The Rally

Stocks made another impressive move higher on Thursday. I think we’re all enjoying seeing a little upside for stock prices. There is a light at the end of the tunnel. But I don’t want us to lose sight of the near certainty that at least one of the lights we’ll see in the darkness will be the proverbial oncoming train. 
Market bottoms can be difficult events to get a handle on. Bullish and bearish sentiment is in equilibrium. As individual investors, we might feel that things aren’t getting any worse, but they aren’t getting better, either. Sell-offs appear to clearly be buying opportunities (like when the Dow dropped to 6,440), but any upside is immediately suspect because there’s no real improvement to the fundamental picture.

A 34% gain in seven days

As promised, SmallCapInvestor PRO readers took their gains on Arena Pharmaceuticals (Nasdaq:ARNA) on Wednesday. The final haul was 34%. Not bad for holding a stock for seven days. I expect we’ll re-buy Arena if it drops to $4.50 over the next few days. 
I hope Daily Profit readers were able to lock in some gains on the stocks we recently recommended here.
*****The next few days should be interesting for the stock market. I’m a bit surprised that the major indices finished in the green on Wednesday. I’ll be more surprised if they finish with gains today. 

Congress will be discussing mark-to-market rules today. It’s a safe bet that some kind of easing of these rules will happen. That would essentially buy the banks some time that could be better spent than writing down assets and taking losses. And it could extend the rally. No decision is expected until April. I also think it’s safe to say that there are entities out there that would like banks to continue to be squeezed. Eventually, they will be forced to puke up impaired assets and even more impaired prices, which would almost certainly to a windfall for those with ready cash. It’s a dog eat dog world ?

Global Markets Up

Finally, early strength for stocks on Tuesday didn’t turn to weakness. In fact, stocks finished the day with a flourish to close at the highs. Textbook.  
Maybe even a little too perfect … 
Traders have been anticipating a rally for days. The shorts are all covered. Bloomberg reports that hedge fund-iteers Paulson & Co. (unrelated to Hank or Goldman) recently took the last of its 606 million pounds in profit from downside bets on English banks … 
Paulson: "Let others fight over the crumbs of profit in banking."  
& Co.: "Right you are!"  
No, a rally was coming. Who’d bet against the Dow after it hit 6,440, turning the clock back to 1996? But, more importantly, who’s going to bet that the rally keeps going now?

Stocks Up Strong

Once again, early strength for stocks yesterday quickly turned to weakness. There is a battle going on between the bears and the bulls. Despite all time lows for consumer sentiment, there is a growing number of analysts and market strategists who believe a rally is at hand. 
We’ve been seeing signs of a rally for a couple weeks now. That’s why I recommended taking a few positions in select stocks.

Upside for Stocks?

The late rally Friday left stocks up for the day and provided some evidence that we may have seen a short term low. It would be good to see some follow through today, though it will be something of a victory if the lows for the S&P 500 hold at 666. 
 

SXC Health Solutions Crushes Earnings

Stocks didn’t exactly finish higher yesterday. In fact, they gave back all of Wednesday’s gains, and then some. But now, in a particularly ironic move, stocks appear to be ready to move back to the upside after the unemployment rate is reported to have risen to 8.1%. 
Of course, we know why stocks would rally under these seemingly negative circumstances….
Investors know unemployment is rising. Fed Chief Bernanke has called for the unemployment rate to peak somewhere in the 9% range during this recession. At 8.1%, we’re almost there.

USO, X, NUE, SXCI and China Stimulus

Finally. A positive start for stocks finally finished that way. We’ve seen several rally attempts fizzle over the last couple of weeks. Once the S&P 500 hit 700, a lot of traders were looking for some upside. Let’s hope it sticks. 
Wednesday’s rally could have been stronger, though you can’t really be surprised that investors aren’t jumping head first back in the stock market. Volume appears to have been solid, but not outstanding. 
The most encouraging aspect to Wednesday’s rally was leadership. We got leadership from technology and oil. If investors are buying in anticipation of an economic recovery, then oil necessarily must trade higher. Because any uptick in economic activity means increased demand for oil.  
And with OPEC production cuts taking hold and recent reserve draw-downs, the oil market has to be tight. 

Obama the Stock Analyst

As much time as Fed Chief Bernanke spends before Congress, it’s amazing he gets any work done.   I have to say, I’m starting to like Bernanke. His forthright talk is certainly a refreshing change from Greenspan’s garbled speech. Yesterday, he expressed his feelings about all the bailouts.

Nationalization = Communism?

It is a strange sight to see the Dow Industrials trading at 6,700. That’s still a level from 1997. And it still indicates that people don’t want to own stocks. At this point, it seems to be as much about available capital for investment as a willingness to invest. 
Valuations are low, the Dow is trading with a p/e of around 20. But that’s still not as low as it’s been during past recessions.

A Caveman Could do It

Warren Buffett’s annual report for Berkshire Hathaway was released over the weekend. His letter to his shareholders is one of the most widely read investment documents there is. Buffett’s down home charm, inviting sense of humor and investment savvy are always a great read. 
Perhaps the biggest surprise was that the net asset value of Berkshire Hathaway dropped by $11.5 billion. Buffett was not immune to the market’s drop. Despite well-publicized investments in General Electric (NYSE:GE) and Goldman Sachs (NYSE:GS) that are down considerably, the lion’s share of balance sheet loss has come from derivatives, what Buffett has called “financial weapons of mass destruction.”