The Blame Game

Stocks were unable to build on Thursday’s momentum. Friday’s late sell off seemed like a pretty obvious vote of no-confidence for Paulson. It also suggested the market had low expectations that the G-20 meeting that took place over the weekend would lead to any concrete action.  And the market was right.

A Loss of Confidence

So much for the silver lining talk. The Dow Industrials seem intent on testing recent lows. The low close came on October 27 at 8,175. The intra-day low came on October 10 at 7,773. I can’t say it’s a surprise. But it is disappointing.

A Keen Eye for the Obvious

The silver lining for Monday is that some order is returning to the stock market. Declines aren’t triggering stop-losses and margin calls that send stock prices plummeting. Hedge fund and mutual fund redemptions seem to have been completed for the time being.

Performance Review

When there’s a lot of uncertainty in the financial markets, traders don’t like to hold positions over the weekend. Too much can happen that might lead to losses. So when traders are willing to hold over the weekend and even take positions on a Friday, it’s cause for some optimism.

Election Opportunities

Looking back, investors should feel pretty good about the stock market’s performance last week. We saw: a massive 890 point rally, two consecutive up days to end the week, and 958 total points gained. And this came despite some poor GDP news and ahead of a Presidential election. Evidence is building that we may have a nice rally on our hands.

Earnings Risk

How high do we think the Dow can run? I’m sure we’d all like to see recent losses reversed. But that fact is, our banking system has changed in ways we don’t yet understand, we’re in the early stages of a global recession that could send American unemployment through the roof, and given recent earnings estimate adjustments, the S&P 500 trades at a not-so-cheap-anymore 17X earnings.

9% Unemployment Coming?

Like many of you, I was around for the bear market of 2001-2002. The summer of 2002 was unlike any sell-off I’d ever seen. I thought the 1,944 point drop on the Dow in 12 days of July 2002 was as bad as it could get. Until now.