Quick Take On The Market Action

No sooner that I finally published my thoughts on 2010 investments, the market decided to roll over. Despite a rough ride over the past few days, I remain constructive. I am also not being complacent and still maintain a decent amount of of cash, although I am starting to deploy it in a few select areas, consistent with my outlook outlined in the previous post, First Post of 2010.

As far as technical levels are concerned, some short term damage was clearly done, but thus far it is contained. None of the major indices have broken their intermediate supp port levels. With market finally overbought, and irrationality once again prevailing, I smell fear and urine on the street. Well, the smell of urine in NYC streets is often there often, lol.
SPX - watching levels 1120, which was broken today, and more importantly 1070-1075. This one is clearly the level where are a lot eyes are watching.

In general, I feel that the smaller companies, Russell 2000/3000 are more likely to rebound, but as the entry levels on many stocks in my watch list are getting hit, I am slowly buying them.

I consider the reasons (excuses) for this pullback and profit taking to be pretty lame. Obama going after banks - come on, not gonna happen. Nothing but saber rattling, he lost his way, he is pissed off about the his pet healthcare project getting basically reduced to nothing, and he is lashing out. Bad, bad recipe to gain support for anything. Plain dumb.

China containing their lending - a lot of rhetoric. If anything, the growth will continue, and companies will use equity markets to finance its growth. With China number 2 goal being self sufficiency (#1 gaol is preserving social harmony and order), we will continue to see the the growth trajectory over the next few years, even if there will be bumps along the way. I would not sweat the impact on US and global commodity producers or energy companies.

But the trade I most excited about is adding more exposure to Brazil via BRF and EZW, and BZF (the last one is more a bet on real appreciating against the dollar). With two major global events coming up in the next 4-6 years, the World Cup in 2014 and Summer Olympic Games in 2016 will not only drive investments in infrastructure, but also force the government to continue its pro-business policies that they have been emphasizing thus far. As usual, expect the Brazil GDP to add at least 300-400 bps to account for all the economic activity associated with build outs to accommodate these two super public events. I would focus on infrastructure, such as steel, construction, and commodities industries, although someone will have to finance all this growth - so Brazilian banks will benefit as well. With tame inflation, stable economic and political climate and currency that will continue to appreciate as the foreign investment continues to flow in, Brazil is my top emerging market for 2010 and beyond. I would use this pullback opportunity to load up on Brazil.

In addition to Brazil, I am actively focusing on some of the energy plays, coal, tech and healtcare. I will publish on specific names soon, but you can also continue to monitor my trading, which is generally ahead of my posting.