Wednesday, November 02, 2005

Bond Market Turmoil Equals Opportunity


Seasonal buying is in full swing this week as the, "glass half full" scenario plays out. Large investors put their money to work in the stock market driving the S&P500 above its 50 day moving average for the first time in a month. The S&P500 closed at 1214.78 on Tuesday, right against heavy resistance as if to challenge investors. A meaningful move through 1215 on higher volume is necessary if this market is to move higher and stay there.

The nasdaq composite appears to be in better shape as it already broke through its road block when it crossed 2100. Another encouraging sign is that the index closed above its recent trend channel on Tuesday, albeit just, but paving the way for a move higher. The smart money has been buying small caps and tech in selected areas. One would be wise to tread carefully as this market is likely to be vulnerable to bouts of profit taking.

The recent gains have been steep and both the S&P500 and nasdaq composite sit up against some level of resistance, increasing the chance of a short term correction. We have acted with the rest of the smart money buying out of favor small caps and will continue to buy selectively on dips. Check out our website at to see what we are buying and selling during this run in the market.

A Bond Market in Turmoil Spells OPPORTUNITY

Bonds have sold off recently driving the yield on the 10 year Treasury above 4.60%, its highest level in over a year. Cash coming out of bonds will look to flow to the path of least resistance. Can stocks be the conduit? Cash returns are safe and so far this year have beat the S&P, but 3% is not very attractive given the potential of other assets.

A rising dollar in the face of rising foreign stock markets (the NIKKEI has risen over 20% this year for instance) make US stocks look under valued. I believe that US stocks are poised to catch up with those of Europe and Japan. These markets have risen throughout the year and may be expensive given the fact that both regions are expected to slow next year. Further, as interest rates in the United States rise foreign investors will look to diversify away from the shrinking values of other currencies. That likely means US assets, and at least in the short run US stocks.

Cash exiting bonds and foreign smart money investors looking to diversify away from fully valued markets will likely help to pump up US stocks in the short run. We continue to carefully add to fresh positions and look for new ones. The Focus13 fund has been through significant changes during the last month as we prepare for the tectonic changes taking place in global markets. Stay tuned as we find tomorrow's leaders today.

  • URBN - We initiated an investment in Urban Outfitters as the teen retail continues to grow its business. With only a 140 stores throughout the US, England and Canada URBN has room to grow. URBN continues to gain popularity among teens with timely fashions and fair prices. Although the stock has come a long way we calculate intrinsic value at $56/share. We feel that URBN will benefit from falling oil prices and a solid holiday season.



Theirs always buys out their.

9:45 AM  

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