We have said in the past that the stock market's "Grand Finale" would end with a blow-off top. How far will the market go before it exhausts itself can only be determined by the degree of excessive bullishness.
What we are currently witnessing is a combination of short covering and some panic buying by institutions were heavily in cash, and now are afraid of underperforming their benchmark marks.
In times like these we need to keep our eye on the realities, and ignore the distorted enthusiasm of the media. Remember, the media痴 job is to attract eyeballs, and they only way to do this is to sensationalize something. In this case, they are sensationalizing the Dow's recent all time highs.
Here are the issues that remain a concern;
1) Insiders are selling, not buying. The issue of backdating stock options aside, we are seeing no insider buying activity worth noting. In the big Dow 30 stocks, and the largest cap S&P 500 companies, we have seen virtually no buying in the big cap names.
Let痴 discuss the backdating of stock options. Investigations are currently taking place at more than 120 companies. How many more are out there that we do not know about?
I have mentioned in the past that stock options are nothing more than the blatant pick pocketing of the average investor. Not only do these corporate insiders want to get rich through options, now they want to re-price their options at lower prices should their stock values fall. We first heard about these backdating practices after the NASDAQ got crushed during the 2000-2002 market declines.
In recent weeks we have seen insider selling among two highly touted technology companies; Cisco (CSCO) and Oracle (ORCL).
While the Wall Street Gang continues to push these stocks, corporate insiders are running for the exits. Take Oracle as an example;
ORACLE
GIACOLETTO SERGIO (Executive Vice President) S 400,000 @18.00= shs remaining 2,422 WILLIAMS DEREK (Executive Vice President) S 1,650,000 @17.66= shs remaining 40,796
CATZ SAFRA (President and CFO) S 200,000 @17.86= shs remaining 6,224
KEMP JACK F (Director) S112,500@18.01= shs remaining 5,000
COOPERMAN DANIEL (SVP, Gen. Counsel & Secretary) S100,000@18.01= shs remaining 10,817
Rottler Juergen (EVP - Oracle On Demand) S 200,000@18.02 = shs remaining 3,128
ROZWAT CHARLES (Executive Vice President) S 400,000@18.00= shs remaining 27,848
MINTON JENNIFER (SVP Finance & Operations) S 1,072,375@17.79 = shs remaining18,231
In the case of Oracle, these insiders sold a huge percentage of their holdings. If everything with Oracle is so positive, why are the insiders coming out of the woodwork to sell?
FED POISED TO RAISE INTEREST RATES ?
In recent days we have heard comments from the minutes of the Fed's September 20th meeting. The minutes revealed that Fed officials said that they saw a "substantial risk'' that inflation won't ease as they predict.
As reported by Bloomberg, "On Oct. 4, traders saw an 82 percent chance the Fed would cut its benchmark lending rate by a quarter-point at or before the March 20-21 meeting. Yesterday, it fell to 18 percent. By the same token, expectations for a cut at or before the Jan. 30-31 gathering stood at 36 percent on Oct. 4; yesterday they slipped to 6 percent."
Since the Fed does not want to be accused as being political, or altering the outcome of the November elections, I doubt that the Fed will take any action after its October 24-25 meeting.
So, is the market rallying now because they have a window of opportunity knowing the Fed will probably do nothing despite the evidence they have? Probably so.
WILL LOWER OIL PRICES SPARK THE CONSUMER ?
After being in the dog house for most of the summer, the retail sector has been the top performing sector. My best guess is the rally in retail will turn out to be the best trade of the year. As the economy begins to slow (because of further rate hikes or a rebound in energy prices), investors will take some quick profits, and the retail sector will re-visit its summer lows.
