Sam Collins

Awaiting the Election

by Sam Collins   11/03/08

U.S. stock markets closed higher for the second consecutive day on Friday, ignoring some of the worst economic news of the entire bear market.

The Commerce Department said that consumer spending in September registered the lowest drop in four years and a separate report showed U.S. consumer sentiment for October fell to 57.6 from 70.3 for a record decline.

The buying on the last two days of the month put the week up 11.3% -- its best performance since October 1974. But even so, the Dow (DJI) was down 14.1% in October, its worst month since August 1998. And the S&P 500 (SPX) dropped as much as 23.6% between its close of Friday, Oct. 3, to its intra-day low on Friday, Oct. 10.

The financial sector led the markets on Friday with two of the Dow's blue chips: JPMorgan Chase (JPM), up 9.7%, and Bank of America (BAC), up 6.1%. General Motors (GM) was the Dow's biggest loser, off 4.61%.

Improvements in lending rates and availability were said to be responsible for the gain. The overnight LIBOR rate, or the interest rate that banks charge each other, fell to 0.41% from 1.28% at the end of last week and from 6.88% in September. This shows improvement in term-lending rates and illustrates that the Fed's initiatives are beginning to have some impact. (Last Wednesday the FOMC voted to cut the Fed funds rate to 1% -- the lowest rate since 2004.)

At Friday's close, the Dow Jones Industrial Average (DJI) had gained 144 points to 9,325. The S&P 500 (SPX) closed at 969, up 15, and the Nasdaq (NASD) rose 22 to 1,721.

The New York Stock Exchange traded almost 1.6 billion shares with advancers ahead of decliners by 2-to-1. The Nasdaq traded 1.1 billion shares and breadth there was a positive 3-to-1.

For the week, the Dow gained 11.3%, the S&P was up 10.5% and the Nasdaq gained 10.9%.

Crude Oil for December delivery gained $1.85 to $67.81 a barrel, and the Amex Energy SPDR (XLE) rose $1.05 to $51.40.

The December gold contract fell $20.30 to $718.20 per troy ounce -- down 18% in October, its worst monthly performance since 1983. The PHLX Gold/Silver Index (XAU) lost $4.22 closing at $81.06.

What the Markets Are Saying

October has generally been a very bad month for stocks and last month was no exception, with the S&P 500 (SPX) falling from the high to low noted above as 23.6%. That drop in the S&P would qualify as a full bear market move in some past cycles.

But from the "glass-is-half-full" viewpoint, October has also made bear-market lows more frequently than any other month. Oct. 10, with its confidence-crushing thrust to new lows, looked a lot like a classic selling climax, but we won't know if that's the case until much later. And last week's rally was the best one-week percentage gain on record.

On Thursday I issued the first Trading Alert of this bear market in an attempt to focus the attention on what might turn into the first significant rally in this bear market. Sentiment, momentum, and the monetary indicators are all bullish, and our own Collins-Bollinger Reversal (CBR) internal chart indicator flashed a buy on Oct. 23 on the Dow (DJI) and the S&P 500 (SPX).

Friday closed with a healthy gain and widespread buying, and the indices came closer to breaking out of the current trading range by inching up to our breakout points Dow 9,300 and S&P 985. The Dow actually posted a high for Friday at 9,466 and closed at 9,336. But the S&P 500's high only made it to 984.

With just one day before Americans decide who will sit in the Oval Office, the markets may take a breather. But then again, the anticipation that one major bit of uncertainty will be resolved this week may bring in the volume needed to break through the overhead created since early last month. So, buy now and avoid the rush.

Today's Trading Landscape

Earnings to be reported: 21st Century Holding (TCHC), Administaff (ASF), Albany Int'l Corp (AIN), Alesco Financial (AFN), Allegheny Energy (AYE), Alvarion (ALVR), American Tower Corp (AMT), Anadarko Petroleum Corp (APC), Atlas Energy Resources (ATN), ATS Medical (ATSI), Automatic Data Processing (ADP) and AXT (AXTI).

Basic Energy Services (BAS), Belo (BLC), Comstock Resources (CRK), Cray (CRAY), Crystal River Capital (CRZ), DaVita (DVA), DUSA Pharmaceuticals (DUSA), EOG Resources (EOG), Extreme Networks (EXTR), Flagstone Reinsurance Holdings Ltd (FSR) and Forest Oil Corp (FST).

Genesee & Wyoming (GWR), GEO Group (GEO), Goodyear Tire & Rubber (GT), Graham (GHM), Health Care REIT (HCN), Health Fitness (FIT), Herbalife Ltd (HLF), Keithley Instruments (KEI), LeapFrog Enterprises (LF) and Lydall (LDL).

Magellan Midstream Holdings (MGG), Magellan Midstream Partners L.P. (MMP), MasterCard (MA), Meadowbrook Insurance (MIG), Mercury General (MCY), MFA Mortgage Investments (MFA), Mobile Mini (MINI), Mohawk Industries (MHK), MTS Medication Technologies (MTSI), NACCO Industries (NC), Nam Tai Electronics (NTE), NetSuite (N) and Nicor (GAS).

Orient-Express Hotels (OEH), Parallel Petroleum Corp (PLLL), Parkway Properties (PKY), Peapack-Gladstone Financial Corp (PGC), Pennsylvania Real Estate Investment Trust (PEI), Pepco Holdings (POM), Philippine Long Distance Telephone Co (PHI), Pitney Bowes (PBI), PMI Group (PMI), Post Properties (PPS), Principal Financial Group (PFG), ProAssurance Corp (PRA) and Protective Life Corp (PL).

Regal-Beloit Corp (RBC), RG Barry Corp (DFZ), Rock-Tenn Co (RKT), Rockwell Collins (COL), Santarus (SNTS), Sierra Pacific Resources (SRP), Silver Wheaton Corp (SLW), Simon Property Group (SPG), St. Mary Land & Exploration (SM), Stifel Financial (SF), Sun Hydraulics (SNHY), SWS Group (SWS) and SYSCO Corp (SYY).

Taleo Corp (TLEO), TNS (TNS), Transportadora de Gas del Sur S.A. (TGS), TreeHouse Foods (THS), Trident Microsystems (TRID), UDR (UDR) and Viacom (VIA).

The following economic reports are due today: September Construction Spending (the consensus expects negative 0.7%) and October Institute for Supply Management (ISM) Manufacturing Business Index (the consensus expects 41.5).

The European Commission said that the euro-zone economy is now in recession and will remain at a standstill for most of next year.

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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.