Weekly Results:
S&P 500 1,069.30 [+3.20%], DJIA 10,023.42 [+3.20%], NASDAQ 2,112.44 [+3.29%], Russell 2000 580.35 [+3.12%], and MSCI Emerging Markets 39.48 [+3.39%]
Digesting labor market results and stock market behavior can be two spate issues. Momentum is a powerful force that’s pointing to further upside moves.
Once again, we learned that sell-offs failed to reach more than 10%. Again, this is visible in the S&P 500, where the recent correction equaled around 6%. Ironically, those waiting for significant corrections might need markets to move much higher. Basically, an inevitable two week correction took place, forcing investors to reassess. This is poised to play out with a few weeks removed from year-end. The weakening labor market is not much of a surprise, heading into last Friday. Job numbers continue to be an established trend, given a 22 month contraction. In fact, some have pointed out that employment data is a lagging indicator, and macroeconomic aspects support those points. In looking ahead, a favorable cycle is forming in innovation themes despite a weak credit setting and lack of lending. Technology and biotech stand to benefit from increasing merger and acquisitions. Improvement in credit conditions, combined with increased IT spending, create opportunities in US technology.
Skepticism resurfaces, at times, among observers that state overbought technicals and pricy valuations. For money managers this might not be actionable until sentiment turns negative. Also, a shock in macroeconomic expectation can serve as a catalyst to trend reversals. At this stage, observers would be fighting the trend in making this assumption. Simply, the dominating theme is a movement towards risky assets such as emerging markets and commodities. This is evident, based on low rates and messaging from Federal Reserve. Thus, performance seekers are less hesitant to take an opposite view. In other words, many are not willing to risk profits earned since March lows.
Momentum is a factor that drives and attracts participants. Gold is picking up buyers, and previous performance is creating more believers in an already decade long-run up. For investors, Gold’s strength is hard to ignore, especially after a 333% appreciation since July 1999. Short term hurdles will struggle to deter those waiting for exposure. At the same time, paper assets, measured by the financial sector and US dollar, remain relatively weak. Simple, relative performance charts paint this picture. Global investors have accepted this fact, based on sector rotation data. The faith of paper assets will be mostly determined by policymakers and central banks. Until then, point sentiment and psychology is bound to flock towards outperformers from this year’s rally.
Article Quotes:
• “The Fed's balance sheet is bloated, but liquidity injections into the banking system have still failed to trigger a self-feeding expansion in money and credit. The monetary base has expanded by $788 billion in the past year, while outstanding bank loans have contracted by $638 billion. Meanwhile, actual inflation and inflation expectations remain tame.” (BCA Research, November 6, 2009)
• “Insiders sold $6.2 billion worth of shares in August, the most since May 2008, while insider buying has been under $1 billion for seven straight months for the first time since 2005, according to a report by research firm TrimTabs. Because insiders cannot trade around earnings season, insider volume at $3.6 billion in October was about half that in August, but the actions of executives at many companies that have reported suggest selling will pick up.” (Reuters, November 6, 2009)
Levels:
S&P 500 [1069.30] Trading within a range between 1040-1080. A sideway pattern that began in mid September. Longer-term outlook maintains its uptrend bias.
Crude [$77.43] Continues to pause after reaching annual highs of $82. Trend points to a positive movement with buy interest around $72 and $74. Upcoming sell-offs can paint a better read on buyer conviction.
Gold [$1096] Has a solid breakout that reconfirms a bullish trend. Short-term traders might shy away from accumulating at these elevated levels. Investors seek to gain confirmation on Gold price’s ability to stay above $1100.
DXY– US Dollar Index [75.79] Has recent strength in the US dollar, lacking further evidence of a turnaround. Having said that, a bottoming process is beginning to convince some investors on a potential of a trend shift.
US 10 Year Treasury Yields [3.49%] No major changes have occurred week after week. There has been a lack of major fluctuation in nearly five months.
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The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that 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.
