Market Outlook | September 28, 2009

Weekly Results:

S&P 500 1,044.38 {-2.24%}, DJIA 9,665.19 {-1.58%}, NASDAQ 2,090.92 {-1.97%}, Russell 2000 598.94 {-3.06%} and MSCI Emerging Markets 38.19 {-1.74%}

“The nice part about being a pessimist is that you are constantly being either proven right or pleasantly surprised” George F. Will

Taking a breather:

In the summer, many were weary and skeptical of an explosive rally sparked in March. Perhaps, the sudden shift from panic to stability did not rest easy with majority of investors. In that unique period, investors were forced to adjust their thoughts. At times this year, investor frenzy and panic appeared unjustified. On the other hand, recent price movements lacked evidence of balance sheet improvements. In early June participants relearned, that market corrections are inevitable but mistiming short bets is costly. Today, those maintaining a bearish view are eager to call tops. However, the uptrend and the upside bias remains in place. Last week policymakers and the Federal Reserve reiterated improvement in credit and economic conditions. In days ahead, we’ll see if investors feel equally optimistic.

Not much of a surprise:

Generally, Investors seek to capture big thematic moves. In the past few months, buyers were rewarded for purchasing in March and mid July. Around Labor Day, many would've agreed that a 10% market correction was inevitable and even necessary. So now, we shouldn't be alarmed of pending declines. Actually, a 10% pullback from yearly highs would take the S&P 500 back to 972. Perhaps, an enticing level for buyers, especially for those that missed the sharp recovery.

Technicals, fundamentals and sentiment indicate growing odds of sell-offs. As noted previously, market behavior in the last six months reminds us of 2007. Similarities include uniform asset appreciation, limited selling pressure and Dollar depreciation. Also, many recall the synchronizing sinking of various asset classes last year. Recently, commodity price movements closely mirror equity markets in both directions. However, in a new cycle, one should be careful in assuming a continuation of similar macro patterns.

The recent rally was led by Materials and Technology stocks. Therefore, a topping process requires a confirmation of fundamental weakness in these high beta groups. On the other hand, buyers await discounted entry points in innovative and commodity based sectors. Now, rising Dollar inversely impacts commodities as showcased by recent action. At this point, stability in Crude remains questionable. In looking ahead, plenty of attention will focus on economic data. Also, the magnitude of price declines should set the tone as we close the third quarter.

Article Quotes:

"In the US, market cap has risen $4.88 trillion from its low of $8.09 trillion in March. The peak in total US stock market value was $19.14 trillion in 2007, and the current value of all US stocks is $12.97 trillion. The US accounts for 29.5% of total stock market value in the world." (Bespoke Investors, 9/21/2009)

"Central bank officials are discussing plans to use so-called reverse repurchase agreements to drain some of the $1 trillion they pumped into the economy, said the people, who declined to be identified because the talks are private. That's where the Fed sells securities to its 18 primary dealers for a specific period, temporarily decreasing the amount of money available in the banking system”. (Bloomberg, 9/22/2009).

Levels:

S&P 500 [1044.38] Pausing from extended levels. Near-term support at 1000 and 950.

Crude [$66.02] Failing to surpass the $75 level. Importantly, a four month sideways pattern that began in June 2009. The 200 day moving average is 18% below Fridays close. Much attention will focus on pullbacks near $60.

Gold [$991.50] Over a 300% price appreciation since bottoming in 1999. Interestingly, Gold climbed back to 2008 highs and now flirting below $1000 range.

DXY– US Dollar Index [76.77] Established downtrend and poised to test lows from March 2008.

US 10 Year Treasury Yields [3.31%] Approaching mid-July lows of 3.25%. Struggling to reach above 3.50%

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 | September 21, 2009

markettakers.blogspot.com

Weekly Results:

S&P 500 1,068.30 +2.45% , DJIA 9,820.20 +2.24%, NASDAQ 2,132.86 +2.50%, Russell 2000 617.88 +4.09% and MSCI Emerging Markets 38.86 +2.66%

Assessing the calendar year

It feels that the market offers two fat pitches per calendar year. In other words, investors are presented with two fruitful entry points to take advantages of opportunities. Of course, 2008 offered several chances to bet against or avoid equity markets. However, last year was an outlier and typically the case at the end of bullish cycles. Otherwise, in the past few years the opportunity is on the long side. So the question for this year is: Have two major swings taken place already? Also: Is there another buying opportunity ahead of us? Clearly, the first reward for buyers came in this March. Others wonder if August delivered the second buy point or another fruitful chance is ahead of us at the end of the third quarter.

Heading into Friday morning, the S&P 500 was nearly 20% above its 200 day average. Simple math based on historical studies suggests a much needed breather. Recently, Gold and Stocks are slowly moving higher which reminds us of 2007. So far this year Gold is up 14% and S&P rose 18% catching the attention of performance chasers. Declining dollar and rising commodities are part of an ongoing decade cycle.

Finding Rhythm

The midsummer correction proved that pullbacks are shallow. Even aggressive short sellers in 2007-08 acknowledge that odds for downside bets are less attractive. In fact, these days’ attempting to catch declines is riskier and requires extreme accuracy in timing, a difficult game to play even for those watching tick by tick. So this leaves us with growing optimism by analysts, most policymakers and recent market participants. In addition, issuance of corporate and junk bonds witnessed a weekly inflow suggesting healthy investor demand.

Stock Specific Ideas:

PPDI (Pharmaceutical Product): Early signs of a recovery for a company focused on Research & Development in Healthcare. Global expansion in biopharmaceutical areas and recent growth through acquisitions spur potential growth. Finally, upcoming spending in healthcare and innovation may attract buyers.

IACI (IAC/InterActiveCorp): Poised to gain as a derivate play on Google. Increase in advertisement spending bodes well for IACI. At these levels, the stock is relatively cheap and favorable for long-term investors.

SNI (Scripps Networks): On pending pullbacks, investors can purchase shares closer to $32-34. M&A speculation and cycle recovery in media present positive momentum.

Previous long ideas: PWR (Quanta Services), SNPS (Synopsys) and ADM (Archer-Daniels Midland)

Article Quotes:

· Private investors in China, the world's largest metals user, have stockpiled 'substantial' quantities of copper as the government ramps up stimulus spending to spur the economy, according to Sucden Financial Ltd. Pig farmers and other speculators may have amassed more than 50,000 metric tons (Bloomberg, September 17, 2009)

· State & Local debt growth accelerated to 8.3% annualized, up from Q1's 4.9% and Q2 2008's 0.9%. State & Local governments expanded borrowings $187bn SAAR - a resurgence back to the peak borrowing level from 2007 ($186bn). Federal borrowings expanded at a blistering 28.2% pace, up from Q1's 22.6% and compared to Q2 2008's 5.9%. (Doug Noland, September 17, 2009)

Levels:

S&P 500 [1068.20] Yet another new annual highs reached last Thursday at 1074.44.

Crude [$72.04] Continues to trade in a narrow range between $66-74. Trendless action continues with 50 day moving average at $68.

Gold [$1012.00] Climbed and surpassed previous highs reached in March 2008. A continuation of a multi-year upside move. Seasonally, a favorable time to continue this upside run.

DXY– US Dollar Index [76.42] Made new annual lows this week. Barely holding above the lowest point reached on September 17^th. Since March, the Dollar index is down around 15% since peaking in early March.

US 10 Year Treasury Yields [3.46%] 4+ month of sideway behavior with rates trading in a tight band. A step back reminds us that rates have significantly recovered from 2.03% in December 2008.

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 Thoughts and Ideas | September 14, 2009

Market Thoughts and Ideas September 14, 2009

Weekly Results:
S&P 500 1,042.73 +3.94%, DJIA 9,605.41 +2.79%, NASDAQ 2,080.90 +4.93% , Russell 2000 593.59 +5.53% and MSCI Emerging Markets 37.86 +6.15%

The one year anniversary of a historic credit collapse provides a moment to reflect. At this stage, we’re in a rebuilding regulatory and market cycle. Not to mention, the first year of an elected administration and unfamiliar policies by global central bankers. Importantly, identifying new trends is too early at this phase. That said, risk-takers enjoy the prospects of attractive risk/reward of the unknown. Now, the challenge is distinguishing day-to-day news flow versus long-term trends. Perhaps, the bigger reward is in understanding and gauging investor sentiment. The AAII weekly sentiment data suggests that retail investors are becoming slightly less optimistic. Perhaps, an overly bearish sentiment may present a contrarian bounce. That said, selecting spots in stock specific picks can be a cautious way to navigate these conditions. Volatility remains lows but more volume is needed to draw substantial conclusions. Finally, a bullish bias remains intact as illustrated by consecutive up days and managers looking to chase performance.

Plenty of worries over government spending, failing banks and lack of stability. Participants are anxious given a disconnect between economic data and stock market movements. Frankly, even short-term traders find these patterns frustrating. Clearly, finding comfort is dangerous especially for those that enjoyed the uptrend this past spring and summer. Demand for commodities is growing at a rapid pace. At the same time, credit related areas face further declines. Gold strength and Dollar weakness continues to be a dominate market force. Also, interest rates are not rising as anticipated with the US 10 Year Yields trading near 3.30%. Leaders attempt to restore further confidence but investors will have a chance to vote via participation. Several data points such as Retail Sales and Consumer Price Index can set the market tone this week.

Innovation based ideas in Technology offer attractive stock selection. For example, leading groups for the week included Disk Drives and Networking stocks which rose over 10%. Again, areas with less macroeconomic risk are appealing to value investors. Secondly, the Semiconductor Index (SOX) is trading at annual highs and showcasing relative outperformance. Any pullbacks enable investors to seek buying opportunities in quality Technology stocks.

Stock Specific Ideas:

PWR (Quanta Services) : Strong balance sheet for the leader of electric infrastructure provider. A play on infrastructure and alternative energy for long-term investors. Specifically, demand for natural gas bodes well for the company as well. Evident strength in the past 7 years and recent acquisitions sets the stage for further growth.

SNPS (Synopsys): Healthy cash balance, no debt and relatively undervalued. These reasons present attractive entry points especially as the stock stabilizes around $20. Trends in software are improving slowly and positive sales figures can surprise investors.

ADM (Archer-Daniels Midland): Record number of rainy days bodes well for oilseed producers. Also, an era of growing strength in soft commodities can increase buying momentum. Technicals suggest an entry point around $28 range

Article Quotes:

· The cultural gap between U.S. and Chinese financial firms is enormous. Goldman Sachs and other large Western firms originated as partnerships, an ownership structure that instills a culture of care and commitment in employees. Many Chinese banks, especially the largest ones, have evolved under state ownership. Their employees, therefore, do not feel the same loyalty as their counterparts at Western investment banks and have less incentive to be innovative and competitive. (Institutional Investor -September 2009)

· Businesses trying to sell products and services feel they are pushing on a string and are adjusting their behavior accordingly. To maintain sales volumes and clear inventories in the face of weakened demand, they are cutting prices. In the fourth quarter of last year, we began to see an upward shift in the number of items falling, rather than rising, in price. In the July data recently released, almost 50 percent of the items in the PCE basket—weighted either by simple count or expenditure—were falling in price. Small wonder that headline inflation was negative over the year ended in June. (Federal Reserve of Dallas, Richard W. Fisher – September 9, 2009)

Levels:

S&P 500 [1042.73] Since crossing 1000 in early August, the index is slowly rising despite awaited pullbacks. 950 serves as a key technical point and marks the 50 day moving average.

Crude [$69.29] Trading in a tight range between $65-75 in the last two weeks. 3+ month sideway behavior questions is beginning to test the bullish outlook.

Gold [$1008.25] A 7% rally after bottoming on August 26. A strong breakout led to additional buying momentum.

DXY– US Dollar Index [76.85] Breaking down to new annual lows. A series of downturns that began in early March. The Dollar index is down nearly 37% since peaking in July 2001.

US 10 Year Treasury Yields [3.32%] Peaked at 4% in mid June as rates continue to decline. Interestingly, the 200 day moving average stands at 3.07%


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 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.