The Correction? -Yesterday’s sell-off was fueled by fears of a Taper that could come as early as next week and the remote possibility of a thumbs down vote on the budget deal. My call is still for a Q1 taper. I think the Fed would like one more employment report to give them the confidence that now is the time to take their foot off the accelerator. Don’t take your eye off the ball. It’s important to have a market view that goes out more than a few weeks. Yesterday, we closed near support at 1780 in the SPX. Technicians will point out a close below this level today brings in the next line of defense at the 50 day moving average. (1758)
If this is the long awaited pull-back that investors have been waiting for since May, then those who’ve missed the ride should have their shopping list ready. For those already invested this is an opportunity to upgrade your portfolio. Move out of names that have run their course into others you feel have more upside. Yesterday I sold 1/3 of our position in Northrop Grumman (NOC) and initiated a position in Helmerich & Payne (HP). Generally Alpha Select positions are initiated at 3% of the portfolio capital and boosted to 4.5% on weakness.
Gilead (GILD) – Gilead has been weak the last few days since hitting an all-time high Monday. The culprit was a Bloomberg article saying pharmacy benefits manager Express Scripts (ESRX) will pit Hepatitis C drug makers Gilead (GILD) and AbbVie (ABBV) against each other in a price war. These drugs are expensive but in the end it will be the formulation with the highest cure rate that will drive doctor’s choices. In his note yesterday Barclays’ analyst Anthony Butler, Ph.D. pointed out “Price difference, if it exists is unlikely to threaten GILD’s dominance as clinical merits come first in serious infectious diseases.”
The stock looks weak again this morning with first line of support at the 50 day moving average (68.78) (Full Disclosure – Long GILD)
The Deal – Both sides of the aisle are attempting to put out internal fires ever since Rep. Ryan and Sen. Murray announced a budget deal. Speaker of the House John Boehner had very harsh words pushing back against conservative groups like Heritage Action that were quick to criticize the bi-partisan agreement. In the Democratic camp many are disappointed they didn’t get an extension of unemployment benefits. Consensus seems to feel that despite the internal squabbling the deal will get through the House & Senate.
Funds managed by David Nelson are currently long GILD, NOC & HP
