|
THIS
WEEK: SELL IN MAY??? The Markets Since the March low, U.S. indices have rebounded more than 10%. I went back and reviewed this newsletter to see if I missed calling that rally. While I remained bearish throughout March, on April 4th I wrote: “The tape is telling us that the major U.S. market indices are now in a clear technical rally. It is not exactly clear as to why this is happening, but both the DOW and QQQQ are technical-indicator longs while SPY is moving close to the long side. (A technical bounce for the dollar is perhaps helping.) This is the kind of technical rally you should feel free to trade IF your horizon is relatively short. However, the emerging fundamental situation seems just too bearish for there to be a sustained upward trend. “ Along with my call to go to cash last November – which turned out to be dead on -- this April call once again to the long side isn’t too bad as a market prognostication record. My April call on technicals also helps justify the way I like to look at the markets. I am first and foremost a macro trader who looks for market moves based on broad macro fundamentals. However, I always do a technical analysis check on the trend suggested by fundamentals. On a technical note, the S&P 500 remains well off its October high and thus has a bit more work to do before hitting the possibility of what could be a very ugly triple top situation. The U.S. indices are now all overbought as well, suggesting at least a small pullback. In the meantime, the perennial question this column seeks to answer is: which way is the market likely to turn over the longer term. I have no definitive answer for that question this week but here are some considerations. First, the current rally has been driven in a significant way by the ongoing boom in oil and commodities. For that boom to continue, the rest of the world will have to decouple from the slow-growth U.S. economy. So far, China and India appear to be weathering the U.S. storm. More surprisingly, France and Germany (but not Spain and Italy) are doing a lot better than one might expect with the euro where it is at. Second, the current rally is also being driven by something I noted several weeks ago in the newsletter. This is the possibility that the economy might actually not succumb to negative growth, i.e., a technical recession. I note hear that Ed Leamer of the UCLA forecast was first out of the gate to stake this claim about the economy and he did it months ahead of the pack. While I still have my doubts, clearly a lessening fear of recession has helped boost the market. Third, these positive trends notwithstanding, we are entering the stock market’s historically “cruelest month” whereby New York “sells in May, and then goes away” to the Hamptons and elsewhere. This behavior may already be in evidence as volume as been low on market up days. O Canada Loyal readers may have noted the absence of the newsletter last week. I was up visiting our Northern friends – two speeches to financial advisors in two different cities on the state of the economy and vagaries of the market. The best part of the trip was a 17-hour rail journey from Edmonton to Winnipeg – Canada’s breadbasket. It was truly startling in the middle of a global food crisis to see unending stretches of flat wheat land for virtually the entire journey. If global warming does indeed hit, this land will grow ever more valuable, and Canada will become ever more hospitable from a climate point of view. (It hits 50 below in Winnepeg in Winter.) Quick Takes
Presidential Politics John Edwards endorsement of Barack Obama right after Hillary Clinton won the landslide in West Virginia was brilliant politics that effectively neutralizes the Clinton win. It will be interesting to see if she can run the rest of the table and how the super delegates might react. What puzzles me at this juncture is why the national media is running polls on comparing how Obama does relative to McClain versus how the “dream ticket” of an Obama-Clinton or Clinton-Obama ticket might do. I’d love to see those numbers. My sense is that the Obama-Clinton whole is far more powerful than either of the parts when it comes to beating McCain. (I’d also like to see an Obama-Edwards poll against McCain. Edwards would be formidable – Bill Richardson would not be.) The fact is: this is going to be another close race that is going to come down to a battle over a few swing states like Florida and Michigan. That’s incredible given the low standing of Republicans in the polls. However, that’s the power of John McCain. Besides his independence, one of the best things about John McCain is his likeability. It’s clear, however, that he is going to go right after Barack Obama with the gloves off, with national security the top hit. I’m not sure the electorate is going to be able to remain enchanted with the guy if that is going to be his campaign M.O. He might wind up playing right into Barack’s “healing hands” message. “Any
trader or investor who ignores the power of macroeconomics over the
world’s The Market Edge Market Summary from www.marketedge.com
©
2008
Peter Navarro CONTACT
INFORMATION 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. |
