10/11/2005 Equities: Poised for Powerful Rally into Year–end
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October 11, 2005
Dear Matt,
Buy Latin American and Emerging Equity Markets Gold Rally Mini-mania Poses Downside Risks Yield Curve Will Continue to Flatten US Dollar Rally Intact Global Equity Markets
The recent decline has created an excellent buying opportunity for global equity markets. Investor psychology has become too bearish - as is common at market lows. Market breadth models show excellent underlying strength to fuel an advance.
The equity markets are poised for a powerful multi-month rally into year-end. Absolute Return Portfolios established long positions in Mid-Cap Growth, Small-Cap Growth, NDX, Latin America, Emerging Markets, Japan, and select Asian Tiger markets yesterday. Global Equity Regions
Latin America, Emerging Equity Markets, Japan and select areas of the Asia including Korea and India have been added to the portfolios. Overseas markets remain the superior alternative to domestic equities.
Equity Style & Sector Trends
Proprietary breadth models show that the Mid-cap, Small-cap and NASDAQ are poised to lead the domestic equity rally over the coming months.
Investment Grade Bonds
Their appears to be more potential increases in yields at the short end of the curve in comparison to long-term yields. The yield curve will continue to flatten.
We remain on a SELL for both domestic and international investment grade bonds. We are short bonds in our Absolute Return Portfolios. High Yield Bonds
We remain on a SELL for the DOMESTIC High Yield and Emerging Market Debt though the anticipated equity market advance may soon result in BUY signals for the high yield complex.
Gold & Gold Equities
Technical and valuation models for gold/gold equities show a market that is very overextended and subject to a significant intermediate-term decline.
We are flat gold and gold equities and would recommend tight stops for any longs. Inflation Complex (Crude Oil, GSCI & CRB Index)
Crude oil remains in a long-term bull market. Strength in the equity market is generally followed by strength in the commodity sector as a reflection of anticipated economic strengthening. We may soon establish long positions in the commodity complex to replicate the performance of the GSCI Total Return Index. CRB is on a BUY.
Real Estate/REITs
REITs remain on a SELL signal. Renewed strength in the equity market coupled with the possibility of some easing in long-term yields could provide a lift to REITs. However, we continue to avoid for now.
US Dollar
Higher highs and higher lows is how you define a bull market. The intermediate-term trend is up. The USD consolidated recent gains and is now poised to move higher again. We remain on a BUY and are long.If you have any questions about our research or Absolute Return Portfolios do not hesitate to call. We can be reached toll-free at 877-632-7491. Absolute Return Portfolio Management LLC provides absolute return oriented portfolio management and institutional research on global macro trends including equity style rotation, global regional equity trends, short-selling and market neutral strategies as well as fixed income strategies. Contact us for information on account minimums and institutional research offerings. These reports express our opinions and suggestions, provided only as a supplement to your own further research and decisions. We take care to assure accuracy of contents but accuracy is not guaranteed. Past performance does not imply future results. The publisher shall have no liability of whatever nature in respect of any claim, damages, loss or expense arising out of or in connection with the reliance by you on the contents of our website, any promotion, published material, alert or update. ALL RIGHTS RESERVED. |