THE FINAL NUMBERS
NEWS: The Dow closed the session with a gain of 108 points or 0.9%. The S&P 500 also rallied to the tune of 13 points or 1.0%. The NASDAQ was the big winner, gaining 44 points or 1.9% on the day. The small-cap stocks, which rallied over 3% yesterday, struggled to a loss of 0.1% today.
THE BOTTOMLINE: The market was able to rally on continued buying pressure that hung around from yesterday and a number of bullish headlines adding to the optimism. Typically after a capitulation bottom, as we had yesterday, there is a day or two of follow through on the buy side. After the capitulation bottom on 8/16/07, the NASDAQ rallied 4 consecutive days and added over 100 points. I am looking for similar action in the coming days, HOWEVER the one major difference is the timing. We are now in the heart of earnings season and one or two negative reports could send this market lower very quickly. The best strategy is to remain calm and use the rally to help send the stocks and ETFs you own higher and if you need to fine-tune the portfolio, selling into strength is the move. I believe patience into next week will pay off in the long-term.
Many investors that were freaking out 2 days ago and wanted to sell everything are now freaking out because they must get into stocks for a bounce. If you fall into this category, it is time for you to either get out of the stock market find someone to help you with your portfolio. With that type of emotional instability in regards to the stock market, there is no way you will be a successful long-term investor – PERIOD! I hate to sound so harsh, but I would rather be truthful than have you lose the money you worked so hard for.
TECHNICALS - DOUBLE BOTTOM PATTERN SPARKS A RALLY
LET’S TRY THIS AGAIN; I FORGOT TO INSERT THE CHART YESTERDAY.
NEWS: A number of major support levels have been taken out during the 2008 sell-off. That being said, the Dow was able to hold a major support area today. The 2-day chart below of the Dow shows how the index broke the support area near 12,000 before rallying to close at 12,270 today. The long tail on the most recent candle is similar to the one from mid-August where we also had a capitulation bottom.
JOB NUMBERS QUIET THE RECESSION CHATTER
NEWS: First-time jobless claims fell 1,000 this week, its fourth consecutive week of declines. More impressive was the 4-week average, which fell by 15,000 to 314,750, the lowest reading in 15 weeks. The numbers are below the analysts expectations.
THE BOTTOMLINE: As the bears take every piece of data and put a negative spin on it to make a case for their recession argument, the one argument they struggle with is employment. It is rare to have a recession underway, as many believe, when the unemployment rate is at 5% and the weekly numbers are at the best level in 4 months. There were some good earnings reports today and the economic stimulus package could be considered bullish. However, the weekly employment number before the opening bell helped send the future higher, which led to a solid open.
THE ETF BULLETIN – DAILY REPORT
THE NEWS: The spike in the price of gold above $910/ounce helped many of the mining ETFs rally today. The leaders included the Market Vectors Gold Miners ETF (symbol: GDX) and the SPDRs Gold Shares ETF (symbol: GLD). Oil also enjoyed a big day, gaining $2.42 or 2.8% to finish the session at $89.41/barrel.
THE BOTTOMLINE: Gold hit an intraday high of $911 before closing up $22 at $905/ounce. As I had predicted late last year, I believe the yellow metal hits $1000 at some point in 2008. Investors have a few options of how they can play a gold rally. An investor can buy some gold bullion and dig a hole in their backyard or a much easier way is a gold ETF that tracks the commodity. We own GLD for Portfolio Management Clients and in The ETF Bulletin Portfolios. (www.etfbulletin.com) Just a side note, the entry price was much lower than the current price.
Another way to profit from gold at $1000 is by purchasing the stocks of gold miners such as Goldcorp (symbol: GG) or Barrick Gold (symbol: ABX). The company-specific risk will keep many investors away from the individual stock strategy. If you fall into that category, the GDX is an option. GDX is composed of a basket of gold mining stocks located around the globe. For a small expense ratio, the ETF removes the company specific risk and at the same time gives investors the leverage of the gold miners. All the options are viable, but it depends on your risk tolerance and individual goals.
Have a great night,
Matt McCall
www.pennfinancialgroup.com