Good Morning All,
Markets have now put more than two weeks into the third stage of the recovery rally which began last November; yes I know that lower index lows were made in March, but the process, in my view, really began with the post Obama election decline and subsequent recovery, when stocks in the tech sector traded at "silly" price points.
Investors who bought tech, biotech and agro stocks at that time (refer to my list) fared rather well. Those who missed this first down play were offered a long intermission during the month of February wherein they could assuage their fears through a look at even greater opportunities as banks, oils and other commodities joined the across-the-board rally that followed the aforementioned March lows. This upswing lasted through early June with indexes putting on 40% gains, while many individual stocks doubled or even tripled during this brief period...and then in the face of rising bearish sentiment, the July rally began in earnest.
We often write of "market adages" in this space and we are once more reminded of the two that make up the traders creed; don't fight the tape and don't fight the Fed. The first of these is not all that complicated; it simply means that momentum in any direction will carry prices higher or lower than anyone rationally expects...until it is broken. The second posits the case that lower interest rates and an active printing press will eventually spur economic recovery, a condition that is long preceded by higher stock prices.
The initial recovery from the lows was a reaction by bargain hunters to advantage themselves of those investors who allowed late-in-the-day panic and threats of armageddon to color their judgement. The March wave corrected many of the "silly" price inequities mentioned earlier, while the July explosion has been fed by earnings reports that have come in well above expectation (please refer to June comments). So the question now is...what comes next?
The fuel that bull markets run on are cash and fear, both of which are in plentiful supply. Tops are made when the cash is spent and euphoria has replaced dread. We are nowhere near that point, but we may be in for a refreshing pause as early as this week. Use it to buy in advance of the next major upleg that should take the S&P 500 above 1200 by early September, after which we might experience a more serious and traditional early autumn decline.
Commentary
In America , the Republicans continue to test the borders of sanity as their opposition to the Sottomayor nomination and their embrace of the intellectually-challenged ex-Governor of Alaska so aptly illustrates. Aside from their lock on hypocrisy, they are stupidly throwing away the Hispanic vote along with that of the moderately intelligent...third party anyone?
In Montreal , Earl Jones (our mini Madoff) was arrested yesterday. I suspect that the dollar amounts lost will be much less than the media has estimated. If he had stolen 50 or 100 million, he'd be outta here. Not much comfort to the victims although Registered accounts may still be intact.
Tuesday, July 28, 2009
Friday, July 17, 2009
July 17th Edition
Good Morning All,
As we come to the close of the fourth week of the summer that never was in eastern Canada , my arc nears completion. Yet despite such local issues, all has not been lost, because during this same extended time period, markets have been given the room to consolidate their March to June index gains of 40 plus percent by giving back a little, thereby setting the stage for the next leg up.
David Nichols of "The Fractal Market Report" has suggested that the turn which began this week will take the S&P 500 to at least 1060 by early September. I have subscribed to this report for several years and have been made painfully aware of its shortcomings as well as its victories, proving once again that market panaceas are either short-lived or non-existent; with that caveat in mind I will state my agreement with his projections based on both technical and fundamental information.
Early last week this letter posited the belief that markets would rally off the 888 S&P number; we were early by several days and 13 points. This week began with a boom and its current rise has yet to be seriously tested. Yesterday's mixed morning action turned positive in the early afternoon when a new rally was triggered by economist Nouriel Roubini's statement that the recession's end was in sight. Roubini is not everyman's economist; he is one of the few that called the disaster early and predicted its depth. When an economic bear turns bullish, one must take notice.
Also helping the bullish case has been the spate of positive earnings reports, particularly among financials and techs. I have been beating the drum for both these many months, having stated over and over that we have been granted a generational opportunity. We may no longer be at its outset, but we remain in its midst with many miles to go before it exhausts itself. Do not miss it again. Refer to my previous selections if you really need ideas.
Commentary:
This last week has proven very difficult for a diaspora of Montreal-based investors with the revelation that a local funds administrator has disappeared with 50 million or more of widows’ and orphans’ cash. I grew up across the lane from Earl Jones (our minor version of Bernie Madoff) in Montreal’s NDG district; our mothers had morning coffee together for 25 years and even our summer cottages were only 15 minutes apart. The names of many of the victims are familiar even though I have not seen most for many years so I will not venture to criticize their naïveté. Years ago I worked at the same brokerage firm as David Walsh, he of BRE-X fame, and had inherited many of his retail accounts when he left the business to strike it rich. These are not the kind of names one would like to drop in polite company and I do so only to draw attention to the character issue of the people with whom one deals. It is of great importance to know such things. I will finish this prologue to my book (just kidding) with this observation. Both Earl and David began their business careers at Trust Companies, neither had University educations which may or may not matter....because Bernie did.
As we come to the close of the fourth week of the summer that never was in eastern Canada , my arc nears completion. Yet despite such local issues, all has not been lost, because during this same extended time period, markets have been given the room to consolidate their March to June index gains of 40 plus percent by giving back a little, thereby setting the stage for the next leg up.
David Nichols of "The Fractal Market Report" has suggested that the turn which began this week will take the S&P 500 to at least 1060 by early September. I have subscribed to this report for several years and have been made painfully aware of its shortcomings as well as its victories, proving once again that market panaceas are either short-lived or non-existent; with that caveat in mind I will state my agreement with his projections based on both technical and fundamental information.
Early last week this letter posited the belief that markets would rally off the 888 S&P number; we were early by several days and 13 points. This week began with a boom and its current rise has yet to be seriously tested. Yesterday's mixed morning action turned positive in the early afternoon when a new rally was triggered by economist Nouriel Roubini's statement that the recession's end was in sight. Roubini is not everyman's economist; he is one of the few that called the disaster early and predicted its depth. When an economic bear turns bullish, one must take notice.
Also helping the bullish case has been the spate of positive earnings reports, particularly among financials and techs. I have been beating the drum for both these many months, having stated over and over that we have been granted a generational opportunity. We may no longer be at its outset, but we remain in its midst with many miles to go before it exhausts itself. Do not miss it again. Refer to my previous selections if you really need ideas.
Commentary:
This last week has proven very difficult for a diaspora of Montreal-based investors with the revelation that a local funds administrator has disappeared with 50 million or more of widows’ and orphans’ cash. I grew up across the lane from Earl Jones (our minor version of Bernie Madoff) in Montreal’s NDG district; our mothers had morning coffee together for 25 years and even our summer cottages were only 15 minutes apart. The names of many of the victims are familiar even though I have not seen most for many years so I will not venture to criticize their naïveté. Years ago I worked at the same brokerage firm as David Walsh, he of BRE-X fame, and had inherited many of his retail accounts when he left the business to strike it rich. These are not the kind of names one would like to drop in polite company and I do so only to draw attention to the character issue of the people with whom one deals. It is of great importance to know such things. I will finish this prologue to my book (just kidding) with this observation. Both Earl and David began their business careers at Trust Companies, neither had University educations which may or may not matter....because Bernie did.
Tuesday, July 7, 2009
July 7
Good Morning All,
Although markets continued their now five-week long struggle to find direction yesterday, some encouraging signs were seen at day's end, when stocks rallied off their near-term support lows on the S&P 500. The recently established trading range between 888 (the 200 day) and 930 (the formidable breakout point), may have just experienced its last downside test. A close above the latter number could lead to significant gains through September.
In Toronto , the oils and base metal stocks have given back recent gains as U.S. dollar strength has compromised the commodity trade. This too should change quite quickly as the CDN dollar appears to be very oversold. Financials, on the other hand, have retained their resilience, having once again proven the comparative stability of our more regulated system versus that of our neighbour. Banks are like sports events and back alleys...they require referees and policing.
A breakout above the aforementioned 930 will float most ships, but techs and biotechs will still lead. Geron, among others recommended last November at half its present price, continues to spark my interest. (yes I own it)
Commentary
With respect to the political events of this past weekend, it is time once again for people of goodwill all around the world to pause for a moment, drop to their knees and thank whoever or whatever they believe that we are not living under a McCain/ Palin administration. For those who are not believers in any specific entity, thank the American voters. Me anwhile Barack better have another talk with Joe who is yards smarter than Sarah barracuda, but at times just as mouthy.
It is time too for Americans to stop bashing our Medicare system until they commission a poll here asking Canadians if they would exchange systems. One particular silly claim is that of having to deal with bureaucrats. I have had a number of dealings over the years with our much maligned system and have never once spoken to a government representative...the doctors do that. I have however had to deal with insurance company clerks for my private company plan. Just private bureaucrats in America ...there is a difference?
Although markets continued their now five-week long struggle to find direction yesterday, some encouraging signs were seen at day's end, when stocks rallied off their near-term support lows on the S&P 500. The recently established trading range between 888 (the 200 day) and 930 (the formidable breakout point), may have just experienced its last downside test. A close above the latter number could lead to significant gains through September.
In Toronto , the oils and base metal stocks have given back recent gains as U.S. dollar strength has compromised the commodity trade. This too should change quite quickly as the CDN dollar appears to be very oversold. Financials, on the other hand, have retained their resilience, having once again proven the comparative stability of our more regulated system versus that of our neighbour. Banks are like sports events and back alleys...they require referees and policing.
A breakout above the aforementioned 930 will float most ships, but techs and biotechs will still lead. Geron, among others recommended last November at half its present price, continues to spark my interest. (yes I own it)
Commentary
With respect to the political events of this past weekend, it is time once again for people of goodwill all around the world to pause for a moment, drop to their knees and thank whoever or whatever they believe that we are not living under a McCain/ Palin administration. For those who are not believers in any specific entity, thank the American voters. Me anwhile Barack better have another talk with Joe who is yards smarter than Sarah barracuda, but at times just as mouthy.
It is time too for Americans to stop bashing our Medicare system until they commission a poll here asking Canadians if they would exchange systems. One particular silly claim is that of having to deal with bureaucrats. I have had a number of dealings over the years with our much maligned system and have never once spoken to a government representative...the doctors do that. I have however had to deal with insurance company clerks for my private company plan. Just private bureaucrats in America ...there is a difference?
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