Old And New Economy Fusion

  • March 11, 2002
  • Peter Navarro

Market
Trend:  Up Near Term (Waiting for
Bull Market Confirmation)

Best
Sectors: Old Economy Cyclicals, Semiconductor Manufacturing, Electronics

Macroplays
of the Week: Concord EFS
(
CEFT |
Quote |
Chart |
News |
PowerRating) and
Investment Tech Group
(
ITG |
Quote |
Chart |
News |
PowerRating)


Best
Longs: Activision
(
ATVI |
Quote |
Chart |
News |
PowerRating), Flir Systems
(
FLIR |
Quote |
Chart |
News |
PowerRating),
MKS Instruments
(
MKSI |
Quote |
Chart |
News |
PowerRating), Peet’s Coffee & Tea
(
PEET |
Quote |
Chart |
News |
PowerRating) and Roxio
(
ROXI |
Quote |
Chart |
News |
PowerRating)


Best
Shorts: None


On
the Radar Screen: Garmin
(
GRMN |
Quote |
Chart |
News |
PowerRating) and ONI
Systems
(
ONIS |
Quote |
Chart |
News |
PowerRating)


Sell
Signals: ASM International
(
ASMI |
Quote |
Chart |
News |
PowerRating)


The Broad Market Outlook


The
short-term market trend is now officially up. We look next for an official confirmation of the new bull market, but do
not expect this confirmation for some weeks.

Both
the macro data and earnings calendars are very light this week, so there will be
little systematic news to move the markets. Look
then for a week of “basing” as the market indices consolidate
their recent gains. Beneath
that veil, however, look also for key emerging sectors like the old economy
cyclicals and semiconductor manufacturing to continue an upward trend.

For
your longer-term horizon, the battle over whether to be bullish or bearish now
shifts to the Federal Reserve. The
big concern revolves around how soon Greenspan and Co. will begin tightening
credit. The market now accepts that
interest rates have to come up a little because they are artificially low. But Sir Alan needs to walk and talk softly so as not to awaken the Bear.

The Macro Data — Last Week


Last Friday the jobs report came out with blowout numbers. The unemployment rate FELL instead of rising.
Everyone on Wall Street was happy — except the bond traders who saw
prices fall on the expectation of rising interest rates. Like the good news on the purchasing manager’s index front the previous
Friday, this sparks a nice rally.

The Macro Data — The Coming Week


The
battle going on right now in the collective consciousness of Wall Street is
whether we are still in danger of a “double dip” recession. The scenario which we have previously outlined was for a strengthening of
the supply side of the economy even as consumer confidence was flagging. Falling demand from a reduction in consumption — which is almost 70% of
the GDP — would lead to inventory buildups and the dreaded double dip.

While
double dip fears are receding, there will be at least semi-important news on the
demand side of the equation this week. The
two key reports to watch for any signs of more weakening demand will be retail
sales on Wednesday and consumer sentiment on Friday. If the consumer sentiment numbers show a stabilization of the falling
trend OR an uptick, look for another very nice Friday.

The
other possible newsmakers will likewise all fly on Friday, so Friday will be the
pivotal day. These include the
Producer Price Index (don’t want no unexpected inflation, y’all) as well as
the industrial production/capacity utilitization numbers which should reaffirm a
strong supply side.

Sector Watch


We
are at the transition from Late Bear to Early Bull in the stock market cycle and
now much closer to Early Bull. Autos
and housings have already had a pretty good run, as to be expected at this stage. Keep an eye on the housing sector for any weakness. It may continue on its
rocket ship to the moon. But any systematic reversal would provide some excellent shorting
opportunities. Watch Beazer
(
BZH |
Quote |
Chart |
News |
PowerRating)
as your indicator. Watch also for
semiconductor manufacturing and transportation to continue their upward trend,
along with some of the old economy cyclicals. The latest kid on the block to enjoy the Early Bull move is diversified
electronics.

Macroplays of the Week: CEFT and ITG

How
do you play the tech side of the market while taking advantage of the upward
trend of the old economy cyclicals? One
possibility is Concord EPS
(
CEFT |
Quote |
Chart |
News |
PowerRating). This
company provides data processing services to a matrix of old economy sectors,
including independent retailers and financial institutions. A low beta means low risk with a nice upside potential. IBD fundamentals look good. Technicals
look very, very good. All key
moving averages (10-, 21-, 50- and 200-day) are stacked up nicely one upon the
other. The stock is under
accumulation, and the Bollinger bands are in the range that suggests a breakout
move. Recommended Stop: $27.89.

Market
volume should increase significantly in a new bull market. Investment Technology
(
ITG |
Quote |
Chart |
News |
PowerRating) is an interesting play. It provides trade execution technologies to the big boys —
institutional investors and brokers. A
low beta likewise suggests low risk. Technicals
also look magnifique. IBD rates
it best in its group. Friday’s
close: $50.61. Recommended
Stop: It’s well above support. Use
your money management rules.

 

If you
have a favorite macroplay or stock you would like us to consider in this column,
send an e-mail to peter@peternavarro.com
or go directly to my web site https://www.peternavarro.com. 
We’d love to hear from you. 

After receiving some fine feedback on my beta-test of
the Art of the Macroplay, I’ve decided to simply offer this free to all
tradingmarkets.com subscribers.  Have
at it:  https://www.peternavarro.com/macroplay


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