I read an interesting comment last week rebuking the bears call that the current rally was nothing more than a bear market rally. The person quoted in the article said, "all new bull markets began with bear market rallies". This was a great rebuttal.
In every market, bull or bear, it is wise to look all around you, tune out the noise, and make some common sense decisions. In other words, you need to grow eyes in the back of your head.
Clearly, Wall Street is one huge garbage dump. Garbage is thrown at you daily, and it is up to you to decide what is salvageable, what is garbage, and if someone has thrown something away that is valuable.
One of Wall Street's misdirections is to tell you something is garbage when it is actually extremely valuable. That's why in crushing bear markets it is wise to buy the highest quality investments on the planet.
In the days ahead, Wall Street will continue to reprice assets. During the early March lows, assets (stocks) were being priced for a economic depression. The current market rally is beginning repricing assets (stocks) for an economic recession.
As the markets begin to reach extremes for the recessionary climate (early summer), traders will take the opportunity to take profits. Common sense dictates that the economic recovery will not be quick, and lowered expectations will take hold after the initial stock market burst.
After the summer break, I would not be surprised to see a sizable sell-off that extends through October. Over the next few years, I am expecting a slow recovery that really doesn't gain any momentum until 2010.
As for now, I am looking for a rally into early summer that could carry the S&P slightly above 1000, and the DJIA just above 10,000. At these levels, I am looking to book a few profits, sell covered calls, and even place a few defensive shorts.
Here are our Top 10 ETF's for the week of April 13th:
1) DBA: Powershares DB Agriculture Fund
2) EWZ: Brazil Index
3) DBE: PowerShares DB Energy
4) USO: U.S. Oil Fund
5) VIS: Vanguard Industrials
6) DDM: Ultra Dow 30 Proshares ETF
7) IXP: iShares S&P Global Telecom
8) IYF: iShares Dow Jones US Financial Sector
9) PGJ: PS Golden Dragon China Fund
10) SSO: ProShares Ultra S&P500 Trust
Here are our Top 10 Fidelity Sector Funds for April 2009
1) FBIOX: Biotechnology
2) FSPTX: Technology Portfolio
3) FSCGX: Industrial Equipment
4) FCYIX: Industrials
5) FSCPX: Consumer Discretionary
6) FSCSX: Computers & Software
7) FSCHX: Chemicals
8) FNARX: Natural Resources
9) FSENX: Energy
10) FSRBX: Banking
For the Week:
With approximately 45% of companies having a dividend yield higher than the 10-year U.S. Treasury, the signs that the markets were near a historical bottom were clear. Going forward, at least by early summer, you need to understand that the road to recovery will not be without challenges.
Traders may have to extend their holding periods longer than just a few days. The big Wall Street guys are traders too, but clearly the holding period is different. Smart money traders have time frames of about 3-4 years, sell calls and puts during oversold and overbought conditions, and measures themselves by how many millions of dollars they make during a market cycle. We plan to do the same.
Last weeks rally started after Wells Fargo (WFC) announced that it expected to report earn $3 billion for the quarter, or 55 cents a share. Wall Street analysts were only expecting 23 cents a share. I don't understand how these people (analysts) keep their jobs.
Wells said it did $100 billion in new mortgage originations during the quarter, to a whopping 450,000 people either purchasing or refinancing a home. Given this news, what do you think Bank Of America (BAC) is going to do?
After all of the political wrangling over the TARP money being extending to the nations financial institutions, politicians are going to have to find something else to squabble about as companies are positioning themselves to pay the money back. This is a great sign that the massive amount of debt being extended may actually end up being a profitable move for the Treasury.
These paybacks may actually slow the amount of foreign capital is fleeing the U.S., and be seen as a sign that our governmental officials really know what they're doing. To counter the outflows of U.S. securities, the Fed has to print money to cover the nations debt in the absence of foreign buyers.
These outflows of foreign capital lead to a decline in the dollar, which in turn caused a mini rally in commodity products like crude oil, grain and steel.
Economic News
- According to a Labor Department, new jobless claims fell to 654,000, down from a revised 674,000 and below the 660,000 analysts were expecting.
- The Commerce Department reported that the trade deficit narrowed for the seventh straight month, dropping 28.3% to $25.97 billion. They also reported that wholesale inventories plunged a record 1.5% in February.
-Gold
-The U.S. Dollar
Our current asset allocation is as follows;
95% Equities: (Normally 95%) Aggressive
80% Equities: (Normally 80%) Moderately Aggressive
60% Equities: (Normally 60%) Moderate
40% Equities: (Normally 40%) Moderately Conservative
20% Equities: (Normally 20%) Conservative
