Dear Friends:
At the close of another year, Sarhan Capital would like to extend our most sincere gratitude to all of our clients, partners, and readers around the world for helping to make our work possible. While still a relatively young Wall Street firm, Sarhan Capital has taken great strides in this decade and in 2009 and we would like to share some of our successes with you:
In the recent past, there has been an inverse correlation between the U.S. dollar and dollar denominated assets (mainly stocks and commodities). By definition, the inverse correlation states that stocks and commodities (which are priced in dollars) will fall when the dollar rallies. Since early December, the greenback has steadily rallied which has put pressure on several capital markets. As the following few charts show, on a relative basis, crude oil is the hardest hit, followed by gold, then U.S. equities. What does this mean? We’ll let you draw your own conclusions by commenting below. If you want our thoughts, contact us here:
*Note: All data based on Thursday, December 17, 2009’s close.
The S&P 500 and Dow Jones Industrial Average closed at fresh 2009 highs on Monday. At this point, the major averages are just below important resistance levels for the year (Full commentary here) and appear poised to move higher. If they manage to close above their respective resistance levels on heavy volume then odds will favor a new leg higher will commence. That said, the above table is a list of 30 stocks that sport strong technical chart patterns.
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Date: Thursday, December 10, 2009
Time: 8pm EST
Place: 92y- New York City
Event: A Special Celebration of the Life of Senator Edward M. Kennedy with Vicki Reggie Kennedy and Ted Kennedy Jr.
Katie Couric spent nearly ninety minutes interviewing Vicki Kennedy and son Ted Kennedy Jr. in what appeared to be a sold out auditorium. Vicki and Ted Jr. spoke about the late Senator and reflected on his personal as well as public life and legacy. Sen Kennedy represented Massachusetts in the United States Senate for forty-seven years, and has been called the greatest and most influential senator in history. In 2004 he began interviews at the Miller Center of the University of Virginia for an oral history project about his life. Drawing from fifty years of contemporaneous notes from his personal diaries, he wrote his best-selling memoir, True Compass, a New York Times bestseller.
The entire evening was wonderful. Edward Kennedy was a man who lived life to the fullest. He was an eternal optimist and was very spiritual in nature (something he kept private). The Senator understood the value and importance of patience and family. One of his greatest strengths was his ability to make it through good times and bad. Being honest, having a great sense of humor and staying focused at the task at hand were some of the values he taught his children. These lessons are timeless and will likely be passed on for generations to come.
An investor’s job is simple, but not easy. We have one goal: identify and capitalize on opportunities in the marketplace. Here are 10 stocks that are on my watchlist for Wednesday 12.09.09:
Wikipedia.com describes the euro (€) as,
“the official currency of the European Union, and is currently in use in 16 of the 27 Member States. The states, known collectively as the Eurozone, are Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal,Slovakia, Slovenia and Spain.[17] The currency is also used in a further five European countries, with and withoutformal agreements, and is consequently used daily by some 327 million Europeans.[18] Over 175 million people worldwide use currencies which are pegged to the euro, including more than 150 million people in Africa.”
In case you didn’t know the euro is celebrating its 10 year anniversary this year. The name was officially adopted on December 16, 1995 and was introduced to the financial markets on January 1, 1999. Three years later, on January 1, 2002, the euro entered circulation and has emerged as the world’s second reserve currency behind the US dollar.
As is the case with nearly any financial market, the euro has exhibited its fair share of volatility during that time. The table above, courtesy of Wikipedia, does a great job depicting some of that volatility.
The two highlighted fields illustrate the extreme high and extreme low for the euro vs the U.S. dollar. The euro was introduced at $1.18 vs. the U.S. dollar and spent the next 22 months falling before hitting its all time low of $0.8252. The euro spent the next few years trading between $1.04 and the low $0.80’s. After that multi year consolidation, in 2003, the euro finally traded and held above parity ($1.00) with the greenback. Since then, investors have steadily bought the euro which has helped it emerge as a dominant world currency.
The euro hit its all time high of $1.599 in July 2008 in the middle of the great 2007-2009 global bear market. Then investors flocked to the perceived safety of the U.S. dollar as the financial world nearly collapsed. A few months later, in October 2008, after “correcting” -22%, the euro resumed its uptrend and on December 3, 2009 hit a high fresh 2009 high of $1.512.
Each week, subscribers to The Sarhan Analysis get an in-depth look (both fundamental and technical analysis) at seven global capital markets. The euro (foreign exchange market) is one of our most popular sections since so many other markets look to the U.S. dollar for guidance.
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I was asked a very important question Friday morning by a very intelligent person: Why does Wall Street care about the employment report? This question inspired me to write this article because so many people simply do not understand how Wall Street works.
The first Friday of every month, the Labor Department releases its nonfarm payrolls report which illustrates how the labor market (and the broader economy) fared over the past 30 days. Bloomberg.com does a great job defining this report:
“The employment situation is a set of labor market indicators based on two separate surveys in this one report. Based on the Household Survey, the unemployment rate measures the number of unemployed as a percentage of the labor force. Other key series come from the Establishment Survey (of business establishments). Nonfarm payroll employment counts the number of paid employees working part-time or full-time in the nation’s business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls.“
The monthly employment report is one of the most anticipated economic reports released each month because it gives investors a look on how all major sectors of the economy are performing. Furthermore, the report is released at the beginning of each month and is comprehensive in nature. The report looks at the health of the jobs market and shows what happened to income and productivity during the past 30 days. As a result, investors are able to get a good read on the economy from which they can draw their own conclusions on what other economic reports will look like for that month.
On Friday stocks sold off as investors unloaded their positions ahead of the the weekend. The catalyst which precipitated this sell off was Dubai World’s trouble restructuring their debt. Dubai World, the most indebted of Dubai’s state-sponsored companies, is seen as a barometer for the health of the financial nexus.
The company currently owes $60 billion, $22 billion of which must be refinanced by 2011. The fact that Dubai World is struggling with their existing obligations led many to question how other, less solvent, emerging market companies will fare. Since March emerging markets have enjoyed some of the largest gains as the global economy recovers from the worst financial crisis since the great depression.
From our perspective, the current rally is under pressure as investors struggle for direction. Leadership has narrowed considerably in recent weeks as the major averages edge higher on lighter volume. It is also worrisome to see the small cap Russell 2000 index continue to woefully underperform its peers. The one saving grace has been the weak dollar. This column has repeatedly mentioned the inverse relationship between the US dollar and dollar denominated assets (i.e. stocks and commodities). This relationship remains critical as this rally continues.
Market Commentary- Wednesday 11.25.09:
The major averages advanced on Wednesday as the greenback slid to a 14-year low against the yen after the latest round of economic data was released. As expected, volume, a critical component of institutional demand, was lower than Tuesday’s levels ahead of the the Thanksgiving day holiday. The stock market will be closed on Thursday and is slated to close early on Friday (1pm EST) in oberservence of the holiday. Advancers led decliners by over a 2-to-1 ratio on the NYSE but trailed by a narrow margin on the Nasdaq exchange. There were 22high-ranked companies from the CANSLIM.net Leaders List making a new 52-week high and appearing on the CANSLIM.net BreakOuts Page, higher from the 12 issues that appeared on the prior session. In terms of new leadership, it was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and Nasdaq exchange.
Stocks rallied on anemic volume the day before thanksgiving thanks to an array of factors. First, the US dollar got smacked which helped the bulls send stocks higher. For months, we have written about the inverse relationship between the US dollar and dollar denominated assets (i.e. stocks and commodities). The dollar index lost over -1.1% which was its largest single day percentage drop in nearly four months! Wednesday’s decline put the dollar Index at a fresh 12-month low. The second factor that helped stocks advance today was a series of economic data. Home sales, jobless claims and consumer confidence were relatively healthy which helped support the notion that the economic recovery is strengthening. The other positive data point came from higher oil prices. The government said that energy demand rose for a second consecutive week (thanks to a stronger economy) which sent crude oil up nearly $2 a barrel. Gold also hit a new all time high as the dollar fell and a report was released that the Indian central bank may buy more bullion for its reserves.
On the economic front, the government said that weekly jobless claims fell to their lowest level since September 2008 which led many to speculate that the worst is over for the labor market. The Labor Department said the number of Americans filing claims for unemployment benefits fell to 466,000 last week which was a welcomed sign. The Reuters/University of Michigan index of consumer confidence was 67.4, higher than the average estimate of 67. Meanwhile, the Commerce Department said consumer spending rose +0.7% last month which topped the Street’s estimate for a +0.5% reading and new home sales jumped by +6.2%. On Tuesday, the Federal Reserve raised its forecast for 2010 economic growth to a range of 2.5%-to-3.5%, up from +2.1%-to-+3.3%. The Fed also signaled that it will be more accepting of a weaker US dollar in the near term to help spur economic growth.
Looking at the market, the current rally remains intact as the major averages refuse to go down and continue marching higher. This is a strong sign of institutional sponsorship but concerns remain as volume continues to dry up as the the market crawls higher and leadership remains inordinately thin. This action suggests anything is possible but until a broad based sell off occurs, the bulls remain in control.
The entire world is focusing on the 2009 U.S. holiday shopping season. Around this time each year, the media, clients and friends ask us countless questions on the subject. Most people want to know what a so-called “expert” thinks will happen on any given event. Predicting the future is impossible because the simple truth is that no one really knows what will happen. Instead, these “experts” offer their opinion which at times will be correct and other times will be incorrect. After all, we all know how valuable opinions are, right?
