Two Steps Forward and One Step Back
Technical
What does 1214, 1215, 1215 and 1215 have in common? They were the closing numbers of the S&P50o for the last four days. Tight closes like this usually signal a meaningful change in market direction is coming. The nasdaq looks similar, although its formation is not as tight. A break out to the upside on solid volume, in either index, would complete a very positive technical pattern and could initiate a market move much higher. Unfortunately, a meaningful move lower would probably mean more to the downside.
Key Market Factors
If you are new to this blog our Key Market Factors are market driving parameters we use to help determine the health and direction of the current market. The actual numbers do little to influence the market rather it's the speculation on the future direction of each that does the driving. These factors have been identified as parameters that are top of mind awareness for the smart money. From time to time we update our ratings and give commentary on each...it is time.
Oil NYMEX (negative) - $65/barrel - The US energy situation is in flux thus we have moved our energy factor from negative plus (+) back down to negative. That said, much of the volatility is due to the uncertainty caused by refinery damage from the recent hurricanes. Although the media is echoing refineries will be down for months it turns out that only a few will be down that long with the majority of gasoline production coming on line by the end of next week. I would expect more volatility in heating oil, gasoline and oil until the hurricane damage has been made clear. If energy markets can stabilize, especially at lower levels, look for the head winds caused by the commodity to be lifted and the stock market to act favorably.
10yr Treasury (positive) - 4.30% - Interest rates remain accommodative in our view. That said, Alan Greenspan was talking down markets on Tuesday as he warned of asset bubbles and how euphoric conditions precede a fall in the value of those assets. It is obvious that the fed wants to cool inflationary pressures specifically in housing and energy, therefore, we expect rates to rise further. That said, there is strong resistance at 4.50% and we are likely to remain positive until that level is breached. If the 4.50% level is broken we may not become completely negative on the stock market because we believe money will come out of bonds and go into stocks.
3rd Quarter Earnings (positive) - 16% - We remain positive on 3rd quarter earnings as global growth is strong and the economy continues to grow according to such groups as the IMF. Most world economies are at or near full employment and inflation although rising is contained and signaling healthy growth. Of all the companies in the S&P500 216 have made pre-announcements with 56% of them making negative comments and 28% being positive. In contrast to last quarter where 53% pre-announced negatively and 27% were positive, staying mostly in line with the previous period. That said, costs are rising and will affect certain sectors more than others. We believe the market will continue to reward those that pick the right stocks.
Two out of Three of the Key Market Factors are positive. If we give equal weight to each the market should take two steps forward for every one step back. We are cautiously optimistic about stocks at this time. We continue to believe it is a stock pickers market and strict attention to near term fundamental details coupled with technical awareness will continue to yield good profits.
What does 1214, 1215, 1215 and 1215 have in common? They were the closing numbers of the S&P50o for the last four days. Tight closes like this usually signal a meaningful change in market direction is coming. The nasdaq looks similar, although its formation is not as tight. A break out to the upside on solid volume, in either index, would complete a very positive technical pattern and could initiate a market move much higher. Unfortunately, a meaningful move lower would probably mean more to the downside.
Key Market Factors
If you are new to this blog our Key Market Factors are market driving parameters we use to help determine the health and direction of the current market. The actual numbers do little to influence the market rather it's the speculation on the future direction of each that does the driving. These factors have been identified as parameters that are top of mind awareness for the smart money. From time to time we update our ratings and give commentary on each...it is time.
Oil NYMEX (negative) - $65/barrel - The US energy situation is in flux thus we have moved our energy factor from negative plus (+) back down to negative. That said, much of the volatility is due to the uncertainty caused by refinery damage from the recent hurricanes. Although the media is echoing refineries will be down for months it turns out that only a few will be down that long with the majority of gasoline production coming on line by the end of next week. I would expect more volatility in heating oil, gasoline and oil until the hurricane damage has been made clear. If energy markets can stabilize, especially at lower levels, look for the head winds caused by the commodity to be lifted and the stock market to act favorably.
10yr Treasury (positive) - 4.30% - Interest rates remain accommodative in our view. That said, Alan Greenspan was talking down markets on Tuesday as he warned of asset bubbles and how euphoric conditions precede a fall in the value of those assets. It is obvious that the fed wants to cool inflationary pressures specifically in housing and energy, therefore, we expect rates to rise further. That said, there is strong resistance at 4.50% and we are likely to remain positive until that level is breached. If the 4.50% level is broken we may not become completely negative on the stock market because we believe money will come out of bonds and go into stocks.
3rd Quarter Earnings (positive) - 16% - We remain positive on 3rd quarter earnings as global growth is strong and the economy continues to grow according to such groups as the IMF. Most world economies are at or near full employment and inflation although rising is contained and signaling healthy growth. Of all the companies in the S&P500 216 have made pre-announcements with 56% of them making negative comments and 28% being positive. In contrast to last quarter where 53% pre-announced negatively and 27% were positive, staying mostly in line with the previous period. That said, costs are rising and will affect certain sectors more than others. We believe the market will continue to reward those that pick the right stocks.
Two out of Three of the Key Market Factors are positive. If we give equal weight to each the market should take two steps forward for every one step back. We are cautiously optimistic about stocks at this time. We continue to believe it is a stock pickers market and strict attention to near term fundamental details coupled with technical awareness will continue to yield good profits.
- BIDU - Baidu.com broke down technically falling below its $71 support level. This bodes negatively for the stock. Although we believe that bidu has a valuation near $3b based on its peers values we are apprehensive about making an investment at this moment. First, Baidu.com is an up and comer and earnings, although growing faster than its peers, are not at peer levels. We are not likely to fight the tape at this point since negative opinions from several brokers have been made on bidu. Further, there has been some near term selling in the group. Stay tuned as we continue to monitor the technical situtation and attempt to identify a new entry point for adding the stock to our Focus13 fund.
- NTES - In contrast to bidu Netease continues to maintain its technical strength. Fundamentally, ntes has a higher level of earnings than bidu. In addition, we also like the quality of ntes earnings. We calculate intrinsic value for the stock at $270/share based on 2006 numbers. At this moment we are more likely to invest in ntes than in bidu.
posted by Burton Hess at 9:27 PM
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