“The government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” - Ronald Reagan (1911 - 2004)
For the most part, optimism and confidence have stayed mostly quiet. Yet, evidence of a convincing improvement in the economic trends is not easy to spot, given weak housing data. Naturally, the lack of confirmation leads to frustration for some, especially for those seeking for attractive buy points. Meanwhile, partakers are gearing up for end of month readjustments, which featured key index rebalancing and reassessment on the impact of banking policies. From a scoreboard watcher’s perspective, broad US indexes remain down for the year (S&P 500 -3.4%), and sentiment is mostly negative, which coincides with a heavy spring/early summer sell-off. For the most part, positive catalysts are desperately needed to reconfirm a beginning of a new uptrend. In fact, the lingering effects of bubble discussions might contribute to less than desired willingness to buy above 1100 on the S&P 500 Index.
For awhile, resource-based countries, sectors, and companies have benefited and led a sustainable uptrend last decade. In this current transition mode, commodities are not as cheap as before and confidence is constrained. In addition, China-related indexes topped in 2007 and have failed to recover to new highs and showcase a waning momentum. Similarly, the Brazilian stock market has underperformed US markets, especially since December 2009. These points are showcased by strength in Gold, relative strength in US Dollar, and further buying of US treasuries. Putting all of that together confirms the defensive posture of money managers and increasing difficulty of finding differentiated and trending ideas. Plus, the low interest rate environment has not fully translated to credit expansion as desired and promised by some policymakers. Interestingly, Financials and Consumer related areas seem to struggle to attract capital. Now, a contrarian view would suggest these interest sensitive themes offer shorter-term opportunities and higher risk for speculative traders.
In terms of idea selection, certainly, there is gravitation towards more liquid and large cap companies. However, few ideas resurface in select themes for longer-term investors. For example, security and protection services company ID (L-1 Identity Solutions) presents a favorable growth rate in a niche technology group. Conversely, momentum driven stocks in basic materials, such as BLL (Ball Corp), run the risk of sharp sell-offs. In this case, the stock has grown sevenfold and is a bit pricey, compared to other alternatives. In both cases, the challenge is for managers to diligently seek quality ideas, while grasping timely big picture themes.
Levels:
S&P 500 [1076.76] is establishing a narrow range between 1060 and 1100. Investors are less reluctant to find reasons above or below these ranges.
Crude [$78.86] prices, in the past seven months, have stabilized and bounced back around $70. However, buying interest above $80 a barrel seems less enthusiastic. Thus, that raises questions about overall fundamental strength.
Gold [$1254] is very close to yearly highs, as the multi-month strength continues to take hold. At this point, the selling pressure has yet to materialize.
DXY– US Dollar Index [85.31] is consolidating after a strong, multi-month run. Index has retraced closer to its 50-day moving average and appears like a healthy pullback.
US 10 Year Treasury Yields [3.10%] is flirting near recent lows as the downtrend remains intact. Yields closed near annual lows, which can set up a sharp near-term turnaround.
Article Quotes:
“Another reason why debt matters has to do with the role of banks in the economy. By their nature, banks borrow short (from depositors or the wholesale markets) and lend long. The business depends on confidence; no bank can survive if its depositors (or its wholesale lenders) all want their money back at once. If banks struggle to meet their own debts, they have no choice but to reduce their lending. If this happens on a large scale, as it did in the 1930s, the ripple effect for the economy as a whole can be devastating.” (Economist, June 24 2010)
“Key members of the five-man Board are quietly mulling a fresh burst of asset purchases, if necessary by pushing the Fed's balance sheet from $2.4 trillion (£1.6 trillion) to uncharted levels of $5 trillion. But they are certain to face intense skepticism from regional hardliners. The dispute has echoes of the early 1930s when the Chicago Fed stymied rescue efforts. ‘We're heading towards a double-dip recession,’ said Chris Whalen, a former Fed official and now head of Institutional Risk Analytics. ‘The party is over from fiscal support. These hard-money men are fighting the last war: they don't recognize that money velocity has slowed, and we are going into deflation. The only default option left is to crank up the printing presses again.’" (Telegraph, June 24, 2010)
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, June 28, 2010
Monday, June 21, 2010
Market Outlook | June 21, 2010
“Always listen to experts. They'll tell you what can't be done and why. Then do it.” Robert Heinlein (1907 - 1988)
Nearly two weeks ago, equity markets seemed overly cheap, and a short-term recovery was to be expected. Now a minor bounce back doesn’t entirely resolve the ongoing puzzle as options expired and month-end is few days away. In these lackluster days, participants are questioning the market’s ability to attract long-term investors. Therefore, managers will look to weigh the potential of a sustainable rally, particularly, if fundamentals confirm a positive message. Importantly, even a casual observer notices the growing hesitation in financial systems, especially with chatter of various regulations. In fact, the view that government injection contributes to further risk taking and increase in confidence remains mysterious at this point.
Digesting economic and macro data serves more as a distraction than a helpful, timely guide. Interestingly, other topics requiring further deciphering include the cause of a recent trading glitch, credit crisis, and increasing government spending. That said, there is a danger in assuming that recent events are fully understood and grasped by most participants. Also, key drivers of fear are based on extensive regulations. These apprehensions are not quite justified in one assuming that it might dampen business activities or expecting that new policies will avoid further crisis. Both of these popular views are too uncontrollable, and perhaps convenient, for political headlines, rather than a prudent market strategy.
Another perspective suggests taking an imaginative short-term view. Innovation groups offer opportunities in biotech, technology, and other emerging groups. Bargains are found and made worthwhile for multi-month selections. Meanwhile, energy news flow might have created worries in a sector that outperformed for over a decade. On the other hand, Gold’s strength reconfirms the defensive posture of global investors. At the same time, the past few days are witnessing volatility declining as the VIX (Volatility Index) declines significantly below spring highs of 48.20. A possible rotation out of Gold and further calming in volatility should catch the eyes of active traders in upcoming trading days.
Levels:
S&P 500 [1117.51] is indicating, that around 1060, investors have shown interest in buying. This is based on market recovery from lows in February and May 2010. However, around 1120, doubts remain, which suggest that buyers are seeking more convincing factors.
Crude [$77.18] is trading in a narrow range, right around its 200-day moving average. The commodity appears trendless, more than usual, in the near-term.
Gold [$1256] re-accelerated and finished the week at annual highs. Positive momentum is intact, given that Gold is up over 90% since August 2007.
DXY– US Dollar Index [85.69] is nearing 86-89 points, which are levels last seen in late 2008 and early 2009. Interestingly, at that time, the index failed to sustain its relative strength.
US 10 Year Treasury Yields’ [3.21%] 20-day moving average showcases that rates have at the current range for several weeks.
Article Quotes:
"From Shanghai to Singapore, policy makers are struggling in their efforts to curb property bubbles that threaten to derail the world's fastest growing region. In China, home prices are surging at a record pace even after authorities set price ceilings, demanded higher deposits, and limited second-home purchases. In Hong Kong... a site auctioned on June 8 fetched the most since the market peak of 1997. It's a similar story in Singapore and Taiwan as prices defy cooling measures. 'Governments allow the property bubble to get so big and then try to use administrative measures to keep out speculators,' said Andy Xie, former Morgan Stanley chief economist for Asia-Pacific... 'It creates the risk of a very hard landing. The right thing to do is raise interest rates.'" (Bloomberg, June 17, 2010)
The parallels with Europe are unfair, though only up to a point. American state and local debt last year was $2.4 trillion, about 16% of gdp. But most of that debt is issued by local governments or state agencies and has specific assets or fees, such as road tolls, earmarked for paying it back. Even in the weakest states, debt that needs to be paid out of general tax revenue was under 5% of GDP last year. Greece’s was 115%. The numbers for deficits show an even greater contrast. California’s deficit, assuming the state fails to close it, would equal only 1% of its GDP, compared with 14% for Greece and 9% for Portugal last year. (Economist June 17, 2010)
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.
Nearly two weeks ago, equity markets seemed overly cheap, and a short-term recovery was to be expected. Now a minor bounce back doesn’t entirely resolve the ongoing puzzle as options expired and month-end is few days away. In these lackluster days, participants are questioning the market’s ability to attract long-term investors. Therefore, managers will look to weigh the potential of a sustainable rally, particularly, if fundamentals confirm a positive message. Importantly, even a casual observer notices the growing hesitation in financial systems, especially with chatter of various regulations. In fact, the view that government injection contributes to further risk taking and increase in confidence remains mysterious at this point.
Digesting economic and macro data serves more as a distraction than a helpful, timely guide. Interestingly, other topics requiring further deciphering include the cause of a recent trading glitch, credit crisis, and increasing government spending. That said, there is a danger in assuming that recent events are fully understood and grasped by most participants. Also, key drivers of fear are based on extensive regulations. These apprehensions are not quite justified in one assuming that it might dampen business activities or expecting that new policies will avoid further crisis. Both of these popular views are too uncontrollable, and perhaps convenient, for political headlines, rather than a prudent market strategy.
Another perspective suggests taking an imaginative short-term view. Innovation groups offer opportunities in biotech, technology, and other emerging groups. Bargains are found and made worthwhile for multi-month selections. Meanwhile, energy news flow might have created worries in a sector that outperformed for over a decade. On the other hand, Gold’s strength reconfirms the defensive posture of global investors. At the same time, the past few days are witnessing volatility declining as the VIX (Volatility Index) declines significantly below spring highs of 48.20. A possible rotation out of Gold and further calming in volatility should catch the eyes of active traders in upcoming trading days.
Levels:
S&P 500 [1117.51] is indicating, that around 1060, investors have shown interest in buying. This is based on market recovery from lows in February and May 2010. However, around 1120, doubts remain, which suggest that buyers are seeking more convincing factors.
Crude [$77.18] is trading in a narrow range, right around its 200-day moving average. The commodity appears trendless, more than usual, in the near-term.
Gold [$1256] re-accelerated and finished the week at annual highs. Positive momentum is intact, given that Gold is up over 90% since August 2007.
DXY– US Dollar Index [85.69] is nearing 86-89 points, which are levels last seen in late 2008 and early 2009. Interestingly, at that time, the index failed to sustain its relative strength.
US 10 Year Treasury Yields’ [3.21%] 20-day moving average showcases that rates have at the current range for several weeks.
Article Quotes:
"From Shanghai to Singapore, policy makers are struggling in their efforts to curb property bubbles that threaten to derail the world's fastest growing region. In China, home prices are surging at a record pace even after authorities set price ceilings, demanded higher deposits, and limited second-home purchases. In Hong Kong... a site auctioned on June 8 fetched the most since the market peak of 1997. It's a similar story in Singapore and Taiwan as prices defy cooling measures. 'Governments allow the property bubble to get so big and then try to use administrative measures to keep out speculators,' said Andy Xie, former Morgan Stanley chief economist for Asia-Pacific... 'It creates the risk of a very hard landing. The right thing to do is raise interest rates.'" (Bloomberg, June 17, 2010)
The parallels with Europe are unfair, though only up to a point. American state and local debt last year was $2.4 trillion, about 16% of gdp. But most of that debt is issued by local governments or state agencies and has specific assets or fees, such as road tolls, earmarked for paying it back. Even in the weakest states, debt that needs to be paid out of general tax revenue was under 5% of GDP last year. Greece’s was 115%. The numbers for deficits show an even greater contrast. California’s deficit, assuming the state fails to close it, would equal only 1% of its GDP, compared with 14% for Greece and 9% for Portugal last year. (Economist June 17, 2010)
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, June 14, 2010
Market Outlook | June 14, 2010
markettakers.blogspot.com
“Imagination is more important than knowledge” Albert Einstein (1879 - 1955)
Investors realized that market anxiety was becoming overdone in the near-term. In addition, previous weekly numbers suggested that participants were overloading to protect against downside moves. At the same time, betting against global markets and risky assets is less timely than early May 2010. Summing up these issues mostly explains the weekly gains in broad indexes (S&P 500 +2.51% and Russell 2000 +2.19%). Perhaps, that’s not much of a surprise, for those tracking key technical indicators which suggested favorable odds of a recovery. A simple chart pattern showcased that the S&P 500 was poised for a short-term rally around 1040-1060. In other words, it argued for risk taking and going against excessive negative headlines. This upturn is too early to judge and a sustainability recovery will greatly depend on economic and earnings conditions. With options expiring this Friday June 18th, participants will look to adjust their positions while reexamining overall market outlook.
Early summer days have witnessed lower volume and lesser volatility. Also, emerging trends and investor biases are not easily identifiable. Plus, the natural digestion after a volatile period is followed by a lackluster trading environment. Yet, in looking ahead, it’s very hard to dismiss buying opportunities. A casual gauge of market sentiment remains mostly negative. In fact, some pundits are gearing up for a second wave of a credit crisis caused by government debt bubble and non-improving economic conditions. Clearly, a weakening Euro and sovereign debt angst are heavily documented. As a result, seekers of differentiated ideas might have a limited profitable potential in these themes and might have to dig deeper somewhere else.
At this vulnerable and sensitive point, policymakers are challenged in attempting to of avoid further scares. Currently, observers are pondering the convenient and cautious strategies rather than committing capital for surprises. Specifically, Gold and US Dollar have benefited from significant inflow in recent months. These ideas are compelling for momentum driven investors. However, for aggressive speculators taking an imaginative approach is worth examining in various sectors that suffered in the past seven weeks. Few early turnaround opportunities are presented in cheap international companies, innovative stories in Biotechnology and other growth areas in consumer discretionary. On a relative basis, Biotech companies such as ENZN (Enzon Pharmaceutical) and BRLI (Bio Reference Labs) continue to demonstrate fundamental strength and offer promising entry points.
Levels:
S&P 500 [1091.60] held in around 1060 and attracted buyers as it approaching its 200 day moving average of 1107 and showcasing an early form of a recovery from deeply oversold levels.
Crude [$73.78] is in a tight range between $70-75. A tough read for a directional call but stabilizing at current levels.
Gold [$1220] showcased an explosive run since February’s lows of 1058. Gold prices are few points removed from all-time highs reached early last week.
DXY– US Dollar Index [88.23] A noticeably strength since Mid-April as the Dollar index is trading near annual highs.
US 10 Year Treasury Yields [3.23%] attempting to bottom at current levels. Interestingly, 3.20% marked a bottom in early December. Similarly, investors will closely watch for a trend shift.
Article Quotes:
“Every loan bears some risk that it will not be repaid. In making a loan, a lender has two considerations: First, it must be able to price the risk of the loan accurately or, second, it must reduce its risk exposure by reducing the number of loans it makes, the amount it lends or the risk profile of those to whom it lends. Regulations that interfere with the ability to price risk accurately thus inevitably produce efforts to reduce risk exposure by curtailing lending. ….. But the inability to accurately price risk goes beyond macroeconomic-level uncertainty: Congress' meddling in credit markets has directly interfered with the ability of lenders to price the risk of lending accurately. Proposals for still more interventions provide still greater threats of uncertainty, further undermining confidence and predictability. (Washington times June 8, 2010)
“Since the global financial crisis, the venture capital industry has been tarred with the same brush as private equity, yet its returns are driven by equity-financed R&D, rather than the layering of debt finance. While private equity has struggled with the decreased availability of cheap debt capital, the leading specialist investment managers in the biotechnology venture space have quietly been building the value of highly innovative early-stage life science companies….. In 2009, the average transaction size for venture-backed biotechnology companies was $278m, up from $199m in 2008, according to research by Credit Suisse. In 2009 deal values ranged from $255m to $850m, so these are significant transactions, and the multiples on invested capital earned by the early backers of these companies have been significant as well.” (Fund Strategy, June 7, 2010)
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.
“Imagination is more important than knowledge” Albert Einstein (1879 - 1955)
Investors realized that market anxiety was becoming overdone in the near-term. In addition, previous weekly numbers suggested that participants were overloading to protect against downside moves. At the same time, betting against global markets and risky assets is less timely than early May 2010. Summing up these issues mostly explains the weekly gains in broad indexes (S&P 500 +2.51% and Russell 2000 +2.19%). Perhaps, that’s not much of a surprise, for those tracking key technical indicators which suggested favorable odds of a recovery. A simple chart pattern showcased that the S&P 500 was poised for a short-term rally around 1040-1060. In other words, it argued for risk taking and going against excessive negative headlines. This upturn is too early to judge and a sustainability recovery will greatly depend on economic and earnings conditions. With options expiring this Friday June 18th, participants will look to adjust their positions while reexamining overall market outlook.
Early summer days have witnessed lower volume and lesser volatility. Also, emerging trends and investor biases are not easily identifiable. Plus, the natural digestion after a volatile period is followed by a lackluster trading environment. Yet, in looking ahead, it’s very hard to dismiss buying opportunities. A casual gauge of market sentiment remains mostly negative. In fact, some pundits are gearing up for a second wave of a credit crisis caused by government debt bubble and non-improving economic conditions. Clearly, a weakening Euro and sovereign debt angst are heavily documented. As a result, seekers of differentiated ideas might have a limited profitable potential in these themes and might have to dig deeper somewhere else.
At this vulnerable and sensitive point, policymakers are challenged in attempting to of avoid further scares. Currently, observers are pondering the convenient and cautious strategies rather than committing capital for surprises. Specifically, Gold and US Dollar have benefited from significant inflow in recent months. These ideas are compelling for momentum driven investors. However, for aggressive speculators taking an imaginative approach is worth examining in various sectors that suffered in the past seven weeks. Few early turnaround opportunities are presented in cheap international companies, innovative stories in Biotechnology and other growth areas in consumer discretionary. On a relative basis, Biotech companies such as ENZN (Enzon Pharmaceutical) and BRLI (Bio Reference Labs) continue to demonstrate fundamental strength and offer promising entry points.
Levels:
S&P 500 [1091.60] held in around 1060 and attracted buyers as it approaching its 200 day moving average of 1107 and showcasing an early form of a recovery from deeply oversold levels.
Crude [$73.78] is in a tight range between $70-75. A tough read for a directional call but stabilizing at current levels.
Gold [$1220] showcased an explosive run since February’s lows of 1058. Gold prices are few points removed from all-time highs reached early last week.
DXY– US Dollar Index [88.23] A noticeably strength since Mid-April as the Dollar index is trading near annual highs.
US 10 Year Treasury Yields [3.23%] attempting to bottom at current levels. Interestingly, 3.20% marked a bottom in early December. Similarly, investors will closely watch for a trend shift.
Article Quotes:
“Every loan bears some risk that it will not be repaid. In making a loan, a lender has two considerations: First, it must be able to price the risk of the loan accurately or, second, it must reduce its risk exposure by reducing the number of loans it makes, the amount it lends or the risk profile of those to whom it lends. Regulations that interfere with the ability to price risk accurately thus inevitably produce efforts to reduce risk exposure by curtailing lending. ….. But the inability to accurately price risk goes beyond macroeconomic-level uncertainty: Congress' meddling in credit markets has directly interfered with the ability of lenders to price the risk of lending accurately. Proposals for still more interventions provide still greater threats of uncertainty, further undermining confidence and predictability. (Washington times June 8, 2010)
“Since the global financial crisis, the venture capital industry has been tarred with the same brush as private equity, yet its returns are driven by equity-financed R&D, rather than the layering of debt finance. While private equity has struggled with the decreased availability of cheap debt capital, the leading specialist investment managers in the biotechnology venture space have quietly been building the value of highly innovative early-stage life science companies….. In 2009, the average transaction size for venture-backed biotechnology companies was $278m, up from $199m in 2008, according to research by Credit Suisse. In 2009 deal values ranged from $255m to $850m, so these are significant transactions, and the multiples on invested capital earned by the early backers of these companies have been significant as well.” (Fund Strategy, June 7, 2010)
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, June 07, 2010
Market Outlook | June 7, 2010
“While grief is fresh, every attempt to divert only irritates. You must wait till it is digested, and then amusement will dissipate the remains of it.” - Samuel Johnson (1709 - 1784)
Approaching the midyear point presents a reflective stage. The results of a six week sell-off have turned the year-to-date performance returns to a negative for broad indexes . Generally, a pullback, greater than 10%, will naturally lead investors to reassess their thoughts and find new trends within existing themes. As expected, most summer worries mirrored winter discussions, such as overvalued emerging markets, a vulnerable Europe, and shaky sustainability for risky assets. Clearly, these factors resurfaced in several forms. In fact, observers are fixated on daily European credit news flow along with US economic and debt improvement. Perhaps, this is a good time to dig deep in other non-headline materials.
Mindsets
To understand investor behavior, it might help to categorize the thought process of participants into two mindsets. First, there are those whose core mentality treats markets like a “casino", mainly driven by the thrill and agony of seeking a short-term gain. At the same time, these are investors hoping for luck and are quick to jump into the dangerous zone of "sure bets". Secondly, there are those who are seeking opportunities with willingness to have an open mind and a flexible investment time frame and who are driven by the intellectual challenge of navigating the unknown.
Dangers of Group Thought
Generally, one can expect that when these two categories agree on an idea, then an explosive move is more likely to take hold. So this brings us to the current marketplace, where seekers of "sure bets" have been recently humbled and longer-term players are sorting through numerous potentials. The herd mentality proved to be wrong a few months ago, especially on betting on rising rates and increasing inflation, due to an expected economic growth. Perhaps, the low interest rate environment might have created a false optimism, which drove capital into risky assets. However, market corrections damaged highly sensitive areas, specifically ideas linked with China and Crude. Again, this was another reminder of the risks of herding and the importance of understanding market timing. Yet, markets teach us that various environments call for a different reaction; hence, the daunting challenge for a player of this game.
Imagining the Unimaginable
Credit related areas may present a sudden upside move, which can serve as a surprise. Any fundamental strength, such as increasing lending opportunities, can spark an infectious optimism. At this point, casual observers may not rush to seek turnaround in Financials, which remain globally unpopular, and positive signals are subtle to see. However, any marginal credit improvements could spark a positive reaction, especially in interest sensitive groups. This much discussed fear of the system can change at a rapid pace, just like investor’s moods. That said, the S&P 500 Index at 1060 can entice technical buying from a speculator’s perspective. Basically, money managers are offered plenty of assets that are deeply neglected at a discounted price. Interestingly, participation in the stock market will require management of near-term volatility, adjusting to pending policymaker decisions, and patience for further calmness from emotionally charged levels. Of course, these points above are hard to dismiss, even for the most bullish investor. However, staying open-minded for unfathomable opportunities is worth a strong consideration.
Levels:
S&P 500 [1064.88] showed early signs of bottoming around 1060, which can attract long-term buyers and speculators to observe closely. That said, a major hurdle awaits around 1100, based on previous weekly data. Perhaps, this is another confirmation to the current reluctance and growing fear.
Crude [$71.51] had a downtrend in tact below $75 as the commodity is trading very close to its 15-day moving average. Notably, in the past six months, Crude has traded in a range between $70 and $80, and it is removed from extreme levels.
Gold [$ 1203.50] is maintained an uptrend that was sparked by a reacceleration process around late March 2010.
DXY– US Dollar Index [88.23] had a recent surge that confirms the established strength. Like Gold, the late March recovery reflects a defensive posture by investors.
US 10 Year Treasury Yields [3.20%] is back to December 2009 levels, as the rate surge looks short-lived at the moment. Participants wait to see if the May 25th intra-day lows of 3.06% can mark an inflection point.
Article Quotes:
“As mentioned earlier, survey data shows that such measures of confidence continue to linger around the lowest levels seen in a generation. …Stock prices fall with growing government involvement in the economy or with rising inflation. The sharp rise in the government's share of output, in the last decade, and the threat of greater inflation, in the next one, are important factors behind the 30 percent decline in the inflation-adjusted Dow Jones Industrial Average since 2000. Eye-popping deficits of the past year have lowered optimism about the future, kept stock prices depressed, and reduced key elements in new investment spending. These negative side effects of the stimulus spending are certainly slowing down the recuperative process that market forces are attempting to generate.” (Cato Institute, May/ June 2010)
“The sad truth is that when the chips are down, regulators become reluctant to put their money where their mouths are—or more precisely, they become too eager to put their money where they said they would not. Few, if any, policymakers have been willing to let large banking organizations fail, thereby missing an opportunity to impose significant losses on failed institutions’ creditors. We know from intuition and experience that any financial institution, deemed TBTF, will not be allowed to fail in the traditional sense. When such an institution becomes troubled, its creditors are protected in the name of market stability. The TBTF problem is exacerbated if the central bank and regulators view wiping out big bank shareholders as too disruptive, extending this measure of protection to ordinary equity holders.” (Richard W. Fisher Federal Reserve of Dallas, June 3, 2010)
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.
Approaching the midyear point presents a reflective stage. The results of a six week sell-off have turned the year-to-date performance returns to a negative for broad indexes . Generally, a pullback, greater than 10%, will naturally lead investors to reassess their thoughts and find new trends within existing themes. As expected, most summer worries mirrored winter discussions, such as overvalued emerging markets, a vulnerable Europe, and shaky sustainability for risky assets. Clearly, these factors resurfaced in several forms. In fact, observers are fixated on daily European credit news flow along with US economic and debt improvement. Perhaps, this is a good time to dig deep in other non-headline materials.
Mindsets
To understand investor behavior, it might help to categorize the thought process of participants into two mindsets. First, there are those whose core mentality treats markets like a “casino", mainly driven by the thrill and agony of seeking a short-term gain. At the same time, these are investors hoping for luck and are quick to jump into the dangerous zone of "sure bets". Secondly, there are those who are seeking opportunities with willingness to have an open mind and a flexible investment time frame and who are driven by the intellectual challenge of navigating the unknown.
Dangers of Group Thought
Generally, one can expect that when these two categories agree on an idea, then an explosive move is more likely to take hold. So this brings us to the current marketplace, where seekers of "sure bets" have been recently humbled and longer-term players are sorting through numerous potentials. The herd mentality proved to be wrong a few months ago, especially on betting on rising rates and increasing inflation, due to an expected economic growth. Perhaps, the low interest rate environment might have created a false optimism, which drove capital into risky assets. However, market corrections damaged highly sensitive areas, specifically ideas linked with China and Crude. Again, this was another reminder of the risks of herding and the importance of understanding market timing. Yet, markets teach us that various environments call for a different reaction; hence, the daunting challenge for a player of this game.
Imagining the Unimaginable
Credit related areas may present a sudden upside move, which can serve as a surprise. Any fundamental strength, such as increasing lending opportunities, can spark an infectious optimism. At this point, casual observers may not rush to seek turnaround in Financials, which remain globally unpopular, and positive signals are subtle to see. However, any marginal credit improvements could spark a positive reaction, especially in interest sensitive groups. This much discussed fear of the system can change at a rapid pace, just like investor’s moods. That said, the S&P 500 Index at 1060 can entice technical buying from a speculator’s perspective. Basically, money managers are offered plenty of assets that are deeply neglected at a discounted price. Interestingly, participation in the stock market will require management of near-term volatility, adjusting to pending policymaker decisions, and patience for further calmness from emotionally charged levels. Of course, these points above are hard to dismiss, even for the most bullish investor. However, staying open-minded for unfathomable opportunities is worth a strong consideration.
Levels:
S&P 500 [1064.88] showed early signs of bottoming around 1060, which can attract long-term buyers and speculators to observe closely. That said, a major hurdle awaits around 1100, based on previous weekly data. Perhaps, this is another confirmation to the current reluctance and growing fear.
Crude [$71.51] had a downtrend in tact below $75 as the commodity is trading very close to its 15-day moving average. Notably, in the past six months, Crude has traded in a range between $70 and $80, and it is removed from extreme levels.
Gold [$ 1203.50] is maintained an uptrend that was sparked by a reacceleration process around late March 2010.
DXY– US Dollar Index [88.23] had a recent surge that confirms the established strength. Like Gold, the late March recovery reflects a defensive posture by investors.
US 10 Year Treasury Yields [3.20%] is back to December 2009 levels, as the rate surge looks short-lived at the moment. Participants wait to see if the May 25th intra-day lows of 3.06% can mark an inflection point.
Article Quotes:
“As mentioned earlier, survey data shows that such measures of confidence continue to linger around the lowest levels seen in a generation. …Stock prices fall with growing government involvement in the economy or with rising inflation. The sharp rise in the government's share of output, in the last decade, and the threat of greater inflation, in the next one, are important factors behind the 30 percent decline in the inflation-adjusted Dow Jones Industrial Average since 2000. Eye-popping deficits of the past year have lowered optimism about the future, kept stock prices depressed, and reduced key elements in new investment spending. These negative side effects of the stimulus spending are certainly slowing down the recuperative process that market forces are attempting to generate.” (Cato Institute, May/ June 2010)
“The sad truth is that when the chips are down, regulators become reluctant to put their money where their mouths are—or more precisely, they become too eager to put their money where they said they would not. Few, if any, policymakers have been willing to let large banking organizations fail, thereby missing an opportunity to impose significant losses on failed institutions’ creditors. We know from intuition and experience that any financial institution, deemed TBTF, will not be allowed to fail in the traditional sense. When such an institution becomes troubled, its creditors are protected in the name of market stability. The TBTF problem is exacerbated if the central bank and regulators view wiping out big bank shareholders as too disruptive, extending this measure of protection to ordinary equity holders.” (Richard W. Fisher Federal Reserve of Dallas, June 3, 2010)
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, May 24, 2010
Market Outlook | May 24, 2010
“Where we have strong emotions, we're liable to fool ourselves.” - Carl Sagan (1934 - 1996)
The established spring hiccup is bringing on more worries, while frustrating those that are seeking a turnaround. Ahead of an extended holiday weekend, volume, along with conviction, is bound to slowly dwindle. Interestingly, S&P 500 at 1080 seems like a favorable area for a short-term recovery, at least when viewing chart patterns. In fact, the S&P 500 closed slightly above the “flash crash” lows.
The thought of a sustainable upside move is hard to convince those who’ve witnessed the Volatility Index (VIX) spike by 216% since April 12, 2010. At this point, Volatility has more than doubled in a very narrow timeframe. Perhaps, additional time is needed to digest an eventful 6 weeks, which have revisited a crisis mindset. The list of worries has expanded from European credit conditions to an unknown pace of an economic recovery. However, explaining the why will challenge analysts and should occupy headline topics. Nonetheless, the downtrend message is clearly visible, and markets are driven by emotions.
Veteran participants have been taught by experience to relentlessly seek ideas for future purchases. Similarly, value hunters are digging deeper to find company specific ideas. Both approaches will require focusing on fundamentals and avoiding distractions from macro events. The challenge ahead is to position one’s portfolios with quality companies ahead of a recovery. For example, industrials, such as Raven Industries (RAVN), continue to benefit from cost cutting and increased sales in agricultural and military products. Secondly, consolidation in the technology sector creates some opportunities for speculators. Finally, innovation in healthcare can stimulate buyers who are eager for momentum driven plays. The above points can also benefit from money, out-flowing from themes, related to China and Crude. In other words, odds favor creative companies with new growth stories, which might attract assets that have been flown away from risky assets.
Simply, an election year filled with financial regulatory discussions can cause obvious apprehension. A low interest rate environment for many months encouraged betting or risky assets. As usual, periods of a market correction showcased a shift towards risk aversion, as seen by rotation into US Dollar and Gold. Basically, last year, investors felt the fear of missing out on a recovery rally. This year, the urgency to buy is not there, and the argument for undervalued asset pricing is not that compelling. The current environment will require patience, especially until rational senses begin to slowly take center stage.
Levels:
S&P 500 [1087.69],at this point, is giving up gains from February to April 2010, based on the current sell-offs. Interestingly, around 1060 investors will watch closely for further hints.
Crude [$70.04], following an exaggerated one-day move, found a way to close at $70. However, given recent weakness, many wonder the commodity’s ability to stay above these levels.
Gold [$1179.75] is retracing from yearly highs, while maintaining its positive cycle momentum. Appears like a potential down to sideway action is highly likely in the days ahead, based on technical patterns.
DXY– US Dollar Index [85.31] continues to maintain its near- and long-term uptrend, benefiting from a risk aversion trade as well as a cycle shift.
US 10 Year Treasury Yields [3.23%] has failed twice in the past month to hold above 3.40%, which confirms ongoing weakness. Yields have round tripped back to December lows of around 3.20%.
Article Quotes:
“Very low interest rates and readily available money encourage risk-taking and leverage; if, as in the United States since 1995 or as in the EU since 2002, those policies are pursued for a number of years, the risks will become enormous and the leverage will increase to a suicidal level. The even lower interest rates imposed on the global economic system since 2008 have increased the incentives for leverage still further, making the need for bailouts even more urgent and their size even greater.” (Asian Times, May 19, 2010)
“In 1996, Sir Martin Jacomb, then chairman of the Prudential, set out with great prescience in two pieces for The Sunday Telegraph why a European single currency, without full political integration, would end in disaster…..’A country, which does not handle its public finances prudently, will find its long-term borrowing costs adjusted accordingly,’ Sir Martin predicted. ‘Although theory says that default is unlikely, nevertheless, a country that spends too much public money, and allows its wage costs to become uncompetitive, will experience rising unemployment and falling economic activity. The social costs may become impossible to bear.’" (Telegraph, May 20, 2010)
Please note: The next Market Outlook will be published on June 7, 2010.
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 established spring hiccup is bringing on more worries, while frustrating those that are seeking a turnaround. Ahead of an extended holiday weekend, volume, along with conviction, is bound to slowly dwindle. Interestingly, S&P 500 at 1080 seems like a favorable area for a short-term recovery, at least when viewing chart patterns. In fact, the S&P 500 closed slightly above the “flash crash” lows.
The thought of a sustainable upside move is hard to convince those who’ve witnessed the Volatility Index (VIX) spike by 216% since April 12, 2010. At this point, Volatility has more than doubled in a very narrow timeframe. Perhaps, additional time is needed to digest an eventful 6 weeks, which have revisited a crisis mindset. The list of worries has expanded from European credit conditions to an unknown pace of an economic recovery. However, explaining the why will challenge analysts and should occupy headline topics. Nonetheless, the downtrend message is clearly visible, and markets are driven by emotions.
Veteran participants have been taught by experience to relentlessly seek ideas for future purchases. Similarly, value hunters are digging deeper to find company specific ideas. Both approaches will require focusing on fundamentals and avoiding distractions from macro events. The challenge ahead is to position one’s portfolios with quality companies ahead of a recovery. For example, industrials, such as Raven Industries (RAVN), continue to benefit from cost cutting and increased sales in agricultural and military products. Secondly, consolidation in the technology sector creates some opportunities for speculators. Finally, innovation in healthcare can stimulate buyers who are eager for momentum driven plays. The above points can also benefit from money, out-flowing from themes, related to China and Crude. In other words, odds favor creative companies with new growth stories, which might attract assets that have been flown away from risky assets.
Simply, an election year filled with financial regulatory discussions can cause obvious apprehension. A low interest rate environment for many months encouraged betting or risky assets. As usual, periods of a market correction showcased a shift towards risk aversion, as seen by rotation into US Dollar and Gold. Basically, last year, investors felt the fear of missing out on a recovery rally. This year, the urgency to buy is not there, and the argument for undervalued asset pricing is not that compelling. The current environment will require patience, especially until rational senses begin to slowly take center stage.
Levels:
S&P 500 [1087.69],at this point, is giving up gains from February to April 2010, based on the current sell-offs. Interestingly, around 1060 investors will watch closely for further hints.
Crude [$70.04], following an exaggerated one-day move, found a way to close at $70. However, given recent weakness, many wonder the commodity’s ability to stay above these levels.
Gold [$1179.75] is retracing from yearly highs, while maintaining its positive cycle momentum. Appears like a potential down to sideway action is highly likely in the days ahead, based on technical patterns.
DXY– US Dollar Index [85.31] continues to maintain its near- and long-term uptrend, benefiting from a risk aversion trade as well as a cycle shift.
US 10 Year Treasury Yields [3.23%] has failed twice in the past month to hold above 3.40%, which confirms ongoing weakness. Yields have round tripped back to December lows of around 3.20%.
Article Quotes:
“Very low interest rates and readily available money encourage risk-taking and leverage; if, as in the United States since 1995 or as in the EU since 2002, those policies are pursued for a number of years, the risks will become enormous and the leverage will increase to a suicidal level. The even lower interest rates imposed on the global economic system since 2008 have increased the incentives for leverage still further, making the need for bailouts even more urgent and their size even greater.” (Asian Times, May 19, 2010)
“In 1996, Sir Martin Jacomb, then chairman of the Prudential, set out with great prescience in two pieces for The Sunday Telegraph why a European single currency, without full political integration, would end in disaster…..’A country, which does not handle its public finances prudently, will find its long-term borrowing costs adjusted accordingly,’ Sir Martin predicted. ‘Although theory says that default is unlikely, nevertheless, a country that spends too much public money, and allows its wage costs to become uncompetitive, will experience rising unemployment and falling economic activity. The social costs may become impossible to bear.’" (Telegraph, May 20, 2010)
Please note: The next Market Outlook will be published on June 7, 2010.
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, May 16, 2010
Market Outlook | May 17, 2010
“Cynicism is an unpleasant way of saying the truth.”- Lillian Hellman (1905 - 1984)
Emotionally Charged
Gold’s recent strength provides a perspective across various markets. The three forces benefiting Gold prices include declinig Euro, an inverse play on paper assets, and acceleration of an ongoing multi-year momentum. These are highly documented explanations that resurface in periods of credit worries and imbalances in currency markets. In addition, some argue that Gold serves as a hedge against inflation. All in all, these reasons have succeeded in justifying Gold prices. Yet, late performance chasing comes with the risk of overpaying for defensive positioning, especially when the idea becomes accepted as a consensus view.
Recently, there were a few reminders of taking caution on consensus view. Investors learned that betting against the Dollar and hoping for rising rates did not play out as planned. Similarly, pessimists learned the hard way that stocks recovered fast and for an extended period as seen from spring 2009 to spring 2010. So, in the quest for the next trend, observers will have to grasp the rhythm and mellowing out of recent fallouts. In other words, it’s vital to avoid tempting offers that have accumulated popular acceptance. The past few weeks have produced major stories, ranging from pending legal threats, bailout packages, and a short-lived market glitch. Basically, this presents a more sensitive and jittery marketplace. That said, naturally broad indexes were reaching extended levels since early April 2010.
Unlike Gold prices, commodities, overall, have headed lower in a uniform pattern as a response to the current macro-based events. Interest rates have remained lower than yearly highs. And volatility has spiked up from neglected levels during the run-up. Looking at the above points, the first reminder is not to overreact or make conclusive statements on current trends. Election years find a way to add to financial worries. That's in addition to general market correction, regulatory changes, and regional risks. There is plenty to resolve this fall. Until then, it’s common for participants to stay hesitant and less willing to take on big bets.
Looking Ahead
At this junction, mapping out a 5- to 10-year investment plan might seem merely impossible as the short-term variables easily cloud one’s vision. However, consumer-based ideas in Emerging markets are worth a closer look. At the same time, innovative-based groups in developed markets can muster a sustainable cycle. Thus, as the day to day excitement lessens, it offers investors early chances to seek opportune entry points.
Article Quotes:
“Asian growth will still be good news for U.S. companies. The silicon chips in an Indonesian family's new computer may well come from a U.S. plant. U.S. management and engineering companies may well oversee some of the billions of dollars expected to be spent on roads, airports, and shipping terminals in the region. Rising incomes will mean more sales of U.S. or European branded goods, a bigger audience for Hollywood movies, and more demand for management and other services. But the competition on all fronts is only getting more intense.” (Washington Post, May 14, 2010)
“In the past few days we have heard repeatedly that our politicians are risking the country’s credit rating or threatening sterling or facing retribution in the bond markets. Political leaders have been forced to make decisions of immense historic importance within days, or even hours, to satisfy arbitrary deadlines laid down by supposedly implacable financial markets. Any political action that a media commentator or a business leader happens to disagree with is attacked for undermining business and consumer confidence. Like Greek oracles, who claimed to hear voices from Olympus, financial analysts hold forth on television, invoking market confidence, and insisting that no sacrifice is too great or too painful to propitiate this new god.” (Times of London, May 12, 2010)
Levels:
S&P 500 [1135] is nearly at the halfway point between the 50- and 200-day moving average. Basically, that signals a return to normalcy, following the first wave of spring sell-off.
Crude [$71.61] is flirting with previous bounce points around $72. At or below current levels, the index was recovered in December 2009 and February 2010. Chart patterns suggest further retest of those levels is underway.
Gold [$1236.50] is making new highs yet again, as a defensive play and a break out. The commodity is up nearly 17% from lows reached on February 5, 2010.
DXY– US Dollar Index [86.09] is making new highs after an explosive multi-week run. Based on the acceleration, participants rushed to the Dollar on a sudden response. The Dollar Index is becoming extended in the near-term as a natural breather awaits.
US 10 Year Treasury Yields [3.45%] is showing early signs of bottoming around a 3.40% range. Yet, the next upside hurdle is around 3.60%.
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.
Emotionally Charged
Gold’s recent strength provides a perspective across various markets. The three forces benefiting Gold prices include declinig Euro, an inverse play on paper assets, and acceleration of an ongoing multi-year momentum. These are highly documented explanations that resurface in periods of credit worries and imbalances in currency markets. In addition, some argue that Gold serves as a hedge against inflation. All in all, these reasons have succeeded in justifying Gold prices. Yet, late performance chasing comes with the risk of overpaying for defensive positioning, especially when the idea becomes accepted as a consensus view.
Recently, there were a few reminders of taking caution on consensus view. Investors learned that betting against the Dollar and hoping for rising rates did not play out as planned. Similarly, pessimists learned the hard way that stocks recovered fast and for an extended period as seen from spring 2009 to spring 2010. So, in the quest for the next trend, observers will have to grasp the rhythm and mellowing out of recent fallouts. In other words, it’s vital to avoid tempting offers that have accumulated popular acceptance. The past few weeks have produced major stories, ranging from pending legal threats, bailout packages, and a short-lived market glitch. Basically, this presents a more sensitive and jittery marketplace. That said, naturally broad indexes were reaching extended levels since early April 2010.
Unlike Gold prices, commodities, overall, have headed lower in a uniform pattern as a response to the current macro-based events. Interest rates have remained lower than yearly highs. And volatility has spiked up from neglected levels during the run-up. Looking at the above points, the first reminder is not to overreact or make conclusive statements on current trends. Election years find a way to add to financial worries. That's in addition to general market correction, regulatory changes, and regional risks. There is plenty to resolve this fall. Until then, it’s common for participants to stay hesitant and less willing to take on big bets.
Looking Ahead
At this junction, mapping out a 5- to 10-year investment plan might seem merely impossible as the short-term variables easily cloud one’s vision. However, consumer-based ideas in Emerging markets are worth a closer look. At the same time, innovative-based groups in developed markets can muster a sustainable cycle. Thus, as the day to day excitement lessens, it offers investors early chances to seek opportune entry points.
Article Quotes:
“Asian growth will still be good news for U.S. companies. The silicon chips in an Indonesian family's new computer may well come from a U.S. plant. U.S. management and engineering companies may well oversee some of the billions of dollars expected to be spent on roads, airports, and shipping terminals in the region. Rising incomes will mean more sales of U.S. or European branded goods, a bigger audience for Hollywood movies, and more demand for management and other services. But the competition on all fronts is only getting more intense.” (Washington Post, May 14, 2010)
“In the past few days we have heard repeatedly that our politicians are risking the country’s credit rating or threatening sterling or facing retribution in the bond markets. Political leaders have been forced to make decisions of immense historic importance within days, or even hours, to satisfy arbitrary deadlines laid down by supposedly implacable financial markets. Any political action that a media commentator or a business leader happens to disagree with is attacked for undermining business and consumer confidence. Like Greek oracles, who claimed to hear voices from Olympus, financial analysts hold forth on television, invoking market confidence, and insisting that no sacrifice is too great or too painful to propitiate this new god.” (Times of London, May 12, 2010)
Levels:
S&P 500 [1135] is nearly at the halfway point between the 50- and 200-day moving average. Basically, that signals a return to normalcy, following the first wave of spring sell-off.
Crude [$71.61] is flirting with previous bounce points around $72. At or below current levels, the index was recovered in December 2009 and February 2010. Chart patterns suggest further retest of those levels is underway.
Gold [$1236.50] is making new highs yet again, as a defensive play and a break out. The commodity is up nearly 17% from lows reached on February 5, 2010.
DXY– US Dollar Index [86.09] is making new highs after an explosive multi-week run. Based on the acceleration, participants rushed to the Dollar on a sudden response. The Dollar Index is becoming extended in the near-term as a natural breather awaits.
US 10 Year Treasury Yields [3.45%] is showing early signs of bottoming around a 3.40% range. Yet, the next upside hurdle is around 3.60%.
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, May 10, 2010
Market Outlook | May 10, 2010
“In these matters, the only certainty is that nothing is certain.” -- Pliny the Elder (23 AD - 79 AD)
Theatrical Feel
In some ways, it felt like 2008 crisis again, at least for two key reasons. First, the crisis in Europe reflects worries that are driven by lack of confidence. Secondly, the action in the US markets showcased a historic day of a tremendous shock. Of course, this is all taking place in a period where the schedule for congress testimony features key players from the previous credit bubble as lawmakers consider some resolutions. For storytellers, it was rather an exciting time, while money managers face the issue of protecting capital, while calmly finding opportunities within the current chaotic landscape. An emotional response can dominate the market environment, especially in upcoming days as logic takes time to settle in.
A Step Back
From a clear-headed perspective, the S&P 500 Index reminded us that most investors were not comfortable above 1200. Previous peaks above 1200 in April, served as early clues for a much needed breather. When combining this mechanical observation with the headline concerns of Europe, the high volatility is partially explained. Not to mention, previous turbulence in the Volatility Index, especially in the past eight months, were setting up for a tipping point. In addition, minor worries regarding China that were resurfacing are creating further downside pressure. It wasn’t too long ago that skeptics questioned the lack of volume of this ongoing rally. As for interest rates in the US, near-term data argues for downside momentum, despite the consensus of rising rates. As global central banks readjust interest rates, some await results in political shake outs. Basically, sorting out a few macro issues, such as the stability of the Europe, can shape the new cycle. So far this year, the defensive investor reaction has greatly helped the US Dollar, mostly sparked by Euro weakness. Once again, there are too many macro issues lingering, for those seeking clarity, in search for the next mega trend.
Period of Adjustment
Few changing dynamics in the global marketplace are worth noting, especially in this new decade. These moving parts range from technological advancements in trading mechanics to pending financial reforms in an interconnected world. Globally, a new plan for Europe should slowly materialize. and currency markets most likely need to adjust to the needs of growing economies. At the same time, investors are eager to find out the verdict on the reacceleration of emerging markets; a theme that significantly outperformed last decade. Also, the characteristics and tolerance of market participants is changing as well. That said, investing is requiring severe patience and an open mindedness to navigate an emotionally charged market.
Article Quotes:
“In the mid-1990s, authorities in the fast-growing countries of East Asia explained that their success was due to "Asian values". The crisis of 1997-1998 changed that tune. Similarly, senior U.S. officials spoke confidently in 2006 as they basked in the glow of the "great moderation," as economists called the easing of business-cycle fluctuations over the prior two decades. Financial institutions were rock solid and not leveraged; we were told. Financial markets were resilient. And housing prices would never decline nationwide. Who would have listened 12 months ago to someone asserting that an E.U. member would teeter on default?” (Washington Post, May 9, 2010)
“These incidents demonstrate that our markets are dangerously unprotected against an electronic meltdown. We depend on slow-moving humans at our exchanges to monitor our markets and take actions, such as calling a trading halt when things go haywire. Our markets now react in milliseconds to events but are monitored by humans who respond in minutes. In the time it takes a human to respond to a problem, billions of dollars of damages can occur. It is extremely messy to unwind botched trades after they occur.” (Forbes, May 7, 2010)
Levels:
S&P 500 [1110] previously struggled to hold above 1200. Currently, it’s barely holding above its 200- day moving average of 1095. Near-term indicators suggest that the sell-off is reaching exhaustion at least from a mechanical perspective.
Crude [$75.11], similar to equity markets, had a sharp sell-off near the 200-day moving average. The commodity is back at familiar ranges between $74 and $78.
Gold [$1202.25] is strengthening from previous week as momentum remains positive. At the same time, new, annual highs and slowly approaching recent highs last reached on December 2, 2010.
DXY– US Dollar Index [84.45] had a sharp spike, driving the index to new, yearly highs. This is a reactionary move by investors to rotate towards a defensive currency. Near-term trend might be overdone at a first glance. However, the Dollar Index continues to maintain its strength since bottoming on November 25th.
US 10 Year Treasury Yields [3.42%], after hitting 4% in early April, yields have sharply fallen to 3.50% range.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Theatrical Feel
In some ways, it felt like 2008 crisis again, at least for two key reasons. First, the crisis in Europe reflects worries that are driven by lack of confidence. Secondly, the action in the US markets showcased a historic day of a tremendous shock. Of course, this is all taking place in a period where the schedule for congress testimony features key players from the previous credit bubble as lawmakers consider some resolutions. For storytellers, it was rather an exciting time, while money managers face the issue of protecting capital, while calmly finding opportunities within the current chaotic landscape. An emotional response can dominate the market environment, especially in upcoming days as logic takes time to settle in.
A Step Back
From a clear-headed perspective, the S&P 500 Index reminded us that most investors were not comfortable above 1200. Previous peaks above 1200 in April, served as early clues for a much needed breather. When combining this mechanical observation with the headline concerns of Europe, the high volatility is partially explained. Not to mention, previous turbulence in the Volatility Index, especially in the past eight months, were setting up for a tipping point. In addition, minor worries regarding China that were resurfacing are creating further downside pressure. It wasn’t too long ago that skeptics questioned the lack of volume of this ongoing rally. As for interest rates in the US, near-term data argues for downside momentum, despite the consensus of rising rates. As global central banks readjust interest rates, some await results in political shake outs. Basically, sorting out a few macro issues, such as the stability of the Europe, can shape the new cycle. So far this year, the defensive investor reaction has greatly helped the US Dollar, mostly sparked by Euro weakness. Once again, there are too many macro issues lingering, for those seeking clarity, in search for the next mega trend.
Period of Adjustment
Few changing dynamics in the global marketplace are worth noting, especially in this new decade. These moving parts range from technological advancements in trading mechanics to pending financial reforms in an interconnected world. Globally, a new plan for Europe should slowly materialize. and currency markets most likely need to adjust to the needs of growing economies. At the same time, investors are eager to find out the verdict on the reacceleration of emerging markets; a theme that significantly outperformed last decade. Also, the characteristics and tolerance of market participants is changing as well. That said, investing is requiring severe patience and an open mindedness to navigate an emotionally charged market.
Article Quotes:
“In the mid-1990s, authorities in the fast-growing countries of East Asia explained that their success was due to "Asian values". The crisis of 1997-1998 changed that tune. Similarly, senior U.S. officials spoke confidently in 2006 as they basked in the glow of the "great moderation," as economists called the easing of business-cycle fluctuations over the prior two decades. Financial institutions were rock solid and not leveraged; we were told. Financial markets were resilient. And housing prices would never decline nationwide. Who would have listened 12 months ago to someone asserting that an E.U. member would teeter on default?” (Washington Post, May 9, 2010)
“These incidents demonstrate that our markets are dangerously unprotected against an electronic meltdown. We depend on slow-moving humans at our exchanges to monitor our markets and take actions, such as calling a trading halt when things go haywire. Our markets now react in milliseconds to events but are monitored by humans who respond in minutes. In the time it takes a human to respond to a problem, billions of dollars of damages can occur. It is extremely messy to unwind botched trades after they occur.” (Forbes, May 7, 2010)
Levels:
S&P 500 [1110] previously struggled to hold above 1200. Currently, it’s barely holding above its 200- day moving average of 1095. Near-term indicators suggest that the sell-off is reaching exhaustion at least from a mechanical perspective.
Crude [$75.11], similar to equity markets, had a sharp sell-off near the 200-day moving average. The commodity is back at familiar ranges between $74 and $78.
Gold [$1202.25] is strengthening from previous week as momentum remains positive. At the same time, new, annual highs and slowly approaching recent highs last reached on December 2, 2010.
DXY– US Dollar Index [84.45] had a sharp spike, driving the index to new, yearly highs. This is a reactionary move by investors to rotate towards a defensive currency. Near-term trend might be overdone at a first glance. However, the Dollar Index continues to maintain its strength since bottoming on November 25th.
US 10 Year Treasury Yields [3.42%], after hitting 4% in early April, yields have sharply fallen to 3.50% range.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, May 03, 2010
Market Outlook | May 3, 2010
“A good listener is not only popular everywhere, but, after a while, he gets to know something.” - Wilson Mizner (1876 - 1933)
General market feel and simple investor psychology favored increasing odds of a market correction. This inevitable retracement led to a -2.5% weekly decline for the S&P 500 Index. As to this awaited decline, it was only a question of when. Therefore, it was hardly a surprise last week to see a sharp fall, given the mixed messages of over a 1 year rally. Before recent trading days, it was becoming difficult to deny the uptrend smoothness of risky assets, especially global stock markets. Combining technicals along with human elements creates impactful responses. However, at this stage, one should be careful in claiming of a new trend or discovery.
In looking back, pundits will have to carefully navigate when analyzing stock price appreciation with improving economic numbers. In some cases, others might declare victory and conclude that we’re in a period in which stability is being restored. This is a tricky balance as usual. As the first trading day in May begins, one must wonder and revisit early year thoughts. Currency markets echo similar messages to stock in signaling a defensive posture; specifically, credit downgrades in Europe are partially causing relative weakness of the Euro and strengthening the US Dollar.
Short-lived spikes in volatility have silently hinted of a potential lack of stability. Just viewing historical charts doesn’t paint the picture of extreme worries. However, in the last 8 months, there have been five noteworthy spikes in the Volatility Index (VIX). Despite these clues of turbulence, risky assets in global markets continued to appreciate.
Listed below are percentage gains and periods in which the VIX index jumped from lows to new highs.
33.21% September 23, 2009 – October 2, 2009
58.80% October 21, 2009- November 2, 2009
66.13% January 11, 2010- January 22, 2010
38.61% February 2, 2010- February 5, 2010
52.33% April 12, 2010- April 27, 2010
Article Quotes:
“Higher rates in the United States would encourage investors to move assets into dollars to earn a better return, causing the euro to fall even more. A weaker euro would be good for Greece and European exporters in general by making their products less expensive in foreign markets. But the downside is that a weaker euro would increase the cost of oil and other commodities, which are usually priced in dollars. Higher energy costs would feed inflation, adding pressure on the central bank to raise rates.
For now, that risk seems to have eased after the Fed signaled Wednesday that it was in no hurry to raise rates.” (New York Times, April 30, 2010)
“The European Central Bank keeps the Continent's banking system functioning day by day through short-term loans to commercial banks. In these cases, the ECB usually accepts the banks' holdings of government bonds as collateral. Greek debt is now rated as junk by S&P: Under current ECB rules, Greek bonds can't be used as collateral by the ECB if Fitch Ratings and Moody's Investors Service (MCO) cut them to junk as well. The Frankfurt-based central bank may have to dilute its collateral rules to keep the Greek banks operating. The ECB's problem of securing solid collateral for its loans will expand greatly if Spain and Portugal lose their investment-grade status, too.” (Businessweek, April 29, 2010)
Levels:
S&P 500 [1186.69], in the last few weeks, witnessed the struggle to stay above 1210 and a clear sign of peaking. Next key levels will be eyed by investors around 1090, near the 200-day moving average.
Crude [$86.15] has had a choppy pattern, between the $82 and $86 range, as oil remains upward trending.
Gold [$1179.25] had a recent recovery and has produced by over an 11% gain since February 5, 2010.
DXY– US Dollar Index [81.86] is trading near ranges last seen at the end of March. Multi-month trend remains positive, and few points removed from annual highs.
US 10 Year Treasury Yields [3.65%], in April, showed a dramatic reversal for yields after peaking at 4%. Next key level is around 3.57%, where the current 200-day moving average stands.
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.
General market feel and simple investor psychology favored increasing odds of a market correction. This inevitable retracement led to a -2.5% weekly decline for the S&P 500 Index. As to this awaited decline, it was only a question of when. Therefore, it was hardly a surprise last week to see a sharp fall, given the mixed messages of over a 1 year rally. Before recent trading days, it was becoming difficult to deny the uptrend smoothness of risky assets, especially global stock markets. Combining technicals along with human elements creates impactful responses. However, at this stage, one should be careful in claiming of a new trend or discovery.
In looking back, pundits will have to carefully navigate when analyzing stock price appreciation with improving economic numbers. In some cases, others might declare victory and conclude that we’re in a period in which stability is being restored. This is a tricky balance as usual. As the first trading day in May begins, one must wonder and revisit early year thoughts. Currency markets echo similar messages to stock in signaling a defensive posture; specifically, credit downgrades in Europe are partially causing relative weakness of the Euro and strengthening the US Dollar.
Short-lived spikes in volatility have silently hinted of a potential lack of stability. Just viewing historical charts doesn’t paint the picture of extreme worries. However, in the last 8 months, there have been five noteworthy spikes in the Volatility Index (VIX). Despite these clues of turbulence, risky assets in global markets continued to appreciate.
Listed below are percentage gains and periods in which the VIX index jumped from lows to new highs.
33.21% September 23, 2009 – October 2, 2009
58.80% October 21, 2009- November 2, 2009
66.13% January 11, 2010- January 22, 2010
38.61% February 2, 2010- February 5, 2010
52.33% April 12, 2010- April 27, 2010
Article Quotes:
“Higher rates in the United States would encourage investors to move assets into dollars to earn a better return, causing the euro to fall even more. A weaker euro would be good for Greece and European exporters in general by making their products less expensive in foreign markets. But the downside is that a weaker euro would increase the cost of oil and other commodities, which are usually priced in dollars. Higher energy costs would feed inflation, adding pressure on the central bank to raise rates.
For now, that risk seems to have eased after the Fed signaled Wednesday that it was in no hurry to raise rates.” (New York Times, April 30, 2010)
“The European Central Bank keeps the Continent's banking system functioning day by day through short-term loans to commercial banks. In these cases, the ECB usually accepts the banks' holdings of government bonds as collateral. Greek debt is now rated as junk by S&P: Under current ECB rules, Greek bonds can't be used as collateral by the ECB if Fitch Ratings and Moody's Investors Service (MCO) cut them to junk as well. The Frankfurt-based central bank may have to dilute its collateral rules to keep the Greek banks operating. The ECB's problem of securing solid collateral for its loans will expand greatly if Spain and Portugal lose their investment-grade status, too.” (Businessweek, April 29, 2010)
Levels:
S&P 500 [1186.69], in the last few weeks, witnessed the struggle to stay above 1210 and a clear sign of peaking. Next key levels will be eyed by investors around 1090, near the 200-day moving average.
Crude [$86.15] has had a choppy pattern, between the $82 and $86 range, as oil remains upward trending.
Gold [$1179.25] had a recent recovery and has produced by over an 11% gain since February 5, 2010.
DXY– US Dollar Index [81.86] is trading near ranges last seen at the end of March. Multi-month trend remains positive, and few points removed from annual highs.
US 10 Year Treasury Yields [3.65%], in April, showed a dramatic reversal for yields after peaking at 4%. Next key level is around 3.57%, where the current 200-day moving average stands.
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, April 26, 2010
Market Outlook | April 26, 2010
“Anyone who isn't confused really doesn't understand the situation.” - Edward R. Murrow (1908 - 1965)
After a brief breather, global markets restored their positive flow. Again, earnings occupy the minds of most financial professionals, while policymakers examine reforms as discussed for most of this year. However, observing broad index performance fails to trigger urgent worries or troublesome trends at first. Yet, the looming concerns of currency movements, European crisis management, and the potentially overheating Chinese economy are issues that are poised to spark sensitive responses. Also, investors will have to be cautious in isolating the credit problems of today versus future concerns. In a period of reflection and pending reforms, it is easy to confuse catalysts affecting investor psychology.
During the current rally, on certain occasions, investors showcased overconfidence by attaching one or two macro factors that served as key drivers. For example, much-awaited interest rate decisions have shaped forecasters’ market view. One thing that we've learned in the past three years is about the connectivity of macro movements. In fact, the synchronized movements of rates, commodities, and stocks are striking. Meanwhile, higher inflation worries have not lived up to expectations. Similarly, interest rates have not rocketed as pointed out by several pundits at the start of this year. Both rates and inflation might contribute to a surprise element that could force investors to readjust their thought process. At the same time, the recovery in the US Dollar is a quick reminder of a global perception of a safe asset. This is a noteworthy point in addressing the comfort level of participants and the relative attractiveness of US markets versus Euro region.
Momentum-driven stocks continue to lead, especially in consumer discretionary, industrials, and Financials. Perhaps, a speculative environment contributed to sectors with higher volatility. Other sectors are seeing a strong recovery as well. For example, CREE (Cree, Inc.) in technology and ISRG (Intuitive Surgical) in healthcare are showcasing fundamental strength in a favorable cycle recovery. The takeaway is an ongoing, investor appetite for solid growth stories, driven by strong, stock specific stories.
Article Quotes:
“It seems unwise for investors to celebrate variations of a few basis points in delinquency rates. It seems equally unwise to celebrate ‘favorable’ bank earnings reports that are exclusively driven by reduced loan loss provisions, particularly when the volume of impaired loans has not declined proportionately. Keep in mind that Enron and Worldcom were able to report outstanding earnings for a while by adjusting the manner by which revenues and expenses were accrued. I suspect that the U.S. banking system has become a similar breeding ground for innovative accounting.” (John P. Hussman, April 19, 2010)
“When the financial sector increases its net lending, aggregate demand (or total spending) tends to increase. This is because the financial sector, especially the banking sector, tends to create new credit rather than merely transferring purchasing power, which the nonfinancial sector does when its net lending increases. In order for the private financial sector to increase its net lending, it needs sufficient capital….. For the first time since the 1952 inception of this series, net lending by financial sector actually contracted in 2009. What is all the more noteworthy, total financial sector net lending contracted in 2009 despite a surge in net lending by the Federal Reserve.” (Paul L. Kasriel, April 16, 2010)
Levels:
S&P 500 [1217.28] had yet another week of new annual highs. Positive momentum continues as the index remains 5% above its 50-day moving average.
Crude [$85.12] is trading in a narrow range between $82 and $86. Mostly, maintaining a bullish uptrend, while retracing from annual highs from few weeks ago.
Gold [$1139.50] is down since last week’s finish. Importantly, the commodity remains removed from recent highs of 1212.50, reached in December 2009.
DXY– US Dollar Index [81.35], in the last 8 days witnessed a resurgence of strength in the dollar index. A multi-month outperformance versus the Euro continues to take place.
US 10 Year Treasury Yields [3.80%] is stabilizing around familiar territory, while trading slightly below 15- day moving average of 3.84%.
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.
After a brief breather, global markets restored their positive flow. Again, earnings occupy the minds of most financial professionals, while policymakers examine reforms as discussed for most of this year. However, observing broad index performance fails to trigger urgent worries or troublesome trends at first. Yet, the looming concerns of currency movements, European crisis management, and the potentially overheating Chinese economy are issues that are poised to spark sensitive responses. Also, investors will have to be cautious in isolating the credit problems of today versus future concerns. In a period of reflection and pending reforms, it is easy to confuse catalysts affecting investor psychology.
During the current rally, on certain occasions, investors showcased overconfidence by attaching one or two macro factors that served as key drivers. For example, much-awaited interest rate decisions have shaped forecasters’ market view. One thing that we've learned in the past three years is about the connectivity of macro movements. In fact, the synchronized movements of rates, commodities, and stocks are striking. Meanwhile, higher inflation worries have not lived up to expectations. Similarly, interest rates have not rocketed as pointed out by several pundits at the start of this year. Both rates and inflation might contribute to a surprise element that could force investors to readjust their thought process. At the same time, the recovery in the US Dollar is a quick reminder of a global perception of a safe asset. This is a noteworthy point in addressing the comfort level of participants and the relative attractiveness of US markets versus Euro region.
Momentum-driven stocks continue to lead, especially in consumer discretionary, industrials, and Financials. Perhaps, a speculative environment contributed to sectors with higher volatility. Other sectors are seeing a strong recovery as well. For example, CREE (Cree, Inc.) in technology and ISRG (Intuitive Surgical) in healthcare are showcasing fundamental strength in a favorable cycle recovery. The takeaway is an ongoing, investor appetite for solid growth stories, driven by strong, stock specific stories.
Article Quotes:
“It seems unwise for investors to celebrate variations of a few basis points in delinquency rates. It seems equally unwise to celebrate ‘favorable’ bank earnings reports that are exclusively driven by reduced loan loss provisions, particularly when the volume of impaired loans has not declined proportionately. Keep in mind that Enron and Worldcom were able to report outstanding earnings for a while by adjusting the manner by which revenues and expenses were accrued. I suspect that the U.S. banking system has become a similar breeding ground for innovative accounting.” (John P. Hussman, April 19, 2010)
“When the financial sector increases its net lending, aggregate demand (or total spending) tends to increase. This is because the financial sector, especially the banking sector, tends to create new credit rather than merely transferring purchasing power, which the nonfinancial sector does when its net lending increases. In order for the private financial sector to increase its net lending, it needs sufficient capital….. For the first time since the 1952 inception of this series, net lending by financial sector actually contracted in 2009. What is all the more noteworthy, total financial sector net lending contracted in 2009 despite a surge in net lending by the Federal Reserve.” (Paul L. Kasriel, April 16, 2010)
Levels:
S&P 500 [1217.28] had yet another week of new annual highs. Positive momentum continues as the index remains 5% above its 50-day moving average.
Crude [$85.12] is trading in a narrow range between $82 and $86. Mostly, maintaining a bullish uptrend, while retracing from annual highs from few weeks ago.
Gold [$1139.50] is down since last week’s finish. Importantly, the commodity remains removed from recent highs of 1212.50, reached in December 2009.
DXY– US Dollar Index [81.35], in the last 8 days witnessed a resurgence of strength in the dollar index. A multi-month outperformance versus the Euro continues to take place.
US 10 Year Treasury Yields [3.80%] is stabilizing around familiar territory, while trading slightly below 15- day moving average of 3.84%.
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, April 19, 2010
Market Outlook | April 19, 2010
“Most of the change we think we see in life is due to truths being in and out of favor.” Robert Frost (1874 - 1963)
A Pause:
As seen for several weeks and even heading into last week, markets were reaching extended levels, not to mention option expiration, which leads to unusual behavior while adding to volatility. However, leading up to last week, low volume was a profound and worrisome message to optimists. Similarly, contrarian indicators signaled early warnings. As usual, the surprising element is not necessarily the downtrend. Rather, it is the form in which a unanimous message sparks a trend shift. In other words, the takeaway is translated as bad news, causing a sensitive response. In addition, it serves as a gut check for those who were too comfortable in the calm nature of this recent uptrend. Clearly, the top news on Friday became a convincing force not only for a down day, but also for the the first negative weekly finish in 10 weeks. As for legal and policymaker decisions ahead, there are plenty of unknowns. At least, the start of earnings season will confirm or contest the justification of previous rallies. And the Federal Reserve’s message will be closely watched to determine risk tolerance and more definition on the cycle recovery.
Macro Themes:
Recently, there are three themes that gained popularity in the past few months, which include higher interest rates, declining Euros, and buying Crude-related groups. From a big picture standpoint, these views appear like a consensus view, but they mainly demonstrated an increased acceptance of risk. These movements were in synch as many awaited the validity of these thoughts. Given the potential change in mood, these three areas are worth watching closely.
Cycle Perspective:
The strength of innovative themes is being highlighted in this cycle. For example, Semiconductors continue to recover and showcase fundamental strength. Interestingly, Semiconductor Index bottomed on November 21 2008, which was ahead by over three months before broad market lows established in March 2009. In addition, this index is still far removed from its 2000 highs, which hints further upside potential. Therefore, even in the context of the current run-up, it is hard to deem the group as extended, especially given a decade-old sideways movement. Keeping this frame of mind, the cycle perspective points to relative attractiveness towards technology based themes, as seen in recent market leadership as well.
Article Quotes:
"’Chinese investment in Australian farms increased 10-fold in the past six months,’ real estate agents said, as Australia relaxed rules governing residential property purchasing, and buyers see opportunities in agriculture. ‘They are interested in large scale cattle farms; they are cashed up and see a financial opportunity here in a secure investment environment,’ said Geoff Hickson, real estate manager at Landmark Operations, Ltd. ‘There has been a big increase from Chinese buyers in the past six months. It has grown 10-fold.” (Bloomberg, April 15, 2010)
“In 1933, the newly-inaugurated FDR recognized that he inherited a populace, enraged by the effects of reckless greed in the financial markets. The Pecora commission, which began the year before FDR assumed office, not only aimed to unearth the causes of the 1929 market crash, but also rightly skewered the bankers for running what many considered to be a rigged game. It resulted in the political defenestration of several well-known Wall Streeters. The new President wasted no time in stating to the public whose side he was on. What few realized at the time is that FDR’s populist rhetoric set off a wave of anti-Wall Street sentiment that far outlasted Pecora.” (Financial Times, April 13, 2010)
Levels:
S&P 500 [1192.13] witnessed a sharp reversal after a multi-week positive movement. Long-term trend is intact but vulnerable in the near-term.
Crude [$83.24] is pausing in the last two weeks, after hitting annual highs, which showcased a consolidation phase. High odds of those prices stabilize between $80 and $82.
Gold [$1151.50] is up nearly 10% since lows on February 5, 2010, and now shows early signs of stalling. Interestingly, Gold showed signs of weakness before equity market reversal.
DXY– US Dollar Index [80.24] is declining since the start of the second quarter. However, there has been no evidence of a major breakdown at this stage. A familiar range, near 80, for index, signals average behavior.
US 10 Year Treasury Yields [3.76%] once again struggling to stay above 4% as investors reexamine their long-term outlook.
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.
A Pause:
As seen for several weeks and even heading into last week, markets were reaching extended levels, not to mention option expiration, which leads to unusual behavior while adding to volatility. However, leading up to last week, low volume was a profound and worrisome message to optimists. Similarly, contrarian indicators signaled early warnings. As usual, the surprising element is not necessarily the downtrend. Rather, it is the form in which a unanimous message sparks a trend shift. In other words, the takeaway is translated as bad news, causing a sensitive response. In addition, it serves as a gut check for those who were too comfortable in the calm nature of this recent uptrend. Clearly, the top news on Friday became a convincing force not only for a down day, but also for the the first negative weekly finish in 10 weeks. As for legal and policymaker decisions ahead, there are plenty of unknowns. At least, the start of earnings season will confirm or contest the justification of previous rallies. And the Federal Reserve’s message will be closely watched to determine risk tolerance and more definition on the cycle recovery.
Macro Themes:
Recently, there are three themes that gained popularity in the past few months, which include higher interest rates, declining Euros, and buying Crude-related groups. From a big picture standpoint, these views appear like a consensus view, but they mainly demonstrated an increased acceptance of risk. These movements were in synch as many awaited the validity of these thoughts. Given the potential change in mood, these three areas are worth watching closely.
Cycle Perspective:
The strength of innovative themes is being highlighted in this cycle. For example, Semiconductors continue to recover and showcase fundamental strength. Interestingly, Semiconductor Index bottomed on November 21 2008, which was ahead by over three months before broad market lows established in March 2009. In addition, this index is still far removed from its 2000 highs, which hints further upside potential. Therefore, even in the context of the current run-up, it is hard to deem the group as extended, especially given a decade-old sideways movement. Keeping this frame of mind, the cycle perspective points to relative attractiveness towards technology based themes, as seen in recent market leadership as well.
Article Quotes:
"’Chinese investment in Australian farms increased 10-fold in the past six months,’ real estate agents said, as Australia relaxed rules governing residential property purchasing, and buyers see opportunities in agriculture. ‘They are interested in large scale cattle farms; they are cashed up and see a financial opportunity here in a secure investment environment,’ said Geoff Hickson, real estate manager at Landmark Operations, Ltd. ‘There has been a big increase from Chinese buyers in the past six months. It has grown 10-fold.” (Bloomberg, April 15, 2010)
“In 1933, the newly-inaugurated FDR recognized that he inherited a populace, enraged by the effects of reckless greed in the financial markets. The Pecora commission, which began the year before FDR assumed office, not only aimed to unearth the causes of the 1929 market crash, but also rightly skewered the bankers for running what many considered to be a rigged game. It resulted in the political defenestration of several well-known Wall Streeters. The new President wasted no time in stating to the public whose side he was on. What few realized at the time is that FDR’s populist rhetoric set off a wave of anti-Wall Street sentiment that far outlasted Pecora.” (Financial Times, April 13, 2010)
Levels:
S&P 500 [1192.13] witnessed a sharp reversal after a multi-week positive movement. Long-term trend is intact but vulnerable in the near-term.
Crude [$83.24] is pausing in the last two weeks, after hitting annual highs, which showcased a consolidation phase. High odds of those prices stabilize between $80 and $82.
Gold [$1151.50] is up nearly 10% since lows on February 5, 2010, and now shows early signs of stalling. Interestingly, Gold showed signs of weakness before equity market reversal.
DXY– US Dollar Index [80.24] is declining since the start of the second quarter. However, there has been no evidence of a major breakdown at this stage. A familiar range, near 80, for index, signals average behavior.
US 10 Year Treasury Yields [3.76%] once again struggling to stay above 4% as investors reexamine their long-term outlook.
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, April 12, 2010
Market Outlook | April 12, 2010
“It has been said that man is a rational animal. All my life, I have been searching for evidence which could support this.” Bertrand Russell (1872 - 1970)
It seems like the market offers two major entry points per calendar year. In turn, that points to a strong possibility of major pullbacks that are overdue to materialize, following an explosive run. So many wonder if much discussed pullbacks from this current rally will take place in the near-term. At this point, some ponder if that sell-off would occur either in the spring or summer of 2010. However, improving economic conditions and stabilizing fundamentals continue to paint positive headlines.
At the start of the second quarter, we’ve marched upwards, keeping this bullish uptrend. For days, the argument of low volume has failed to translate into lower prices. Even low volatility, for that matter, has yet to reverse, while panic is not visible. In short, risk tolerance by global investors is spreading from corporate bonds, commodities, and broad equities. Interlinked markets are maintaining a synchronized upward movement in which markets have not witnessed a correction greater than 1% in over 42 days (Bespoke Investments, April 6 2010). Interestingly, credit markets remain healthy and continue to appeal towards investor demand. This is surprising to some who forecasted a fearful outlook, mainly based on increasing debt.
Classical view points to some conditions of the market that are being extended. Yet, we’re at the early stages of a recovery into a new cycle. For example, some technical indicators and valuations tools are cautioning, and they suggest a downturn bet. Ignoring this ongoing strength has been costly, even for short-term traders. That said, the confidence of those betting against the market is waning. At the same time, defensively positioned portfolios are noticing that their strategy minimized their upside potential in the past year. Therefore, a psychological view can entice participants to deploy more capital. Generally, this euphoric response can create additional buyers, based on performance chasing.
This week’s showcase earnings can provide some guidance on investor attitude. Perhaps, the shift towards bonds can present outflow from equity markets. Secondly, debt issuance continues to present a noteworthy trend. Finally, characteristics of those participating in these markets are slowly shifting as well. That said, adjusting analysis to a new climate takes some time and is less noticeable at this junction. Meanwhile, deciphering political policies and international posturing remains an ongoing challenge.
Article Quotes:
“Notably, even at the March 2009 lows, the implied total return barely crossed 10%, suggesting that stocks were modestly undervalued at that point, but nowhere near the level of valuation observed at major long-term buying opportunities, such as 1950, 1974, and 1982. This is not intended to excuse what, in hindsight, has been my awful underestimation of the extent to which investors would abandon their aversion to risk - in hopes that credit difficulties have been solved and that record profit margins will be recovered and sustained into the indefinite future. It's just that current market levels now rely on those hopes to be validated.” (John P. Hussman, April 5, 2010)
"’China's foreign exchange reserves face a “triple whammy” as a decline in the U.S. dollar and Treasuries and possible inflation in the longer run erode the value of its savings,’ said Yu Yongding, a former adviser to the People's Bank of China... 'There is no question whatsoever that the U.S. dollar will go south in the long run,' he wrote. 'Unless the U.S. economy improves its trade balance, the dollar will fall. But the U.S. cannot improve its trade balance unless the dollar falls.'" (Bloomberg, April 6, 2010)
Levels:
S&P 500 [1194.37] is making new annual highs, and it is up nearly 15% since February 5th lows. Positive momentum remains in place.
Crude [$84.92] is marking a new uptrend level after breaking above $82. Solid recovery continues to appease buyers.
Gold [$1152.50] is in a recovering pattern, developing as the commodity attempts to reaccelerate towards 52-week highs.
DXY– US Dollar Index [81.09] has strength, seen in first quarter, is now pausing. The index peaked on March 25, 2010. However, trend is intact and staying above 80.50.
US 10 Year Treasury Yields [3.88%] is retracing the past few days after hitting a much anticipated 4%.
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.
It seems like the market offers two major entry points per calendar year. In turn, that points to a strong possibility of major pullbacks that are overdue to materialize, following an explosive run. So many wonder if much discussed pullbacks from this current rally will take place in the near-term. At this point, some ponder if that sell-off would occur either in the spring or summer of 2010. However, improving economic conditions and stabilizing fundamentals continue to paint positive headlines.
At the start of the second quarter, we’ve marched upwards, keeping this bullish uptrend. For days, the argument of low volume has failed to translate into lower prices. Even low volatility, for that matter, has yet to reverse, while panic is not visible. In short, risk tolerance by global investors is spreading from corporate bonds, commodities, and broad equities. Interlinked markets are maintaining a synchronized upward movement in which markets have not witnessed a correction greater than 1% in over 42 days (Bespoke Investments, April 6 2010). Interestingly, credit markets remain healthy and continue to appeal towards investor demand. This is surprising to some who forecasted a fearful outlook, mainly based on increasing debt.
Classical view points to some conditions of the market that are being extended. Yet, we’re at the early stages of a recovery into a new cycle. For example, some technical indicators and valuations tools are cautioning, and they suggest a downturn bet. Ignoring this ongoing strength has been costly, even for short-term traders. That said, the confidence of those betting against the market is waning. At the same time, defensively positioned portfolios are noticing that their strategy minimized their upside potential in the past year. Therefore, a psychological view can entice participants to deploy more capital. Generally, this euphoric response can create additional buyers, based on performance chasing.
This week’s showcase earnings can provide some guidance on investor attitude. Perhaps, the shift towards bonds can present outflow from equity markets. Secondly, debt issuance continues to present a noteworthy trend. Finally, characteristics of those participating in these markets are slowly shifting as well. That said, adjusting analysis to a new climate takes some time and is less noticeable at this junction. Meanwhile, deciphering political policies and international posturing remains an ongoing challenge.
Article Quotes:
“Notably, even at the March 2009 lows, the implied total return barely crossed 10%, suggesting that stocks were modestly undervalued at that point, but nowhere near the level of valuation observed at major long-term buying opportunities, such as 1950, 1974, and 1982. This is not intended to excuse what, in hindsight, has been my awful underestimation of the extent to which investors would abandon their aversion to risk - in hopes that credit difficulties have been solved and that record profit margins will be recovered and sustained into the indefinite future. It's just that current market levels now rely on those hopes to be validated.” (John P. Hussman, April 5, 2010)
"’China's foreign exchange reserves face a “triple whammy” as a decline in the U.S. dollar and Treasuries and possible inflation in the longer run erode the value of its savings,’ said Yu Yongding, a former adviser to the People's Bank of China... 'There is no question whatsoever that the U.S. dollar will go south in the long run,' he wrote. 'Unless the U.S. economy improves its trade balance, the dollar will fall. But the U.S. cannot improve its trade balance unless the dollar falls.'" (Bloomberg, April 6, 2010)
Levels:
S&P 500 [1194.37] is making new annual highs, and it is up nearly 15% since February 5th lows. Positive momentum remains in place.
Crude [$84.92] is marking a new uptrend level after breaking above $82. Solid recovery continues to appease buyers.
Gold [$1152.50] is in a recovering pattern, developing as the commodity attempts to reaccelerate towards 52-week highs.
DXY– US Dollar Index [81.09] has strength, seen in first quarter, is now pausing. The index peaked on March 25, 2010. However, trend is intact and staying above 80.50.
US 10 Year Treasury Yields [3.88%] is retracing the past few days after hitting a much anticipated 4%.
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, April 05, 2010
Market Outlook | April 5, 2010
“Make no little plans; they have no magic to stir men's blood. Make big plans Aim high in hope and work.” - Daniel H. Burnham (1846 - 1912)
April was greeted warmly with new highs across global assets. This behavior is proving skeptics wrong once again, and a much feared market decline is not materializing. Importantly, the resilience of a cycle recovery is too powerful, and ignoring these publicized worries has been fruitful for buyers. A synchronized pattern in asset classes is a trend that is becoming too familiar. This time, interest rates are rising along with commodity prices. Once again, this is a subtle reminder for investors to maintain an open mind. Of course, rising markets, with low volume at this junction, are puzzling, especially when attempting to make the next move. Similarly, corporate debt issuance and demand for collateralized loans remain strong. This is a sign of confidence restoration in credit markets. Basically, there is willingness to borrow among companies, and inflow data supports these points, especially in the first quarter. Therefore, risk appetite is generally healthy along with sentiment. Nonetheless, making a differentiated call is an ongoing challenge that haunts managers into this second quarter.
At this point, fighting the interconnected trend has been costly. Specifically, investors are gaining comfort in rising rates and improving economic data. However, recent movements will require further confirmation ahead, especially at the start of the second quarter. At the same time, volatility has remained low enough to create an encouraging atmosphere, which results in less impactful surprises. Now, Gold related stocks have not outperformed on a relative basis since the start of the year. Therefore, some investors might consider reentering with hopes of a Gold recovery. Meanwhile, Crude is making multi-month highs, but stocks related to China are cooling off, unlike the emerging market run-up of last decade. This point to some disconnect of previous correlations, and those gaps are worth tracking for profitable pursuits.
Article Quotes:
"Global steel prices are set to leap by up to a third, pushing up the cost of everyday goods from cars to domestic appliances, after miners and steelmakers on Tuesday agreed on a ground-breaking change in the iron ore price system. The deal by Vale of Brazil and Anglo-Australian BHP Billiton with Japanese and Chinese mills marks the end of the 40-year-old benchmark system of annual contracts and lengthy price negotiations. The industry instead agreed to move to quarterly contracts linked to the nascent iron ore spot market. The benchmark system has ended.” (Financial Times, March 30, 2010)
“Businesses have also become less reliable defenders of China, rankled by measures, such as an edict last autumn, which, according to American technology companies, virtually shuts them out of Chinese government procurement. The hacking attacks on Google and the trial of Rio Tinto executives have hardly helped. ‘A whole slew of multinationals I’ve talked to are increasingly fed up with how they are being dealt with on micro, industry, product-specific stuff,’ says Fred Bergsten, director of the Peterson Institute for International Economics, a think-tank.” (Economist, March 31, 2010)
Levels:
S&P 500 [1178.10] is strengthening since mid-March by holding above 1160 and reaching intra-day highs of 1181.43 by Thursday’s market behavior.
Crude [$84.87] is breaking out above $84, which showcases positive momentum and new highs for the year.
Gold [$1123.50] is mostly trading between 1100 and 1120 in the past few days. Last week, it witnessed an early resurgence yet far removed from previous highs.
DXY– US Dollar Index [80.70] has had early pauses after a sharp multi-week run. March 25th marked a top in the near-term. The index is normalizing around a familiar territory of 80.
US 10 Year Treasury Yields [3.86%] is stabilizing in a new range between 3.80% and 3.90%. These levels confirm further technical strength.
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.
April was greeted warmly with new highs across global assets. This behavior is proving skeptics wrong once again, and a much feared market decline is not materializing. Importantly, the resilience of a cycle recovery is too powerful, and ignoring these publicized worries has been fruitful for buyers. A synchronized pattern in asset classes is a trend that is becoming too familiar. This time, interest rates are rising along with commodity prices. Once again, this is a subtle reminder for investors to maintain an open mind. Of course, rising markets, with low volume at this junction, are puzzling, especially when attempting to make the next move. Similarly, corporate debt issuance and demand for collateralized loans remain strong. This is a sign of confidence restoration in credit markets. Basically, there is willingness to borrow among companies, and inflow data supports these points, especially in the first quarter. Therefore, risk appetite is generally healthy along with sentiment. Nonetheless, making a differentiated call is an ongoing challenge that haunts managers into this second quarter.
At this point, fighting the interconnected trend has been costly. Specifically, investors are gaining comfort in rising rates and improving economic data. However, recent movements will require further confirmation ahead, especially at the start of the second quarter. At the same time, volatility has remained low enough to create an encouraging atmosphere, which results in less impactful surprises. Now, Gold related stocks have not outperformed on a relative basis since the start of the year. Therefore, some investors might consider reentering with hopes of a Gold recovery. Meanwhile, Crude is making multi-month highs, but stocks related to China are cooling off, unlike the emerging market run-up of last decade. This point to some disconnect of previous correlations, and those gaps are worth tracking for profitable pursuits.
Article Quotes:
"Global steel prices are set to leap by up to a third, pushing up the cost of everyday goods from cars to domestic appliances, after miners and steelmakers on Tuesday agreed on a ground-breaking change in the iron ore price system. The deal by Vale of Brazil and Anglo-Australian BHP Billiton with Japanese and Chinese mills marks the end of the 40-year-old benchmark system of annual contracts and lengthy price negotiations. The industry instead agreed to move to quarterly contracts linked to the nascent iron ore spot market. The benchmark system has ended.” (Financial Times, March 30, 2010)
“Businesses have also become less reliable defenders of China, rankled by measures, such as an edict last autumn, which, according to American technology companies, virtually shuts them out of Chinese government procurement. The hacking attacks on Google and the trial of Rio Tinto executives have hardly helped. ‘A whole slew of multinationals I’ve talked to are increasingly fed up with how they are being dealt with on micro, industry, product-specific stuff,’ says Fred Bergsten, director of the Peterson Institute for International Economics, a think-tank.” (Economist, March 31, 2010)
Levels:
S&P 500 [1178.10] is strengthening since mid-March by holding above 1160 and reaching intra-day highs of 1181.43 by Thursday’s market behavior.
Crude [$84.87] is breaking out above $84, which showcases positive momentum and new highs for the year.
Gold [$1123.50] is mostly trading between 1100 and 1120 in the past few days. Last week, it witnessed an early resurgence yet far removed from previous highs.
DXY– US Dollar Index [80.70] has had early pauses after a sharp multi-week run. March 25th marked a top in the near-term. The index is normalizing around a familiar territory of 80.
US 10 Year Treasury Yields [3.86%] is stabilizing in a new range between 3.80% and 3.90%. These levels confirm further technical strength.
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, March 29, 2010
Market Outlook | March 29, 2010
“It is always easier to believe than to deny. Our minds are naturally affirmative.” - John Burroughs (1837 - 1921)
Reflective Questions
Looking back to the start of the first quarter, the age-old market illustrated a classic debate for investors. At that time, one faced two extreme alternatives: whether to either sell all winners as a panic-like response or to buy on weakness to take advantage of cheaper prices. Some market wisdom reminds us that the reasonable answer resides somewhere in between those extremes. One approach is to buy quality stocks while selling vulnerable groups. Perhaps, that decision would’ve kept some satisfied the past few months. Of course, not many strategies outperformed ‘buy and hold’ since March 2009. Ironically, that was a period where most marketers concluded that long-term investment was officially “dead”. At this point, replicating last year’s upward pattern might seem a bit ambitious, especially at this junction.
New Quarter, Old Issues
Now, similar conditions are revisited here, a few months later, with shaky European credit status, growing worries of extended broad indexes, and a sharper rise in volatility from very low ranges. Perhaps, this is a repeat of early winter jitters, highlighted by uncertain fundamental and earnings outlook. All that said, risk appetite is increasing and assets held in money market dwindle, while aggressive areas, such as junk bonds, continue to see inflows. Also, those severely worried about credit conditions should not forget that Homebuilders index peaked in 2005 (well before market peak), banks topped on February 2007, and, for a while, credit crisis is being addressed and reassessed. In other words, these fears are not breaking news. In fact, overall, actual resolutions are unknown even with on-going deliberation, political posturing, and heavily documented financial crisis. Maybe these matters are not for investors to solve and even difficult for policymakers. Through these generational extremes, global investors seem to favor US markets for its liquid capital markets, highly demanded currency, and relative attractiveness, especially in fragile economic conditions.
Perspective
From US perspective, the S&P 500 is up 4.6% and the Dollar index has risen by 4.8% year-to-date. Therefore, both showcase a positive trend, despite the misconception of an inverse relationship between a country’s currency and its stock market. Similarly, US 10 Year Treasury has climbed higher, as well, along with Crude prices. On the other hand, the Gold frenzy has not lived up to the hype, as prices stayed in a range for the most part of the first quarter. In connecting the macro dots, this confirms investor’s willingness to take on further risk. Interestingly, this is one year after the market bottom, confidence restoration, and the entrance to a new cycle.
Through this thought process, one should examine the outlook for the rest of the year. For example, consumer and financials groups offered the highest risk/reward at the height of worries. Those gutsy bets have paid off for some on a selective basis. However, too much optimism, especially in analyst outlook, makes contrarian pundits a bit weary, as in, complacency might be a concern. Yet, this uptrend has faced various challenges. Sharp declines in the days ahead would not surprise many either. For example, some signs of vulnerability are visible in emerging markets and Commodity Index (RJ CRB), in which both failed to make new highs this year. Perhaps, those ideas were well served last decade. Finally, the profitability of short-term declines versus long-term rewards is the better decision making question.
Article Quotes:
“Some finance scholars and a few practitioners are moving away from a mechanical approach, derived from Newtonian physics, to a more organic one, based on biological observations. Attention is shifting, in recognition that economic systems, based on human interactions, can become more complex and unpredictable than planets or toasters. Financial theorists are turning to organic biological models, to help monitor the global economy and regulate key institutions that may be too big or interconnected to fail. Vivid metaphors serve to describe the phenomena.” (FundStradegy, March 22, 2010)
“The historically low level of inventories, relative to sales, suggests that companies need to restock. However, this figure alone can't provide a definitive signal, because there has been a secular decline in the inventory/sales ratio for the past 20 years, due to various technological and management innovations. It is the extraordinarily low inventory-sales ratio combined with other data that indicates to me that the strong inventory building process, already evident in the fourth-quarter GDP data for 2009, may sustain itself during the next few quarters, providing a major boost to employment. (Minyanville, March 26, 2010)
Levels:
S&P 500 [1166.59] reached new annual highs last week, yet again. For the past 8 trading days, index has held above 1160 majority of the time.
Crude [$80.00]closed exactly at a critical level of $80. There is heavy resistance around $83. That marks a significant, near-term hurdle for those seeking a breakout.
Gold [$1096.50] closed below its 50-day moving average of 1104, which matches the four month downtrend that began in early December 2009. Next important levels reside around 1045-1050 where investors will determine the faith of rising gold prices.
DXY– US Dollar Index [82.17], after completing a first wave of a multi-month recovery, is re-accelerating, especially since March 17, 2010. This is a confirmation of strength that’s emerging in the US Dollar.
US 10 Year Treasury Yields [3.84%] had a noticeable rise in the past 3 trading dates, lifting yields above 3.80%. This behavior attempts to retest recent highs of 3.90, reached on the last day of 2009. In addition, rates last hit the 4% mark in mid 2009.
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.
Reflective Questions
Looking back to the start of the first quarter, the age-old market illustrated a classic debate for investors. At that time, one faced two extreme alternatives: whether to either sell all winners as a panic-like response or to buy on weakness to take advantage of cheaper prices. Some market wisdom reminds us that the reasonable answer resides somewhere in between those extremes. One approach is to buy quality stocks while selling vulnerable groups. Perhaps, that decision would’ve kept some satisfied the past few months. Of course, not many strategies outperformed ‘buy and hold’ since March 2009. Ironically, that was a period where most marketers concluded that long-term investment was officially “dead”. At this point, replicating last year’s upward pattern might seem a bit ambitious, especially at this junction.
New Quarter, Old Issues
Now, similar conditions are revisited here, a few months later, with shaky European credit status, growing worries of extended broad indexes, and a sharper rise in volatility from very low ranges. Perhaps, this is a repeat of early winter jitters, highlighted by uncertain fundamental and earnings outlook. All that said, risk appetite is increasing and assets held in money market dwindle, while aggressive areas, such as junk bonds, continue to see inflows. Also, those severely worried about credit conditions should not forget that Homebuilders index peaked in 2005 (well before market peak), banks topped on February 2007, and, for a while, credit crisis is being addressed and reassessed. In other words, these fears are not breaking news. In fact, overall, actual resolutions are unknown even with on-going deliberation, political posturing, and heavily documented financial crisis. Maybe these matters are not for investors to solve and even difficult for policymakers. Through these generational extremes, global investors seem to favor US markets for its liquid capital markets, highly demanded currency, and relative attractiveness, especially in fragile economic conditions.
Perspective
From US perspective, the S&P 500 is up 4.6% and the Dollar index has risen by 4.8% year-to-date. Therefore, both showcase a positive trend, despite the misconception of an inverse relationship between a country’s currency and its stock market. Similarly, US 10 Year Treasury has climbed higher, as well, along with Crude prices. On the other hand, the Gold frenzy has not lived up to the hype, as prices stayed in a range for the most part of the first quarter. In connecting the macro dots, this confirms investor’s willingness to take on further risk. Interestingly, this is one year after the market bottom, confidence restoration, and the entrance to a new cycle.
Through this thought process, one should examine the outlook for the rest of the year. For example, consumer and financials groups offered the highest risk/reward at the height of worries. Those gutsy bets have paid off for some on a selective basis. However, too much optimism, especially in analyst outlook, makes contrarian pundits a bit weary, as in, complacency might be a concern. Yet, this uptrend has faced various challenges. Sharp declines in the days ahead would not surprise many either. For example, some signs of vulnerability are visible in emerging markets and Commodity Index (RJ CRB), in which both failed to make new highs this year. Perhaps, those ideas were well served last decade. Finally, the profitability of short-term declines versus long-term rewards is the better decision making question.
Article Quotes:
“Some finance scholars and a few practitioners are moving away from a mechanical approach, derived from Newtonian physics, to a more organic one, based on biological observations. Attention is shifting, in recognition that economic systems, based on human interactions, can become more complex and unpredictable than planets or toasters. Financial theorists are turning to organic biological models, to help monitor the global economy and regulate key institutions that may be too big or interconnected to fail. Vivid metaphors serve to describe the phenomena.” (FundStradegy, March 22, 2010)
“The historically low level of inventories, relative to sales, suggests that companies need to restock. However, this figure alone can't provide a definitive signal, because there has been a secular decline in the inventory/sales ratio for the past 20 years, due to various technological and management innovations. It is the extraordinarily low inventory-sales ratio combined with other data that indicates to me that the strong inventory building process, already evident in the fourth-quarter GDP data for 2009, may sustain itself during the next few quarters, providing a major boost to employment. (Minyanville, March 26, 2010)
Levels:
S&P 500 [1166.59] reached new annual highs last week, yet again. For the past 8 trading days, index has held above 1160 majority of the time.
Crude [$80.00]closed exactly at a critical level of $80. There is heavy resistance around $83. That marks a significant, near-term hurdle for those seeking a breakout.
Gold [$1096.50] closed below its 50-day moving average of 1104, which matches the four month downtrend that began in early December 2009. Next important levels reside around 1045-1050 where investors will determine the faith of rising gold prices.
DXY– US Dollar Index [82.17], after completing a first wave of a multi-month recovery, is re-accelerating, especially since March 17, 2010. This is a confirmation of strength that’s emerging in the US Dollar.
US 10 Year Treasury Yields [3.84%] had a noticeable rise in the past 3 trading dates, lifting yields above 3.80%. This behavior attempts to retest recent highs of 3.90, reached on the last day of 2009. In addition, rates last hit the 4% mark in mid 2009.
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, March 22, 2010
Market Outlook | March 22, 2010
“An optimist is the human personification of spring.” - Susan J. Bissonette
The official start of spring brings a glimpse of hope for sustainable recovery. For attentive financial followers, it’s hardly rosy some days when viewing updates on regulatory debates, European credit status, or worries of inflation. That said, a glance of the scoreboard tells us of stocks holding their gains with relatively low volatility and no alarming calls for the panic button, at least for the past week. In fact, optimism is visible as investors pulled $61.1 billion out of money markets, according to EPFR. That’s a symbol of optimism, which echoes a low interest rate policy by the Federal Reserve. Simply, the message is translated to support ongoing cycle recovery. In the weeks ahead, we’ll gain a better read on investor risk tolerance.
The inverse relationship between Gold and Dollar is closely monitored by pundits. Mainly, this is an accepted tool for gauging sentiment towards investor demands for risky assets. Importantly, it’s on the radar of observers, seeking hints across financial markets. The last few months witnessed a rise in US Dollar, which generally suggests a rotation towards safer instruments. However, both indicators are not currently pointing to a dramatic trend shift.
Another perspective shows outperformance of S&P 500 Index over Gold since March 2009. Possibly, this recovery cycle points to favorable returns in equities as commodities cool off from their previous decade run up. Similarly, the related groups of Steel and Oil Services led weekly declines. This corresponds with a sluggish, six-month performance by major commodities, which have few wondering on changing dynamics. Perhaps, it’s too premature to call tops on Gold and Crude prices, but it’s definitely worth watching.
Liquidity remains in high demand, especially in a period where most scramble to find preventative methods towards another crisis. Of course, it makes sense given key lessons learned in 2008. However, dwelling on past findings should not blur one’s drive to search potential opportunities. Some fundamental studies argue that stock multiples are too high and majority chart observers point to extended levels. However, financial markets have a tendency to surprise, and keeping an open mind might provide a prudent approach.
Article Quotes:
“I liken it to the cardiovascular system. In an economy, the central bank is the heart, money is the lifeblood, and financial markets are the arteries and capillaries that provide critical sustenance to the muscles that are the makers of goods and services and the creators of employment. A properly functioning cardiovascular system fosters healthy growth; if that system fails, the body breaks down and the muscles atrophy.” (Federal Reserve of Dallas, March 3, 2010)
“The first worry for China is that lending won't come down fast enough. Banks have made commitments to finance projects and cannot easily back out; besides, money may leak into bubbly real estate projects via channels that circumvent the banking system. Moreover, even if lending is reined in, the banks may do so inefficiently: China sets monetary policy by targeting the quantity of loans rather than their price, so powerful state-owned enterprises are liable to get capital while more productive private firms are starved of it.” (Washington Post, March 19, 2010)
Levels:
S&P 500 [1159.90] is closing near annual highs, confirming the established uptrend since March 2008. The index showcases strength and a re-acceleration that began in early February.
Crude [$80.68] had a retest of previous highs, which is a key hurdle for crude prices. Once again, crude prices are decelerating from $82 range, which suggests a weakening momentum.
Gold [$1105.50] maintains a sideway pattern. There is not much to surmise from chart patterns, except to conclude that investors appear to await impactful news material to cause a reaction.
DXY– US Dollar Index [80.22] is providing clues of reacceleration despite the multi-week neutral behavior. The follow through of last week’s strong finish will be highly anticipated.
US 10 Year Treasury Yields [3.68%] is staying above 3.60%, which serves as a key near-term level.
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 official start of spring brings a glimpse of hope for sustainable recovery. For attentive financial followers, it’s hardly rosy some days when viewing updates on regulatory debates, European credit status, or worries of inflation. That said, a glance of the scoreboard tells us of stocks holding their gains with relatively low volatility and no alarming calls for the panic button, at least for the past week. In fact, optimism is visible as investors pulled $61.1 billion out of money markets, according to EPFR. That’s a symbol of optimism, which echoes a low interest rate policy by the Federal Reserve. Simply, the message is translated to support ongoing cycle recovery. In the weeks ahead, we’ll gain a better read on investor risk tolerance.
The inverse relationship between Gold and Dollar is closely monitored by pundits. Mainly, this is an accepted tool for gauging sentiment towards investor demands for risky assets. Importantly, it’s on the radar of observers, seeking hints across financial markets. The last few months witnessed a rise in US Dollar, which generally suggests a rotation towards safer instruments. However, both indicators are not currently pointing to a dramatic trend shift.
Another perspective shows outperformance of S&P 500 Index over Gold since March 2009. Possibly, this recovery cycle points to favorable returns in equities as commodities cool off from their previous decade run up. Similarly, the related groups of Steel and Oil Services led weekly declines. This corresponds with a sluggish, six-month performance by major commodities, which have few wondering on changing dynamics. Perhaps, it’s too premature to call tops on Gold and Crude prices, but it’s definitely worth watching.
Liquidity remains in high demand, especially in a period where most scramble to find preventative methods towards another crisis. Of course, it makes sense given key lessons learned in 2008. However, dwelling on past findings should not blur one’s drive to search potential opportunities. Some fundamental studies argue that stock multiples are too high and majority chart observers point to extended levels. However, financial markets have a tendency to surprise, and keeping an open mind might provide a prudent approach.
Article Quotes:
“I liken it to the cardiovascular system. In an economy, the central bank is the heart, money is the lifeblood, and financial markets are the arteries and capillaries that provide critical sustenance to the muscles that are the makers of goods and services and the creators of employment. A properly functioning cardiovascular system fosters healthy growth; if that system fails, the body breaks down and the muscles atrophy.” (Federal Reserve of Dallas, March 3, 2010)
“The first worry for China is that lending won't come down fast enough. Banks have made commitments to finance projects and cannot easily back out; besides, money may leak into bubbly real estate projects via channels that circumvent the banking system. Moreover, even if lending is reined in, the banks may do so inefficiently: China sets monetary policy by targeting the quantity of loans rather than their price, so powerful state-owned enterprises are liable to get capital while more productive private firms are starved of it.” (Washington Post, March 19, 2010)
Levels:
S&P 500 [1159.90] is closing near annual highs, confirming the established uptrend since March 2008. The index showcases strength and a re-acceleration that began in early February.
Crude [$80.68] had a retest of previous highs, which is a key hurdle for crude prices. Once again, crude prices are decelerating from $82 range, which suggests a weakening momentum.
Gold [$1105.50] maintains a sideway pattern. There is not much to surmise from chart patterns, except to conclude that investors appear to await impactful news material to cause a reaction.
DXY– US Dollar Index [80.22] is providing clues of reacceleration despite the multi-week neutral behavior. The follow through of last week’s strong finish will be highly anticipated.
US 10 Year Treasury Yields [3.68%] is staying above 3.60%, which serves as a key near-term level.
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, March 14, 2010
Market Outlook | March 15, 2010
“Any genuine philosophy leads to action and from action back again to wonder, to enduring fact of mystery. “ - Henry Miller (1891 - 1980)
Current Landscape
This has been another positive week that increases the difficulty of reaching a comfort level regarding recent market trends. As for the current mindset, even pessimists would have to accept the market strength with the S&P 500 breaking out near annual highs. As for sentiment, it feels like majority money managers would have liked to bet against this price appreciation, but the resilience is casting doubts in conviction levels of those maintaining a negative outlook. Also, sharp decline in volatility levels are puzzling, along with low volume levels, which questions the willingness of participants to add more risky assets. Basically, this run-up continues to reinforce itself of an ongoing positive momentum, despite fuzzy fundamental picture. From a cycle viewpoint, the March 2009 bottoming process should not be taking lightly, and last week marked a one year anniversary to this bullish run.
Anticipations and Clues
In the short-term, lows established on February 5, 2010, symbolized an early restoration of confidence. There is plenty of headline buzz over regulatory changes in derivative markets and financial regulations in US and Europe. However, data on interest rate policies and confirmation of an economic recovery are poised to cause sensitive responses. This week offers a meeting by the Federal Reserve, along with key economic results, which can lead to eventful reactions. At least, investors can gain better clues given key inflection points.
There are similarities when comparing current conditions with January 2010 sell-offs. For example, the S&P 500 Index was 3.41% above its 50-day moving average when the market peaked on January 19, 2010. Heading into Monday, currently S&P 500 is 3.37% higher than its 50-day moving average. This points to a similar set-up when applying simple math. Combining investor psychology along with policy approaches begins to increase odds for spring surprises.
Changing Dynamics
Asset managers are trying to gain a better gauge on risk and other financial theories post 2008. We’re in a period of the skepticism of investors as managers scramble to understand risk assessment while adjusting to a changing landscape. Investor comfort level for committing risky capital is unclear and partially explained by synchronized movement across financial markets. In other words, strong correlation among asset classes presents a challenge in mapping out a long-term plan. Basically, interest rates, stocks, and commodities have mostly risen and declined in tandem since 2008. Perhaps, one key mystery is the possibility of dispersion, leading to less synchronized patter. Nonetheless, stock picking and theme based investing generally provide opportunities. However, finding those selective ideas without a clear macro picture presents another layer of difficulty. Therefore, patience is required more than usual.
Article Quotes:
"The inventory-sales ratio of the business sector was down one notch to 1.25 in January; the record low for this ratio is 1.24 set in 2005. As the economy gathers momentum, inventories are projected to make a sizable contribution to real GDP, which could be in the first-half of 2010 or later in the year. The timing is unclear, but it is nearly certain that an inventory accumulation led spike in real GDP is in store for 2010." (Northern Trust, March 12, 2010)
"The percentage of stocks in the S&P 500 currently trades above their 50-day moving averages stands at 78%. As shown in the chart below, this is getting up to the top end of the range the indicator has seen during the bull market. It still has a little bit farther to go before it reaches extreme overbought territory….On a sector basis, Financials currently has the highest reading at 94%. This level is at the top of its range over the last year, and it's the most overbought of any sector.” ( Bespoke, March 11, 2010)
Levels:
S&P 500 [1149.99] is climbing back to January 2010 highs while holding above 1140. It appears due for a pause, but momentum is positive.
Crude [$81.24] is struggling to hold above $82. A glance back showcases that those current levels were previously critical turning points in October and January.
Gold [$1106.25] is trading in a tight range between 1080 and 1120, which confirms the neutrality of investor reaction.
DXY– US Dollar Index [79.83] is pausing, following a multi-week upside trend. Index is slightly below a key technical range of 80.
US 10 Year Treasury Yields [3.70%] has had no significant directional changes since the start of the year. The last 6 trading days witnessed rise in rates from 3.58%.
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 Landscape
This has been another positive week that increases the difficulty of reaching a comfort level regarding recent market trends. As for the current mindset, even pessimists would have to accept the market strength with the S&P 500 breaking out near annual highs. As for sentiment, it feels like majority money managers would have liked to bet against this price appreciation, but the resilience is casting doubts in conviction levels of those maintaining a negative outlook. Also, sharp decline in volatility levels are puzzling, along with low volume levels, which questions the willingness of participants to add more risky assets. Basically, this run-up continues to reinforce itself of an ongoing positive momentum, despite fuzzy fundamental picture. From a cycle viewpoint, the March 2009 bottoming process should not be taking lightly, and last week marked a one year anniversary to this bullish run.
Anticipations and Clues
In the short-term, lows established on February 5, 2010, symbolized an early restoration of confidence. There is plenty of headline buzz over regulatory changes in derivative markets and financial regulations in US and Europe. However, data on interest rate policies and confirmation of an economic recovery are poised to cause sensitive responses. This week offers a meeting by the Federal Reserve, along with key economic results, which can lead to eventful reactions. At least, investors can gain better clues given key inflection points.
There are similarities when comparing current conditions with January 2010 sell-offs. For example, the S&P 500 Index was 3.41% above its 50-day moving average when the market peaked on January 19, 2010. Heading into Monday, currently S&P 500 is 3.37% higher than its 50-day moving average. This points to a similar set-up when applying simple math. Combining investor psychology along with policy approaches begins to increase odds for spring surprises.
Changing Dynamics
Asset managers are trying to gain a better gauge on risk and other financial theories post 2008. We’re in a period of the skepticism of investors as managers scramble to understand risk assessment while adjusting to a changing landscape. Investor comfort level for committing risky capital is unclear and partially explained by synchronized movement across financial markets. In other words, strong correlation among asset classes presents a challenge in mapping out a long-term plan. Basically, interest rates, stocks, and commodities have mostly risen and declined in tandem since 2008. Perhaps, one key mystery is the possibility of dispersion, leading to less synchronized patter. Nonetheless, stock picking and theme based investing generally provide opportunities. However, finding those selective ideas without a clear macro picture presents another layer of difficulty. Therefore, patience is required more than usual.
Article Quotes:
"The inventory-sales ratio of the business sector was down one notch to 1.25 in January; the record low for this ratio is 1.24 set in 2005. As the economy gathers momentum, inventories are projected to make a sizable contribution to real GDP, which could be in the first-half of 2010 or later in the year. The timing is unclear, but it is nearly certain that an inventory accumulation led spike in real GDP is in store for 2010." (Northern Trust, March 12, 2010)
"The percentage of stocks in the S&P 500 currently trades above their 50-day moving averages stands at 78%. As shown in the chart below, this is getting up to the top end of the range the indicator has seen during the bull market. It still has a little bit farther to go before it reaches extreme overbought territory….On a sector basis, Financials currently has the highest reading at 94%. This level is at the top of its range over the last year, and it's the most overbought of any sector.” ( Bespoke, March 11, 2010)
Levels:
S&P 500 [1149.99] is climbing back to January 2010 highs while holding above 1140. It appears due for a pause, but momentum is positive.
Crude [$81.24] is struggling to hold above $82. A glance back showcases that those current levels were previously critical turning points in October and January.
Gold [$1106.25] is trading in a tight range between 1080 and 1120, which confirms the neutrality of investor reaction.
DXY– US Dollar Index [79.83] is pausing, following a multi-week upside trend. Index is slightly below a key technical range of 80.
US 10 Year Treasury Yields [3.70%] has had no significant directional changes since the start of the year. The last 6 trading days witnessed rise in rates from 3.58%.
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, March 08, 2010
Market Outlook | March 8, 2010
“There is no security on this earth; there is only opportunity.” General Douglas MacArthur (1880 - 1964)
Slowly Marching
The last three weeks have tested the patience of both optimists and skeptics. Simply, the current environment appears dull, given a much anticipated inflection point in stocks, commodities, and interest rates. For example, S&P 500 Index, Crude, and US 10 Year Yields all bottomed on February 5, 2010. These are all interconnected and highly watched indeed. Thus far, there are no major surprises in economic data, headline interpretations, and technical signals. However, this sideways pattern should not be alarming after a weak January and strong February. That said, this neutral behavior may drive managers and investors to seek concentrated and narrow based ideas. At the same time, interest rates levels continue to encourage more risk taking in global assets. Meanwhile, risk appetite is moderately increasing as hinted by weekly inflow in junk bonds and recent issuance of corporate bonds.
Short-Term View
Most broad indexes have been up 5-8 days in a row, as a continuation of market strength since March 2009 lows. Some near-term indicators were suggesting that financial markets were extended even by mid-week. Friday’s action confirmed overall buyer strength. Importantly, resilience of the Nasdaq Index showcases strength in technology and healthcare based themes. Perhaps, this is another hint of a leadership groups based on innovation that present sustainability. Similarly, Small Cap Index was nearly up 6 % for the week. From a psychological view, the S&P 500 is positive so far this year, which can entice some optimism. An explosive upside bias remains in place since the lows of March 6, 2009. However, the looming short-term pullbacks ignite further tests of buyer conviction. Several periods of inevitable sell-offs have taught us not to lose track of attractive opportunities based on minor macro worries.
Tricky Sentiment
The resilience in global stock prices and steady recoveries would imply improving investor sentiment. Positive economic conditions and rising interest rates were expected by many pundits at the start of the year. On the other hand, the fear of asset bubbles is a reoccurring theme among those arguing for a sharp sell-off. Clearly, the credit crisis in Europe and explosive real estate market in China are on the radar of worrisome issues. The surprise element rests on the decisions and messages of policymakers that can influence the mindset of participants. Investors might choose to shorten the overall holding period in big picture ideas. In upcoming weeks, it enables one to examine a handful of specific ideas that are worth accumulating on weakness.
Article Quotes:
"Federal Reserve Bank of Richmond President Jeffrey Lacker said the central bank is 'being made a scapegoat' to satisfy anger over bailouts as Congress seeks to limit its consumer-protection and bank-supervision powers. 'People are mad at us,' Lacker said... 'I can understand the ire after what happened in 2008. It was so unexpected, and it seemed to overstep boundaries that everyone thought we were going to obey.' Lacker said he wouldn't 'second guess' moves by Federal Reserve Chairman Ben S. Bernanke to backstop non-bank financial institutions... He said proposals to curtail the Fed's supervision authority would weaken its ability to lend to banks." (Bloomberg, March 1, 2010)
“Signs of exuberance are everywhere. An investor in Shanghai recently bought 54 apartments in a single day; a villa sold for $30 million last year; and in December a consortium of developers paid more than $3.5 billion for a huge tract of land in Guangzhou, one of the highest prices paid for any property, anywhere. In the city of Tianjin, in north China, developers have created a $3 billion ‘floating city,’ a series of islands built on a natural reservoir, featuring villas, shopping malls, a water amusement park and what they say will be the world’s largest indoor ski resort.” (New York Times, March 4th 2010)
Levels:
S&P 500 [1138.70] is showcasing a steady recovery while maintaining its uptrend. Few points removed from annual highs of 1150.
Crude [$81.50] recent recovery mirrors stocks as the commodity bottomed on February 5th. It is nearing key ranges between $82.00 and $83.95.
Gold [$1135.00] is establishing a 3 month pause within a defined range 1050-1150. Catalyst needed for a trend shift.
DXY– US Dollar Index [80.42] has had prices sitting slightly above 80, which remain above its 50- and 200-day averages.
US 10 Year Treasury Yields [3.68%] is mostly sideways in the past few weeks. Rates are holding steady at about 3.60%, which has been consistent so far this year.
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.
Slowly Marching
The last three weeks have tested the patience of both optimists and skeptics. Simply, the current environment appears dull, given a much anticipated inflection point in stocks, commodities, and interest rates. For example, S&P 500 Index, Crude, and US 10 Year Yields all bottomed on February 5, 2010. These are all interconnected and highly watched indeed. Thus far, there are no major surprises in economic data, headline interpretations, and technical signals. However, this sideways pattern should not be alarming after a weak January and strong February. That said, this neutral behavior may drive managers and investors to seek concentrated and narrow based ideas. At the same time, interest rates levels continue to encourage more risk taking in global assets. Meanwhile, risk appetite is moderately increasing as hinted by weekly inflow in junk bonds and recent issuance of corporate bonds.
Short-Term View
Most broad indexes have been up 5-8 days in a row, as a continuation of market strength since March 2009 lows. Some near-term indicators were suggesting that financial markets were extended even by mid-week. Friday’s action confirmed overall buyer strength. Importantly, resilience of the Nasdaq Index showcases strength in technology and healthcare based themes. Perhaps, this is another hint of a leadership groups based on innovation that present sustainability. Similarly, Small Cap Index was nearly up 6 % for the week. From a psychological view, the S&P 500 is positive so far this year, which can entice some optimism. An explosive upside bias remains in place since the lows of March 6, 2009. However, the looming short-term pullbacks ignite further tests of buyer conviction. Several periods of inevitable sell-offs have taught us not to lose track of attractive opportunities based on minor macro worries.
Tricky Sentiment
The resilience in global stock prices and steady recoveries would imply improving investor sentiment. Positive economic conditions and rising interest rates were expected by many pundits at the start of the year. On the other hand, the fear of asset bubbles is a reoccurring theme among those arguing for a sharp sell-off. Clearly, the credit crisis in Europe and explosive real estate market in China are on the radar of worrisome issues. The surprise element rests on the decisions and messages of policymakers that can influence the mindset of participants. Investors might choose to shorten the overall holding period in big picture ideas. In upcoming weeks, it enables one to examine a handful of specific ideas that are worth accumulating on weakness.
Article Quotes:
"Federal Reserve Bank of Richmond President Jeffrey Lacker said the central bank is 'being made a scapegoat' to satisfy anger over bailouts as Congress seeks to limit its consumer-protection and bank-supervision powers. 'People are mad at us,' Lacker said... 'I can understand the ire after what happened in 2008. It was so unexpected, and it seemed to overstep boundaries that everyone thought we were going to obey.' Lacker said he wouldn't 'second guess' moves by Federal Reserve Chairman Ben S. Bernanke to backstop non-bank financial institutions... He said proposals to curtail the Fed's supervision authority would weaken its ability to lend to banks." (Bloomberg, March 1, 2010)
“Signs of exuberance are everywhere. An investor in Shanghai recently bought 54 apartments in a single day; a villa sold for $30 million last year; and in December a consortium of developers paid more than $3.5 billion for a huge tract of land in Guangzhou, one of the highest prices paid for any property, anywhere. In the city of Tianjin, in north China, developers have created a $3 billion ‘floating city,’ a series of islands built on a natural reservoir, featuring villas, shopping malls, a water amusement park and what they say will be the world’s largest indoor ski resort.” (New York Times, March 4th 2010)
Levels:
S&P 500 [1138.70] is showcasing a steady recovery while maintaining its uptrend. Few points removed from annual highs of 1150.
Crude [$81.50] recent recovery mirrors stocks as the commodity bottomed on February 5th. It is nearing key ranges between $82.00 and $83.95.
Gold [$1135.00] is establishing a 3 month pause within a defined range 1050-1150. Catalyst needed for a trend shift.
DXY– US Dollar Index [80.42] has had prices sitting slightly above 80, which remain above its 50- and 200-day averages.
US 10 Year Treasury Yields [3.68%] is mostly sideways in the past few weeks. Rates are holding steady at about 3.60%, which has been consistent so far this year.
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, March 01, 2010
Market Outlook | March 1, 2010
“Many people despise wealth, but few know how to give it away.” Francois de La Rochefoucauld (1613 - 1680)
Lack of Rhythm
Coming into the year, there were growing expectations of a recovering economy, but the pace of improving conditions is being questioned. A strong February stock performance showcased a solid recovery, which appears to make up January’s losses. This is visible in the neutral results of broad indexes in which the S&P is down 1% year-to-date. This is yet another view, describing the lack of major movements while setting the stage for a suspenseful spring. Clearly, the consequences of European credit concerns dominate headlines by triggering fear-like responses, especially for banks with risky asset exposure.
US credit crisis of mid 2007 serves as the roots of recent trouble in Europe. Therefore, one should not be surprised to see discussion and implementation of reforms in financial services. For example, new short-selling rules were enforced last week. Now, this will take time to materialize as facilitators implement and adjust for these changes. On the other hand, several pundits keep featuring worrisome big picture issues, which make long-term investors wary to commit capital and exercise patience.
Moreover, technical indicators are not showcasing opportunistic extremes, which suggest increasing market sensitively in response to event reactions. In short, identifying the natural market rhythm is less evident at this junction. Now, money managers might have to understand headline interpretations while attempting to guess sustainable results. This is a challenge indeed. For traders, this means to expect plenty of news material related to credit and sovereign crisis. Knowing how to respond will be vital.
Evaluating New Trends
Only few months ago, the Dollar began to recover from extreme lows. Similarly, within the same timeframe, Gold prices peaked along with global equities. This pause is not only attributed to structural concerns of financial systems but a bubble-like behavior in emerging markets. As a result, the multi-week correction is highlighted by risk aversion and sell-off in the Euro. The nature of these pullbacks is broad based and finding distinct ideas on a relative basis, stock specific companies with less currency, and commodity exposure is worth examining. That said, investor willingness to own shares for an extended period remains part of the ongoing puzzle.
On the bright side, Volatility Index (VIX) has calmed down despite sharp turbulences in 2010. The Volatility Index is slightly below where we started the year. Of course, this is temporary, and shift in sentiment is a wildcard that’s unpredictable. However, interest rate sensitive themes and material based groups remain vulnerable from the current sell-off. In turn, this favors innovative companies as investor demand shifts away from previous leaders, such as resource and some emerging markets. If this holds, then money managers will begin to wonder a potential inflow into US currency and capital markets.
Article Quotes:
“The existence of this long-term trend makes recent developments all the more interesting. Since the recent lows in early February, equity markets around the world have all recovered to some degree. However, unlike prior rebounds, emerging markets have been underperforming. In fact, while the major US averages (S&P 500, DJIA and Nasdaq) closed above their 50-day averages on Friday, all four BRIC countries (Brazil, Russia, India, and China) had yet to achieve that milestone. Whether or not this trend fizzles out or is an early warning sign for the global economy is debatable, but in either case, emerging market investors would be wise to be on alert.” (Bespoke February 22, 2010)
“Everywhere you look, the quantity of information in the world is soaring. According to one estimate, mankind created 150 exabytes (billion gigabytes) of data in 2005. This year, it will create 1,200 exabytes. Merely keeping up with this flood, and storing the bits that might be useful, is difficult enough. Analyzing it, to spot patterns and extract useful information, is harder still. Even so, the data deluge is already starting to transform business, government, science, and everyday life). It has great potential for good—as long as consumers, companies and governments make the right choices about when to restrict the flow of data and when to encourage it.” (The Economist, February 25th 2010)
Levels:
S&P 500 [1104.49] is recovering from February 5th lows of 1044 and beginning to stall at current range.
Crude [$79.66] is facing heavy resistance at $80. In upcoming weeks, investor will examine the willingness of buyers. Remains highly correlated to equity markets in the recent run-up.
Gold [$1108.25] has yet to establish a defined trend following a December 2009 peak. It’s now trading in-line with its 50 day moving average of $1108.
DXY– US Dollar Index [80.36] is in a three month uptrend and nearing an inflection point yet again at 80. It’s poised for minor pullbacks, but the recovery appears intact.
US 10 Year Treasury Yields [3.61%], which is further confirmation that current trend favors rates between 3.60% and 3.80%. The last 50 days of trading showcase an average of 3.70%, which is a midpoint level of a multi-month trend.
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.
Lack of Rhythm
Coming into the year, there were growing expectations of a recovering economy, but the pace of improving conditions is being questioned. A strong February stock performance showcased a solid recovery, which appears to make up January’s losses. This is visible in the neutral results of broad indexes in which the S&P is down 1% year-to-date. This is yet another view, describing the lack of major movements while setting the stage for a suspenseful spring. Clearly, the consequences of European credit concerns dominate headlines by triggering fear-like responses, especially for banks with risky asset exposure.
US credit crisis of mid 2007 serves as the roots of recent trouble in Europe. Therefore, one should not be surprised to see discussion and implementation of reforms in financial services. For example, new short-selling rules were enforced last week. Now, this will take time to materialize as facilitators implement and adjust for these changes. On the other hand, several pundits keep featuring worrisome big picture issues, which make long-term investors wary to commit capital and exercise patience.
Moreover, technical indicators are not showcasing opportunistic extremes, which suggest increasing market sensitively in response to event reactions. In short, identifying the natural market rhythm is less evident at this junction. Now, money managers might have to understand headline interpretations while attempting to guess sustainable results. This is a challenge indeed. For traders, this means to expect plenty of news material related to credit and sovereign crisis. Knowing how to respond will be vital.
Evaluating New Trends
Only few months ago, the Dollar began to recover from extreme lows. Similarly, within the same timeframe, Gold prices peaked along with global equities. This pause is not only attributed to structural concerns of financial systems but a bubble-like behavior in emerging markets. As a result, the multi-week correction is highlighted by risk aversion and sell-off in the Euro. The nature of these pullbacks is broad based and finding distinct ideas on a relative basis, stock specific companies with less currency, and commodity exposure is worth examining. That said, investor willingness to own shares for an extended period remains part of the ongoing puzzle.
On the bright side, Volatility Index (VIX) has calmed down despite sharp turbulences in 2010. The Volatility Index is slightly below where we started the year. Of course, this is temporary, and shift in sentiment is a wildcard that’s unpredictable. However, interest rate sensitive themes and material based groups remain vulnerable from the current sell-off. In turn, this favors innovative companies as investor demand shifts away from previous leaders, such as resource and some emerging markets. If this holds, then money managers will begin to wonder a potential inflow into US currency and capital markets.
Article Quotes:
“The existence of this long-term trend makes recent developments all the more interesting. Since the recent lows in early February, equity markets around the world have all recovered to some degree. However, unlike prior rebounds, emerging markets have been underperforming. In fact, while the major US averages (S&P 500, DJIA and Nasdaq) closed above their 50-day averages on Friday, all four BRIC countries (Brazil, Russia, India, and China) had yet to achieve that milestone. Whether or not this trend fizzles out or is an early warning sign for the global economy is debatable, but in either case, emerging market investors would be wise to be on alert.” (Bespoke February 22, 2010)
“Everywhere you look, the quantity of information in the world is soaring. According to one estimate, mankind created 150 exabytes (billion gigabytes) of data in 2005. This year, it will create 1,200 exabytes. Merely keeping up with this flood, and storing the bits that might be useful, is difficult enough. Analyzing it, to spot patterns and extract useful information, is harder still. Even so, the data deluge is already starting to transform business, government, science, and everyday life). It has great potential for good—as long as consumers, companies and governments make the right choices about when to restrict the flow of data and when to encourage it.” (The Economist, February 25th 2010)
Levels:
S&P 500 [1104.49] is recovering from February 5th lows of 1044 and beginning to stall at current range.
Crude [$79.66] is facing heavy resistance at $80. In upcoming weeks, investor will examine the willingness of buyers. Remains highly correlated to equity markets in the recent run-up.
Gold [$1108.25] has yet to establish a defined trend following a December 2009 peak. It’s now trading in-line with its 50 day moving average of $1108.
DXY– US Dollar Index [80.36] is in a three month uptrend and nearing an inflection point yet again at 80. It’s poised for minor pullbacks, but the recovery appears intact.
US 10 Year Treasury Yields [3.61%], which is further confirmation that current trend favors rates between 3.60% and 3.80%. The last 50 days of trading showcase an average of 3.70%, which is a midpoint level of a multi-month trend.
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, February 22, 2010
Market Outlook | February 22, 2010
“Do not anticipate trouble or worry about what may never happen. Keep in the sunlight.” Benjamin Franklin (1706 - 1790)
Stabilizing
A sluggish start to 2010 might explain profit taking and early jitters but not necessarily a downtrend. The S&P 500 has yet to correct 10%, while economic numbers are set to improve in this period of stabilization. Last week presented a holiday shortened week as well as option expiration. The S&P 500 is trading near its midpoint range, between the highs of October 2007 (1576) and the lows of March 2008 (666). To be exact, the midpoint level is 1121; that’s just 12 points removed from S&P 500 Index as of Friday’s close. In other words, a 42% rise from current levels would be required to get back to last decade’s highs. This simple math provides a perspective that markets are trading closer to neutral and not at extremes. This sentiment matches the decisions by policymakers and anticipated earnings improvement. Interestingly, the last 10 days have witnessed a nearly 9% rise in the Russell Small Cap Index. This sharp upside is visible in commodity related indexes and stocks as buyer bias followed up a weak January.
Sideway patterns may continue in stocks and, in turn, force investors to actively monitor short-term patterns. At least in US, finding long-term investments with sustainable growth require some patience. In addition, more precision is required in selecting the right companies. Now, the ability to pick quality stocks, while navigating through a fuzzy broad market outlook, is the challenge ahead for 10 months. Investors eagerly await data points to determine the next leadership groups. However, only seeking for a defined uptrend might not be sufficient to outpace competing managers. Plus, investors have witnessed rollercoaster’s in the past 3 years, which explains growing skepticism, along with requests for higher transparency. This can further delay the recovery process.
In Upcoming Days
The hike in discount rates by the Federal Reserve should not be a surprise as participants look to digest the awkward timing of the announcement. Perhaps, the move by the central banks suggests that policies implemented for crisis management of the previous years are moving back to normal levels. Others anticipate these hikes will trigger the start of a rising rate policy. In both cases, it’s too early to assume and conclude. In upcoming days, interpretation of this announcement should play out in stocks and commodities. Meanwhile, Europe attempts to resolve various debt concerns, and China hopes to cool the ongoing bubble. Basically, the results of the credit crisis are lingering and reforms will continue to be discussed. Therefore, participants have to track pending reforms, while not losing sight of emerging ideas in a new cycle.
Article Quotes:
“Some Chinese economists worry out loud that China’s massive stimulus-spending might have bought the country only a temporary reprieve. Bubbles, they fret, are forming in property markets, inflationary pressure is building up, and reforms needed to promote sustained growth (including measures to promote urbanization) are not being carried out fast enough. Occasionally, even the government’s worst nightmare is mooted as a possibility: stagflation. A combination of fast-rising prices and low growth might indeed be enough to send protesters on to the streets.” (The Economist, February 18, 2010)
“True, monetary union came before political union. But it did not come with a promise that there would never be such a union. Quite to the contrary: the founding fathers wanted the euro primarily as a step towards political union, knowing little of the overriding technical arguments in its favour. Those who argued against it then, on the grounds that “there can that there could be no monetary union without political union”, are precisely those who should welcome political union now that it finally knocks at the door claiming its rights.” (Financial Times, February 18, 2010)
Levels:
S&P 500 [1109.17] is facing early resistance as the index closed near its 50-day average of 1109. Most likely index continues to trade in the range of 1080-1120.
Crude [$79.81] had a 15% rally since February 5th demonstrates the sharpness of this recent recovery.
Gold [1112.75] continues its multi-week decline after peaking in early December 2009. Recent pattern points to a settling process taking place.
DXY– US Dollar Index [80.93] had another strong week, making new annual highs. The Dollar is reverting back to levels seen in early and mid 2009 levels.
US 10 Year Treasury Yields [3.77%] is stabilizing between 3.60% and 3.80%. Observers await the possible retest of 3.90 at the end of last year.
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.
Stabilizing
A sluggish start to 2010 might explain profit taking and early jitters but not necessarily a downtrend. The S&P 500 has yet to correct 10%, while economic numbers are set to improve in this period of stabilization. Last week presented a holiday shortened week as well as option expiration. The S&P 500 is trading near its midpoint range, between the highs of October 2007 (1576) and the lows of March 2008 (666). To be exact, the midpoint level is 1121; that’s just 12 points removed from S&P 500 Index as of Friday’s close. In other words, a 42% rise from current levels would be required to get back to last decade’s highs. This simple math provides a perspective that markets are trading closer to neutral and not at extremes. This sentiment matches the decisions by policymakers and anticipated earnings improvement. Interestingly, the last 10 days have witnessed a nearly 9% rise in the Russell Small Cap Index. This sharp upside is visible in commodity related indexes and stocks as buyer bias followed up a weak January.
Sideway patterns may continue in stocks and, in turn, force investors to actively monitor short-term patterns. At least in US, finding long-term investments with sustainable growth require some patience. In addition, more precision is required in selecting the right companies. Now, the ability to pick quality stocks, while navigating through a fuzzy broad market outlook, is the challenge ahead for 10 months. Investors eagerly await data points to determine the next leadership groups. However, only seeking for a defined uptrend might not be sufficient to outpace competing managers. Plus, investors have witnessed rollercoaster’s in the past 3 years, which explains growing skepticism, along with requests for higher transparency. This can further delay the recovery process.
In Upcoming Days
The hike in discount rates by the Federal Reserve should not be a surprise as participants look to digest the awkward timing of the announcement. Perhaps, the move by the central banks suggests that policies implemented for crisis management of the previous years are moving back to normal levels. Others anticipate these hikes will trigger the start of a rising rate policy. In both cases, it’s too early to assume and conclude. In upcoming days, interpretation of this announcement should play out in stocks and commodities. Meanwhile, Europe attempts to resolve various debt concerns, and China hopes to cool the ongoing bubble. Basically, the results of the credit crisis are lingering and reforms will continue to be discussed. Therefore, participants have to track pending reforms, while not losing sight of emerging ideas in a new cycle.
Article Quotes:
“Some Chinese economists worry out loud that China’s massive stimulus-spending might have bought the country only a temporary reprieve. Bubbles, they fret, are forming in property markets, inflationary pressure is building up, and reforms needed to promote sustained growth (including measures to promote urbanization) are not being carried out fast enough. Occasionally, even the government’s worst nightmare is mooted as a possibility: stagflation. A combination of fast-rising prices and low growth might indeed be enough to send protesters on to the streets.” (The Economist, February 18, 2010)
“True, monetary union came before political union. But it did not come with a promise that there would never be such a union. Quite to the contrary: the founding fathers wanted the euro primarily as a step towards political union, knowing little of the overriding technical arguments in its favour. Those who argued against it then, on the grounds that “there can that there could be no monetary union without political union”, are precisely those who should welcome political union now that it finally knocks at the door claiming its rights.” (Financial Times, February 18, 2010)
Levels:
S&P 500 [1109.17] is facing early resistance as the index closed near its 50-day average of 1109. Most likely index continues to trade in the range of 1080-1120.
Crude [$79.81] had a 15% rally since February 5th demonstrates the sharpness of this recent recovery.
Gold [1112.75] continues its multi-week decline after peaking in early December 2009. Recent pattern points to a settling process taking place.
DXY– US Dollar Index [80.93] had another strong week, making new annual highs. The Dollar is reverting back to levels seen in early and mid 2009 levels.
US 10 Year Treasury Yields [3.77%] is stabilizing between 3.60% and 3.80%. Observers await the possible retest of 3.90 at the end of last year.
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