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Shayne Heffernan on Trading in May

May 03, 2011 7:29 AM ET
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The Aft Deck's Blog
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Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.

Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

As May is opens it pays to remember that this is an Historically weak month for stocks. It is also important to remember that we are now at Multi-year highs on Wall St.

The Dow climbed 4 percent for the month while the S&P 500 rose 2.8 percent and the Nasdaq gained 3.3 percent.

The CBOE Volatility Index or VIX, remained low, closing Friday’s session below 15, although it was up 0.9 percent for the day.

Earnings season is coming to an end, investors will shift their focus to economic data this week, especially the April employment report on Friday. Investors will scrutinize the jobs data for signs of improvement in the labor market.

After a very mixed batch of data last week, investors would need to see a solid gain in jobs to believe in sustainable economic growth.

On Friday, the United States releases its employment report for April. The world’s largest economy is expected to have added 190,000 jobs, not nearly enough to make much of a dent in the jobless rate, which is expected to hold at 8.8 percent.

So far, there is no evidence higher prices have lifted wage demands, according to researchers at the New York Federal Reserve Bank.

In the past couple of decades, inexpensive labor from emerging markets helped keep a lid on U.S. wage pressures, but those times may have changed.

Other economic data due next week include the ISM manufacturing data and domestic car sales on Monday, the ISM services-sector data on Wednesday, and weekly jobless claims on Thursday.

My broad strategy this week is to hedge, using the Nasdaq Futures (Selling them Short) and buying quality stocks during dips on the market.

While long term my outlook remains bullish I am expecting to see a pull back on Wall St before the next run forward. The most likely to fall in the Nasdaq. Nasdaq will be rebalancing its benchmark Nasdaq 100 index on Monday that will slash Apple Inc’s weighting. The rebalancing will affect the relative weights of all the securities in the index and cause popular index-tracking funds such as the PowerShares QQQ to buy and sell shares to match the new composition.

“I don’t see how anybody can be other than enthused about this country,” Buffett told Berkshire shareholders on Saturday and both myself and Paul Ebeling agree with that sentiment.

We also share Where Buffett’s concern over the conversation on the dollar, which he has said repeatedly is sure to weaken over time.

As I have been telling our investors, it is time to start buying foreign stock listed in New York, and this week I will continue to be a buyer, and it does seem the message is catching on, foreign shares traded in the United States rose on Friday as investors’ risk appetite was boosted after major U.S. stock indexes rose to their multi-year highs.

Federal Reserve Chairman Ben Bernanke’s pledge to keep cheap money flowing through the economy pushed the Nasdaq to a 10-year high, and gold and silver broke records.

News from China may weigh on investors Monday, the Chinese manufacturing index declined in April from March, indicating that growth may moderate in the world’s second-biggest economy after the government raised interest rates and allowed faster gains in the yuan.

The Purchasing Managers’ Index fell to 52.9 from 53.4, China’s logistics federation and the statistics bureau said in an e-mail yesterday.

I am inclined to ignore this report as all other data from China is positive, Chinese companies will feature in my buying in the comping week. HSBC Holdings Plc, had indicated that manufacturing grew in April at the same pace as in March. That survey covered more than 430 companies.

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