NEW$ TO U(SE)

Fourth quarter earnings season is complete and the final results are very positive. Over 70% of index constituents surpassed their quarterly earnings forecasts, and over 50% managed to beat both earnings and revenue estimates.

Importantly, estimate revisions remain positive, providing a strong undercurrent for equity markets. RBC Capital Markets Estimate Revision Index is strongly correlated with equities.

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The Dow continues to make new rally highs. To provide some perspective to the current Dow rally that began

just over one year ago, all major market rallies of the last 110 years are plotted on today’s chart. Each dot represents a major stock market rally as measured by the Dow. As today’s chart illustrates, the Dow has begun a major rally 27 times over the past 110 years which equates to an average of one rally every four years. Also, most major rallies (73%) resulted in a gain of between 30% and 150% and lasted between 200 and 800 trading days — highlighted in today’s chart with a light blue shaded box. As it stands right now, the current Dow rally (hollow blue dot labeled you are here) has entered the low range of a "typical" rally and would currently be classified as both short in duration and below average in magnitude.

From Chart of the Day

My last market analysis (US EQUITIES VALUATION ANALYSIS: DUCK, YOU (HAPPY) SUCKERS!) was on December 8, 2009 when the S&P 500 Index was 1100.

The Index has been hovering around that level (+/- 5%) since then even though quarterly operating earnings have grown 10% QoQ,  beating estimates and triggering continued positive earnings revisions. Nearly 75% of S&P 500 companies beat estimates in Q4 and more than half beat revenue expectations as revenue growth reached 7%. Corporate earnings guidance has also been positive.

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Via Dennis Gartman:

Finally, when it doubt we turn to the sage of the market, Mr. Richard Russel of the Dow Theory newsletter. Mr. Russel has been around for a very long while. He’s seen bull markets and he’s survived bear markets. Thus when he writes, we listen, and
yesterday he wrote:

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Investors opened the most accounts to trade Chinese stocks last week in three months as households shifted funds into equities to protect against faster inflation.

Individual investors opened 352,203 accounts, data from the nation’s clearing house showed on Wednesday, the most since the week ended Dec 11 and a third straight gain.(…)

"Real deposit rates have now fallen into negative territory, so it would not be surprising if Chinese savers decide to chase better returns elsewhere," said Brian Jackson, an emerging-market strategist at Royal Bank of Canada in Hong Kong.(…)

New accounts have yet to rise to last year’s peak of 700,617 accounts opened in the last week of July.

Full China Daily article

Face-to face with the bears: Marc Faber and Mish Shedlock | AdvisorAnalyst Views.

Schwab, the largest discount brokerage by market capitalization, also said February trading fell 14% in its first full month with lowered fees for small investors.(…)

Lower trading volumes at Schwab follows a report of slightly higher retail activity at online brokerTradeStation Group Inc., which posted a 1.4% month-to-month increase in early March.

However, TradeStation has a more active customer base and analysts expect declines in daily average revenue trades from both TD Ameritrade Holding Corp. and E*Trade Financial Corp., which issue monthly activity reports next week.

Trading commissions coming down:

Schwab’s move to reduce trading commissions was part of an effort to boost assets, prompting several other brokerages to cut their fees as well. TD Ameritrade remains the only one of major online brokerages yet to cut commissions.(…)

Full WSJ article

RBC Capital Markets wrote a strategy piece that, based on my favorite indicator on commodities (LEI), calls for caution on commodities.

The CRB Spot Index has rallied by about 45%
from the cycle low set in early December, 2008.
Performance now surpasses that seen in three of
the past four cycles, lagging only the gargantuan
rally that took prices up in two stages and by a
total of 135% between 2001 and 2008. Is this
commodity cycle long in the tooth?

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My friend Don Coxe, manager of The Coxe Commodity Strategy Fund, is going high beta stocks while advising caution on equities! Viva Chindia!

• This is assuredly an inopportune time to increase equity exposure—and an opportune time for profit-taking.
• Maintain a strong overweighting in commodity stocks within equity portfolios.
• Maintain high exposure to gold bullion and the gold miners whose
  production comes from politically-secure areas.
• Investors should overweight base metal miners within the cyclical component of their equity portfolios.
• Canadian bonds and stocks should be heavily overweighted in global portfolios.

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• There is a rising chorus of sceptics who argue that the recovery is hollow and that the miraculous growth rates China has achieved over the last 15 years will soon be over.
• At its most basic level, the bear argument is derived from the fact that China has had what is probably the biggest, longest economic boom in history. The logic applied is that the bigger the boom, the bigger the bust.
• A reckoning may well come to pass at some future point but it won’t be soon. Over the time horizon of most investors, it has a low enough probability of occurrence that people should not pay much attention to it.
• We remain positive on risk assets—equities, commodities and corporate bonds—for the short term, a time frame of roughly six to twelve months. The basic backdrop continues to be one of plentiful liquidity, very low interest rates, gradual healing in the financial system, virtually non‐existent inflation, recovering economies and a stable dollar.
• Fundamentally, the U.S. dollar is a weak currency. Its main attribute is that it doesn’t smell as bad as the euro and the yen and, as we have said many times, no one, apart from hedge
  funds, has any interest in a dollar crisis.
• Stay long risk, stay worried and don’t forget to keep your focus on long‐term wealth preservation. Enjoy the better times because they won’t last.

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