CREDIT SUISSE: BUY THE DIPS – THE BEAR ISN’T HERE YET
Courtesy of The Pragmatic Capitalist
Strategists at Credit Suisse entered 2010 with a very cautious tone and an outlook similar to our own – 2010 would be a year of halves. The first half would be a continuation of the trends that helped the
The team’s tactical indicators are mildly bullish at current levels and quickly approaching levels that were buys in 2009:
Our tacticals are mildly supportive of equities:
Interestingly, the % of nyse stocks trading above their 10-week MA (currently at 32%) is around similar levels where market bottomed during recent corrections (end of Oct it troughed at 30%, in early July 09 at 37%). Normally a buy signal is when this indicator falls below 20% but perhaps most of the correction has already occurred??
Sentiment data also supports their bullish thesis as the majority of investors remain net bearish:
Like us, Credit Suisse sees continuing strong trends in the earnings picture which makes it very difficult to formulate a thesis for a substantial decline in stocks. Credit Suisse notes the very strong trend in earnings expectations, the high level of “better than expected” earnings and the uptrend in the upgrade cycle. Bespoke recently noted the outperformance on Monday’s over the last few months. This has been largely due to the upgrade cycle. Yesterday alone, there were 41 upgrades of S&P
All of this leads Credit Suisse to maintain their bullish stance:
Bottom line: we are not changing our fundamental view and stay overweight equities targeting 1,220 on the s&p by mid-2010. We admit that near-term pressures remain: (i) worries about China’s “tightening”- which we think are exaggerated, (ii) Greece (and rest of peripheral Europe)- we have been negative on peripheral Europe for a while, especially Spain (we would u/w domestic Spain); (iii) Obama’s proposal on banks (uncertainty unnerves investors, we are underweight Eur banks). We would buy equity on dips, especially plays on Chinese consumer (e.g. luxury goods).
Source: Credit Suisse