The stock market is being supported by bottom fishing, as well as a more muted response to bad news. This is encouraging, and tells me that institutional money is getting interested again. Keep in mind they are dollar cost averaging in as the DJIA now sits 1880 points below its 52 week high.
On Thursday, San Francisco Federal Reserve President Janet Yellen said recession can't be ruled out, but by the end of the day the major market indexes managed to close higher. This tells me that once the Fed is finished lowering rates, recession fears will be fully discounted by the stock market. Bargain hunters are getting an early start which is a good idea if you can take a little volatility.
DJIA: 12,247.00, up 46.90
S&P 500: 1,336.91, up 10.46
NASDAQ Composite: 2,293.00, up 14.30
Since we are down over 1800 points from the highs, my worst case scenario on the downside is another 1600-1800 points. I don't know if we will get to 10,600 on the DJIA, so I am sticking to my plan to dollar cost average in at these levels;
10%= DJIA 12,749
15%= DJIA 12,041
20%= DJIA 11,332
25%= DJIA 10,624
Another example of stock accumulation on bad news was Cisco (CSCO) and Macy's (M).
Cisco (CSCO) forecast lower-than-expected sales, sold-off to a low of $21.79 intraday, and closed down only 40 cents to 22.71. This morning it opened at $23.26.
Macy's (M) said, "that January same-store sales dropped 7.1 percent, cut its fourth-quarter profit forecast and said it will eliminate 2,300 jobs," and the stock closed higher on the day.
Bucking the profit trend were JC Penney and Gap which both announced that profits will beat analysts estimates. In short, the Retailing Index had a good day on mixed profit news.
While I don't believe we are in a sustainable uptrend, there are examples of stock accumulation taking place. We need to keep in mind that U.S. consumer borrowing rose by a smaller amount in December as both credit card and consumer loan growth slowed sharply.
On the Energy front, Crude is trading up after four oil ministry officials from OPEC said they would trim output if prices slip to $80/bbl.
In order to truly get a grasp on where the markets are going, we must unfortunately mention some things that make people angry. One of those things is politics.
I really hate to mention this controversial subject, because if there is one area where a person holds deep seeded beliefs and bias, its politics. In order to be a successful trader or investor, one must remain totally apolitical.
I use to hold deep seeded political beliefs until I got very close to a political campaign that produced a popular politician.
I saw firsthand how big money bought influence into the decisions and actions of politicians. This solidified my belief that many politicians are bought and paid for. This money is used to buy ads to sway the "little peoples" vote, but also insures that all of the benefits go to the bosses who back them.
From the lowest rung on the ladder all the way to the top, politicians are owned by someone. This being said, when it comes to my money, I put all politics aside. The outlook for the Presidential election will have a meaningful impact on certain sectors of the market, as will the outcome.
In the long run the interest rate cuts and tax rebates will give a psychological boost to the economy. But in the short run, it looks like a desperate measure.
Years ago, a wise investor told me;
"When the Republican’s takeover, buy Oil and Defense stocks. When the Democrats takeover, buy Technology stocks, and short the Drug stocks."
Case in point;
When Bill Clinton took office, if you had bought Technology, and shorted the Drug stocks, you would have made a fortune.
When George Bush took office, if you had bought Oil and Defense stocks, you would have made a fortune.
Unless things change dramatically, I think this advice will be well suited in the years ahead.
PS- I don't have any idea how these ads at the bottom of the page are making their way onto my website. Someone is slipping them in without my permission, and without paying for them. I will check into it.
