Starting the New Year Positive
January starts out to the upside as investors are willing to step up and believe all things are good - for now. Several weeks ago the trade for growth versus defensive positions started. It was dormant during the holiday period of Christmas and New Years, but returned yesterday. The growth trade has returned for now. This is why we have taken plays in these sectors and now they are panning out.
There are other opportunities to take advantage if this continues. There were several breaks higher yesterday in sectors which had been in consolidation patterns or trading ranges. The break higher in the energy sector led to a move in basic materials and industrials. The consumer sectors were the laggards yesterday as investors ponder the result of the holiday sales. Overall positive day. Tighten your stops and let it run for now.
As we have discussed over the last month there is plenty to be cautious about in 2010. Liquidity is still pushing the broad markets higher and based on Bernanke’s comments the liquidity is going to remain in place for now. Those comments emboldened many to put more money to work as we begin the year. Take what the market gives and protect against the downside risk.
The dollar lost ground yesterday helping both the oil trade and the gold rush. Commodities are back at least for now. Agriculture stocks moved as well making some nice gains. These sectors are worthy of watching for potential short term trades. Inflation issues or concerns may be the more appropriate term, could drive these higher short term. We have several ETFs on the Scan and Watch List.
Interest rates moved up slightly on the as the growth trade returned. If and when the growth trade runs its course we could see a flight to quality or safety which would reverse the short bond trade. Something to stick on your watch list. TIPs bonds move up yesterday as the inflation worry stepped up, keep it on your watch list as well.
For now the economic data is positive. ISM Manufacturing was better than expected and remained above 50% for the fifth consecutive month. This is the data driving the growth trade. ISM Services, construction data and jobs report this week will all play into this trade building momentum. Watch the data reports and investor response. Thus far the outlook is bullish for the first quarter and money is pushing into the market. Don’t over commit to this short term move. Keep your stops in place and remain disciplined. Greed is an ugly emotion when it relates to investing.
The market psychology or sentiment is bullish. Take what the market is willing to give and protect against the downside risk. As we discuss over and over discipline is the key to successful investing.
The Scan List is being rebuilt and based on ideas and strategies working currently in the market. Be sure to review it daily for the opportunities and ideas in play.
Have a great day investing.
