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Sunday, October 24, 2004
Market Recap
It was a very “crude” day for the stock market on Friday with the Dow suffering a triple digit loss. Crude oil closed at a new high for the year, above $55.00. More importantly, the Dow closed not only at the low of the day but also a new low for 2004. This undercutting of the prior low is a very negative event, and an immediate snap back rally must happen Monday or this market is in a lot of trouble. The Dow dropped -107 points closing at 9757, just above the 9750 support area we have been watching. The NASDAQ fell -38 points and closed at 1915; support on this index is 1900. The S&P fell -10 points and closed below the 1100 support level at 1095. Like the Dow, this under cutting of the 1100 support level is very negative for this index, and a rally must happen Monday before any follow through selling starts or trouble is ahead for the markets.
Saved By The Bell
Under cutting of a low is not good technically, but all is not lost. The indexes are all near support areas, and these are the areas where bounces could take place. Many times on individual stock charts if a new low is made, a stock will crash through that low on heavy volume quickly. These are stocks we stay away from. However, sometimes shakeouts will occur and stocks will make new lows trying to shake out more weak hands just before a big snap back rally comes. If a stock makes a new low but does not collapse through that low, it could very well signal the selling is over and buyers are coming in holding up the stock. This may be the case with the Dow and S&P come Monday morning. They made new lows but they made them so late in the day that there was no time for a total collapse. You might say they were “saved by the closing bell” much like a fighter in a boxing match. They now have the weekend to rest before they come out fighting in the next round on Monday morning. We will see if there is any fight left in these indices. There are currently too many mixed signals to figure this market out. Good earnings from some big bellwethers, some are upping guidance, some are cutting guidance, high oil prices, the dollar getting weaker by the day, and the election uncertainly ahead. With all that is upon us, it is just not a good time to be in the market. Waiting for the smoke to clear is the best option at this point.
Complete 180
Despite very good earnings news from the tech sector, selling is still taking place. Google is riding high, and the selling we saw in the NASDAQ Friday could have been people selling other tech stocks to jump on the Google band wagon. There is a $250 price target for this stock by one broker, and the way this stock is flying, it will most likely hit that target within a month.
It was a rough reversal day for bulletin stocks. I say this because many of our stocks made a complete 180 reversal after most of these stocks started the day up Friday and continued up even though the market was down from the start. It was because late in the day when the selling picked up, these stocks completely reversed course closing in the red for the day. This created many bearish candles on the charts and damaged some charts for us. If there is a snap back rally this week, these leading stocks should snap back as well. However, if there is no rally, these charts will need time to work off this damage, recover and set up again.
Miracle on Wall Street
During the republican convention, I mentioned that historically the stock market has predicted the out come of the election 14 out of 16 times. Going back to that commentary, I wrote that if the stock market was higher on Election Day than the day after the republican convention ended, it means that the president would be re-elected. If the market were lower by Election Day, then the democratic candidate would win the election. The day after the republican convention ended, the Dow closed at 10290. It closed Friday at 9757, over 500 points lower. This means that if history is to repeat itself, the action in the stock market is predicting a John Kerry victory. Will the market be correct again? I look at this in a positive way and consider the possibility that the Dow will rally over 500 points in the next 6 trading days. Unlikely? Yes. Out of the question? No. Miracles can happen. If you follow baseball, there was a miracle last week when a team came from behind and won four games in a row to win the series after losing the first three games. This had never been done before in the history of major league baseball. If you look at it in those terms, the Dow rising 500 points in six days is not that uncommon. Certainly the Dow has done this before, but can it do it in this market under these conditions? Tough task ahead, but it would be not impossible.
Oil at All Time Highs?
Oil topped $55.00 a barrel on Friday and that is an all time high. Or is it? In a past commentary I mentioned that oil has plenty of room to go higher; it could go to $70 a barrel with ease. I received some email on this topic after making that statement, but oil continues to rise and that prediction suddenly does not sound so ridiculous. The reason I felt oil could run that high is simple: oil is not at an all time high when we adjust the cost of oil to inflation. In other words, back in the mid 1970's when oil was at a true all time high, everyone had a lot less income. If we adjust the cost of oil to our current incomes to adjust for inflation, oil needs to reach $70 a barrel to be considered a true all time high. If measured in these terms, oil can still run up another $15 before we can say it is at an all time high. I think it will reach those levels in the future. Now with that said, with oil at that level, it will be very difficult for the stock market to make any meaningful advance. We know oil will not be $70 a barrel before the election so maybe the bulls will attempt to rally stocks one last time before the election and before oil makes its next run.
OTC BB Watch List
- IBAS
- NSOL.
- EZEN
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