Bullish outlook
Interview: Morgan Keegan---John Wilson---Director of strategy (slow)
>> stocks finish the day lower amid losses in the financial sectors. dow and nasdaq are on track to record their second straight loss for only the second time in over a month. our next guest says despite today’s selloff, he says so far this market has done nothing to make him mitigate his bullish outlook, director of strategy at morgan keegan joining us from memphis with his analysis of stocks . thanks for being on the program.
>> thanks for having me.
>> tell us the most important indicator that gives thu feeling of optimism. what chart do you look at that i guess is the strongest buy signal for you.
>> i look at a lot of things and i try to take a weight of the evidence approach. i try to genuinely see what’s a contrary approach here. i mean i’m not going to base purely on that, but lately it’s been a pretty good tact to take. if you think back to the week before labor day, in fact, last time i was on bloomberg, my feel at that point was that everybody this being an interview, was keying in on the weakness of september, being the worst month on average over the last century the market is unlikely to accommodate them. we’d been looking for the market to break out of the trading range. we did. the question is, was that a significant breakout or are we going to hold in the top of the prior trading range on this correction or was it a bit of a false start? the s&p 500 in fact today undercut the 1015 level, came back into the top of the trading range. the dow still over it, the nasdaq still over it. what we are seeing right now is a lot of leading stocks that are acting very good technically. there has been very little change in leadership over the last, oh, eight to 12 weeks. so you are seeing internet groups, telecom technology, the semis have―semis are up 29% over the last month. they were off 5% today to put that into context. they were right at 30% over the last month. the biotechs have been extremely strong. it’s been from top to bottom. that is a group that encompasses stocks with market cap of amgen all the way down to some sub$5 million market cap stocks , and there are probably 200 in the group, so it’s been a pretty broad move.
>> let me ask you this. if you were to break down, i guess, how far we go up from here the rest of the year, do you see us, in other words, we’ve broken out of the s&p trading range we’ve been in, true. but do we continue to move higher or do we move sideways?
>> i feel like there is more to come. but if we stop right now we’ve had a pretty good year. but i think you are going to see some more earnings acceleration. you are starting to get, you know, pretty regularly good news out of some companies in the tech sector. you’ve also begun to see some telltale signs, i think, for example, the contract manufacturing stocks have been moving up over the last few weeks. that’s a group that tells me maybe we are getting ready to see an inventory rebuild as their orders pick up from some of the tech companies that use them to outsource.
>> one of the technical indicators some people use is the volitility index, the v.i.x. we noticed on monday, i’ve drawn it here on the bloomberg terminal so we can show our viewers, on monday it reached a three-year low. it’s been up tuesday and wednesday. but here on monday it reached below 19, i guess the low there was 18.79 for the v.i.x. what does that say to you? i understand you don’t see that as particularly relevant at this point. why?
>> no, i really don’t. i’ve looked at it. you can go back and look at it, i’ve got it on record for years. it’s been a very good buy signal. it’s been very good at telling you when the market was bottoming or close to making a bottom. but i haven’t found it to be as good on the other side telling you when the market was toppy. so it’s just my studies of it have shown me not to really key in on it here. things i would be looking at here i guess, if i were really concerned―and i can make the case, i guess, that the bears are making. let’s look at the sentiment indicators. the surveys are showing fairly high levels of bullish sentiment. there are a couple other surveys out, though, that aren’t. and those are nevertheless opinions. if you look at where money is being spent, the ridex ratio is a good way to look at that. the number of people invested bullishly versus bearishly, it’s nowhere giving you a signal there is too much bullish sentiment out there. i think the ratio is over one, in other words bearish to bulls. it’s three to one at the top.
>> aus pointed out, tech stocks have outperformed the markets this year, chip stocks have done even better than tech in general. which sectors do you think will do the best for the rest of the year?
>> well, i don’t know whether we go into a short-term of four, even eight-week kind of trading range or consolidation with the semis. i will tell you when they get in gear they tend to have fairly good moves over about an 18-month period, so i think there is more to come there. i am beginning to see a lot of “money flow” into the telecom area. and that’s fairly broad. telecom equipment, telecom wireless equipment, fiberoptic areas, looking pretty interesting. if you watch the exchange traded funds, i noticed i guess yesterday with a down market, a lot of money flowing into the exchange rated telecom funds.
>> that will have to do it. john wilson with morgan keegan. when we come back, japan’s stock benchmarks decline on wednesday retreating from 14 month highs.
