NOTE: This Trading alert was originally emailed to subscribers at Ritholtz Research & Analytics on Wed 9/12/2006 3:26 PM EDT.
This is posted here not as investing advice, but
rather as an example of a trading call for potential subscribers. We
expect to post future advisories in a similar manner — after the call,
but in the correct chronological location on the blog.
1) The belated macro piece on Housing – promised last week — is next up in the queue. Despite all you see in the massive media blitz on housing, I don’t think the mainstream fully understands the significance of its rise and fall. I hope to have this out before the weekend if not sooner.
2) On a related note, the Florida Condo scandal piece has gotten zero official confirmation. I did speak to a WSJ reporter, hoping he could scare something loose. This will remain in rotation pending some hard data.
3) A special situation Medical Device company I have been watching for some time now is developing nicely. I should have some background out to you on this over the next week or so.
A few words on today’s market:
Lots of green on the screens today, particularly small cap and technology.
A combination of falling Oil and a good Goldman Sachs report are the likely causes. The Volume is at August levels.
I am watching to particular technical levels: the September 5th highs, and the May pre sell-off highs. Given the low volume, we should blow thru these September soon enough, and take aim at the May highs. While I do expect the recent highs to fall, the May highs are much more secure.
Low volume rallies are not what you typically see in a healthy Bull market. Also noteworthy: the VIX has fallen 10%, and is now back to the levels seen near the May highs.
We are seeing a battle between resilience and complacency. I believe, based on my own research, that investors are ignoring the reality of a slowing economy, and corporate profits at cyclical peaks.
Today’s move higher comes as hedge funds – underperforming this year – are piling into high beta tech and small caps. Semiconductors have broken way above the recent highs, and are now making a run towards the May highs about $37 or so.
For those of you who are tempted to jump on this rally and join the fun, think back to how you felt late January or February of 2000. If you were defensive, you had quite a few difficult weeks, but in the end, it paid off. I suspect we are going through a similar process here.
The Market Call:
As we noted yesterday, it is “still too early to short — but not too late to keep raising cash.” Maintain a defensive bias, and take advantages of these moves higher to move more of your equity assets to the sidelines.
Fixed income looks increasingly attractive from a Macro standpoint, and you can lengthen your exposure – buy longer duration paper – right here.
September 12, 2006