Tuesday, October 07, 2008

Stocks on Sale

Top Line: The stock market continues lower which is giving us nice opportunities to pick up some good bargains. As usual, we were a little early taking our profits but now we are leisurely able to shop for bargains.

When it comes to shopping, most people like to look for bargains. Some won't pay full price for anything...anything except stocks. When it comes to stocks, people like to pay full price. Why is that???

When stocks were cruising higher a year ago, people were happily paying full price for any number of banks and other stocks. At the time the Dow was over 14K and there were no coupons for 25% off stocks. Buyers were not thinking there was any possibility of a decline in prices.

Today, the stock market in terms of the Dow has hit a five year low and people are running scared because the market is going to go to zero or something like that anyway. If this was a sale at Kohls or Sears, they would be rushing to buy, not so with stocks.

This afternoon, stocks tumbled 500 points and the VXO closed above 60. These are sweet numbers to bears but there is some evidence that the powerful selloff has lost some of its strength. Yesterday we mentioned that the number of new 52 week lows hit a huge high of 1973 but today that number was a more moderate, but still very high, 1232. Lower prices but not as much power in the move based on this one indicator.

The other item is the price of Treasury bonds. The long bonds fell today even with the stock market plummeting. Where is the flight to safety? Treasury bonds would be the natural place, and have been the natural place, for money that has exited the stock market. With them being down, there almost seems to be the notion that risk takers are moving out of those bonds and into the stock market.

Then there is the VXO which closed at a new high today. It did not break Monday's high even with a huge down move in prices.

So, what's going to happen? The world stock markets are sinking in concert and there is a point where that will stop...probably by Monday next week. [Erick, my 9000 is looking like a possibility after all.] We want to be fully into our purchases by then or least that's the way we see it tonight. We will update you further as the week progresses. In the mean time, we will continue to quietly buy.

The news is filled with central bankers trying to stem the tide of the credit contraction. The latest is the Fed alluding to a rate cut. We have been expecting one any day but for sure by the time of the next meeting, with a rate decision announcement on October 29th.

Then there is the business of the election in November which should be greeted with buying at least for a little while before and after. We consider this to be a high probability event in conjunction with the rate cut announcement. The market may not like the rate cut all that much but the money that the Fed is pumping into the system should provide some support for stocks pretty soon.

On a final note, the Asian markets are getting hard hit and that has spilled over to the US stock futures. We could be in for a wild ride on Wednesday. Opportunity knocks...

GDX 27.38 (continues to be a great buy)
BGEIX 13.28 (incredible buy)
HUI: 252.28

FSI: 53.29 (a brand new annual low)

New long ETF's, QLD is based on NASDAQ 100 and SSO based on SP500:
QLD: 36.50 -4.06
SSO: 36.04 -4.34

VXO: 63.06 (Fifth close over 50 and first close over 60)

Dow Industrials: 9,447.11 -508.39

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