Not So Happy New Year
The Big Picture Investor: A Not So Happy New
Year
Navarro’s Broad Market Outlook: Better Early Than Late
As you may recall, I decreed
on 12/14/04 that the bull market rally was over. Yes, I was a few weeks early
with that call, but last week’s action seem to legitimize at least some of my
concerns. Oil prices firmed, the Fed raise the volume on its saber-rattling,
the bond market seemed to wake up to the hazards of inflation, and the economy
showed some signs of weakness. Add to that some tax-avoidance motivated profit
taking in the new year, and it was an ugly week. I expect more of the same
until further notice — although we might get a nice bump back early in this week
from a short term oversold condition.
Peter’s Picks: Out With the Old, In With the New
CPTC: I trimmed back my
position because the company failed to deliver on its promise to get China under
contract by the New Year — and it took a hit because of it. BUT, I’m visiting
the company on Monday and will update you as I am still very bullish — but
believe until it breeches $5.70, the bigger risk is to the downside.
Got creamed on NWAC as the
airlines all softened. I should have seen that one coming — to much eggnog.
WMB is weakening technically but I’m holding firm until earnings and expect an
upside surprise and a move to $20.
Sorry to tell you this a bit
late but I got in again on ASTM, a stem cell play at a little over a buck and
now it’s over two. I see it as an excellent long term play in this space as it
has a revenue stream, unlike most of the other specs in this space. Expect a
pullback, however, before another advance.
Aloyan’s Technical Take: Not So Happy New Year!
All
three major indices started the first week of the New Year ’05 with a bearish
“outside reversal day down†last Monday, followed by more downward price
movement to finish the week in the red. The Dow closed down 179 points (1.66%)
at 10604, the S&P 500 was down 26 points (2.12%) at 1186, and the Nasdaq closed
down 87 points (3.99%) at 2089. Resistance is around: 10735 for the
“Dow,†the 1202 area for the S&P 500, and 2100 area and 2142 for the Nasdaq
Composite. Support is around: 10534 area and 10471 for the “Dow,†1170
for the S&P 500, and 2075 and 2048 area for the Nasdaq Composite.
My
sector breadth turned extremely negative, with 97% of the sectors in the red for
the week. Major Airlines, and Technology, were some of the worst performers,
while some Retail and the Resorts and Casinos outperformed to the upside. The
Dollar was the big winner on the week, rising 3.38% on the Dollar Index. This
was coupled with a sell-off in the Bond market, with the 10-Year Note yield
closing up at 4.29% for the week.
My
trend indicators are “bearish.†My breadth and momentum indicators are
“bearish.†My volume indicators are “bearish.†And, my sentiment and
economic/fundamental indicators continue to support a cautious position.
Bottom line: I have been warning of a
correction going into the start of the new year, despite the “bullish†fever
ending 2004–it is now upon us. You have probably heard the statistics that
show as January goes, so goes the rest of the year. Further, as the first
trading week of January goes, the rest of the year becomes a coin toss! Let me
add, since 1952 7 out-of -the past 13 post election years have produced an
average annual negative total return of -8.62% for the S&P 500. Further, 87% of
the negative post-election years occurred when a Republican took office! Couple
this with the fact that we late into the 4-year cycle which began off the
October 2004 bottom, and there’s all the more reason to believe that 2005 will
be a rough year for U.S. equities.
David’s Pick: Still Favor Cash.
Cash,
cash, cash, cash, cash, cash, cash.
Hedging Your Bets With Matt Davio: Lethargy Rules
I keep hearing that after this
week’s mild sell off across all markets that fear is overwhelming, and this is
the opportune time to buy. I also hear that the economy is strong and
fundamentals of companies look good and yet PE’s are near all-time levels that
approach bull market maximums. Which is it, fear or greed that is consuming the
markets?
My guess is that this market is
neither full of greed nor fear but rather that of lethargy. I don’t see big
moves coming in this market without extraneous events in the near future. More
importantly, I also see this market having more downside risk than upside
potential and therefore I will position our portfolio as such.
Last take: The US markets
present an interesting dilemma for 2005. The potential upside necessarily will
be limited by the slowly rising interest rates the Fed has pinned on the US
economy. While “dollar squalor†is everywhere, I do think, however, that the
dollar will rally to 90 at some point in 2005. Again, I will position
accordingly.
For general investment
management, e-mail david at
platinum@peternavarro.com. If you are interested in a hedge fund, e-mail
Matt at
infinium@peternavarro.com.
Peter Navarro is a business professor at the
University of California-Irvine (www.peternavarro.com).
David W. Aloyan is a managing members of Platinum Capital Management. Matt
Davio is a managing partner at the hedge fund, Infinium Partners.
For general money management services, contact David
at
platinum@peternavarro.com. If you are interested in hedge fund services,
contact Matt at
infinium@peternavarro.com.
DISCLAIMER:
This newsletter is written for educational purposes
only. By no means do any of its contents recommend, advocate or urge the
buying, selling, or holding of any financial instrument whatsoever. Trading and
investing involves high levels of risk. The authors express personal opinions
and will not assume any responsibility whatsoever for the actions of the
reader. The authors may or may not have positions in the financial instruments
discussed in this newsletter. Future results can be dramatically different from
the opinions expressed herein. Past performance does not guarantee future
performance.