Unfortunately not everyone is participating in this rally. You have a group of people that have
- Sat on the sidelines
- Bet against the market during this rally mode
- Chosen specific stocks that for one reason or another have not participated in this upward momentum, especially within the last month
At TAMMA Capital we could fall into a 4th category if you will, touching points two and three but also participating in the increased gains as well.
We had an earlier post this week, Why does this bull market get no respect? We discussed the upcoming four year anniversary of the Great Recession bottom in market terms as well as the fears people have in getting into the equity markets now fearing a new top.
At TAMMA we have always emphasized that being invested in the markets is not a all or nothing strategy. There are times when caution is the best way to proceed while at other times, it is best to be more aggressive.
You are never going to be able to call every bottom or top so the best strategy to employ in our opinion is one of balance based upon our own analysis and conviction. Right now that conviction is being put to the test in the form of Apple and Netflix.
These two stocks which we highlighted in this post, have completely changed spots as far as a stock that was the envy of the market to one that no one wants to own. Apple was once hot and now it is not. Netflix was once cold and now it is not.
The question that we posed is what strategy or analysis will come out on top? The fundamental strategy that Apple is a much better company than Netflix? Or the current technical trend that says Netflix is the one to own and Apple is the one to dump?
We have squarly made our decision and that is to continue to back our long position of Apple and add to our short of Netflix. Yes, Apple could turn into a value trap but with a Fwd P/E of 7.4 vs. a 68.5 for Netflix, we like our chances with a proven winner like Apple vs. Netflix.
Our performance this week underscores the change in market prices between these two stocks. We finished this week down while the rest of the markets were up. To offset the unfavorable Apple/Netflix performance, we have had our other long-term strategies of agriculture and solid companies with good dividends continue to pay off. This is where the balance that we spoke about earlier pays off and why it is never a good idea to bet the "farm" on one stock.
On the economic front this week we learned that the supply of exiting homes is getting tighter which is helping to increase home prices. Good for those that own a house and are trying to sell. On the flip side, new home sales are seeing continued strong momentum and price increases. The median price of $248,900 is the highest in more than five years. This does not bode well for our short home builder position which we will be exiting next week.
Continued improvement in the labor markets showed again in the release of initial jobless claims. The four-week average is nearly at a five-year low. More people keeping their jobs could increase consumer confidence and thus spending.
The Week Ahead
This week is the bonanza of economic data releases. The biggest event will be the jobs report at the end of the week but there is so much data to get through before Friday that could have major implications upon the equity markets. A better than expected GDP number on Wednesday or jobs number on Friday could push equity markets towards all time highs. Also pay attention to the auto sales numbers are Friday which could give further indication of how well the consumer is willing to spend.
- Mon - Durable Goods Orders, Pending Home Sales Index, Dallas Fed Mfg Survey
- Tue - FOMC Meeting Begins, S&P Case-Shiller HPI, Consumer Confidence
- Wed - ADP Employment Report, GDP, FOMC Meeting Announcement
- Thu - Challenger Job-Cut Report, Jobless Claims, Personal Income and Outlays, Employment Cost Index, Chicago PMI
- Fri - Motor Vehicle Sales, Employment Situation, PMI Manufacturing Index, Consumer Sentiment, ISM Mfg Index
Have a great week!
TAMMA Capital Management
If you are currently trying to develop your own investment plan or are seeking the help of a professional investment advisor we urge you to give us the opportunity to show you what TAMMA can do for you. No matter what stage in life you are currently at, TAMMA can help you plan for your ever changing needs.
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