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Archive for the ‘Market Commentary’ Category

Market Stats

Monday, August 8th, 2011

The chart below highlights just how fast, furious and widespread the decline has been over the last couple of weeks.  Among other ugly stats, you will notice that Small cap companies as well as the Telecom, Materials, Industrials and Financials sectors all sold off near 20% from recent highs. The declines in Brazil, Australia, Italy, France and Germany were even steeper. 

The broad based selling, resulting (in large part) from the S&P downgrading US debt, caused trillions of dollars in lost market capitalization for US Equities. Where did the money go?  Ironically, most of it went into the “safe haven” of US government debt pushing treasury prices higher and yields lower.

All of the market gains that took place during the period that the Fed was conducting “QE2” have been wiped out and the yields on stocks compared to bonds hasn’t been this high since 1962. No investor, institutional or otherwise, knows what is going to happen next but seasoned investors don’t sit idle in volatile markets.  Whether it’s selling names that have broken down technically or buying oversold opportunities, the key is paying attention and being active. 

c/o Bespoke Investments

We encourage you to revisit Dow 12,000, Now What?, which we wrote in January when we posited that the “big Bounce” from market lows was over and offered strategies to help protect and grow portfolios in volatile markets.  We do feel strongly that there are opportunities to exploit at current levels but would like to see the S&P stabilize before we make any more purchases.

In the coming weeks we will try to identify companies who have been unduly punished as a result of the broad sell off…companies down 20% or more that  likely won’t be selling 20% fewer burgers, servers, coffee, mobile phones or services (as a result of  an S&P downgrade, or European debt crisis)  than they were poised to sell three weeks ago when the markets turned.

Dow 12,000…Now What? Part II

Friday, June 10th, 2011

Yes… the image you see is what Dow 12,000 looks like coming from the other (less desirable) direction. Today marks the sixth time the Dow Jones Industrial Average has crossed the 12,000 level since the first time on October 19th 2006 (no relation to Black Monday, October 19th 1987).     We felt this was an opportune time to revisit our post from January 27 of this year entitled Dow 12,000…Now What?’ and to share our sentiments on the current environment for the economy and the financial markets. 

The market has declined now for six straight weeks and the decline accelerated recently when a trifecta of negative indicators came in worse than expected.  These areas of weakness included housing, employment and consumer confidence.  As of this writing, the tech heavy NASDAQ composite has slipped into negative territory for the year as the technology, materials and financial sectors have declined the most over the last month.  Utilities, healthcare and consumer staples have held up best over the last several weeks.  (more…)

Where is the silver lining?

Tuesday, May 17th, 2011

-By Tim Dyer

One year ago today, the popular commodity Silver (as measured by the index fund: SLV) was exchanging hands at $18.50 a share. Fast forward to today and you will see those same shares of SLV trading at a little over $33.  That is a pretty healthy gain of 78% vs the 20% return of domestic stocks over the same period.  What is even more eye popping is not only where SLV sits currently but where it has been. The current price is down 30% from the recent high of  $48 that was achieved on April 28th. The move from $18.50 to $48 was a move of over 150% in less that a year!  Volume on this index traded over 180 million shares at the high as the Federal Reserve issued a statement that interest rates were destined to stay low in the near term. Is that a lot you ask? YES! The most widely traded index is the SPY (S&P500) which had volume of 120 million. SLV had traded 60 million more shares that the SPY index traded for the day! 60 million times $48 a shares is a LOT of money to change hands.

Silver has had a historic run, the chart has gone parabolic ( Wall Street jargon for “looks like a hockey stick curve”).  It is not surprising that investors have been scratching their heads wondering if this is a pullback or the start of a new downtrend.  The risk level is now elevated and investors should use caution if they want to allocate money to this asset.

The silver lining here: “The trend is your friend, till the bend at the end.” The move from here, up or down,  is not for the faint of hearted and protecting profits may result in lost opportunity cost but not loss of capital.

The January Barometer

Tuesday, February 8th, 2011

With January now in the books its time to look at the always enlightening data from Yale Hirsch over at the Stock Traders Almanac.  Mr Hirsch devised the January Barometer back in 1972, which states that as the S&P500 goes in January, so goes the year.  The indicator has registered only six major errors since 1950 for a 90% accuracy ratio. What I find interesting is that of the 6 years that were predicted incorrectly, 4 were negative for January and then finished positive for the year. Translation, even though this indicator was wrong in these four years, the market was bullish for the full year. 2009 was one of those years as January closed down 8.6%  but the full year return was 23.5%.  The S&P500 was up over 2% for the month of January which bodes well for the bulls this year according to the barometer.  As you may know, 2011 is also a pre-presidential election year. Full years followed January’s direction in 14 of the last 15 pre-presidential election years. The sole error was in 2003, as a new bull market was beginning.  Time will tell if 2011 follows the historical predictions of the January Barometer or the pre-presidential election year trends, but as always, we’ll take all the good news we can get.

Actionable Investment Ideas: COW

Monday, February 7th, 2011

Following up from last week’s post DOW 12,000…Now What?, where we asked what is an investor to do when the broad equity, bond, gold and energy markets have all rallied handsomely, we offer the following actionable investment idea.

COW is an exchange traded fund (ETF) that seeks to track the overall returns of the Dow Jones-UBS Livestock Total Return Sub-Index. The index is composed of two futures contracts, lean hogs and live cattle. We find it compelling and worth taking a closer look for several reasons.

Looking at the fundamentals, the demand for meat from the United States is strong. With the price of grain at record highs, many ranchers are choosing to take their “breeders” to slaughter resulting in a significant reduction to supply.   One of the themes that  investors try to capitalize on relates to the many opportunities that present themselves in a global economy as the quality of living improves in under-developed nations around the world. From infrastructure to technology, opportunities abound in these countries and a change  to a higher protein diet is one of many known improvements that consistently take place.  Accordingly, the increased demand for livestock may prove to be an ongoing driver of price for the years to come.  In fact, China has been experiencing a shift to beef accompanied by a reduction in supply and the US recently became a net exporter there for the first time.  Some of our other (in depth, proprietary) research suggest that there may be a lot of people in China.

Since the fundamentals for “COW” appear strong, we next look to the technicals and the chart puts us in a good moo-d. Unlike so many other segments of the markets, it is not up 75-150% over the last two years.  It isn’t in free fall either.  The long-term chart looks appealing since it was in a down-trend for some time, consolidated, turned upwards and remains in an uptrend with momentum.

We believe COW is a compelling opportunity with sound fundamental reasons to drive demand/price and attractive technicals.*  We will be watching it closely and feel that it may prove to be a timely opportunity with significant upside potential over the next six to eighteen months.