"Market Monitor"- Bernie Schaeffer, Chairman of Schaeffer's Investment Research
Friday, May 29, 2009JEFF YASTINE: Our guest "Market Monitor" tonight says there's still some gas left to fuel the market's rally, but don't get too comfortable in the driver's seat. He's Bernie Schaeffer, chairman of Schaeffer's Investment Research and publisher of the "Option Advisor Market Letter." Bernie, welcome back to NIGHTLY BUSINESS REPORT.
BERNIE SCHAEFFER, CHAIRMAN, SCHAEFFER'S INVESTMENT RESEARCH: Pleasure Jeff.
YASTINE: What's your thought on this rally? We started in early March, kind of bottomed there and we've been building ever since.
SCHAEFFER: I think it's more than your -- your typical bear market bounce. We've got a very powerful oversold buy signal in the first quarter market, got more oversold than it ever had been in modern times. And what that indicates is that you had capitulative (ph) selling. You had investors basically throwing in the towel and very often the rally that ensues from that is much more sustainable and goes much further than bear market rallies do.
YASTINE: On a technical basis, the S&P 500 poked up above its 200-day moving average at the very end of today's session. Is there some technical rationale, some technical basis?
SCHAEFFER: It's been unable to take that level out for a few weeks. We've been watching it very closely. We've been writing about it on our web site. In the last five minutes of trading today, we took out the 200-day moving average on the S&P. I think that's very encouraging. I also feel like the hedge funds are moving away from de-leveraging and starting to get involved here.
YASTINE: When you are last on the program in late November, at the time you recall you had three picks that you gave us. Two of them you advised call options on, were the XHB S&P home builders ETF (XHB) and Wells Fargo (WFC). What would do you with those?
SCHAEFFER: I would look for other opportunities. I'm interested in the home builders, but I think there's other opportunities that we can talk about as we move on here.
YASTINE: At the time you were also advising put options on Microsoft (MSFT). Are you still as negative, again because a lot of people own Microsoft still?
SCHAEFFER: Right and that's one of the reasons as a contrarian I really don't see a compelling case. I think the Microsoft trade is quite crowded trade and I would want to avoid that.
YASTINE: All right, so if you were looking at still some near-term upside here, what would be buying these days (INAUDIBLE)?
SCHAEFFER: I would be looking at ETFs, sector ETFs. I would be looking at options on the sector ETFs, which are quite reasonably priced. I'm looking at the retailing S&P, the spider S&P retailing ETF,
YASTINE: Symbol XRT.
SCHAEFFER: XRT. I'm looking at the Ishares MSCI, emerging market ETF. That's symbol EEM, both of those very strong price action, a lot of skepticism. Analysts have not jumped aboard, a lot of short interest. We saw J Crew this morning in the retailing sector just take off four points on a positive earnings report. This is what happens when expectations are low. So I'd be looking at seven-month call options, January call options on both EMM and XRT at about 11 percent premium relative to the underlying price.
YASTINE: I noticed on the emerging markets one it had nearly doubled from the bottom in March to now. So you still think there's upside on that.
SCHAEFFER: I think it's a leveraged play on improving economy and I think -- I think there's room. I think there's sideline money that could come in there.
YASTINE: With the idea of ETFs still, what would do you if you were trying to hedge against this more rosy scenario that you're--
SCHAEFFER: Looking at the Ishares, Barclay's 20-year Treasury bond fund, symbol TLT. I think it's an excellent way to play with options. You have the retailing sector. You have the emerging market sector. You construct a little blended stock and bond portfolio by buying options on TLT and very reasonably priced as well, only 5 percent of the price of the underlying there. And bonds are very oversold in our opinion.
YASTINE: Do you own any of the three ETFs you talked about?
SCHAEFFER: Yes, I have positions in EEM and the emerging markets as well as the TLT bond fund.
YASTINE: Why not own all three of these?
SCHAEFFER: Interesting, because you can essentially for a fraction of the cost of owning the underlying shares, build yourself a little portfolio of the three different ETFs, have a nice blended stock and bond portfolio and still have about 70 percent of your money left over, either to put in cash or invest otherwise.
YASTINE: Options, use a little bit of leverage there.
SCHAEFFER: Correct.
YASTINE: Our guest, Bernie Schaeffer of Schaeffers Investment research.
