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Tuesday, August 24, 2004
Good evening friends,
Market Recap
Puzzling action for the markets continued today with the indices finishing mixed. The Dow was up +26 points, the S&P up fractionally, and the NASDAQ down less than -2 points. Oil is easing back down to the $45 area, but the market cannot seem to rally around falling oil prices. This brings us back to a commentary last week about how the market may have anticipated falling oil prices in advance and rallied in ahead of the lower prices, “this small rally we have had lately could be in anticipation that oil prices will be lower soon and the market is acting in advance of falling oil prices”. The market moves ahead of news and this could explain why the market is not reacting this week to the lower prices. The market seems to have already factored in these oil price drops. The price of oil is now down about $5.00 from its highs. You would think the market would be rallying hard on this news backed by heavy volume. So far though, it has not happened.
Working Overtime on Stocks
New Federal guidelines for overtime pay went into effect on Monday. There are three basic tests that must be passed in order for an employee to now be considered exempt from overtime pay. Most notably, the employee must be paid a salary, rather than an hourly rate.
There is huge controversy concerning this issue. Labor unions are fighting this law, but it is hard to understand why. Most labor unions represent hourly workers, people who have an hourly rate attached to their job. That automatically disqualifies their job from being labeled as exempt, but the unions still seem to be fighting the law vigorously.
If the new law was going to have an actual effect on hourly rate positions, then we would be searching hard for stocks of any business with a huge union labor force. For example, car manufacturers would see a huge increase to their bottom line if they no longer had to provide their line workers with overtime pay. We could begin to seek out companies with large labor forces and see what charts are setting up for advance.
As it is, this still may not be such a bad strategy, for a quick swing play. The overtime laws are rather complex. If they hold, many people are going to be confused over who should and who should not receive overtime pay. We may see some action in the unionized companies, as people assume that those companies will no longer be providing overtime pay.
This is an issue to watch very closely come November. The democratic candidate has vowed to do away with the new rules. If he is elected president, investors are likely to view that as very bad for production based companies. If they now have to pay overtime again, that is an additional drain on profits.
The new law should not have any material effect on the production (union) based companies. But as often happens, the crowd will get it wrong and continue to think otherwise. It could be time to put in a little overtime ourselves to find some stocks of companies that fit this profile. If the charts set up right for us, we will get paid for our extra overtime efforts.
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