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Saturday, July 24, 2010

Weekly Newsletter -- A Corner Turned?

This past week was a very encouraging week for the Bulls as the Dow gained 3% and the NASDAQ 4%. A primary catalyst for the rally was good news from the earnings season. It seems to be helping, too, that the European crisis is receding while no news from Asia was good news.

 

What we have here is an emerging battle between rising corporate profits and continued high employment. The conventional thinking is that if unemployment remains high, there will not be enough consumer power to sustain a recovery. In reality, I think what we will likely get is enough consumer spending from the 90% of the people or so who actually have a job to continue to grow the economy, albeit at levels below potential output. If companies can continue to make money in that scenario, there is a chance that the market can move upward.

 

Of course, the much better scenario would be for our policymakers in Washington to understand that the only way we are going to get back to full employment and produce at full potential output is through a broad-based program aimed at increasing business investment and exports. This means cutting taxes on investment. It also means trade reform aimed at restoring our manufacturing base. There is, however, no sign in Washington that our fearful leaders understand this.

 

This last week on the Kudlow Report, I did make the case that President Barack Obama needs to emulate President Bill Clinton in the following sense. When the Newt Gingrich revolution turned Congress Republican in 1994, and when it looked like Bill Clinton was going to be a one term president, Clinton turned to political consultant Dick Morris who came up with a strategy known as triangulation. The basic idea of triangulation is for the White House to move towards the middle in its policies -- in Clinton's case, triangulation meant to run away from the Left in Congress and embrace policies favored by moderate Republicans like welfare reform and shrinking the size of government.

 

President Obama would be advised to adopt a similar type of strategy right now; and he need not wait until he loses the Congress in the November 2010 election. The best way for Obama to proceed would be for him to adopt a tax cut mindset. If he were to publicly a knowledge the importance of business investment in creating jobs and follow through with that rhetoric by actually working to restore the Bush tax cuts for investment and capital, he would begin to win back many of the independents and at least some of the moderate Republicans that help put them into office. Through such triangulation, he would also do a far better job of creating jobs than he is doing now under the spell of his Keynesian advisors, particularly Larry Summers, Tim Geithner, and Ben "print me some more money" Bernanke.

 

And by the way, Larry Summers has to be one of the most politically tone deaf people in political office the world ever created. The guy is just offensive -- sometimes mildly so, sometimes over the top. A case in point popped up last week on CNBC. During an interview with Maria Bartiromo, Larry Summers got in her grill about one of her questions. Two things come into play here: it was a perfectly fair and innocuous question. Maria Bartiromo is also one of the smartest, fairest, and most polite people you ever want to be interviewed by. Why would you ever want to offend somebody like that?

 

Anyway, enough of that digression. My point here for traders and investors is that the economic outlook remains uncertain, but last week pushed our current sideways market pattern at least in the direction of an uptrend. In my own trading, which I am discussing on a daily basis in my theStreet.com videos, I am trying to maintain the discipline of entering in to at least some short positions to balance out my longs.

 

That said, there is no denying that from a technical analysis point of view, the market seems to be gathering some strength. As my readers know, I'm a big fan of Market Edge and when the Edge exhibits a pattern in which the number of new daily upgrades steadily increases, that generally signals a coming uptrend.

 

As a last take, here are some of the stocks that I think may have some legs – see my street videos for details.

 

On the long side, there is Monsanto, Motorola as a smart phone -- android play, Synta Pharmaceuticals as a value play, Freeport McMoran as a commodities play, the Brazilian ETF EWZ, Halliburton, which was unduly beaten down by the BP spill, Zhongpin as a Chinese agricultural play, and QUALCOMM as a chips ahoy play.

 

On the penny stock front, I also like the beaten down trucker YRC Worldwide (YRCW), which is on the rise after a decent earnings surprise, and SNT as a long term hold. 

 

On the short side, I'm short the long bond (TBT) and I'm short gold (DZZ).  I think techies Gamestop,Yahoo, Polycom, and Netflix are good shorts along with the BB&T Corporation.

 

In this environment, as good as a stock picker as you might be, you have to be even better at money management and risk management. None of the stocks above with the exception of SNT that I have identified our long-term holds. Rather I see each merely as a short-term trade that I will exit as soon as that stock’s run is over -- whether it be a few days, a few months, or a year or more.

 

Trade well.

1:14 pm edt 

Saturday, July 17, 2010

Weekly Newsletter: Whipsaw Part Deux

Stock market trend: Coin flip

 Market Pulse

Last week in this missive, I bemoaned that "since last October, we’ve got nothing but a whipsaw market.  Trend looks up.  Trend looks down.  Repeat.”

 Well, the market action that followed certainly reaffirmed this whipsaw pattern. Here is where I think we stand:

 We have had a short-term technical uptick symptomatic of a sideways market pattern. We have had a sideways market pattern because of uncertainty about the ultimate direction of the economy.

 Much of last week's economic data -- particularly consumer confidence -- raised further doubts about the strength of the recovery and led to an ugly plunge the markets last Friday.

 On the ground, the lack of consumer confidence is likely hitting the housing market the hardest. After a nice rebound in spring, homebuyers have gone into the woodwork despite record low mortgage rates.

 For my long-term investor readers, I continue to believe that this is a good time to be mostly in cash. For my short-term trader readers, I think this is a good time to balance your portfolio with both long and short trades, which is the approach I'm taking. (To follow my stock recommendations for short-term trading, see my daily video column for the street.com.)

 My final take here: I am probably one of the few people who's begun to build a short position in gold. I use the exchange traded fund DZZ, which is an ultra short fund. On the one hand, I see gold prices rising as foreign governments increase their share of gold as a portion of their foreign reserves in an era of sovereign debt around the world. In this way, gold may well become the de facto reserve currency of the world if the Europeans and Americans fully debased the currency through easy money and excessive fiscal stimuli.

 That said, there is no sign of any inflation so that drives gold prices down. If the economy softens, that likewise drives the demand for gold as an industrial commodity or retail jewelry down and the price down with it as well. Since I believe that the net effect right now favors the downside, I'm short gold -- but only with a small position that I intend to build the trade goes in my direction.

 Navarro on TheStreet.com

 I’ve started a daily video column for TheStreet.com that analyzes high volume movers using a Market Edge technical analysis screen.   Click here to review my videos on TheStreet.com.   Or subscribe to the RSS feed for these videos. 

———-
10:47 am edt 

Saturday, July 10, 2010

Weekly Newsletter -- Week Ending July 16, 2010

This Week: Whipsaw

 Stock market trend: Incipient uptrend

 Market Pulse

Since last October, we’ve got nothing but a whipsaw market.  Trend looks up.  Trend looks down.  Repeat.

 Implicit in this whipsaw is a sideways pattern where it is VERY difficult to make a buck.  Implicit in this whipsaw is continued uncertainty over the direction and strength of the economy.

 Consider these two conflicting signals.  On the one hand, the Dow ends last week up 5.3 percent for its best gain in a year.  On the other hand, global money market funds yielding just half a percent saw a huge surge last week of inflows – the highest since January 2009 -- as investors built cash hordes in preparation for a possible double dip and bear market.

 As for the direction of the economy, here’s what the Financial Times had to say about the latest uncertainty:

 A month ago, it all seemed to be going so well. Growth in the US economy was picking up. The financial system was, mainly, functioning. The risk of contagion from Europe had diminished after an unprecedented $139bn bail-out from the European Union and the International Monetary Fund. Things were creeping back towards normality.  Then in early June, as Alan Greenspan, former Federal Reserve chairman, put it, the economy hit “an invisible wall”.

 I repeat my question from last week: What’s a trader to do?  Here’s my thinking:

 If you are an investor uncomfortable with frequent trading, stay on the sidelines in cash and wait for this situation to declare itself.  If you must deploy some cash, limit your exposure to 10% of your holdings and limit your positions to small cap biotechs that function outside the business cycle.  I’m holding CHTP,CYPB,SNT,SVNT.

 If you are an experienced trader, favor the long side at this point but only open small positions.  The goal is to build positions if the uptrend is confirmed – or immediately cut losses if the trend fails.   Follow my daily video column for TheStreet.com for stock picks.

 That said, just about any broad index or sector you look at now since October of 2009 looks like a sideways pattern.  Without tight money management, it is you that gets skinned, not the other guy.

 Last take: My one big macro trade remains a short of the long bond.  With yields at historic lows, upside reward trumps downside risk – absent another Great Recession.  TBT is now at $36 bucks – and the only other time it got that low was in December of 2008 in the midst of the 2007-2009 crisis.  So long TBT is a short of the bond market and it is a trade that I continue to play with – as it is also a canary in the coal mine of any incipient recovery.

 Navarro on TheStreet.com

 I’ve started a daily video column for TheStreet.com that analyzes high volume movers using a Market Edge technical analysis screen.   Click here to review my videos on TheStreet.com.   Or subscribe to the RSS feed for these videos. 

1:26 pm edt 

Thursday, July 1, 2010

Always a Winner Model Says Head for Hills -- Newsletter Week Ending July 11, 2010

 

Stock market trend: Decisively Down

 There is no ambiguity left about the direction of this market – the trend is decisively down.  This trend is consistent with all of the leading indicators featured in my Always a Winner forecasting model: Consumer confidence and housing sales are down.  The long end of the yield curve is at historic lows.  The one bright spot – the ISM Manufacturing Index – has now started to turn down.

 On the net export component of the GDP equation, the stronger dollar will catch up to us soon in the form of slower growth.  As for government spending, Congress is finally beginning to turn the spigot off – so that is contractionary as well.

 On the broader macro front, the Chinese real estate bubble appears to be on the verge of collapse while the Chinese economy is faltering.  Europe will be buying less of U.S. and Chinese exports so that will contribute to the global slowdown.  Here in the U.S., voter concerns over the BP “sick to my stomach” spill, the debacle in Afghanistan, the specter of muni bond failures in key states, continued high unemployment, job and pension uncertainty, and a congress still intent on passing  bad laws and higher taxes all add up to difficulties ahead.

 The danger is not a double dip recession necessarily.  All we need have for a vicious bear market is 1% to 2% GDP growth in the rest of 2010 and all of 2011.That is increasingly likely.

What’s a trader to do?  In what may be a kamikaze move, I am slowly building a position in TBT to short the long bond in the belief that absent a Great Depression, TBT can’t go much lower – and at some point because of sovereign debt issues, TBT must go higher.

 I have also begun to nibble at the short side for gold.  While it has been booming because gold has begun to replace the dollar as the de  facto world reserve currency, gold can’t keep rising when all the other metals and commodities are falling with a softening economy.

 I continue to dabble in several small cap biotechs, including SNT, CYPB, and NRGX – but beware, NRGX is VERY thinly traded.

 On a daily basis, I’ve also been posting some short term swing trades in videos prepared for TheStreet.com.  These trades are strictly for pros, however, as they require sophisticated money management techniques and move quickly.  (Please visit this link on a daily basis to follow these trades.)

 I wish I had better news.  Many of my readers are stuck in U.S.-centric long portfolios that are likely to bleed more over the next 3 to 12 months.  That’s why I always say cash is king when the trend is down – if you are not experienced enough to short (which is far more risky because markets move down a lot faster than they move up).

12:32 pm edt 


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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.







DISCLAIMER: The newsletters and blogging on this page are 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.

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