The major indices were quite chaotic today but managed some good gains. Under the surface, it was stronger than it looked, with breadth running extremely strong. We ended up with about three gainers for every loser, and there were a lot of big "junk off the bottom" movers, particularly in some of the technology names we haven't heard about in a long time.
We closed weak, and there were some intraday reversals in the energy and commodity names that have been leading. There obviously is some underlying speculative action as folks are anxious to kick off the new year on a positive note.
The true test of the character of this market won't come until we have a pullback. So far we've have had some great underlying support on the minor pullbacks. That is probably due to anxiety about underperforming in the first few days of 2009. As that psychology subsides, we will see if there really are value buyers lurking out there.
Earnings season is also coming up soon, and the psychology that develops as reports hit is going to determine the next move in this market. At the moment, we seem to be rather sanguine about the continued bad economic news, but at some point we will really need some improvement in conditions.
Tuesday, January 6, 2009
yes, jobs' health is a concern; but buy aapl anyway
aapl traded lower on macworld machinations as well as lower itunes pricing. i think the market is thinking too much about 20 cents a song and not thinking enough about how much imac and macbook market share is going increase in the next couple years, or the fact that that all the iphone nay saying has been blown out of the water.
one interesting tidbit is that no one has mentioned how disgruntled many loyal msft office users are with the new release. and from my personal experience of the new office i would give it a "d" at best. i have felt over the years that office was one of the greatest software productivity tools of our generation. those days appear to be over now.
at this point you could run a good sized company with mac's, goog docs or open office org, and linux. and more companies are evaluating these choices every day.
bottom line, i see aapl approaching 10% computing share and you won't see the stock trade under $175 for quite some time. so i'm starting to build my position tomorrow, hopefully around 92 or 93.
one interesting tidbit is that no one has mentioned how disgruntled many loyal msft office users are with the new release. and from my personal experience of the new office i would give it a "d" at best. i have felt over the years that office was one of the greatest software productivity tools of our generation. those days appear to be over now.
at this point you could run a good sized company with mac's, goog docs or open office org, and linux. and more companies are evaluating these choices every day.
bottom line, i see aapl approaching 10% computing share and you won't see the stock trade under $175 for quite some time. so i'm starting to build my position tomorrow, hopefully around 92 or 93.
Monday, January 5, 2009
Profit-Taking Overcomes Santa - But Turnaround Tuesday Tomorrow?
After the Santa Claus rally over the last three trading days, we were due for some profit-taking. It hit today but overall it was fairly mild. Breadth on the Nasdaq was just slightly negative and energy and commodity stocks continued to be chased higher. Financials were weak today and JPM in particular looks precarious, but overall it wasn't bad action.
The question we have to ponder at this point is whether the end of seasonal positives are going to cause some flipping and more aggressive selling. We had a big run and there are some recent gains to protect. This was a fairly classic end-of-the-year run and traders were obviously hungry for this type of action, but one thing we learned last year was to take profits when we have them.
We still have solid technical setups for the major indices in the intermediate term, but we are extended shorter term and the test will be how we act on a pullback. Are the buyers who missed out on the recent move going to jump in on weakness or will selling accelerate? Is the upcoming earnings season going to throw some cold water on the mood or will investors be buying the bad news?
I suspect the bears are going to start looking harder for some short entries here. The bulls have the advantage, but it's possible lots of folks are going to be looking to cut back on longs here very soon.
The question we have to ponder at this point is whether the end of seasonal positives are going to cause some flipping and more aggressive selling. We had a big run and there are some recent gains to protect. This was a fairly classic end-of-the-year run and traders were obviously hungry for this type of action, but one thing we learned last year was to take profits when we have them.
We still have solid technical setups for the major indices in the intermediate term, but we are extended shorter term and the test will be how we act on a pullback. Are the buyers who missed out on the recent move going to jump in on weakness or will selling accelerate? Is the upcoming earnings season going to throw some cold water on the mood or will investors be buying the bad news?
I suspect the bears are going to start looking harder for some short entries here. The bulls have the advantage, but it's possible lots of folks are going to be looking to cut back on longs here very soon.
will the yield curve steepen in 2009?
the massive amount of bond issuance will most likely put pressure on the long end of the yield curve. this means we should see a further steepening of the yield curve in 2009, but it will not necessarily point to a big economic recovery like it has in the past.
typically, a steep yield curve encourages banks to lend and pick up the yield spread. this usually generates economic activity. as an example, in the early 1990s the spread between the two-year treasury note and ten-year treasury note moved up to 250 basis points and led to a recovery in the housing market. this may not happen this time 'round as the economy is deflating and the risks to new, unforced (nonrevolver) lending are high, making banks cautious.
this is most likely why, with the significant increase in money supply, there has not been a positive influence (yet) on the economy. the velocity of $ has shrunk as money has been parked in money-market accounts. this further extends the spread between the 2 and 10 year treasuries and should steepen the curve.
my prediction? given what i just wrote above, i think things basically play out as they did in the early 90s. banks will pick up the yield spread eventually.
typically, a steep yield curve encourages banks to lend and pick up the yield spread. this usually generates economic activity. as an example, in the early 1990s the spread between the two-year treasury note and ten-year treasury note moved up to 250 basis points and led to a recovery in the housing market. this may not happen this time 'round as the economy is deflating and the risks to new, unforced (nonrevolver) lending are high, making banks cautious.
this is most likely why, with the significant increase in money supply, there has not been a positive influence (yet) on the economy. the velocity of $ has shrunk as money has been parked in money-market accounts. this further extends the spread between the 2 and 10 year treasuries and should steepen the curve.
my prediction? given what i just wrote above, i think things basically play out as they did in the early 90s. banks will pick up the yield spread eventually.
how much liquidity has been pumped into the system?
according to bianco research, here are a few examples of historical us government expenditures (in inflation-adjusted terms):
marshall plan - 116 billion
louisiana purchase - 217 billion
race to the moon - 237 billion
s and l crisis - 256 billion
korean war - 454 billion
the new deal - 600 billion
gulf war 2/war on terror - 625 billion
vietnam war - 700 billion
nasa - 850 billion
marshall plan - 116 billion
louisiana purchase - 217 billion
race to the moon - 237 billion
s and l crisis - 256 billion
korean war - 454 billion
the new deal - 600 billion
gulf war 2/war on terror - 625 billion
vietnam war - 700 billion
nasa - 850 billion
Friday, January 2, 2009
A Good Day To Start The Year
It was obviously a very good day for the overall market. The point gain was big, breadth extremely strong, and a lot of stocks were up by huge amounts. Quick flipping has been the best approach to this market for quite a while, but if you have taken that approach the last few days, you found yourself on the sidelines as some groups such as bulk shipping, infrastructure, steel and oil kept running straight up. The nature of what works best in the market changes all the time, so we need to constantly adapt if we want to perform well. At times it is very hard to do that as quickly as you should, and sometimes you will simply by left on the sidelines.
I came into the day expecting it be fairly quiet. For some reason I don't think that today is going to be our last chance to ever buy stocks. In the bigger scheme of things, this is technically positive, even if you weren't fully invested to enjoy it. The charts have been looking much better, and the key now will be that dip-buyers emerge on pullbacks. Assuming of course that we ever pull back again, which apparently is questionable in the minds of some of the buyers today.
I came into the day expecting it be fairly quiet. For some reason I don't think that today is going to be our last chance to ever buy stocks. In the bigger scheme of things, this is technically positive, even if you weren't fully invested to enjoy it. The charts have been looking much better, and the key now will be that dip-buyers emerge on pullbacks. Assuming of course that we ever pull back again, which apparently is questionable in the minds of some of the buyers today.
Thoughts At The Open
One of the best things about the stock market is that, at any time, investors have the opportunity to start fresh. The beginning of a new year provides a logical point where we an think about how we want to approach the market. One of the worst years in stock market history is behind us, and now is a good a time as ever to focus on having the proper mindset to stay flexible and react to the action as it develops.
There's no shortage of folks out there who are more than willing to let us know exactly how the action will play out over the course of the next twelve months, exactly when the economy is going to recover, and what stocks we need to be buying so that we too can be fully invested for the next great bull market that is surely getting ready to begin. Although it’s impossible to avoid having feelings about how things are going to play out, locking yourself into any rigid view robs you of your unique and powerful strengths as an individual investor. It doesn’t matter is you think that we’ve already begun the next primary uptrend, if you think the bear is going to start growling again, or if you think that we’re going to see the action punctuated by strong rallies and gut-wrenching disappointments. The thing that matters is that you are open-minded and are psychologically prepared to adjust your approach as conditions change.
So, with that in mind, let’s talk a bit about where we stand right now. Although the market was unable to make much progress after the strong start to December, we finally had some good holiday-style trading to end out the year. Volume was light and there’s no doubt that a lot of that was influenced by a heavy dose of window dressing, but it did allow the major indices to move back above their respective 50 day moving averages. Moreover, the fact that the broader market has been able to hold in a decent trading range near recent highs has also provided a foundation from which several individual charts have been able to develop decent technical set-ups.
In the near-term, with the indices again bumping up against short-term lateral resistance, it’s a stretch to think that we are simply going to rocket higher from here. However, new money flows into the market at the beginning of the year, so we still have some positive seasonal factors at work, and the market is at least in a position where we could see some further progress to the upside.
At the same time, we are still suffering from a lack of confidence, an absence of leadership, and the ever present specter of volatility. Forgetting for a moment the unpredictable nature of newsflow, those are the factors we need to be watching very closely. We need to look for groups that are seeing good technical progress as a whole, for investors to stop flipping as soon as they see the slightest of gains and for these wild swings to calm down – especially in the final hour.
There's no shortage of folks out there who are more than willing to let us know exactly how the action will play out over the course of the next twelve months, exactly when the economy is going to recover, and what stocks we need to be buying so that we too can be fully invested for the next great bull market that is surely getting ready to begin. Although it’s impossible to avoid having feelings about how things are going to play out, locking yourself into any rigid view robs you of your unique and powerful strengths as an individual investor. It doesn’t matter is you think that we’ve already begun the next primary uptrend, if you think the bear is going to start growling again, or if you think that we’re going to see the action punctuated by strong rallies and gut-wrenching disappointments. The thing that matters is that you are open-minded and are psychologically prepared to adjust your approach as conditions change.
So, with that in mind, let’s talk a bit about where we stand right now. Although the market was unable to make much progress after the strong start to December, we finally had some good holiday-style trading to end out the year. Volume was light and there’s no doubt that a lot of that was influenced by a heavy dose of window dressing, but it did allow the major indices to move back above their respective 50 day moving averages. Moreover, the fact that the broader market has been able to hold in a decent trading range near recent highs has also provided a foundation from which several individual charts have been able to develop decent technical set-ups.
In the near-term, with the indices again bumping up against short-term lateral resistance, it’s a stretch to think that we are simply going to rocket higher from here. However, new money flows into the market at the beginning of the year, so we still have some positive seasonal factors at work, and the market is at least in a position where we could see some further progress to the upside.
At the same time, we are still suffering from a lack of confidence, an absence of leadership, and the ever present specter of volatility. Forgetting for a moment the unpredictable nature of newsflow, those are the factors we need to be watching very closely. We need to look for groups that are seeing good technical progress as a whole, for investors to stop flipping as soon as they see the slightest of gains and for these wild swings to calm down – especially in the final hour.
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