Daily State of the Markets
Tuesday Morning – March 22, 2011
Good morning. As the saying goes, the more things change, the more they stay the same. Take for example, the current lingo used to describe the stock market’s schizophrenic behaviour lately. I’m sure by now you’ve all heard the commentators talking about the “risk trade.” In short, when stocks are going down, we’re told that traders are “taking risk off” and that these same trigger-happy traders are then “putting risk back on” when we see a day like Monday.
Perhaps I’m old fashioned, but isn’t this the exact same concept as a little thing we used to call “market timing” back in the day? Well, before the mutual fund and financial planning industries convinced everyone that such a venture was pure folly, that is. But isn’t “risk off” the same thing as selling out of your positions or putting on shorts, and doesn’t the phrase “putting risk back on” really mean “buying” or getting back in the market?
Perhaps this is an offshoot of the concept that was purportedly invented by the hedge fund community before things went to heck in a hand basket last summer. Although I’ve been in this business since 1980, before last spring I had never heard of the term “de-risking.” Again, if we wanted to reduce our exposure to market risk 20 years ago, we would simply raise some cash. But then again, with all the fancy terms being bandied about and a plethora of ways that one can now take risk out of your portfolio, perhaps some new phrases are indeed warranted.
Getting to the matter at hand, traders were said to be putting risk back on during Monday’s session. The talking heads pointed to the VIX and yammered on about the volatility index clearly showing that “risk appetites” were rising. Pardon my simple-mindedness, but doesn’t it seem that the VIX usually goes down when stocks go up and vice versa? And as such, do we really need a separate index to tell us if people are buying or selling – oops, I mean, putting risk on or taking it off? And since I don’t play in the options game, I’m quite sure I’m putting my ignorance on display here, but isn’t this one of those chicken-or-the-egg things?
But again, I digress. The point is traders felt better about being exposed again to the stock market yesterday. From a simplistic point of view, the fast-money types had taken risk out of their portfolios on Friday for fear of potential headline risk over the weekend. So, since nothing dire happened to the Daiichi nuclear plant and the allied forces appear to be giving Colonel Gadhafi the what-for, traders came into Monday looking to “re-risk” – especially after they got wind of the mega-deal being proposed by a little company called AT&T.
Regardless of what term you’d like to use, the real question at hand is if traders are going to continue to put risk on going forward. After a four-week corrective phase and a fair amount of improvement on the news front, some re-risking certainly makes sense. But now that the major indices have bumped into some resistance on the charts, it will be very interesting to see whether traders decide to de-risk or re-risk from here. And while we may not be completely up to snuff on the proper terminology, know that we’ll be watching the action closely.
Turning to this morning… Japan’s Nikkei surged +4.4% overnight. However, news of another earthquake, slow going at the Daiichi site, and fears of a prolonged fight in Libya are keeping stock futures in check in the early going.
On the Economic front… We do not have any economic data to review before the bell but we will get a report on the FHFA House Price Index at 10:00 am eastern.
Thought for the day: We wish you all the best for a productive and enjoyable day…
Here are the Pre-Market indicators we review each morning before the opening bell…
Major Foreign Markets:
- Australia: +0.08%
- Shanghai: +0.34%
- Hong Kong: +0.76%
- Japan: +4.36%
- France: +0.07%
- Germany: -0.20%
- London: -0.19%
Crude Oil Futures: -$0.68 (May contract) to $102.41 Gold: -$1.80 to $1424.60 Dollar: higher against the Yen, lower vs Pound and Euro 10-Year Bond Yield: Currently trading at 3.341% Stocks Futures Ahead of Open in U.S. (relative to fair value): S&P 500: -0.08 Dow Jones Industrial Average: +8 NASDAQ Composite: -2.8
Wall Street Research Summary
VMware (VMW) – BAC/ML CSX Corp (CSX) – Barclays Noble Corp (NE) – BMO Capital MetLife (MET) – Named top pick at Citi for financial services Actuant (ATU) – Citi Netflix (NFLX) – Credit Suisse Zions Bancorp (ZION) – Credit Suisse Humana (HUM) – Goldman Sachs Nordstrom (JWN) – Goldman Sachs Deutsche Telekom (DT) – Goldman Sachs OptionsXpress (OXPS) – Macquarie Research Akamai (AKAM) – Merriman Celanese (CE) – Morgan Stanley Eastman Chemical (EMN) – Morgan Stanley
Canadian Pacific (CP) – BAC/ML, Barclays Moody’s (MCO) – Evercore Partners Crown Castle (CCI) – Evercore Partners SBA Communications (SVAC) – Evercore Partners American Tower (AMT) – Evercore Partners Amerigroup (AGP) – Goldman Sachs Expeditors Intl (EXPD) – RBC Capital Visa (V) – Removed from Key Calls list at UBS
Long positions in stocks mentioned: HUM
For more “top stock” portfolios and research, visit TopStockPortfolios.com
The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of TopStockPortfolios and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Stocks should always consult an investment professional before making any investment.
Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.
The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.
The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.
Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.
Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.