Monday, 21 September 2009
Risk of pullback subsiding, for now
So much for the September swoon. On Wall Street, plenty of money managers and traders, analysts and market strategists are still talking about the inevitability of a correction. It’s something in the range of 10 to 15 per cent worth of a pullback from the lofty heights the stock market has now reached after its sickening declines in the first quarter of 2009.
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Risk of pullback subsiding, for now
By ANDREW MARKS
21 September 2009
So much for the September swoon. On Wall Street, plenty of money managers and traders, analysts and market strategists are still talking about the inevitability of a correction. It’s something in the range of 10 to 15 per cent worth of a pullback from the lofty heights the stock market has now reached after its sickening declines in the first quarter of 2009.
But as the major stock market indexes close in on a 60 per cent gain since the March bottom, a growing chorus of Wall Street professionals are growing convinced that contrary to popular opinion, the bull may very well hold sway in the market throughout this month and into the next.
‘As each week passes and the data shows improvement and stocks continue to gain, the chances for a significant retrenchment in the next few weeks are shrinking,’ said Cantor Fitzgerald market strategist Marc Pado.
The S&P 500 closed the week at levels more than 20 per cent above the 200-day moving average, and 91 per cent of the equities listed on the New York Stock Exchange are currently trading above their 200-day moving average.
Those are strongly bullish technical fundamentals for the short term, as is the market’s repeated ability to close above resistance levels.
Not only did investors maintain their bullish momentum last week despite the slippery slope that analysts have been predicting for more than six weeks now, but the market turned in its best week since the supposed height of the rally’s latest leg back in July.
‘More people appear to be ready to jump on the bullish bandwagon, or at least are afraid of missing out altogether on one the biggest rallies in the market’s history,’ Mr. Pado said.
That very optimism could however work against the market, noted Mary Ann Bartels, technical market analyst at Banc of America Securities-Merrill Lynch Research. An increase in optimism among those who cover the markets is generally a warning sign that stocks are overbought and a correction is on the horizon, she said.
But with stocks up substantially over the past three weeks, that correction is growing less and less meaningful with every passing week of gains and new highs.
The key has been the continuing trend of improving data both for the economy and for individual company profits, combined with what appears to be the rising conviction of even the most conservative investors that they’ve got more to lose by sitting this rally out on the sidelines than they do to gain by being cautious.
‘Bear market rally or the start of a new bull market cycle, it doesn’t matter for our purposes at this point, because as you look out over the next six months at least, the fundamental trends support more advances,’ said Gail Rubins, a stock market economist at Solus Capital Management.
On Friday, stocks rode a wave of rising estimates, both for the economy and for individual companies.
The market got a boost from a new economic forecast by Barclays Capital, which raised its projection for growth in the nation’s gross domestic product for the first three months of next year to 5 per cent from 3 per cent. Proctor & Gamble got an upgrade from Citigroup, which boosted stock buying in the consumer sector.
On Friday, the Dow Jones Industrial Average added 36.28 points, or 0.37 per cent, to 9,820.20. The S&P 500 rose 2.81 points, or 0.26 per cent, to 1,068.30, while the Nasdaq Composite also increased 6.11 points, or 0.29 per cent, to 2,132.86.
For the week, the Dow rose 2.2 per cent , and both the S&P 500 and tech-heavy Nasdaq gained 2.5 per cent.
The only obvious significant potential challenges to the bull market’s durability in the coming week appear to come from the Fed’s two-day meeting, and fresh housing data that might undercut the building economic recovery optimism.
‘At some point the FOMC will start talking about how and when it will start taking steps to reduce all the liquidity it’s injected into the market,’ observed Joel Naroff, president of Naroff Economic Advisors. ‘I think it’s too early, but if the committee starts hinting at it, the markets would react,’ he said.
Leading economic indicators are scheduled to be reported today. Tomorrow brings the FHFA Home price index. Existing home sales are due on Thursday, along with weekly jobless claims. Friday’s economic docket includes new home sales, durable goods orders for August and consumer sentiment.
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