Checking in from Vacation

As the summer draws to a close, the market is putting its best foot forward. Yesterday's action was solid and a continuation of the bullish trend that's been going on during August. There are some missing ingredients that this rally needs however, overall it has gelled very well. If the volume comes back next week and the buying continues, we will have to reassess our position and lean more towards risk and less towards safety. However, the missing ingredients are still missing and until they appear, this rally is still suspect.
Since the Fed stopped tightening, don't expect that to change until (at least) after the November elections. Oil, as if on cue, has declined daily. However, gold continues to behave well. These things keep us on our toes.
In the past, I have noticed many times that a stock or index has broken an uptrend and after a period of consolidation has rallied back to the trendline. When such trading occurs on low volume, as it is doing now, those rallies often end as "last gasp" types and fail. This is what I think we are dealing with now. Time will tell.
Next week will bring us all back to more normal schedules and more frequent posts to the blog. In the mean time visit www.GellerCapital.com for more information.
All the best for an enjoyable and relaxing Labor Day weekend.

Under the Weather

That's the market...and me. Bad stomach flu from presumably bad chinese food. Although I have been viewing the stock market bearishly, it's important to note that the S&p 500 is within 3% of it's 2006 peak. The rally off the August low has been sharp and rewarding. Further, if you consider the time the market has taken to sell off, consolidate, then rally to this area, it's not a bad looking move. Tempting.

What I find troubling however is non-conformation and the lack of volume. Non-conformation means that as the S&P has closed in on it's ytd high, the small & mid cap indices have not. In fact, they are much closer to their lows - nearly the opposite of the S&P. Also, the Dow Transports are much closer to their lows. As I pointed out a few weeks back, this age old indicator is suggesting a change in the tides. No one is mentioning it (that I have heard) and that is probably why we should listen to it. Volume is really about supply and demand. In a bull market, rallies occur on rising demand (increasing volume) and pull back on declining volume (timid over-supply). This marke is the exact opposite. Stocks declined on rising volume (aggressive over-supply) and have rallied from the lows on declining volume (timid demand).

Volume sholume you say? You may be right. The real world resumes in two weeks and institutional buyers could come out with their guns blazing and buy everything in sight. But, on Wall Street, Blackberries and mobile computing are ubiquitous. Let's face it, the odds of a big time money manager on vacation and not checking in to see this rally and grabbing stock with both hands if that manager is charged up about the market is next to nothing. So, you may ask, why then aren't they selling into it if it's a false move? Great question and that is precisely why this particular market is so challenging.

The superior performance in the Large cap indices is a flight to quality. The same thing could be driving bonds but that is a more complicated analysis. "Fast and strong doesn't always win the race but it's normally the best bet." (Damon Runyon? not sure...) The odds make it tough to believe in this rally. But I remind myself to be flexible...

Back to Bedlam?

Excuse the poetic license but a number of things come to mind...

There have been many articles lately regarding the Iran nuclear issue. One paper referenced that the market fell yesterday due to "nuclear concerns". Recalling bomb shelters and air raid drills in the 1960s we were concerned that the Soviets could bomb us. We were post-war and caution was the way. But would they bomb us? Given many similarities in our shared Western culture, probably not and of course they never did. Can we have the same certainty with Iran? We generally view our position in the world as geographicaly isolated and mostly untouchable. This situation is much more complicated and a bad outcome is not unlikely. (Think hijacked airplanes destroying the World Trade Center...)
On Friday I referred to Greenspan's soft landings as getting little respect so why would Bernanke's get any? Today the street is abuzz with "which worry should we worry about?" Inflation or a weak economy? Certainly less impressed with the soft landing idea.
Gold prices are strengthening again. Gold was in a bull market that paused in May - down 30% in a month. Prices have rallied about halfway back and the demand is looking increasingly strong.
The US Dollar has been falling for the last 2 months.
US interest rates have been falling.
Stocks have been up the last month.
The pieces of the puzzle can almost support each thesis: Nuclear concerns, inflation, and weak economy. Thus, which worry should we worry about? Net Net, in a slow stock market - today less than 1 billion shares at 3:15pm - the path of least resistance feels like it's down but prices are holding. The equity markets often look beyond the obvious but it's tougher to respect stocks when there is such low volume. My take is that there are too many liabilities on the market's balance sheet. In August 2000, prices rose just like this market. Then September came, the crowd returned, and the bear market began in earnest. While I am not anticipating a meltdown, the current environment has the wrong feel to it. Thus, our continued low stock exposure. Or, as my mentor would say, "better to be on the outside wishing we were invested than on the inside wishing we were NOT invested".

We continue to monitor stocks and maintain a buyable list. There are many opportunities and we know that it takes time to build a portfolio. The challenge is to be early but not too early.

Please visit our website for more information: www.GellerCapital.com

Monday Blues

A predictable day in the market after last week's euphoria and this weekend's middle east news as well as some disappointing earnings reports. In the market's defense, the decline was mild and on very low volume. The big story is still the decline in yields. Is it due to inflation concerns abating? Or confidence in the soft landing? (Referenced this point here Friday and the WSJ ran a full article on it today - nice to be a day ahead!) Or maybe, just maybe, yields are falling due to concerns about the economy? If the latter is the case, then earnings concerns won't be far behind. Then we would see what the market is made of. Stay tuned.

Excellent piece on oil prices in the weekend's Barron's editorials. In a nutshell, the world's drillable oil supply has likely peaked BUT there are reserves in Canada, under the oceans, in the US, etc, that are huge but costly to get to due to the unorthodox nature of the supply. At $70 oil, they are no longer unprofitable business ventures. In fact, this price will start to bring some of those regions into production. The result will be an oversupply of oil that will cause a "bust" cycle. Their prediction of $20 is likely irrelevent however, the idea that current prices will cause overproduction is relevent. $70 oil will also ensure development of alternative fuels. So, it's not that we should short oil and all related investments. But we should realize that this is all about economics 101 and bust follows boom as readily as boom follow bust. Similarly, in the housing market there was no supply to speak of and rising prices for years, now, 6 months later, there's supply galore and prices are off. The major homebuilders have all identified inventories and slow sales as major reasons for their earnings declines. As one client told me today, "it happened so quickly!"

Even during quiet August, there's lots to ponder and prepare for!

Please visit our site for more complete information: www.gellercapital.com

Good week in the market

Reflecting on my latest posts, I had been considering getting more invested in stocks and less in cash/short term bonds. Well, that would have been an excellent move! As late as Monday I was getting ready to pull the trigger - that would have been perfect. Alas, few things are perfect (my wife would differ!) and that's part of the game. There was a lot wrong with the rally this week if you weren't invested. Then you could point at the weak volume or the soft high-low list. But if you were long this market, you wouldn't care at all about those things - you'd be feeling good about the gains. And if your position was like mine, you might be philosophical that we missed lots of decline so this was expected or that these gains will be short-lived so not too worry. We won't have any of that and instead feel a fair amount of pain that we are still light. Yes, it's very nice that our bonds continued to rally and that has been helping. And it's very nice that our stocks that we do hold were up nicely. And of course it's not like we lost money this week.
But we get paid to maximize returns and to reduce risk so in that regard this week is less of a problem than my sleepless nights otherwise suggest. The fact is, the market tightened up really well, the volume was good for late August, and the rally feels right. Except for the season - maybe the crowd comes back after labor day, loves the level and sell sell sell. The large cap names look great here, mid and small are less desirable. But the puzzle pieces are not yet all in place.
It's likely the market will pause and allow entry points along the way. And it may be a good idea to scale into them. But the downtrend could easily resume, especially if someone remembers that the market was never too keen on Greenspan's soft landings. So why should Bernanke's get more respect?
We remain patient and flexible and remind ourselves that one week does not make a market. But is sure is convincing! Enjoy the weekend.

Please visit our website for more information www.GellerCapital.com

Cease-fire? What about cease-selling?

Trying not to be cute about two very serious topics but today says much about the current market environment. Great jump to start the day on an external news event that followed through until about noon. That's when the "drift" set in and voila, most of the day's gains are gone.
After I posted Friday's thoughts and recap, I got to thinking that my focus is probably too bearish and too oriented to external events. The external events will go away and what's left is a market that has to play catchup to intrinsic fundamentals. In 3 days, or 3 weeks, or 3 months, what are those fundamentals going to look like, i.e., are they going to be better than they are today? From my perch, there isn't a a clear answer. Of course that creates opportunities but, the current orientation away from risk still sits well with me. Once again, I created the buy list for today but opted to remain with the current positions. Flexible AND patient.

As always, please contact me directly for further information or post your comments on the blog. Please visit www.gellercapital.com.

TGIF

A tough week on Wall Street comes to an end. Virtually all of the major stock indices dropped in a slow torturous way. Even the best performing Utility index faded. To highlight the difficult market conditions, the following actions/reactions were notable:

A potentially large terror threat via the airlines was foiled on Thursday. Initially, most of the airlines were hit hard but many rallied nicely off their lows. No doubt this encouraged some investors but, on second thought, the news probably serves to make air travel even more tedious and restrictive than it had become. Today many of the airlines gave ground and closed lower putting the group under more pressure than it was already experiencing.

Cisco reported better than expected numbers and it's share price jumped smartly Wednesday. Most of the gains remained by today's close. However, few stocks in the technology space responded to this good news and that group remains under pressure.

Of course, the Fed's inaction Friday was no cause to rally.

For the week, the volume was below average and market breadth deteriorated. Clearly, it's summertime. Our long only strategies continue to remain overweight in cash/equivalents and short term bonds with a lesser emphasis on stocks. It's one of the few times when overweight feels good!

For further information on our investment philosophy and strategies, please visit our website at www.GellerCapital.com.

No news is good news?

This concept may be relevent to children's letters home from summer camp but today in the market it's another story. The absence of major news resulted in a typical day in a bearish market environment: Opening rallies led to mid morning highs that faded steadily and resulted in overall losses across the board. The advance decline/volume stats were decidely bearish. Outside of CSCO, the whole thing stank.
Typical day in a bearish market environment? One doesn't need to see the signature to know the work of a favorite artist and one shouldn't need the averages to hit the obligatory down 20% mark to know it's a bear market and investment allocations should be made accordingly. However, above all, in this modern, fast paced world of instantaneous communication, we must stay flexible because it can and will change fast.
Speaking of the modern fast paced world, an old favorite indicator is the Dow Theory. It's based on the comparison of the stocks of companies that make and sell things (Dow Industrials) vs stocks of the companies that ship those things (Dow Transports). They should move in tandem and in most trending markets they do. Notice that the Transports are in a clear and confirmed downtrend while the Industrials started to improve off the lows but are now weakening. Since no one really talks about the Dow Theory anymore because it's so old fashioned, I think it's time to pay attention to it.

Bright spot: Bonds rallied and yields fell as the day wore on (if you're long bonds).

Surprise! Fed does nothing!

Lots of volatility today. Good to be market neutral or holding limited equity exposure. If the Fed raised, it would have been "they are killing the economy - sell now". If they actually cut it would have been "the economy must have been killed - sell now". They did nothing which feels a lot like "they don't know what to do so they did nothing - sell now".
Our accounts that are invested in our long only strategies are mostly in cash/short term treasuries (via a bond fund) and thankfully missing out on all the "volatility". Our market neutral portfolios are holding up nicely as well.
I believe the action today is negative for the market and we go lower. Looking closely at daily charts for the large, mid and small-cap indices suggests that the recent 3-week uptrend is broken. No surprise that large is the best acting of the bunch and probably the most resistant to further declines (see previous blod on large cap small cap). And, the Utilities continue to tell us to remain bearish and grab yield. This is not a great market for the bulls but I also see some thin silver linings. Would probably take more long exposure for the first time in almost 3 months IF we had a sharp decline from here. Conversely, if the market starts to move above the recent highs, it may prompt us to rethink our very conservative stance and get "longer". It's important to be flexible at all time.
Please visit our website for more information regarding our strategies at www.GellerCapital.com or email directly via attached link or call at 914.683.5100.

Large Cap Small Cap

In the last update, I promised to write about the disparity between large cap/small cap. For the year ended April 30, 2006, small and mid cap was the place to be as it was up more than double the large cap index. Not only was this occuring domestically but even better performance was coming from emerging markets which are even more speculative. It's not unusual for a bull market to end with the most speculative paper in the greatest demand. In the last bull run, it was the techs and dot.coms. The patterns remain so similar regardless of the times. Or in the words of Mark Twain, "history does not repeat itself but it often rhymes".

When the market sold off in early May of this year, smaller cap stocks took it much harder than larger ones. Think Newton's law. But now, a change is in place. Rallies in the market tend to reward large caps over small. Check the charts of various indices and you will note that the larger cap act much better. More to the point, the Dow Utility index is the best acting of them all.

The message from the market is that large is in, small is out. Large is safer, more liquid, more secure, pays dividends. Small is riskier, less liquid, less secure, no dividends. Although I feel that smaller companies are more dynamic and better able to adjust to changing landscapes in the business world, investors are focusing on something else. That something else is risk and valuations. And right now large caps, in particular value and yield, are where the market says we should be focusing.

It will certainly be possible to make money in small and mid cap stocks but as a group it appears that the change is underway.

To find out more about my firm's investment strategies, in particular our large cap value and large cap value high yield strategies, please visit our website at www.gellercapital.com or email me directly dgeller@gellercapital.com

Back from vacation

Nice of me to start a blog and then go on vacation. After a wonderful time away, I have no further apologies!
The capital markets are always full of interesting stuff; today is no different. Stocks have been improving and have caused me to think about scaling back into positions towards a more fully invested profile. Currently we are over 75% in cash & equivalents and up nicely on the year for most long portfolios. The trouble I encounter each time I seriously start to build the buy list is the lack of oomph in stocks. Weakness seems to be punished more than strength and volume is light. However, the advance decline line has improved and is moving higher. If the crowd is thin due to the usual August holiday schedules then what will happen when "they" return?
Perhaps another piece of the puzzle has been put into place: yields are down sharply on the Ten and Five year Treasuries. It was confusing that the market was correcting in May and June and yields were still rising. Now yields have crumbled: ten year 5.24% 5 weeks ago, 4.90% today; 5.26% on the five year, 4.83% today. Credit markets are saying (in a loud voice) that the Fed is done and the economy has weakened. But it is no less confusing as stocks were suggesting good things at the same time. Could be that stocks fell anticipating the weakness that bonds have finally woken up to. Could be that stocks are now looking much further ahead to when the economy rights itself from the malaise that the May-June selloff suggested and that the inverted yield curve has been telling about for months. Finally, after a nice rally this morning that suggested the stock market has this concept under control, prices reversed and are now near the day's lows. Once again volume is light, and the advance decline is almost even on the day, maintaining the murkiness.
It never works to wait till all the lights are green to start investing. The best opportunity to make money exists when questions abound. However, something still feels wrong so we continue to wait.
Resolution - likely add 15% to the stock exposure in the coming week based upon our "Disciplined Approach". If we were wrong to add exposure, we will get stopped out or our stocks will hold up better than most. If we should have been more invested, then we will have greater participation as we play catchup.
Next Blog - large cap vs small cap, what is happening and why.
For more information on our approach, visit our website: www.GellerCapital.com.

First Blog!

July 25, 2006 This is my very first blog. My name is David Geller and my firm is Geller Capital Management LLC, a registered investment advisory. We manage investment strategies in the stock market based on computer models. It's interesting stuff if you are into investing and it's extremely interesting stuff if you are into making a lot of money on your money. (Not that it's without risk but we have a damn good record.) What I'll write about are thoughts and observations about the markets, my strategies, and things related, but they will invariably include other observations as well.
If you're bullish on the markets, today was an encouraging day. If you're presently skeptical like me, today makes me feel like the winds are shifting on the street. The advance/declines looked good for the second day, volume increased which is really important but was still low. New highs and lows were nearly even which is, in my book, very important. And, most of the gains came late in the day, which I also view positively.
My investment strategy had shifted to a unusually large cash/short term bonds position in May but I am seriously thinking of building back some equity exposure. However, until more factors change, it's still a rally in a bearish market and those are doomed to always fail. Until the final rally of that bear market.
Feel free to contact me directly if you have any questions or thoughts to share. dgeller@gellercapital.com