Finding encouraging signs in this unsettled market is extremely difficult even among seasoned professionals, especially at the end of the year when the January Effect and the End-of-the year Window Dressing distort the long-term direction of markets. Yet, judging from the behavior of markets in the last week, we can identify three encouraging signs indicating that US equity markets may be stabilizing and ready to break out from its trading range:
1. Rotation. Rotation from one sector to another that usually occurs in a low-interest environment is music to the ears of investors, especially traders, as they can benefit by taking profit from winning sectors and plowing them back into a losing sectors. Actually, in the last week we have seen just that. On Tuesday, for instance, investors were moving money into staples like Coca-Cola (KO) and Altria (MO). On Wednesday, investors were moving money out from high-tech and into homebuilders while on Thursday they were taking money out of staples and homebuilders and moving it into high techs and financials stocks - even ailing Bank of America (BAC) rallied towards the $5.5 mark.
2. Shedding negative news. In the last three weeks, the market was hit with a wave of bad news, especially in the high-tech sector where bellwether companies like Oracle (ORCL), Intel (INTC), Texas Instruments (TXN), and Xilinx (XLNX), and Red Hat (RHT), either reported disappointing profits or warned about their future sales and earnings. Yet most of these stocks bounced back from a brief decline, indicating that the market has already discounted such bad news.
3. Immunity to European Woes. The performance of US equity markets in the last two weeks indicates that they trade on US economic fundamentals—that are improving---ignoring the developments in Europe that have been the source of investor anxiety in the last six months.
Disclosure: I am long MO, INTC.
No comments:
Post a Comment