In sign of strength, S&P 500 breaks past 1,000 as Wall Street rally blows into August

August 3, 2009

By Sara Lepro and Tim Paradis, AP Business Writers
Monday August 3, 2009, 6:02 pm EDT

NEW YORK (AP) — The Standard & Poor’s 500 index (SPX) is four digits again now that the stock market’s rally has blown into August.

The widely followed stock market measure broke above 1,000 on Monday for the first time in nine months as reports on manufacturing, construction and banking sent investors more signals that the economy is gathering strength. The S&P is used as a benchmark by professional investors, and it’s also the foundation for mutual funds in many individual 401(k) accounts.

Wall Street’s big indexes all rose more than 1 percent, including the Dow Jones industrial average (INDU), which climbed 115 points.

The market extended its summer rally on the type of news that might have seemed unthinkable when stocks cratered to 12-year lows in early March. A trade group predicted U.S. manufacturing activity will grow next month, the government said construction spending rose in June and Ford Motor Co. (F) said its sales rose last month for the first time in nearly two years.

“The market is beginning to smell economic recovery,” said Howard Ward, portfolio manager of GAMCO Growth Fund. “It may be too early to declare victory, but we are well on our way.”

The day’s reports were the latest indications that the recession that began in December 2007 could be retreating. Better corporate earnings reports and economic data propelled the Dow Jones industrial average 725 points in July to its best month in nearly seven years and restarted spring rally that had stalled in June.

On Monday, a report from the Institute for Supply Management, a trade group of purchasing executives, signaled U.S. manufacturing activity should increase next month for the first time since January 2008 as industrial companies restock shelves. Also, the Commerce Department said construction spending rose rather than fell in June as analysts had expected. The reports and rising commodity prices lifted energy and material stocks.

Ford said sales of light vehicles rose 1.6 percent in July. Other major automakers said they saw signs of stability in sales. Investors predicted that the government’s popular cash for clunkers program would boost overall auto sales to their highest level of the year.

Read the rest of this entry »


Still overbought, but over first resistance also

May 5, 2009

Another update finds the market shaking off initial profit taking to challenge the highs for the year. Monday’s big push finally left the late January, early February highs behind for the S&P 500 (SPX) after about two weeks of backing and filling to make room for the exit of early profit takers. Volume for this stage of the rally has not been impressive, declining since the large profit taking day in the third week of April. What is impressive, is new buyers have stepped up to continue to push prices higher. Fear of “missing the bottom” is setting in and chasing the rally at this point remains dangerous.

spx050509

The NASDAQ has been leading the charge, already surpassing the highs for the year to challenge the early November 2008 highs and the 200 day simple moving average. Up more than 39% in less than two months is a remarkable move and building on that through the seasonally weak summer session is going to be difficult. Up days are beating down days by more than 2 to 1 since the bottom, but the pace of gains is decelerating. Volume has remained relatively solid and this change in market leadership posture is notable. Investors have clearly decided to favor more aggressive stocks in this recovery, with the small and mid caps also showing relative strength.

comp050509

It’s time to break out a chart we were saving for later, as the comparison may be valid already. This is a chart of the bottom formed in the SPX during 2002-2003, after the tech bust. While the bottom itself formed an inverse head and shoulders pattern (which we expect this time also), the recovery from the right shoulder is what really interests us here. Since the drop was not as violent and much more time was worked off with the head and shoulders bottom, the moving averages were not as far above the low prices and were overtaken sooner as a result. But look at the trend that steadily moved up from March to June, before flattening out for the summer, then racing higher again into 2004. It was less than a 30% gain for the first leg up in 2003 from the March low; it’s already 36% for the SPX from the bottom in March this year. While the low was much lower this time, the highs and resistance levels from both years are almost identical. In 2003, the SPX overtook the early January highs around 930 in early May. After a quick, steep drop below 920 to test the breakout, it was off to the races for another straight month, rising over 10% before the June highs. Then it was one test of the inverse head and shoulders neckline in early August at 960 before moving over 1150 by early 2004. This year, the early January highs are in the area of 944 and the SPX is again challenging them in early May. A breakout here followed by a retest of the 920 level could again produce a similar result. The only problem is finishing the inverse head and shoulders bottom, which should happen somewhere around the end of June time wise to produce a symmetrical pattern. At this point, it looks like the January highs need to hold as resistance to keep the inverse head and shoulders pattern in play. This is also the approximate level of the 200 day moving average currently and the 200 day stopped the SPX multiple times from 2001-2002, plus twice early in 2003. The first test early in 2003 led to the formation of the right shoulder in the bottoming pattern and the second test required a test of the 50 day moving average as support before breaking out and leaving the 200 day well behind. Either of those would be a welcomed event for this market to burn off some overbought conditions and excess euphoria. With the VIX at the lowest levels in seven months, purchasing some protection via puts is probably a good idea. We continue to hold and look to add to our position in the ProShares Short S&P 500 ETF (SH) which is about 5% under water now from our first entry. Select longs continue to beat the market averages by a wide margin.

spx20022003bottom


A Generational Opportunity

March 17, 2009

by Jim O’Shaughnessy
Tuesday, March 17, 2009

“The Chinese use two brush strokes to write the word ‘crisis.’ One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger – but recognize the opportunity.” -John F. Kennedy

I recently had dinner with a client who told me that stocks had not performed well over the last 40 years. At first I suspected that she was generalizing from the recent pummeling equity markets have experienced — after all, this is a time frame that included two of the biggest bull markets in history! Yet, when I went to the data, I found out that she was absolutely right. The 40 years ending February 2009 were the second worst 40-year period for equities since 1900, with only the 40 years ending December 1941 doing worse!

Let’s put this into perspective. The 40 years ending in 1941 included the stock market panic of 1907, which drove down the Dow Jones Industrial Average nearly 38 percent; the World War I Era, where the period between 1910 and 1919 was one of the worst ever for stocks; AND, oh yes, the Great Depression. Finally, icing on the 40-year cake, the Japanese bombed Pearl Harbor on December 7, 1941. How could these last 40 years even begin to match that? Alas, they did.

40-year-real-returns1The chart on the left is a histogram of the average annual real returns for U.S. equities (large stocks) for all 40-year holding periods, with annual data starting in 1900 and monthly data beginning in 1926. There were only three 40-year periods where U.S. stocks returned less than four percent annually — the 40 years ending December 1941, where they earned a real rate of return of 3.80 percent annually for the previous 40 years; the 40 years ending February 2009 where they earned 3.86 percent annually; and the 40 years ending December 1942, where stocks returned 3.92 percent a year. Keep in mind that’s just 0.55 percent of the 545 periods analyzed. We are talking about an event so rare, that most of us alive today will never see such an opportunity again.

The histogram also shows the norm — stocks returned between 6 and 8 percent a year for 353 periods, or nearly 65 percent of all of the 40-year periods analyzed. Looked at closely, you see that 99.45 percent of all  observed 40-year periods, U.S. stocks enjoyed a real rate of return between 4 and 12 percent a year, and that we are now presented with a huge generational opportunity.

Reversion to the Mean: Short, Medium and Long Term

Let’s look at what happened with U.S. stocks the first time they earned less than 4 percent a year for a 40-year period. For the five-, ten-, and twenty-year periods following the nadir reached in 1941, here are the real average annual compound returns for a variety of U.S. stock categories:

Read the rest of this entry »


Hope and Dreams Portfolio

November 21, 2008

The stocks in this group fall under the green/conservation/water umbrella. They are generally solving problems by doing good for society. Oh, and they make some money in the process.

Think positive and your dollars will respond in kind.

AMSC – supplies electrical systems used in wind turbines; sells power electronic products that regulate wind farm voltage to enable their interconnection to the power grid; licenses wind energy system designs to manufacturers of such systems, and provides consulting services to the wind industry.

BMI – is a manufacturer of flow measurement and control products, serving water utilities, municipalities and industrial customers worldwide. Measuring a variety of liquids, from potable water to oil and lubricants, to industrial processes, the Company’s products provide timely measurement information to its customers.

CCC – is a provider of products, and solutions for purifying water and air.

CDZI – is primarily engaged in acquiring and developing land and water resources. Its primary assets consist of 45,000 acres of land in three areas of eastern San Bernardino County, California. The Company’s portfolio of water resources are located in proximity to the Colorado River and the Colorado River Aqueduct, the principal source of imported water for Southern California, and provides the Company with the opportunity to participate in a variety of water storage and supply programs, exchanges and conservation programs with public agencies and other partners.

CLHB – is a provider of environmental services and an operator of non-nuclear hazardous waste treatment facilities in North America. The Company performs environmental services for over 45,000 customers, including more than 325 Fortune 500 companies.

CREE – focuses its expertise in SiC and GaN on light emitting diodes (LEDs), which consist of LED chips, LED components and LED lighting solutions. It also develops power and radio frequency (RF) products, including power switching and RF devices.

CWCO – develops and operates seawater desalination plants and water distribution systems in areas where naturally occurring supplies of potable water are scarce or nonexistent.

ELON – develops, markets, and sells system and network infrastructure products that enable various devices such as air conditioners, appliances, electricity meters, light switches, thermostats, and valves to be made smart and inter-connected. The Company’s products and services are offered to the principal markets, which include electric utilities, building automation, industrial automation, demand response, street lighting, home control and transportation.

FSYS – designs, manufactures and supplies alternative fuel components and systems for use in the transportation, industrial and power generation industries on a global basis.

FTEK – is an integrated company that uses a suite of technologies to provide boiler optimization, efficiency improvement and air pollution reduction and control solutions to utility and industrial customers worldwide. Fuel Tech’s special focus is the worldwide marketing of its nitrogen oxide (NOx) reduction and FUEL CHEM processes.

GRC – designs, manufactures and sells pumps and related equipment (pump and motor controls) for use in water, wastewater, construction, industrial, petroleum, original equipment, agriculture, fire protection, heating, ventilating and air conditioning (HVAC), military and other liquid-handling applications.

HAIN – is engaged in manufacturing, marketing, distributing and selling natural and organic food products, and natural and organic personal care products under brand names, which are sold as better-for-you products.

HEV – has developed a working prototype of its hybrid electric vehicle (HEV) battery pack and is producing sample cells for testing for an electric vehicle (EV) battery pack.

ITRI
– provides a portfolio of products and services to utilities for the energy and water markets throughout the world. The Company is a provider of metering, data collection and software.

LNN – is a designer and manufacturer of self-propelled center pivot and lateral move irrigation systems, which are used in the agricultural industry to stabilize crop production while conserving water, energy, and labor.

PNR
– is a global player in providing products and systems used worldwide in the movement, storage, treatment and enjoyment of water.

SWWC
– is engaged in providing a range of services, including water production, treatment and distribution; wastewater collection and treatment; utility operations and maintenance services; and utility infrastructure construction.

TTEK – provides consulting, engineering, construction, and technical services for resource management and infrastructure in the United States and internationally. Its services include research and development, applied science and technology, engineering design, program management, construction management, construction, and operations and maintenance.

WGOV – engages in the design and manufacture of energy control and optimization solutions for reciprocating engine, aircraft and industrial turbines, and electrical power system equipment used in various industries worldwide. The company primarily provides integrated control systems and control components, such as electronics, actuators, valves, fuel systems, and combustion systems to OEMs of gas turbines for use in aerospace and industrial power markets; to OEMs of diesel engines, gas engines, steam turbines, and distributors for use in power generation, marine, transportation, and process applications; and to OEMs of electrical power generation, distribution, conversion, and quality equipment using digital controls and inverter technologies.

WTS
– is a supplier of products for use in the water quality, water safety, water flow control and water conservation markets.


Stocks tumble as bailout plan fails in House

September 29, 2008

Monday September 29, 5:05 pm ET
By Tim Paradis, AP Business Writer

Stocks plunge as financial bailout plan fails in House vote; Dow fall 777, biggest drop ever

NEW YORK (AP) — Wall Street’s worst fears came to pass Monday, when the government’s financial bailout plan failed in Congress and stocks plunged precipitously — hurtling the Dow Jones Industrials (INDU) down nearly 780 points in their largest one-day point drop ever. Credit markets, whose turmoil helped feed the stock market’s angst, froze up further amid the growing belief that the country is headed into a spreading credit and economic crisis.

Stunned traders on the floor of the New York Stock Exchange, their faces tense and mouths agape, watched on TV screens as the House voted down the plan in mid-afternoon, and as they saw stock prices tumbling on their monitors. Activity on the floor became frenetic as the “sell” orders blew in.

The Dow told the story of the market’s despair. The blue chip index, dropped by hundreds of points in a matter of moments, and by the end of the day had passed by far its previous record for a one-day drop, 684.81, set in the first trading day after the Sept. 11, 2001, terror attacks.

The selling was so intense that just 162 stocks rose on the NYSE — and 3,073 dropped.

It takes an incredible amount of fear to set off such an intense reaction on Wall Street, and the worry now is that with the $700 billion plan fate uncertain, no one knows how the financial sector hobbled by hundreds of billions of dollars in bad mortgage bets will recover. While investors didn’t believe that the plan was a panacea, and understood that it would take months for its effects to be felt, most market watchers believed it was a start toward setting the economy right after a credit crisis that began more than a year ago and that has spread overseas.

“Clearly something needs to be done, and the market dropping 400 points in 10 minutes is telling you that,” said Chris Johnson president of Johnson Research Group. “This isn’t a market for the timid.”

The plan’s defeat came amid more reminders of how troubled the nation’s financial system is — before trading began came word that Wachovia Corp. (WB), one of the biggest banks to struggle due to rising mortgage losses, was being rescued in a buyout by Citigroup Inc (C). It followed the recent forced sale of Merrill Lynch & Co. (MER) and the failure of three other huge banking companies — Bear Stearns Cos. (BSC), Washington Mutual Inc. (WM) and Lehman Brothers Holdings Inc. (LEH); all of them were felled by bad mortgage investments.

Read the rest of this entry »


Leaders starting to crack

September 5, 2008

Large technology stocks in the QQQQ (PowerShares NASDAQ 100 Index ETF) had an awful day on the largest volume since bottoming in mid July.  All of the short term indicators are on sell signals and the relative strength against the S&P 500 is in danger of turning down.  If support at the July lows fails, a move back to the March lows is almost guaranteed and there is a significant chance they will not hold either.  These stocks are already oversold so a bounce from support is possible, but the heavy selling we have seen since returning from the holiday does not bode well for the worst month of the year.  Losing support from the leading sectors of tech and small caps would suggest the bear market has more room to go on the downside.  The NYSE Composite Index (NYA) found new lows today and is the first major index to do so.  The action in the techs and small caps will go a long way in deciding if the other major averages are to follow the lead of the NYA.

The small caps as represented by the IWM (iShares Russell 2000 Index Fund ETF) are holding up a little better.  This is more than likely a result of the strong dollar, but we have to consider this a small positive for the moment.  After failing at the June highs in early August, IWM pulled back and tested first support in the 71-72 area.  After a second attempt to rally fell short on low volume, we have returned to the 71-72 level again.  Volume has been lower in distribution than that of the rally off of the July lows, and both the 50 and 200 day moving averages have provided support so far.  Relative strength against the S&P 500 has also been maintained unlike the big techs above.  The negative divergence signaled by the MACD histogram in our last note did in fact foreshadow weakness at the old highs and this indicator has yet to change.  In addition, the MACD itself has followed the histogram by producing a sell signal of its own.

These ETFs must strengthen soon to keep their leadership status intact.  Without their help and guidance, the market as a whole could be in for another bloody September/October.


Lemons into Lemonade

September 5, 2008

These are about the only things we could find trading up over the last few days.

Many look primed for more gains as we enter the weakest month of the year with many sectors looking to have failed at key resistance.


%d bloggers like this: