Navarro’s Broad
Market Outlook: Nothing Going Nowhere

In the last
two years since we’ve been writing this newsletter, this may be the worst I’ve
seen it for trading opportunities.   What boggles my mind is how the bulls
continue to believe that the hat trick of soaring oil prices, rising interest
rates, and a falling dollar won’t win the game for the big bad bears.

I’m mostly
in cash and hugging my WMB calls tightly hoping they will break through $19.50
and on to an over 20 bucks.  And by (or short) the way, the housing sector is
over, dead, kaput.  It’s rolling over like an SUV in a hair pin turn.

 

Aloyan’s Technical
Take: Still Takin’ the Low Road!

As I had
accurately forecasted, the markets have continued to deteriorate; all three
major indices (“Dow,” S&P 500, and Nasdaq Composite) finished in the red, with
the Nasdaq leading the way down.  Here’s the numbers: 

The Dow
closed down 145 points (1.34%) at 10630, the S&P 500 was down 10 points (.87%)
at 1190, and the Nasdaq was down 34 points (1.66%) at 2008.  Resistance
is around: 10867, and 10984 for the “Dow,” 1200 area, 1210, 1218, and 1229 for
the S&P 500, and 2020, 2072, and 2100 area for the Nasdaq Composite.  Support
is at: 10600 area, 10471, and 10387 for the “Dow,” 1181, and 1166 for the S&P
500, 2000 level, and 1970, 1950 area, and 1926 for the Nasdaq Composite.  

My sector
breadth indicator remained negative, with 74% of the sectors in the red.  The
Internet and Semiconductor sectors led the overall weakness in the “tech” sector
last week, while the Energy sector led the few sectors in the green.  The dollar
found some support last week, and bonds took a slight breather from their recent
sharp decline, with the 10Yr Treasury Yield closing down at 4.51%. 

My trend
indicators are down for the S&P, “Dow”, and the Nasdaq.  My breadth, momentum,
and volume indicators remain “bearish.”  My sentiment and economic/fundamental
indicators continue to support a defensive position.

 

Bottom
Line:  I continue to reiterate my bearish position.  Money
Flows continued to pile into equity funds last week, still unable to support the
declining market.  Next week brings important market moving economic data on
inflation (CPI, PPI), and the “Fed’s” interest rate decision.   Add to this:
 home sale, initial claims for unemployment, durable goods data, plus plenty of
earnings announcements.  See you next week! 

Hedging Your Bets
With Matt Davio: GM=General Malaise!       

 We banged
around aimlessly this week until the GM news broke midweek and took the market
by surprise. I guess it was surprise, but with the economy supposedly booming
and yet GM still giving away 2 cars for the price of one with no money down and
no finance charges for 19 years and still not moving the product, I don’t think
anyone is really surprised by the action. More importantly are the repercussions
that GM’s bonds trading down to the junk levels have for the greater good of the
corporate bond market and the means to raise money if GM is cut to junk
ultimately.   If volatility and the means to raise money in the much larger
corporate bond market disappears, then that is a “very bad thing” for stocks and
bonds in the near future as Martha would shout.  Couple the flailing bond
markets with higher oil and commodities and we have a potential recipe for mud
slides.

More
broadly, we have the three financial horsemen floundering in this market, GM,
Fannie Mae, and Citigroup.  What does this mean for the larger market as time
goes? Only time can disseminate that info for us.  

As for Real
Estate, there’s an entire dissertation there with rates having to head higher
and so many speculators leveraging up to 4 properties. I still believe there is
much greater downside risk than anyone is willing to buck up to for this sector
and the upside offers very limited reward. 

SPX appears
headed to 1150 to me.  If support is broken there, we will head down another 100
pts to 1050 where there is light support.

Can your
portfolio handle a %12 hit right now?  I think it is highly possible.  Until
peace is found in Middle East and the US and China find an alternative to Arab
oil, we will be stuck as a country in a conundrum of bad and growing debt
structure.

Idea for
the Week. I want to revisit our water theme that we have discussed in the
past and suggest to begin accumulating some water names. If you think oil is at
a premium, I really don’t think we can imagine the water issues this world will
encounter in the very near future. 

I start
with INSU. which finally announced their official earnings Thursday.  They were,
as expected, bad. The contrarian in me says the bad news is now baked into the
pie and H20 speculators can start accumulating the name in the 14’s.  They will
scale in as always and define their risk and time frame. I think this is a
longer term name to own with the looming clean water shortages this world will
face.

 

David’s Pick: Stay
Short the Nasdaq (QQQQ’s) and Bonds, and Long Cash.

 

Peter Navarro is a business professor at the University of California-Irvine
(www.peternavarro.com).  David W.
Aloyan is a managing member of Platinum Capital Management.   Matt Davio is a
managing partner at the hedge fund, Infinium Partners.

For investment management services, contact David at
platinum@peternavarro.com.   If
you are interested in hedge fund services, contact Matt at
infinium@peternavarro.com.

For investment management,
analysis & insight, seminars, books, plus much more…visit our new website at:

https://www.platinumcapitalmanagement.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.