The Dow was up another 29 points on Friday and closed above 10,500, which is bullish behavior. The Dow Transports and Utilities, along with the Russell 2000 and the Nasdaq 100 all made yearly highs. The S&P is trailing due to weakness in the financial sector. Full Article
It does not pay to get bearish on this market. Not yet, anyway.
The Dow was down just 14 points on Friday, which set the stage for the surprise rally on Monday morning. The dollar weakened about half a percent over the weekend. Since U.S. equities are priced in dollars, the declining greenback creates buying pressure, since shares look cheaper to overseas buyers. We think this trend is likely to continue until the Dollar Index falls to its 2008 low, about 5% lower than Monday's close. Full Article
All three major indices set new yearly highs on Monday, which the financial media regards as particularly bullish. One reason is that the S&P 500 has been lagging the pack. With ‘confirmation’ from the S&P, some market technicians are breathing a sigh of relief. Hummmm.
Unfortunately, we do not concur with the rationale for the enthusiasm. As the market moves higher, we are getting more cautious, not more bullish. We have two technical resistance zones in mind, one is Dow 10,500 and the other is Dow 10,800. These levels operate like the orbits of electrons around an atomic nucleus. Electrons are stable at these orbit levels and don’t spend much time in transition. Markets act the same way. If the Dow can break through the 10,500 zone, we expect it to travel to 10,800 rather quickly. Time will tell.
On Monday, the Dow closed up 76 points, only its fourth up day in the last ten trading days. The intraday action was volatile, however, with a range greater than 200 points peak to trough.
The volatility catalyst was a report from the Institute for Supply Management that indicated manufacturing activity grew in October at the fastest pace since April 2006. The 55.7 reading, if annualized, would imply GDP growth of 4.5%. Manufacturing activity improved worldwide, as well, suggesting that this is a synchronized global upturn. Things did not get better in Russia, however, and we think that country remains a short sale candidate. In other words, we are bullish on BIC not BRIC. Full Article
On Monday, the dollar finally rallied. A rising dollar is bad for equities, which is one reason the Dow was down 104 points. The greenback has been so badly kicked around that it really had no where to go but up. There has been so much gold-love and dollar bashing that someone had to call the cops on the monetary hoodlums. Full Article
After Goldman Sachs upgraded Wells Fargo and Capital One, the die was cast for a bank-led rally and the market obliged. The upgrade was the only catalyst on the day, but it was enough. Why? Because after Thursday’s sharp downdraft, traders became bearish and the short sellers became emboldened. That psychological condition provides sufficient fuel for a counter-trend bounce. Full Article
We had some continuation of the selling on Friday, but on declining volume. The Dow was down 46 points and is testing support at the August high. As we noted on Friday, however, a slightly deeper pullback would be normal at this stage of the game (see chart below). We also wrote, “We would not get overly bearish at this point.”
After all, markets don’t move in a straight line, they inhale and exhale, they zig and they zag, they advance and then they back and fill to consolidate gains and test support. So far, that normal process appears to be underway. Full Article
Dow 10,000 has been a target for us at TSR since early April, when the venerable index was 3,000 points lower. The good news is that after a benign FOMC meeting on Wednesday, Mr. Dow’s average rallied strongly and came within 82 points of our intermediate-term target. Pretty good forecasting, eh? Full Article
Observers such as legendary fund manager Mohamed El Erian believe that the financial crisis has precipitated a sea change that will take the West to a ‘new normal.’ That would be a problem. Meanwhile, however, Wall Street has returned to the Old Normal and is on track to reach record levels of compensation this year. On the anniversary of the collapse of Lehman Brothers, President Obama scolded The Street, but little is likely to change now that the government has underwritten an $18 trillion sub-prime mortgage to the financial establishment. Things could turn out badly in the end, which is why we recommend investing in companies with no debt, such as China Fire and Security (CFSG). We also like Bucyrus (BUCY), which has a P/E of 10 and makes coal mining equipment. Full Article
Anecdotally, the smart money is skeptical of this rally, which is all the more reason to embrace it while it lasts. Markets have a way of embarrassing smart people. Our oft-stated target is Dow 10,000 and we are just 400 points away now. We recommend staying for the finale, but that does not mean we are bulls for the long term.
The market rally is likely to confirm investment advisors and financial planners in their traditional belief that stocks always go up. We think that is a mistaken view and discuss the more practical updates to modern portfolio theory, which include tactical allocation models to alternative asset classes, market timing and just plain trading.
We appreciate a good turnaround story and think there is one in Research in Motion (RIMM), whose shares sold off last year due to fears that the company’s dominance in the corporate smartphone niche would be eroded. That appears highly unlikely. Instead, RIMM may be making inroads into the consumer market. Buy RIMM. Full Article
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