Market Notes - September 8, 2009

Weekly Results:

S&P 500 1,016.40 -1.22%
DJIA 9,441.27 -1.08%
NASDAQ 2,018.78 -.49%
Russell 2000 570.50 -1.61%
MSCI Emerging Markets 36.25 +.49%

Mapping out the landscape:

A negative weekly finish sets the stage for a holiday shortened week. At this junction, investors are forced to balance between reacceleration and a much anticipated pullbacks. Many await price declines with hopes of seeking buy points. Basically, performance chasers are eagerly waiting on the sidelines to ensure participation in a market recovery. Similarly, money managers are positioning for a year-end finish by zoning in stock specific selections. At the same time, speculators look to sharpen entry points for downside bets. Interestingly, markets are known to surprise. Not to mention, several macroeconomic and policy issues to be addressed this fall. That said, awaiting for more clues in September can be rewarding.

Trigger points:

For few months, Gold traded sideways and lacked a defined trend. Clearly, the upside move last week is noticeable. Of course, pundits have various interpretations for the recent spike. For example, Gold prices tend to outperform in September especially since 1989. (U.S. Global Research). Perhaps, a rush to Gold is resurfaces but further confirmation is needed. Importantly, acknowledging this move is vital especially if price stay above $1000 an ounce. Perhaps, this sparks a macro shift eventually influencing movements in currencies, financial instruments and behavior of money managers. In contrast, Crude is retracing from elevated levels around $75. Maybe a peak in Crude serves as a leading indicator for a top in equities.

Gauging sentiment remains difficult and economic numbers present worries. Pending regulatory policies appear biased towards an upward market. In addition, policymakers continue to reassure the improving economic conditions. On the other hand, job contractions and weak credit environment mostly explains investor skepticism especially following a run up.

Article Quotes:

· U.S. consumer bankruptcy filings rose 24% in August from the previous year to 119,874, according to the American Bankruptcy Institute and National Bankruptcy Research Center. (Bloomberg : September 2, 2009)

· As the Western banking system has expanded over the past two decades its assets have grown to about 2.5 times its deposits, forcing firms to seek other types of finance. (Economist: September 3, 2009)

Levels:

S&P 500 [1016.40] Few points removed from August 28 highs of 1039.47. Stability forming around 1000 with pending price declines ahead.

Crude [$68.02] Stuck at a higher range of a new trading range between $65-$70. Yet, the index is 25% removed from its 200 day moving average.

Gold [$989] Strength developing after a lackluster summer. Further confirmation around $1000 can create additional buying pressure.

DXY– US Dollar Index [78.15] Remains above lows of March 2008 and slight above annual lows reached in August 5^th. For the most part, a sideway pattern since late May.

US 10 Year Treasury Yields [3.43%] Trading near the lower end of a three month range. Defined pattern forming between 3.40%-3.80%. A technical view argues for a near-term rise in yields.

Dear Readers:

The positions and strategies discussed on MarketTakers are offered for entertainment purposes only and are in no way intended to serve as personal investing advice. Readers should not make any investment decision without first conducting their own thorough due diligence. Readers should assume the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.

Market Outlook and Ideas | August 31, 2009

Weekly Results: S&P 500 1,028.93 +.27%, DJIA 9,544.20 +.40%, NASDAQ 2,028.77 +.39%, Russell 2000 579.86 -.28% and MSCI Emerging Markets 36.08 -.10%

“In the field of observation, chance favors only the prepared mind”. Louis Pasteur (1822 - 1895)

Summer Assessment

Current conditions continue to support the case for a high risk appetite. Although, last week provided hints of big picture weakness. For example, GDP revised lower, Chinese markets closed down for the fourth week in a row and growing uncertainties regarding FDIC’s health. These worries resurface as part of the credit downturn. On the other hand, stocks such as AIG showcase a rapid strength and created hope of restoration in Financials. The debate lives on as economic data is mixed. Yet, any downside move is gobbled up by buyers. That said, new stock market highs confirm a bullish sentiment and the general mood states to simply “flow with the trend”.

September Mindset

The S&P 500 is up nearly 50% since its March lows. This makes it difficult to convince someone to take profits. Perhaps, markets reached this comfort zone in August. However, participants recall the summer days of 2007 in which a unified run-up ended ugly. Although, a different cycle point, one can not dismiss the chance of sharp sell-offs. An exciting part to this fall is the level of uncertainty and surprise element that’s greatly awaited. The theatrics of last fall were one for the ages given a series of bailouts and bankruptcies. Now, stabilization argument faces further tests ahead. Discussion of interest rate hikes, non-farm payroll results and level of profit taking should set the tone for an interesting autumn.

Stock Specific Ideas:

TCL (Tata Communication): Offers exposure to Indian’s growing telecom and internet market. Stocks present an attractive entry point given its recent expansion to African countries and reasonable pricing around $20.

ADM (Archer Daniels Midland): A play on the agriculture theme. Rotation out of hard commodities should benefit ADM especially with concerns over sugar supply. In addition, the stock price is well below annual highs of $48.

Article Quotes:

“Between 2003 and 2007 — prime years of the housing boom — the net worth of an American household expanded to about $540,000, from about $400,000, according to an analysis of federal data by Moody’s Economy.com. Now, the wealth effect is working in reverse: by the first three months of this year, household net worth had dropped to $421,000.” (New York Times -August 28, 2009)

"The Federal Deposit Insurance Corporation, a banking regulator, on Thursday said the number of “problem banks” had risen from 305 to 416 during the second quarter. The FDIC does not name the lenders on the “problem list” but said that total assets of that group had increased from $220bn to $299.8bn in the three months through June". (Financial Times – August 27, 2009)

Levels:

S&P 500 [1028.93] Reached an intra-day high for the year as momentum remains strong. Index is 17% removed from its 200 day moving average. Key near-term support around 950-960.

Crude [$72.74] Trading below June highs of $73.38 and attempting to reach yearly highs of $75. Upcoming weeks, should determine the magnitude of these pullbacks.

Gold [$955.55] Recent trading days lacked major action in price movement. Again, a significant strength above $960 serves a barometer in measuring buy interest.

DXY– US Dollar Index [78.36] Barely holding above 2009 lows of 77.48. Following sharp declines earlier this spring, the Dollar has moderately stabilized in these summer months.

US 10 Year Treasury Yields [3.44%] Trading in a tight range especially in the past 3 months. Currently, poised for a recovery around 3.40%.

Dear Readers:

The positions and strategies discussed on MarketTakers are offered for entertainment purposes only and are in no way intended to serve as personal investing advice. Readers should not make any investment decision without first conducting their own thorough due diligence. Readers should assume the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.

Market Outlook | August 24, 2009

markettakers.blogspot.com

Weekly Results:

S&P 500 1,026.13 [+2.20%] , DJIA 9,505.96 [+1.98%] , NASDAQ 2,020.90 [+1.78%], Russell 2000 581.51 [+3.12%]

and MSCI Emerging Markets 36.11 [+.22%]

When in doubt, predict that the present trend will continue. Merkin's Maxim

A simpler view:

Taking a step back, one can view a long-term chart of the S&P 500. Quickly, an observer realizes that below 800 participants were too negative. On the other hand, revisiting cycle peak of S&P at 1500 seems too ambitious. Meanwhile, the same pattern reminds us that 1200 is feasible. Keeping that in mind, it might be sensible to narrow big expectations. Now, adjusting to non-extreme markets requires fresh acceptance of new trends. Participants are trying to define ‘normal’ after periods of extremes of euphoric tops and crisis sell-off. Today, investors scramble to understand various messages from Federal Reserve, impact of housing data and company valuations. However, momentum is just momentum and hard to fight until a major shift in sentiment. That said, with the S&P 500 around 1000, latecomers feel compelled to add and participate in this rally.

Reality is merely an illusion, albeit a very persistent one. Albert Einstein (1879 - 1955)

Feels like Summer 2007?

A week ago, Chinese stocks tumbled and served as a quick reminder that markets are a bit extended. In fact, the Shanghai Index is down nearly 20% in the past two weeks. However, price performance alone fails to showcase a decline in risk appetite. For example, the S&P 500 is trading at annual highs. Of course, each upside move is supported by policymakers and optimists . In general, it has been costly to bet against these markets and too early to take profits. Some wonder if markets are fed up with bad news. Or simply, observers overdosed on negative news fueled by crisis discussions in 2008. It was only two years ago, where key asset classes appreciated in price. Interestingly, in the summer of 2007 real estate, stock market and commodities rose to new highs only to collapse rapidly in the fall. Awkwardly enough, global assets present similar feel of reaching an inflection point. Once again, a strong correlation exists between equities and Crude.

IDEAS:

Long:

ADM (Archer Daniels Midland), EMS (Emergent BioSolutions), CWT (California Water) MATK (Martek Biosciences) and RFMD (RF Micro), CREE (Cree Inc), LLTC (Linear Technology) and ONXX (Onxx Pharmaceutical).

Profit taking/ Short:

PTR (PetroChina), GG (Gold Corp), SCHN (Schnitzer Steel) and X (US Steel)

Article Quotes:

“S&P said 201 borrowers with $453.1 billion in debt have defaulted this year, exceeding the 126 defaults for all of 2008, which comprised debt worth $433 billion.” (Financial Times – August 19, 2009).

“And while imagining a return to 2007 S&P 500 returns is pleasant, Hussman points out that investors should remember that those highs were based on profit margins about 50% above historical norms, combined with an elevated P/E multiple of about 19 against those earnings”. (Moneynews.com- August 17, 2009)

Levels:

S&P 500 [1026.13] Making new annual highs and stabilizing around 1000 range. Friday marked intra-day highs as investors look to sort out option expiration volume vs. bullish buying.

Crude [$73.89] Marking yearly highs similar to equity markets. The 200 day moving average stand at $68 which suggests a key near-term support. Poised for minor pullbacks but uptrend is in full gear.

Gold [$952.50] Lacking strong evidence of a recovery. Struggling to reach above $960. This displays lack of major buying demand despite ongoing US Dollar weakness.

DXY– US Dollar Index [78.04] Holding above August 7^th lows and deeply oversold. Anticipation grows for a trend reversal but anxiously seeking a catalyst.

US 10 Year Treasury Yields [3.57%] Normalizing at current levels, especially between 3.40-3.80%. A break above or below these ranges can send an alarm or hint of emerging trends.

Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only and are in no way intended to serve as personal investing advice. Readers should not make any investment decision without first conducting their own thorough due diligence. Readers should assume the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.