Sam Collins

The Waiting Game

by Sam Collins   11/13/08

It seems that whenever Treasury Secretary Hank Paulson speaks, the markets fall. But even before the secretary spoke Wednesday, stocks were already lower by about 150 points, and what he had to say in large part needed to be said.

The purpose of his talk to members of Congress was to lay out the Treasury Department's plan for the next stage of the financial-market rescue package. However, his previous plan to buy troubled mortgage assets has to be shelved -- which moves his attention to non-banks and consumer finance.

As we head to the holiday season, consumer confidence is waning and more retailers are adjusting their estimates lower.

Best Buy (BBY) is said to be facing the most difficult time in its history and has slashed its full-year 2009 estimate to $2.30- $2.90 from a previous forecast of $3.25-$3.40. Macy's (M) fell more than 11% on a smaller-than-expected Q3 loss; the stock's decline was based on Macy's estimate of a flat-to-lower sales forecast in 2009.

The financial sector performed poorly yesterday, falling 6.9%, and led the market lower. But all 10 of the economic sectors fell. American Express (AXP) lost more than 10% after a report that it is seeking $3.5 billion in funds under the government's plan to directly invest in financial firms.

Rep. Barney Frank (D-Mass.) is pushing hard to have the Treasury give some of the rescue plan's $700 billion to General Motors (GM), Ford (F) and Chrysler. But once again there was no response from the president.

At the close, the Dow Jones Industrial Average (DJI) was off 411 points to 8,283, the S&P 500 (SPX) fell 47 points to 852 and the Nasdaq (NASD) lost 82 points, closing at 1,499.

Volume was nearly 1.5 billion shares, with decliners ahead of advancers by almost 10-to-1. And on the Nasdaq, just under 933 million shares traded, with decliners ahead by 6-to-1.

Crude oil for December delivery fell $3.17 to $56.16 a barrel, and the Amex Energy SPDR (XLE) fell to $44.60, down $3.98.

The December gold contract also fell, closing at $718.30, down $14.50 per troy ounce. The PHLX Gold/Silver Index (XAU) fell $8.47 to $75.15.

What the Markets Are Saying

Wednesday, the major indices fell sharply and are now approaching the lows of Oct.10 and Oct. 24 for the third test of those lows. But even though momentum is still bearish, it has traced out higher highs and higher lows and that's bullish according to Standard & Poor's technical analyst, Mark Arbeter.

And the put/call ratio is at 105% (bullish), the short-term investment polls are bullish at 74%, Investor's Intelligence is bullish (42%), and the monetary indicators are bullish. The number of new lows has contracted sharply since Oct. 10 and Oct. 24 -- and that, too, indicates that prices are about to stabilize.

Volume is light. It usually builds prior to a breakdown and that's not happening. But some of our internal indicators are more neutral than oversold and that tells us that there may be more selling to come.

American Association of Individual Investor sentiment was reported this morning as 38.33% bullish and 42.50% bearish -- showing more public fear and indicating the likelihood that the market will hold at the October lows. But it is best to be reactive instead of predictive, since trying to anticipate a volatile stock market can lead to misjudgments and a series of losses.

We'll let the market tell us the direction and then take action.

Today's Trading Landscape

Earnings to be reported include: Agria Corp (GRO), Cascade Corp (CAE), Centerline Holdings Co (CHC), Commerce Energy Group (EGR), Compugen Ltd (CGEN), Copa Holdings Sa (CPA), Dr. Pepper Snapple Group (DPS), Elixir Gaming Technologies I (EGT), Euroseas Ltd (ESEA) and Evolution Petroleum Corp (EPM).

Fcstone Group (FCSX), Fortress Investment Group LI (FIG), Freeseas (FREE), Fushi Copperweld (FSIN), Global Ship Lease (GSL), Global Sources Ltd (GSOL), Henry Bros Electronics (HBE), Image Entertainment (DISK), Incredimail Ltd (MAIL), Interleukin Genetics (ILI) and Jazz Pharmaceuticals (JAZZ).

K12 (LRN), Key Technology (KTEC), Kulicke & Soffa Industries (KLIC), Lannet (LCI), Lanxess Ag (LXS), Lee Enterprises (LEE), Maximus (MMS), Mdrna (MRNA), Medassets (MDAS), Memory Pharmaceuticals Corp (MEMY), Microsemi Corp (MSCC), New Jersey Resources Corp (NJR), Nordstrom (JWN), Nutrition 21 (NXXI) and Nuveen Investments (NQM).

Pharmathene (PIP), Raser Technologies (RZ), Tegal Corp (TGAL), Tower Semiconductor Ltd (TSEM), U.S. Home Systems (USHS), Urban Outfitters (URBN), Wal-Mart Stores (WMT), Wgl Holdings (WGL) and Zoll Med Corp (ZOLL).

The following economic reports are due: initial jobless claims for the week of Nov. 4, September Trade Balance and the DJ-BTMU Business Barometer for Nov. 3.

Intel (INTC) slashed Q4 revenue estimate to $8.7 billion-$9.3 billion from a prior estimate of $10.36 billion. Wal-Mart Stores (WMT) reported Q3 of 80 cents versus the estimated 76 cents.

---

Get Sam Collins' Daily Trader's Alert e-mailed straight to your inbox each morning before the opening bell absolutely FREE!

In addition to getting instant access to his Daily Market Outlook, you'll also receive, in the same e-mail, his Trade of the Day so you can start your day off right by positioning yourself for profits!

Click here today to sign up today for Sam's FREE Daily Trader's Alert!

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.