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
The market fell Monday when E*Trade Financial warned that it would take additional write-downs, and said its portfolios were being investigated by the SEC. Its stock collapsed 60% that day. IBM, meanwhile, happily announced that it would buy Cognos for $5 billion cash.
Tuesday sent the Dow up 320 points for its second-best day so far this year, thanks mostly to solid earnings from Wal-Mart and the company's belief that it will do well this Christmas season. Also, the financial sector looked ready to call an end to its sub-prime related write-downs.
When those same old sub-prime fears resurfaced, stocks fell on Wednesday and Thursday. Bear Stearns said it would take a $1.2 billion write-down. Oil prices rose again. Retail sales came in lower than hoped.
Friday looked to be another downer of a day, but stocks rallied in the final 30 minutes. That surprised many because industrial production fell, a Fed official sounded hawkish on rates, FedEx issued a profit warning, and Starbucks gave a dour forecast.
Oil prices eased last week, but are still near historical highs. West Texas Intermediate closed the week at $95.10, a drop of 1.3% from the prior week, but only $1.60 below the all-time high of $96.70 set on November 6.
Here's Econoday's summary of the week:
The bottom line is that there is slow growth ahead in the fourth quarter and possibly first quarter of next year with sluggishness in the consumer sector along with the assumed continuing downturn in housing. But Fed officials are counting on a rebound early next year. We will get to see more detail on the Fed's views this coming Tuesday with the release of their three-year economic forecast.
Much was made of the final half hours of several trading days last week. On Monday and Wednesday, stocks plunged in the final half hour. On Friday, they surged.
For some reason, people think the final half hour is more significant than other times in the market because it supposedly shows how people really feel. If they sell, they don't want to hold overnight. If they buy, they don't want to miss potential gains lurking in the nightly news.
Forget all of that. The direction of some final half-hours is followed through the next day, the direction of others is not. We saw that just last week. Monday's final half-hour plunge was utterly canceled by Tuesday's big rally. Wednesday's final half-hour plunge was followed through by Thursday's steady downward path. Friday's final half-hour surge has yet to be followed up.
There's no pattern to be found, thus no conclusion to be drawn. It's just a point of commentary with no meaning whatsoever. That's true even for short-term traders, but doubly so for medium- and long-term holders.
In this weekend's Kelly Letter, I look at how we're holding up, comments from the Fed, housing bargains, Boston Scientific, and Starbucks. If you'd like to read the letter, see my entire portfolio, browse through my complete archives, and receive all notes for a month for just a penny, please click here.
