Sam Collins

A Seasonal Shift for the Market

by Sam Collins   11/11/08

News of China's economic stimulus plan was greeted with enthusiasm Monday, causing U.S. markets to open strong. And in corporate news, AIG received an amended bailout package for $150 billion, up from $123 billion, and that brought in buyers to the opening, too.

But, despite the good news, the markets faced other problems that clouded the future enough to send stocks lower for the rest of the day. General Motors (GM) fell 22.9% after Deutsche Bank (DB) rated the big auto maker's shares "worthless" -- it said that unless GM received government help it would probably run out of cash before the end of the year.

Circuit City (CC) also fell 60% after filing for Chapter 11 bankruptcy protection.

Even though stocks traded lower for much of the day, good news from other areas provided enough stability to keep the selling in check. Alcoa (AA) jumped on the hope of new orders from China, and McDonald's Corp. (MCD) reported another month of growth in all its global markets, and the stock responded by rising 1.8%.

Financial stocks were hard hit, led by American Capital Ltd. (ACAS), down 42.3% after it suspended its dividend and reported a Q3 loss. JPMorgan fell 3.55% and the respected Wall Street former investment banker, Goldman Sachs (GS), fell 6.57%, a five-year low, as other bankers cut Q4 earnings estimates because of its high exposure to the equity markets.

At the close, the Dow Jones Industrial Average (DJI) was off 73 points at 8,871, the S&P 500 (SPX) fell 12 points to 919 and the Nasdaq (NASD) fell 31 points closing at 1,617.

Volume on the New York Stock Exchange was just 1.1 billion shares, and the Nasdaq (NASD) traded 707 million shares. On both exchanges, breadth was a negative 2-to-1.

The December crude oil contract was up $1.37 to $62.41 a barrel, and the Amex Energy SPDR (XLE) gained 17 cents to close at $50.02.

Gold for December delivery climbed $12.30 to $746.50, and the PHLX Gold/Silver Index (XAU) closed at $89.08, up $3.92.

What the Markets Are Saying

Monday's low volume was due to an early closing of the bond market in advance of Veteran's Day, and the remembrance will continue today with similar low volume.

Our internal indicators -- chiefly the Moving Average Convergence/Divergence (MACD), momentum and stochastic -- are now "high neutral" and coming down from "overbought." And the sentiment indicators are negative, which is bullish, though they are not nearly as negative as they were in late October.

From every perspective, it appears that prices are stuck in the trading ranges of Dow 8,175-9,625 and S&P 500 840-1,005, with immediate support at 8,680 and 905, respectively.

But the technical indicators are becoming more positive. Investors Intelligence (II) noted that, "Although last week was slow in terms of climaxes with only 10 buying and 44 selling, that was in contrast to the week before with 1,454 stocks falling to 12-month lows, but then closing higher for the five-day period."

This is a major indicator for Investors Intelligence, and along with that II sees very bullish readings from their sentiment indicators as well as heavy buying by corporate insiders.

This is not to say that we have absolutely made a bottom, but we should be more attuned to the possibility that the Oct. 10 low could turn out to be the southernmost point of the bear market. Also note that the period of Nov. 1 to April 30, has historically been the best time to invest in the Dow Jones Industrials (DJI), producing a huge advantage over the May-to-October time frame.

Just when it looks like all is lost is usually the best time to own stocks.

Today's Trading Landscape

Earnings to be reported include: American Bio Medica (ABMC), AmeriGas Partners (APU), ATA (ATAI), Atmos Energy Corp (ATO), Bob Evans Farms (BOBE), Brooks Automation (BRKS), Cascal N.V. (HOO), Comverge (COMV) and DGSE Companies (DGC).

Energy Recovery (ERII), EnergySolutions (ES), GNC Corp (GNC), Liz Claiborne (LIZ), NBTY (NTY), Oceanfreight (OCNF), Phoenix Footwear Group (PXG), Procera Networks (PKT), Qiagen N.V. (QGEN), Qualstar Corp (QBAK), Ralcorp Holdings (RAH) and Russ Berrie (RUS).

Semitool (SMTL), Spectrum Brands (SPC), Supreme Industries (STS), The TJX Companies (TJX), Tyco Int'l (TYC), UGI (UGI), Universal Power Group (UPG), Vector Group Ltd (VGR) and Vodafone Group PLC (VOD).

Economic reports due: International Council of Shopping Centers (ICSC) Chain Store Sales Index for Nov. 8, Redbook Retail Sales Index for Nov. 8, and ABC/Washington Post Consumer Confidence for Nov. 8.

The bond markets are closed in observance of Veterans Day.

Vodafone (VOD) cut its sales outlook but the stock is up sharply in Europe. Toll Bros.' (TOL) Q4 revenues fell 41%. Asian stocks are down sharply this morning.

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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.