Sell into the Rally

Perhaps adding some pressure to Monday morning’s sell-off, Morgan Stanley U.S. portfolio strategist Jason Todd over the weekend advised investors to sell into the recent rally. “Even under the most generous of assumptions,” he writes in a research note, “we cannot see large upside for the S&P 500 above the 825-850 level.”

Todd asserts that in the mad rush to jump back into the market, “it seems earnings or valuation no longer matters.” He writes that he would be more comfortable with this approach if trough earnings were closer, but he cautions that we’re not there yet. “We simply do not believe that that market has completely priced in the prospect of further earnings weakness or that it will, without interruption, look through this weakness to recovery,” he writes.

Todd says he find a “lack of fundamental support outside the financial sector.”

Todd has some specific cautionary comments on technology stocks. He notes that semis as of last week’s close were up more than 23% from the trough. “Inventories in the supply chain remain elevated, valuations rich and we are wary of under-estimating the scope of demand improvement necessary to take these stock from an inventory rebuild rally to one support by broadening fundamentals,” he writes.

Todd sees downside, in particular for Advanced Micro Devices (AMD), Nvidia (NVDA), Broadcom (BRCM) and Marvell (MRVL), as well as Jabil (JBL), Molex (MOLX), Tyco Electronics (TEL), JDSU (JDSU) and NCR (NCR), and also Comcast (CMCSA) and Sprint (S).

All of those stocks are down Monday:

• AMD is down 18 cents, or 5.3%, to $3.19.
• Nvidia is down 71 cents, or 6.8%, to $9.75.
• Broadcom is down 72 cents, or 3.5%, to $19.94.
• Marvell is down 30 cents, or 3.2%, to $8.98.
• Jabil is down 42 cents, or 7.4%, to $5.27.
• Molex is down 68 cents, or 4.8%, to $13.49.
• Tyco Electronics is down $1.19, or 9.9%, to $10.79.
• JDSU is down 44 cents, or 11.1%, to $3.51.
• NCR is down $1.65, or 17.2%, to $7.97.
• Comcast is down 90 cents, or 6.2%, to $13.64.
• Sprint is down 41 cents, or 10.4%, to $3.55.

Original post

Comments

[einstein p ...:]

I sold into the last rally.... in 2001.

Mar 30 02:53 PM

[whidbey:]

Yes, until further noticed selling any rally may be the better part of valor and common sense. It appears that the upside move that has been expected is now being overwhelmed by lack of faith in the Obama programs.

Mar 30 05:30 PM

[kelm:]

At the moment there is considerable volatility in every market - stocks, commodities, currencies, bonds. I do not believe that volatility can last forever and indeed, I think it is at a level that will cause some spasm followed by a lessening of volatility.

The current stock rally has been great, now let it pause, sell into it and observe the character of how it responds. Also keep in mind that the dollar is on very thin ice. If the dollar headed down in a major way we would see profits of US companies doing business overseas rise significantly which would boost the earnings picture.

Mar 31 11:12 AM

[User 237419:]

Good call !

May 12 04:18 PM