01-May-08
Four month highs and lots of optimism
As April wrapped up a strong showing, the first day of May saw strength as well as the S&P finally closed above the 1400 level.
Going back several weeks, I commented on what I thought it would take for me to change my neutral bias towards a more positive one. I stated I wanted to see the markets rise on broad based gains (ie - not a low volume, short covering rally where financials led) across several sectors. Even more importantly, I wanted to see sector rotation away from energy and commodities. The past two weeks have certainly shown this. Oil stocks are down 5-10% and many material names are now 15-20% off their recent highs.
Do I think we've cleared a major hurdle and think we can now take out the 200 day moving average? Unfortunately, I do not. At least not easily. Sentiment has improved a bit and we have just as many bulls as we do bears. Today I was discussing with a trader regarding his comment that we were climbing the wall of worry. I don't see it that way. A true 'wall-of-worry' was back in the middle of 2007 when we were hitting new highs each day despite knowing growth was slowing. This rally seems almost to be a self-fulfilling prophecy. Everyone wanted a rally. A rally is what everyone received.
I am on the sidelines for the time being in order to get a clearer picture on the market. Granted, I am leaning towards the bullish side and am specifically focusing on 3-6 month breakouts. Much like I was hesistant to chase materials over the past month, I am likely to stay away from most financial and discretionary stocks that have seen 40%+ rallies.
One major portfolio positioning move I will undertake over the next month is moving away from certain tech names. This is not an insignficant move for me. I have praised tech's potential all the while they have performed miserably for the past 6 months. Now, since the bottom in March, the Nasdaq 100 has rallied nearly 20%. Valuations, though attractive on a backwards-looking basis, do not seem to be pricing in the capex slowdown that will no doubt become very apparent over the next few quarters. While growth will be evident in certain segments, I would not be buying stock in DELL, GRMN, QCOM, and INTC.
Let's hope the market elephants don't sell in May and go away!
Posted at 19:35 in Market Report | Permalink | Comments () | Top
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