Divergent Developments

In the current market environment you would not expect growth oriented companies to lead the market, but that is exactly what happened last week. And there we other divergences as well. It will take more time for this development to offer a clearer picture of what future direction the market may take, but along with other underlying characteristics, I chalk it up to a positive development.

Let’s start off with growth oriented stocks which outperformed broad US indexes. I first noted in IBD's Big Picture the IBD 100 turned in a weekly performance of 2.7% while the S&P 500 was down -1.07%. Looking into the situation further, all of the following growth oriented ETFs outperformed the S&P 500 last week.

Powershares DWA Technical Leaders
Powershares Value Line Timelines Select
Powershares Aggressive Growth Portfolio
First Trust IPOX-100

Several small-cap growth indexes also led the market.

In general volume was heavier early in the week where most of the gains were made and then tapered off as the gains were consolidated on Thursday and Friday. Overall, however, in terms of price action most U.S. broad indexes have not been able to break resistance levels on the upside.

There was even more of a divergence globally with several European countries turning in strong performances for the week followed by Japan. In addition, International Small Cap was up 4.77% for the week and has trended higher since hitting lows in January (unlike the S&P 500 which hit lows in March). Compared with the U.S., trading action in leading countries has exhibited more of a slightly upward bias since the bottom in January.

In terms of individual countries, China turned in a strong performance with the Powershares Golden Dragon Halter index up 9.93% for the week. India followed closely behind. If the price levels hold, China may have found a bottom.

In terms of regional performance, Asia was the strongest followed by Europe and Latin America.
In the fixed income market we saw a bit of a rally in the Powershares High Yield Corporate Bond Portfolio up 1.24% for the week followed by the SPDR Lehman International Treasury Bond Fund, up 1.13%.

We saw a broad recovery in commodities during the week with the Market Vectors Coal taking the top prize, up 10.92% followed by gains in base metals, natural gas, silver and metals & mining. Broad commodities as represented by the Powershares DB Commodity Index were up 4.56%. If you don't understand the role commodities can play in a portfolio, it is worth understanding. Besides what commodities can do for your IRA, owning a commodity index has the potential to make going to the gas station or grocery store a less painful pocketbook experience.

In terms of domestic industry performance, Oil & Gas related industries turned in 7 of the 10 top spots for the week. The other top three were represented by the metal & miners as well as Agribusiness.

The market experienced some positive developments during the week which may turn out to help confirm strength in the rally started on March 11th but so far we seem to be stuck in a trading range.

At present, portfolios at Dightman Capital are underweight stocks, overweight cash and inflation protected securities, and moving to an overweight in alterntive investments including commodities.

Playing Defense

Even after Friday’s sell-off the S&P only closed down 0.40% for the week. We are still above the March 10th low and volume didn’t surge on Friday in response to the Bear Stearns warning. Tuesday’s massive rally attempt is till intact, but it won’t take much to undercut it. Should additional bearish action develop there may still be an opportunity to move into a more defensive position with portfolios but most of the work has been done.

Bonds, manage futures and commodities have served well in the most recent market declines as indicated in the following 6 month charts.

The first chart illustrates:

BWX - International Bonds (Blue)
AGG - Aggregate U.S. Bonds (Red)
^GSPC - S&P 500 (Green)

The second chart illustrates:

DBC - PowerShares DB Commodity (Red)
RYMFX - Rydex Managed Futures (Blue)
^GSPC - S&P 500 (Green)

Hard assets continue to look attractive but some fundamental concerns exist with crude oil and agriculture. Supply and demand measures do not appear to support $110 a barrel crude oil and the ethanol effect on agriculture prices will develop over the years as production techniques improve.

A positive development; sentiment has turn bearish, as measured by Investors Intelligence newsletter survey, as the number of bullish writers crashed and bears surged. When more newsletters are bearish then bullish, market bottoms usually follow, but it can take weeks, even months to materialize.

One element that is missing from today’s market is individual stock leadership. The price volume action of stocks with strong fundamentals continues to be a concern.

Introduction

The goal of the Global Market Monitor is to commentary on the global investment landscape. Nothing presented in this post should be considered an investment recommendation. If you would like specific investment advice, contact us at www.dightmancapital.com.

I will attempt to cover general market conditions, a wide variety of asset classes, and economic developments. I may also periodically insert comments on changes in the financial services industry that may be interesting to individual and institutional investors.

Most of my investing work is done with Exchange Traded Funds but some access classes and investments strategies are accessed through mutual funds. I do follow individual stocks for the clues they provide to the overall health of the equities marketplace.

I try to approach the process from a forward looking macro economic and market view in an effort to determine whether an offensive or defensive investment strategy appears more appropriate. I then look more specifically at which asset classes should work well in the environment I expected over the coming months.

At Dightman Capital Group, we believe it is important to hold a wide vareity of assets at all times. But we also believe there are periods where we might want to change the amount we hold in a given asset class due to changes in economic and market conditions (interest rates, gross domestic production, exchange rates, P/E ratios, technical analysis, yield spreads, etc.). This might lead us to place more emphasis on hard assets vs. stocks, short term bonds over long term bonds, international stocks over U.S., etc.

I try to keep it short and easy to read. I also like to have fun investing.

Brian

About Brian Dightman

Brian Dightman is the President and Founder of Dightman Capital Group Inc. After nearly 6 years working for a major U.S. wealth management firm owned by a global bank, Brian realized the best form of investment management and wealth planning is going to come from a source absent research, third party compensation, and other conflicts.

He grew up and lives in the Seattle area with his wife and two sons. He is active in the community on several levels. He has volunteered as a community group faciliator for Program for Early Parent Support (PEPS) and is currently part of the Great Composers program at Lafeyette Elementary School. He is also an active member of his Church were he participates in various programs and ministries.

Outside of work Brian enjoys spending time with his family, playing piano, and outdoor activities.