A Few Trillion Reasons to Stay Bullish – 11/29/2013

Kevin Cook here to close the week for Steve…

The holidays are a good time to count your blessings and hopefully enjoy the fruits of your labor as an investor. It’s also a great time to review your portfolio strategies and reflect on the trends and drivers that got you here. I actually do this more often because I have to answer a basic question every month for my subscribers…

What’s driving the bull market and how far can it run? My list of 5 forces hasn’t changed since I first wrote of them in January:

1) Macro risk “off” (Europe, China, Washington) = Investing risk “on” (to the upside)

2) Economic growth is good enough and building momentum

3) The Fed remains steadfastly on the side of pro-growth and reflation

4) Corporations are producing record profits and balance sheets are strong

5) Cash is still trash and fund managers MUST chase and compete for stocks.

To this list, I would add a force that proves this isn’t all just theory: fund managers with trillions of dollars actually chasing and competing for stocks because of the first 5 forces. I see it proven every week when I look at the SEC institutional filings.

Bottom line: A correction could come at any time, but it will only make valuations even more attractive again – and probably pull more money from the sidelines and bonds. In short, stay long good stocks because this bull is far from over-valued territory. Maybe we’ll talk about that above S&P 1900.

Best,

Kevin Cook

Senior Stock Strategist

Zacks Investment Research

The Simple Math of S&P 1,800 – 07/15/2013

Kevin Cook here to start the week off for Steve…

Have you heard market bears say that the only thing driving stocks to new highs – besides QE money-printing – is short-covering? It’s an easy ploy to fall for and I want to make sure you are never susceptible to this lazy, bitter thinking.

First of all, there are trillions of investment dollars chasing a few thousand quality companies that may or may not deserve them. Second, the investment thesis of the portfolio managers doing the stock-picking begins and ends with forward views of the economy and earnings.

So they are “heads down picking stocks” as I like to say. And if they are not, guess what happens? That dip they waited for, and then stared at below S&P 1600, quickly got away from them . This creates the performance-chasing you saw last week where they “HAD TO BUY!”

Bottom line: The S&P will likely have another pullback to 1650 before we hit 1750 this year. But what it’s already beginning to trade on besides Q2 earnings is this simple math: 2014 EPS estimates of $110-115 X a P/E multiple of 16 = S&P 1,800. You can take that to the bank.

Best,

Kevin Cook

Senior Stock Strategist

Zacks Investment Research

Will the Bond Vigilantes Create Chaos? – 06/24/2013

Kevin Cook here to start the week off for Steve…

While investors try to sort out the impact of QE’s twilight, “fear of the unknown” prevails as Steve pointed out on Friday. What happens to the economy without Fed bond-buying? Are large institutions selling stocks now every chance they get?

At the center of the uncertainty is one glaring price move that doesn’t seem ready to stop: the 10-year Treasury yield has soared over 55% since May 1. And it really got rolling last week after Bernanke appeared to take one foot “off the gas pedal” and put the other “out the door.”

This caused the 30-year fixed mortgage to jump over 20 basis points to nearly 4.25%. Now that we know the end game for QE – even though the spigot hasn’t even been turned a bit – the bond vigilantes have basically said to the Fed, “We’ll take over from here.”

Volatility Spells Opportunity

The economy will likely be fine without QE. And rising rates are not bad for it or stocks in the context of decent growth – especially from such historically, ridiculously-low levels.

But the pace of this rise will create volatility and shifts in all asset classes in a vicious cycle. And that should produce some nice buying opportunities in stocks this summer as the market tests support at 1550 and maybe even 1500. I can hope, can’t I?

Best,

Senior Stock Strategist

Zacks Investment Research

Why New Highs Look Promising – 02/28/2013

Why New Highs Look Promising

Kevin Cook here for Steve…

Wednesday was a solid reversal of the remainder of Monday’s heavy-volume losses. Could it be just a typical retrace, as fearful bears cover shorts and hopeful bulls hurry back in? It certainly could be, but let’s go over a quick checklist of market drivers and context:

• Overreaction to Italy’s election subsides: Bullish

• Pending home sales and durable goods orders impress: Bullish

• Bernanke reaffirms steady-as-she-goes Fed policy: Bullish

• Dow closes less than 1% from 2007 all-time high: Bullish

• S&P rallies past 1510-15 resistance as DC appears to let sequester occur: Bullish

Price action and market reaction to news are telling me we’re going higher. And though we may have more days to trade in this consolidation zone around 1500, yesterday was more weight on the bullish side of the odds to see 1550 before 1450 in the next 1 to 3 months.

Best,

Kevin Cook

Senior Stock Strategist

Zacks Investment Research

Why the Bulls Own January – 01/02/2013

Why the Bulls Own January

Kevin Cook here to kick-off the new year for Steve…

To the list of life’s certainties, along with death and taxes, we could certainly add government spending and political dysfunction (if not outright corruption). With all that in the way of markets, how could anyone be bullish right now? Maybe because the “devil we know” has been beaten into submission.

If you look at the market’s overall response to DC cliff diving since the election, it seems that large investors haven’t feared the dysfunction as much as just wanting it to be over. And so even with a last minute deal on December 31 only “close” but not certain, the TGIJ (January) rally began in earnest.

And I expect it to continue this month. Sure, there’s still a lot of uncertainty for politicians to work out. But with the US economy and China’s both humming, and fresh investment money ready to go to work today, stocks look poised to be the beneficiaries of pent up demand.

Best,

Kevin Cook,
Senior Stock Strategist, Zacks Investment Research

Will the Market Force DC Into Action?

Kevin Cook here for Steve for a few days…

The stock market is a fairly good discounting mechanism. As portfolio managers of all sizes and skills anticipate future impacts of economic conditions and events, they drive stock prices up or down according to forward views looking out 1-3 quarters.

But when I say “fairly” good I am allowing for the emotional extremes that take place as well. We all know the well-worn joke that the market has accurately predicted 9 of the last 5 recessions. Since the Great Recession, it has seen at least 3 more that didn’t happen.

And now we are faced with a market that seems to discount apparent Fiscal Cliff deals — and no deals — with equal calm. So while I generally admire the market’s ability to predict, I am getting more skeptical that it has this one right.

Because the fact that dysfunctional partisanship has once again brought our nation to the edge of certainty and credibility means that this drama could drag on well into the first quarter. Unless, of course, the market races to conclusions like it did in August 2011 and forces its own brand of austerity on Washington.

Best,
Kevin Cook,
Senior Stock Strategist, Zacks Investment Research

Zack’s Opinion – 11/15/2012

First, I want to thank Kevin Cook for taking the helm of this newsletter during my travels. Not an easy time to describe the market’s wild gyrations, yet he did a great job of keeping you guys informed.

Wednesday’s decline was all about the Fiscal Cliff. The President upped the ante with talk of $1.6 trillion in tax hikes for the wealthy. This is twice as much as he requested in the past. That was enough to make investors head for the hills.

I don’t believe for a second the President really wants to raise taxes by this amount. He is deploying an obvious negotiating trick that serves both parties well.

Say what?

If the President asks for more than he wants, then after negotiations are done he will get an amount closer to what he REALLY expects. Plus the Republicans can brag to their constituents that they bent over backwards to make a deal work for the betterment of the country. Yet were still able to cut the President’s demands in half.

Unfortunately that means we are at the point of the process where the rhetoric increases on both sides making it seem like no deal will be made. That is why stocks clearly broke under the 200 day moving average and probably on the way to 1300.

When all is said and done a deal will be reached. There will be no recession. And stocks will sprint higher.

Given what I said above, then traders should expect a touch more weakness down to 1300. But longer term investors should see this as a great time to load up the truck with #1 Ranked stocks trading at attractive discounts.

Kevin Matras doesn’t believe you should head for the hills either. Even when the market declines, there are plenty of stocks going up. You just need to know where to look for them. He shares those strategies in his latest article.

Weak Bounces = Smart Money Selling – 11/14/2012

Kevin Cook here one more day for Steve…

Last week after the election, I proposed we would know soon enough if institutional investors saw value or fear in shares near the 200-day moving average. While fear, as measured by the VIX and the size of the daily ranges, is definitely on the low side, clearly the big and smart money is cautious and waiting.

Since the President and the Speaker are not meeting until Friday to discuss business, it has become “sell the rallies” mode for pros. And Tuesday actually started out pretty good, with the S&P futures testing 1365 again in the pre-market, roughly the 50% retracement of the June to September rally.

Which Way is the Risk: Missing 1,450 or Holding to 1,300?

But the important 1,390 level has been the capper now in 3 out of 3 sessions and today’s S&P close of 1375 is the lowest since August 2, when we closed at 1,365. It looks like the past 3 days may have just been a rest stop before 1,350. And a volume and volatility spike could be right around the corner.

Bottom line: Unless we get some miraculous news, it seems the short-term tide is leaning toward further selling this week. With so many eyes on the exits, and so many wishing they’d get one more chance to sell above 1,400, the risk is definitely not to the upside.

Best,

Kevin Cook,
Senior Stock Strategist, Zacks Investment Research

Why You Can Forget the 200-Day – 11/13/2012

Kevin Cook here still guiding you for a couple more days until Steve returns…

The S&P 500 has taken up residence at a new home in the past few sessions: its 200-day moving average around 1,380. Realistically, the 6% pullback from nearly 5-year highs that took it there is not that awful, given the headwinds the economy and market face.

And besides the 2008 crisis and recession, many dips below the 200-day in the past ten years have been great buying opportunities. But this time could be different because of other damage done to the market that will be hard to repair.

Why S&P 1,400-1,425 Matters

I’m talking about the area around and above S&P 1,400 where the index marked time in August before unlimited QE assaults were launched by the world’s two most important central banks. Also, losing 1,425 on the way down was a serious blow to the bull case since it was the breakout point to new bull market highs in September.

Bottom line: fear is low, with the VIX slipping back below 17, but it’s very likely now that all rallies up to these levels will be sold without a very positive resolution to the Fiscal Cliff in the next few weeks.

Best,

Kevin Cook,
Senior Stock Strategist, Zacks Investment Research

Surprised By These Moves?

Surprised By These Moves?

I admit it. I was among lots of investors caught off-guard by the market’s strong reaction to the election. In hindsight, it’s “easy” to see that the S&P was merely resting on 1,400, making head-fakes up to the 50-day moving average until the fateful decision.

And even though we know this is about much more than policy from the White House – namely, the “Congressional Canyon” (Fiscal Cliff) we fast approach – some stocks and industries told a predictable tale: banks, defense, and energy got clobbered while hospitals soared and consumer stocks remained a safe harbor.

Does it mean institutional investors are still reducing risk until there is more clarity? I think so. But, either way, focusing on stock selection and resilient industries in this policy-sensitive environment is more critical than ever.

Best,

Kevin Cook,
Senior Stock Strategist, Zacks Investment Research