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Stock Market Incipient Uptrend

Stock-Markets / Stock Markets 2010 Jul 11, 2010 - 02:43 AM GMT

By: Peter_Navarro

Stock-Markets

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
Click here to review my videos on TheStreet.com.
———-

Professor Navarro’s articles have appeared in a wide range of publications, from Business Week, the Los Angeles Times, New York Times and Wall Street Journal to the Harvard Business Review, the MIT Sloan Management Review, and the Journal of Business. His free weekly newsletter is published at www.PeterNavarro.com.

© 2010 Copyright Peter Navarro - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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