Weekly Results:
S&P 500 931.80 +7.33%
NASDAQ 1,632.21 +7.04%
Russell 2000 505.82 +7.51%
MSCI Emerging Markets 25.59 +6.93%
Early Optimism:
Markets appear to ignore bad news. Ideally, a fresh start creates optimism and is visible in recent upside move. Meanwhile, confidence restoration is vitally needed and worth monitoring this quarter. That said, few indicators have briefly stabilized from extreme levels. It's natural to hope for mean-reversion and currently that theory is picking up momentum. In fact, the global relief rally started before Thanksgiving. Since late November, S&P 500 rallied 25% from annual lows of 741.02. Similarly, (EEM) MSCI Emerging Markets fund is up over 30% from November 20th lows. This short-term rally faces challenges with pending economic and earnings data.
Forces supporting recent rally:
1. Sharp decline in volatility
2. Federal Reserves policy favors riskier assets
3. Technicals and valuations signal "cheap"
4. Sentiment is retracing from extreme readings
5. Seasonal rally and new outlook
Balancing Act:
The trends above reflect short-term observations. Clearly, the VIX (volatility index) has calmed down towards the end of 2008. Nonetheless, the index is twice above September 2008. This showcases a changing landscape for the upcoming cycle. In addition, this states that more uncertainty exists in the marketplace. For example, cash levels remain high as investors wait to place aggressive bets.
The $8.85 trillion held in cash, bank deposits and money-market funds is equal to 74% of the market value of US companies, the highest ratio since 1990. (Federal Reserve data compiled by Leuthold Group and Bloomberg)
IDEAS:
Financials:
WRB (W.R. Berkley): Stock worth revisiting on pullbacks, given attractive relative strength and positioning in its core business of property casualty insurance. A move below $28 offers buying opportunities.
Infrastructure/ Water:
WTR (Aqua America): Company is showing strength and a few points removed from a 52 week high. Infrastructure spending and healthy credit conditions bode well.
Healthcare:
GENZ (Genzyme), CELG (Celgene), MHS (Medco) and BLUD (Immucor)
Macro Levels:
Crude [$46.34]: Attempting to recover. Overall, weekly data continues to decline with no strong evidence of a turnaround. The 10 day moving average stands at 51.77 followed by heavy resistance at $60.
Gold [ 874.50]: Pausing after a multi-week upside run. Long-term perspective suggests a positive momentum above $800. Index is 13.5% removed from all-time highs.
US 10 Year Yield [2.36%] Double bottom forming after spike lows on December 18 (2.03%) and December 29 (2.04%). Technical improvements suggest early recovery in yields.
US Dollar DXY [81.83] Basing around $80. Uptrend remains positive despite recent sell-offs.
S&P 500 [931.80] A noticeable sideway pattern since September's decline. Overbought in the near-term. Key support at a 50 day moving average of 886.79.
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.
