Welcome
to this week’s edition of the Lewison Letter. It was a breakout week for the stock market as Mario Draghi decided
to go ahead with a bond-buying plan for countries in Europe who ask for
help. That drove yields on Italian
and Spanish bonds to their lowest levels in months and the US stock market to
new multi-year highs. Then on
Friday, we received a very disappointing jobs number, but nevertheless, the
markets finished higher on Fed stimulus hopes. The Dow rose 1.6%, the Nasdaq is at it’s highest level in 12
years and the S&P finished up 2.2%, its highest weekly gain since
June.
INDICES
The US economy
showed an increase of 96,000 jobs in August, which was much lower than the
125,000 analysts were expecting.
Job growth continues to disappoint, but as I mentioned in last week’s
letter, a bad jobs number would actually be bullish for the stock market, which
it was. There are a few key events
this week, starting with Wednesday.
Apple will hold it’s press conference to announce the iPhone 5, an event
that will lead to a drop it the stock, as it always does. Expectations are so high for Apple that
no matter what the iPhone 5 has, it won’t be good enough was investors. Also on Wednesday, the German
Constitutional Courts will rule whether or not Europe can go ahead with its
rescue strategy. The market has
already priced in a positive ruling, so anything negative from Germany, and the
stock market will sell off.
Thursday brings the 2-day FOMC meeting to a close where the market
expects Bernanke to announce a new round of Quantitative Easing through some
sort of bond-buying purchasing.
I think we get exactly that, which will remain long-term bullish for
stock prices.
Obviously the
two biggest market movers for the week will be the German court decision and
the results from the FOMC meeting.
The markets have already built in the German courts ruling in favor of
the ECB bailouts and the Fed to announce QE3, so I do expect the markets to
sell off slightly on both pieces of news.
If the markets are surprised with the opposite results, the S&P is a
shoo-in to fall back to the 1400 level, about 2.5% from Friday’s close. While I do expect the markets to
continue to march higher, look for some profit taking this week and a move in
the S&P back down to the previous breakout level of 1415 and the Dow
13,100. This market has gone almost
straight up since June and is ripe for profit taking, so I would look to be a
buyer at those levels. But like I
said, the stock market is poised to go higher despite all the analysts calling
for a pullback in the S&P to 1300-1350. Copper prices, Euro currency, and energy prices are all
trending higher to go along with a dropping US Dollar, which is all good news
for equities.
My
recommendation for this week is to watch and see. Wait until we hear from Germany on Wednesday and the Fed on
Thursday. Let the markets digest
the news and put in a bottom before you start buying. Have a stock shopping list ready to go, so when you get the
prices you want, you are ready to buy.
Stick with my previous recommendations for stocks. I like companies that have minimal to
no European exposure and have already reported strong earnings and
guidance.
METALS
Gold,
Silver and Copper all continued their march higher last week, with gold and
silver trading at their highest levels since February. Likewise, copper is trading at its
highest level since May 14. Gold
& Silver traded sharply higher late in the week after the ECB announcement,
along with a terrible jobs number, passing through key Fibonacci levels. Friday morning, gold and silver rallied
through the 50% retracement, making that the new floor in the stock. For silver, look for $32.19 to hold as
support and for gold, $1723.80. I
expect the two metals to continue to trade higher, no matter what the outcomes
of Wednesday and Thursday are. If
you already bought either the GLD or SLV, continue to hold them through the
week, if you have not bought either, buy on Monday and use the Fibonacci levels
as your stop loss. For the SLV and
GLD, those come into play at $31.54 and $167.06, respectively.
Copper
made a huge rally on Friday behind strong Chinese construction data, and that
rally should hold. Copper broke
through previous resistance of $3.55/lb, through the 50% Fibonacci of $3.6085,
to close at $3.6415. I am looking
for the $3.6085 level to hold, so continue to hold Freeport MacMoran (FCX),
Toll Brothers (TOL) and Pulte Groups (PHM).
Last
week I recommended buying the Euro currency through FXE, which, if you took
that advice, you got a nice gain for the week. The FXE is going to be a key indicator to watch late Tuesday
and early Wednesday. The euro will
indicate what the market thinks the German courts will decide on, which should
translate to same move in the stock market, meaning that where the Euro goes,
US equities go. Again, I reiterate
not doing anything this week, but let the market come in and then buy before
another move higher.
Full disclosure: I currently hold no open positions.
Jeff Lewison
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