2/28/2006 Equities: Rangebound...
- Categorized in: NEWSLETTERS
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February 28, 2006
Global Equity Markets
The rally to new highs was NOT confirmed by either our Short or Intermediate-term Breadth Models and, coupled with excessive short-term bullish sentiment, suggests a general equity market correction over the next few weeks. Today, we took modest profits on long positions established two weeks ago and will likely move to MARKET NEUTRAL and SHORT for what looks to be an intermediate-term correction.
Overseas markets continue to outperform domestic markets. Our models remain focused on LatAm and Emerging Markets and select Asian markets (India). By focusing on the strongest domestic equity areas (small & mid-cap growth) you might stand a chance of matching gains in overseas markets. Predominant equity exposure should remain heavily overseas, however. Global Equity Regions
As indicated, it appears to have become a time for renewed caution with respect to the global equity markets.
LatAm, Emerging Markets and Asian equities remain the strongest markets globally. Strength overseas remains powerful and impressive. The US market is the weakest; particularly as you climb the capitalization scale. Equity Style & Sector Trends
Two items signal a need for caution at this time. First, the market has lost its Mid-Cap leadership. This recent rally off the mid-February lows should have seen Mid-caps moving into new high ground. Instead, Mid-Caps have lost considerable relative strength. Second, the NASDAQ has continued to under-perform the broad market too. The rally to new highs for most indexes proved too much for the struggling NASDAQ. Such weakness has often been a harbinger of at least a short-term correction.
Investment Grade Bonds
Trend models moved back to SELL for Investment Grade Bonds both domestically and overseas.
Short and intermediate-term bonds look most vulnerable and yields on short-dated bonds should continue higher leading to a further flattening of the yield curve. High Yield Bonds
Trend models remain on a BUY with our High Yield Model continuing to favor Emerging Market Debt. However, the High Yield segment correlates highly to equity trends. We took profits in our Emerging Market Debt positions today given the anticipated weakness in equities. I wanted to lock in profits in the event the equity decline becomes something more than a hiccup.
Real Assets (Commodities, Gold and Real Estate)
GOLD - Bullion and shares have been correcting the last few weeks after becoming very overbought. Our short-term models moved to a SELL earlier this month though the intermediate-term uptrend remains intact. We look to establish long positions once short-term models move back to a BUY.
Goldman Sachs Commodity Index (GSCI) - Short and Intermediate-term Models both moved to a SELL earlier this month and remain so today due to the heavy GSCI weighting in Crude Oil. The GSCI has become very oversold, however, so we are looking for a potential bottom. Real Estate - REITs remain on a BUY and have improved to the top spot among the Real Assets complex as Gold and the GSCI have been entrenched in declines. 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.
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