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Harlan Levy was an attorney at the Federal Communications Commission's Cable Television Bureau before becoming a reporter at WGTR-AM in the Boston area. He then worked as a TV news reporter at WXEX-TV Richmond, VA., WCIX-TV Miami, FL (winning an Emmy), and WVIT-TV, West Hartford, CT. He was... More
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  • Stock uptrend intact, expect no sharp pullback: Interview with Todd Salamone 0 comments
    Sep 7, 2009 10:01 PM

    Todd Salamone, vice president of research for Cincinnati-based Schaeffer’s Investment Research, also manages the Put Selling portfolio in Bernie Schaeffer’s Option Advisor newsletter. His comments appear in several publications, and he is interviewed regularly on CNBC. To read his comments every Monday morning, visit

    Harlan Levy is a business reporter and columnist at the Connecticut daily newspaper the Journal Inquirer.

    H.L.: How strong is the economy in light of August’s 9.7 percent joH.L.: bless rate, up from 9.4 in July, and the decline in job losses from 276,000 in July to 216,000 in August?

    T.S.: There still seems to be a lot of concerns and doubts surrounding the economy, especially as it relates to the employment numbers. We think this is a positive, since stocks, especially in the consumer discretionary area, are more apt to respond favorably to positive surprises and less negatively to poor numbers that may already be reflected in share prices.

    The stock market seems to be indicating that the economy is stronger than expected. We view this as a positive for the longer term, as many believe the market has surpassed fundamentals. In other words, while stocks seem to be discounting favorable news on the economy, many investors are expecting poor news on the economy, and, thus, sitting on the sidelines, waiting for a retreat. This money represents cash that can support the market on pullbacks and also keep intact the current uptrend from the March lows.

    H.L.: Can the economy grow before there’s some hiring?

    T.S.: Yes. That could be evident in strong productivity numbers we’re seeing. This puts some companies in a strong position from an earnings perspective, even as many investors seem to be extremely cautious about earnings driven by cost-cutting.

    Even a slight increase in top-line growth amid expenses that are relatively low could create very favorable margins in the future, creating an environment of continued positive surprises.

    How do you read investor sentiment?

    T.S.: We’re seeing a lot of skepticism in the context of the uptrend. Retail investors, for example, according to the American Association of Individual Investors, have been noticeably negative throughout the summer months.

    Professional investors seem to be retreating to the sidelines as well in anticipation of higher volatility in September and October.

    From a contrarian perspective, the negative sentiment that we are seeing is a positive within the context of the current strong price action in equities. That being said, from a technical perspective, there will be continuous hurdles for the benchmark S&P 500 to overcome in the weeks and months ahead. For example, we see major resistance in the 1,000 to 1,040 area on the S&P. This could create sideways action before the next leg higher, but we, as opposed to many others, are not expecting a sharp pullback.

    What stocks do you recommend?

    T.S: We are currently favoring the consumer discretionary area, financials, and technology stocks. Some of our favorites include Netlogic (NASDAQ:NETL), Palm (PALM), AutoNation (NYSE:AN), Polo Ralph Lauren (NYSE:RL), Starbucks (NASDAQ:SBUX), Citigroup (NYSE:C), Aflac (NYSE:AFL), and Credit Suisse (NYSE:CS).

    We just think these are sectors that have rallied significantly, but there really isn’t a lot of buy-in. There are a lot of skeptics out there doubting that the trends in these equities will persist.

    You said there’s a lot of skepticism. What are people afraid of?

    T.S.: There’s a number of factors, ranging from skepticism about the Federal Reserve either removing stimuli too early, thus hampering a recovery, or removing stimuli too late, therefore fostering inflation. There’s a lot of skepticism relating to the consumer in terms of debt load, unemployment trends, and a higher savings rate. Since the consumer is such a major part of the economy, consumer-oriented concerns translate into skepticism related to the economic outlook.

    Other areas of fear relate to what is happening in the commercial real estate market, corporate earnings, upcoming regulations and reforms, and the “we’ve come too far too fast” mentality.

    What troubles commercial real estate?

    T.S.: There are some definite fundamental issues, relating to load defaults, refinancings, and the possibility of a relapse. However, unlike the housing crisis, I think the Federal Reserve is aware of them and is prepared to deal with them much more quickly than it did with the housing bubble.

    What also is important is that the issues have been so well-publicized that they could be factored into the stock market.

    When do you think the economy will start growing?

    T.S.: Expectations are that the second half of the year will show a rebound. Should this not occur, it would be a disappointment. While we cannot say what 2010 holds, there does seem to be a huge number of investors betting on a U- or W-shaped recovery. Should a V-shaped recovery take hold, the stock market would advance much more strongly than anyone anticipates.

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