Weekly Results:
S&P 500 940.38 +6.97% , DJIA 8,743.94 +7.33% NASDAQ 1,886.61 +7.44% Russell 2000 519.22 +7.95% and MSCI Emerging Markets 33.36 +7.21%
Eliminating noise:
Last week provided a revival for optimism in stocks and commodities. Mostly, a near-term oversold response following several weeks of market pullbacks. In previous weeks, Bears got their wish of a much needed pause. With that being said, Bulls are somewhat satisfied by the first half rally and profit taking offered in recent weeks. Skeptics now eagerly await the fundamentals behind the company specific health. For participants, the art of balancing near-term recoveries with long-term uncertainties can be a daunting task. Yet, the payout can be greater for those willing to pick isolated areas with favorable odds. Many are realizing the enigma of figuring out economic data, legislative results and political posturing. These areas affect the macro picture, but can additionally create noise for investment decisions.
Examining optimism:
A step back reminds us, its nearly two years since the peak of Financials that sparked the credit downturn. Interestingly, before the crisis a cycle rotation was forming. At that time, the trend was favoring innovative groups, now the innovation theme resides mostly in Technology and Healthcare. These sectors offer relative attractiveness for the decade ahead. In scoping odds, the election and market cycles combined with recent macro stability invites one to examine opportunities setting up for the second half of 2009.
Hints from markets:
SOX (Semiconductor Index) began to form a strong base at the end of 2008 and reached new highs last week. Relative strength to other sectors stands out. Technicals point to a bullish signal and fundamentals are slowly supporting that view. Technology companies with cash continue to seek acquisition opportunities as most stocks remain deeply undervalued. Improvement in credit and sentiment can fuel further M&A activity.
Long Ideas:
CREE: (Cree Inc) Multi-year sideway performance suggest increasing possibility of a breakout in months ahead. The company continues to generate positive cash flow and benefits from a movement towards efficient lighting. Add on weakness closer to 200 day moving average.
LLTC (Linear Technology) Early signs of bottoming between $22-26. Healthy cash balance and steady revenues demonstrate strength in a weak environment. The company is poised to benefit from infrastructure spending in products related to electronics and communications. Long-term potentials present an attractive entry point for equity and bondholders.
ONXX (Onxx Pharmaceutical) Trading near a long-term support of $28. Pending short-term price declines offers buying opportunity. Strong sales and approval of drugs for kidney and liver cancer treatment bodes well for long-term performance. Finally, lack of debt exposure should attract investors with longer time horizon.
Article Quotes:
“Venture investment in U.S. health-care companies shot up 62% last quarter from the first quarter, and was only slightly below the year-ago clip, as VCs jumped on opportunities to back promising companies at low valuations. In fact, the dollar amount invested in health care, $2.23 billion, surpassed the $1.89 billion recorded in the traditionally largest sector, information technology, for the first time in a quarter this decade.” (Wall St. Journal July 18, 2008)
History shows that asset classes that perform best in one bull market — as emerging-market stocks did in the run-up from 2003 to 2007 — rarely repeat that feat in the next. For example, the foreign-stock boom of the late 1980s gave way, after a brief bear market in 1990, to big gains in financial stocks in the early ’90s and then to the surge in technology stocks in the middle to late part of the decade.(New York Times July 18, 2009)
Levels:
S&P 500 [940.38] Attempting to re-accelerate above June 11 highs of 956.23. Multi-month consolidation argues for a base forming around 900. Additional volume needed to confirm recent strength.
Crude [$63.56] Near-term support around $60. Weekly data suggests further pause ahead but above $60 trend remains positive.
Gold [$937.50] Settling near $920 and continuing a sideways pattern that started earlier this year.
DXY – US Dollar [79.24] Established downtrend since March 2009. No evidence of a recovery at this point.
US 10 Year Treasury Yield [3.64%] New range forming between 3.40-3.80%. Rates indicate a recovery to previous highs.
Dear Readers:
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 Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
