Tuesday, June 30, 2009

Market Musings

As predicted here recently, the Treasury bond market has had a sharp move upward in price, down in yield; the next 50 basis points lower will not likely be as easy but history suggests it will come.

U. S. stocks appear finely balanced. Stocks are soaring overnight in Tokyo despite news that a measure of employment opportunities in Japan just hit an all-time low. China, too, is red-hot, even as Fitch reportedly is considering a major downgrade of the Chinese banking system. The possibility that a bubble is in existence there must be considered.

Cheers are expected in the U. S. as annualized auto sales are expected to exceed 10 million units on the strength of discounted financing (paid for by taxpayers!). This sales pace was, however, first reached 42 years ago. Not impressive.

While the stock averages grind higher, the charts of strong companies continue to show no strength; check out UMB Financial, Wal-Mart, and GE. This market resembles that of 2002, where a number of stocks went on to resist the downward pull after the rally into early 2002, but where the averages made a new low a year after the recession ended. Certainly, there is near-universal belief that disaster has been averted and new lows are almost out of the question. Short-term, this belief feeds on itself. People need a theme, and this one is not played out yet, it would appear.

The stock charts, fundamentals, P/E's, dividend yields and the like for a few stocks such ROST and TEVA are unimpeachable. They can continue to trend upward no matter what GE or IBM does.

More worrisome, however, from recent market action is the action and charts in prior leaders such as Monsanto and Potash. Both have declining earnings estimates and failing charts, yet the stocks were up today, which is a warning sign of a low-quality bull move. IBM and MCD, which have rising earnings estimates, low P/E's and dividend yields better than cash or 2-year T-notes, are churning. Go figure.

Insiders are reportedly selling at a very fast pace in June. In the setting of a receding bear market/late-stage economic downturn, with a growth-oriented Fed, this is not a terrible sign, however.

Thus there is a yin for every yang.

Generating positive income, and waiting for India to re-enter the gold market before buying gold or adding to one's holdings, continue to make sense. Large directional bets are gambling.

Copyright (C) Long Lake LLC 2009

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