“Sanity calms, but madness is more interesting.” - John Russell
Absorbing Results:
As anticipated, markets that started the short holiday week extended and remained in a decline mode. On Friday, January 15, 2010, right before options expiration; Technicals gave early clues of a peaking market. A week later, investors are wondering as to the magnitude of this selling pressure. That said, veterans and well experienced pattern observers noticed the early possibility of pullbacks. Importantly, news flow anxiety was building with increased sensitivity for bad news, especially heading into earnings season and regulatory chatters. This is highlighted by a one-day, 22% jump in volatility this past Friday. This was a favorable action for short sellers and served as a minor surprise for the casual participants. Nonetheless, it is important to distinguish short-term behaviors versus long-term outlook. Again, fighting the wave of fears and staying focused on investment thesis is the challenge ahead for professional money managers.
Reassessing Previous Points:
Global assets are declining in a synchronized manner, which looks familiar to 2008 corrections. Yet again, it was commodities and emerging markets that led this retracement along with Financials. Clearly, higher beta themes are more sensitive. This is explained by the weekly results in which key lagging sectors included Gold -9.59%, Alternative Energy -9.96%, and Steel -11.28%. In upcoming days, these performance results can shape investor sentiment for the rest of the quarter.
Similarly, Asian stock markets declined for six consecutive days. To put things in perspective, it was only a period of a few months ago in which global policymakers discussed various tools to cool several overheating economies. Now, this early negative market tone has the potential to produce plenty of arguments of support for a significant market decline. These arguments might gain traction, especially with the S&P 500 being down 2.1% so far this year. Partially, this is understandable after a profitable 2009, where investors are deciding to take profits. Also, given uncertainties and slowing momentum some managers will seek the sidelines as a safer route.
Balancing Extreme Views:
It might be wise to digest earnings, interest rate policies, and pending regulations, while accepting the inevitable results of an overbought stock market. In looking ahead, there are two extremes that can be classified as potential knee-jerk reactions. First, optimists might decide to buy on weakness without closely examining the macroeconomic and sentiment environment. On the other hand, investors might sell on panic without evaluating the upside potential of select quality companies. In both cases, one must stay patient to understand the market performance drivers and to dismiss short-term noise. That said, quality companies with innovative growth potential might be offered at a discount, and they may be worth a look at attractive entry points in months ahead. Meanwhile, themes related to China, Credit, and Crude are less favorable in the current cycle. A step back reminds us that these groups were clear winners in the last decade, and they appear pricy when applying basic valuations.
Article Quotes:
“The recent rise in inflation was caused mainly by higher food prices as a result of severe winter weather in northern China. In many cities, fresh-vegetable prices have more than doubled in the past two months. But Helen Qiao and Yu Song at Goldman Sachs argue that it is not just food prices that risk pushing up inflation: the economy is starting to exceed its speed limit. If, as China bears contend, the economy had massive overcapacity, there would be little to worry about: excess supply would hold down prices. But bottlenecks are already appearing. Some provinces report electricity shortages and stocks of coal are low. The labour market is also tightening, forcing firms to pay higher wages.”(Economist, Jan 21, 2010)
“The main focus of financial reform should be to address such systemic risk. Separating commercial banking and other forms of financial intermediation from proprietary trading is a step in the right direction, since it limits systemic risk without affecting the financial sector’s ability to perform its core functions. This is because there is little evidence of any economies of scale that argue persuasively for principal investing to be located inside a financial conglomerate. In fact, the primary advantage appears to be that these institutions become too big to fail, and end up with access to a low cost of funding as a result of government guarantees. But, as seen from this crisis, the direct and indirect costs of government forbearance in a systemic crisis can be huge.” (Financial Times, January 22, 2010)
Levels:
S&P 500 [1091.76] has significant downside moves that are taking hold after stalling. Currently, index is nearly 8% removed from its 200 day moving average.
Crude [$74.50] is defined in a short-term weakness that began two weeks ago. Next level that’s highly watched is based on a previous pattern around $70. That’s close to its 200 day moving average of $69.35. Both add up for further selling pressures, which can decelerate price movement given this technical set up.
Gold [1084] has increasing odds for the commodity to trade between 1100 and 1150. Further unwinding is ahead, following a strong, multi-month run. Gold maintains its long-term uptrend above $980.
DXY– US Dollar Index [78.27] has had a 3 month recovery that’s over 6% from November 2009 lows to January 2010 highs. There will be a highly watched trend-shift regarding a weak Dollar policy ahead. Again, it may be too early to call a bottom, but the pattern suggests a shift.
US 10 Year Treasury Yields [3.60%] stalled at 3.80% yet again, while attempting to hold above 3.60%. However, rates singled some recovery point around the 3.20% range, which impacted the outlook of many investors.
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.
Sunday, January 24, 2010
Monday, January 18, 2010
Market Outlook | January 18, 2010
“Do not fear to be eccentric in opinion, for every opinion now accepted was once eccentric.” - Bertrand Russell (1872 - 1970)
Current Feel:
At this stage, US markets appear extended after a strong multi-month run. In the near-term, a bumpy road is ahead with technical pausing, upcoming decisions by the Federal Reserve, and quarterly earnings results. The current bullish bias remains feasible from a cycle perspective. Now this long-term view will be challenged as participants become overly sensitive to the bad news affecting day-to-day trading. Options expired last Friday and showcased a slight increase in volatility. For the most part, it was inevitable and to be expected. Of course, volatility has remained low, nearing levels that were last seen before the crux of the financial crisis. In addition, stocks and commodities are moving lower as tightening liquidity is becoming an interest for global policymakers. For example, China is increasing its bank reserve requirement as another tool of easing the ongoing bubble of overheating assets.
The US 10 Year Yields recovered recently, but the sustainability of rising rates remains doubtful. Interestingly, there is anxiety in regards to rising interest rates. This behavior is visible as investors rush to raise money from bond markets. This panic-like response towards rates might be an overreaction and worth watching closely. That said, more attention will focus on macro inflection points where, collectively, investors await catalysts to result in a trend shift. Similarly, at this junction, investors are realizing that timely entry points are tricky, versus spring 2009.
Big Picture Trends:
Trends are favoring small cap and innovative based areas in the past few weeks. Non large cap themes were showcasing a positive momentum, mainly at the end of last year. Beneficiaries of this strength include Technology and Healthcare, which require company specific picks for fruitful outperformance. In addition, multi-year cycle favors these sectors, despite a pending broad market correction. Similarly, small to mid size companies are subject to consolidation, especially with increasing talks of Merger & Acquisitions. Therefore, at the end of earnings season, observers can distinguish leaders and reposition into companies, gaining fundamental strength. Innovative companies within smaller caps can be attractive, especially with solid earnings growth. Selecting ideas that fit these themes might be favorable in Biotech, Semiconductors, and Communication based areas.
Vulnerable areas:
Decade long winners are highlighted by emerging markets and commodities, which are not cheaply valued in traditional measures. Adding these ideas into portfolios has greater risks and the fear of limited upside moves. Some observers are noticing that these escalated levels present a fragile point with rising expectations. However, given the 2007/08 correction, it paints a picture that we’re still removed from all-time highs. In other words, optimists believe that previous highs will be revisited and potentially surpassed. As usual, investors need more confirmation, mostly for psychological comfort. And, certainly, government intervention will play a big role as investors react based on news flow, government policies, and regulatory events. In terms of stocks, fundamentals for Energy related areas are expected to decline, and, if that materializes, it can then trigger a market sell-off. That said, in the days and weeks ahead, material and commodity based companies can lead on downside moves.
Article Quotes:
“Even so, we believe a full-blown dollar crisis — involving a collapse in our currency and an inability to pay our debts — is unlikely. Fears over the dollar often surface during times of fiscal stress, only to fade when conditions ease. As a Goldman Sachs report recently noted, "fears over demise of the U.S. dollar seem to resurface every 10-15 years." And here they are again. Indeed, we've been hearing for years the dollar is already in crisis. But as the chart shows, the trade-weighted dollar index shows the greenback is actually higher than during the 1990s Internet boom. Foreign investors hold trillions of dollars in U.S. debt. They could decide to dump them, putting severe pressure on our currency. But that would also do damage to their own balance sheets.” (Investors Business Daily, January 15, 2010)
“The 50 biggest stocks in the S&P 500 are up an average of 2.4% year to date. The 50 smallest stocks in the index are up an average of 6.5%. In general, the bigger the stock, the smaller the gain so far in 2010.” (Bespoke Investments, January 14, 2010)
Levels:
S&P 500 [1136] is recently showing signs of stalling around 1150 and is due to pause closer to the 10-day moving average of 1140.
Crude [$78.00], retraced from January 11 highs of $83.95, highlights the recent peak. Multiple timeframe analysis suggests increasing odds of pending pullbacks.
Gold [1128] is trading between a defined trend of around 1100-1150. Long-term trend is positive but not a favorable entry point.
DXY– US Dollar Index [77.32] is attempting to maintain its recovery around $77. In the next few weeks, events should determine the strength and legitimacy behind a stronger Dollar.
US 10 Year Treasury Yields [3.67%] is slowly declining after a strong run in late December. In the past 8 months, yields have failed to surpass the 3.80% range. Once again, a similar set up is taking hold. Next key support levels reside at 3.60% and 3.40%.
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.
Current Feel:
At this stage, US markets appear extended after a strong multi-month run. In the near-term, a bumpy road is ahead with technical pausing, upcoming decisions by the Federal Reserve, and quarterly earnings results. The current bullish bias remains feasible from a cycle perspective. Now this long-term view will be challenged as participants become overly sensitive to the bad news affecting day-to-day trading. Options expired last Friday and showcased a slight increase in volatility. For the most part, it was inevitable and to be expected. Of course, volatility has remained low, nearing levels that were last seen before the crux of the financial crisis. In addition, stocks and commodities are moving lower as tightening liquidity is becoming an interest for global policymakers. For example, China is increasing its bank reserve requirement as another tool of easing the ongoing bubble of overheating assets.
The US 10 Year Yields recovered recently, but the sustainability of rising rates remains doubtful. Interestingly, there is anxiety in regards to rising interest rates. This behavior is visible as investors rush to raise money from bond markets. This panic-like response towards rates might be an overreaction and worth watching closely. That said, more attention will focus on macro inflection points where, collectively, investors await catalysts to result in a trend shift. Similarly, at this junction, investors are realizing that timely entry points are tricky, versus spring 2009.
Big Picture Trends:
Trends are favoring small cap and innovative based areas in the past few weeks. Non large cap themes were showcasing a positive momentum, mainly at the end of last year. Beneficiaries of this strength include Technology and Healthcare, which require company specific picks for fruitful outperformance. In addition, multi-year cycle favors these sectors, despite a pending broad market correction. Similarly, small to mid size companies are subject to consolidation, especially with increasing talks of Merger & Acquisitions. Therefore, at the end of earnings season, observers can distinguish leaders and reposition into companies, gaining fundamental strength. Innovative companies within smaller caps can be attractive, especially with solid earnings growth. Selecting ideas that fit these themes might be favorable in Biotech, Semiconductors, and Communication based areas.
Vulnerable areas:
Decade long winners are highlighted by emerging markets and commodities, which are not cheaply valued in traditional measures. Adding these ideas into portfolios has greater risks and the fear of limited upside moves. Some observers are noticing that these escalated levels present a fragile point with rising expectations. However, given the 2007/08 correction, it paints a picture that we’re still removed from all-time highs. In other words, optimists believe that previous highs will be revisited and potentially surpassed. As usual, investors need more confirmation, mostly for psychological comfort. And, certainly, government intervention will play a big role as investors react based on news flow, government policies, and regulatory events. In terms of stocks, fundamentals for Energy related areas are expected to decline, and, if that materializes, it can then trigger a market sell-off. That said, in the days and weeks ahead, material and commodity based companies can lead on downside moves.
Article Quotes:
“Even so, we believe a full-blown dollar crisis — involving a collapse in our currency and an inability to pay our debts — is unlikely. Fears over the dollar often surface during times of fiscal stress, only to fade when conditions ease. As a Goldman Sachs report recently noted, "fears over demise of the U.S. dollar seem to resurface every 10-15 years." And here they are again. Indeed, we've been hearing for years the dollar is already in crisis. But as the chart shows, the trade-weighted dollar index shows the greenback is actually higher than during the 1990s Internet boom. Foreign investors hold trillions of dollars in U.S. debt. They could decide to dump them, putting severe pressure on our currency. But that would also do damage to their own balance sheets.” (Investors Business Daily, January 15, 2010)
“The 50 biggest stocks in the S&P 500 are up an average of 2.4% year to date. The 50 smallest stocks in the index are up an average of 6.5%. In general, the bigger the stock, the smaller the gain so far in 2010.” (Bespoke Investments, January 14, 2010)
Levels:
S&P 500 [1136] is recently showing signs of stalling around 1150 and is due to pause closer to the 10-day moving average of 1140.
Crude [$78.00], retraced from January 11 highs of $83.95, highlights the recent peak. Multiple timeframe analysis suggests increasing odds of pending pullbacks.
Gold [1128] is trading between a defined trend of around 1100-1150. Long-term trend is positive but not a favorable entry point.
DXY– US Dollar Index [77.32] is attempting to maintain its recovery around $77. In the next few weeks, events should determine the strength and legitimacy behind a stronger Dollar.
US 10 Year Treasury Yields [3.67%] is slowly declining after a strong run in late December. In the past 8 months, yields have failed to surpass the 3.80% range. Once again, a similar set up is taking hold. Next key support levels reside at 3.60% and 3.40%.
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, January 11, 2010
Market Outlook | January 11, 2010
“The more you know, the less you need.” - Aboriginal Saying
Another week of rising markets reiterates the established theme of strong markets and a weak labor environment. At the same time, there are growing temptations among pundits to call for downside moves as part of growing anxiousness. In looking ahead, quarterly earnings reports should reveal the mood for the first quarter. Also, economic results and a much anticipated Federal Reserve policy on interest rates are on the radar.
Delicate Territory:
Charts suggest that we are extended in the near-term and poised for moderate sell-offs. This causes investors to assess the possibility of losing out on gains during this recovery. Of course, the comfort level has increased on each higher point move. Right now, as indexes reach 52- week highs, some are considering backing off, while others will look to hedge. For those waiting for cheaper stock prices, even a 10% pullback might be viewed as healthy. However, pullbacks since March 2009 have failed to drop significantly. Importantly, the multi-year cycle recovery is a powerful force, and it should not be underestimated, as learned in 2009. However, a few questions, regarding this trend, will have to be answered in the weeks ahead.
First Quarter Feel:
A casual observer may guess that earnings can possibly present the first glitch towards this uptrend. Basically, this season of earnings provides a reality check and another perspective in gauging sentiment. In other words, the status of the company balance sheet can either convince sideline participants to buy or calm the nerves of those already heavily invested. To fuel this ongoing rally, one must examine the potential data output and interpretations. Now, for most investors, the leaders of this ongoing uptrend are becoming clearer, and only a small amount of portfolio reshuffling may be required. In other words, risky assets have worked, such as high yield bonds, higher beta stocks, and China related groups. Of course, the risk of adding to an existing trend is either missing the right security or an inverse impact from declining broad markets. However, surprises between now and then will determine the direction and mood around early spring. For now, the bullish bias is intact, even though skepticism lingers and trading volume remains low.
Recent Clues:
Technology and Emerging Market related stocks have showcased relative leadership for the most part of this rally. Now, if weakness persists, bargain hunters would seek to add to both groups. In the same way, small cap has been outperforming large cap, especially since late November 2009. Interestingly, in the same period, the US Dollar is strengthening as well. Perhaps it is a coincidence, but it is an intriguing relationship for those looking for new trends within the second phase of this recovering rally.
Article Quotes:
“’The [Chinese] government also approved margin trading and short selling,’ the China Securities Regulatory Commission said in a statement on its website today. ‘It may take three months to complete preparations for index futures,’ the regulator said. Index futures, agreements to buy or sell an index at a preset value on an agreed date, may help ease fluctuations after the Shanghai Composite Index doubled in 2007, then slumped 65 percent in 2008 before rebounding last year. Until now, Chinese investors could only profit from gains in equities.” (Bloomberg, January 8, 2010)
“Even as some would have you believe that you have to be insane to buy stocks heading into 2010, there are many positive factors that investors can point to as reasons to be bullish. However, one that you won't hear being cited is valuation. Based on trailing earnings, the average P/E ratio of the S&P 500 during the decade that just ended was higher than any other decade in its history. Even after declining since the turn of the century, the average P/E ratio for the '00s rose to a record high of 20.2, and, at the end of December '09, it stood at 27.9 (on an operating basis).” (Bespoke, January 5, 2010)
Levels:
S&P 500 [1144.98] is 13% removed from its 200-day moving average, and it extended in the near-term. However, a shallow correction points to the first key point at 1080. Secondly, around a 10% correction places the index around 1040-1030.
Crude [$82.75] is surpassing previous highs, after a 21% rally that started in mid December. It is setting up for a short-term pause.
Gold [1126.75] attempts to revisit $1212, which marked annual highs in 2009. Buyer interest around 1100 appears to hold.
DXY– US Dollar Index [77.47] is pausing after a late 5% run in the late part of last year. Confirmation is needed to solidify this recent trend reversal.
US 10 Year Treasury Yields [3.82%] has not had much movement since last week. It is stabilizing at current levels after a significant run up.
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.
Another week of rising markets reiterates the established theme of strong markets and a weak labor environment. At the same time, there are growing temptations among pundits to call for downside moves as part of growing anxiousness. In looking ahead, quarterly earnings reports should reveal the mood for the first quarter. Also, economic results and a much anticipated Federal Reserve policy on interest rates are on the radar.
Delicate Territory:
Charts suggest that we are extended in the near-term and poised for moderate sell-offs. This causes investors to assess the possibility of losing out on gains during this recovery. Of course, the comfort level has increased on each higher point move. Right now, as indexes reach 52- week highs, some are considering backing off, while others will look to hedge. For those waiting for cheaper stock prices, even a 10% pullback might be viewed as healthy. However, pullbacks since March 2009 have failed to drop significantly. Importantly, the multi-year cycle recovery is a powerful force, and it should not be underestimated, as learned in 2009. However, a few questions, regarding this trend, will have to be answered in the weeks ahead.
First Quarter Feel:
A casual observer may guess that earnings can possibly present the first glitch towards this uptrend. Basically, this season of earnings provides a reality check and another perspective in gauging sentiment. In other words, the status of the company balance sheet can either convince sideline participants to buy or calm the nerves of those already heavily invested. To fuel this ongoing rally, one must examine the potential data output and interpretations. Now, for most investors, the leaders of this ongoing uptrend are becoming clearer, and only a small amount of portfolio reshuffling may be required. In other words, risky assets have worked, such as high yield bonds, higher beta stocks, and China related groups. Of course, the risk of adding to an existing trend is either missing the right security or an inverse impact from declining broad markets. However, surprises between now and then will determine the direction and mood around early spring. For now, the bullish bias is intact, even though skepticism lingers and trading volume remains low.
Recent Clues:
Technology and Emerging Market related stocks have showcased relative leadership for the most part of this rally. Now, if weakness persists, bargain hunters would seek to add to both groups. In the same way, small cap has been outperforming large cap, especially since late November 2009. Interestingly, in the same period, the US Dollar is strengthening as well. Perhaps it is a coincidence, but it is an intriguing relationship for those looking for new trends within the second phase of this recovering rally.
Article Quotes:
“’The [Chinese] government also approved margin trading and short selling,’ the China Securities Regulatory Commission said in a statement on its website today. ‘It may take three months to complete preparations for index futures,’ the regulator said. Index futures, agreements to buy or sell an index at a preset value on an agreed date, may help ease fluctuations after the Shanghai Composite Index doubled in 2007, then slumped 65 percent in 2008 before rebounding last year. Until now, Chinese investors could only profit from gains in equities.” (Bloomberg, January 8, 2010)
“Even as some would have you believe that you have to be insane to buy stocks heading into 2010, there are many positive factors that investors can point to as reasons to be bullish. However, one that you won't hear being cited is valuation. Based on trailing earnings, the average P/E ratio of the S&P 500 during the decade that just ended was higher than any other decade in its history. Even after declining since the turn of the century, the average P/E ratio for the '00s rose to a record high of 20.2, and, at the end of December '09, it stood at 27.9 (on an operating basis).” (Bespoke, January 5, 2010)
Levels:
S&P 500 [1144.98] is 13% removed from its 200-day moving average, and it extended in the near-term. However, a shallow correction points to the first key point at 1080. Secondly, around a 10% correction places the index around 1040-1030.
Crude [$82.75] is surpassing previous highs, after a 21% rally that started in mid December. It is setting up for a short-term pause.
Gold [1126.75] attempts to revisit $1212, which marked annual highs in 2009. Buyer interest around 1100 appears to hold.
DXY– US Dollar Index [77.47] is pausing after a late 5% run in the late part of last year. Confirmation is needed to solidify this recent trend reversal.
US 10 Year Treasury Yields [3.82%] has not had much movement since last week. It is stabilizing at current levels after a significant run up.
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, January 04, 2010
Market Outlook | January 4, 2009
Market Outlook | January 4, 2009
“Not only is the universe stranger than we imagine, it is stranger than we can imagine.” Sir Arthur Eddington
Big Picture | Rates
For most of last decade, forecasts of Crude prices by analysts and economists provided numerous moments of suspense. That was an eye -grabbing topic that had many investors watching closely. Interestingly enough, the idea worked on the upside and quickly became a mainstream issue. These debates among forecasters were over the ability of prices to stay around $30 or exceed $100. Beyond those forecasts, the intrigue of geopolitical factors created uneasiness and growing curiosity. This made sense, given the global nature of the commodity and a favorable multi-year cycle.
Now, a similar set up is taking place regarding interest rates. At the moment, expectations call for rates in the US 10 Year Treasury as high as 5.50% and some below 3%. Interestingly, with all extremes views, the truth finds its way somewhere within that range. We can always leave some room for extraordinary events. Either way, these speculative chatters are not breaking news, but they can mark subtle shifts in investor psychology. It simply suggests that rates are a key driver of financial markets. As usual, there are uncertainties in behaviors of those funding US debt. Perhaps, major changes in these dynamics can serve as a catalyst for rate spikes. The political nature of this call, combined with Federal Reserve policies, reiterates how rate direction leads to sensitive investor response, especially in the first half of this year. These factors ignite some of the complexities and challenges for money managers, who are looking to adjust their bets after a smooth sailing 2009.
Stock Market vs. Economy
Improving economic conditions are expected by many, and they are setting up higher expectations. At this point, if outlook matches reality, then investors will have to rethink their overall stock market view. For example, even weakening economic data did not stop the S&P 500 from rallying in the spring of 2009. Now, this begs the next question, what happens if positive economic conditions fail to trigger positive broad market returns? As we maintain a bullish market momentum, any minor turbulence can cause uneasiness and higher volatility. Again, the S&P 500 measures performance of larger US companies, and it is not a barometer for the well-being of the country. This is a distinction that is easily confused. Therefore, broad market indexes serve as a gauge to track a segment of financial markets. That said, beyond being a score keeping tool, these instruments shape one’s mood and plan of action. Currently, the sentiment indicators of investments are very positive as well as leading contrarians to worry of blindside surprises.
Connecting Dots
As highly publicized, China’s policies can strongly influence US interest rates, emerging market assets, and currency related policies. This is a powerful force in an intertwined global marketplace that crosses various, asset classes. Similarly, the speculative nature of Gold is reached unstable concerns, especially in emerging markets. For example, Vietnam is halting gold trading, due to frenzy demand, which contributes to increasing global imbalance. At the same time, regulatory decisions are expected to cause some reactions by investors. This leaves money managers to commit lightly to themes, while keeping another eye open to the collective attitudes of lawmakers.
Article Quotes:
“Let me quote from a classic paper by the late Paul Samuelson, who more or less created modern economics: ‘With employment less than full ... all the debunked mercantilistic arguments’ — that is, claims that nations who subsidize their exports effectively steal jobs from other countries — ‘turn out to be valid.’ He then went on to argue that persistently misaligned exchange rates create ‘genuine problems for free-trade apologetics.’ The best answer to these problems is getting exchange rates back to where they ought to be. But that’s exactly what China is refusing to let happen.” (New York Times, December 31, 2009)
"Fannie Mae and Freddie Mac, the linchpins of the American housing market, continue to bedevil the U.S. financial system. In February 2003, their regulator issued a report saying the companies were taking on too much risk by using implicit government backing to plunge deeper into the mortgage market... Five years later, regulators seized the mortgage-finance companies. Since then, leaders... have argued the companies can't be sustained in their dual roles -- a for-profit enterprise beholden to shareholders and a tool of housing policy -- and should be nationalized or sold. Nothing has happened. Instead, Fannie Mae and Freddie Mac, which buy home mortgages from banks and package them into bonds sold to investors, have been bailed out with $1.5 trillion in direct and indirect government aid." (Bloomberg, December 28, 2009)
Levels:
S&P 500 [1115.10] Index is up nearly 30% since July 8th 2009, which marked the second meaningful buying opportunity. In the last two months, 1100 has showcased to be a key stabilization level.
Crude [$79.36], in the past few months, has demonstrated strengths around $65 and $70. A sharp recovery, in the past two weeks, confirms a positive trend as prices near 2009 highs of $82. However, the sustainability of short-term moves will be tested.
Gold [$1085] has an inflection point that resides around $1050. A key point that should provide a better read on buyer’s enthusiasm. Importantly, a confirmation is needed to solidify early December run up.
DXY– US Dollar Index [77.95] has early phases in the recovery process. The next upside target is around 80.
US 10 Year Treasury Yields [3.83%] have rallied, twice in a three month period, above 3.20%. Once again, investors will watch the 4% as a turning point.
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.
“Not only is the universe stranger than we imagine, it is stranger than we can imagine.” Sir Arthur Eddington
Big Picture | Rates
For most of last decade, forecasts of Crude prices by analysts and economists provided numerous moments of suspense. That was an eye -grabbing topic that had many investors watching closely. Interestingly enough, the idea worked on the upside and quickly became a mainstream issue. These debates among forecasters were over the ability of prices to stay around $30 or exceed $100. Beyond those forecasts, the intrigue of geopolitical factors created uneasiness and growing curiosity. This made sense, given the global nature of the commodity and a favorable multi-year cycle.
Now, a similar set up is taking place regarding interest rates. At the moment, expectations call for rates in the US 10 Year Treasury as high as 5.50% and some below 3%. Interestingly, with all extremes views, the truth finds its way somewhere within that range. We can always leave some room for extraordinary events. Either way, these speculative chatters are not breaking news, but they can mark subtle shifts in investor psychology. It simply suggests that rates are a key driver of financial markets. As usual, there are uncertainties in behaviors of those funding US debt. Perhaps, major changes in these dynamics can serve as a catalyst for rate spikes. The political nature of this call, combined with Federal Reserve policies, reiterates how rate direction leads to sensitive investor response, especially in the first half of this year. These factors ignite some of the complexities and challenges for money managers, who are looking to adjust their bets after a smooth sailing 2009.
Stock Market vs. Economy
Improving economic conditions are expected by many, and they are setting up higher expectations. At this point, if outlook matches reality, then investors will have to rethink their overall stock market view. For example, even weakening economic data did not stop the S&P 500 from rallying in the spring of 2009. Now, this begs the next question, what happens if positive economic conditions fail to trigger positive broad market returns? As we maintain a bullish market momentum, any minor turbulence can cause uneasiness and higher volatility. Again, the S&P 500 measures performance of larger US companies, and it is not a barometer for the well-being of the country. This is a distinction that is easily confused. Therefore, broad market indexes serve as a gauge to track a segment of financial markets. That said, beyond being a score keeping tool, these instruments shape one’s mood and plan of action. Currently, the sentiment indicators of investments are very positive as well as leading contrarians to worry of blindside surprises.
Connecting Dots
As highly publicized, China’s policies can strongly influence US interest rates, emerging market assets, and currency related policies. This is a powerful force in an intertwined global marketplace that crosses various, asset classes. Similarly, the speculative nature of Gold is reached unstable concerns, especially in emerging markets. For example, Vietnam is halting gold trading, due to frenzy demand, which contributes to increasing global imbalance. At the same time, regulatory decisions are expected to cause some reactions by investors. This leaves money managers to commit lightly to themes, while keeping another eye open to the collective attitudes of lawmakers.
Article Quotes:
“Let me quote from a classic paper by the late Paul Samuelson, who more or less created modern economics: ‘With employment less than full ... all the debunked mercantilistic arguments’ — that is, claims that nations who subsidize their exports effectively steal jobs from other countries — ‘turn out to be valid.’ He then went on to argue that persistently misaligned exchange rates create ‘genuine problems for free-trade apologetics.’ The best answer to these problems is getting exchange rates back to where they ought to be. But that’s exactly what China is refusing to let happen.” (New York Times, December 31, 2009)
"Fannie Mae and Freddie Mac, the linchpins of the American housing market, continue to bedevil the U.S. financial system. In February 2003, their regulator issued a report saying the companies were taking on too much risk by using implicit government backing to plunge deeper into the mortgage market... Five years later, regulators seized the mortgage-finance companies. Since then, leaders... have argued the companies can't be sustained in their dual roles -- a for-profit enterprise beholden to shareholders and a tool of housing policy -- and should be nationalized or sold. Nothing has happened. Instead, Fannie Mae and Freddie Mac, which buy home mortgages from banks and package them into bonds sold to investors, have been bailed out with $1.5 trillion in direct and indirect government aid." (Bloomberg, December 28, 2009)
Levels:
S&P 500 [1115.10] Index is up nearly 30% since July 8th 2009, which marked the second meaningful buying opportunity. In the last two months, 1100 has showcased to be a key stabilization level.
Crude [$79.36], in the past few months, has demonstrated strengths around $65 and $70. A sharp recovery, in the past two weeks, confirms a positive trend as prices near 2009 highs of $82. However, the sustainability of short-term moves will be tested.
Gold [$1085] has an inflection point that resides around $1050. A key point that should provide a better read on buyer’s enthusiasm. Importantly, a confirmation is needed to solidify early December run up.
DXY– US Dollar Index [77.95] has early phases in the recovery process. The next upside target is around 80.
US 10 Year Treasury Yields [3.83%] have rallied, twice in a three month period, above 3.20%. Once again, investors will watch the 4% as a turning point.
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 28, 2009
Market Outlook | December 28, 2009
“The main purpose of the stock market is to make fools of as many men as possible.” - Bernard Baruch
Weekly Results:
S&P 500 1,126.48 [+2.77%], NASDAQ 2,285.69 [+4.85%], Russell 2000 634.07 [+4.94%], and Emerging Markets 40.94 [+1.11%]
For the most part, few things are expected by those reflecting and observing current conditions. Improving economic conditions will be closely watched. Continuation of this year’s rally presents a greater curiosity for investors. Finally, government policy and market stability can provide comfort for additional market participation.
When dissecting one’s global view, it’s easy to get distracted and worrisome about issues that are highlighted on front pages of newspapers. However, simplifying investment methods might be easier than predicating headline results. In simple terms, figuring out themes is a key, initial step. Most of 2009 has taught us about the power of sustainable trends, despite a period where the focus of investors turned towards short-term trading in the prior year. Secondly, isolating factors that lead to surprises can be worthwhile, since markets tend to react that way. Again, if bullishness in Gold and Emerging Markets reaches unanimous levels, perhaps one should ask few questions, especially since both areas have witnessed a decade-long upside run. Similarly, rising inflation and lower rate policy are convenient and popular ideas. At times, popularity can be a misleading forecasting tool. For the year ahead, themes of interest include food and agriculture, cheaply valued media, telecommunication, biotech, and infrastructure. The faith of commercial real estate and stabilization in banks are showing weakness. However, for those seeking gutsy plays, finding bargains in beaten up financials may present exceptional risk and reward.
Meanwhile, active shareholders will project and evaluate their desire to get involved. Gauging sentiment is very tricky, but a good read in consensus can determine the key elements of surprise. On one hand, scoreboard observers can feel compelled to step in based on 2009 returns. On the other hand, the scars of crisis from 2008 may continue the skepticism and force some to stay cautious. Nonetheless, the cycle established in March of 2008 is prevailing at marking a new cycle. The market feel is biased towards the upside, especially with S&P 500 hovering above 1100. Interestingly, volatility remains low for now, and an election year can provide for an eventful autumn.
Positive market returns are expected by most pundits. These are mostly the outperformance in emerging markets and reiteration of the Federal Reserve policy of lower rates. However, in the 12 months ahead, one must wonder about the potential of an unexpected series of events. It’s the old adage that you can expect one or two “marvelous” entry points per year to capture a rewarding outcome. Again, the timing is delicate, and this opportunity knocks in a subtle matter. For the journey ahead, performance chasing is a normal behavior. Additionally, it has paid well to bet heavy at key inflection points.
Recently, the US 10 Year Treasury Yield has risen significantly, along with the US Dollar. This begs the question of early hints for rising rates, which is assumed to be a shift in risk appetite. At the same time, rising Yields suggest cheaper bonds, which can be attractive for foreign purchasers in pending auctions. Strength in the Dollar showcases a speculative reaction of improving economic data points. In upcoming weeks, these trends will be tested.
Happy New Year!
Article Quotes:
“But, although, China's breakneck expansion looks likely to continue for some time yet, there are concerns over the country's path. Some economists compare China's position – with the authorities combining low interest rates with high government investment and rising asset prices – to Japan in the late-1980s, warning that it, too, could fall victim to a crash. Some worry about the country's demography. The one-child policy means that in the coming years its population is likely to age extremely quickly, increasing the pressure on its public finances and dampening its long-term growth prospects.” (Telegraph, December 26, 2009)
“The percentage of prime borrowers, whose loans were 60 or more days past due, doubled from the July-to-September period a year earlier. And more than half of all homeowners, whose payments had been lowered through modification plans, defaulted again. The report, which covers about 34 million loans or about 65% of all U.S. mortgages, underscores the obstacles to strengthening the nation's rickety housing market. Stubborn unemployment is making it tough for millions of homeowners to pay their debts. In addition, many people, whose monthly installments have been lowered, still are unable to keep up with their payments. Of the mortgages serviced by national banks and thrifts, only 87.2% were current and performing. It was the sixth straight quarter that the quality of those home loan portfolios had slipped.” (LA Times, December 22, 2009)
Levels:
S&P 500 [1126.48] is finishing the year on a strong note, while making annual highs. Buyer interest is at 1095, which showcases a bullish bias.
Crude [$78.05] is building a positive momentum at $72 and $76. After a late October peak, the commodity is showing stabilization by short-term recovery.
Gold [$1085] remains in a consolidation mode. A break below 1100 and 50-day moving average signals some technical concern as to the continuation of a multi-year run. However, $1050 can present an attractive entry point for bulls, which is worth watching in the early part of 2010.
DXY– US Dollar Index [77.81] had an explosive one-month rally that’s due for a pause. A very early indicator of a trend shift, but long-term downtrend, has yet to show meaningful reversal.
US 10 Year Treasury Yields [3.79%], like the Dollar, had a strong recovery in the past few weeks. In the fall, Yields bottomed around 3.20% twice before reaching current levels.
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.
Weekly Results:
S&P 500 1,126.48 [+2.77%], NASDAQ 2,285.69 [+4.85%], Russell 2000 634.07 [+4.94%], and Emerging Markets 40.94 [+1.11%]
For the most part, few things are expected by those reflecting and observing current conditions. Improving economic conditions will be closely watched. Continuation of this year’s rally presents a greater curiosity for investors. Finally, government policy and market stability can provide comfort for additional market participation.
When dissecting one’s global view, it’s easy to get distracted and worrisome about issues that are highlighted on front pages of newspapers. However, simplifying investment methods might be easier than predicating headline results. In simple terms, figuring out themes is a key, initial step. Most of 2009 has taught us about the power of sustainable trends, despite a period where the focus of investors turned towards short-term trading in the prior year. Secondly, isolating factors that lead to surprises can be worthwhile, since markets tend to react that way. Again, if bullishness in Gold and Emerging Markets reaches unanimous levels, perhaps one should ask few questions, especially since both areas have witnessed a decade-long upside run. Similarly, rising inflation and lower rate policy are convenient and popular ideas. At times, popularity can be a misleading forecasting tool. For the year ahead, themes of interest include food and agriculture, cheaply valued media, telecommunication, biotech, and infrastructure. The faith of commercial real estate and stabilization in banks are showing weakness. However, for those seeking gutsy plays, finding bargains in beaten up financials may present exceptional risk and reward.
Meanwhile, active shareholders will project and evaluate their desire to get involved. Gauging sentiment is very tricky, but a good read in consensus can determine the key elements of surprise. On one hand, scoreboard observers can feel compelled to step in based on 2009 returns. On the other hand, the scars of crisis from 2008 may continue the skepticism and force some to stay cautious. Nonetheless, the cycle established in March of 2008 is prevailing at marking a new cycle. The market feel is biased towards the upside, especially with S&P 500 hovering above 1100. Interestingly, volatility remains low for now, and an election year can provide for an eventful autumn.
Positive market returns are expected by most pundits. These are mostly the outperformance in emerging markets and reiteration of the Federal Reserve policy of lower rates. However, in the 12 months ahead, one must wonder about the potential of an unexpected series of events. It’s the old adage that you can expect one or two “marvelous” entry points per year to capture a rewarding outcome. Again, the timing is delicate, and this opportunity knocks in a subtle matter. For the journey ahead, performance chasing is a normal behavior. Additionally, it has paid well to bet heavy at key inflection points.
Recently, the US 10 Year Treasury Yield has risen significantly, along with the US Dollar. This begs the question of early hints for rising rates, which is assumed to be a shift in risk appetite. At the same time, rising Yields suggest cheaper bonds, which can be attractive for foreign purchasers in pending auctions. Strength in the Dollar showcases a speculative reaction of improving economic data points. In upcoming weeks, these trends will be tested.
Happy New Year!
Article Quotes:
“But, although, China's breakneck expansion looks likely to continue for some time yet, there are concerns over the country's path. Some economists compare China's position – with the authorities combining low interest rates with high government investment and rising asset prices – to Japan in the late-1980s, warning that it, too, could fall victim to a crash. Some worry about the country's demography. The one-child policy means that in the coming years its population is likely to age extremely quickly, increasing the pressure on its public finances and dampening its long-term growth prospects.” (Telegraph, December 26, 2009)
“The percentage of prime borrowers, whose loans were 60 or more days past due, doubled from the July-to-September period a year earlier. And more than half of all homeowners, whose payments had been lowered through modification plans, defaulted again. The report, which covers about 34 million loans or about 65% of all U.S. mortgages, underscores the obstacles to strengthening the nation's rickety housing market. Stubborn unemployment is making it tough for millions of homeowners to pay their debts. In addition, many people, whose monthly installments have been lowered, still are unable to keep up with their payments. Of the mortgages serviced by national banks and thrifts, only 87.2% were current and performing. It was the sixth straight quarter that the quality of those home loan portfolios had slipped.” (LA Times, December 22, 2009)
Levels:
S&P 500 [1126.48] is finishing the year on a strong note, while making annual highs. Buyer interest is at 1095, which showcases a bullish bias.
Crude [$78.05] is building a positive momentum at $72 and $76. After a late October peak, the commodity is showing stabilization by short-term recovery.
Gold [$1085] remains in a consolidation mode. A break below 1100 and 50-day moving average signals some technical concern as to the continuation of a multi-year run. However, $1050 can present an attractive entry point for bulls, which is worth watching in the early part of 2010.
DXY– US Dollar Index [77.81] had an explosive one-month rally that’s due for a pause. A very early indicator of a trend shift, but long-term downtrend, has yet to show meaningful reversal.
US 10 Year Treasury Yields [3.79%], like the Dollar, had a strong recovery in the past few weeks. In the fall, Yields bottomed around 3.20% twice before reaching current levels.
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 21, 2009
Market Outlook | December 21, 2009
“What you risk reveals what you value.” - Jeanette Winterson
For all the outcry of financial negligence of the past few years, the key risk might have shifted towards political and legal mismanagement. That’s an issue resurfacing in policymaking as more banks fail and confidence restoration remains a sensitive topic. As the year and decade near a close, a new wave of worries and rejuvenated thoughts await. The stock market peak in 2000 marked a decade long change that materialized and that was led by natural resources, regulatory restructuring, and the usual boom and bust cycles. Similar feelings were revisited again in mid 2007, which ignited the credit downturn. Interestingly, investor hunger for new themes and multi-year cycles should not be ignored. Yet, sorting out these trends is a challenge these days, given low volume and sideway markets.
That said, some are eagerly waiting on legislative results as the main trigger for idea generation. Another school of thought is to diligently seek innovative areas for potential winners within a 5 to 10 year timeframe. In some ways, both approaches provide decent odds of producing outperformers assuming a normal environment. Now, psychologically, some investors are less tolerant of higher risk bets as a result of an ongoing rollercoaster. However, markets find a way to rebound, and that lesson was revisited earlier this spring.
The past few weeks have witnessed three key points: bubble talks from emerging market leaders, legislative discussions, and improving economic conditions. These topics are most likely in the minds of money and business managers, especially for the first quarter. On a relative basis, weak credit conditions in Europe and overvalued possibilities in Asia combine to create a favorable demand for profitable, US companies. In Europe, results of high risks taken this decade are materializing. In turn, this is causing financial fallouts and policy worries, as seen in Spain and Greece. In China, asset bubbles are being discussed, but substantive facts have yet to influence market behavior. One thing is clear: the low interest rate environment continues to fuel risky assets, especially capital inflow into Asia. For instance, Asian economies witnessed an inflow of $241 billion from March to September of 2009 (Nomura Holdings).
From a global investor’s mindset, corporate bonds and stocks have offered fruitful outcomes, since March of 2009. On that note, the low rate environment has contributed to that trend, and reversal is not quite clear. In fact, recently, the Federal Reserve reaffirmed that policy stance. Therefore, these inter-connected relationships are heavily dependent on a low interest rate policy. Recently, US Dollar recovery and a steady rise in Treasury Yields are temporary hints for a changing macroeconomic environment. A sober view suggests that self-control and patience will be critical, despite urges to make interest rate speculation.
Currently Offered:
Basic fundamentals indicate further consolidation, resulting in increases in merger and acquisition opportunities, especially following a year that saw a 28% decline in a number of deals. This set up indicates that small improvements in credit conditions can spur further M&A, especially in Healthcare and Technology. Again, identifying leaders in this transitional period can offer few, actionable entry points. Stocks in large cap technology, such as IBM, Apple, and Google, present relatively healthy earnings. Similarly, Oracles strong earnings pointed out positive developments in technology, especially a rise in enterprise spending. In the same way, Cable and Telecom companies are worth a closer look for long-term participants.
Happy Holidays!
Article Quotes:
• "’Soybean prices rose to a two-week high on increasing demand by Chinese importers and U.S. processors. U.S. exporters sold 290,000 metric tons to China for delivery before Sept. 1,’ the Department of Agriculture said... Cumulative U.S. sales to all customers from Sept. 1 to Dec. 3 are up 56 percent from a year earlier... 'Demand is very strong, and exports to China are phenomenal,' said Dale Durchholz, the senior market analyst at AgriVisor LLC... 'Processors are running near 100% of capacity to produce animal feed for overseas buyers,’ he said." (Bloomberg, December 15, 2009)
• “At some point, domestic Chinese overcapacity, still worsening as utilization rates stagnate and capital spending continues, risks beginning to drive down world prices for export goods. That would lead to factory closures overseas in countries unable to compete, followed by unemployment there and social unrest - precisely the phenomena that Beijing is seeking to avoid at home. Central economists in China recognize the overcapacity dangers but even as they named various industrial sectors that will be excluded from further capital investment and construction, they do not control all the spending. That is because local and provincial governments have incentives to promote such projects without reference to national policy goals, indeed to prevent implementation of national policies unfriendly to their regions.” ( Asian Times, December 18, 2009)
Levels:
S&P 500 [1102.47] is trading within a 20-day average range. Again, a defined sideway pattern between 1090 and1115.
Crude [$73.36] commodities are seeing buying interest around $72 after several weeks of a downturn. Next key level stands near $76.
Gold [$1104] is retracing from annual highs back to below a 50-day moving average of $1107. This simply states a natural retracement, following an explosive rally. It is setting up for a short-term recovery near $1100. Investors will closely watch buyer interest around that range to determine the strength of Gold’s uptrend.
DXY– US Dollar Index [77.75] has had nearly a 5% appreciation since the start of December. A key trend reversal and bottoming process are developing. However, further confirmation is required into 2010.
US 10 Year Treasury Yields [3.53%] is struggling to hold above $3.50 for a significant period. However, the gap between 10 and 2 year yields continues to widen, suggesting a strong economic recovery.
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.
For all the outcry of financial negligence of the past few years, the key risk might have shifted towards political and legal mismanagement. That’s an issue resurfacing in policymaking as more banks fail and confidence restoration remains a sensitive topic. As the year and decade near a close, a new wave of worries and rejuvenated thoughts await. The stock market peak in 2000 marked a decade long change that materialized and that was led by natural resources, regulatory restructuring, and the usual boom and bust cycles. Similar feelings were revisited again in mid 2007, which ignited the credit downturn. Interestingly, investor hunger for new themes and multi-year cycles should not be ignored. Yet, sorting out these trends is a challenge these days, given low volume and sideway markets.
That said, some are eagerly waiting on legislative results as the main trigger for idea generation. Another school of thought is to diligently seek innovative areas for potential winners within a 5 to 10 year timeframe. In some ways, both approaches provide decent odds of producing outperformers assuming a normal environment. Now, psychologically, some investors are less tolerant of higher risk bets as a result of an ongoing rollercoaster. However, markets find a way to rebound, and that lesson was revisited earlier this spring.
The past few weeks have witnessed three key points: bubble talks from emerging market leaders, legislative discussions, and improving economic conditions. These topics are most likely in the minds of money and business managers, especially for the first quarter. On a relative basis, weak credit conditions in Europe and overvalued possibilities in Asia combine to create a favorable demand for profitable, US companies. In Europe, results of high risks taken this decade are materializing. In turn, this is causing financial fallouts and policy worries, as seen in Spain and Greece. In China, asset bubbles are being discussed, but substantive facts have yet to influence market behavior. One thing is clear: the low interest rate environment continues to fuel risky assets, especially capital inflow into Asia. For instance, Asian economies witnessed an inflow of $241 billion from March to September of 2009 (Nomura Holdings).
From a global investor’s mindset, corporate bonds and stocks have offered fruitful outcomes, since March of 2009. On that note, the low rate environment has contributed to that trend, and reversal is not quite clear. In fact, recently, the Federal Reserve reaffirmed that policy stance. Therefore, these inter-connected relationships are heavily dependent on a low interest rate policy. Recently, US Dollar recovery and a steady rise in Treasury Yields are temporary hints for a changing macroeconomic environment. A sober view suggests that self-control and patience will be critical, despite urges to make interest rate speculation.
Currently Offered:
Basic fundamentals indicate further consolidation, resulting in increases in merger and acquisition opportunities, especially following a year that saw a 28% decline in a number of deals. This set up indicates that small improvements in credit conditions can spur further M&A, especially in Healthcare and Technology. Again, identifying leaders in this transitional period can offer few, actionable entry points. Stocks in large cap technology, such as IBM, Apple, and Google, present relatively healthy earnings. Similarly, Oracles strong earnings pointed out positive developments in technology, especially a rise in enterprise spending. In the same way, Cable and Telecom companies are worth a closer look for long-term participants.
Happy Holidays!
Article Quotes:
• "’Soybean prices rose to a two-week high on increasing demand by Chinese importers and U.S. processors. U.S. exporters sold 290,000 metric tons to China for delivery before Sept. 1,’ the Department of Agriculture said... Cumulative U.S. sales to all customers from Sept. 1 to Dec. 3 are up 56 percent from a year earlier... 'Demand is very strong, and exports to China are phenomenal,' said Dale Durchholz, the senior market analyst at AgriVisor LLC... 'Processors are running near 100% of capacity to produce animal feed for overseas buyers,’ he said." (Bloomberg, December 15, 2009)
• “At some point, domestic Chinese overcapacity, still worsening as utilization rates stagnate and capital spending continues, risks beginning to drive down world prices for export goods. That would lead to factory closures overseas in countries unable to compete, followed by unemployment there and social unrest - precisely the phenomena that Beijing is seeking to avoid at home. Central economists in China recognize the overcapacity dangers but even as they named various industrial sectors that will be excluded from further capital investment and construction, they do not control all the spending. That is because local and provincial governments have incentives to promote such projects without reference to national policy goals, indeed to prevent implementation of national policies unfriendly to their regions.” ( Asian Times, December 18, 2009)
Levels:
S&P 500 [1102.47] is trading within a 20-day average range. Again, a defined sideway pattern between 1090 and1115.
Crude [$73.36] commodities are seeing buying interest around $72 after several weeks of a downturn. Next key level stands near $76.
Gold [$1104] is retracing from annual highs back to below a 50-day moving average of $1107. This simply states a natural retracement, following an explosive rally. It is setting up for a short-term recovery near $1100. Investors will closely watch buyer interest around that range to determine the strength of Gold’s uptrend.
DXY– US Dollar Index [77.75] has had nearly a 5% appreciation since the start of December. A key trend reversal and bottoming process are developing. However, further confirmation is required into 2010.
US 10 Year Treasury Yields [3.53%] is struggling to hold above $3.50 for a significant period. However, the gap between 10 and 2 year yields continues to widen, suggesting a strong economic recovery.
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
Market Outlook | December 14, 2009
“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.
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 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.
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