Realistically, Large-caps Are Tops

There’s still a lot of financial reporting going on with smaller, U.S.- listed Chinese stocks. A number of these companies are beating consensus estimates for the fourth quarter and year-end 2009, but visibility for 2010 isn’t as robust as investors would like.

And so traders are jumping ship on any stock that does not handily beat existing consensus estimates and on visibility. While a lot of new Chinese listings are still taking place now, from my perspective, there remain only a handful of companies that have the kind of growth prospects worth paying for.

So, the trading action for equity speculators remains as tough as ever. While owning the market right now seems like a decent strategy, great speculative opportunities are scarce at the moment.

After about two decades of experience following the equity market on a daily basis, I’m certain that investor enthusiasm for buying and selling stocks occurs in waves. Right now, I think we’re coming to the end of another wave of enthusiasm and the broader market will move incrementally higher. Dow 11,000 is a good thing, as would be a consolidation around this level. We are quickly coming into another earnings season and corporate visibility will be the most important factor for investors. Still, the market looks tired to me and I think it’s reasonable to expect another pullback in the near future.

Realistically, the most attractive equity opportunities in this market are large-caps. As we know, big companies are running lean operations and they have some pricing power now that they can translate right to the bottom line this year. But, nobody knows where the economy is going to go when the artificial stimulus spending ends. The economy could weaken again and so could the stock market.

I would be long on large-caps at this time, but super picky about any speculative positions. And if the speculative positions don’t perform, cash is much more attractive. I still believe that the best sectors for risk-capital investors to focus on are U.S.-listed Chinese stocks and junior miners. The pickings at this time, however, are quite slim.