Welcome to the extended version of the BAM Market Note. We are not bloggers by nature but have had clients and friends inquire about our thoughts on the market in between our newsletters. The number and content of posts will likely be determined by the conditions of the markets and the interests of our readers. We would greatly appreciate your feedback and comments.
Tuesday, December 18, 2012
Thursday, November 29, 2012
HELD HOSTAGE
For those of you unsure if the current fiscal cliff talks are having significant impact on the market gyrations from minute to minute, take a look at the chart below.
11:30
Speaker John Boehner began speaking at 11:30 EST this morning and had little good news with regard to ongoing discussions with the White House and Democratic leaders. After spiking up early in the day, the market fell off sharply with the Speaker's words. It seems that whenever politicians hold a press conference, the market hinges on perceived progress or roadblocks to a deal. The day is not over but what looked like another good rally today has turned decidedly more guarded with the news conference. We'll see if we get a Democratic response before market close that could change market sentiment. It is a dangerous market but one that has some positive underpinnings. If a deal is struck we could see a strong end of the year rally. However, if a stalemate continues the market will continue to bounce around based upon the news of the day. As we approach the end of the year without a deal, we could see significant selling as traders unwind trades amidst the uncertainty. Time will tell but making investment decisions based upon political posturing and rhetoric is a dangerous game. We will continue to maintain our somewhat conservative posturing until more clarity develops.
Speaker John Boehner began speaking at 11:30 EST this morning and had little good news with regard to ongoing discussions with the White House and Democratic leaders. After spiking up early in the day, the market fell off sharply with the Speaker's words. It seems that whenever politicians hold a press conference, the market hinges on perceived progress or roadblocks to a deal. The day is not over but what looked like another good rally today has turned decidedly more guarded with the news conference. We'll see if we get a Democratic response before market close that could change market sentiment. It is a dangerous market but one that has some positive underpinnings. If a deal is struck we could see a strong end of the year rally. However, if a stalemate continues the market will continue to bounce around based upon the news of the day. As we approach the end of the year without a deal, we could see significant selling as traders unwind trades amidst the uncertainty. Time will tell but making investment decisions based upon political posturing and rhetoric is a dangerous game. We will continue to maintain our somewhat conservative posturing until more clarity develops.
Wednesday, November 21, 2012
Thursday, November 8, 2012
STATUS QUO
After 18 months and over $2 billion dollars spent, the Presidential and Congressional races are over and we find ourselves mostly where we were politically after the mid-term elections. A Democratic Senate and White House and a Republican House. The fear with so many issues that need quick resolution is that more gridlock will rule the day and the US will head over the fiscal cliff in a little less than 2 months from now. Washington has much work to do. Let's hope that politicians of both stripes will get to the work of governing and leading and that solutions to these monumental issues can be settled in a bi-partisan and effective way.
The markets fell sharply yesterday for the greatest one day loss for the year. While there are a number of theories on what happened, the likely result is the combination of several reasons. It appears that Wall Street was expecting a Romney win and was surprised that President Obama was able to hold onto the White House. Additionally, Mario Draghi of the European Central Bank threw additional cold water on the markets with comments indicating that Germany is beginning to be severely hampered with the problems of the rest of the European Union. Germany has been the stalwart in Europe and if their economy stumbles it could accelerate the further demise of the rest of Europe. It is a tenuous situation at best. The result was a 2.5% loss for most all of the major indices. The Russell 2000, Nasdaq 100, and Dow all fell through the all-important 200 day moving average that often separates bull and bear markets. Fortunately, the S&P 500 fell just short of this demarcation line but is precariously perched just above the line. The bulls will need to make a stand here if there is hope that the markets can rally into year-end. The Dow and S&P also fell below important psychological levels as 13,000 and 1,400 were both lost in yesterday's decline. 1375 is the number to watch on the S&P as that is the last support level before a large gap in support. If 1375 is breached, it would bode much steeper losses over the near term. We'll have much more to say in our next newsletter.
Despite the heavy losses yesterday, our portfolios held up extremely well. Our conservative portfolios were mostly unchanged with a loss less than one tenth of one percent and our moderate and aggressive strategies fell a little less than four tenths of one percent. However, if the selling resumes, our portfolios will slowly deteriorate and we will need to make some adjustments. The market is due for a bounce so we will be watching closely to determine if the selling is over or just getting started. All hands are on deck.
The markets fell sharply yesterday for the greatest one day loss for the year. While there are a number of theories on what happened, the likely result is the combination of several reasons. It appears that Wall Street was expecting a Romney win and was surprised that President Obama was able to hold onto the White House. Additionally, Mario Draghi of the European Central Bank threw additional cold water on the markets with comments indicating that Germany is beginning to be severely hampered with the problems of the rest of the European Union. Germany has been the stalwart in Europe and if their economy stumbles it could accelerate the further demise of the rest of Europe. It is a tenuous situation at best. The result was a 2.5% loss for most all of the major indices. The Russell 2000, Nasdaq 100, and Dow all fell through the all-important 200 day moving average that often separates bull and bear markets. Fortunately, the S&P 500 fell just short of this demarcation line but is precariously perched just above the line. The bulls will need to make a stand here if there is hope that the markets can rally into year-end. The Dow and S&P also fell below important psychological levels as 13,000 and 1,400 were both lost in yesterday's decline. 1375 is the number to watch on the S&P as that is the last support level before a large gap in support. If 1375 is breached, it would bode much steeper losses over the near term. We'll have much more to say in our next newsletter.
Despite the heavy losses yesterday, our portfolios held up extremely well. Our conservative portfolios were mostly unchanged with a loss less than one tenth of one percent and our moderate and aggressive strategies fell a little less than four tenths of one percent. However, if the selling resumes, our portfolios will slowly deteriorate and we will need to make some adjustments. The market is due for a bounce so we will be watching closely to determine if the selling is over or just getting started. All hands are on deck.
Wednesday, October 31, 2012
Friday, October 19, 2012
A LONG TIME PERSPECTIVE
Where we have been and where we are. Note that the S&P is still below its highs of 2000 (over 12 years ago) and its 2007 highs (5 years ago).
Today's weakness is due to several lackluster earnings reports (Google, GE and Microsoft among others). We'll see how deep the correction goes but we suspect we will see the recent lows around 1425 on the S&P before we get back to the recent highs.
Today's weakness is due to several lackluster earnings reports (Google, GE and Microsoft among others). We'll see how deep the correction goes but we suspect we will see the recent lows around 1425 on the S&P before we get back to the recent highs.
Tuesday, October 16, 2012
IT'S ALL ABOUT EARNINGS
After a month of consolidation and a slight correction, the markets are looking at earnings season to determine where it heads next. Earnings reports have started in earnest today and will continue throughout this week with 79 companies of the S&P 500 and 12 of the Dow 30 reporting. This is one of the peak weeks and will drive the near term direction of the market. To this early point, earnings have been inline with expectations and the market has responded with a positive yesterday and a good start to today. The S&P pierced its 20 day moving average last week but looks to bounce back above with a strong showing today. Key levels to watch for the S&P are 1419-1425 on the downside and 1465 on the upside. A break below 1419 would likely lead to a much deeper decline back into the 1300s while a break to the upside would bring into focus the 2007 S&P high of 1565.
From a technical perspective, the recent action has been constructive. A period of decline and consolidation within an uptrend provides the market an opportunity to rest and allow those sellers an opportunity to sell in an orderly fashion. The market is set up for another move higher if earnings can deliver. There are many wildcards (aren't there always!) with the economy, fiscal cliff, election, Europe, etc... The usual culprits but, nevertheless, things that could provide significant road bumps on the way to reaching the highs experienced over 5 years ago. There remains much to keep us up at night but the market's resilience (not to mention the Fed intervention) has the market poised for more gains in the coming weeks. We would not be surprised to see a little more weakness over the next few weeks before the market makes another charge into the end of the year. As always, we are watching things closely and making portfolio changes as market conditions warrant.
From a technical perspective, the recent action has been constructive. A period of decline and consolidation within an uptrend provides the market an opportunity to rest and allow those sellers an opportunity to sell in an orderly fashion. The market is set up for another move higher if earnings can deliver. There are many wildcards (aren't there always!) with the economy, fiscal cliff, election, Europe, etc... The usual culprits but, nevertheless, things that could provide significant road bumps on the way to reaching the highs experienced over 5 years ago. There remains much to keep us up at night but the market's resilience (not to mention the Fed intervention) has the market poised for more gains in the coming weeks. We would not be surprised to see a little more weakness over the next few weeks before the market makes another charge into the end of the year. As always, we are watching things closely and making portfolio changes as market conditions warrant.
Friday, October 5, 2012
Wednesday, September 12, 2012
Thursday, September 6, 2012
SO FAR SO GOOD
The markets surged today as the European Central Bank's Mario Draghi provided enough fodder for the markets to get excited about. While the ECB did not announce anything much different than what had already been discussed, the markets obviously liked what they heard and were pleased to see the ECB taking some action to forestall the Euro Zone crisis. It also didn't hurt that the ADP payroll report came in much hotter than expected. ADP reported 201,000 new jobs. Attention will now turn to tomorrow morning's government payroll report. The ADP report can be a harbinger of the government number but can also be significantly different. Last months numbers were very close but in June the ADP report came in at 172,000 versus the government number of 73,000. Needless to say, expectations have been raised for tomorrow morning. A reading equal to the ADP number would provide support and additional fuel for today's rally. A disappointment in the government's number could result in giving back some of today's gains.
The rally today forged new highs for the year and broke significant resistance so the bulls will look to fight hard to keep the gains. The German Constitutional Court meets next week and could throw a wet blanket over Draghi's comments. The Fed is also lurking next week and the good data would make another round of easing harder to justify. Then again, better economic data would be the best of all worlds though Fed intervention would lead to more of a sugar-rush type of gain. Tomorrow's report takes added importance with today's solid ADP report. Conflicting data would only make the Fed's job harder (as if it wasn't hard enough). We'll see what tomorrow brings and will post further updates as warranted by the markets or the economic news.
The rally today forged new highs for the year and broke significant resistance so the bulls will look to fight hard to keep the gains. The German Constitutional Court meets next week and could throw a wet blanket over Draghi's comments. The Fed is also lurking next week and the good data would make another round of easing harder to justify. Then again, better economic data would be the best of all worlds though Fed intervention would lead to more of a sugar-rush type of gain. Tomorrow's report takes added importance with today's solid ADP report. Conflicting data would only make the Fed's job harder (as if it wasn't hard enough). We'll see what tomorrow brings and will post further updates as warranted by the markets or the economic news.
Monday, September 3, 2012
HERE IT COMES
While trading volume in August was the lowest in 5 years, September promises much more volume and volatility. Kids are back in school and traders have taken the last of their summer vacations. Combine that with the huge market making events over the next few days and the stage is set for a make or break moment in this enduring Summer rally. The key dates over the next couple of weeks are:
- September 6 - The European Central Bank meets in Frankfurt, Germany. The markets are expecting a few more details of Mario Draghi's promise of a couple of weeks ago to do whatever it takes to save the Euro. We'll see.
- September 7 - The August Non Farm Payrolls and Unemployment report is released. Strength or weakness here will be evaluated to determine the likelihood of further easing by the Federal Reserve. A weak report will likely give the Fed cover to announce more easing. A strong report will be good for the economy and will likely preclude Fed action. Either of these two would produce positive results for the markets. In this case, the worst case would be a jobs report that is neither too cold or too warm - the Fed probably would not act and the markets would not get excited about the future prospects.
- September 12 - The German Constitutional Court meets to determine the constitutionality and legality of the European Stability Mechanism (ESM). This will be a very significant conclusion as the ESM is key to the possibility of a European solution to their debt crisis.
- September 12-13 - The Federal Reserve meets to determine if the US economy is poor enough to justify another round of quantitative easing or some other fiscal stimulus. The announcement will come the afternoon of the 13th and it is widely expected that the Fed will act. Any disappointment will lead to a sell-off in the markets.
Thursday, August 30, 2012
ON A KNIFE EDGE
The markets sold off today on some less than inspiring economic news and lowered expectations of what Ben Bernanke may or may not say tomorrow. The Dow sold off to the psychologically important 13,000 level and the S&P fell to the 1200 level. The 1200 level is both psychologically and technically important. A breach below this level would set the stage for lower prices. The low volatility that has characterized this market over the last couple of weeks was interrupted today and we may well have another volatile day tomorrow as Bernanke provides clues as to the Fed's thinking. While many expect nothing to be done tomorrow, the contrarian in me wonders... We'll know tomorrow. Bernanke may well want to wait to survey the upcoming jobs report before the next scheduled FOMC meeting in two weeks. If the Fed is going to announce any new measures, the September meeting would be the logical time as October gets even more politicized. Again, we'll see. We are watching closely and will make appropriate portfolio adjustments as the market dictates.
Wednesday, August 22, 2012
Wednesday, August 15, 2012
HO HUM
The markets continued their meandering ways today with the S&P barely moving above the flat line. Over the last 6 trading days the S&P is up .3% with extremely low volatility. With options expiring Friday and more earnings after the bell today, volatility could pick up. Volume has been anemic, which is typical of this time of year, which can make for sudden moves either way. Certainly volatility will pick up significantly with the Fed's meeting at the end of this month and the European Central Bank's meeting in early September. It is no secret that the market is betting on either Bernanke (Fed) or Draghi (ECB) coming to the rescue in the next month. A disappointment from either could start a significant sell-off as the market doesn't like surprises and at least some of the potential accommodative policies have been baked into stock prices. Bernanke is in a bit of a hard place. He knows that Wall Street is largely expecting him to act in two weeks but while the economy is struggling it is showing slow improvement. Additionally, with a 1.5% economic growth rate the market is already ahead of itself by many measures and any Fed easing would only serve to further the over-reach. Finally, Bernanke has made a point to try and separate politics from his job function and the closer we get to the election the more it looks like any move is politically motivated (whether true or not). Draghi has his own challenges in trying to pull together consensus from all of the Euro Zone members and getting Germany to sign off on any new plan. All in all, risk remains high in our way of thinking.
There are currently a number of conflicting signals. Bond yields have gone up significantly in the last week (indicating money coming out of bonds) and yet stock prices have remained relatively flat. Generally, rising bond yields (especially from the low levels of today) would indicate a major shift from bonds to equities but we are not seeing a commensurate rise in equities one would expect from such a large move in yields. Something will have to give soon - either stocks will rise in conjunction with yields or yields will turn down again and stock prices will follow. The Vix is also a little confounding here. The Vix measures the volatility in the market and a low Vix usually indicates higher prices while a higher Vix usually indicates higher risk and lower prices. Currently the Vix is very low by historical standards and reflects a measure of complacency and/or expectation of still higher prices. This may be a reflection of the market's expectation of Fed action that puts a floor on just how low this market could potentially go. In any event, the declining Vix is not consistent with the stock market action of the last week or two. This market is acting very strange which causes us to take note and wonder what is going on behind the scenes. We have many more thoughts but this post is already longer than usual. We will have more to say in our next newsletter and, hopefully, a little more information to sift through.
There are currently a number of conflicting signals. Bond yields have gone up significantly in the last week (indicating money coming out of bonds) and yet stock prices have remained relatively flat. Generally, rising bond yields (especially from the low levels of today) would indicate a major shift from bonds to equities but we are not seeing a commensurate rise in equities one would expect from such a large move in yields. Something will have to give soon - either stocks will rise in conjunction with yields or yields will turn down again and stock prices will follow. The Vix is also a little confounding here. The Vix measures the volatility in the market and a low Vix usually indicates higher prices while a higher Vix usually indicates higher risk and lower prices. Currently the Vix is very low by historical standards and reflects a measure of complacency and/or expectation of still higher prices. This may be a reflection of the market's expectation of Fed action that puts a floor on just how low this market could potentially go. In any event, the declining Vix is not consistent with the stock market action of the last week or two. This market is acting very strange which causes us to take note and wonder what is going on behind the scenes. We have many more thoughts but this post is already longer than usual. We will have more to say in our next newsletter and, hopefully, a little more information to sift through.
Tuesday, July 31, 2012
Thursday, July 26, 2012
CHOPPINESS
After several days of market weakness, the bulls were inspired by overnight comments by European Central Bank President Mario Draghi. Draghi is the European equivalent to Ben Bernanke and he said that the ECB would do whatever it took to preserve the Euro. This is much the same language that the Fed has used with regards to propping up the US economy. The European markets reveled in the comments as most European indices were up 2% or more. In the US, the markets opened up strongly but have since given back some of the early gains. We will be very interested to see how the market closes today and whether or not the rally has legs into tomorrow and early next week. The market was a tad oversold and was due for a rally of some sort.
The markets remain in the broad trading range bound by S&P 1375 and 1325. Though it is a 4% gap between these levels, much of the movements in between are mostly noise until either the bulls or bears make a break one way or another. Caution is still warranted. The GDP report tomorrow morning could provide fuel for a move either way as well as the continued earnings parade. Facebook will post earnings after the close today but that will be more interesting than it is market moving. Earnings have been largely mixed with Apple's recent miss spooking the technology sector. To this point today, telecoms are a shining star with gains nearing 4% at last check. Our low volatility portfolios continue to slowly move their way upward largely avoiding the day to day gyrations. Until we get a break one way or another, it is not a bad place to be. We will have more thoughts (and maybe a little more clarity) when we send out our newsletter in the next few days.
The markets remain in the broad trading range bound by S&P 1375 and 1325. Though it is a 4% gap between these levels, much of the movements in between are mostly noise until either the bulls or bears make a break one way or another. Caution is still warranted. The GDP report tomorrow morning could provide fuel for a move either way as well as the continued earnings parade. Facebook will post earnings after the close today but that will be more interesting than it is market moving. Earnings have been largely mixed with Apple's recent miss spooking the technology sector. To this point today, telecoms are a shining star with gains nearing 4% at last check. Our low volatility portfolios continue to slowly move their way upward largely avoiding the day to day gyrations. Until we get a break one way or another, it is not a bad place to be. We will have more thoughts (and maybe a little more clarity) when we send out our newsletter in the next few days.
Monday, July 16, 2012
CALM BEFORE THE STORM?
Today has mostly been a quiet and very typical summer Monday. The market has been down from the outset but has tried to get positive all day. Volume has been very light. That could all change as we move into the rest of the trading week. Fed Chairman begins two days of questioning before Congress tomorrow for his semi-annual report. Traders will be parsing his words carefully to catch any hints of any further monetary easing (QE3). There are also a number of economic reports and options expiring on Friday (which leads to much heavier volume and volatility). Companies will also start reporting earnings in droves with many big names reporting this week - Bank of America, Goldman Sachs, Google, Microsoft, Intel, Yahoo, Qualcom and IBM to name just a few. The S&P (currently at 1352) is bound by 1344 on the downside and 1374 on the upside. A breakout either way would provide the near term direction of this market. There will be lots for the market to digest this week so hopefully we will get some clarity. However, we may be in this range bound market through the summer but time will tell.
Monday, July 9, 2012
Friday, June 29, 2012
SUNNY SKIES WITH CONTINUED RISK OF TORNADOES
Markets surged to end a rough second quarter with the S&P closing at its highs for the day. For the quarter, the S&P was down a little over 3% but it could have been much worse if not for today's rally. After drifting lower yesterday with the ObamaCare ruling and disappointing economic news, the market's surged in the last hour of trading as news of positive developments at the European Summit leaked out. The strength carried into today with the markets gapping up at the open and adding to their gains throughout the day. While the Europeans still have a host of issues to contend with, the Summit produced a level of cooperation and agreement not seen in several months and gave hope that the contending governments will work together to find solutions to the enormous issues that confront the region. Talk is cheap and now Europe will need to implement the agreements that were reached but there is room to be optimistic.
In the US, the S&P closed today at a couple of significant technical levels - the highs of 2 weeks ago and for those that are interested in Fibonacci numbers right at the 61.8% retracement level. Oftentimes, the markets strengthen at the end and beginning of months (particularly at quarter end), with money coming in from retirement plans and end of quarter window dressing from portfolio managers. We will be watching closely early next week to see if the market can follow through on today's gains. With the 4th of July falling in the middle of the week, trading will likely be skewed with many traders taking some time off. We are not ready to give the all clear but the skies are certainly a lot brighter today than they were last week. Hopefully there will be a little more clarity with the next issue of the BAM Market Wrap. We hope you have a wonderful 4th of July with friends and family. Stay cool...
In the US, the S&P closed today at a couple of significant technical levels - the highs of 2 weeks ago and for those that are interested in Fibonacci numbers right at the 61.8% retracement level. Oftentimes, the markets strengthen at the end and beginning of months (particularly at quarter end), with money coming in from retirement plans and end of quarter window dressing from portfolio managers. We will be watching closely early next week to see if the market can follow through on today's gains. With the 4th of July falling in the middle of the week, trading will likely be skewed with many traders taking some time off. We are not ready to give the all clear but the skies are certainly a lot brighter today than they were last week. Hopefully there will be a little more clarity with the next issue of the BAM Market Wrap. We hope you have a wonderful 4th of July with friends and family. Stay cool...
Tuesday, June 26, 2012
TRADING RANGE BOUND
The market has been in a trading range over the last month. With 20 minutes left until the close today, the S&P is almost exactly where it was a month ago. Yesterday's losses nearly wiped out all of the market's June gains. The bulls needed a strong showing today and to this point they are getting a healthy rebound. We'll see if they can carry that momentum through the rest of the week. Volatility should continue as there will be lots of data points over the coming days. There are significant economic reports (durable goods, pending home sales, weekly jobless claims, revised GDP, personal
income and spending, Chicago PMI and Michigan sentiment) over the next 3 days as well as the Supreme Court's ruling on ObamaCare on Thursday. News out of Europe will continue to drive the US markets and the June 28-29 European Summit will surely create some increased nervousness. Germany has muted expectations of any new substantive initiatives, however, the tone of the meetings and any surprises will likely move the markets. It remains a very tenuous investing environment. We are content to be defensively positioned until we get a definitive breakout one way or the other. I will have much to write about in next week's newsletter!
income and spending, Chicago PMI and Michigan sentiment) over the next 3 days as well as the Supreme Court's ruling on ObamaCare on Thursday. News out of Europe will continue to drive the US markets and the June 28-29 European Summit will surely create some increased nervousness. Germany has muted expectations of any new substantive initiatives, however, the tone of the meetings and any surprises will likely move the markets. It remains a very tenuous investing environment. We are content to be defensively positioned until we get a definitive breakout one way or the other. I will have much to write about in next week's newsletter!
Sunday, June 24, 2012
Tuesday, June 19, 2012
Monday, June 11, 2012
PAIN IN SPAIN
What was supposed to be a boost to the markets instead resulted in a sell-off today. Over the weekend, the Eurozone agreed to lend Spanish banks up to $125 billion to curtail any runs on the banks. While the news was initially met with much excitement and higher stock prices, by the close of the markets most were flat to down. The US markets were among the biggest losers as the S&P shed 1.26%. After impressive gains last week, we are now in another dangerous position. The S&P gained nearly 4% last week to recover some of the losses over the last several weeks. However, as mentioned in our bi-monthly newsletter, a 3-4% bounce was to be expected and it would be what happens next that is important. We are now at that point. Will the markets continue the selling into tomorrow and through the week or will it bounce back and move back to recapture the technical damage done over the last two months?
Today was a very bad day for the bulls. With news to rally on, they failed to hold their ground. The selling also intensified near the close - never a good sign. If the bulls can't stave off the losses tomorrow, we are likely headed back to the lows of June 4th where there is a big line in the sand. If that level breaks, it could really get ugly. For now, we remain defensive and will wait to see how it plays out over the next few days or weeks. Investing is never easy but it is especially hard at juncture points like we are in now.
Today was a very bad day for the bulls. With news to rally on, they failed to hold their ground. The selling also intensified near the close - never a good sign. If the bulls can't stave off the losses tomorrow, we are likely headed back to the lows of June 4th where there is a big line in the sand. If that level breaks, it could really get ugly. For now, we remain defensive and will wait to see how it plays out over the next few days or weeks. Investing is never easy but it is especially hard at juncture points like we are in now.
Friday, June 1, 2012
JUNE SWOON
The sky is not falling but after a dismal May (S&P down 6.27%), the markets fell another 2.5% today due in large part to the dismal jobs report released this morning. Not only were the recent jobs created much less than expected, but prior month's gains were revised downward. The jobs picture combined with yesterday's dismal economic data was too much for the bulls to contend with and many hit the exits. All of the major indices closed at their lows for the day which bodes ill for the beginning of next week. The brief reprieve the markets experienced the last couple of weeks has quickly evaporated and the S&P has now pierced the all important 200 day moving average. The market has become oversold again on a short-term basis so the bulls will be trying to rally above the 200 day moving average next week. Rallying to the average will be one thing - holding it will be another as US economic news continues to disappoint and the issues across the pond show no sense of abating. The Fed and ECB still stand in the wings and many are thinking we are close to another round of quantitative easing (QE3). Absent a stark reversal in Europe and in the US economy, QE3 may be closer than we think and the only thing standing between another 5% loss in the markets. The next level of significant support for the S&P is around 1220 (60 points below where we closed today).
As mentioned yesterday and in our recent communications, our portfolios have been in defensive mode for several weeks. For the month of May, our portfolios were down anywhere from .5% to 1%. Though not all prices have been posted yet today, it appears that our Fidelity and TD Ameritrade accounts were flat to up fractionally today. Better times will come but, for now, extreme caution is in order. As always, please call Sam or I if you have any questions or would like to speak to us about managing your current investments.
Thursday, May 31, 2012
MAYDAY
Thankfully May has come and gone but it has left a trail of blood on Wall Street. For the month, the S&P finished down over 6% with the other major indices posting even larger losses. Volatility has picked up significantly with wild daily and intraday swings. Catastrophic declines often happen when the markets have declined enough to get all investors to consider selling. We are at that point and all it would take is a trigger event to push us over the edge. We are certainly not calling for a catastrophic decline but there are an uncomfortable number of such potential trigger events.
Today's economic news disappointed on all fronts and the markets sold off before finding a footing and attempting to break even for the day. Tomorrow brings the much watched jobs report (every indication points to it being weaker than expected) so the bulls will likely have to hold their ground again tomorrow to avoid another run at the lows of a couple of weeks ago. The low of March 18th (1295 on the S&P) is a line in the sand that the bulls will have to defend to avoid another air pocket where we could see another quick 3-4% decline. Of course, the Fed and the ECB remain in the background where it is anybody's guess when (if) they will step in with more market liquidity. When (if) that happens, we will see a powerful rally back up to the highs of this year. In the meantime, we are in a treacherous environment and the risks of being in the market far exceed the benefits. For the month, our portfolios have declined less than 1% as we have maintained a defensive posture for the last few weeks. We will continue that stance until we get more clarity.
Today's economic news disappointed on all fronts and the markets sold off before finding a footing and attempting to break even for the day. Tomorrow brings the much watched jobs report (every indication points to it being weaker than expected) so the bulls will likely have to hold their ground again tomorrow to avoid another run at the lows of a couple of weeks ago. The low of March 18th (1295 on the S&P) is a line in the sand that the bulls will have to defend to avoid another air pocket where we could see another quick 3-4% decline. Of course, the Fed and the ECB remain in the background where it is anybody's guess when (if) they will step in with more market liquidity. When (if) that happens, we will see a powerful rally back up to the highs of this year. In the meantime, we are in a treacherous environment and the risks of being in the market far exceed the benefits. For the month, our portfolios have declined less than 1% as we have maintained a defensive posture for the last few weeks. We will continue that stance until we get more clarity.
Monday, May 21, 2012
RIGHT ON CUE
As widely expected after over two weeks of losses, the markets bounced back today with large gains in all the major indices. Just before the market close, the S&P is up 1.6%. As we have mentioned here and in our bi-monthly newsletter, the bounce, while important, is not conclusive that we have seen the bottom. The key will be if the markets can hold onto these gains for the next few days. We will have much more confidence in the rally today if the gains can be kept and if the next down turn can be met with buying. Now it gets interesting...
Friday, May 18, 2012
MASSIVE TOP IN GLOBAL MARKETS
MASSIVE TOP IN GLOBAL MARKETS - Louise Yamada is one of the most respected market technicians and we always listen to her analysis.
Thursday, May 17, 2012
IPO MANIA
Tomorrow marks the long awaited Facebook initial public offering. Will it make a difference to the overall negative tenor of the market? After today's 1.5% decline, the S&P is down over 8% since the correction started on April 2nd. As we mentioned in our March 27 newsletter, "Which do you think more likely - another 10% rise or a 10% correction? We would guess a correction." Unfortunately, our comments now look timely and prescient as we are nearing that 10% mark. The market is very oversold and due for a bounce of some sort. With options expiration tomorrow and the excitement generated by the Facebook IPO, the bulls may get their long awaited reprieve. Much technical damage has been done over the last few weeks with multiple levels of support broken. It will take much more than a one or two day rally to overcome the damage done. When the bounce comes (and it will at some point), the move may be explosive and create all kinds of buzz on CNBC and the other financial networks. However, the true test will be how the market acts once the initial flurry of buying (or short covering) has run its course. That should happen within a few days and then we will see if the downtrend that started 45 days ago has more to go to the downside.
There are many reasons to be cautious now and we have significantly lightened up our portfolios over the last few days and weeks. We are currently raising cash and waiting for the next buying opportunity when the odds are in our favor. As our sell stops are hit, we will continue to liquidate positions until this market stabilizes.
There are many reasons to be cautious now and we have significantly lightened up our portfolios over the last few days and weeks. We are currently raising cash and waiting for the next buying opportunity when the odds are in our favor. As our sell stops are hit, we will continue to liquidate positions until this market stabilizes.
Friday, May 4, 2012
ECONOMICS TRUMPS TODAY
The widely watched and anticipated jobs report was released this morning and showed a disappointing 115,000 in job gains. Though the unemployment rate dropped to 8.1% (from 8.2% previously), that figure is dropping more from workers leaving the work force or abandoning their job search than an actual reduction in unemployment. All in all there is very little to like about the numbers and Wall Street punished stocks with one of the worst days in the last 6 months. The NASDAQ led the fall as it shed 2.25%, the S&P lost 1.61% and the Dow rounded out the major indices by finishing 1.28% lower.
After approaching the top of the trading range formed over the last month, the market is now trading near the lower part of the range. Mondays after the job report often reverse some or all of the initial reaction so we will have to see if that holds true here. Until such time as the market breaks through on the upper or lower end of the range, much of the day to day movements are just noise. Today was a little louder however and the continued hint of a slowing economy puts the bears firmly in control heading into next week. We'll see if the generally very good earnings continues next week and if it can shift the balance once again. Spain and the rest of the European issues continue to smolder so there is reason for caution. Will "sell in May and go away" prove prescient again this year? It has for 8 of the last 11 years so we shall see.
Our portfolios have held up extremely well and should again today with high yield and municipal bonds generally up a little or down a little today. As always, please call us to discuss your individual accounts or if you would like additional information about Bills Asset Management.
After approaching the top of the trading range formed over the last month, the market is now trading near the lower part of the range. Mondays after the job report often reverse some or all of the initial reaction so we will have to see if that holds true here. Until such time as the market breaks through on the upper or lower end of the range, much of the day to day movements are just noise. Today was a little louder however and the continued hint of a slowing economy puts the bears firmly in control heading into next week. We'll see if the generally very good earnings continues next week and if it can shift the balance once again. Spain and the rest of the European issues continue to smolder so there is reason for caution. Will "sell in May and go away" prove prescient again this year? It has for 8 of the last 11 years so we shall see.
Our portfolios have held up extremely well and should again today with high yield and municipal bonds generally up a little or down a little today. As always, please call us to discuss your individual accounts or if you would like additional information about Bills Asset Management.
Monday, April 30, 2012
EARNINGS OR ECONOMICS?
Over the last week, earnings have trumped economics as earnings reports have been outstanding and economic reports have been anemic to poor. Europe continues to boil over as Spain is nearing where Greece found itself several months ago. Apple, Amazon and a host of other companies have posted blow out earnings that have provided enough fuel for the markets to withstand the onslaught of negative economic news. We will continue to see a flurry of earnings over the next couple of weeks and hopefully they will continue to impress and lead this market higher. QE3 also lurks in the background and there is talk again that "bad news" is "good news" in that continuing bad economic news will force the Fed to launch another round of liquidity. The latest Fed easing is scheduled to come to a close at the end of June so we may see something sooner rather than later if the economic news continues to falter as we head into the summer season. Sell in May? We'll see but for now the market is weathering the storm and continues to be bound by the highs of April 2nd and the lows of April 10th. The S&P currently trades in the middle of this range and a break in either direction will likely set the stage for the next month or two.
Friday, April 13, 2012
Market Vulnerable?
For the first time in a few months, the markets are showing signs of vulnerability. Over the last few days, market volatility has picked up with larger than usual moves in both directions. This indicates a struggle between the bulls and the bears. Key levels we are watching are the S&P highs of April 2, 2012 (1,419) and the lows of Monday April 10, 2012 (1,358). A break to the upside would lend credence to a resumption of the bull market trend, while a break below would indicate a more significant correction is at hand. That correction could stretch 3-7% from the levels of yesterday's close. Earnings will drive this market over the next 2-3 weeks and surprises either way will push the market one way or another. The return of European market weakness is a harbinger of potential troubles ahead. There will be lots to look at and evaluate over the coming days.
Tuesday, January 24, 2012
MAKE OR BREAK
The markets have trended up with low volatility since mid-December. With little to no correction or pause, the markets are getting a bit extended at these levels. A healthy market would do a little backing and filling at these levels to digest the gains and prepare for the next surge upward. In contrast, a continuation of this pattern would be deemed unhealthy and would set the stage for an unpleasant and potentially steep sell-off down the road. In principle, the farther an instrument advances without a pause or rest, the more pronounced the inevitable pause/rest/selloff will be.
With the recent lack of volatility, is the market trying to tell us something or just ignoring reality? Some would argue the latter but the market is usually right and the decreased volatility is more likely the market's response to what it deems likely outcomes in the US and abroad. The low volatility uptrend will not continue indefinitely and is getting a little long in the tooth. The next correction, whenever it comes, will tell us much about where this market is headed over the foreseeable future. The major indices are at or nearing their 2011 highs and thus approaching significant resistance. Pushing through these levels would be a huge jolt in the arm for markets that seem to want to go up. There is still much that could derail the weak economic recovery. The most obvious source of potential problems is Europe. It is hard to envision a scenario in which Europe overcomes their current sovereign debt problems without major economic upheaval, but if they were able to figure out how to accomplish just that, this huge negative for the global economy would become a powerful positive force.
The Federal Open Market Committee (FOMC) meets today and tomorrow so market action may be muted until the meeting is concluded. There will not be any change to the two key interest rates that the Fed controls directly but there could be changes in the statement language that hints of future Fed policy. Several voting members have changed since the last meeting and the new makeup of the FOMC is considered to be more dovish on inflation and therefore more apt to consider another round of quantitative easing (QE3). Any hint of QE3 would likely be positive for stocks in the short-term. If QE3 is a valid Fed alternative, they are likely to act soon so as to avoid any perception that they are trying to influence the election process. Additionally, if there is another round of easing it will almost certainly be aimed at the mortgage market to attempt to restart a lagging housing market. This will be an area to watch closely as things develop over the coming weeks. Lots to look at and digest. It is always interesting...
Sam and Bo
With the recent lack of volatility, is the market trying to tell us something or just ignoring reality? Some would argue the latter but the market is usually right and the decreased volatility is more likely the market's response to what it deems likely outcomes in the US and abroad. The low volatility uptrend will not continue indefinitely and is getting a little long in the tooth. The next correction, whenever it comes, will tell us much about where this market is headed over the foreseeable future. The major indices are at or nearing their 2011 highs and thus approaching significant resistance. Pushing through these levels would be a huge jolt in the arm for markets that seem to want to go up. There is still much that could derail the weak economic recovery. The most obvious source of potential problems is Europe. It is hard to envision a scenario in which Europe overcomes their current sovereign debt problems without major economic upheaval, but if they were able to figure out how to accomplish just that, this huge negative for the global economy would become a powerful positive force.
The Federal Open Market Committee (FOMC) meets today and tomorrow so market action may be muted until the meeting is concluded. There will not be any change to the two key interest rates that the Fed controls directly but there could be changes in the statement language that hints of future Fed policy. Several voting members have changed since the last meeting and the new makeup of the FOMC is considered to be more dovish on inflation and therefore more apt to consider another round of quantitative easing (QE3). Any hint of QE3 would likely be positive for stocks in the short-term. If QE3 is a valid Fed alternative, they are likely to act soon so as to avoid any perception that they are trying to influence the election process. Additionally, if there is another round of easing it will almost certainly be aimed at the mortgage market to attempt to restart a lagging housing market. This will be an area to watch closely as things develop over the coming weeks. Lots to look at and digest. It is always interesting...
Sam and Bo
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