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