CAPITAL MARKET COMMENTARY
_ WORLD STOCK PRICES ARE “GREEN AGAIN” THIS MORNING:
All of the major indices are higher this morning, with the S. Korean KOSPI rising far more than any other Asian or European bourse. In fact, the KOSPI hit a new all-time high – besting that which was formed in 1994…a full 11-years ago. Impressive indeed. Also this morning, we have the US dollar trading higher against all its major trading partners, bond yields too are moving higher, and crude oil is modestly lower.
On the topic of crude oil, we will find out tomorrow just how strong or weak crude oil really is. The weekly oil inventories report will show absolutely enormous draws upon current stocks, and this should in fact be enormously bullish crude oil prices. If that isn’t the case, then crude oil will likely have hit an interim top, with stock prices likely to advance in the weeks ahead.
_ TAILWINDS OR HEADWINDS…WHO IS TO SAY?:
For the week ended September 5th, the average gasoline price rose to $3.12/gallon vs. $2.65/gallon in the previous week, and although unleaded gasoline futures have pulled back…prices at the pump have yet to do so in any material amount. We consider this a ‘headwind’ to be sure, but one that hasn’t yet hit the tipping point to the degree we expect it to in the months ahead as it becomes clearer the consumer just isn’t sufficiently liquid to spend on big ticket items or specialty retail purchases.
As for ‘tailwinds’, yesterday’s ISM non-manufacturing survey or ISM Services survey as we like to call it showed excellent growth – much more than the consensus believed would occur. The headline number came in at 65.0 vs. consensus of 60.0. We have anticipated something less-than this around 58.0, but we were quite wrong. Further, the detailed data in the report was strong as well; the employment index rose to 59.6 from 56.2, the orders index rose to 65.8 from 61.9 and export orders rose to 63.5 from 53.5.
However, this contrasts with the ISM manufacturing data that was quite weak. But given the US economy is predominately services-based – this report shows the economy expanding and the Fed is likely to continue raising rates. The question is whether they ‘stop’ for the September meeting or continue to move forward. Certainly we can make the case that in ‘stopping’ they would simply be surveying the damage and include a statement that once satisfied the economy can withstand such an blow – then they will return to their measured pace.
On the other hand, if the economy is as resilient as it appears to be at this juncture…then the Fed should continue apace with their increases, which would be ‘vote of confidence’ in that the US economy is truly resilient and sufficiently flexible to deal with this tragic event. Either way…higher rates lie ahead in our opinion, for a change in policy at this juncture simply isn’t an option given growth is strong, and likely to become stronger once rebuilding comes into play.
TRR PORTFOLIO UPDDATE & RECOMMENDATION SUMMARY
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ETF CHART/ RATIO COMMENTS:
Technically speaking, the broader market is rising in bullish fashion. The Rhodes Global Index hit a new high yesterday,while our Short-Term and Alternative models are now trending higher as well. Also, our simple BLI indicators for all the major ETFs are trending higher. Thus the trend is higher until further notice; however, we aren’t comfortable with long positions as we approach the highs. SPY is but a stone’s throw away from its highs, while the small cap IWM and technology-laden QQQQ are still quite some distance from their highs. When the relatively ‘defensive’ SPY is the leader...then we must be cautious. We find ourselves much more comfortable understanding the dynamics behind TLT at this juncture, and thus prefer being short TLT rather than being short stocks in general.
S&P 1500 STOCKS ABOVE THEIR:
10-day moving avg: BULLISH***
– 78.6%...up 19.4%
– Holding above recent lows
200-day moving avg: BULLISH***
– 65.9%...up 4.3%
– Above the Aug-04 low at 37.7%
– Below the Dec-04 high at 83.0%
MOMENTUM INDICATORS:
20-day BLI: BULLISH***
– Trading higher from less-than oversold levels
14-week BLI: BEARISH
--Declining from near-overbought levels
Short-term 1500 Model: BULLISH***
– Rising fom near-oversold levels
Intermediate 1500 Model: BULLISH
--On ‘tentative buy signal since June 16th
“PAID -TO--PLAY” PORTFOLIO CHART COMMENTS:
Our broader market indicators are pointed higher; thus we don’t feel the necessity to be aggressively short at this juncture. We are overweight long positions based on bullish basing patterns; and we are adding to them today via Luby’s (LUB) and 3M (MMM). Also, we are ‘switching out’ our short position in United Healthcare (UNH) for that of Research-in- Motion (RIMM); UNH hasn’t worked at all since we put it on, and we simply don’t want to expend and further trading capital as well as mental capital defending the position. RIMM simply didn’t perform well yesterday as the broader market did trade well...hence we want to sell that which is showing the worst relative performance...and RIMM fits that criteria. Are we uncomfortable with an aggressive overweight long position – we most certainly are. However, we will be ‘quick to exit’ and en masse if price action warrants. We are simply ‘following our indicators’ at this point given we are still somewhat confused by the response of the market to the tragedy on the Gulf Coast. Ultimately we think rebuilding will be far more difficult than is now believed, and it is highly unlikely that the Fed will pause more than a cursory ‘one month’ before resuming...and perhaps accelerating their moves once it becomes clearer.
STOCK WATCH HOLDING AREA – POTENTIAL LONG POSITIONS
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STOCK WATCH HOLDING AREA – POTENTIAL SHORT POSITIONS
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