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Short-term estimate

Bullish signal since March 23 2007: The current stock market trend has rebounced. This positive trend is supported by most international indices. The liquidity seems to be back and merger mania does its part to kill the bears.

 
Mid-term estimate

Mid-term, there is a high risk for a correction. This is based on the fact that the current profitability is the highest over the last 50 years (> 12% net profit margin relative to GDP in the US). At the same time, PE multiples are above historic averages for most US / European indices. Chances for a decline in net profits are high: Net profits have been growing for 5 years. Over the last 50 years, net profits have never grown more than 5 years in a row. A decline of net proit margins to a 9% historic average would result in a 25% cut in reported earnings. Stock prices could overshoot such a decline substantially

Our market model is based on various macroeconomic indicators like interest rates, exchange rates,
oil price or liquidity. Also, valuation multiples and trends of various global stock market indices are
taken into consideration. For our investment decisions, we focus on the short-term outlook. The
mid-term outllook helps us to be aware of potential upcoming changes.

S&P 500 Index Chart
 

The chart shows our short-term market signals together with the performance of the S&P 500 index. Green rectangles indicate short-term bullish signals, the rest are bearish ones. The model is operational since 2005. The history since 1977 is based on simulation.


 


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ments that anyparticular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. See the Securities Disclaimer section for more information on
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We sell our long warrants and the straddle

We sell the Dax call, the MDAX Call and the Nasdaq straddle (consisting of a long and a short instrument). The reason is that overall, the warning signs for the stock markets become more and more obvious: Increasing interest rates, a weak USD, high oil prices and fears of increasing inflation. As a latest trigger, we see that the volatility in the stock markets increases significantly which has happened often berfore bear markets. The latest rally might continue over the next days or weeks. But as the warrants are highly leveraged and pretty risky and we have achieved our targets, we realize the gains.

Date: 15-06-07

Buy Amazon

Amazon has all the incredients to become the next Walmart. PE looks high as the company invests in growth. On the other hand, price / sales of 2.5 looks reasonable when looking at the > 30% revenue growth rate.

Date: 23-05-07

Buy Natural Cool Holdings

This is a micro cap with a market cap at around USD 26M. The company is located in Singapur and offers installation and services of AC systems. They show an impressive ~30% growth rate. The PE ratio is at a level of ~ 6 which offers a nive value opportunity.

Date: 22-05-07

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