STOCK MARKET WATCH, FRIDAY OCT 3....(#1)

"The Mother of All Bottoms?"

Business TV coverage of the stock market is slanted and in general, fundamentally wrong. I’ve pretty much dismissed TV as a source of anything of real value. I watch it occasionally for a laugh and as a contrary indicator. For example, TV personality and economist Larry Kudlow routinely calls the stock market of October 2002, “The Mother of All Bottoms.” How can he seem so sure? In respect to his title, “economist”, let's examine October 2002 stock valuations relative to historic stock market valuations.

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If we examine the Kudlow-touted October 2002 “mother of all bottoms,” we can see that in comparison to previous years, the S&P 500 index was actually expensive. The dividend yield at about 2% at Kudlow’s “mother of all bottoms” is extremely meager on a historic basis. In the past, TV experts and many journalists have dismissed recent low dividend rates based on dividends being “out of vogue.” Now that dividends are back in vogue, they are still very low relative to historic stock valuations. Clearly on a dividend payout basis, (either last year’s dividends or today’s), expensive stocks characterized the October 2002 “mother of all bottoms.” Similarly, on a stock-earnings yield to bond yield basis and dividend yield to corporate AAA bond yield basis, stocks were expensive at Kudlow’s “mother of all bottoms” and are much more expensive now.

Why the Disconnect In Valuations? Speculation

Why is there such a difference between the historic valuations cited and those that we have in our current stock market? The reason is that for a period of several decades, the stock market has traded mainly as an object of speculation. That means stock market transactions occurred with buyers and sellers that were not seeking an actual return on their investment. As with any other business, returns on investment typically consist of dividends and increases in shareholder equity through retained earnings. However, as objects of speculation, buyers’ and sellers’ transactions are purely to buy something for a price, and sell it in the near future at a higher price. Speculation is still the prevailing influence in the stock market. This is evidenced by the underperformance of dividend paying stocks versus more speculative options-bleeding stocks immediately after the new tax laws were passed.

Overtrading – Evidence of a Bottom Not Seen

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A detailed description of what we are seeing in the economic cycle is beyond my scope for this Market WrapUp issue. However, I would like to focus on the continuing presence of overtrading as one more piece of evidence that we have yet to experience the “mother of all bottoms” in the current bear market. According to Faber, there are six phases to a market cycle, consisting of the spark, recovery, boom, down-cycle doubts, realization, and capitulation (and the bottom). One important characteristic of the capitulation and the bottom is that investors give up on stocks.

more...

ain't that the truth

What? Does this say that stock prices might have some bearing on reality?

NEW YORK (Reuters) - Stocks are poised for a wary start on Friday as investors gird for an influential snapshot of the U.S. labor market in September that will shed more light on the state of the U.S. economic recovery.

Mixed reports in past weeks have rattled investors' confidence that the United States is headed for a sustainable recovery, with the failure of the world's largest economy to create jobs a big focus of worries. Investors fear a dearth of jobs could stall the rebound by reining in consumer spending, a main driver of economic growth.

The Labor Department will issue its employment report for September at 8:30 a.m. EDT.

story

LONDON (Reuters) - The dollar fell on Friday within half a yen of the three-year lows that saw Japan intervene aggressively this week to weaken the yen, as investors worried a U.S. report may show more labor market stagnation.

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The dollar hit three-year lows against the yen on Tuesday but recovered as Japan's Ministry of Finance confirmed it intervened to sell Japanese currency. The dollar also hit three-month lows against the euro this week as investors reassessed their views on the U.S. and global economies.

story

http://quotes.ino.com/chart/?s=NYBOT_DXY0\\

Last trade 92.44 Change +0.02 (+0.02%)

Fridays are generally interesting dollar days - Japan's BoJ may intervene before 2:00 pm (that's their "last call" moment for the week) - so we'll see which way they go...

WASHINGTON (Reuters) - Despite faster growth, a lack of jobs shows the U.S. economy still needs nursing to get back to full health, top Federal Reserve officials said on Thursday.

"I have to admit that until we actually book a couple of quarters of solid output growth and see the beginning of an employment rebound, there will be some doubts in my mind whether we are, at last, out of the woods," Chicago Fed President Michael Moskow said in an otherwise upbeat speech in Evanston, Illinois.

more yammering

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So as we venture into October on the heels of a significant market rally, should we brace ourselves for yet another pummeling? Technically speaking, yes, says Phil Roth, chief technical market analyst at the brokerage firm Miller Tabak. "My game plan every year is to expect two corrections and two lows of consequence," says Roth. "One is between mid-March and mid-June, and one is between mid-September and mid-November."

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SmartMoney.com: What exactly is technical analysis?

Phil Roth: The difference between technical analysis and fundamental analysis is that fundamental analysts are concerned with companies and the economy. Technicians are concerned with stocks and the market. They're quite different, because no matter what you think of the fundamental position, the stock market is a discounting mechanism, and you have to be in a position to anticipate changes in investors' attitudes toward stocks, and that means often anticipating changes in the fundamentals. Technicians are also concerned with believing that there is a trend and believing that trends are forecastable.

SM: What indicators do you look at?

PR: I follow four kinds of indicators. The first is trend and momentum. These are the indicators that deal with the direction something is moving and the force behind the move — price, breadth, volume and relative strength are trend and momentum indicators. But these kinds of indicators don't necessarily tell you where you are in the trend. To do that, I look at sentiment and supply/demand indicators. I want to know who's bullish and who's bearish. Because the most important technical precept to me is that investors make bottoms and traders make tops. Investors are motivated by price and value and tend to get active when prices are declining and low. Traders are motivated by the trend and tend to get motivated when prices are rising and high.

Finally, I do intermarket analyses, trying to understand the relationship between bonds and stocks and currencies and commodities.

some useful stuff here

NEW YORK (CNN/Money) - U.S. employers added thousands of jobs to payrolls in September, the government said Friday, defying analysts' expectations for more job losses.

Unemployment held steady at 6.1 percent in August, the Labor Department said. Non-farm payrolls rose by 57,000 jobs after falling by a revised 41,000 jobs in August. Economists, on average, expected unemployment to rise to 6.2 percent and payrolls to shrink by 30,000 jobs, according to a Reuters poll.

"This is still a mixed bag," Kathleen Camilli, economist at Credit Suisse Asset Management, told CNNfn. "Unemployment is not coming down enough, and payrolls are moving in a zig-zag fashion, with payroll numbers down one month, up another, with no consistency of job growth."

story

Well it looks like futures are up sharply at decent UE #s. Looks like it might be a great day for the bulls!

Looks like the most interesting story is the dollar today. Thanks to you Up in Arms for posting the $ info regularly. I think it is great info for this thread.

Hope all have good day today! More later--

Julie

Why? Irrationally high prices from two days ago. Monday, we received every indication that the economy is in horrible shape - shrinking numbers everywhere. Later in the week, more layoffs saw some market gains. But these gains came as an "advance" on companies' value as their profits were sure to rise as less cash would be leaving the balance sheets in salary and benefits payments.

Wednesday was just plain nuts. No doubt about it: Wall Street became synonymous with Las Vegas.

Like any casino - the players will cash in. I expect some extreme frivolity come late afternoon.

DOW futures are up about 123.00 right now!! Zowie!!!

I would think markets will be set for some serious profit taking too but not till it's really been run up. We'll see....


Julie

9:47
Dow 9,612.16 +124.36 (+1.31%)
Nasdaq 1,871.99 +35.77 (+1.95%)
S&P 500 1,034.46 +14.22 (+1.39%)
10-Yr Bond 4.125% +0.116

I can see severe beatings in Treasuries. My condolences to the Cap'n. :-)

Julie

I expect curbs have gone into effect for the Nasdaq. I am beginning to doubt that we will see a swift move upwards with these numbers holding steady at the typical 10am bounce.

10:08
Dow 9,610.68 +122.88 (+1.30%)
Nasdaq 1,875.61 +39.39 (+2.15%)
S&P 500 1,034.07 +13.83 (+1.36%)
10-Yr Bond 4.145% +0.136

The numbers are cresting.
Dow 9,601.50 +113.70 (+1.20%)
Nasdaq 1,871.07 +34.85 (+1.90%)
S&P 500 1,032.67 +12.42 (+1.22%)
10-Yr Bond 4.155% +0.146

edit: 10:16 figures

Happy Friday!

Today's reading is COMMUNITY changing to CRITICAL MASS. Three changing lines in COMMUNITY! Here they are, "The times are such that a group of people can come together openly with the same goals in mind. There is a tendency toward elitism and exclusivity. The unity and fellowship that are possible in this position are not significant in terms of universal needs." CRITICAL MASS says, "In business affairs make a rapid assessment of your situation. Your environment is rapidly becoming the meeting ground for many of the major circumstances affecting you. Look for an avenue of escape."

Er, if I didn't know better, I would say Ching was saying now is the time to dump. Remember, that's CHING'S advice NOT COVENTINA'S! I would never venture to give stock advice. I'm locked in anyway. The SO says "We're in it for the long haul."

Well, gotta run for now. Have a great day everyone!
:hi:

"Dump" is the operative word. I predict that knowingly or unknowingly, people will take the I Ching's advice today. See above post.

It just makes too much sense.

We are still hovering. Maybe the piehole nipped today's advances.


Dow 9,619.20 +131.40 (+1.38%)
Nasdaq 1,878.52 +42.30 (+2.30%)
S&P 500 1,034.44 +14.20 (+1.39%)
10-Yr Bond 4.149% +0.140


Have a great weekend!

As always, thanks for all the work you do with this thread!

Looks like things are cooling down a bit at 11:28. Not much, still riding high:


Dow 9,611.28 +123.48 (+1.30%)
Nasdaq 1,878.31 +42.09 (+2.29%)
S&P 500 1,033.69 +13.45 (+1.32%)
10-Yr Bond 4.181% +0.172

Man, 17 basis pts. on the 10yr! Ouch!!

Julie

So many people on Clearstation are going long that I was sure the indexes would break down today. I almost shit myself this morning when I saw the big gap up. I figure I lost about $2,500 overnight. But it's no time to change horses.

Gap ups are usually a bullish sign. But before proceeding, they generally have to retrace and fill the gap. So the NASDAQ, for example, will have to come back to about 1840 if it is to move higher. Looks like the indexes have already hit resistance to moving up today:



Still time for a breakdown. I may wait until the gap is filled and see where it goes. Maybe go half cash if it starts to rebound.

If October is an up month, it will be the only one in (my) (very) recent memory. And the only one I actually played the seasonal trend on. Go figure.

at 12:25 we are still rockin'!! Hope everybody's makin' a few extra pennies today!!


Dow 9,628.16 +140.36 (+1.48%)
Nasdaq 1,883.24 +47.02 (+2.56%)
S&P 500 1,035.72 +15.48 (+1.52%)
10-Yr Bond 4.167% +0.158


Julie

Selling this afternoon. Take the money and run!

Sorry I'm late, but my cable was out all morning (tv & modem). Looks like the pot has been really boiling without me to watch it! :P

Dow 9,659.13 +171.33 (+1.81%)
Nasdaq 1,889.67 +53.45 (+2.91%)
S&P 500 1,038.73 +18.49 (+1.81%)
10-Yr Bond 4.181% +0.172

Dropping like a rock today . . . I'm getting killed here.

Anybody have a clue what's up?

If equity is up, then commodities and precious metals are viewed as less desirable. Precious metals especially are deemed the "investment of last resort" at the point that stocks crater.

At least that's my understanding.

Although the same is suposed to apply to bonds - treasuries are supposed to also be a safe haven when stocks go down, and inversely to be less valued when stocks go up, but today the 10 year note is way up.

So as the hip young kids say, "what's up with that?"

(edited for clarity)

check the dollar - currently at 93.20 - BoJ seems to be intervening

Gold is basically viewed for investment purposes as an inflation hedge. It's good to have some gold in a portfolio, but I've never read anywhere that you should have more than 10% in a portfolio.

As the market stays up:

Dow 9,645.42 +157.62 (+1.66%)
Nasdaq 1,888.91 +52.69 (+2.87%)
S&P 500 1,037.63 +17.38 (+1.70%)
10-Yr Bond 4.189% +0.180

Yahoo Finance updates:

"2:00PM: There has been some light selling activity in the past half hour, but the market has stayed the course with its upward bias... Frankly, it's tough to knock this market down when both the technology and financial sectors are participating gainfully in the advance... That is pretty much the case as the strength in those influential groups has been a focal point for investors... Other developments that have come into play include the indices' breach of a series of resistance points... As it stands now, the Dow, Nasdaq, and S&P 500 have retraced all of last week's sizable losses..."

Dow 9,629.20 +141.40 (+1.49%)
Nasdaq 1,887.81 +51.59 (+2.81%)
S&P 500 1,036.25 +16.01 (+1.57%)
10-Yr Bond 4.205% +0.196

Yahoo Finance Update:

"2:30PM: Buying interest has waned a bit in the past hour, but there has been little in the way of catalysts to force the bears to act up... Today's economic reports both checked in at, or above, economist expectations, and indicated improvement to the employment picture and continued strength in the services sector... Furthermore, a number of leading companies - such as Starbucks (SBUX 30.29 +0.29), which raised its FY03 (Sept) revenue number - have reported comfort with Wall Street's forecast...
Consequently, Briefing.com continues to believe that stocks remain the investment vehicle of choice for long-term investors... Shares should continue to move higher as the economy/corporate America strengthens..."

Hmmm...."stocks remain the investment vehicle of choice for long term investors" So why are insiders selling like mad?

Just my contrarian nature to ask, I guess.

Dow 9,609.71 +121.91 (+1.28%)
Nasdaq 1,880.31 +44.09 (+2.40%)
S&P 500 1,033.61 +13.37 (+1.31%)
10-Yr Bond 4.196% +0.187

Yahoo Fi is still bouyed:

"2:55PM: Indices continue to edge off their highs of the day, although they have not fallen far enough to suggest a change to the upbeat tone... Just about every sector is showing noticeable gains, and their combined strength has kept the market at substantially higher levels... The one area to buck the broader trend has been the gold shares.... The group is taking its biggest beating in six years - down 4% - as the Gold & Silver index has fallen below its 50-day moving average...
The decline in the price of gold, to $370/oz from $383.70/oz - has exacerbated the slump in the gold issues, which are usually associated with safe-haven investments during times of uncertainty..."

Ah-ha! Gold is down significantly.

...if I hadn't quickly skipped over the header that Ozy works so hard to put together.

Duh!

So don't take it badly!

Yep, a little profit-taking now. Not too much off the top, tho!
Dow 9,601.79 +113.99 (+1.20%)
Nasdaq 1,879.39 +43.17 (+2.35%)
S&P 500 1,032.82 +12.58 (+1.23%)
10-Yr Bond 4.195% +0.186

At least the bleeding has stopped, but I could really use a transfusion about now :-).

Oh well, maybe it was a temporary spike down; I'll just hope for a little more bounce on Monday.

Just before close:

Dow 9,580.46 +92.66 (+0.98%)
Nasdaq 1,877.15 +40.93 (+2.23%)
S&P 500 1,030.55 +10.31 (+1.01%)
10-Yr Bond 4.195% +0.186


We saw that coming though.

Julie

Look at the falloff since the lunch hour. If they close near the open, isn't that some sort of candlestick reversal pattern? If it gaps down tomorrow, does that create a "island reversal" or something?

Then there's the head-and-shoulders pattern that seem to be forming in several indexes, some better than others. A classic example from GPS a few years ago:



Similar enough to the last two months of the NASDAQ Compsite index?




Still trying to be the optimistic bear -- I seem to be the last holdout on some of these stock boards. It's supposed to be a good sign, but it sure doesn't feel like it.

Kind of early to predict where things will be by Halloween....

Still, a cheerful day for the bulls!

Dow 9,572.31 +84.51 (+0.89%)
Nasdaq 1,880.63 +44.41 (+2.42%)
S&P 500 1,029.85 +9.61 (+0.94%)
10-Yr Bond 4.195% +0.186

Local Fox news whores are already beating the Xmas "shop-til-you-drop" drum! I detect a note of hysteria in recent ads trumpeting better, newer (made overseas) stuff! I predict a dismal holiday shopping season (except Walmart). What are these stock nabobs betting on?

It's cheerleading. It's groupthink. It's the herd mentality. They rely on each other. But once they get everyone to agree with them, there's no more money to put into the market and everthing crashes.

Depending on how paranoid you are, it's either natural group behavior or cynically controlled and planned.