“Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.” Ed Seykota
Glancing at the current annual performance of 22.5 % in the S&P 500 provokes mixed thoughts for 2010. This seems to be an impressive run or an inevitable recovery, following the 2008 collapse. Of course, repeating this type performance at a similar pace appears a bit ambitious. In some cases, investors are compelled to conclude that the months ahead come down to specific asset selection. From a big picture view, optimists eagerly await reentry points for investments related to commodities and emerging markets. Now, there are some concerns of early cooling for decade-old themes, which might overheat for the years ahead. However, the existing cycle suggests that this run has not yet reached its completion. The belief of this direction resides in a delicate policy implementation, early macroeconomic reactions, and the faith of participants. In any case, staying flexible on one’s market view is vital in the next few weeks. Again, managers are closely evaluating the improving economic conditions and its overall impact on interest rates. This long awaited answer paints the longer-term outlook and provides some guidance for investor behavior.
In the past few weeks, declining crude prices have triggered temporary changes to the ongoing trend. Again, much attention has focused on Gold’s outperformance. However, Crude has quietly taken a downturn, which begs a few questions. A peak in Crude prices materialized on October 21, 2009, at $82 a barrel. Interestingly, that’s around the same time that the Gold demand reached explosive levels. Assessing market developments can be dangerous when volume is dwindling and when markets are trading in a tight range. Similarly, the recovery in the US Dollar might be simply seasonal, as seen in previous years. In other words, investors have witnessed a late year currency appreciation in previous years. These developments serve as an early hint of trend reversal and will require further action from central banks. Policymakers have plenty to resolve in regards to the condition of global economies and the need for further fueling.
Sentiment readings are not providing a unanimous market read. However, financials remain a puzzle, because the fundamentals are not quite crisp. This is primarily due to increasing defaults. Recently, the credit related areas continue to underperform, while failing to stir up momentum buyers. In fact, Goldman Sachs has underperformed since the March rally, despite the perception of being a quality bank. Clearly, if risk-appetite begins to slow, then broad markets become more susceptible, especially with Financials making up 14% of the S&P 500 index. In other words, the sector behavior can weigh heavily on the performance of broad market indexes. Finally, volatility appears to be bottoming in the last 60 days. This indicates that there is a strong possibility of turbulence that may start in 2010. In addition, a significant pause is needed to reshuffle new themes and leaders.
Article Quotes:
“China issued policies to curb speculation in the nation's property market, after home prices rose at the fastest pace in more than a year. The government will impose a sales tax on homes sold within five years of their purchase, increasing the time period covered by the charge from two years, according to a statement posted on the website of the State Council, the nation's cabinet. A record $1.3 trillion of bank lending that helped revive Chinese economic growth to 8.9% in the third quarter has also fueled concerns of a bubble in the nation's property market.” (Bloomberg, December 9, 2009)
“Switzerland, Luxembourg, Ireland, and Hong Kong will all be quietly celebrating as they look forward to welcoming a second influx of bankers and financial institutions, after the first wave of tax exiles from London sent by Mr. Darling’s previous Budgets and mini-Budgets. Many British voters will, of course, be delighted about this relocation of greedy casino-bankers — almost as delighted, in fact, as the burghers of Zurich will be to receive them.” (The Times, December 11, 2009)
Levels:
S&P 500 [1106.41], in the last 15 trading days, is trading in a narrow range between 1090 and 1110. Along with low volume, this is a defined range, heading into year-end.
Crude [69.87] had a noticeable downtrend in Crude prices, as it failed to hold above $75 a barrel. This marks a 14% decline since peaking on November 10, 2009.
Gold [$1124] remains in a consolidation mode in the current near-term correction of 7.30%. Looking ahead, 1100 marks the next key support level. Upcoming behavior at current levels is worth watching as a barometer for additional buyers.
DXY– US Dollar Index [76.56] had an eye grabbing reversal building in the past few days. Although, recent years have told this story before and have had early winter recoveries. However, this sets the stage of a sharp rally, given the magnitude of oversold levels.
US 10 Year Treasury Yields [3.54%] have shown further evidence of strength, especially above 3.20%, for nearly a 3-month period. This is a psychological level that mostly explains the current pause. Now, 3.80% is a closely watched level for those taking an upward bias in rates.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that 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, December 14, 2009
Monday, December 07, 2009
Market Thoughts | December 7, 2009
“It is the province of knowledge to speak, and it is the privilege of wisdom to listen.” Oliver Wendell Holmes (1809 - 1894)
The Current Landscape:
To argue against an existing trend can be a dangerous game. However, there are moments that require investors to delicately pick their spots in making directional and theme based bets. Importantly, it helps to take note of subtle hints.
With few trading days left this year, satisfied market participants appear to gladly throw in the towel. Temporarily, financial markets are providing some clues of pending unrest. It’s not surprising for those that have awaited a much needed breather. At the same time, remaining skeptical or being contrarian might not be the best way to approach portfolio management. Therefore, we look to macroeconomic indicators for a better market feel. As a start, Friday’s action featured various headline materials, highlighted by improving economic data. In addition, decline in Gold, rise in US Dollar, and spike in long-term rates catch the attention of analysts that are seeking evidence for trend reversal. So far this year, claiming a trend shift sounds like a broken record, and some are tuning out this possibility. Nevertheless, inflection points occur slowly after series of events and false alarms.
Golden Moments:
Simply put, Gold is in a well defined uptrend. This is visible from a cycle view, and this is supported by multi-year, fundamental strength. Yet recently, escalated Gold price levels were hitting the radar of close observers as the odds for a downturn increased. As witnessed last Friday, the commodity desperately required a rude awakening to calm buyer demand frenzy. As market behaviors teach us, it takes a while for a story to convince additional global buyers. This fall, arguments for higher Gold prices became more convincing and slightly less doubted. The past few days, Gold buyers were seeking a hedge or at least taking profits, which seemed feasible in the past week. To sharply rise from $1000 to $1212 in less than 50 days served as an impressive move that required caution.
For professionals, it seemed only prudent to scale back, especially in the wake of Dubai’s overdue glitch. In other words, Gold price behavior reflects and coincides with optimism in emerging markets. Of course, for investors, it was tough to neglect the strength of the the commodity after a break above $1000 that enabled buyers to declare yet another milestone. Perhaps, every run needs to surpass a psychological level to define a victory. For some commodity optimists, it was a rewarding call that produced outperforming returns and a chance to graciously exit or temporarily hedge.
A Point of View:
With the S&P up 22% year to date, it can be interrupted as a good year. Another view points out that the S&P decade performance is disappointing. Maybe, this explains why some investors lost their desire to invest solely in stocks, following the technology bubble of 2000. Looking back, we can recognize a decade that witnessed various changes in market dynamics. Clearly, increasing risk appetite has favored commodities, emerging markets, and fixed income. Keeping this in mind, the magnitude of the next correction will be watched attentively for long and short-term implications.
Article Quotes:
• “In the most recent April-to-November period, Fed credit outstanding grew by 6.8%. This is well above the median for the 1989 through 2009 time span (with 1999 and 2008 set at zero) of 2.5%. Nevertheless, this relatively high rate of growth in the Fed's balance sheet in the 2009 interval is hardly unprecedented. In fact, in four prior years - 1990, 1992, 1993 and 2001 - the April-to-November rate of growth in the Fed's balance sheet exceeded the 2009 growth of 6.8%. And in 1991, the Fed's balance sheet grew by 6.6%, close to the 2009 growth rate.” (Paul Kasriel – December 3, 2009)
• "Initial public offerings in emerging nations are returning about 15 times more than IPOs in developed countries even as companies from China to Brazil flood the market with more shares than ever. Listings... helped raise $39 billion in emerging markets during the three months ending... That outstrips the amount sold in IPOs from 23 industrialized nations by $21.3 billion, the biggest gap since at least 2000." (Bloomberg – November 30, 2009)
Levels:
S&P 500 [1105] Multi-week trading range forms between 1090-1110. Technicals suggest minor pullbacks near 1077, which are the 50 day moving average.
Crude [$75.47] Attempting to stay above $75 after failing to hold around $80. At this stage, further correction ahead follows a strong recovery since May 2009.
Gold [$1190] Early peak at $1212, following a sharp rally. Next, key levels stand at $1150, and it’s nearly 9% removed from its 50 day moving average.
DXY– US Dollar Index [75.81] Showcasing signals of a bottom throughout November. Sharp rally from annual lows suggest early stability and a pause from ongoing downtrend, setting up for an explosive move, given the extremely oversold ranges.
US 10 Year Treasury Yields [3.47%] Once again, for the fourth time this year, rates have held above 3.20%. In this recent move, yields briefly touched 3.15% and snapped back, suggesting a strong market demand.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that 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.
The Current Landscape:
To argue against an existing trend can be a dangerous game. However, there are moments that require investors to delicately pick their spots in making directional and theme based bets. Importantly, it helps to take note of subtle hints.
With few trading days left this year, satisfied market participants appear to gladly throw in the towel. Temporarily, financial markets are providing some clues of pending unrest. It’s not surprising for those that have awaited a much needed breather. At the same time, remaining skeptical or being contrarian might not be the best way to approach portfolio management. Therefore, we look to macroeconomic indicators for a better market feel. As a start, Friday’s action featured various headline materials, highlighted by improving economic data. In addition, decline in Gold, rise in US Dollar, and spike in long-term rates catch the attention of analysts that are seeking evidence for trend reversal. So far this year, claiming a trend shift sounds like a broken record, and some are tuning out this possibility. Nevertheless, inflection points occur slowly after series of events and false alarms.
Golden Moments:
Simply put, Gold is in a well defined uptrend. This is visible from a cycle view, and this is supported by multi-year, fundamental strength. Yet recently, escalated Gold price levels were hitting the radar of close observers as the odds for a downturn increased. As witnessed last Friday, the commodity desperately required a rude awakening to calm buyer demand frenzy. As market behaviors teach us, it takes a while for a story to convince additional global buyers. This fall, arguments for higher Gold prices became more convincing and slightly less doubted. The past few days, Gold buyers were seeking a hedge or at least taking profits, which seemed feasible in the past week. To sharply rise from $1000 to $1212 in less than 50 days served as an impressive move that required caution.
For professionals, it seemed only prudent to scale back, especially in the wake of Dubai’s overdue glitch. In other words, Gold price behavior reflects and coincides with optimism in emerging markets. Of course, for investors, it was tough to neglect the strength of the the commodity after a break above $1000 that enabled buyers to declare yet another milestone. Perhaps, every run needs to surpass a psychological level to define a victory. For some commodity optimists, it was a rewarding call that produced outperforming returns and a chance to graciously exit or temporarily hedge.
A Point of View:
With the S&P up 22% year to date, it can be interrupted as a good year. Another view points out that the S&P decade performance is disappointing. Maybe, this explains why some investors lost their desire to invest solely in stocks, following the technology bubble of 2000. Looking back, we can recognize a decade that witnessed various changes in market dynamics. Clearly, increasing risk appetite has favored commodities, emerging markets, and fixed income. Keeping this in mind, the magnitude of the next correction will be watched attentively for long and short-term implications.
Article Quotes:
• “In the most recent April-to-November period, Fed credit outstanding grew by 6.8%. This is well above the median for the 1989 through 2009 time span (with 1999 and 2008 set at zero) of 2.5%. Nevertheless, this relatively high rate of growth in the Fed's balance sheet in the 2009 interval is hardly unprecedented. In fact, in four prior years - 1990, 1992, 1993 and 2001 - the April-to-November rate of growth in the Fed's balance sheet exceeded the 2009 growth of 6.8%. And in 1991, the Fed's balance sheet grew by 6.6%, close to the 2009 growth rate.” (Paul Kasriel – December 3, 2009)
• "Initial public offerings in emerging nations are returning about 15 times more than IPOs in developed countries even as companies from China to Brazil flood the market with more shares than ever. Listings... helped raise $39 billion in emerging markets during the three months ending... That outstrips the amount sold in IPOs from 23 industrialized nations by $21.3 billion, the biggest gap since at least 2000." (Bloomberg – November 30, 2009)
Levels:
S&P 500 [1105] Multi-week trading range forms between 1090-1110. Technicals suggest minor pullbacks near 1077, which are the 50 day moving average.
Crude [$75.47] Attempting to stay above $75 after failing to hold around $80. At this stage, further correction ahead follows a strong recovery since May 2009.
Gold [$1190] Early peak at $1212, following a sharp rally. Next, key levels stand at $1150, and it’s nearly 9% removed from its 50 day moving average.
DXY– US Dollar Index [75.81] Showcasing signals of a bottom throughout November. Sharp rally from annual lows suggest early stability and a pause from ongoing downtrend, setting up for an explosive move, given the extremely oversold ranges.
US 10 Year Treasury Yields [3.47%] Once again, for the fourth time this year, rates have held above 3.20%. In this recent move, yields briefly touched 3.15% and snapped back, suggesting a strong market demand.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that 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, November 30, 2009
Market Outlook | November 30, 2009
“A national debt, if it is not excessive, will be to us a national blessing.” Alexander Hamilton (1755 - 1804)
Dissecting Surprises:
It was only a week ago, when talks of asset bubbles were a growing concern for global policymakers. Similarly, buyers were looking for ways to protect annual profits. Two years ago, a unified asset appreciation preceded the sharp decline ahead of the 2008 crisis. Keeping that in mind, it takes us to last Friday, where Dubai’s decline symbolized and reinforced the danger of excessiveness. For some, it was not surprising. In fact, some might argue that this macroeconomic shock was overdue. Interestingly, Gold and stocks appeared to desperately seek a catalyst to serve as an excuse to sell. Veteran observers echo similar messages, in which reversals require news flow to cause a reaction. In the past week, this is strongly supported by the low levels of volatility along with asset appreciation. Basically, odds were increasing for short-term pullbacks, which are yet additional reasons for managers to hedge winning holdings and avoid major bets with year-end approaching.
Headline discussions can paint few reasons to stay cautious in extended assets, such as Gold and China. In term of actionable moves, to panic or claim a selling frenzy is rather early. Even a 6-8% broad market correction might be a natural pattern that’s much needed in the current cycle. Those heavily invested in elevated metals and emerging markets are reevaluating their risk relative to other areas. Those who thought they missed the metal rally might have time work in their favor. A Bloomberg survey showed 94% bullishness in Gold among investors, which is, perhaps, a scary signal of overly optimistic sentiment. This paints the mood and psychology heading into this first week of December. For months, the low interest rates policy has encouraged a shift towards risky assets. Basically, low rates confirm that unemployment is rising and that growth is weak. However, assuming this trend will continue without turbulence might be costly.
Looking Ahead:
Larger and more stable companies in developed markets stand to benefit as an alternative to speculative and elevated groups. In looking ahead to 2010, technology and healthcare in US presents relatively cheaper value and growth opportunities. Again, this rotation is slowly taking place, and it has yet to fully materialize. Again, most await a unified pullback as a chance to revisit ideas at a bargain. Importantly, observers are looking for non-synchronized movements to distinguish upcoming leaders and least liked groups. These actions, along with currency responses and policymakers’ thoughts, will be digested by investors.
Specific Ideas:
WTR (Aqua America) presents a long-term investment consideration for investors seeking price appreciation and yield which is relatively attractive given current market landscape, while offering favorable entry points. For portfolios, this fits the infrastructure theme and presents a positive exposure, water related investment. Previous chart patterns suggest a closer look for buyers, especially when stock nears $16 per share.
BBOX (Black Box Corp) is a distributor and manufacturer of communication products and infrastructure solutions. A four month bottoming process in stock price. Recent cash dividend announcement, new strategic alliance, and low valuation suggest an upside move for months ahead.
Article Quotes:
"A lot of things in China carry a whiff of excess. The cost of garlic is among them: wholesale prices have almost quadrupled from March. A halving of the planting area last year, and belief in the bulb's powers to ward off swine flu, provide some justification for the surge. But anecdotes of unbridled trading activity in Jinxiang county, home to China's largest garlic plant, suggest that the most likely cause is the most obvious - the abundant liquidity swilling through the system. New Loans in China may top Rmb10,000bn this year, double the run-rate of the preceding years; 2010 should bring another Rmb7-8,000bn." (Financial Times, November 24, 2009)
"Corporate profits from current production rose 10.6% in the third quarter, following a revised 3.7% gain in the second quarter. From a year ago, corporate profits fell 6.7%, the first single-digit decline after three straight quarters of significantly weaker profits. Corporate profits of the financial sector advanced 36.4% in the third quarter and made up the larger share of corporate profits. Corporate profits of the non-financial sector increased only 2.0%. The financial sector's performance is artificially boosted by the support programs in place." (Northern Trust – November 24, 2009)
Levels:
S&P 500 [1091.49] Upside run stalling between 1100-1080 in the near-term. Next key points on downside moves include 1080 and 1060
.
Crude [$76.05] Barely holding above 50 day moving average of $75.44. One moth downtrend developing since late October given a nearly 12% decline.
Gold [$1166] The commodity is 20.43% removed from its 200 day moving average. Poised for a sharp correction, while maintaining its uptrend.
DXY– US Dollar Index [75.02] Staying steady within a narrow range of 75-75.50. Basically, currency traders are eagerly awaiting a macro event.
US 10 Year Treasury Yields [3.20%] Rates continue to decline after peaking at 3.57%. Downtrend appears clear, and a rise in rates is not fully clear.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that 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, November 23, 2009
Market Outlook| November 23, 2009
Weekly Result:
S&P 500 1,091.38 -.19%
DJIA 10,318.16 +.46%
NASDAQ 2,146.04 -1.0%
Russell 2000 584.68 -.27%
MSCI Emerging Markets 40.77 -.19%
Setting the stage:
Numbers circling around investors heads include the S&P 500 index ability to hold above 1100 and the possibility of above 20% year-to-date returns. For some, Thanksgiving marks the beginning of the holiday season and the end of significant risk taking. So far, risky assets have been encouraged globally as a result of central bank decisions. Now, managing the current uptrend is not only an issue of portfolio management but an area relating to foreign policy. Recently, regulators of emerging markets continue to see asset appreciation as a potential bubble. The market environment since March has been rewarding for participating investors. That said, policymakers are a bit confused and not sure how to respond to recent rise in stocks and Gold prices. Yet again, the Federal Reserve’s message of low rates is a powerful influence. Clearly, a shift where saving money in banks does not present desired returns. A quick glance at money market rates tells this story and helps explain the growing issuance of corporate bonds.
In looking ahead, any changes in the Feds tone or alteration from current language set the stage for a pivotal turning point. Maybe then can a much anticipated trend reversal drive down markets with a correction greater than 10%. At this point, that’s pure speculation as it has yet to take place. Last week, the Federal Reserve acknowledged some of the concerning economic factors such as commercial property. Now, perhaps this weakness is the justification to an ongoing low rate policy. Observers are left to scrutinize the motivation behind this policy and gauge some guesses to future consequence. A delicate matter that requires a resolution in the early part of 2010. On the other hand, lack of confidence in the Federal Reserve is growing as congress attempts to redefine roles of a central bank.
Revisiting Bubble Talk
It was over two years ago, where asset bubble became more pronounced. Then and now, the three major drivers of asset bubbles include Credit, Crude and China. Clearly, credit was first to crack and led to the financial crisis of 2008. China and Crude related areas witnessed an inevitable corrections but snapped back on market stability. Today, long-term holders are having a flashback to 2007 both in enjoying rewards and fearing elevation. Ironically, nervousness increases when ones ideas materialize at a faster pace than expected. However, the same logic does not apply in bottoms such as March of 2009. Slowly, the S&P 500 is climbing back but would need to rally over 45 % from current levels to reach all-time highs of October 11, 2007. Uniform rising and sinking is an intriguing theme that continues to linger. In other words, there are various financial instruments but mostly comes down to making directional bets. In the past two years, around the holiday season investors were facing a similar challenge. Again, Gold and S&P appear to move in tandem while the Dollar and rates move lower. Generally, a money manager was forced to get the broad directional call versus identifying a differentiated fundamental view.
An interesting period where the importance of cycles, remind us of the commodity uptrend has taken place many years. Over a 10 year run in Gold has produced a return of 350% and ninth consecutive year of positive annual returns. Clearly, the past and present justify the thought process that motivate many to buy more metals. Keeping that in mind, the Federal Reserve hinted of reaching stability by closely watching the US dollar. That said, few bears argue the markets is overvalued by simply comparing 1982 vs. today’s P/E ratio. Others base their views based on political leadership, interest rates, dollar policy , and various unsolved international relations. When all said and done, we’re adjusting to a new era.
Happy Thanksgiving !
Article Quotes:
“During the month of October, the Federal Government spent $2.30 for every dollar of revenue it took in. Given the fact that this is the fifth time this year that the ratio has exceeded two, one might think that this type of deficit spending is commonplace. However, going back to 1970, October was only the 13th month that the ratio ever exceeded two. Prior to 2008, the ratio exceeded two on average once every 6.5 years. In the last two years, the ratio has exceeded two on average once every three months.” (Bespoke, November 18, 2009)
"China is among the emerging markets facing risks of property and commodity market bubbles, central bank adviser Fan Gang said, joining officials from the region in expressing concern about surging asset prices. 'The real risk is really asset bubbles,' Fan, who heads the National Institute of Economic Research, said... A 'Chinese asset bubble would be something very dangerous, that would cause the overheating' elsewhere as well, he said. Low interest rates sustained by the Federal Reserve, a weakening dollar and capital inflows to emerging markets have added to the dangers, Fan said. (Bloomberg, November 18, 2009)
Levels:
S&P 500 [1091.39] Fractionally lower relative to last week. Holding above 1100 can set the mindset and mark a key resistance level.
Crude [$76.72] Pausing after a peak in mid October. The commodity is trading within a narrow range between 76-80. This explains a 20 day moving average of $78.53. Committed buyers are staying patient but any fuzzy news flow is setting up to cause a sensitive reaction. Too early to call tops at this stage
Gold [$1140] Making new intra-day and weekly highs. A continuation of an explosive autumn run. At this stage, the risk is building for latecomers but this trend is a powerful force. In other words, sharp sell-offs have resulted in additional buyers.
DXY– US Dollar Index [75.61] Attempting to bottom but a clear downtrend in place. Failed to hold 76 and bottom pickers are a little edgy. More of a bottoming confirmation is needed to attract believers of a trend reversal.
US 10 Year Treasury Yields [3.35%] Developing downtrend after peaking at 4% in earlier this June. Among, chartists 3.20% is the next most watched level. A break below that can spark discussions of rates below 3%.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that 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, November 16, 2009
Market Outlook| November 16, 2009
Weekly Results:
S&P 500 1,093.48 +2.26%
DJIA 10,270.47 +2.47%
NASDAQ 2,167.88 +2.62%
Russell 2000 586.28 +1.02%
MSCI Emerging Markets 40.85 +3.46%
“Mistrust the man who finds everything good, the man who finds everything evil, and still more the man who is indifferent to everything.” Johann K. Lavater
Good Stories vs. Solid Management
It appears that some observers cheer for one directional side, regardless of the calendar year or investment cycle. Perhaps. there is a bullish and bearish crowd that craves stories that support their views. Maybe, outspoken pundits present a thesis, rather than those seeking outperformance by participating in financial markets. However, an astute observer should grasp arguments from both views while staying informed. From a money management perspective, the above points are less relevant, especially since one-sided views lack flexibility. And active participants know too well that emotional responses are costly and that eliminating noise is a necessary exercise. That said, the critical questions reside in answering overall outlook for the first quarter of 2010.
Patiently Waiting
As the holiday season approaches, lofty investor expectations can create room for disappointments. However, Federal Reserve seems too encouraged on recent trends. On the other hand, political pressures are accumulating, regarding the near zero interest rate policies. This partially explains the non-trending behavior in interest rates and the ongoing strength in risky assets. Any changes of recent policies relating to interest rates, inflation, and US Dollar are expected to create significant mood changes to what appears to be a stabilizing market. Sideline observers are skeptical until policymakers restore trust with solid confirmation of existing mixed data points. At this point, investors can’t easily declare compliancy, even though the technical picture argues for cautiousness.
The trend shift toward optimism, established in the spring, simply showcased that risk taking has been rewarding. This enabled stock market indexes to normalize from abnormal lows. Of course, this cheerful response is not visible in some headlines, economic numbers, and sentiment studies. Mangers will have to distinguish cheerleading versus selective approaches in the weeks ahead. For some, selling now is difficult after enjoying favorable gains since March 2009. This is understandable for believers of a sustainable, multi-year cycle recovery. On that note, selling now appears too premature. At least, waiting to add to long positions is an option as well. Again, those in the sell camp have been whipped around and have been mostly wrong in the past six months. This is creating a growing hesitancy to bet against markets, and it may result in more sideway to up patterns. However, finding timely buy ideas seems limited. Meanwhile, adding to winners (such as materials, emerging markets, and small cap) seems a bit ambitious as well.
Clues
Volatility spiked few weeks ago, but it has quickly returned to calmer levels. It was an intriguing behavior that showcased early signs of fear. Yet, it was short-lived, as the volatility index retraced back to reasonable ranges. Earnings report continues to build optimism in core Large Cap areas. For example, Fed Ex signaled an optimistic forecast for holiday shipping. In fact, volume is projected to increase relative to 2008. Obviously, this was only an estimate, but the upbeat message signals some fundamental improvements in retail related areas. Perhaps, some economic data might underestimate innovation and entrepreneurship. As for financials, lagging indicators, such as foreclosure data, point to further deterioration. Importantly, sentiment in the sector is overly negative and can present surprises.
Article Quotes:
"Note the still widening spread between US 10-year yields over 2-year yields, otherwise known as the yield curve, on this historical. It is still rising, indicating to me that quantitative easing continues. The time to start thinking about closing long portfolios in anticipation of the next bear market, I suggest, will be when the yield curve next inverts by moving below zero. However, the lead was so early last time (early 2006) that some of us became complacent about it." (David Fuller Fullermoney, November 13, 2009)
“Despite deterioration in nonresidential construction, the housing sector appears to be stabilizing. With regard to wealth, after plunging 24 percent in inflation-adjusted terms from mid 2007 through the first quarter of this year, net worth across all American households rose slightly in the second quarter and will likely be found to have risen in the third. And, after surging to incredibly high levels, interest rate spreads have returned to near-normalcy in the commercial paper and mortgage markets and are returning to Earth in the bond market.” (Richard Fisher, November 10, 2009)
Levels:
S&P 500 [1093.48] Positive trend despite choppy trading pattern this fall. Expect back and forth swings between 1040-1100.
Crude [$76.35] Remains in a consolidation mode after retesting around $80. Short-term participants will closely watch the magnitude of pending sell-offs.
Gold [$1104] Trading near annual highs and continues to recovery sharply. Gold is up almost 20% since July 29th lows. Odds are increasing for minor pullbacks.
DXY– US Dollar Index [75.25] Once again, the index is trading closer to its annual lows. Few technical based observers mark 76 as a critical level.
US 10 Year Treasury Yields [3.42%] Closed few points removed from its 50 day moving average of 3.39%.Failing to surge past 3.57% and has held steady above 3.30%. Again, Fed policy or guidance can spark movements away from a narrow range.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that 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.
S&P 500 1,093.48 +2.26%
DJIA 10,270.47 +2.47%
NASDAQ 2,167.88 +2.62%
Russell 2000 586.28 +1.02%
MSCI Emerging Markets 40.85 +3.46%
“Mistrust the man who finds everything good, the man who finds everything evil, and still more the man who is indifferent to everything.” Johann K. Lavater
Good Stories vs. Solid Management
It appears that some observers cheer for one directional side, regardless of the calendar year or investment cycle. Perhaps. there is a bullish and bearish crowd that craves stories that support their views. Maybe, outspoken pundits present a thesis, rather than those seeking outperformance by participating in financial markets. However, an astute observer should grasp arguments from both views while staying informed. From a money management perspective, the above points are less relevant, especially since one-sided views lack flexibility. And active participants know too well that emotional responses are costly and that eliminating noise is a necessary exercise. That said, the critical questions reside in answering overall outlook for the first quarter of 2010.
Patiently Waiting
As the holiday season approaches, lofty investor expectations can create room for disappointments. However, Federal Reserve seems too encouraged on recent trends. On the other hand, political pressures are accumulating, regarding the near zero interest rate policies. This partially explains the non-trending behavior in interest rates and the ongoing strength in risky assets. Any changes of recent policies relating to interest rates, inflation, and US Dollar are expected to create significant mood changes to what appears to be a stabilizing market. Sideline observers are skeptical until policymakers restore trust with solid confirmation of existing mixed data points. At this point, investors can’t easily declare compliancy, even though the technical picture argues for cautiousness.
The trend shift toward optimism, established in the spring, simply showcased that risk taking has been rewarding. This enabled stock market indexes to normalize from abnormal lows. Of course, this cheerful response is not visible in some headlines, economic numbers, and sentiment studies. Mangers will have to distinguish cheerleading versus selective approaches in the weeks ahead. For some, selling now is difficult after enjoying favorable gains since March 2009. This is understandable for believers of a sustainable, multi-year cycle recovery. On that note, selling now appears too premature. At least, waiting to add to long positions is an option as well. Again, those in the sell camp have been whipped around and have been mostly wrong in the past six months. This is creating a growing hesitancy to bet against markets, and it may result in more sideway to up patterns. However, finding timely buy ideas seems limited. Meanwhile, adding to winners (such as materials, emerging markets, and small cap) seems a bit ambitious as well.
Clues
Volatility spiked few weeks ago, but it has quickly returned to calmer levels. It was an intriguing behavior that showcased early signs of fear. Yet, it was short-lived, as the volatility index retraced back to reasonable ranges. Earnings report continues to build optimism in core Large Cap areas. For example, Fed Ex signaled an optimistic forecast for holiday shipping. In fact, volume is projected to increase relative to 2008. Obviously, this was only an estimate, but the upbeat message signals some fundamental improvements in retail related areas. Perhaps, some economic data might underestimate innovation and entrepreneurship. As for financials, lagging indicators, such as foreclosure data, point to further deterioration. Importantly, sentiment in the sector is overly negative and can present surprises.
Article Quotes:
"Note the still widening spread between US 10-year yields over 2-year yields, otherwise known as the yield curve, on this historical. It is still rising, indicating to me that quantitative easing continues. The time to start thinking about closing long portfolios in anticipation of the next bear market, I suggest, will be when the yield curve next inverts by moving below zero. However, the lead was so early last time (early 2006) that some of us became complacent about it." (David Fuller Fullermoney, November 13, 2009)
“Despite deterioration in nonresidential construction, the housing sector appears to be stabilizing. With regard to wealth, after plunging 24 percent in inflation-adjusted terms from mid 2007 through the first quarter of this year, net worth across all American households rose slightly in the second quarter and will likely be found to have risen in the third. And, after surging to incredibly high levels, interest rate spreads have returned to near-normalcy in the commercial paper and mortgage markets and are returning to Earth in the bond market.” (Richard Fisher, November 10, 2009)
Levels:
S&P 500 [1093.48] Positive trend despite choppy trading pattern this fall. Expect back and forth swings between 1040-1100.
Crude [$76.35] Remains in a consolidation mode after retesting around $80. Short-term participants will closely watch the magnitude of pending sell-offs.
Gold [$1104] Trading near annual highs and continues to recovery sharply. Gold is up almost 20% since July 29th lows. Odds are increasing for minor pullbacks.
DXY– US Dollar Index [75.25] Once again, the index is trading closer to its annual lows. Few technical based observers mark 76 as a critical level.
US 10 Year Treasury Yields [3.42%] Closed few points removed from its 50 day moving average of 3.39%.Failing to surge past 3.57% and has held steady above 3.30%. Again, Fed policy or guidance can spark movements away from a narrow range.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that 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, November 09, 2009
Market Outlook | November 9, 2009
Weekly Results:
S&P 500 1,069.30 [+3.20%], DJIA 10,023.42 [+3.20%], NASDAQ 2,112.44 [+3.29%], Russell 2000 580.35 [+3.12%], and MSCI Emerging Markets 39.48 [+3.39%]
Digesting labor market results and stock market behavior can be two spate issues. Momentum is a powerful force that’s pointing to further upside moves.
Once again, we learned that sell-offs failed to reach more than 10%. Again, this is visible in the S&P 500, where the recent correction equaled around 6%. Ironically, those waiting for significant corrections might need markets to move much higher. Basically, an inevitable two week correction took place, forcing investors to reassess. This is poised to play out with a few weeks removed from year-end. The weakening labor market is not much of a surprise, heading into last Friday. Job numbers continue to be an established trend, given a 22 month contraction. In fact, some have pointed out that employment data is a lagging indicator, and macroeconomic aspects support those points. In looking ahead, a favorable cycle is forming in innovation themes despite a weak credit setting and lack of lending. Technology and biotech stand to benefit from increasing merger and acquisitions. Improvement in credit conditions, combined with increased IT spending, create opportunities in US technology.
Skepticism resurfaces, at times, among observers that state overbought technicals and pricy valuations. For money managers this might not be actionable until sentiment turns negative. Also, a shock in macroeconomic expectation can serve as a catalyst to trend reversals. At this stage, observers would be fighting the trend in making this assumption. Simply, the dominating theme is a movement towards risky assets such as emerging markets and commodities. This is evident, based on low rates and messaging from Federal Reserve. Thus, performance seekers are less hesitant to take an opposite view. In other words, many are not willing to risk profits earned since March lows.
Momentum is a factor that drives and attracts participants. Gold is picking up buyers, and previous performance is creating more believers in an already decade long-run up. For investors, Gold’s strength is hard to ignore, especially after a 333% appreciation since July 1999. Short term hurdles will struggle to deter those waiting for exposure. At the same time, paper assets, measured by the financial sector and US dollar, remain relatively weak. Simple, relative performance charts paint this picture. Global investors have accepted this fact, based on sector rotation data. The faith of paper assets will be mostly determined by policymakers and central banks. Until then, point sentiment and psychology is bound to flock towards outperformers from this year’s rally.
Article Quotes:
• “The Fed's balance sheet is bloated, but liquidity injections into the banking system have still failed to trigger a self-feeding expansion in money and credit. The monetary base has expanded by $788 billion in the past year, while outstanding bank loans have contracted by $638 billion. Meanwhile, actual inflation and inflation expectations remain tame.” (BCA Research, November 6, 2009)
• “Insiders sold $6.2 billion worth of shares in August, the most since May 2008, while insider buying has been under $1 billion for seven straight months for the first time since 2005, according to a report by research firm TrimTabs. Because insiders cannot trade around earnings season, insider volume at $3.6 billion in October was about half that in August, but the actions of executives at many companies that have reported suggest selling will pick up.” (Reuters, November 6, 2009)
Levels:
S&P 500 [1069.30] Trading within a range between 1040-1080. A sideway pattern that began in mid September. Longer-term outlook maintains its uptrend bias.
Crude [$77.43] Continues to pause after reaching annual highs of $82. Trend points to a positive movement with buy interest around $72 and $74. Upcoming sell-offs can paint a better read on buyer conviction.
Gold [$1096] Has a solid breakout that reconfirms a bullish trend. Short-term traders might shy away from accumulating at these elevated levels. Investors seek to gain confirmation on Gold price’s ability to stay above $1100.
DXY– US Dollar Index [75.79] Has recent strength in the US dollar, lacking further evidence of a turnaround. Having said that, a bottoming process is beginning to convince some investors on a potential of a trend shift.
US 10 Year Treasury Yields [3.49%] No major changes have occurred week after week. There has been a lack of major fluctuation in nearly five months.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that 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.
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