Welcome
to this week’s edition of the Lewison Letter. After stocks hit a new 5-year high early in the week,
Wednesday and Thursday led to some profit taking, with the S&P dropping 20
points from its highs, only to rebound on Friday to close just about 1% below
the those same highs. Much of last
week was determined by the minutes from the last Fed meeting and Bernanke’s
remarks made on Friday, giving the market a nice boost. I expect another relatively flat market
throughout the week until Bernanke and ECB President, Mario Draghi speak at
Jackson Hole, Wyoming at the end of the week.
INDICES
While
all three indices were lower last week, the trend is still higher and that’s
where they should continue to go.
The Nasdaq will be getting a nice boost on Monday with Apple winning
their patent infringement lawsuit against rival, Samsung, late Friday
afternoon. A US jury found Samsung
guilty of infringing on 6 of the 7 patents Apple sued for, awarding Apple
$1.05B, and rallying the stock $11 after the close, to new all-time highs. As of this writing, the stock futures
are already indicating a nice open Monday morning.
The
important level to watch for the week is 1400 on the S&P, which seems to be
very strong support for the market.
On Friday, the S&P traded to a low of 1398.50, only to rally out of
the hole and close at 1411. As
mentioned in last week’s letter, while I expect the market will hold the 1400
level, if it does drop below, we have another 11 S&P points to the
downside, where 1389 comes into play as the 78.6% Fibonacci level.
I
continue to reiterate that I like companies which have little to no European
exposure and have already reported strong quarters. Wait for pullbacks in these stocks and ride the wave
higher. Stick with stocks that I mentioned
in previous letters, along with Macy’s, Petsmart, Phizer, Merck, etc…
Metals
I
hope you were able to take advantage of the rally in gold and silver last week,
with both breaking out sharply
Gold did exactly as I expected it to do, trading right up to the 38.2%
Fibonacci retracement of $1676.60/ounce, closing at its highest level since
March 5th. Likewise,
silver broke out to close at its highest level since early April. I would be looking for another
$2-3/ounce in silver and about $50/ounce in gold before pulling back. Any pullback in the gold or silver
should be bought against $1618.30 and $28.11, respectively.
The
other metal market that had a nice rally despite the stock market trading lower
was Copper. The industrial metal
rallied 2% to close at its highest level in over a month. Most importantly, copper broke through
a key resistance level on Wednesday, closing above $3.4635/pound for the first
time since mid-July. Wednesday,
Thursday and Friday all closed above that key 38.2% Fibonacci level, putting in
a new floor and a great level to trade against. While I previously recommended playing copper through
homebuilders such as Pulte Group (PHM) and Toll Brothers (TOL), both have
skyrocketed to new multi-year highs, so I suggest waiting for a pullback. While I previously did not like
Freeport MacMoran, one of the world’s largest copper and gold miners, the stock
has a nice base at $31, which is a good level to trade against.
Without
a lot happening in the markets this week, that wraps up this week’s edition on
the Lewison Letter. Again, only
buy on pullbacks and be cautious until the meeting at Jackson Hole at the end
of the week. A lot of expectations
are that Bernanke will be announcing another round of easing, and if he fails
to do so, I expect the stock market to pull back sharply.
Full disclosure: I am currently in all cash.
Jeff Lewison
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