According to preliminary calculations, the Dow soared 331.01, or
2.55 percent, to 13,289.45, adding to the blue chip index's 215 point gain on Tuesday and giving the market's best known indicator its
largest two-day point gain in over 5 years. The markets are acting as if the credit or housing woes have all but disappeared.
But the stock market still has quite a ways to go before breathing easy after this year's crisis in mortgages and the global financial industry's tens of billions of dollars in debt-related losses. Unless the Dow makes further gains this week, November will be the index's worst month since September 2002.
And as recently as Monday, the S&P 500 index was in negative territory for the year."Everything we're seeing in the market is revolving about credit and encouragement that the Fed is going to bail us out again," said Alexander Paris, economist and market analyst for Chicago-based Barrington Research. "Investors are kind of ignoring the economic news like housing and durable orders that were all weaker than expected."
From Briefing.com:
"The three major averages ran to roughly the 38% retrace of the entire Oct/Nov decline at
13288 (closed at 13289) for the Dow, the 38% level and congest for the Nasdaq Comp at
2662/2667 (session high 2667 closed at 2662) with the retrace and 200 day ema for the S&P 500 at
1471/1472 (session high 1471.62)."
Interesting: Jim Cramer is drawing parallels tonight to 1990. Here are my notes from 11/7/07:
"Let's say, just for a moment, that we go into recession. Let's draw some comparisons to the "Late 1980s recession", a time between 1987 and 1991." "Furthermore, are there similarities between our current energy "crisis" to that of the bonafide energy crisis of the seventies and specifically 1973-1974, a time when the S&P was down 122 to 61(-50%) (Jan '73 to Sep '74). What was the relationship to oil prices in '73? Well, now oil is rocketing at $98 per barrel, the dollar is currently weak and terrorist attacks on a pipeline in Yemen are in the headlines. OPEC supplies about 40% of the globe's crude."
Citi pulled in a big investment in 1990 much like they did now. Based on that and recent price action the financials, especially those that have limited exposure to high risk credit, are likely forming a bottom.
My notes from 10/8/07: "Banks have been getting hit, everything's getting hit by the mortgage problem, but lower rates going forward will help to save these companies. So, to me, their valuations are looking pretty attractive."
These previous two paragraphs really argue two sides of the current debate: "Where do we go now?" I can argue that the market's surge hasn't changed anything. The credit worries are still out there. The housing crisis is still out there. Consumer confidence is worrisome. High oil is troublesome. Considering from whence the markets came they've a long way to go before they look healthy again.
Conversely, financials ordinarily lead a market recovery so if they've truly bottomed it could point to brighter days for the broad market. Further Fed cuts could bolster the market thus bolstering consumer confidence. This confidence may breed perceived wealth which coupled with lower interest/mortgage rates could help the housing market.
Today's volume was encouraging.
What to do, what to do? I will:
- Sit tight and watch it play out
- Still 34% cash
- Review current positions looking for potential break-outs & heavy volume
- Compile a short list of financials, notably regional banks
- Review my short list of companies to own long term
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