How Deep Is Your Love
Yes we can ask that of the market as well. We got in a big hole here, but have we hit bottom. It would be premature to call this a bottom, but we have the makings of a bottom formation. Again we have to somewhat rely on the technicians who are reading the tea leaves of the volume, direction, and inertia of the market. We can look at six month charts of individual stocks to see if this is a bottom forming.
As you can see we see a slight bottom forming, but not enough to put money on the table yet if we were starting a new position. We would like to see a few more days of positive volume in the right direction. Here is a hint, look for 7 out of 10 positive trading days with above average volume. If you have any questions, just drop me a note for a more detailed explanation.
So what actually happened today? We got the ISM Non-Manufacturing Survey and the ADP numbers correct and they floated the market a bit. Though we thing it is fleating, some positive news out of Europe and some Greek debt pimping by key European leaders helped bottom feeders buy some bargains and drive the market up. We did not make a guess on mortgage applications, but the softness in the market was either ignored or built into the market already. That was all the relevant data today. Some mixed earings news out of COSTCO and YUM Brands dirtied the water a bit and a rumor that MSFT will buy Yahoo also helped float the market. In then end, we had the S&P 500 gain more than 1.5% to close at 1,144 getting more comfortably above the 1,100 level. The big question is and its really too early to tell, is the correction over? We think not.
We mentioned earlier about the Channeling stock that Russ C. shares with us. ASGN On Assignment, Inc., a diversified professional staffing firm, provides flexible and permanent staffing solutions in the United States, Europe, Canada, Australia, New Zealand, and Bermuda. We explained this was a great channeling stock as it consistently moves between 6 and 11 bucks a share almost like clock work. We were in enjoying a 5% gain on the stock when we watched the market come precariously close to 1,100 on the S&P 500. as we mentioned we dumped all but a few stocks. Russ pointed out today that ASGN has had a nice run despite the market. It closed today at $8.64 which would have been a nice 31% gain. Woulda Coulda Shoulda. Hopefully some of you got on that train with us and did not get spooked off the tracks. Told you yesterday we publish our mistakes, and this was one of them. We will be watching ASGN when it hits 10.50 and put some sell action to work.
Thanks to Tim T of UBS fame for sending me the October PIMCO newsletter and the monthly message from Bill Gross. It was an interesting read and he really did a good job of helping define the new normal. In the letter he said, "If structural solutions are not put in place, a six-pac market
observer should look at both stocks and bonds as rather flabby knock-offs of their former selves; no resemblance at all to Jack LaLanne but more to a 55-year-old terminator grown fat and rendered out of shape by years of neglect and perhaps greed for short-term profits as opposed to long-term balance. There are no double-digit investment returns
anywhere in sight for owners of financial assets. Bonds,stocks and real estate are in fact overvalued because of near zero percent interest rates and a developed world growth rate closer to 0 than the 3 - 4% historical norms. There is only a New Normal economy at best and a global recession at worst to look forward to in future years. A modern day, Budweiser-drinking Karl Marx might have put it this way: "Laborers of the world, unite - you have only your six-packs to lose." He might also have
added, "Investors/policymakers of the world wake up - you're killing the proletariat goose that lays your golden eggs."
Earnings estimates going the way of equity markets
In our readings, we are picking up on two things of interest to you. Many of the stock pickers out there are using investment windows of 3-5 years. We have not seen this before. Usually, analysts and investment pimps give a value and ignore a time line and we are supposed to assume a 12 month window. Now they are stretching that out to 3-5 years. The other observation is the preponderance of lowering earnings estimates going into this quarter's earnings season. This is the first quarter since June 2009 that the overall direction of earnings estimates is down. Now that sounds like a bad thing, but remember, stock price is more about beating or missing expectations than underlying value. Here is an example BAC, Bank of America is trading at $5.77 a share which is 28% of book value, meaning the value of the company is 20 dollars and change.
There are expectations of balance sheet adjustments and lawsuits and more bad mortgages which have the analysts determining future value deflating to a point where invests have set a market price of $5.77 a share. If a quarterly report were to blow away expectations we would or at least should see a significant bump in the stock towards its book value.
Now understanding that you can see why it is good to have analysts take a conservative approach to earnings. It should provide stability to the market and positive investor sentiment. Both will help nudge Mr. Market towards an S&P index of 1,400 in three to five years.
Salve Lucrum
STEVE HAS LEFT THE BUILDING
THANK YOU AND GOOD NIGHT
