Weekly Results: S&P 500 1,028.93 +.27%, DJIA 9,544.20 +.40%, NASDAQ 2,028.77 +.39%, Russell 2000 579.86 -.28% and MSCI Emerging Markets 36.08 -.10%
“In the field of observation, chance favors only the prepared mind”. Louis Pasteur (1822 - 1895)
Summer Assessment
Current conditions continue to support the case for a high risk appetite. Although, last week provided hints of big picture weakness. For example, GDP revised lower, Chinese markets closed down for the fourth week in a row and growing uncertainties regarding FDIC’s health. These worries resurface as part of the credit downturn. On the other hand, stocks such as AIG showcase a rapid strength and created hope of restoration in Financials. The debate lives on as economic data is mixed. Yet, any downside move is gobbled up by buyers. That said, new stock market highs confirm a bullish sentiment and the general mood states to simply “flow with the trend”.
September Mindset
The S&P 500 is up nearly 50% since its March lows. This makes it difficult to convince someone to take profits. Perhaps, markets reached this comfort zone in August. However, participants recall the summer days of 2007 in which a unified run-up ended ugly. Although, a different cycle point, one can not dismiss the chance of sharp sell-offs. An exciting part to this fall is the level of uncertainty and surprise element that’s greatly awaited. The theatrics of last fall were one for the ages given a series of bailouts and bankruptcies. Now, stabilization argument faces further tests ahead. Discussion of interest rate hikes, non-farm payroll results and level of profit taking should set the tone for an interesting autumn.
Stock Specific Ideas:
TCL (Tata Communication): Offers exposure to Indian’s growing telecom and internet market. Stocks present an attractive entry point given its recent expansion to African countries and reasonable pricing around $20.
ADM (Archer Daniels Midland): A play on the agriculture theme. Rotation out of hard commodities should benefit ADM especially with concerns over sugar supply. In addition, the stock price is well below annual highs of $48.
Article Quotes:
“Between 2003 and 2007 — prime years of the housing boom — the net worth of an American household expanded to about $540,000, from about $400,000, according to an analysis of federal data by Moody’s Economy.com. Now, the wealth effect is working in reverse: by the first three months of this year, household net worth had dropped to $421,000.” (New York Times -August 28, 2009)
"The Federal Deposit Insurance Corporation, a banking regulator, on Thursday said the number of “problem banks” had risen from 305 to 416 during the second quarter. The FDIC does not name the lenders on the “problem list” but said that total assets of that group had increased from $220bn to $299.8bn in the three months through June". (Financial Times – August 27, 2009)
Levels:
S&P 500 [1028.93] Reached an intra-day high for the year as momentum remains strong. Index is 17% removed from its 200 day moving average. Key near-term support around 950-960.
Crude [$72.74] Trading below June highs of $73.38 and attempting to reach yearly highs of $75. Upcoming weeks, should determine the magnitude of these pullbacks.
Gold [$955.55] Recent trading days lacked major action in price movement. Again, a significant strength above $960 serves a barometer in measuring buy interest.
DXY– US Dollar Index [78.36] Barely holding above 2009 lows of 77.48. Following sharp declines earlier this spring, the Dollar has moderately stabilized in these summer months.
US 10 Year Treasury Yields [3.44%] Trading in a tight range especially in the past 3 months. Currently, poised for a recovery around 3.40%.
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.
