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Goldata Financial
Investing with the accent on rísk
STOCK MARKET COMMENTARY
February 1, 2010
From Elliot
Goldberg, Registered Investment Advisor, Goldata
Financial
Last week, the tectonic plates underlying the
market continued their shift towards less liquidity and more volatility. The
Chinese government persisted in cutting back their stimulus efforts as their
banks were given orders to limit loans and increase capital requirements for
others. The Fed met this week and, while announcing no change to policy,
hinted that change was around the bend as one participant dissented. The
dollar continued to be the best house on a bad block as it rallied due to a
downgrade of Japan’s debt, Greece’s continue debt worries and
Germany’s “no bailout” stance. First to feel the effects
were commodity-based stocks (steels, coppers …) which entered their own
bear market with declines of over 20%. Blowout earnings reports and a GDP (Q4)
increase of 5.7% were treated as “been there, done that.” What
does this all mean? From this perch, Mr. Market’s disregard of positive
earnings reports signals that he believes earnings will stagnate over the
next few months. Therefore, the most probable scenarios in the short term are
that we either plateau in this area with increased volatility or continue
down. How best to maximize gains, given these two potential cases? On spikes
higher, gains will be taken and entry points for new positions will be kept
at just above the 50-day moving average. As a current tally has only 24% of
our investable universe above the 50-day MA, losses in a down market will be
mitigated by a dearth of potential investable candidates (much as we saw in
2008’s downturn). 50-day MA’s are starting to turn down and
continued market weakness will only accelerate this pattern. When the market
resumes its uptrend, entry prices should be lower than previous stopped-out
prices --- the recipe for outperformance. In Washington, the Administration
finally succumbed to the electorate’s demand for focus on job creation
as President Obama’s State of the Union was marketed as “jobs,
jobs, jobs.” While initial proposals are insufficient to solve the
problem, the Administration’s willingness to admit job creation is the
priority is a necessary first step. Step two requires a change in attitude
towards business, with an understanding of what drives a businessperson to
hire. In a word, greed. A businessperson will expand and hire when they
calculate the risk/reward will result in more profits for them (or
their shareholders). The more government can reduce risk (less threat of
increased cost, retribution and potential change) the more comfortable a
decision to put capital at risk will be. Also concerning was the
Administration’s explicit effort to extend influence to previously
thought of “independent” entities. The President’s ambush
of the Supreme Court during the State of the Union was taken as intimidating
here. If you’d like to dissent, write an op-ed (and get your facts
straight) --- not subject these folks to an angry mob. Conclusion: The tide
continues to run out and our friend, volatility, has returned. It’s at
best a trader’s market for now --- the sweet spot for yours truly.
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