Technicals:
The SPX is closing in on its March 24, 2000 all-time high of 1552.87. If the index can break convincingly above this mark and hold, a new bull market may be in the works. On the other hand, if the index fails to hold the new high, a double top could signal the beginning of a substantial correction.
The current bull rally is long in the tooth (56 months), but sideline money could enter the market in fears of missing out on the next big move.
Given the current economic conditions (slowing consumer spending, real estate, higher interest rates, geopolitical problems, high energy prices), we believe the prospects for a double top is possible.
Repeated calls to buy large mega cap stocks has propelled the DJIA to numerous new highs recently. Technically, we are in uncharted territory. While the index could make major headlines by reaching the 14,000 level, we believe the index would run into profit taking with a downside target of 12,700-13,200. If the index does not hold at 12,700, the next level of support would be around the 12,400 mark, with key support just below 12,000.
The NASDAQ has had an impressive run from the lows seen in 2002. The index has gained 1520 points to 2620 since 2002. While still in bear market territory, I am impressed by the NASDAQ's action.
Given that we are at the tail-end of the current economic cycle, I would be surprised if the NASDAQ could muster another large upside move. Longer term, I believe it is possible to break above the 3000 level.
Today's Market:
Home Depot (HD) is up this morning after announcing it will buyback more than 25% of it's stock. There is a good news bad news scenario here, the good news is the company will use the $10.3 billion from the sale of its supply business, and cash on hand to fund some of the buyback. The bad news is the company will use $12 billion in new debt to fund the remainder of the purchases.
On news that HD plans to take on an additional $12 billion of debt, Moody's and Standard & Poor's said they expect to cut Home Depot's debt rating. Fitch cut Home Depot's debt rating to "A-minus," with a negative outlook.
Is it me? Or, are they just robbing Peter so Paul can cash in his stock options? Let the selling begin!
The consumer continues to show weakness as Circuit City (CC) announced a $54 million dollar loss for the quarter, and withdrew guidance for 2008 . While CC is no bellweather, Best Buy (BBY) certainly is. Yesterday, BBY reported earnings that were well short of analysts estimates.
Hey, I have an idea. Why not issue debt and borrow money to buyback stock? Heck, everyone else is doing it!
