Daily Investment Interpretations

May 8, 2009

2009-5-8:  The stock market staged another "upside breakout" today.. The NASDAQ Composite gained 22.76 (1.33%) to 1,739, the Dow added 164.80 (1.96%) to end the day at 8,575, and the S&P 500 rose 21.84 (2.41%) to 929. Oil closed at $58.58 in anticipation of a recovery, while gold dropped slightly to $914.90. The VIX fell 1.39 to 32.05.
    The proximate cause of this celebration was the fact that the suspense over the banks' stress test was over, and the non-farm private unemployment was lower than it had been, and in line with 539,000 jobs lost (see below).

    The S&P 500 is only 2% below its 200-day moving average, while the Nasdaq Composite is a bit above its 200-day moving average. Resistance has been predicted when the S&P 500 crosses its 200-day moving average.
    Another promising investment possibility might be the Proshares Ultra Basic Materials ETF, UYM. At today's close ($19.14), it's down by a factor of almost 6 from its 2008 high of $110. Basic materials are going to rise in price if a global recovery gets underway.
    Another possible fallen-angel candidate is the Proshares Ultra Real Estate ETF, URE. It closed today at $4.16, down from about $55 two years ago (having doubled from $1.99 since March).
2009-5-8 (Mid-Afternoon):  Now that it looks as though the world is really, definitely heading into an economic recovery, do you feel an urge to get back into the stock market before it's too late? I do. Here I am sitting on a pile of cash with the stock market continuing to climb, and with the last barriers to recovery seemingly having been surmounted. However, my own experience, as well as both of my timing advisory services, are counseling caution. There are no certainties here. They don't know, and I certainly don't know what's coming next, but my "best" advisory service is saying that 
(1) sentiment is decidedly too bullish,
(2) this market is somewhat overbought on a short-term basis,
(3) breadth, momentum, and trend are all moderately positive. 
    I'm waiting until later in the day to decide whether to buy back into the Proshares Ultra Emerging Markets Fund (UUPIX) today or to wait for a pullback.

    Quantitatively, UUPIX has gone from a dividend-adjusted peak of about
$56 a share in October, 2007, to a low of $4.26 on November 20, 2008, to a March 6, 2009, close of $9.99. Clearly, it still has a lot of headroom. (The minimum investment is $15,000.)
    An alternative investment might be the Matthews India Fund (MINDX). This went from a high of
$25 a share on January 8, 2008, to a close yesterday at $9.50 a share. This doesn't have as great a potential for a rebound as does the Proshares Ultra Emerging Markets Fund, but it allows for diversification.
    Both of these funds would benefit from a falling U. S. dollar.
    I have bought (so far, only one) January, 2011, $15 "deep-in-the-money" LEAPS (Long-term Equity Anticipation Securities) (-VHFAO) on the iShares TR FTSE Index ETF (FXI), and two January, 2010, $20 "deep-in-the-money" LEAPS on FXI (-YOFAT), This is in addition to the money I've invested in the recommendations of the Cabot China and Emerging Markets Report (which have risen smartly). These will fluctuate in price about 1.75 times as much as the FXI index. They aren't to be purchased unless one is pretty sure about a near-term rise in the FXI index. (This is reviewed in the April 14, 2009, discussion of possible investment choices.)