http://markettakers.blogspot. Psychological puzzle: A Psychological puzzle as investors' fear appears to evaporate at least temporarily. Usually, most investor seek dramatic indicators for a turnaround. Nonetheless, price action suggests that key participants are willing to speculate in aggressive areas. In fact, riskier assets have risen sharply especially in retail, technology and commodity based groups. Now, the sensible question calls for one to measure risk/reward opportunity of adding long positions. The current move in US equities presents a uniform upside participation in various stocks which implies favorable odds for a bullish run. In addition, stock market behavior generally looks ahead of weak economic data. Headline economic numbers reiterated weakness. That said, select economic areas are showing slight improvements such as manufacturing and construction. Most financial headlines focused on G20 meeting, Federal reserve actions, role of US Dollar and changes in accounting standards. These factors have yet to showcase clarity in overall fundamental picture. Basically, more follow-through is required to reach a defined trend that goes beyond speculative behavior. Bear market optimism : Price behavior alone does not tell the full story. At this juncture of a sharp rally, participants attempt to weigh mixed headlines and cycle behaviors. A quick reminder: “ There were six bear-market rallies during that stretch, with returns of more than 20%, each one fueling a sense of renewed optimism. Yet each counter-trend rally ultimately fizzled-out and unraveled, before market indexes skidded to new lows.” Richard Russell (Dow Theory Letters). Pattern reminders: Recent history reminds us that the previous bull cycle started in March which marked a bottom. In fact, on March 12, 2003 the S&P bottomed at 788. Amazingly, that behavior compares to this year’s lows of 666 reached on March 9th. Perhaps a coincidence or a seasonal matter. Nonetheless, a striking parallel even for the casual observers. Similarly, a long-term chart showcases 800 level as a key technical point for S&P 500. The “800 level” marked the tech bullish run of 1997 and trigged the recent bullish run led by China, Credit and Crude in 2003. Message from Emerging Markets: In these early stages, global equities are pointing to growing optimism. Inflow into emerging markets increased by $1 billion and Asian countries issued debt totaling above $176.3 billion. In other words, select data points confirm increasing confidence. "Emerging-market governments and companies borrowed more in international bond markets this week than at any time in the past two years” (Bloomberg, Laura Cochrane) Strength in global equities closely coincided with weakness in US Dollar. Gains in Canadian and Australian Dollar are noticeable. Again, this fits the theme and movement towards risky assets which is reflected in stocks of related to materials. Currency and commodity indicators sever as a barometer for risk appetite. EEM (Emerging Market Fund) demonstrates a bottoming process that began six month ago after holding above $20. IMF decisions severed as an upside catalyst to an index that continues to maintain relative strength. Interestingly, in the past 6 months the VIX (Volatility Index) has declined by 55% which reiterates the point that investors are overcoming irrational worries. Perhaps, the next major concern can focus on investor complacency rather than fear. Macro Levels: S&P 500 [842.50] Extreme lows in early March triggered an early recovery phase. Holding above 800 (near 50 day moving average of 790) can encourage a bullish bias. Crude [$52.51] Bottomed three times around $32-35 range and stabilizing at current levels. Interestingly, heavy resistance at $60. Gold [ $905] Approaching multi –year highs of $1011 reached in late March 2008. Nearing overbought conditions and few points removed from previous highs of $989 from earlier this year. Investors attentively await further confirmation. DXY – US Dollar [84.16] Annual trend remains positive. A range-like behavior forming between 82-86 in the past six months. This suggests a near-term pause in US Dollar appreciation. US 10 Year Yield [2.88%] Demonstrating strength above 2.60%. Solid uptrend forming since lows of 2.03%. Despite a 14 basis points weekly increase, uptrend in yields is set to pause. This week, the Federal Reserve plan to purchase additional debt. Long Speculative Ideas: CREE (Cree Inc): Demonstrating relative strength since August 2008. Poised for an upside run based on strong fundamentals. Price declines can offer buying opportunity between $24-26 range. NLY (Annaly Capital Management) : Despite recent dividend cut the company offers promising entry point given changes in financials. Core earnings remain solid given investment in government guaranteed securities. A test of major support at $12, presents an entry point especially for longer-term participants. YGE (Yingli Green Energy): After underperforming broad equity markets, the stock is attempting to bottom. Early stages of recovery with next key technical point at $8.83 (200 day moving average). Presents exposure to emerging markets and growth in alternative energy. Recent improvements in financial access along with support from Chinese government generates promising outlook. 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 Postway, considered liable for the future investment performance of any securities or strategies discussed.
Monday, April 06, 2009
Market Outlook | April 6, 2009
Monday, March 30, 2009
Market Outlook | March 30, 2009
Weekly Results:
S&P 500 815.94 +6.17%
DJIA 7,776.18 +6.84%
NASDAQ 1,545.20 +6.03%
Russell 2000 429.00 +7.22%
MSCI Emerging Markets 25.66 +7.22%
A Perspective:
A bear market reversal appeared inevitable heading into March given a weak start for 2009. Now, participants await confirmation to claim early victory for bulls following a strong rally in equity markets. Pending days will provide clues for recent trend. Potential catalysts include clarity on intervention programs, regulatory changes and discussions from G-20 meeting. The cycle view suggests that global assets remain in a consolidation phase which began in 2000. In other words, this decade continues to witness end of bubbles in Technology, Credit and Global Markets. In many ways, innovation and growth appear less lively and require rejuvenation.
Near-term Optimism reaching a pause:
Recent strength is reflected in assets related to interest rates and commodities. Participants witnessed above average returns in financials and housing groups in the past few weeks. The quest for higher risk appetite provides speculators confidence after the announcement of $1 trillion spending for toxic assets. Clearly, global equities are seeing a sharp rally. For example, EEM Emerging Market index up 19% since March 9, 2009. Interestingly, the current rally displays a uniform recovery with significant participation of various sectors. For example, the NYSE Advance/Decline Line increased by 19.15% last week. A collective rise is believed to indicate a strength and positive momentum. However, broad indexes appear extended for timely entry points heading into April.
Sentiment & Thought Process
Currently, panic buying might replace fear as a dominate market theme. At the same time, few observers are afraid to miss upside gains which create sharp rallies.Nonetheless, investors need more convincing. In the past 6 months uncertainty persisted heavily especially given mixed signals from policymakers. In recent weeks, the US Dollar appreciation is noticeable and raises a question if risk-aversion is becoming overdone.
“The nonfinancial firms in the Standard & Poor's 500-stock index have a total of $811 billion in cash and marketable securities on their books, calculates Goldman Sachs. That's just shy of a record high in nominal terms and up $43 billion from the depths of the financial crisis last fall. (JASON ZWEIG- Wall St Journal)
Plenty of cash remains on the sidelines and shorter term holding periods describe most of the market behavior.
Macro Levels:
S&P 500 [815.94] Attempting to hold above 800 and 50 day moving average stands at 791.93. At this point profit taking and technical points can create minor pullbacks.
Crude [$52.38] Facing key resistance around $55 range. Established uptrend since mid February and now showing early signs of stalling.
Gold [$924] 3+ month uptrend is facing key resistance levels. In the past six month, Gold appears extended and poised for declines especially at current levels.
DXY- US Dollar [85.11] Major trading range between 84-88. The commodity maintains its yearly upside trend and faces near-term challenges.
US 10 Year Yield [2.76%] Forming a trading range between 2.70-2.80%. Long-term outlook remains unstable following a multi-month peak at 5.32%.
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.
Monday, March 09, 2009
Market Outlook| March 9, 2009
http://markettakers.blogspot.com/
S&P 500 683.38 -7.03%, DJIA 6,626.94 -6.2%, NASDAQ 1,293.85 -6.10%, Russell 2000 351.05 -9.76% and MSCI Emerging Markets 21.10 -1.31%
Gauging Fear:
Markets continue to test participants patience and remind speculators that downtrends require additional time. Clearly, the current dynamics provoke further impatience among value seekers and long-term buyers. Basically, skepticism is too high and serves as a driving force behind short-term holding periods. Therefore, a series of catalyst should determine the timing of a bottom.
“At this juncture, short-term movements are almost impossible to predict, although the sell-off over the past few days - a capitulation in some respects - could nourish the long-awaited tradeable rally. Also, Lowry's 90% down-days, like we experienced on Monday and Thursday, are often followed by two- to seven-day bounces.” (Richard Russell (Dow Theory Letters).
Financial scoreboards and headlines paint a bearish tone. For example this year, the Volatility Index (VIX) is up 23% and S&P 500 down 24%. A developing relationship that is noticeable since summer of 2008.Broad markets have witnessed negative returns In the last 8 out of 9 weeks. This reflects weak economic numbers, bruised confidence and plenty of unknowns ahead . In addition, overall consensus appear to focus on worst case scenarios. Similarly, the AAII Investor sentiment data reached its lowest level since 1987. Some contrarians view this occurrence as a guide for a trend reversal. On the other hand, bear markets present sharp rallies but those gains are not sustainable.
Rotation within a downturn:
Emerging markets have outperformed US broad indexes especially since October 2008,. Last week the S&P 500 declined 7% versus a 1.3% fall in Emerging Market Index.Perhaps, this trend is closely linked with multi-month strength of basic materials. In other words, commodity based sectors account for a significant portion of emerging markets. Secondly, the Chinese stock market is up 14% year to date despite a sharp sell-off last year. At the same time, China’s manufacturing sector continues to grow. Finally, rate cuts by developing countries sever as a catalyst for fundamental improvement. That said, US equities continue to underperform against global indexes, even in a period of risk aversion. Now, risk levels of US equities seem mysterious as analysts decipher the beaten up fundamentals. In upcoming weeks, the sustainability of emerging markets can determine if r capital will favor this segment. In other words, investors look to sort out new leaders and seek evidence of strength in emerging markets.
Macro Levels:
Crude ($45.52): Trading at a higher end of a three month range. Extended in the near-term. Key support of $40 which is closet to 50 day moving average.
Gold ($936): Consolidating between $900-950. A positive trend remains in place. Setting up for a short-term recovery especially with increasing concerns of paper assets.
DXY- US Dollar Index (88.51): Reaching a key junction after making annual highs of 89.62. On a relative basis strength is positive but poised for a near-term pause around 86.
US 10 Year Yields (2.87%) : Few points removed from multi-year highs of 3.04%. Poised for pullbacks around 2.60%.
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.
Monday, March 02, 2009
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.
Sunday, February 22, 2009
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.
Tuesday, February 17, 2009
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 28th. 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 24th 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.
-------
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.
Sunday, February 08, 2009
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.
Sunday, January 25, 2009
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.
Monday, January 19, 2009
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.
Monday, January 12, 2009
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 6th. 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.
