MARKET WATCH: Dow Ready to Top Last High
RR&A Market Letter by Ritholtz Research & Analytics
230 Park Ave., New York, N.Y. 10169
Sept. 26: As markets march higher, we note the short-term
factors at work: window dressing-funds buying more of their favorite
stocks to improve their short-term performance…; there is a surfeit
of cash in the hands of fast traders; expect them to chase momentum
…; technical analysis and intermediate-term trend remain constructive.
Those are up against longer-term issues of economic
softening and market internals: real estate, continues decelerating;
market advances have taken place on lower-than-average volume; energy
is oversold, and likely to bounce upward; [a] double top may present a
formidable barrier ( an upside penetration could create a bull trap);
despite the Dow rally, new highs are lagging while the number of new
lows are expanding; fewer stocks are participating in the advance:
Indeed, this rally is very Dow-centric, meaning it’s
focused more and more on fewer and fewer stocks…as the Dow [hit] its
all-time high, the other indexes are further away. This is no
And the ever popular Alan Abelson:
WALL STREET, WE MUST SAY, IS HAPPILY free of any appreciable outbreak of bugging. That has to be, we’ve not the slightest doubt, because brokers, analysts, investment bankers and traders are models of virtue.
Although it also may be because Wall Street is so taken with e-mail and so proud of its electronic scribbling that it can’t bear to consign to the ether even a single, solitary sentence. So when hungry regulators pay a visit, subpeonas at the ready, they can be assured of an abundance of incriminating evidence waiting to be harvested. With such thoughtful suspects, who needs to bug a phone?
Besides, these days, with the stock market on a bit of a roll, the Street’s stalwarts are raking it in hand over fist and too busy counting their money to spare any time to play with bugs, even if the spirit so moved them.
After more than a month of vacillating between dawdle and decline, the market decided for reasons known only to itself, except that most of the investment crowd was nervously peering down, to go up. And by quarter’s end, the Standard & Poor’s 500 was ahead 5.2% (the S&P’s strongest third-quarter showing in nine years), the Nasdaq, 4%, and the good old Dow, 4.7%. (Toss in dividends, and you can add another tick or two to the returns.)
On Thursday and Friday, the Dow actually, if briefly, topped its all-time closing high of 11,722.98, set in the giddiest of those gloriously giddy days back in 2000 — but slipped a tad each day before the final bell.
For its sterling performance, that hoary average is especially indebted, as the keen-eyed Barry Ritholtz points out, to this year’s outsized gains in Boeing, United Technologies, Caterpillar and Altria Group (the newest incarnation of Philip Morris). By contrast, some big names and erstwhile hot numbers in the Dow are off sharply from their historic highs, including Intel, down 73%; Microsoft, 54%; Home Depot, 47%; Merck, 53%, and GM, 65%.
Even among the blue chips, this recent bull move has been anything but encompassing. The Nasdaq, moreover, heavily laden with techs, still hovers a scant 2,790 points below its all-time top of 5,048, also, as you might guess, reached at the most maniacal moment of that runaway bull market that turned tail in 2000. Breadth, which, for the uninitiated, is the difference between advancing and declining stocks, hasn’t been terribly impressive, confirming the pronounced choosiness of investors in their stock buying.
The absence of widespread participation obviously reflects a lack of investor conviction. But it also reflects, we suspect, ambivalence on the prospect for the economy and corporate profits. The lack of conviction can change quickly as bullish sentiment continues to build, a likely result of headlines blaring "new highs." The concerns about the economy, however, seem apt to deepen rather than dissipate as they’re reinforced by fresh signs of weakness in the economy and disappointing profits.
There may well be some speculative steam left in the boiler. But we don’t think investors have paid much heed to the possibility of economic and earnings shortfalls; nor to next year’s looming budget deficit (possibly as much as $400 billion, compared with this waning fiscal year’s relatively benign (?) $260 billion; nor to indications that the Democratic devils may score substantial gains in the congressional elections; nor, lest we forget, to the likelihood that Iraq will remain a place you do not want to vacation in.
In short, this is unmistakably a caveat emptor market, one of those markets, as someone once put it, that has discounted everything but the bad news.
As we related back on Wednesday, credit for putting together the full list of Dow Components goes to Mike Panzner.
Infestation of Bugs
UP AND DOWN WALL STREET
Barron’s, October 2, 2006
Barron’s OCTOBER 2, 2006