From Mad Cow To Video Phones
Market
Trend: Up
Market Outlook:
Navarro/Bullish, Aloyan/Bearish
Sector Watch: Metals and Mining
(+), Housing, Mortgages (-)
David’s Pick:
(
BMY |
Quote |
Chart |
News |
PowerRating)
Peter’s Penny Picks:
(
ADSX |
Quote |
Chart |
News |
PowerRating),
VLTA.OB,
(
AIRN |
Quote |
Chart |
News |
PowerRating); SELL:
(
IRSN |
Quote |
Chart |
News |
PowerRating)
Navarro’s Broad Market Outlook: Small-Cap Bull
The first day of trading for the New Year did not augur particularly
well. We will find out this week whether it
was merely an unwelcome blip or a trend. In the meantime, it’s pretty
clear that the economy is now cranking on every cylinder and, like an aircraft
carrier moving full steam ahead, it now has a momentum that will be difficult
to stop — at least in the short run.
Whether this aircraft carrier will pull the stock market along in its wake is,
of course, the big question with the turn of the calendar page. Perhaps now
we will finally get into some legitimate sector rotation. As housing and perhaps
autos begin to fade, perhaps the capital equipment stocks will begin to make
a move as the business sector finally awakens from its non-investing slumber.
For now, I see no particular reason not to be on the long side of the market
— although in an age of terrorism, a perpetual put on the Cubes might
be a reasonable insurance policy. I will continue to fish in the mostly small-cap
waters until the speculation fever subsides…
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Lots of data coming out
this week with expectations high. At this point in the recovery, the big market-moving
risk from the data is to the downside. Good news will merely bolster the trend
and provide little spark. Any bad news, however, — unexpected softness in factory
orders, a lower than expected ISM, more layoffs, etc. — will move the markets.
Housing stocks have likely topped for now — but keep your eye on mortgage
apps, just to be sure.
Up: The
Broad Markets, led by the Metals & Mining sector.
Down: Some weakness in Mortgage Investment/Home Builder sectors, and
Retail.
David’s Pick:
Bristol Myers
(
BMY |
Quote |
Chart |
News |
PowerRating)
Money is just starting to rotate into the beaten-down drug sector. BMY has been
in a long basing pattern since July 2002. It trades at a relatively low valuation
to its peers, and pays one of the highest dividends in the S&P 100 (currently
3.92%). This stock should do well as money is starting to rotate back into underperforming
sectors like the Drug sector, with the bonus of a nice dividend yield.
Peter’s
Picks: From Mad Cow to Video Phones
On the penny stock front, check out Airspan
(
AIRN |
Quote |
Chart |
News |
PowerRating), Applied
Digital Solutions
(
ADSX |
Quote |
Chart |
News |
PowerRating), and Vialta (VLTA.OB).
AIRN is a pure wireless play. ADSX is a 45 cent stock that has been trading
large volumes and got a recent little bounce from the Mad Cow news. The company
makes implants that can be used for tracking both humans and animals. Vialta
is going to either soar or fall flat on its face with its Beamer phone technology.
For $400, you can buy two devices to communicate by regular phone with a video
transmission. You use one, and the other person uses the other and you can each
see your smiling mugs. Pretty neat if it catches on. A curiosity, if it doesn’t.
It should get a big bounce at the next earnings announcement if a lot of folks
bought them as Xmas presents. (VLTA trades around 50 cents.)
I’m taking some
nice profits with
(
IRSN |
Quote |
Chart |
News |
PowerRating) at this point as it has provided a nice 47% gain.
Will hang on to some shares playing with the House’s money. Still holding
(
CPTC |
Quote |
Chart |
News |
PowerRating).
Aloyan’s Technical Take:
Perma-bear
All three major indices
finished the week in the green. Friday’s trading to start the New Year,
brought a bearish “outside reversal day down†day to the Dow, S&P,
and Nasdaq 100. The S&P and Dow were the relative strength performers in
December 2003 to finish the year, as money began to rotate out of the hot Retail
and Tech sectors, and into such sectors as Energy, Aerospace/Defense, Chemicals,
Telecom, and Drugs.
Overall sentiment remains very bullish, as pundits point to the election year
as a positive, forgetting that the year 2000 was an election year that provided
plenty of bloodshed. There is no denying that the current administration, with
cooperation from the Fed, has manufactured an astounding rebound in the US equity
market driven by massive government expenditures, tax cuts/rebates, which have
bolstered consumer and business spending, (most of which will conveniently “sunsetâ€
at the end of this election year in 2004), and a massive flood of liquidity.
You must keep in mind that a huge blip up on an EKG monitor when the doctors
are trying to revive a near-death heart attack victim, does not mean that the
patient is out of the woods, and will not “flat line.†The bet is
that business spending will eclipse any loss in consumer and government spending,
thus sustaining the economic recovery and creating a demand for jobs. The jury
is very much out on this one, as demand for Commercial and Industrial Loans,
the Help Wanted Index, and mortgage “refi†applications continue
to trend lower.
We are in a cyclical bull rally, but still remain in a bear market! If we assume
that a 4-year cycle bottom in the stock market occurred in October 2002, then
you should be looking for a top to come along in 2004. This alone should raise
caution, and make you aware that this is not the time to revert back into the
old buy-and-hold mentality.
M ost of the economic data continues to be positive, and investor sentiment
is positive. However, ECRIs economic Weekly Leading Index (growth rate) has
been trending lower since June 2003, and AMG’s 4-week moving average of
equity inflows has been trending down, with December 2003 making new lows.
As I have asserted in a previous column, as long as market participants are
led to believe that they should not be exiting the market, they won’t.
It’s this variable of the masses perception of what they believe to be
reality that is delaying a meaningful decline in equity prices. The fact that
there exists many fundamental and technical negatives looming behind the scenes,
leads me to believe that these will soon surface and market participants will
then begin to sell.
In the mean time, while waiting for the major top in the market to be confirmed,
the focus should be on holding on to your shekels (capital preservation), and
entering long positions only in sectors that offer reasonable reward to risk
ratios i.e. some of the stocks in the Drug, Telecom, Energy, Utility sectors
to name a few. This week will be the first full trading week of the New Year,
and we shall be watching our technical indicators, economic data, earnings,
and inter-market action very closely for signs of things to come.
Bottom
line: My shorter-term view is Bearish-to-Neutral, and my longer-term
view remains Bearish. We continue to believe this is no more than an impressive
secular bear market rally which will come to an end. We enter this week: Bearish-to-Neutral.
Dow
The Dow finished the week
up 85 points at 10410. The daily chart shows the uptrend in price action is
still intact; however, prices are approaching a multi-year downtrend resistance
line. Friday’s price action produced a bearish outside reversal day down
to start the New Year.
OBV (On Balance Volume)
has been confirming the upward price action. The MACD is above the zero line,
and Stochastics are above 80—