Market Update | March 2, 2009

Digesting Information:

As March is upon us, major headlines resurface at a rapid pace. Simply, growing factors contribute to uncertainty. Some view the government 35% stake in Citigroup as a historical event. On the other hand, few argue that deals of this capacity fuel pessimism especially for banks and equity markets. At the same time, Berkshire Hathaway’s annual report reinforced overall challenges for those seeking profitable areas. Similarly, Healthcare stocks are being tested despite relative leadership in 2009. The sector declined on pending budget proposal and forced buyers to reassess long positions. At this stage the attractiveness of paper assets remains questionable and less convincing.

Reaching a compromise:

Clearly, the past 12 months witnessed several all-time economic and financial records. Nonetheless, select indicators point to a turnaround. For example, slight increase in retail sales,rising mortgage applications and recovering corporate bond markets. Perhaps, too early to judge. Mainly, the clash between investor confidence and government policies should dictate market direction. This debate among market participants will play out in the second quarter.  

“Unstable weather may more often occur during spring, when warm air begins on occasions to invade from lower latitudes, while cold air is still pushing on occasions from the Polar Regions.”( Wikipedia)

Macro Drivers:

AAII investor sentiment data shows 24% of investors are bullish and 45.1% bearish. This breakdown is close to sentiment readings from summer 2008.  Similarly, Gold is approaching July 2008 levels as well. Around that period, Gold failed to hold above $950, Crude peaked at $147, S&P tumbled near 1300 and 10 Year Yields peaked near mid 4%. Investors await for additional clues to confirm upcoming inflection points. Recent history reminds us of a high possibility for a synchronized downturn across various sectors.

Recently, the S&P 500 broke below a key psychological point of 800. Eventually, this  bruised confidence and triggered sell technical signals. Additionally, the fundamental erosion fails to create buyer interest. Despite growing concerns, the US Dollar remains strong. On a relative basis the Dollar is accepted as a safer instrument and continues to outperform.

Macro Levels:

Crude ($44.76):  Three month range forming between $34 and $46.  The past 3 rallies have failed to hold above $50. Additional catalyst are needed to make a surge from this declining trend.

Gold ($952): In July 2008, prices peaked at $986 which marked the beginning of a sharp decline. The commodity remains overbought in the near-term with the 50 day moving average at $890.

DXY- US Dollar Index (88.08) Strengthening Dollar is a dominate and established theme. In the past year, index is up nearly 25%. The index is outperforming Gold since March 21, 2008 and approaching 3 year highs.

US 10 Year Yields (3.02%) : Recovery uptrend intact from December lows. Yields appear to stabilize between 2.80%- 3%.

 

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 way, considered liable for the future investment performance of any securities or strategies discussed.

 

 

Market Review – February 23, 2009

Market Review – February 23, 2009

In these frenzied and delicate times, investors are accustomed to new habits such as a shorter holding period, less capital exposure and rotating to "safer" investments. Some argue that the definition of investor is being restructured as well.  Finally, the measure of risk by investors is equally questionable.

Gold's journey

Gold is receiving plenty of attention given its solid run which began in late October 2008. Now, observers eagerly watch to determine the sustainability of this recent move. Others look at the commodity behavior as a tool for gauging investor sentiment.

A little over a year ago, Gold cooled its craze and peaked at $1011 on March 11, 2008.  Once again, Gold is flirting with those levels, except this time the current landscape has significant changes.  To put things in perspective, since last March's Gold peak the S&P 500 is down over 41%, Crude has fallen by 64.19% and  US 10 Year Yields have declined by 21 % . At the same time, the US Dollar index is up 18% over the same time period. One can argue that Gold prices appear less impacted by systematic worries.  Perhaps, a confirmation of higher demand for less risky assets.  At this point, Gold might be overbought in the near-term, but ultimate judgment of its pricing awaits further testing.

Market Feel:

Last week's actions were mostly dominated by discussions of bank nationalization and breaking of a key technical level (I.e.  S&P 500 at 800).  A yearly review of equity markets reminds us sectors perceived defensive.

"Three sectors did see year-over-year increases in earnings, however. Utilities were up 6.1%, Consumer Staples were up 9.6%, and Health Care was up 9.9%." (Bespoke Investments -February 19, 2009).

Lots of headline reactions are expected to spark market reactions. The shakeout in financials most likely will dominate the overall market behavior. Overcoming psychological and technical hurdles is the next challenge for bulls.  Near-term reactions and speculation on government's decisions should create swings. Outside of this speculative arena, stock specific selection appears more rewarding in Healthcare.

Macro Levels:

S&P 500 [770] : Next support level stands at November 2008 lows of 741.02.  Poised for short-term recovery, although few points below October lows of 2002.

U10 Year Yield [2.78%] Attempting to hold above 2.60% and 2.50%  which is near the 50 day moving average.

Crude [ 38.94] : Continues to hold above $32 while struggling to push above $40 in the past few weeks. The 50 day moving average stands at $40.54 and 20 day moving average of $39.70. In other words, near-term indicators are pricing in $40 as a key resistance level.

DXY – US Dollar [86.48] Since December 18th low, the currency index is up over 12% and continues to demonstrate strength throughout 2009.

 

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 way, considered liable for the future investment performance of any securities or strategies discussed.

 

Market Review | 2/17/2009

S&P 500 826.84 -4.81% 
DJIA 7,850.41 -5.20% 
NASDAQ 1,534.36 -3.60% 
Russell 2000 448.36 -4.75% 
MSCI Emerging Markets 23.95 -2.43%

Unattractive Numbers and Mind Games:

More of the same action so far this year.  Ongoing weakness in the economic and market cycle resurfaces, while lacking sustainable reactions. Lots of noise while lacking concrete data points.  Again, a  speculative environment with extra sensitivity toward headline items and shorter holding periods.  This recent market pause can be attributed to a heavy focus on pending policy decisions and uninspiring earning results. In addition, participants remain too skeptical to commit further capital. In terms of trading characteristics, the dominate theme is based around daily swings.  Simply, a reflection of jittery behavior of global assets.

"With so many market participants trading at intraday and swing time frames--and managing their longer-term trades with shorter-term adjustments--by the time the market has moved in one direction for several days, the majority of players are already on board and leaning for further movement. When the market fails to go their way, they have to unwind their positions, adding to the reversal movement" (TraderFeed, Brett Steenbarger. Feburary 2009)

The inevitable cycle peak generated in credit markets is playing itself out. As new daily concerns emerge, the core of this consolidation phase stems from the previous bullish run. At times, it's easy to forget recent history perhaps driven by human psychology. In other words, "downtrends" are painful but are to be expected. As for plans for further intervention, natural flow of markets remind us that turnarounds require additional time. Nonetheless, growing impatience and lack of confidence point toward a sideway to down market response.

Appealing arguments for fundamental based stock buying is not too convincing (at least on a mass level).  The risk of making  a directional bet has not showcased to be profitable. The S&P 500 is approaching its lower end 3 month range, which stands near 800. Perhaps, breaking below this point triggers negative momentum, in turn leading to sell-offs.  One can pinpoint that the psychological impact which set up a scenario of retesting October 2008 lows, more than the quantitative effect. On the other hand, Gold and Silver are showing noticable strength. For example, Silver is up over 62% since October 28^th.  A  profound statement of fear in paper assets as the demand for safety increases.

Clearly, it has been challenging to find trending groups in a highly correlated markets. Nonetheless, Healthcare and Technology appear to be the leading groups for the next upside cycle move.

"On a sector basis, Financials have the weakest breadth with just 16% of stocks above their 50-days.  Health Care, Energy, and Technology are the three sectors that currently have more than 50% of stocks above their 50-days." Bespoke Investment Group (February 13, 2009)

Macro points:

Crude: [$37.50] Since mid December a narrow range forming between $36 and $46. These levels indicate a neutral view that's not indicative of a recovery.

US 10 Year Yield [ 2.88%] Improvement in yields following a sharp rise in the past few weeks. 50 day moving average is above 2.50%, suggesting that a first wave of recovery is underway. Next key level stands around 3%.

Gold [$935.50] A noticeable uptrend that began in October 24^th  which started the outperformance of Gold especially against the dollar. 

DXY- US Dollar Index [86.04] Sideway pattern continues at current levels. Momentum is positive as reflected in key moving averages.

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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 way, considered liable for the future investment performance of any securities or strategies discussed.

Market Outlook | February 9, 2009

Weekly Update:

S&P 500 868.60 +5.17% 
NASDAQ 1,591.71 +7.81% 
Russell 2000 470.70 +6.13% 
MSCI Emerging Markets 24.55 +7.88%

Much attention will focus on issues and reactions to government's plan. This weekend's discussion on the stimulus package should set the overall market tone.  Last week, a mystifying  result for participants  given weak economic numbers and a positive stock market return. From a long-term view, these series of event fail to provide clear clues. For the most part,  it seems like a speculators market where long-term participants struggle to find substantial data points. In one sense, economic data signaling bad news is becoming  less of a reactionary event. As volatility stabilizes, its visible that few sentiment indicators  such as the Baltic Dry index, and Weekly Mortgage applications, are conveying a message of hope; which reminds us that's its purely an anticipation of a desired outcome. The current financial status, reflects that investor confidence is tilting in the hands of policymakers.  Similarly, fundamentals are taking a back seat from being a main driver of market reactions.

A visual look at the chart of the S&P 500 reminds us of a sideway pattern.  That begs the question, if this directional pause is a temporary or further declines await?  Current cycle junction points to excess of capital that's flowing out of the system.  Simply, a movement away from leverage and more into government spending. For participants, the concept of temporary optimism has been a trend within an existing downtrend. Oddly enough, existing consensus is to go long banks, homebuilders and select consumer themes.  Nonetheless, sole dependence on newsflow presents surprises and potential risk. On the other hand, Gold is demonstrating a noticeable recovery. Perhaps some will argue this implies a defensive posture amoung global participants. Interestingly, plenty of mixed signals in credit and commodity markets but a deadlock in confidence restoration.  

Stock Specific:

WTR (Aqua America): Positive trend since summer 2008. Utilities are poised to benefit from a defensive spending. Recent increase in dividends raise yields to 3.20% can spark interest among buyers.

SXE (Stanley Inc): Company benefits from defense spending and recent quarter showcased further strength. Major support around $30.

Healthcare:

·        HUM (Humana) : Strength developing and showcased in recent recovery from lows of $22.30. From a long term view, earnings are growing at a healthy pace exceeding expectations.

·        EW (Edward Life Science):  Doubled profits last quarter sending a positive signal. Approaching 52 week high of $66 serving as the next key target.

·        VRTX (Vertex Pharma): Poised for pullbacks around $36. Pending declines offer entry points for sustainable upside move.

Biotech: Current atmosphere offers few ideas with favorable cycle, policies and investor demand. Again, relative strength in biotech stands out. An attractive entry point given opportunities for innovation and growth potential.

Macro Points:

S&P 500 [ 868.60] A 3+ month trading range between 800-900.  For those keeping scores, the index is 22.6% removed from its 200 day average.

Crude [$40.17] Heavy resistance at $50 and most buyers appear interested below $40. This recent trend should be tested in weeks ahead.

Gold [$913.00] Defined uptrend from late October lows of $712.50.  On the positive side, last week's action broke above previous highs of $905. Next key upside level stands at $1011.

US 10 Year Yields [2.99%]  Early indication of a trend as yields increased from 2.40%. Potential near-term pullbacks at current levels.

DXY US Dollar [85.35] An 8 + month upside trend, that started in March 2008, is positive especially above 80. Recent month have seen index pause at the 86 range, which signifies a resistance point.

 

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.

 

Market Outlook | January 26, 2009

Weekly Results:

S&P 500 831.95 -1.40% 
DJIA 8,077.56 -1.64% 
NASDAQ 1,477.29 -2.29% 
Russell 2000 444.36 -3.95% 
MSCI Emerging Markets 22.05 -4.0%

Thought Process:

Being constantly reminded of cycle slowdowns is becoming a common pattern not only for active participants, but even for casual observers. Now most headlines, surveys and data indicate a similar message of weakness. Nonetheless, extra bad economic news is not a major surprise to an already grim environment. Importantly, the bigger concern for money managers is the uncertainty caused by on the impact of intervention and bailout packages.  In periods of consolidation, one can anticipate increasing investor skepticism. Perhaps, investor psychology supersedes actual facts. For example, in the past few months some can perceive market participation as a "gambling" spectacle rather than the pursuit of fundamental growth. Conversely, some analysts will argue that entry points are attractive based on cheap valuations. These conflicting views should be resolved in the marketplace.

Now, its been noted that global markets were highly correlated in this recent downtrend. Perhaps a reflection of uniform weakness is inter-linked in global markets. At this stage, money managers plan to closely examine emergence of new leadership. In other words, more than identifying market directions, it is equally vital to indentify subtle themes impacting longer-term trends. This full week ahead should reinforce a series of inflection points. Market Observers in currency, commodity, equity and fixed income await response from Federal Reserve, economic data and ongoing earnings season.

Macro Association:

Interestingly, recent recovery is also showing high correlation among asset classes but this time on the upside. For example, since mid December lows the US 10 year yields and Crude continue their upside rally. Similarly, Gold is picking up momentum while the US dollar continues its multi-month strength. On the other hand, the S&P 500 is down 7.9% and MSCI Emerging markets is worse off at -10.3%. The message here can be interpreted as risk aversion and flight out of equities. Mainly, this showcases ongoing rotation into safer instruments offering liquidity. This partially explains the price appreciation of US Dollars and Gold.

Macro Levels:

Crude [46.47]: Two month range forming between $35-50. Positive weekly move but long-term data does not point to a trend reversal. In fact, heavy resistance at $50.

Gold [875.75] Strong recovery since October as the commodity broke above its 50 and 200 day moving average.  From a technical view next resistance level stands at $880.

US 10 Year Yields [ 2.61%] : Nearing 50 day moving average. while attempting to stabilize above 2.40%. In the days ahead, the longevity of recent trend will be tested.

DXY – US Dollar [85.60%]  Index is re-accelerating from an established uptrend that began in March 2008. Although, extended short-term positive momentum resurface.

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.

Market Outlook - January 20, 2009

Weekly Results:

S&P 500 850.12 -4.52% 
NASDAQ 1,529.33 -2.69% 
Russell 2000 466.45 -3.08% 
MSCI Emerging Markets 23.28 -6.47%

New Era! New Cycle?

The last six months have presented historical events for financial  participants. Yet, another watershed event awaits today.  Perhaps, a change in government leadership sets the stage for a cycle shift and trend reversal. That said, at this moment, not many compelling reasons for a sustainable recovery. In fact, the S&P 500 is down nearly 6%  in 2009.  To be fair, its rather early to judge. However, ongoing interventions and bailout packages remain unclear. At this point, negative economic and earnings results are not  much of a surprise. A low spirited signals are visible when viewing results from sentiment indicators (VIX and Put/Call Ratio). For that reason,  limited opportunities appear in select areas. Market reactions remind us that bubbles are still bursting in Commodities, Emerging Markets and Credit related groups. Again, trading prospects resurface in various forms given daily noise. In taking a step back one notices simple consolidation.

Plenty to Decipher:

The landscape for Financials continues to change as risk assessment becomes a challenging task. This puzzle is evident in figuring out the conditions of the Chinese economy and valuation of beaten up assets.  Additional rescue plans by the UK government raises more questions on the severity of credit weakness. The fallout from the bullish run of 2003-2007 is playing out and shapes the next cycle run. The Financial index (XLF) is approaching all-time lows from November 21, 2008.  Interestingly, Crude  and US 10 year yields are attempting to uniformly recover after making lows in late December.  Amazingly, a sharp and longer-term recovery in these themes is picking up momentum. As usual, betting on consensus alone does not tell the full story.

Stock Specific:

·         BLUD (Immucor) :  Presents attractive entry points closer or above $25.The maker of blood-testing equipment witnessed an increase in sales to $73 million. Momentum combined with core fundamentals present a bullish bias.
 
·         CELG (Celgene): Despite less than expected sales growth for 2009, stock price showcases relative strength. Secondly, a 35% earnings growth is  appealing for money managers.  Finally, the technicals signal a bottoming range between $50-55.
 
·         CREE (Cree Inc): Investors await further details from upcoming  earnings report. The long-term outlook of energy-efficient lighting seems promising.  A near-term sell-off around $14 permits buyers to step in.  The company stands to benefit from infrastructure spending as well as various government projects.

                                                                                          

KEY MACRO LEVELS:

Crude [$36.51] Flirting with a $10 range between $30 and $40. Overall downtrend requires additional time to shakeout. The lowest point in recent sell-off stands at $32.40 last reached on December 19, 2008.

Gold [$833.75] Strong base forming around $760. Heavy resistance at $880 and 30 points above its 200 day moving average.

DXY – US Dollar [84.21] The Dollar index maintains its uptrend that started in March 2008. During the global credit crisis, investors continue to view the dollar as a safe haven. In the short-term, there are increasing odds for a pause within a positive long-term move.

US 10 Year Yields [2.318%]  Near-term evidence suggests a  bottoming process between 2.03-2.20%.  Downside pressure exists given Fed’s uncertain policy. Nonetheless,  in the near-term, the best case scenario stands around 2.75% which is the current  50 day moving average.

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.

 

Market Thoughts – January 12, 2009

S&P 500 890.35 -4.45% 
NASDAQ 1,571.59 -3.71% 
Russell 2000 481.30 -4.85% 
MSCI Emerging Markets 24.89 -2.73%

Mixed View :

The first full week of 2009, reminded participants that positive trend indicators are temporary. In fact, a state of confusion floods this market where no-trend might be the new trend. This picture is painted in the pattern of broad indexes. For example, the S&P 500 remains in a trading range between 800-1000. In other words, it is a sideway pattern lacking major assurance. Perhaps, patience is greatly required for those investors eager to take directional bets. At the same time, Long-term investors continue to adjust to this environment. In forming an investment thesis there are increasing factors to digest.  Mainly, reactions to Fed's policy, economic outlook and pending stimulus package. Now, volatility increased last week by 9.26% reflecting further uncertainty. After a 50% fall from multi-year highs, the VIX (Volatility index) is poised to make a short-term run.

Overall economic and earnings outlook reinforce weakness. That said, the surprise factor appear less than previous months. At the same time, credit markets appear to briefly stabilize. The TED Spread, a barometer for credit risk declined from 4.65% to 1.25% in the past few months. Similarly, the number of stocks making new lows declined signaling a positive technical outlook. Of course, in both cases these results are based on retracement from historic levels.  Now, balancing  these data points presents select short-lived opportunities. As we complete a seasonally favorable period, markets will face several tests in weeks ahead. Momentum signals argue for pullbacks from current levels. Perhaps, this makes sense, given the 20+% increase for stocks since November lows. In addition, not manycompelling reasons for skeptical buyers. Nonetheless, the faith in a major market bounce depends on confidence and a series of catalysts.

Sector/ Groups:

Healthcare and technology are seeing inflow versus financials and energy. Market cycles suggest that previous leaders can consolidate for an extended period. In looking ahead, the combination of improvement in credit markets and cheap valuations create opportunities in select areas. These theme are visible in Biotech where M&A deals are tempting for larger companies.  

Biotech: BLUD (Immucor), GENZ (Genzyme), and CELG (Celgene).

Technology:  Speculative Small Cap Ideas:

ASEI ( American Science and Engineering) : Provider of scanning, inspection and X-ray equipment mainly for government securities. Positive stock  momentum especially in the past six months. Pullbacks in the near-term around $70 offer favorable entry points.

SXE (Stanley, Inc) : Shares have stabilized near $30. Company benefits from defense and technology spending. Sustainable fundamentals given the macro climate and relative strength.

NCIT (NCI Inc): Recently made new 52 week highs showcasing . Revenue and EPS growth justify the positive stock performance. At these levels, one can expect sell-offs. Importantly, companies organic growth creates value for longer-term holders.

 

MACRO LEVELS:

Crude [$40.83] Extended in the near-term after reaching $50.47 on January 6^th.  Based on recent trading pattern, increasing odds for the index  to trade between $36-$48.

Gold [$847.25] Pausing at 200 day moving average of 855.23. Long-term outlook suggests a downtrend and pullbacks in the near-term.

US 10 Year Yield [2.39%]  An early bottom forming in yields. Attempting to stay above 2.20% and a potential retest of 2008 lows of 2.03%.

DXY – US Dollar Index [ 82.66] Re-acceleration to a positive trend that started in March 2008. Holding around 80, this serves as a key base in the current cycle.

S&P 500: [890.35] 3+ month trading range stands in between 800-1000. Currently trading at mid pointlevels, in which the 50 day average stands at 888.75.

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.

Market Outlook | January 5, 2009

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 20^th 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.

Market Thoughts | December 29, 2008

Weekly results:

S&P 500 872.80 -1.41%
NASDAQ 1,530.24 -1.43%
Russell 2000 476.77 -.50%
MSCI Emerging Markets 22.93 -6.51%


Few thoughts and questions. A historic year Indeed! A Happy, Healthy and Fruitful year to all!!

Times of general calamity and confusion create great minds. The purest ore is produced from the hottest furnace, and the brightest thunderbolt is elicited from the darkest storms. Charles Caleb Colton ((1780 - 1832)

Synchronized Sinking Second half of 2008

Usually, seeking extremes and betting on reversal is a well practiced strategy. Once, an unusual move is identified, next step is to seek catalyst for a trend. After examining risks the trader lets the market do the rest. Today, most asset classes and global markets are lower and at or near some extremes. Generally, movements in less correlated assets leads to market dislocations. That attracts different opinions between buyers and sellers. Now this basic concept does not seem too obvious given recent downturn.

What are the odds for a uniform recovery? Perhaps, a rise in Crude, US Dollar, Real Estate, and Stocks. Sounds rather silly and too risky. Interestingly, few envisioned a decline in all asset classes in the fall of 2007. In fact, most market experts did not envision a simultaneous decline in Oil and S&P 500. Finally, the argument for diversification was based on correlation. These abnormal and historic times tested conventional wisdom. Again, a message for markets to fathom the unfathomable.


No Trend or New Trend:

Increasing volatility and inter-linked markets increase demand for financial products, extended trading hours and faster trading tools. On one hand, financial system's core is being tested. At the same time, innovations and technical expertise are in high demand. It's rather awkward for those reading latest news headlines. Nonetheless, the human desire to innovate, to speculate and to grow is a powerful force. These lessons are visible in across various eras and time frames.

Non-U.S. index markets (and of course) currency markets are available for trading outside of the cash session period for U.S. equity markets. However, financial markets continue to become more global and directly correlated all the time. That trend will only continue, at a faster pace than ever before. A growing number of traders around the world will continue flowing into the U.S. markets during off-peak hours. That continual trend will in turn make trading the globex periods more active and fruitful. It's a self-perpetuating trend. (Austin Passamonte - Trading Markets Dec 2008)

An extended period of sideways markets appear strange especially for recent participants. Nonetheless, evolution in global markets have slowly changed the landscape. This year, ongoing intervention and implementation of government policies have formed new investment vehicles. In other words, plenty of products to learn, trade and improve. This creation can serve as an upside catalyst for the next bullish run. Ironically, the outcry for regulation enables a new market for eager investors. Of course, the faith of this resides in investor confidence. Again, in due time as cycles teach us that recoveries are inevitable.

Clients have diverse needs, risk appetite and return requirements. Wealth managers are needed more than ever before. But the new tasks are more demanding and require better education and training. There is a demand for better-equipped wealth managers in a globalised world of finance. Finance and banking are very necessary in our modern world, but now they require more knowledge than before. More education is required, not less. (Francis Koh and Klaus Spremann - The Business Times on December 22, 2008)

Market Mechanics:

Lightly traded volume but similar message in the past few weeks. Mainly, some improvements in sentiment, and declining volatility. Of course, the economic data is slowing. Mainly, this early bottom presents an opportunity to distinguish various themes. Some will prefer to sit on sidelines, for further evidence. Those seeking higher risk/reward are considering entry points in this consolidation phase. Again, the Federal Reserves recent move is designed to increase investors risk appetite. First quarter, can provide further clues to the depth of economic concern and impact of bailout plans.

Ideas:

Healthcare: Sector stands to benefit in pending cycle based on relative strength, fundamental outlook and favorable government policy.

GENZ (Genzyme), CELG (Celgene), MHS (Medco) and BLUD (Immucor)

Financials: Exchanges are poised to benefit from increasing trading activity and introduction of new products. Also, deeply oversold at these levels and worth a look. Further sell-offs in CME (CME Group) presents entry points especially a move below 2008 lows of 155.49 present entry points.

KEY MACRO LEVELS:

Gold [843.50] Index failed to move above its 50 day moving average since April 2008. Currently, facing key resistance around 870-900 following a rally from October lows.

Crude [37.71] Down 78% from annual peak to intra-day lows. Attempting to stabilize with a new range forming between $30-40.

S&P 500 [872.80] Potential bottom near 800. Technically, oversold as seen by rally from November 21.

DXY - US Dollar [80.89] Giving up gains from a multi-month rally. Staying above 200 day moving average of 77.10. Again, reaction to Federal Reserve policies attribute to recent moves. Major support at 78.

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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 way, considered liable for the future investment performance of any securities or strategies discussed.

Market Outlook | December 22, 2008

Weekly Result:

S&P 500 887.88 +.93%
DJIA 8,579.11 -.59%
NASDAQ 1,564.32 +1.53%
MSCI Emerging Markets 25.39 +3.98%

Year-end Reflection:

For some, reaching a closure to this year is a major relief. Clearly, a historic and violent year. Now, few participants benefited by mostly betting against cycles relating to Crude, China and Credit. In short, a lesson-filled year. In ugly times, participants examined the core of the credit system, impact of emotional response and role of government in financial systems. Perhaps, a natural market process driven by psychology. This leads to the importance of trust restoration which is a key foundation for the next cycle upturn. The past four months showcased intense action which should spillover into 2009. In looking ahead, major driving forces are bailout implementations, increase in risk appetite and shift of investor sentiment.

Positioning for first quarter:

"The newspapers may be giving us a parade of bad news, but the stock market is beginning to march to a different drummer," Richard Russell (Dow Theory Letters).

At this point, participants are accustomed to forced and panic selling. Basically, pessimism has reached new extremes and is setting up for reversal. Last week, Fed's policy of lower rates set the stage for a turnaround in risk-assessment. Again, time is required for markets and investors to digest the impact. Trading behavior in the next 2-3 weeks might not provide much desired clues. Being an optimist has gained slightly more votes than previous weeks. Option expiration combined with decline in volatility contribute to a positive week. Volatility Index (VIX) declined 17% for the week and is down over 50% since October's peak. This reinforces improvements in technicals and sentiment data. Similarly, credit markets are stabilizing as seen by a 43 basis point TED Spread decline. As for the sustainability of these indicators, they remain questionable.

Strategy :

Interestingly, global assets remain cheap and highly correlated since the summer months. Therefore, relying on pure valuation might not be enough for a turnaround. For odd makers, temptation is growing to add exposure in Crude, Small Cap and Emerging Markets. Again, Macro drivers have to line up with basic fundamentals for bottom formation. Amazingly, an irrational rally is not out of the question either. Especially, in a period where the Federal Reserve is encouraging activity. As money managers adjust in the deleveraging process this creates demand for quality assets. Therefore, this creates additional challenge in identifying the "right" price.

Finding themes in 2009, can be rewarding for years ahead. Most companies are forced to reexamine their business model. That said, Healthcare is appealing on technical, fundamentals and political outlook. So far this year, the sector dominates M&A activities. Medical Devices: 32 deals, worth $525.80 million Biotechnology: 18 deals, $468.20 million Pharmaceuticals: 19 deals, $430.43 million. iiBIG (International Institute for Business Information & Growth) Dec 9, 2008.

MACRO LEVELS:

Crude [33.87] : Testing new annual lows after a 75% decline since annual highs of $147. Long-term view suggests major support at $20. Technical's suggest an oversold bounce with lack of sustainability.

Gold [835.75] : Stabilizing with a tight range between 720 and 840. That said, longer-term trend is in a consolidation phase. Holding above $700 which serves as a support level confirming positive trend.

US 10 Year Yield [2.12%]: Similar to Crude, yields reached new lows on December 19 (2.03%). At this point, of extreme lows a sharp bounce is plausible. Charts point to a potential upside rally around 2.51% (near 15 day moving average).

US Dollar DXY [81.29] Sharp decline since late November after a 6+ month rally. Holding above 78 and becoming oversold. Index remains above 76 near its 200 moving day average.

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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.

Market Observations - December 15, 2008

Weekly Results:

S&P 500 879.73 +.42% 
NASDAQ 1,540.72 +2.08% 
Russell 2000 468.43 +1.59% 
MSCI Emerging Markets 24.42 +11.28%

Relatively a calmer week given turbulent reactions in recent months. With few days left in 2008, participants are digesting the historical results of capital destruction while bracing for a changing and unknown landscape. For the most part, risk-aversion has been a popularapproach. That's understandable, especially following a cycle top highlighted by mismanaged risks and increasing interventions. At this point, the challenge is identifying how much of the bad news is reflected in sentiment data. Again investors are accustomed to facts relating to weak economic outlook, less consumer spending and bruised global confidence. Financials continue to struggle and have not recovered as expected by many optimist. Similarly, dislocation in credit markets is extending to municipal bonds. Yet another reminder of investor anxiety.  Nonetheless, examining positive symptoms is more vital now than in other periods.

Now, there are early signals of a bottoming process, which are visible in few areas. Observers wonder if October set the lows for recent sell-offs. For example, October 24^th marked Gold's lowest point. Similarly, on the same day the VIX (volatility index). saw its annual highs. Correspondingly, late November witnessed spike lows in S&P 500 and a top in the US dollar. Clearly, these hints alone might not be enough to encourage managers to increase overall risk appetite. Nonetheless, these macro patterns spur thoughts and increase perceived convictions. In addition, these Technical's can impact  investor psychology and willingness to participate.

Perspective on a bottoming process:

·         "Based on the outperformance of emerging-market stocks and the sharp recovery of commodity-related groups, it would appear that investors are becoming less risk averse. Another example is the outperformance of small caps since the November 20 lows." (Bespoke Investments – December 8).

·         "On top of everything else, Lowry's Selling Pressure Index dropped substantially yesterday [Wednesday] and is now in a definite declining trend. At the same time, Lowry's Buying Power Index is trending higher. Thus, the odds are saying that the trend of the stock market is turning up."  (Richard Russell-Dow Theory Letters- December 2008)

·         "Companies in the S&P 500 Index are marking down assets at the fastest rate in six years, leaving operating profits 46% higher than net income in the third quarter, a level last seen in 2003 when the previous bull market began. The ballooning gap between net income net income and operating profit suggests companies are getting rid of their weakest businesses, setting the stage for a recovery in stocks next year." (http://hedgefundmgr.blogspot.com)

The Week Ahead:

In looking ahead, the action of the Federal Reserve will be highly monitored, but might not surprise. In addition, option expatriation can create trading noise forcing participants to throw in the towel for 2008. For active participants, the direction of volatility should influence overall behavior.                                   

On a sector basis, Biotech is relatively attractive as shown by its strength versus the broad markets. For long-term investors this cycle shift creates fundamental entry points. Factors for an upward bias include, M&A activity, promising innovations and spending cycle.

Macro Levels:

Crude [46.28] : After setting annual lows of 40.50 on December 5, there are signs of a recovery. The 200 day moving average is too far removed at $104.  A sharp rally to $60 can present short term opportunity. Yet, this does not negate the established downtrend of commodity related themes.

Gold [826.50] A 16% rally since October lows after an extreme oversold readings. Currently heavy resistance ahead around $860-880 range.

US 10 Year Yield [2.57%]  Flirting with all-time lows around 2.50%. Forming new trading range developing between 2.45 and 3%.

US Dollar DXY [83.64%] Pausing after a 6 + month run and extended in the near-term. Trend remains positive  above 80.

S&P 500 [879.73] A key test around the 900 range which is near the 50 day moving average of 909.80. Secondly, index is poised for sideway trading within 800-1000.

Market Review | December 8, 2008

Weekly Results:

S&P 500 876.07 -2.25% 
DJIA 8,635.42 -2.19% 
NASDAQ 1,509.31 -1.71% 
MSCI Emerging Markets 21.94 -3.94%

Grasping this moment:

A strange period, where short and long investors are uncomfortable. Equally unique is the a uniform relationships between markets. The past few months have witnessed high correlation  among asset classes. Nonetheless, cycle declines are part of nature. Now, we've reached a point where bad news is an accepted norm. In other words, all types of historical marks have been tested.  Usually, that's a bullish indicator given the excess of overselling.  For example, ISM index fell to 36.2 the lowest level since 1982. Meanwhile, Crude had its worst weekly performance since the early 90's. Increasing headlines showcase pessimism and sentiment data matches that point.

Plenty of unknowns:

Additionally, investors are attempting to figure out the  impact of government assistance. That serves as a wild card for risk assessment. It's reported that the bailout accounts for 60% of GDP.  Yet again, the lack of clarity in governments plan contributes to  growing uncertainty. Similarly, globally coordinated interest rate cuts have become a common theme. Now, there is a disagreement on timing a market bottom, but a unanimous agreement that things should get worse.  This past Friday, unemployment data confirmed and emphasized  the established economic weakness. This sets the stage for a Federal Reserve rate cut. Perhaps, that can fuel optimism and serve as the next key macro event. 

Trading Mechanics:

Trend following has narrowed to a shorter time frame. Perhaps, this is not the ideal way to manage money especially when majority of assets favor a  longer term outlook. Meanwhile, fundamental bets require patience for  calmer entry points. These factors partially explain the uncommitted capital that's on the sidelines. In other words, trendless and lack of conviction. Several factors lead to a system disruption such as hedge fund redemptions.

Connective Capital, a Palo Alto, California-based hedge fund, treated investors in its short strategy to an eye-popping 85 percent gain this year as its benchmark Nasdaq Index slumped 42 percent. Still, clients asked manager Robert Romero to return roughly 20 percent of their capital.." (Reuters -12-5-2008)

Levels:

The S&P 500 is holding above November lows of 741.02. From a technical view, any strength above those lows is positive. This assumes that the next round of selling is not too severe. As Crude trades near $40, it has one wondering if the next major support is closer to $20. At this point, even bears are reconsidering if the commodity is too cheap.  Interestingly, spike lows for US 10 Year Yields and Crude were tested on Friday.  On the other hand, Dollar strength is holding in as Gold remains in a tight trading range (712-800).

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.