The Markets were pretty much flat today, and rather boring. They opened & sold off in early morning trading after a horrible housing starts number. Housing starts were down 10% and estimate were at 3.7%, therefore, the number came out much worse than expected. The market acted pretty resilient and was not down much through this new, then came back and rallied at 10:30 a.m. CST. Most of the strength again was in NASDAQ stocks.
The good news is that yesterday's rally brought the DOW & the S&P 500 above their 200 Day Moving Average, broke through resistance, and are at the top of their month long trading ranges. In addition, it was another 90% Up Day on the NYSE, with 95% Up Volume. The NASDAQ, however, did not quite make it and had 87% Up Volume. The breadth of the markets were good with a 5 to 1 advance decline ratio on the NYSE and 4 to 1 on the NASDAQ. These are all bullish signs.
On the negative side, although volume was up over 4% from Monday's down day, it registered 4.7 billion shares traded and was well below its 30 day moving average of 6.4 billion. This is not bullish as you want increasing volume as buying spreads out in a bull market rally.
I actually "nibbled" into the market and committed 5% in S&P 500 stocks right at 10:40 this morning. This was after a down open, slight increase, then a "double bottom" at 10:30 a.m. CST after very negative economic news. When the market started to rally, that's when I made my purchase.
Toward the end of the day, the markets gradually drifted back toward even. We need to stay diligent and watch over the next few days to see how the market respond to new economic news. When investors feel bad, the market sell off with good economic news. When investors feel good, the market will rally even with bad economic news. The best is obviously good news with good feelings. If we get some decent economic news over the next few days, the market is poised for a broad based rally. The wildcard, once again, is Europe, especially Spain and her behind the scenes bailout.
Switching gears, I have been getting a lot of questions about "bottom fishing" and buying BP. I feel there is WAY too much uncertainty around this stock and now our US government is asking for 2 pounds of flesh (and probably rightly so). We are actually going to do a whole segment on the theWallStreetShuffle Radio Show about this at 4 to 6 p.m. on 1190 a.m. in DFW. You can listen to it streaming by going to either www.noramassetmanagement.com or www.thewallstreetshuffle.com and listen to it streaming on your computer, or listen to the archived broadcast/podcast later.
Bottom line, sometimes there is a reason a stock is so low. You are not bottom fishing, and the stock going lower, and possibly bankrupt. BP has gone from over $62 to $30 in a little over a month. They just suspended their dividend and today acquiesced to US government demands of the 20 billion escrow account. I have attached a graph for you to see the vertical, sheer drop this company has taken in a month. The past few days, it has gone down 10% per day. This stock is NOT without risk. When you bottom fish, you may lose all your principal. Doesn't mean you won't hit a home run, but you may strike out too.
Food for thought. Keep studying,
Dan Stewart CFA®
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