Stocks to remain on uptrend amid positive backdrop
Updated: 2012-12-08 07:34
The stock market remains in an uptrend and a resolution of the fiscal cliff may trigger an impressive advance into spring. Even though the global economy is sluggish, stock markets are advancing in most nations and this is primarily due to the ultra-loose monetary policy. In my view, as long as interest rates remain so low and policymakers keep kicking the can, stocks will probably continue to appreciate.
In terms of technical data, approximately 65 percent of stocks on the NYSE are trading above the 200-day moving average, the high-yield bond ETF (HYG) has climbed to a new high, the NYSE Advance/Decline Line is at a new recovery high and new 52-week highs currently exceed the new 52-week lows. Thus, the backdrop is currently positive for stocks and Wall Street's direction is up for now.
Looking at various sectors, biotechnology has been the star performer this year and housing & construction and consumer finance are also showing relative strength. Furthermore, consumer staples and financials are outperforming the broad market. In terms of laggards, it is notable that computer software, discount retailers and oil & gas companies are amongst the weakest; thus, they should be avoided for the time being.
Looking at commodities, the Reuters CRB (CCI) Index is currently sitting just beneath the 50-day moving average and it appears as though the ongoing consolidation will break to the upside. Elsewhere, the price of crude is declining and perhaps this is why the oil & gas sector is trailing the broad market. Finally, the price of copper has recently climbed above the 50-day and 200-day moving average and further weakness in the greenback may unleash a bigger rally.
Over in the precious metals patch, the price of gold has weakened somewhat but as long as the recent low holds, we could still be on for the seasonal rally. Turning to the white metal, it appears as though silver has now cleared its overbought condition and a break above $34.49 per ounce will open up the possibility of a larger advance.
In the world of currencies, the US Dollar Index has firmed a tad but it is still trading below the all-important 200-day moving average. In our view, when American policymakers get over the dreaded fiscal cliff, the greenback will probably weaken against other currencies. Thus, as long as the US Dollar Index stays below the 200-day moving average, I suggest that investors avoid the world's reserve currency.
Finally, over in the bond market, junk bonds are on a tear and the ongoing hunt for yield is supporting this market. After all, interest rates are at historic lows and in order to generate investment income, investors are piling money into high yield debt. For our part, we have put together a US dollar denominated high yield corporate bond portfolio which is generating over 6 percent per annum. Elsewhere, US Treasuries have firmed over the past week and it appears as though the Federal Reserve's bond buying program is succeeding!
The author is CEO of Puru Saxena Wealth Management (www.purusaxena.com). The views expressed here are entirely his own.
(HK Edition 12/08/2012 page2)