Slow Consolidation Is A Bullish Sign...
I have for some time now hammered home the point that as long as the SPX index is contained between 1205 and 1225, and is not doing too much, it's a bullish sign for better things to come toward the 2005 calendar year end. I am now much more confident that when the market takes out the 1223-25 overhead resistance level, it will eventually challenge the yearly highs toward the 1245 level.
Sure, worries persist -- the homebuilders don't look too good after TOL's warning, the average consumer is probably as stretched as he has been in the past decade, and I don't think energy prices retreat too much below current levels (though that is to be distinguished from energy stocks which might well have seen their yearly highs already!). However, now is the time for the performance-chasers to wake up, and in the absence of any super-bad news from the economy (which doesn't look likely at this point), the market may just slowly, almost stubbornly eke out a 3-4% gain for the year -- maybe even out of boredom. Oh, I am not bullish, but it's even harder to be bearish in a languishing, sideways tape. I would look to buy deep dips in technology and financials, and would stay away from energy, retail, autos, gaming and homebuilders.
Sure, worries persist -- the homebuilders don't look too good after TOL's warning, the average consumer is probably as stretched as he has been in the past decade, and I don't think energy prices retreat too much below current levels (though that is to be distinguished from energy stocks which might well have seen their yearly highs already!). However, now is the time for the performance-chasers to wake up, and in the absence of any super-bad news from the economy (which doesn't look likely at this point), the market may just slowly, almost stubbornly eke out a 3-4% gain for the year -- maybe even out of boredom. Oh, I am not bullish, but it's even harder to be bearish in a languishing, sideways tape. I would look to buy deep dips in technology and financials, and would stay away from energy, retail, autos, gaming and homebuilders.
posted by Ivan at 11/09/2005 10:47:00 AM
4 Comments:
Financials cannot lead a rally in a rising interest rate environment, and I doubt tech can right now. The problem is that even you are saying to stay away from a lot of industries. Everyone is waiting for the rally but there is no obvious sector to spur it on in my mind.
Vanko, Financials are carrying way to much risk now and all the good news is out, m8. Banks need stable and steep interest rate and credit cve environment in order to make money. The cves atm are v low and very flat. Rising interest rates will lead to dislocations in the mkt which will reveal a lot of skeletons in banks' cupboard: counterparty exposure, structured credit positions, housing mkt expo and consumer expo... At this stage of the credit cycle I would be inclined to buy default protection on financial names in the US.
Vanko, Financials are carrying way to much risk now and all the good news is out, m8. Banks need stable and steep interest rate and credit cve environment in order to make money. The cves atm are v low and very flat. Rising interest rates will lead to dislocations in the mkt which will reveal a lot of skeletons in banks' cupboard: counterparty exposure, structured credit positions, housing mkt expo and consumer expo... At this stage of the credit cycle I would be inclined to buy default protection on financial names in the US.
You are both talking longer-term, I am only talking shorter-term -- basically year-end rally. Can't argue with the tape, MATES ;-)! The market is always right, until it isn't! Of course there are longer-term structural problems in the CDO and the credit world in general: for now though, the market is happily plodding along, oblivious to these. I am concerned with THE NOW. Next year, with a new fed chairman, (who is bound to make a lot of mistakes before he establishes some sort of credibility) could indeed be a different story!
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