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Heart of a Champion

04/27/2010

By now, most of you know that I am a huge hockey fan. My love affair with the game was fostered during my childhood when I had the privilege of watching my favorite team, the New York Islanders, raise four Stanley Cup banners. Along the way they treated me to some amazing Hollywood comebacks. On Saturday, April 24, hockey fans were treated to two similar comebacks during the NHL playoffs from both the Chicago Blackhawks and the Pittsburgh Penguins. With that in mind, investors, in particular the ever growing bearish crowd, must acknowledge quite a comeback in the market this week.

Heading into this week, the market was on the defensive.  The Friday April 16 SEC / Goldman announcement had shaken the markets and placed the equity indices in a precarious position, ripe for a correction. Monday's trading challenged some critical S&P 500 Index support @ 1180; it held support perfectly. Thursday's trading tested the downside, again holding during President Obama's speech. Watching the speech and the concurrent rise, one had to wonder if the President was long!    Please don't forget my theory that all incumbents NEED higher capital market prices in November.

Source:   Bloomberg

Inside the comeback, the consumer discretionary sector continues to amaze. This week, the sector, as measured by the Consumer Discretionary ETF (XLY), advanced by 3.782% outperforming the S&P 500 Index which rose 2.11%. The dramatic shift from the frugality to pent up extravagance is driving feel-good consumer spending. This upcoming week, consumer spending numbers for the first quarter will be released - expect an increase above 3% (annual rate) - the best quarter since Q1 2007.

However, what caught my eye was the performance of the Energy sector this week.  The Energy Select Sector SPDR ETF (XLE), was the top performing sector (+4.705%). On Friday, I spoke with several hedge fund managers who were "eyeing" the energy move and pondering if a shift was underway back to my Jungle theme -  the simple bare necessities.  It is something investors should watch. Supporting the shift / theory would be a reversal in the dollar back to its prevailing secular bear trend.

Dollar Index the past year
Source: Bloomberg

Dollar Index - Cyclical Rally from November 2009 low Source: Bloomberg

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.