Weekly Results:
S&P 500 987.48 +.84% , DJIA 9,171.61 +.86% , NASDAQ 1,978.50 +.64% , Russell 2000 556.71 +1.50% and MSCI Emerging Markets 35.95 +2.37%
“Whenever you find yourself on the side of the majority, it is time to pause and reflect.” (Mark Twain)
Phase One: (March – July 2009)
Since March 2009, global markets witnessed the first recovery stage from dislocated conditions. A bullish period that witnessed a 48% rally in the S&P 500 .(56% for Nasdaq). At this junction, few mysteries remain unsolved despite euphoric market responses. Spring and summer months showcased consecutive up days, cheerleading from some policymakers and moderate media hype. In fact, few banks and headline generators recently declared “an end” to this recession. At the same time, improvement in credit conditions and other economic indicators are not fully convincing. However, at this stage optimism remains the key market subject.
What’s next? As autumn approaches, participants will digest this momentum that was led by risky assets. At some point, a much needed breather combined with sell-offs should provide clues to new themes and sustainable sectors. Of course, performance chasing can prolong this rally. Perhaps, overall perception is a powerful force that can downplay any weak labor and housing data.Similarly, volatility remains tame which suggests the uniform buying in global assets. Basically, increasing risk-appetite and higher expectations are playing into investor mindset.
Phase 2 - Next 106 days:
As August begins, there are 106 trading days left in 2009. One can assume a strong possibility that the macro, economic and regulatory conditions can remain unclear by year-end. In other words, waiting for dramatic shifts might not pay off. Perhaps, critical hints come from market behaviors rather than spins from politically involved or economic pundits. In terms of performance, July was a strong month that ended last Friday with S&P and Nasdaq up over 7%.
Actionable Ideas based on Macro Views:
Finding attractive entry points is challenging especially in the short-term given overbought conditions. One can expect minor weakness in Energy and Gold. Importantly, evidence of pullbacks in risky assets can create opportunity to buy select themes. At this point, shorter-term trading can offer more opportunities than longer-term bets. In addition, this Friday’s economic data can shape or confirm overall sentiment.
Pause in risky assets: For those expecting a pause in risky assets, one should monitor Gold and select areas in Basic Materials. Simply, investors will notice slower demand for commodities. This sets up disappointment in the already built-in higher expectations. Importantly, Gold has failed to surpass 1000 level four times in the past 2 years. On the other hand, dollar sentiment is extremely bearish. Therefore, this opens the door for an upside surprise in US dollar. Finally, Energy lagged last week despite a positive week for equities. (Weekly Returns: Oil Service -3.64% and Energy -1.30%)
Profit taking / Short Ideas:
o GG (Gold Corp): Expect declines in quarter ahead given higher expectations of new projects. Heavy resistance around $38-40 as daily momentum begins to peak.
o SCHN (Schnitzer Steel): Recent earnings showcased weakness in fundamentals based on lower revenues and slowing demand for steel. A 58% decline in revenue combined with declining technical does suggest pending pullbacks towards $45.
o X (US Steel): Facing selling pressure around $40 following two quarter of losses. Interestingly, a trading at levels reached in September 2008. Eroding fundamentals should prevail over optimistic turnaround story.
· Adding on weakness: Innovation themes such as semiconductors, communication and new media offer longer-term bargains. That said, weakness in upcoming weeks offer buying opportunities. Overall, these themes present a longer-term upside potential given multi-year relative weakness.
Long Ideas: CWT (California Water) MATK (Martek Biosciences) and RFMD (RF Micro)CREE (Cree Inc), LLTC (Linear Technology) and ONXX (Onxx Pharmaceutical).
Article quotes:
"Concentrated, in fact, among a mere handful of financial-services giants. About 80% of the derivative assets and liabilities carried on the balance sheets of 100 companies reviewed by Fitch were held by five banks: JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup and Morgan Stanley. Those five banks also account for more than 96% of the companies' exposure to credit derivatives. (CFO Magazine - July 24, 2009)
"We recently broke the S&P 500 into 10 deciles (10 groups of 50 stocks) based on the amount of a stock's shares that are held by institutions. We then calculated the average performance of the stocks in each decile since the rally ramped up again on July 10. As shown below, the two deciles of stocks with the most institutional ownership are up the most, while the decile of stocks with the lowest institutional ownership is up the least. Based on this analysis, institutional investors do believe in the rally, and maybe even more than individuals. (Bespoke July 29, 2009)
Levels:
S&P 500 [987.48] Trading around its annual highs and 13% higher from 200 day moving average. Importantly, a breakout above 950 confirms an early buying strength. Although, extended in the near-term, it seems like a macro catalyst needed for major pullbacks.
Crude [$69.45] Uptrend is well defined as the commodity holds above $60. In upcoming weeks, the strength of recent rally will be tested in a narrow range between $60-70.
Gold [$939.00] In the past two years, Gold has not held above $950 for a sustainable period. Again, much of the sideways action combined with failing to surpass a psychological level around 1000 suggests pending bearish bias.
DXY – US Dollar [78.31] Holding above its lows established in March of 2008. On the other hand, since March 2009, the decline in the Dollar is inversely correlated with equity markets. The odds of a minor rally appear favorable at these oversold levels.
US 10 Year Treasury Yields [3.47%] Continues to trade in a recovery range that started in late 2008. At this point, the market is accepting yields around 3.50%.
Please note: Next posting is scheduled for August 17th since I will be out of the country.
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.
Monday, August 03, 2009
Monday, July 27, 2009
Market Outlook and Ideas | July 27, 2009
Weekly Results:
S&P 500 979.26 +4.13% DJIA 9,093.24 +4.0% NASDAQ 1,965.96 +4.21% Russell 2000 548.46 +5.63% and MSCI Emerging Markets 35.11 +5.25%
“There are things known and there are things unknown, and in between are the doors of perception” Aldous Huxley (English Novelist and Critic, 1894-1963)
Perception indeed! Perhaps it only takes few upside moves and less bad news, to stir up positive sentiment. With the S&P sporting an 8% return for 2009, one must wonder if performance chasers are tempted to step in. That said, further evidence of a turnaround is not confirmed especially to issues relating to credit conditions. Similarly, technicals suggest overbought conditions following several consecutive up days for Nasdaq.
In the past few weeks, investors appear fatigued by ongoing headline worries, gloom scenarios and mixed economic data. Ignited by the March 2009 lows, market momentum is building positively. Eventually, this created an increased risk appetite. Now, gauging investor sentiment remains tricky. Meanwhile, extreme fear is not a factor but some investors remain skeptical. Complacency
Additionally, shorter-term and, fast pace trading continue to drive market activity. Nonetheless, innovative themes such as Technology may invite value investors with longer-horizon. As usual, earnings results, legislative climate and comments by the Federal Reserve can dictate ongoing trends. Overall, perception is sending a powerful message especially when market behavior is responsive to policymakers goals.
New Leadership:
Biotech is attractive for two reasons. First, several pending M&A deals as the group offers a relatively attractive upside potential. Secondly, sector is gaining from increasing financing from venture capital investors. Recently, Biotechlongly related companies raised $1.5 billion in the second quarter according to National Venture Capital Association. This showcases, optimism and a cycle shift that favors stocks in Healthcare.
Banks and Energy?
Semiconductors and Biotech’s are trading at annual highs along with broad indexes. That’s not the case for Energy and Financials. For example, Oil Service Index (OSX) is 8.2% below annual highs reached on June 11th. Similarly, the Bank Index (BKX) is 7% removed from May highs. Therefore, the strength of this momentum is questionable for some areas despite strength in Crude futures and broad indexes.
Actionable Long Ideas:
- CWT (California Water): The company benefits from high water demand given increasing population. Secondly, the stock offers attractive dividends for yield seekers. Finally, the company benefits from infrastructure and stimulus spending. Combining these factors present promising potential despite near-term pullbacks. Note: Earnings are scheduled for this Wednesday.
- MATK (Martek Biosciences): Martek, a producer of infant formula, dietary supplement and novel food is set to benefit from recent approval of its products by the European Union. Stock is 68% below its all-time highs reached in 2004. This offers an entry point given attractive pricing and improving fundamentals.
- RFMD (RF Micro): Stock continues to climb out of deeply oversold levels. Recent earnings surprised analyst expectations due to increase in quarterly revenue. The company continues to enter new markets, restructure its business model and leads its group in a favorable semiconductor cycle. Valuations appear sustainable despite recent appreciation.
Last Week’s Ideas:
Long CREE (Cree Inc), LLTC (Linear Technology) and ONXX (Onxx Pharmaceutical).
Levels:
S&P 500 [979.26] Breaking out to new range above 950. Index is showcasing strength and stands 12% above its 200 day moving average.
Crude [$68.05] Strong support around $60. Positive pattern as it approaches annual highs of $73.38.
Gold [$951.50] Further sideways movement within an established range. Attempting to reach and break above 980.
DXY – US Dollar [78.75] Clear downtrend forming below 80. No signs of trend reversal at this point.
US 10 Year Treasury Yield [3.65%] Recovering from recent lows of 3.25% in mid July. Trading a narrow range between 3.40-3.80%.
Article quotes:
"'It's important that the Fed be independent on monetary policy, but I worry about what independence might mean in other contexts,' Poole [former Fed President] 'The Fed, it seems to me, has stretched beyond reason its authority to make loans to the private sector, such as the MBS (mortgage-backed securities) purchase program, the lending on commercial paper from large corporations, the bailouts.' “(Bloomberg, July 22, 2009)
Global equities as measured by the MSCI World Index rose 46% from a more than 13-year low in March. Since then, money-market fund holdings sank 6.6% through March 15 from near a 20-year high, data compiled by Bloomberg show. ( Bespoke, July 20, 2009.)
Dear Readers:
Monday, July 20, 2009
Market Thoughts and Ideas | July 20, 2009
Weekly Results:
S&P 500 940.38 +6.97% , DJIA 8,743.94 +7.33% NASDAQ 1,886.61 +7.44% Russell 2000 519.22 +7.95% and MSCI Emerging Markets 33.36 +7.21%
Eliminating noise:
Last week provided a revival for optimism in stocks and commodities. Mostly, a near-term oversold response following several weeks of market pullbacks. In previous weeks, Bears got their wish of a much needed pause. With that being said, Bulls are somewhat satisfied by the first half rally and profit taking offered in recent weeks. Skeptics now eagerly await the fundamentals behind the company specific health. For participants, the art of balancing near-term recoveries with long-term uncertainties can be a daunting task. Yet, the payout can be greater for those willing to pick isolated areas with favorable odds. Many are realizing the enigma of figuring out economic data, legislative results and political posturing. These areas affect the macro picture, but can additionally create noise for investment decisions.
Examining optimism:
A step back reminds us, its nearly two years since the peak of Financials that sparked the credit downturn. Interestingly, before the crisis a cycle rotation was forming. At that time, the trend was favoring innovative groups, now the innovation theme resides mostly in Technology and Healthcare. These sectors offer relative attractiveness for the decade ahead. In scoping odds, the election and market cycles combined with recent macro stability invites one to examine opportunities setting up for the second half of 2009.
Hints from markets:
SOX (Semiconductor Index) began to form a strong base at the end of 2008 and reached new highs last week. Relative strength to other sectors stands out. Technicals point to a bullish signal and fundamentals are slowly supporting that view. Technology companies with cash continue to seek acquisition opportunities as most stocks remain deeply undervalued. Improvement in credit and sentiment can fuel further M&A activity.
Long Ideas:
CREE: (Cree Inc) Multi-year sideway performance suggest increasing possibility of a breakout in months ahead. The company continues to generate positive cash flow and benefits from a movement towards efficient lighting. Add on weakness closer to 200 day moving average.
LLTC (Linear Technology) Early signs of bottoming between $22-26. Healthy cash balance and steady revenues demonstrate strength in a weak environment. The company is poised to benefit from infrastructure spending in products related to electronics and communications. Long-term potentials present an attractive entry point for equity and bondholders.
ONXX (Onxx Pharmaceutical) Trading near a long-term support of $28. Pending short-term price declines offers buying opportunity. Strong sales and approval of drugs for kidney and liver cancer treatment bodes well for long-term performance. Finally, lack of debt exposure should attract investors with longer time horizon.
Article Quotes:
“Venture investment in U.S. health-care companies shot up 62% last quarter from the first quarter, and was only slightly below the year-ago clip, as VCs jumped on opportunities to back promising companies at low valuations. In fact, the dollar amount invested in health care, $2.23 billion, surpassed the $1.89 billion recorded in the traditionally largest sector, information technology, for the first time in a quarter this decade.” (Wall St. Journal July 18, 2008)
History shows that asset classes that perform best in one bull market — as emerging-market stocks did in the run-up from 2003 to 2007 — rarely repeat that feat in the next. For example, the foreign-stock boom of the late 1980s gave way, after a brief bear market in 1990, to big gains in financial stocks in the early ’90s and then to the surge in technology stocks in the middle to late part of the decade.(New York Times July 18, 2009)
Levels:
S&P 500 [940.38] Attempting to re-accelerate above June 11 highs of 956.23. Multi-month consolidation argues for a base forming around 900. Additional volume needed to confirm recent strength.
Crude [$63.56] Near-term support around $60. Weekly data suggests further pause ahead but above $60 trend remains positive.
Gold [$937.50] Settling near $920 and continuing a sideways pattern that started earlier this year.
DXY – US Dollar [79.24] Established downtrend since March 2009. No evidence of a recovery at this point.
US 10 Year Treasury Yield [3.64%] New range forming between 3.40-3.80%. Rates indicate a recovery to previous highs.
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.
Monday, July 13, 2009
Market Outlook July 13, 2009
Weekly Results:
S&P 500 879.13 -1.93%
DJIA 8,146.52 -1.62%
NASDAQ 1,756.03 -2.25%
Russell 2000 480.98 -3.26%
MSCI Emerging Markets 31.11 -3.10%
Light volume and slight increase in volatility resulted in a negative close for broad indices. Clearly, the appetite for riskier assets is taking a pause. Now, optimists are forced to rethink overall positions. Commodities are pulling back at a faster pace with Crude down 10% last week. Similarly, Gold, Oil and Steel related stocks led the downside move in equity markets. This indicates ongoing weakness in global trade and demand for commodities. On the other hand, few investment opportunities present themselves given oversold levels. Meanwhile, earnings season approaches and usually presents a game of expectations. Yet, in upcoming weeks, a skeptical crowd awaits for evidence of fundamental improvements. For example, credit related themes are vulnerable given increase in distressed commercial property and weak retail sales.
The first half of 2009 reminds us the lack of sustainability of an upside rally. Mostly, a period of restoration trends are undefined. In turn, this makes long-term investing a riskier bet. At this point, investors are responding with higher anxiety levels driven by weak economic numbers, unsettled regulatory climate and unclear political factors. Similarly, consumer sentiment data fell significantly. At this point, analysts are seeking a catalyst. At this junction, market attention is poised to shift towards stock specific results. That said, the key question remains, if risky assets can recover and lead for the rest of the year. Overall, key macro indicators are linked closely and signal a uniform message of market correction.
That said, speculators can place their bets especially with a high risk/reward ratio. Short-term technicals suggest that optimists can use current levels as an entry point. A contrarian view, points to buying aggressively since 76% of US stocks are trading below their 50 day moving averages. In upcoming weeks, one should distinguish short-term behaviors versus longer-term themes.
The ISM for the non-manufacturing sector reinforced that the economy is stabilizing following the 'sudden stop' that occurred in the fourth quarter of last year. The new orders index rose to a post-Lehman high and is probing expansionary territory, indicating companies are regaining some confidence in final demand. This is corroborated by the continuing rise in the employment component, which shows that businesses are slowing the pace of job cuts, despite June's disappointing payroll figures. BCA Research, July 8, 2009.
Levels:
S&P 500 [879.13] Index is down 8% since peaking on June 11. Sitting near 200 day moving average with next major support at 850.
Crude [$59.89] Sharp decline after reaching annual highs. Attempting to stabilize around $60.
Gold [$913] Continues to trade in a narrow range between $900-950. At this stage, trend remains undefined.
DXY – US Dollar [80.20] For several weeks, forming a sideway pattern. Lack of significant catalyst explains a narrow trading range near 80.
US 10 Year Treasury Yield [3.29%] Pulling back from recent peak of 4%. Setting up for a reversal with major support around 3.20%.
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.
Monday, July 06, 2009
Market Outlook | July 6, 2009
Weekly Results:
S&P 500 896.42 -2.59%
DJIA 8,280.74 -2.26%
NASDAQ 1,796.52 -1.80%
Russell 2000 497.21 -2.35%
MSCI Emerging Markets 32.11 +.89%
Painting the Big Picture:
Interestingly, June presented key Macro reversal points across six market indicators. In other words, ongoing trend shifts in commodities, US interest rates and global stock markets. Meanwhile, a slow recovery process is taking hold in the US Dollar. Perhaps, this signals less enthusiasm for risky assets. At the same time, economic numbers and credit conditions mostly confirm the downturn in this cycle.
Key trend reversal in June:
June 1, 2009: Gold paused at $981 and down 5.3% since that point. For the second time this year, Gold failed to climb above $990.
June 1, 2009: MSCI Emerging Markets index marked annual highs of 802.21. Eventually, the index closed few point lower at 761.30.
June 2, 2009: US Dollar Index reached annual lows of 78.34 and sparked a 2.5% appreciation. An early indication of relative strength versus other currencies.
June 11, 2009: S&P 500 paused at 956.23 and closed the week below a key support level of 900.
June 11, 2009: US 10 Year Treasury Yields toped at psychological level of 4% and current trades near 3.50%.
June 30, 2009: Crude paused at $73.38 at the last trading day in June. Remains overbought after a weekly close of $66.
Investor Feel
From a sentiment perspective, these pullbacks set the stage for additional sell-offs. For example, the S&P 500 turned slightly negative for the year. Short-term history reminds us, that July can present an eventful market action. At this point, participants are poised to reexamine the substance behind the first half rally. That said, clues from fundamentals and momentum offer less favorable odds for a recovery. Now, investors await earnings in upcoming weeks to gauge market expectations versus actual results.
"The recovery in global manufacturing has come primarily because companies have sold off much of their accumulated stocks and are re-starting mothballed production lines. Once this temporary boost is completed, serious questions remain about the source of longer-term demand to maintain the current momentum. (Financial Times July 2, 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 Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, June 29, 2009
Market Outlook | June 29, 2009
S&P 500 918.90 -.25%
DJIA 8,438.39 -1.19%
NASDAQ 1,838.22 +.59%
Russell 2000 513.22 +.10%
MSCI Emerging Markets 32.29 +1.25%
At an early glance, not many significant changes in market performance, Federal Reserve tone and investor sentiment. Nonetheless, June provided early clues on a much needed breather to an uptrend that began in Mid March. Interestingly, Crude and Treasury Yields peaked on June 11th . Clearly, both indicators serve as a general barometer for interest rates and commodities. In other words, recent behavior makes a strong case for a sentiment shift away from risky assets. At this stage, speculators are reexamining the substance behind previous optimism.
Perhaps, this sideway behavior is a result of investors shortening their holding period. Similarly, the Federal Reserve did not provide major guidance. At the same time, pending regulatory changes have not fully materialized. A difficult week to search for major evidence of trend changes given quarter-end in a holiday shortened week. As the halfway point of 2009, corporate earnings can disappoint especially in credit related themes. From a technical view, breadth indicators suggest further pullbacks in broad markets. Importantly, the surprise element in earnings can shape the rest of the second quarter.
Looking ahead:
Innovation based themes offer attractive entry points for longer-term investments both in private and public markets. On a relative basis, commodity groups reached elevated levels and Financials remain weak. For the most part that leaves Technology and Healthcare attractive areas for stock specific selection. Groups in Technology with growth potential include broadband, media and telecommunication.
“The recent profit recession has pushed real profits below its long-term time trend. Remarkably though, domestic non-financial profits have held up better than expected. The resilience of profits in the past year does not reflect stronger-than-expected sales.” (BCA Research - June 24, 2009)
DJIA 8,438.39 -1.19%
NASDAQ 1,838.22 +.59%
Russell 2000 513.22 +.10%
MSCI Emerging Markets 32.29 +1.25%
At an early glance, not many significant changes in market performance, Federal Reserve tone and investor sentiment. Nonetheless, June provided early clues on a much needed breather to an uptrend that began in Mid March. Interestingly, Crude and Treasury Yields peaked on June 11th . Clearly, both indicators serve as a general barometer for interest rates and commodities. In other words, recent behavior makes a strong case for a sentiment shift away from risky assets. At this stage, speculators are reexamining the substance behind previous optimism.
Perhaps, this sideway behavior is a result of investors shortening their holding period. Similarly, the Federal Reserve did not provide major guidance. At the same time, pending regulatory changes have not fully materialized. A difficult week to search for major evidence of trend changes given quarter-end in a holiday shortened week. As the halfway point of 2009, corporate earnings can disappoint especially in credit related themes. From a technical view, breadth indicators suggest further pullbacks in broad markets. Importantly, the surprise element in earnings can shape the rest of the second quarter.
Looking ahead:
Innovation based themes offer attractive entry points for longer-term investments both in private and public markets. On a relative basis, commodity groups reached elevated levels and Financials remain weak. For the most part that leaves Technology and Healthcare attractive areas for stock specific selection. Groups in Technology with growth potential include broadband, media and telecommunication.
“The recent profit recession has pushed real profits below its long-term time trend. Remarkably though, domestic non-financial profits have held up better than expected. The resilience of profits in the past year does not reflect stronger-than-expected sales.” (BCA Research - June 24, 2009)
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