Technical Challenges
Technical
On Friday the VIX (the S&P volatility index) closed above 16 for the week, one of only three times this year. Interestingly, each time the VIX has been above 16 a rally ensued. Finally on Monday the S&P500 climbed above its 200 day moving average after a three week stint that put into question the validity of a nearly three year bull rally. Was a VIX above 16 enough to flush out the hot money and make way for investors? Can this market have yet another year end rally? Is there more to go in this bull market? Based on the technical data we use it is hard to say, but if the stock market can move up from here on higher volume probability favors the bulls.
Short term technical signals for both the S&P500 and nasdaq composite point to an oversold market and are at levels where buyers are likely to reign supreme. The question remains: is there enough buying interest this time to drive through staunch over head resistance? Time will tell, but if fundamental data comes in strong backing up the bulls there is probably enough of a technical void caused by three weeks of selling to rocket stocks.
Monday's rally was a significant follow through as many indices gained over 1.6%, albeit on so so volume. If the rally is to continue the first test will come for the nasdaq as it must climb above 2125 in the short run on higher volume to break through some tough resistance. The same is true for the S&P500 at the 1215 level, which has been a real sticky point.
On a longer term basis this market is more over bought than over sold. From a technical perspective I would not be surprised to see a repeat of last year, where a year end rally yields to strong selling at the beginning of 2006. I believe globalization will fuel long term growth, however, the phenomenal growth in Asia and South America is likely to slow as widening imbalances tend to equilibrium. Hopefully, if and when there is a global slow down it comes with a soft landing, but, a market lacking volatility like this one increases the chance of a harder fall. Look for increases in VIX fluctuations as time passes. It would be better to have greater volatility now then to get it all at once. The fund is likely to purchase more protective puts than what we have over the past two years in order to protect profits in a volatile market.
We are in the process of rebalancing the fund. We have been very busy lately as we remove old leaders and shift into future ones. We continue to stay with our strategy/philosophy (visit our website at www.thesmartmoneyinvestor.com to learn more). Stay tuned as we make changes to maintain the fund's yields above 50% for the year. You can see what we are doing by visiting our website.
On Friday the VIX (the S&P volatility index) closed above 16 for the week, one of only three times this year. Interestingly, each time the VIX has been above 16 a rally ensued. Finally on Monday the S&P500 climbed above its 200 day moving average after a three week stint that put into question the validity of a nearly three year bull rally. Was a VIX above 16 enough to flush out the hot money and make way for investors? Can this market have yet another year end rally? Is there more to go in this bull market? Based on the technical data we use it is hard to say, but if the stock market can move up from here on higher volume probability favors the bulls.
Short term technical signals for both the S&P500 and nasdaq composite point to an oversold market and are at levels where buyers are likely to reign supreme. The question remains: is there enough buying interest this time to drive through staunch over head resistance? Time will tell, but if fundamental data comes in strong backing up the bulls there is probably enough of a technical void caused by three weeks of selling to rocket stocks.
Monday's rally was a significant follow through as many indices gained over 1.6%, albeit on so so volume. If the rally is to continue the first test will come for the nasdaq as it must climb above 2125 in the short run on higher volume to break through some tough resistance. The same is true for the S&P500 at the 1215 level, which has been a real sticky point.
On a longer term basis this market is more over bought than over sold. From a technical perspective I would not be surprised to see a repeat of last year, where a year end rally yields to strong selling at the beginning of 2006. I believe globalization will fuel long term growth, however, the phenomenal growth in Asia and South America is likely to slow as widening imbalances tend to equilibrium. Hopefully, if and when there is a global slow down it comes with a soft landing, but, a market lacking volatility like this one increases the chance of a harder fall. Look for increases in VIX fluctuations as time passes. It would be better to have greater volatility now then to get it all at once. The fund is likely to purchase more protective puts than what we have over the past two years in order to protect profits in a volatile market.
We are in the process of rebalancing the fund. We have been very busy lately as we remove old leaders and shift into future ones. We continue to stay with our strategy/philosophy (visit our website at www.thesmartmoneyinvestor.com to learn more). Stay tuned as we make changes to maintain the fund's yields above 50% for the year. You can see what we are doing by visiting our website.
- BIDU - Baidu.com is set to report earnings on Wednesday and investors are buying now in hopes that the stock will mirror the performance of Google. Shares rose above their 50 day moving average on Monday, a positive sign as the stock has fallen about 50% from its 52 week high. Some analysts call for a $45/share valuation based on earnings growth and market multiples. However, investors see a future significantly above that of market analysts, buying into a faster than estimated 100% 2006 earnings growth. In addition, investors have a buy-out premium on the stock, believing the company could fetch north of $4 billion in an acquisition. At $80/share we believe the stock is fairly valued when compared to its peers; that takes into account accelerated eps growth, market conditions and a buy-out premium. By now Baidu.com should have about 1,000 employees, a ten fold increase over last year. We will be looking for how well Baidu.com management has employed these assets. Further, we are interested to see the progression of search advertising on the site. For now we feel that BIDU promises more short term trading profits than investment opportunities. That can change however, if Baidu.com management can prove it is capable of growing earnings way above consensus estimates.
posted by Burton Hess at 10:27 PM
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