Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Prieur Perspective: Equity Bulls Finally Get Room to Run


Oversold markets rebound - but have we really hit bottom?

Global stock markets surged over the past four days as investors adopted a more positive view of the prospects for the beleaguered financial sector and shrugged aside gloom about the economy. Citigroup (C) on Tuesday said it had turned a profit from operations for January and February (but did not mention credit losses, toxic paper, derivatives, etc.). JPMorgan (JPM) and Bank of America (BAC) later made similar comments.

A positive shift in investor sentiment, together with the possibility of the suspension of mark-to-market accounting and the reinstitution of the uptick rule, resulted in the best week for equities since November 2008.

Arriving in time for my fifty-fourth birthday today, the reversal of fortune is illustrated by the strong gains of the MSCI World Index (+9.8%) and the MSCI Emerging Markets Index (+8.8%) since Tuesday. Although stashed (or "panic") cash was deployed, the top-performing stocks were the most pummeled ones of the past few months, indicating significant short-covering.

Extremely oversold markets bounced off levels last seen 12 years ago in the case of the S&P 500 Index and the FTSE Eurofirst 300 Index, and 26 years ago as far as the Nikkei 225 Average is concerned. Talking about being oversold, the Dow Jones Industrial Index has been down for 13 of the past 16 months.

As shown in the table below, the major US indices gained strongly during the week, recording only the second up-week out of 10 in 2009.

Click to englarge

As far as exchange-traded funds (ETFs) are concerned, John Nyaradi (Wall Street Sector Selector) reports that the battered financial sector last week rose like the legendary phoenix, with the Financial Select Sector SPDR (XLF) surging by 32.5%. ETFs like iShares Regional Banks (IAT) (+31.1%) and SPDR S&P Homebuilders (XHB) (+19.8%) also recorded handsome gains. Interestingly, the broad financial sector was the only main US economic sector to beat the top-performing broad index ETF, the Russell 2000 (IWM), which added "only" 11.9% on the week.

Click to enlarge

The fact that government bonds hadn't been sold off during the equity rally indicates that some "side-lined" cash was deployed to fund the buy orders. The amount of cash hoarded over the past few months as a result of precautionary savings and deleveraging is enormous, as seen from the fact that money-market and savings accounts constitute more than 90% of the market capitalization of the Wilshire 5000 Index. (Hat tip: Todd Sullivan, Value Plays.)

Click to enlarge
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos