11/14 Kelly Letter Topics
Weekly market review
The bottom holds
Big bounce volume
Recession projections
The magic midpoint
LevMark Timer holds
Crocs is dying
Hope for Goldman
Importance of retest
I mentioned in my Sept. 6th article (see below) that I wouldn't be surprised to see stock prices lift more before dropping. That's exactly what happened in the past week. We appear to be at or near the end of a six-week uptrend. Following it, I expect to see a brief downdraft followed by a seasonal and powerful rally into the new year. That's roughly the pattern we saw last year.
From Dick Green's Big Picture column at Briefing.com:
The pickup in warnings is not surprising. Higher energy prices have sapped consumer spending power. Retailers have felt the impact and had to lower guidance. Energy-dependent firms such as airlines and transports have faced higher than expected costs. Technology companies are a whole issue in themselves. The slowdown in economic growth has made put expectations of a return to blowout growth trends of previous years back into perspective.
The next three weeks are likely to continue to bring earnings warnings at a more rapid pace than seen in quite some time. This has the potential to produce a very choppy market, and even to cause a significant, if brief, sell-off.
This doesn't change our long-term moderately bullish view. The earnings growth is still good enough to ultimately provide a lift to the market. Still, the recent mini-rally should be seen as a bounce from oversold conditions rather than as the start of a steady rise in the market.
Warnings season presents risks to individual stocks and makes it a difficult time to look for stocks that might make strong upward moves. It has historically been a time for investors to take a cautious short-term approach regardless of the long-term view. This quarter looks like there could be a return to those historical trends.
