Stock Preacher

Red Roadmaster’s Market Recap for the 3rd Quater – Thursday, October 1st, 2009

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For some US stock analysts, yours truly among them, the start of the 1980’s Bull Market is a fitting historical precedent these days rather than the Great Depression era of the 30’s.

When comparing the the S&P 500’s chart in the advance since March 9, when it fell to its lowest level in 12 yrs, the recovery from a two year low set on Aug. 12, 1982 look very similar.

The S&P 500 rose 15% for all of 1982 and moved higher every year for the rest of the decade.

“Investor sentiment today is very similar to what I saw 27 yrs ago. ” said popular market observer, Paul A. Ebeling, Jr. AKA the Red Roadmaster of www.stockpreacher.com , I do not doubt economy’s ability to recover as real consumer and business confidence, retail sales, exports and other indicators point to a rebound, not depression, Ebeling said. The S&P 500 reached its August 1982 low during the second US recession in three years.

Technology is the only one of the S&P 500’s 10 broadest industry groups that has kept pace with its average move in nine other Bull Markets since 1962. Tech is the leader.

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Credit Suisse Group AG switched its preference for government bonds in favor of stocks and raised its estimate for the Standard & Poor’s 500 Index by 14% to 1,050, citing improving economic indicators and earnings. Investors should increase holdings of global equities to “overweight” and reduce government bonds to “benchmark,” reversing a decision made in June, according to London-based global strategist Andrew Garthwaite. The VIX and investment- grade corporate bond spreads have returned to more “normal levels” and this will allow money market funds to buy into the stock market, Garthwaite told clients in a note today. Valuations on equities are “not expensive” and consensus estimates for earnings in the US are now being increased, something which precedes a rising stock market in the subsequent two to three months, he wrote. “Bonds no longer look attractive,” Garthwaite wrote. We expect “a positive macro surprise in the second half of the year. We believe that we are halfway through the first ‘V’ of an upward sloping W-shaped recovery, with a likely peak in the early Q-4.” Goldman Sachs Group Inc.’s David Kostin yesterday increased his estimate for the S&P 500 index, saying the benchmark for US equities will advance 15% from its June 30 level to 1,060 on Dec. 31, an increase from his prior projection of 940.

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I am Bullish long term, the internal action of the market tells me that this correction is acting normally, and will soon yield to the long term up-trend.

March 9 to early June was red hot, with the (lagging) DJIA advancing 37% and the S&P 500 running up 41%.Since then, we are having a textbook one-month rotational  correction, sending the DJIA and the S&P 500 South by 6% and 7% respectively.

The Big Q: What does this mean?  
 
The Big A: From my POV, it is a buy signal. This new Bull Market is acting just like every previous Bull Market.

Read more

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Growing confidence that the US economy is putting the worst recession in decades behind it has pushed the index known as Wall Street’s fear gauge to its lowest level since just before Lehman Brothers collapsed last September. The CBOE Volatility Index .VIX, known as the VIX, provides investors with portfolio insurance against fluctuations in the S&P 500 index .SPX. It soared to historic highs in the weeks after Lehman’s rapid failure pushed financial markets to the brink and left an already crippled economy in tatters. But amid numerous signs the economy is on the edge of a recovery, coupled with the best quarter for stocks in more than 10 years, the VIX has begun to look like its old self again.”Investors see a lesser need for protection going forward; it looks like they don’t see a revisit to the March lows,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group in Greenwich, Connecticut. The VIX, which is calculated from Standard & Poor’s index options, tracks the market’s expectations of volatility over the next 30 days. It often moves inversely to the S&P benchmark and goes up as options premiums are raised. The S&P 500 .SPX hit a more than 12-year low on March 9, 2009, down more than 57% from the record high it set in October 2007, after the bursting of the housing bubble spiraled into a credit crisis and then into a global recession. The VIX hit an intra-day record high of 89.53 in late October, but yesterday it closed at 25.35, its lowest level since September 11, 2008, before the weekend when Lehman collapsed.”The path forward appears a less treacherous one according to what the VIX is telling us,” Wilkinson added. Stabilization of key economic indicators such as payrolls, home prices, bond yields and consumer confidence, as well as the Obama administration’s plan to reactivate the recession-hit economy, have boosted bets on the economy’s outlook. Investors are looking forward to this week’s key housing and job market data on expectations that it will show further signs that the worst is over. “I think (the VIX) is down primarily because the expectation is the economy is going to recover and we’ve started a bull market,” said Hugh Johnson, chief investment officer of Johnson Illington Advisors in Albany, New York. The S&P 500 has risen + 40% from its March 9 low, and is on path to close its best quarter since the fourth quarter of 1998. But even as some market players expect a correction in the near term, the reading of the VIX suggests that the correction may not happen. “The bears are beginning to throw in the towel on expecting a substantial stock market decline, so investors are beginning to sell implied volatility,” Wilkinson said. “Investors do not perceive there’s going to be another big crash.” But although the VIX has returned to levels similar to those seen before financial markets imploded, analysts said that does not mean the economy has recovered from the hit it took last year. “We’ve gone through such a change in the economy that has required such drastic steps from both the Federal Reserve and the government that it is going to create a very different landscape going forward,” added Wilkinson. “We can’t relate (today’s) VIX measures to were we’ve come from.”

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Since the New Bull began its charge on March 9, clean energy stocks have put together a mighty rally of their own, as they outpaced the US equities market as a whole. Savvy market observers believe that it reflects the benefits of being on the right side of political trends, thanks to initiatives from China, the United States and other countries. Three major indexes tracking green energy companies have risen sharply of late. The US -only Wilderhill Clean Energy Index, comprising 51 companies, is up 72% since the March 9 low. Its global counterpart, the Wilderhill New Energy Global Index, which tracks 88 companies in 21 countries, is up 66% in the same period. The CleanTech Index, which tracks a broader group, including industries like sustainable agriculture, is up 57%. By comparison, the S&P 500 is up 35% since hitting a 12-year low on March 9. The Green stocks are recovery mode have being hammered on demand concerns brought on by the drop in the price of Crude Oil and the credit freeze, the Wilderhill indexes plunged 70%, and the Cleantech Index 50 %, in 2008. The indexes are still off 2007 peaks.

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