Time to play smart
by Peter Switzer
Down one day, up the next — it looks like a choppy market. That’s what I expected and that’s what we’re getting and, until a very good or very bad development excites or spooks investors, we will stay in this pattern.
In a sense, it’s time for smart stock picking. In fact, it has been for the past 18 months. Also, if you were a buyer of the dips you could have done well too, even if you were playing ETFs based on the index.
This strategy still has appeal until something big comes along.
On the markets
The Dow went up nearly 66 points, or 0.5 per cent, to close at 12,695.92 but remember it dropped one per cent the day before. That’s choppy trading with a downward bias and that’s not too surprising. The charts point to it and Wall Street has done well since late August last year.
The S&P 500 rose close to seven points, or 0.5 per cent, to finish at 1348.65.
One of the triggers for the gains was the fact that commodities’ prices went up and these have been dragging along shares.
Jeremy Zirin, chief US equity strategist at UBS Wealth Management summed it up neatly for CNBC when he said:
"Commodities have an inconsistent relationship with stocks over time. They move together if it’s demand driven, and if they rise too far too quickly, and (commodity prices) start to crimp demand, then you’ll see risk assets start to sell off."
Positives and negatives
Yesterday’s sell-off was linked to slower industrial activity in China but I wouldn’t read too much into this — monthly figures can be misleading.
Some of the commodity rise could be European Central Bank talk that European rates could rise and that hit the US dollar.
There was also some good news on the battle between the Democrats and the Republicans on raising the national debt ceiling — agreement looks likely, which could help with the deficit drama battles as well.
Against this, retail sales were up but less than expected. However, weekly jobless claims continued to fall.
Like the stock market, the economy is choppy but with a more positive than negative bias and that keeps me cautiously positive for stocks this year.
Finally, CNBC spotlighted a hedge fund manager, Leon Cooperman of Omega Advisers, who expects a crisis but is positive about stocks now.
Now, remember a hedge fund manager usually is sensitive to bad news as they often do well in challenged stock markets. He doesn’t like the US deficit/debt problem which he thinks will bite one day. But when?
“We all know we’re kicking the can down the road,” he said. “We don’t know when it will hit.”
So he likes stocks for the present. This revelation makes it timely for me to remind you to watch this space for when guys like Cooperman change their minds. That’s the smart play.
Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
Published on: Friday, May 13, 2011
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