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May 16, 2008
Thoughts On The Market's Rally
This rally has been really impressive. The S&P 500 is off less than 3% this year as of Thursday's close, hardly a blip considering all the angst earlier this year and late last year. I think the largest reason for the rally has been that earnings have exceeded expectations. According to Ned Davis Research, the median gain in 1Q08 earnings for the 90% of the S&P 500 that has reported is 9.1%. It is true that overall earnings growth is negative, down more than 15% in fact. However, NDR tells me that according to Zachs Investment Research, financial sector earnings are off 80%. Thus, the median figure is a far better indicator of the health of corporate earnings in 1Q. Add in the facts that guidance has been decent, expectations for 1Q and the rest they year had been low, and the economic statistics while soft have generally indicated stronger than expected growth and you got the ingredients for this nice rally. Will it last? Will the rally push higher, above the recent top end of the trading range? I'm not sure but if it does, I don’t think it will be by much. I don’t see catalysts now that earnings are done and I think the bears will press if given the opportunity.
Posted by Steve Birenberg at May 16, 2008 10:01 AM in Stock Market
IN THE NY TIMES,MARK HULBERT INDICATES THAT SOME IMPORTANT TECHNICAL MARKERS SUGGEST THE MARKET IS HEADED UP.SOME OTHER TECHNICIAN'S ALSO SAY MARKERS SUGGEST A CONTINUED UPSWING .A "V" BOTTOM WOULD BE VERY UNUSUAL.ONE WOULD SUSPECT THAT HIGH BETA MEDIA STOCKS LIKE MICC,CETV ETC.WOULD STABILIZE,RETEST THE LOW BEFORE CONTINUING TO GO UP.ONE'S TENDENCY IS TO FEEL WE ARE NOT YET OUT OF THE BEAR MARKETS.
WHAT ARE YOUR THOUGHTS IN THIS REGARD?
Certainly the market is acting well and has broken through the top end of the trading range. Technicians would say this means we head higher. With everyone expecting a pullback it suggests there is cash on the sidelines which also provides up ward fuel. That said, I think the market could downward quickly and that there is little news flow likely to support it if it does start to pullback. I still think it will be difficult to make much significant upward progress until late fall at the earliest.
Posted by: Steve at May 19, 2008 09:26 AMYESTERDAY,THERE WAS A SUDDEN DROP IN STOCK PRICES AT THE 200DAY MVA ASSOCIATED WITH A RISE IN THE VIX.I'M AFRAID THAT THE TRADERS HAVE MOVED BACK IN AND THAT THE INTERMEDIATE RALLY MAY BE OVER.THE AGGRESSIVENESS OF THE TRADERS AND SHORT SELLERS MAY ONCE PREVENT THE RECOVERY FROM TAKING HOLD.I GUESS WE WILL FIND OUT OVER THE REMAINDER OF THE WEEK.MICC HAS REPEATEDLY TOPPED OUT AT 120 OR SO.CETV HAS REMAINED AT 100,WELL BELOW ITS TRUE VALUE.THE MARKET IS VERY FRUSTRATING TO LONG TERM INVESTORS-BUT SEEMS TO BE PERFECT FOR OPTION TRADERS ETC.
Posted by: mp at May 20, 2008 07:32 AMI would not argue with you on any of these points. Action such as yesterday's quick drop off a breakout move does have a tendency to mark a turning point. That said, I don't think is straight down from here. Lots of folks missed this rally and there remains lots of cash on the sidelines so I think buyers will be attracted by initial dips.
Posted by: Steve at May 20, 2008 07:47 AM