This Week, Watch These 2 Potential Market Movers
Market
Trend: Down
Market Outlook: A coin flip–Corrective
bounce vs. Rolling Over of the Whale
David’s
Pick: Short the Semis! SMH and
IGY
Peter’s Pick: Cash
Sector Watch:
Up — Only upward bounces
in: Metals & Mining, Tobacco, Manufacturing, Real Estate, Utilities, Energy,
Diversified Services, Internet, and Consumer Non-Durables sectors.
Down — The broad markets,
led by: Semiconductors, and the Transportation sectors.
Navarro’s Broad Market Outlook:
I’ve
been warning in this column of the possibility
of a nasty “duelflation†for over a year now. On the one hand, deflation
at the retail level driven by intense global competition from low-wage nations
like China and India, technology-driven productivity gains from factors such
as B-2-B online auctions, and out-sourcing have all sapped the pricing power
of corporations. And without pricing power, there can be no robust earnings
— with stock prices suffering accordingly.
On the other hand, we’ve
got inflation at the wholesale level across all sorts of commodities —
from oil and copper to corn and soy beans — driven by the Asian juggernauts.
These supply side shocks are contractionary. That’s why I’ve also
been warning of an economy and market that looks a lot more like the 1970s stagflationary
bust than the 1990s inflation-less boom. With oil prices hitting historical
highs and the recently released hostage PPI indicator flashing yellow warning
lights, it would be a bummer if I was right — at least if you are long
this market, don’t know how to hedge, and haven’t a clue as to how
to play the short side.
Let’s see how this
duelflation puppy develops as the earnings season starts to get under way. Maybe
another round of estimate-busting earnings announcements and rosy guidance pronouncements
will ease these fears. If not, watch out.
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The macro data week won’t
get really kicking until Wednesday. Since everyone expects mortgage apps and
new and existing home sales to be up, the risk-reward play of the week favors
some kind of short play in the sector as upside risk is minimal (already being
priced in.)
Thursday will bring the
usual water torture test for the Bush Administration in the form of jobless
claims.
The two most important reports
of the week are likely to be personal income and consumer sentiment. Personal
income grew less than expected in January while the saving rate rose. That’s
consistent with a falling consumer sentiment, record consumer debt levels, and
a weakening consumption sector. Let’s see if the trend continues —
a bearish sign.
^next^
David’s Pick: Short the
Semis (SMH and IGY)
Weeks back I brought your
attention to the breakdown in the semiconductor sector, and its leadership to
the downside in the tech sector’s decline. So, continue to go short the
semiconductor sector using the ETFs (Exchange Traded Funds): SMH and IGY for
the semiconductor sector. As always, control your risk, by following money management
guidelines which are inline with your level of risk tolerance.
Peter’s
Pick: Cash
Sure, I brought you great
picks over the last year or so: SIRI, SINA, SOHU, NTSE, OPTV, VWPT, NT, IFN,
BG. The list goes on and on. But guess what. I still can’t find a darn
thing that is of any interest in this market. Unlike my pardner, nor can I find
any sexy shorts to put on. But hey, a cash call since Jan. 15 still would have
saved a lot of people a lot of money. I’m sticking with it until we know
whether this is a correction or resumption of the big bad bear.
Aloyan’s Technical Take:
All three major indices
(Dow, S&P 500 and Nasdaq), declined for the week with the Nasdaq leading
the way down. A “bearish flag†formation has formed in all three
indices, indicating another thrust down being the higher probability
Last week’s decline
continued to be broad based, with approximately 71% of the broad sectors declining,
and chart patterns show signs of topping and deterioration. Investor’s
seem to finally be showing some signs of nervousness about buying equities (which
has been the engine behind this speculative rally), as we witnessed outflows
for the week in equity funds, and AMG Data’s 4-week moving average of
equity fund inflows continues to trend downward. Further, volume has been light
on rallies and stronger on declines—