Good reading

Good article to read, posted at Minyanville (you can find in links under "other sites of interest", right side of this page) yesterday - here are some parts of it:

Jeff Saut: Short-Term Uptrend for S&P 500
MV Respect Dec 22, 2008 10:30 am

... But sustaining it is like walking a tightrope.

Editor's Note: The following article was written by Raymond James Chief Investment Strategist Jeff Saut. It has been reproduced with permission for the benefit of the Minyanville community.

Winter officially began yesterday morning, with the arrival of the winter solstice. Recall that solstice means “standing-still sun;” and on December 21st at 7:04 a.m. (EST) the sun “stood still” over the southern Pacific Ocean (Tropic of Capricorn). At that time the sun’s rays were directly overhead, giving the impression that the sun was truly standing still.

.... I paid tribute to this year’s “turning point” by facing the sky and screaming at the top of my lungs. It was one of many such screams emitted over the past year, as we watched the S&P 500 (SPX) lose nearly 52% of its value since October 2007. However, my sense is that the economy, and the various markets, are near a turning point.

That sense is driven by last week’s slashing of the Fed Funds rate, which will allow it to “float” between zero and a quarter of 1%. The operative word here is zero, as the Fed is effectively offering the banks “free money.”

With the Fed Funds target rate down to the 0-25 basis point level, the Fed is now “out of bullets” with regard to conventional monetary policy. Consequently, the Fed felt compelled to announce that it “will employ all available tools to . . . preserve price stability.” As Bloomberg Television put it, “The Fed is all In!” “All In” indeed: It now appears the Fed is moving to influence other interest rates. ...

To be sure, this Fed is being much more aggressive than the Bank of Japan following Japan’s “bubble bust,” as well as more aggressive than the Fed of this country’s Depression years. I think the Fed will be successful in getting private-market interest rates down and asset prices up.

Accordingly, I think last week’s Fed action will mark a “turning point” for the real economy, and would argue the equity markets tend to lead economic turning points by roughly 6 months.

Since the typical recession lasts 18 months, a 6-month economic “turn” from now would jibe with the NBER’s recent revelation that the current downturn began in December 2007 (12 months ago, even though we still haven't experienced 2 negative quarters of GDP).

Moreover, in addition to my firm's oft-mentioned metrics for a better equity market since the October 10th capitulation “low,” the ensuing downside devastation recently left the S&P 500 (at its nadir) a massive 34% below its 200-day moving average (DMA).

Ladies and gentlemen, the last 2 occasions that the S&P 500 exceeded the gap of 25% below its 200-DMA was in October 1974 and October 1987, both of those readings were at major market lows for the indices. Their subsequent advance was more than 50%.

Given all the previous mentioned reasons for my firm's “call” to gradually re-accumulate stocks, in some cases using hedge strategies, we now add Kiplinger’s 6 Reasons to Buy Stocks Now:

1. Stocks are battered and cheap.
2. Stocks are overdue for a rally.
3. The low-risk alternatives are pathetic.
4. It’s not the 1930s.
5. The market shows signs that the worst is over.
6. If not now, when?

Plainly, I agree, and would note that even though the flow of news has become materially worse over the past few months, the DJIA is not much changed from mid-October. .... Just as investors were conditioned to believe that any decline wouldn't gather much traction back in 1999 and 2000, they're now being conditioned to believe that any rally isn't sustainable.

Meanwhile, last week the Volatility Index (VIX) closed below its November closing low of 47.73 and the Russell 2000 (RUT) tracked-out above its 50-DMA (at 481.45). If the DJIA (8579.11) can likewise break out above its 50-DMA at 8702, the Dow’s November 4th reaction high becomes the next upside target.

Bettering that high, with a like move from the D-J Transports, would register a Dow Theory buy signal; the first such signal that would come from “cheap” valuation levels in more than a decade.
... Unsurprisingly, given interest rates, the Dollar Index lost 2.8% on the week; yet we think the worst of the dollar’s recent decline is over since the ECB will likely have to lower rates as the European economies sink deeper into recession. Surprisingly, given the dollar’s weakness, crude oil fell a shocking 26.8% last week. Hereto, I'm of the view that oil is bottoming, as these prices should cause China to increase its strategic reserves.

Still, Asian asset classes are the real beneficiary of a falling US dollar and low oil prices, which is why my firm is long the iShares MSCI Japan (EWJ) in the ETF portfolio. And this morning we're adding iShares FTSE China (FXI).

The call for this week: I'm leaving for the nation’s capital, so these will be the only strategy comments for this holiday-shortened week. Nevertheless, as my friends at Bespoke note, “The S&P 500 remains in a short-term uptrend that formed off of its November 20th lows, although it’s walking a tightrope to maintain it.”

Obviously, I agree ...
Merry Christmas everybody.