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Small-Cap U.S. Stocks Rally After JPMorgan Predicts 12% Advance
By Lynn Thomasson
Jan. 31 (Bloomberg)
Originally posted by Lynn Thomasson
The Russell 2000 Index gained almost twice as much as the Standard & Poor's 500 Index after JPMorgan Chase & Co. said the measure of small U.S. companies will surge because its members are cheap and investors are too pessimistic.
"The market is telling us that the stocks have bottomed and a recession isn't going to happen,'' Thomas Lee, U.S. equity strategist at the New York-based bank, said in an interview. ``By buying small-caps now you'll be ahead of investors as they get more comfortable with the economy.'' The index, whose members have a median market value of $539.5 million, will gain 12 percent from yesterday's close to 780 in the next six months, he said.
Almost $150 billion in mortgage losses at banks and record foreclosures gave the Russell 2000 a 22 percent decline last week from its July record. That was the biggest drop since 2002. The gauge underperformed the S&P 500, whose members have a median value 23 times larger than the small-cap gauge, last year for the first time since 1998.
The Russell 2000 rose 2.6 percent to 713.30, led by rallies in video recorder-maker Tivo Inc. and software company Concur Technologies Inc.
The S&P 500 gained 1.7 percent.
Small companies have fallen too rapidly, Lee said, citing the so-called relative strength index. Technical analysts use the RSI to predict when unusual gains and retreats will probably reverse. The weekly RSI on the Russell 2000 dropped to 19.7, according to Lee's data. The other two times it got that low, the index advanced an average of 28 percent in six months.
'Extreme' Pessimism
Bearish investors outnumbered those who are bullish by the most since November 1990 during the week ended Jan. 10, according to an American Association of Individual Investors survey. The proportion of people who were pessimistic was 58.9 percent, compared with 19.6 percent who were optimistic, AAII found.
The "extreme'' pessimism reached this month suggest small stocks will rebound from their six-month decline, Lee said. The Russell 2000 typically gains 20 percent in the six months following similar differences between pessimism and optimism, according to the strategist.
Two-thirds of the companies in the Standard & Poor's SmallCap 600 Index, another small-company benchmark, are cheap according to the so-called Fed model, Lee said. That's one of the highest readings ever, he added.
Projected annual per-share earnings divided by stock price in the Russell index exceeds the yield on the benchmark 10-year Treasury note. The size of the spread implies a 20 percent rally by small-cap stocks by the middle of the year, Lee wrote, citing the Fed model.
Tivo, whose recorders let television viewers skip advertisements, added 29 percent to $8.77. The company won an appeals court ruling that Dish Network Corp. infringed a patent on its technology.
Concur had the biggest gain since May 2001, rising 24 percent to $35.06. The maker of software that automates business- expense reporting posted twice the profit that analysts estimated, according to Bloomberg data.
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net . Last Updated: January 31, 2008 16:42 EST
Personally, I am very nervously bullish, just because it seems everyone else is bearish.
Jim 69 y/o
"...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)
Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.
Good judgement comes from experience; experience comes from bad judgement. Unknown.
Feb. 4 (Bloomberg) -- August Busch III, an AT&T Inc. board member since 1980, bought $2.27 million of shares in the biggest U.S. phone company last month, his largest purchase on record. Monsanto Co. director William Parfet added to his holdings in the world's No. 1 seed producer for the first time in eight years.
Chief executive officers, directors and other senior officials in corporate America are buying more of their companies' shares than they're selling for the first time since 1995, prompting growing confidence the stock market is poised to rally for the rest of the year.
The last seven times insiders bought more than they sold, between 1988 and 1995, the Standard & Poor's 500 Index rallied an average 21 percent in the following 12 months, according to data compiled by the Washington Service. The purchases show executives believe the worst may be over after stocks suffered the biggest January drop in 18 years on signs the economy is in a recession.
"If it's so bad, how come these guys are gobbling up their own companies' stock? That's the telltale indicator,'' said Fritz Meyer, 57, the Denver-based senior market strategist at AIM Advisors Inc., which manages about $166 billion. ``Companies are in the best possible position to assess the economic outlook.''
What do you think, could these insiders possibly know something that isn't known on iTulip?
Same article:
While executives step up buying, short sellers are betting against U.S. companies like never before. The amount of short selling -- when traders sell borrowed shares expecting to buy them back after prices fall -- grew to 3.7 percent of the total shares on the NYSE last month, the highest since at least 1931.
Last edited by Jim Nickerson; February 05, 2008, 12:25 AM.
Jim 69 y/o
"...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)
Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.
Good judgement comes from experience; experience comes from bad judgement. Unknown.
The point is, gold has been a super, consistently profitable investment for years. It's in a long-term bull market rise. The major trend is clearly up and it's strong. The fundamentals are solid, the technicals look great and as long as that's the case, gold is headed much higher.
Jim 69 y/o
"...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)
Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.
Good judgement comes from experience; experience comes from bad judgement. Unknown.
If one goes to the link above and selects "max" on the Range of the graph, you can guess the peak in traffic in 2Q06 was "bullishness" coinciding with the rise in Gold to 715 at the same time. Link below is $Gold chart.
If what I wrote in paragraph were to be true, there certainly is no sign of bullishness presently denoted by the measure of traffic to kitco.com. This could support those who contend that the public is basically not into the gold market.
Jim 69 y/o
"...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)
Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.
Good judgement comes from experience; experience comes from bad judgement. Unknown.
The inside bet
Commentary: Insiders are betting heavily on bull-market rebound
By Mark Hulbert, MarketWatch
Last update: 12:01 a.m. EST Feb. 5, 2008
Originally posted by Hulbert
ANNANDALE, Va. (MarketWatch) -- It's been a month since I checked on what corporate insiders are doing.
It turns out that they are even more bullish now. Which is saying something, since they were already very bullish a month ago. See Jan. 8 column
Corporate insiders, of course, are a company's officers, directors, and largest shareholders. Whenever they buy or sell any of their company's shares, they are required to report those transactions more or less immediately to the Securities and Exchange Commission. Many pay close attention to what the insiders are buying and selling, since there is a significant body of research showing that insiders are usually more right than the rest of us.
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To be sure, the week-to-week numbers are volatile. For that reason, Vickers also calculates an eight-week moving average that is the ratio of all insider sales over the trailing 8 weeks to all insider purchases. For the eight weeks ending Friday, this sell-to-buy ratio stood at 1.39-to-1. Vickers considers any ratio below 2-1 to be bullish. The last time that it was actually this low was in November 2002, just after the 2000-2002 bear market hit bottom.
Skeptics will quite rightly point out that insiders are not perfect. Despite their bullishness in early January, for example, the Dow proceeded to fall some 900 points in the 10 trading sessions following my month-ago column.
But it would be a mistake to expect the composite insider data to have short-term market timing significance. Because of strict insider trading laws and regulations that prevent insiders from buying immediately before their companies announce good news, and from selling immediately prior to bad news, insiders wanting to exploit their inside knowledge must act many months in advance.
So the stock market's January correction is not a valid reason to dismiss the insight we can gain by following the lead of corporate insiders.
I submit that the proper way of interpreting the insiders' bullishness in recent weeks and months is that there is a good probability that the stock market will be significantly higher in one year's time.
Jim 69 y/o
"...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)
Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.
Good judgement comes from experience; experience comes from bad judgement. Unknown.
I subscribed to Russell's newsletter for a year, ending last October. In the solicitations for renewal that I got, somewhere it seemed I recalled a statement that "there are no refunds under any circumstances," and Russell's letter costs $250/year. Russell is 83 or 84 y/o, and I wrote the subscription service a note and pointed out that we all die, and if Russell died during the term of my subscription would there be a refund?
They replied, no Russell would use it for burial expense. To which I replied, they should just give Russell and enema and bury him in a cigar box, that would not cost much and should allow apppropriate refunds in the case he dies. I didn't renew.
Richard Russell of Dow Theory letters seems to have decided that his belated bullish conversion last summer has not, after all, been whipsawed. See Aug. 6 column
He wrote on Friday: "There may be a lot of lousy news coming up, and that lousy news may rock the market, but unless the Transports and the Industrials both break below their January lows, the market is saying that it has already discounted the worst that can be seen ahead. As I see it, the lows have been put in, but the upside remains open-ended."
Russell is a smart man, I think, and certainly has a lot of experience of looking at markets. I think he can be a bullshitter at times, but one thing he tends to maintain steadfastly is that one needs to look at what the markets are doing because in the longer term that is what counts. What doesn't count is when the markets don't do what observers think they ought to be doing. Russell said more than once he was always paying attention to figure out what the markets were "saying," and subscribers should rest easily that he was paying attention for them. The real problem is to figure out what the markets are doing, and Russell certainly looks at technical analysis to a degree to try to figure it out.
Russell has as good a comprehension as anyone who is not any insider has about what the markets may do.
Jim 69 y/o
"...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)
Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.
Good judgement comes from experience; experience comes from bad judgement. Unknown.
U.S. Stocks Near an `Important Bottom,' Biggs Says (Update2)
By Elizabeth Stanton and Betty Liu
Feb. 11 (Bloomberg) -- Barton Biggs, co-founder of hedge fund Traxis Partners LLC, said he's ``gradually increasing'' his holdings of U.S. equities because he doesn't expect a recession and shares are ``very, very cheap.''
Biggs, the former global investment strategist for Morgan Stanley, said in a Bloomberg Television interview that the market is ``at or very close to an important bottom'' and may be led higher by banks and brokerages when a rally occurs. Some financial companies may advance 20 percent to 25 percent over periods of two to three weeks, said Biggs, who helps manage $1.5 billion in Greenwich, Connecticut.
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Biggs correctly forecast U.S. equities would rebound from declines in March and August last year. On March 16, following a 5 percent decline by the S&P 500 from its Feb. 20 peak, he said stocks were approaching a bottom and predicted a gain of as much as 15 percent for the index in 2007.
The S&P 500 rose as much as 12 percent from that level before retreating to end the year with a 3.5 percent gain.
On Aug. 16, after a 9 percent decline by the index, Biggs said it was bottoming and predicted a rebound. The benchmark rose almost 11 percent over the next seven weeks.
I'm not finding much bullish news. Anyone find any, please post it
Jim 69 y/o
"...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)
Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.
Good judgement comes from experience; experience comes from bad judgement. Unknown.
David Fuller (Fullermoney): What some smart investors are doing “First, a drama review. We had a repeat of August’s shock and awe last month. Practically everyone expects a threepeat (an American portmanteau word). George Soros has become the high priest of US bashers, predicting a road to serfdom. US banks, issuing bearish reports on each other, propelled short selling on the New York Stock Exchange last month to its highest levels since 1931! Even Asian investors have been quaking recently.
“These are reasons enough for investors to despair of worldly goods and head fatally for the window ledge, except gentle reader, they are contrary indicators.
“Let us now consider what some smart people are doing: Monoline bond insurers meltdown? You have almost certainly heard about it but guess what – Warren Buffett wants to assume their liabilities. Banks are Devil’s spawn, right? Well, that may be an exaggeration and Bill Gross of Pimco said ‘Citigroup, Bank of America and Wachovia Corp. were appealing’. Mortgage meltdown? Sure, but this is an election year, so look at Hank Paulson’s latest effort. Lastly, Barton Biggs, who has seen a few market cycles said yesterday that the market is ‘at or very close to an important bottom’. That remains the Fullermoney view.” Source: David Fuller, Fullermoney, February 12, 2008.
Investmentpostcard is the best summary of samplings of interesting financial articles, opinions of which I am aware.
Jim 69 y/o
"...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)
Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.
Good judgement comes from experience; experience comes from bad judgement. Unknown.
The stock market got hit early on mainly bad news on the inflationfront. In the FOMC minutes from the last meeting, the Fed said theeconomy would slow even more and that inflation was worsening. In spiteof this, the market fought back from a deficit of 110 Dow points andclosed well into the green.
We think that essentially there is a battle going on betweenliquidity and news. The news is bad, but there is a lot of moneysloshing around and this limits the vulnerability of stocks.
For instance, we note that the total credit balance in brokeragemargin accounts is over $246 billion. Back in July of 2006, it was $126billion. Cash balances have gone from $81 billion to $128 billion duringthe same period. These are increases of 95% and 58% respectively. While the Dow has moved higher by about 1200 points since early July of '06,it hasn't cost anything in brokerage liquidity, in fact it hasincreased. We will try to put together a chart of this in the not toodistant future.
In the meantime, gold has surged to still another all time high. Itwas down sharply in the early going, but as stocks recovered so didgold. It is now overbought again, but it continues to look higher.
Bonds were smacked again, but crude held its recent gains andinched higher still again.
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BOTTOM LINE: Our intermediate term systems are on a buy signal. Mutual fundinvestors and investors in the S&P 500 ETF symbol SPY are 100% long. TheSPY was bought at 146.62.
Short term ETF traders are in cash. Let's stay there for right now.
OTHER MARKETSWe are on a sell for bonds as of January 24.
We are on a buy for the dollar and a sell for Euro as of November 30.
We are on a buy for gold as of February 19.
We are on a buy for crude as of January 24.
We are long term bullish for all major world markets, including those ofthe U.S., Britain, Canada, Germany, France and Japan.
I don't know what event or thing of psychological impact will move people out of cash and into the long side of the market, but if something does it seems, if this guy Todd is correct, there is a lot of money that could move equities higher.
Jim 69 y/o
"...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)
Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.
Good judgement comes from experience; experience comes from bad judgement. Unknown.
Jeffrey Saut (Raymond James): Stock market outlook turning favorable “… we are treating the January lows of 11 971.19 (DJIA), and 4 140.29 (DJTA) as ‘internal lows’ until proven wrong. Additionally, we would view a breakout above the Dow’s recent reaction high of 12 750 as very constructive action.
“Meanwhile: 1) it’s been six months since the Fed began cutting interest rates, which is the typical time lag when rate cuts start to be impactful; 2) the economic stimulus package passed; 3) income tax refunds have started to flow and the stimulus packages’ rebate checks will start in 12 weeks; 4) conforming ‘mortgage caps’ will be raised from $417 000 to $730 000 in eight weeks (the refi application index has already soared); 5) money supply (M2) has increased $90 billion over the last two weeks; and don’t look now, but Ben Bernanke allowed the Federal Funds rate to dip from 3.00% to 2.75% for a day last week before snapping it right back to 3.00% in what we consider to be a signal short-term interest rates will be lowered again at the March FOMC meeting … causing one old Wall Street wag to lament, ‘Every government sponsored economic stimulus program since 1948 has worked, so I am inclined to give this one the benefit of the doubt!’” Source: Jeffrey Saut, Raymond James, February 19, 2008.
It would be interesting to know who is the "one old Wall Street wag."
Edit: anyone looking for bullish perspectives should go to the link above and continue reading.
Jim 69 y/o
"...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)
Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.
Good judgement comes from experience; experience comes from bad judgement. Unknown.
NEW YORK (MarketWatch) -- Bulls, and mayflies, are quick to cavort when the sun shines. But, hey, maybe it's spring.
Three strong days in the stock market, despite really nasty economic news, has brought bulls (and mayflies?) out in force.
In fact, it's even brought some bears out too. Pring.com's Martin Pring, author of the chartists' bible, "Technical Analysis Explained," wrote in a special bulletin on Monday night: "There are some tentative signs that the correction is over and that a rally of intermediate term proportion is probably in the cards. Every first quarter of years ending in the number "8" since 1900 has represented intermediate term buying opportunities. The market is now set for another."
But, Pring added: "None of this can be interpreted as reversing the primary trend, which until proven otherwise is bearish."
Pring's short-tem bullish argument was couched in terms of his favored internal market momentum measures. But he did add: "Obviously a lot will depend on the next couple of sessions, for virtually any higher close will complete this reverse head and shoulders in the S&P 500 Index ($SPX: ."
A head-and-shoulder formation (reverse or not) is a classic chartist formulation.
Dow Theory Letters' Richard Russell is in the embarrassing position of a permabear turned bullish turned, well, nervous. See Aug. 6 column
But Tuesday night, Russell was distinctly less nervous about stocks. He wrote: "My suggestion, if you are willing to trade, is to take a position in Dow Diamonds ETF (DIA: and place a stop-loss about 5% below your purchase price. I say this based on my 'guess' that the Dow and the Transports will break out above their Feb. 1 closing highs."
Of course, this hint will not be counted by the ruthless Hulbert Financial Digest monitoring system because it doesn't explicitly appear in Russell's model portfolio. But Russell groupies will be interested.
The there's Don Hays of the respected institutionally-oriented Wall Street triumphalist Hays Advisory. See May 24 column
He wrote on Monday: "Twelve Days! ... and you think that those 12 days have changed the American investment scene. I know they were horrendous days. The S&P 500 lost 9.4%. The Nasdaq lost 12.7%, and many of those offending lending organizations got clobbered with 50% losses."
But Hays remained triumphalist: "It is not easy to convert a world that is largely dependent on one free country's consumers into a world in which Democracy and a capitalistic society is trying to be spread throughout a growing world, especially when you have those feudalistic Islamic extremists that are doing all in their power to disrupt it. But step by step it is evolving and the world is being transformed."
Hays' conclusion: "Rest assured that we remain very bullish, and do not believe the recent panic decline that has erased much of our gains of the last one year is a new bear market, but rather just one of those periods in which the wisdom of the market realized it was time to get rid of some of the potentially disturbing excesses in the financial community ..." 'Is there any "safe investment today?' It is not my nature to speak in these words, but I can't think of any more emphatic way to say it ... "Hell, Yes!" The U.S. stock market."
This guy Hays according to previous comments by Brimelow is supposed to be a rather smart dude. It sticks in my mind that he has been unwaveringly bullish, but I could be wrong on that. I don't know anything personally about Pring. Russell is credible and a smart old fart.
Jim 69 y/o
"...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)
Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.
Good judgement comes from experience; experience comes from bad judgement. Unknown.
ANNANDALE, Va. (MarketWatch) -- Gold bullion continues on its seemingly inexorable march upward, hitting yet another record high in trading Thursday.
Yet the editors of gold timing newsletters aren't becoming commensurately more bullish.
Therein lies a contrast that, from a contrarian point of view, bodes well for gold.
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And, insofar as the gold market continues to live up to historical precedents for how sentiment behaves during a bull market, the final high will be accompanied by a record level of bullish exuberance.
That could happen right away, of course, or could not take place until a number of weeks or months have passed.
But until it does, contrarians believe that the path of least resistance for gold will continue to be up.
I think the article is worth one's time to read if one is invested in or thinking about selling or buying.
Jim 69 y/o
"...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)
Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.
Good judgement comes from experience; experience comes from bad judgement. Unknown.
But the Adens do think something quite nasty is going on. They write: "The dollar may be forming a mini bottom and it could soon move up in at least a rebound rise. But that's probably the best the dollar will be able to do and it'll likely coincide with a downward correction in the gold price. Over the longer-term, it's another story. Even if the dollar index were to rise to as high as 84.40, it would still remain in a major bear market decline. But we don't think it'll rise near that high ... It has become crystal clear that the Fed is willing to sacrifice the dollar in order to avoid a recession."
The Adens think stocks may stabilize: "The market will be on firmer ground if the Dow Jones Industrial Average and Dow Jones Transportation Average can now stay above their January lows at 11,970 and 4,140, respectively ... they would both turn bullish again above 13,350 and 4,850. Should that happen, it would be very good news and a strong sign that the worst is behind us."
They think gold may make a serious correction but that it "will likely be much higher before the year is over. And it'll certainly be a lot higher as the years ahead unfold."
Their current, fairly doomish, recommended investment allocation:
20% cash: euro; Swiss franc; yen; Singapore, Australian, Canadian and New Zealand dollars or currency funds.
40% gold and silver physical and exchange-traded funds and gold and silver shares;
40% energy and natural resource stocks.
I just ran across this, and Brimelow posted it Wed. so the Adens wrote it I presume at least a day or more sooner.
Jim 69 y/o
"...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)
Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.
Good judgement comes from experience; experience comes from bad judgement. Unknown.
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