Weekly Market Assessment
Here comes 1900 and there it goes! The S&P 500 finally rallied to and hit 1900, only to sell off minutes later. A bifurcated market outlook seems to be emerging between large hedge fund managers, as we reach these new record levels. Comments coming out of the SALT conference in Las Vegas, where the best of the best fund managers meet to discuss their views of the market are making there way to the public. On Wednesday we got the Producer Price Index, a measure of inflation, which showed for the first time in over a year and half, a small increase in inflation. A comment from former Federal Reserve Chairman Alan Greenspan, was quoted as saying, "Now I'm not forecasting that inflation is about to run. I doubt it very much. But the presumption that its no longer on the horizon I think is a mistake." The yield on the 10 year Treasury bond continues to fall (now at 2.5%) which is expressing either real GDP or a warning sign to future market events. Signs of inflations should send investors into the equity market to fight inflation and "if" this is happening we should see the Fed start to increase interest rates to cool the economy. Neither of which looks to be currently happening.
Daivid Tepper and Leon Copperman both spoke at the SALT Conference and had some interesting comments. Mr. Tepper who oversees $20 Billion in assets had this to say, "I am nervous. I think its nervous time... I'm not saying go short. Just don't be so friggin long." Following his statements, Leon Copperman came out with a more bullish stance on the market, "I think we could have high single digit returns for the year... I very strongly believe the conditions that lead to a bear market are not present." Leon manages just over $10 Billion in assets. This is what makes a market, for every buyer there is a seller. Throw in two hedge fund giants at different ends of the spectrum along with a confusing bond and equity market and you get a mixed outlook on the market's direction. Who should you put your money on, the Federal Reserve, a hedge fund manager, the equity markets or the bond market? All of these are telling us something, it just takes time for us to see what that is and most of the time its too late!
Making the Watchlist: Below are the stocks that I will be looking at over the coming months. I will provide the the current stock price and why I am watching them. I will comment on them as I continue to keep an eye on them. You will be able to see and follow their growth and/or decline. Chart links may be attached.
Rackspace (RAX)- After beating on its top and bottom line while also guiding higher on next quarter earnings RAX jumped after hours to above $33. The following morning it sold off to close below $30. On Thursday RAX came out with a filing stating it has hired Morgan Stanley to look for a strategic partnership or potential acquirer, as recent incoming proposals have prompted the company to seek advice. This shot the stock up over $36 a share from $29.
From the Trading Floor to the Option Pit: A quick look at whats on the trading desk
S&P 500 (SPX)- I sold a Vertical "Call" spread at the 1920/1925. 1900 on the S&P remains a strong resistance point and after the run up and selloff I was able to buy back this option for a week gain of 10%.
Rackspace (RAX)- As mentioned last week I purchased "CALLS" at the $30 and $31 strike price. Looking for a relief rally after company reports. The relief rally came and went however with the hiring of Morgan Stanley on Thursday the stock jumped to above $37 a share and these option exploded to the upside where the position was closed out.