At the end of a perfectly horrible week for the stock market, prices opened lower on Friday amid rumors that the government was considering “nationalizing” some of the more troublesome mega-banks like Bank of America (BAC) and Citigroup (C).
But at least one money manager, Rochdale’s Richard Bove, said on CNBC that BAC was one of the best buys he’s ever seen on the New York Stock Exchange and the shares, as well as the market, rallied.
However, even though the rally took back at least half of the morning’s losses, it wasn’t enough to bring that most-watched of all indices, the Dow Industrials (DJI), to a positive for the day. In fact, the index hit an intraday low that was the lowest since Oct. 10, 2002. With the enormous fear surrounding equities, investors fled again to gold, sending it close to a new record intraday high of more than $1,004 an ounce.
At the close, the Dow Jones Industrial Average (DJI) was off 100 points to 7,365, the S&P 500 (SPX) lost nine points to 770, and the Nasdaq (NASD) fell two points to 1,441.
The NYSE traded 2.1 billion shares, with decliners ahead of advancers by more than 3-to-1. On the Nasdaq, a little more than a billion shares were traded, with decliners there ahead by less than 3-to-1.
For the week, the Dow Industrials were off 6.2%, the S&P 500 lost 6.9% and the Nasdaq fell 6.1%.
On Friday, the March crude oil contract fell 54 cents to $38.94 a barrel and the Amex Energy SPDR (XLE) fell $1.12 to $42.38.
Gold for April delivery finished Friday at $1,002.20 an ounce because of rising fears of nationalizing some banks. The PHLX Gold/Silver Index (XAU) rose $4.77 to $132.64. The XAU has failed four times in as many days to penetrate through the overhead 200-day moving average now at $135.47, and the stochastic as well as other internal indicators are very overbought. On the other hand, if it does break the barrier it could quickly run to $150.
What the Markets Are Saying
Despite the Dow’s (DJI) breaking to new lows, there were a number of positive signs on Friday that could indicate that a bear market rally is just about to get underway.
As pointed out by our friends at Dorsey Wright, the Nasdaq (NASD) has remained above its November low of 1,295, and the S&P 500 (SPX) is also just above its November low of 741. And Dorsey said its NYSE Bullish Percent took a big hit on Friday, falling 5.6% to 26.4%. But this is well above the November lows of 8% and they said it is “exactly what we want to see in a re-test with individual stocks holding up better than the indices.”
I would point out that virtually all of the internal indicators that I’ve depended on for years are now grossly oversold, and the sentiment numbers show more fear than at any time since the November lows.
For example, the American Association of Individual Investors’ bullish/bearish numbers show that 56.72% of members are bearish versus 21.64% bullish. This compares favorably with the all-time high bearish figure made on Nov. 20 of 57.14%.
You will recall that Nov. 20 recorded the last closing low for the major averages, followed by a new intraday low on Nov. 21, which turned out to be a key-reversal day and was followed by a 1,500-plus rally for the Dow (DJI).
If, however, a rally does not materialize this week and the S&P and the Nasdaq fall to new lows, then a new leg will be added to the bear market. But traders should be alert to the high probability of a violent bear-market reflex rally with a Dow target of at least 8,400.
Today’s Trading Landscape
Earnings of note to be reported include: Advanced Energy Industries (AEIS), Campbell Soup (CPB), DTE Energy Co (DTE), Ducommun, Euroseas Ltd (ESEA) and Forest Oil Corp (FST).
General Growth Properties (GGP), Grupo Radio Centro S.A. de C.V. (RC), GulfMark Offshore (GLF), Health Management Associates (HM), Hecla Mining (HL), Hertz Global Holdings (HTZ), Icon plc (ICLR), International Royalty Corp (ROY) and Kaydon (KDN).
Liberty Global (LBTYA), Lincoln Electric Holdings (LECO), Nordstrom (JWN), Onyx Pharmaceuticals (ONXX), Orbotech (ORBK), Ramco-Gershenson Properties Trust (RPT), Saul Centers (BFS) and St. Mary Land & Exploration (SM).
TeleTech Holdings (TTEC), Texas Roadhouse (TXRH), The9 Ltd (NCTY), Usana Health Sciences (USNA), Valspar (VAL), VanceInfo Technologies (VIT), Waste Services (WSII), Weingarten Realty Investors (WRI) and Whiting Petroleum Corp (WLL).
The February Dallas Fed Manufacturing Production Index is the only economic report expected today.
This morning, The Wall Street Journal reports that Citigroup (C) has entered into talks with the government to expand its ownership of the bank to as much as 40%, but bank executives hope that the stake will be closer to 25%. Garmin (GRMN) reported Q4 results of 78 cents versus an expected 98 cents.
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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.
