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2009-06-12 09:43

NEXT UP: HEALTH CARE (FINAL EDITION)

The market is having a tough time getting over the hump but it still finds a way to more often than not finish on the upside. Still, I find that bulls are getting antsy and starting to toss around the old chestnut...a pullback is healthy. Okay, I guess, but it's not healthy when the market fails to breakout after a series of attempts because the ensuing pullback can sting a little But, all signs still point true north. Plus, there is no arguing that the market wants to move higher. I'm not sure what the catalyst(s) will be after all the most important economic data is out of the barn and earnings season is winding down. Of course, the market has been known to stage very stealthy, yet significant, rallies in the absence of any real news. One thing is clear: the sightings of "green shoots" aren't enough to move the market out of first gear although it's enough to keep it moving in the right direction, albeit, at a pedestrian pace. There was a smattering of good news yesterday, but there were also reminders of how bad it really is out there beyond the canyons of Wall Street. (If you are only looking at your 401K as the proxy for the broad economy then you're making a mistake.) To be sure, at the end of the day the market should reflect our successes and failures as well as potentials and abilities. I just happen to believe that it's off kilter these days. In fact, as I look back there has been a chasm between the stock market and reality for some time. During the Panic of 2008, both were on the same page like wild animals fleeing a jungle fire but this year there has been an odd bifurcation. As much as it looks like this market will make the next leg higher there is no way I could say in good conscience it's backed up by facts and fundamentals. But, I've been doing this for years and watched so many brilliant people miss opportunities because their numbers didn't add up. I'm almost afraid to say how great the service has been...on fire is an understatement. That said, it's about being nimble, alert, and skeptical. So, this morning, I'll share a sign that could be a confirmation the market is on the verge of the next leg higher and I'll also show how the economy continues to struggle. Old School Confirmation Old school market players say to look at transportation stocks to get an accurate beat on the validity of a stock market rally. With that in mind, some of my more learned friends believe that the Transportation Index is on the verge of giving the rally a stamp of approval, and maybe that spark that has been dampened for a few weeks now. Of course, this line of thinking goes back to the Dow Theory developed during the heyday of the automobile and when everyone traveled by train. These days, planes seem so commoditized as to not even matter from an investment point of view, not to mention they have been horrendous investments since day one. The easiest way to make a million dollars in the commercial plane business is to start with $10.0 million. Still, I think we should respect our elders and old school theories as well. Ideally, the Dow Theory works when equity indices are moving toward new 52-week highs at the same time transportation stocks are enjoying the same ride. For now, I just want to see if the Dow Jones Transportation Average (TRAN) can breakout through its 200-day moving average. This is the second run at that pivotal moving average having failed in May; it's going to have to get through this time or land at 3,000 where it must hold. Sinking Net Worth "All the vampires walkin through the valley Move west down Ventura boulevard And all the bad boys are standing in the shadows All the good girls are home with broken hearts And I'm free, free fallin Yeah I'm free, free fallin" -Tom Petty The net worth of American households slipped again and is now down $14.0 trillion from its peak in the third quarter of 2007. In the most recent quarter, U.S. household wealth decreased $1.3 trillion. Businesses have stopped spending money, too. The capital that companies spend minus their available funds plummeted in the first quarter as businesses braced for the worst. Of course, 1Q09 was the trough for fear so it's going to be interesting to see the change in the second quarter since so many of these same business leaders chirped about green shoots or better signs. It will be fascinating to see if they put their money where their mouths were. Observations and Tidbits Next up will be healthcare, which promises to be a fiasco out of this world. Projections from the administration are huge but way off the actual price tag, which nobody knows how it will be paid. There are going to be too many layers of government and the private sector is going to have to compete with the government and its printing presses. Small businesses may fold, and quality of care will drop precipitously. I don't have the answer to insuring all Americans, I just know that telling me I have to take money I've earned for my family and put it in the pot for everyone it's going to get much harder waking up when the alarm goes off at 3:50 in the morning. (Actually, I get up 97% of the time before the clock goes off because I'm loving life and that is a blessing.) It's just going to be an uphill climb. I was thinking that the guy that should be in charge of all Fed negotiating from now on is Don King. The strong arm tactics started under George Bush and enhanced under the new president sound like some of the legendary contract dealings with the greatest boxing promoter in history. As Don would say "Only in America", which used to be so appropriate but it's slipping away fast. I found out this week that the Chinese really do care about the environment so I'm wondering why they went from bikes to cars. Morning Notes from WSS Research Desk Brian Sozzi * Nikkei busting down the 10,000 door yesterday, optimism continuing here at home on the pace of the domestic recovery, and yet the Dow Jones Industrial Average has failed to close in the positive column for the year. Is this telling us something that we should be paying attention to? You know, like the fact we should have paid attention to a Bear Stearns hedge fund going belly up in June 2007. * Saks (SKS) caught an upgrade this morning. Bluntly, I am not feeling the call. With 21.0% of the revenue base derived from the Fifth Avenue flagship, Neiman Marcus employing a price lowering campaign, and other upscale department stores having greater supplier leverage it's tough to get excited on the name. Want a good buy? Check out TJ Maxx (TJX), which is buying its merchandise on the cheap from others in retail attempting to make an earnings number.

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Disclaimer: Securities Operations Forum is providing this research to assist investors in determining when to buy and when to sell. All investment decisions are yours and as a result you could make or lose money. Securities Operations Forum, its employees and/or its affiliates and family members may from time to time take positions in the open market or otherwise with respect to the securities discussed, but not have stock ownership equal to or greater than 1% of the outstanding stock of the covered company nor does any employee of Securities Operations Forum sit on the Board of Directors of any covered company. The statements made herein include information obtained from sources believed to be reliable, but no independent verification has been made and we do not guarantee its accuracy or completeness. The statements made herein contain general information and do not constitute an offer to buy or sell any security.