The Dow Jones Industrial Average added 44.10 on Friday to reach another all-time closing high today of 15,556.08. The market moved forward on average volume, and all other indices closed in positive territory. What's becoming fairly evident in the percentage gains is that the Dow is beginning to lag the other indices (especially the Nasdaq), as today's top was almost exactly a 33% rise from the previous peak of 11,722.98 on January 14, 2000, 7 short years ago. Fibonacci, anyone?
Of course, some of us remember well what happened just months after that 2000 peak, but the scenarios are widely different. The 2000 peak and subsequent major correction came after an extended period of wild speculative activity with a great deal of new money coming into the market and a gain of well over 100% during the previous five years.
Nevertheless, coming off the March 11, 2003 bottom of 7524.06, today's overall gain checks in at a very healthy 107% in just less than four years.
The market should be close to a top, but there's so much money with a vested interest in this bull run that a correction in the near term seems less likely every day - and that's exactly why it's coming and coming soon.
Just like the sell-off of 2000, it's probably going to appear unannounced, but I'd lay money that it will be tied to a geopolitical event that will occur - or has already been set in motion - over time. The coming correction will not be as severe as others, but careful attention to this quarter's earnings numbers and corporate outlooks for the year may give more of an indication.
I'm only half certain that a correction will occur in the next 3-6 months, considering the momentum of this aging bull. I am convinced that keeping a lid on losses will separate the winners from losers in 2007, however.
Friday, January 12, 2007
Thursday, January 11, 2007
Light Crude Ignites Wall Street
Fears of a recession in the first half of 2007 - a subject of wide speculation - were put aside for today as one of the world economy's most deliberate drivers - crude oil - tumbled as the warm winter in the US Northeast (home to 1/5th of the US population) continued unabated into the second week of January.
Call it Al Gore's Unintended Consequence if you like, but the effects of Global Warming have been a prime mover of Wall Street's good fortune. In what can only be described as a non-virtuous cycle, in which the major precipitator (large industrial corporations which emit greenhouse gas) of Global Warming is currently the recipient of the short-term positive fallout (lower oil prices, fatter profits). The long-term consequences may not be so pretty, but that's a story for another day.
The price for a barrel of light sweet crude oil fell below $52 today, settling at $51.88, and Wall Street responded with a record high close on the Dow and massive gains on the other indices.
The Dow added 72.82, to close at 12514.98, 4 points better than the previous record closing high. The S&P 500 added nearly 9 points; the Nasdaq was up another 25.52, achieving a 6 1/2 year high.
With a the bulk of US corporations reporting quarterly results in the next two weeks, the January effect is beginning to look a little rosier than it has at any time this year. While it's still very early, the indications are moving in a positive direction. Before joining or continuing the party, bear in mind that volume was rather weak and the volatile situation in the Middle East could wreak havoc on today's oil price phenomenon.
Call it Al Gore's Unintended Consequence if you like, but the effects of Global Warming have been a prime mover of Wall Street's good fortune. In what can only be described as a non-virtuous cycle, in which the major precipitator (large industrial corporations which emit greenhouse gas) of Global Warming is currently the recipient of the short-term positive fallout (lower oil prices, fatter profits). The long-term consequences may not be so pretty, but that's a story for another day.
The price for a barrel of light sweet crude oil fell below $52 today, settling at $51.88, and Wall Street responded with a record high close on the Dow and massive gains on the other indices.
The Dow added 72.82, to close at 12514.98, 4 points better than the previous record closing high. The S&P 500 added nearly 9 points; the Nasdaq was up another 25.52, achieving a 6 1/2 year high.
With a the bulk of US corporations reporting quarterly results in the next two weeks, the January effect is beginning to look a little rosier than it has at any time this year. While it's still very early, the indications are moving in a positive direction. Before joining or continuing the party, bear in mind that volume was rather weak and the volatile situation in the Middle East could wreak havoc on today's oil price phenomenon.
Wednesday, January 10, 2007
Should you be a fool?
The Motley Fool, in an article entitled Companies you should buy right now is recommending the following stocks as buy and hold candidates. I have some difference of opinion, but here's a key quote from the article:
The article was originally published Dec. 8, 2006 and has been updated for publication on Jan. 9, 2007. (Makes one wonder which ones were switched out)
Right off the bat, I have some concerns over anyone calling eBay a great company. As I explained in my stock of the day feature, the company has been mismanaged and made poor business decisions for years.
Southwest Airlines? The stock has ranged between 12 and 22 for 5 years and is currently in a holding pattern over 15. Perhaps the "Fools" expect us to hold stocks that fly under the radar of the S&P 500. Maybe we'll just walk away.
Besides being suspected of operating in many countries as a CIA front, Coca-Cola still has that brand appeal, but the world of soft drinks is evolving quickly, toward more eco-friendly and trendy offerings. Coke has hung in gallantly and is a leader, but where is the growth and price appreciation going to come from? I don't see it.
Nike? See above, though the stock has been a stellar performer. Since late 2002, share price has appreciated from 40 to 100. Even I can't knock a 150% return over 4 years.
Another star performer is Boeing, which has run from the high 20s in early 2003 to near 90. Those monster returns are not likely to recur. recommending stocks near their highs may be foolhardy, but hardly prudent.
What can I say about 3M besides that it's so old school. The stock hasn't budged since late 2003, so maybe it's time for a move. Like others here, it does pay a dividend. Are the Motley Fools suggesting that 2-3% returns are de rigeur?
I like Starbucks coffee and the company has a great culture, but American's appetite for $4 lattes may wane and competition is sure to take a bite. Starbucks also sports a p/e over 40, so it's no bargain. Shares have ridden up from 10 to 40 over the past 5 years, and that kind of performance (400%) is going to be hard to top. If there's a winner on this list, this may be it.
Probably the most recognizable name in biotech, Genentech is a leader in profit as well. The company is expected to return 2.68 per share in 2007. However, the price of the stock doubled in mid-2003, split in 2004, ran up to nearly 100 in 2005 and was flat in 2006. This is a well-entrenched company, but maybe a touch pricey with a p/e close to 50. Value may still matter to some.
Overall, what impressed me about these picks was how many were close to their highs after impressive runs over a long bull markets. The Fools might have better served their readers - in an article professing that investors trade too often - by advising to time their buys on these stocks or wait for a general market correction before taking a plunge. They didn't.
I'll keep an eye on these stocks and check back in 6 months, a year, and beyond. Obviously, I don't care much for these picks and will stake my reputation against the Motley Fools, a bunch with whom I've frequently found fault.
Here are the closing prices from January 9 on the Fool's picks:
eBay: EBAY 29.75
Southwest Airlines: LUV 15.81
Coca-Cola: KO 48.61
Nike: NKE 99.76
Boeing: BA 88.00
3M: MMM 77.68
Starbucks: SBUX 34.86
Genentech: DNA 84.69
What makes a great company? That's the rub. There can be a lot of ways to measure greatness. eBay (Nasdaq: EBAY) and Southwest Airlines (NYSE: LUV), for example, have high net promoter scores. Coca-Cola and Nike (NYSE: NKE) have nearly unmatched brand and marketing savvy. Boeing (NYSE: BA) and 3M have long histories of innovation. Starbucks (Nasdaq: SBUX) and Genentech (NYSE: DNA) have strong corporate cultures and are among Fortune's 100 Best Companies to Work For.
The article was originally published Dec. 8, 2006 and has been updated for publication on Jan. 9, 2007. (Makes one wonder which ones were switched out)
Right off the bat, I have some concerns over anyone calling eBay a great company. As I explained in my stock of the day feature, the company has been mismanaged and made poor business decisions for years.
Southwest Airlines? The stock has ranged between 12 and 22 for 5 years and is currently in a holding pattern over 15. Perhaps the "Fools" expect us to hold stocks that fly under the radar of the S&P 500. Maybe we'll just walk away.
Besides being suspected of operating in many countries as a CIA front, Coca-Cola still has that brand appeal, but the world of soft drinks is evolving quickly, toward more eco-friendly and trendy offerings. Coke has hung in gallantly and is a leader, but where is the growth and price appreciation going to come from? I don't see it.
Nike? See above, though the stock has been a stellar performer. Since late 2002, share price has appreciated from 40 to 100. Even I can't knock a 150% return over 4 years.
Another star performer is Boeing, which has run from the high 20s in early 2003 to near 90. Those monster returns are not likely to recur. recommending stocks near their highs may be foolhardy, but hardly prudent.
What can I say about 3M besides that it's so old school. The stock hasn't budged since late 2003, so maybe it's time for a move. Like others here, it does pay a dividend. Are the Motley Fools suggesting that 2-3% returns are de rigeur?
I like Starbucks coffee and the company has a great culture, but American's appetite for $4 lattes may wane and competition is sure to take a bite. Starbucks also sports a p/e over 40, so it's no bargain. Shares have ridden up from 10 to 40 over the past 5 years, and that kind of performance (400%) is going to be hard to top. If there's a winner on this list, this may be it.
Probably the most recognizable name in biotech, Genentech is a leader in profit as well. The company is expected to return 2.68 per share in 2007. However, the price of the stock doubled in mid-2003, split in 2004, ran up to nearly 100 in 2005 and was flat in 2006. This is a well-entrenched company, but maybe a touch pricey with a p/e close to 50. Value may still matter to some.
Overall, what impressed me about these picks was how many were close to their highs after impressive runs over a long bull markets. The Fools might have better served their readers - in an article professing that investors trade too often - by advising to time their buys on these stocks or wait for a general market correction before taking a plunge. They didn't.
I'll keep an eye on these stocks and check back in 6 months, a year, and beyond. Obviously, I don't care much for these picks and will stake my reputation against the Motley Fools, a bunch with whom I've frequently found fault.
Here are the closing prices from January 9 on the Fool's picks:
eBay: EBAY 29.75
Southwest Airlines: LUV 15.81
Coca-Cola: KO 48.61
Nike: NKE 99.76
Boeing: BA 88.00
3M: MMM 77.68
Starbucks: SBUX 34.86
Genentech: DNA 84.69
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