Good Time to Buy Stocks
by Sam Collins 11/05/09
Free Trading Guides
There were no surprises from the Fed meeting yesterday, and that met the expectations of most investors. Just after the announcement of no change in rates, the Dow Jones Industrial Average (DJI) was up more than 150 points. But the bottom fell out as selling in insurers and technology stocks took away most of the gain in the last hour of trading.
AIG (AIG) fell 7.7%, Genworth Financial (GNW) was down 7.4%, and Hartford Financial Services Group (HIG) fell 5.3%. All plunged for no apparent reason, but the sell-off had an impact on the Dow, which quickly shed more than 120 points.
Even though the results of the FOMC meeting were expected, there is still concern over future economic growth and the slide in the U.S. dollar, so investors sold stocks and bonds in order to buy gold and other hedges against a further dollar decline.
At the close, the Dow was up 30 points to 9,802, the S&P 500 (SPX) gained a point, closing at 1,047, and the Nasdaq (NASD) fell 2 points to 2,056.
The NYSE traded 1.3 billion shares with advancers just barely ahead of decliners. On the Nasdaq, 727 million shares were exchanged with almost the same, slightly lower breadth as the NYSE.
December crude oil rose 80 cents to $80.40 a barrel, and the Energy Select Sector SPDR (XLE) fell 5 cents to $56.27.
Gold for December delivery rose to an all-time high of $1,096.50 before closing at $1,087.30 an ounce, up $2.40. The PHLX Gold/Silver Index (XAU) rose $1.33 to $169.67. The metal moved high and gained momentum a day after the Bank of India bought 200 metric tons of gold from the International Monetary Fund.
What the Markets Are Saying
Despite the interest in the Fed's pronouncements and the lack of any policy changes, which is usually greeted positively by the market, stocks sold off in the final hour of trading. This illustrates the fact that it is becoming more difficult for the market to move higher even under conditions that are normally considered favorable.
Nonetheless, our internal indicators are now telling us that, at this level, stocks are still a good value.
Both the Dow and the S&P 500 have held above the nearest chart support and their momentum, Relative Strength Index (RSI) and stochastic indicators are flashing either "very oversold" or "buy," while the CBOE Volatility Index (VIX) has fallen from Friday's high, telling us that the pace of trading will probably slow down.
As pointed out several weeks ago, signs of buyer fatigue have been setting in, and so it is taking much longer for the indices to pop to new highs than earlier in the year.
Simply put, in April to June, stocks were so undervalued following the March capitulation that new highs were occurring almost daily. Now it may take weeks to plod back to the top and launch another attack on the big round numbers of Dow 10,000 and S&P 1,100.
Taking time to move ahead is not bad, just tedious, and it could work in the bulls' favor. A huge glut of liquid cash is still sitting in money market funds that will eventually be put to work, since one of the rules of economics is that money always seeks the best return. And as long as the current support levels don't give way, the "best return" favors common stocks.
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