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Stocks tried to rebound with vigor in the second half of the past week, pushing the Dow Jones Industrials Average up 350 points in 27 hours, due in equal parts to favorable moves in the currency markets, short covering, mean reversion and bargain hunting.
I do not expect the former leadership of growth “story” stocks like Tesla (TSLA) to be reasserted now, much as I did not expect former growth leader Apple (AAPL) to reassert itself a year and a half ago when it stumbled into oblivion.
But a bounce was overdue, if for no other reason than to keep the short-sellers from getting too cocky. Markets are funny that way.
Tailwinds have been provided by good-but-not-great economic data out of China, and a solid industrial production report here at home. Federal Reserve Chairman Janet Yellen was also on the tape Wednesday with comments that did not cause global hysteria for once, as she largely reiterated excuses for why the Fed’s massive money-printing program had not put more people back to work.
A Merrill Lynch analyst highlighted the jump in Chinese power consumption, considered a leading indicator of real economic activity. Apparently the year-over-year growth rate last month rose to 7.2 percent from 4.5 percent, in case you were wondering. That’s what you call electrifying analysis.
Tensions in Ukraine were still simmering but were largely ignored in the past week. There were reports Wednesday of Ukrainian armored personal carrier units defecting to pro-Russian forces as well as causalities in the anti-Kiev camp.
Cyclicals have carried the day thanks to a strong performance by industrial stocks, which gained 1.5 percent as a group. Airlines put in a first-class performance, reversing some recent weakness, with the big three, Delta Airlines (DAL), American Airlines (AAL) and United Continental (UAL), up around 5 percent on Wednesday alone. Zoom, zoom.
Beleaguered big tech and biotech stocks motored higher as well on rampant short-covering, with the iShares Nasdaq Biotechnology ETF (IBB) up 2.4 percent for its best gain in a week as it retook its 200-day moving average.
News flash: Many big biotech stocks are quite cheap now, including Gilead Sciences (GILD) and Celgene (CELG). Not saying they are going to go straight up from here, not at all, but you can start to buy them at these depressed prices without feeling like an idiot; the value is there.
According to calculations of boutique research firm Parallax Financial, which I trust, the intrinsic value of Gilead is at least $114.50, vs. the Wednesday close of $69. Celgene’s worth is around $281, vs. the $142 close. Biogen Idec (BIIB) is worth around $604, vs. the recent $291 close. Jazz Pharma (JAZZ) is worth $290, vs. the $136 close.
The bad news? Big tech earnings from the likes of Google (GOOG) and IBM (IBM) missed by a mile. IBM disappointed on revenue as business from emerging market economies slumped. Google missed on both top- and bottom-line results on a drop in the cost-per-click of its ads. Maybe they should stop buying drone manufacturers and focus on their main business. Is that too much to ask? Google is overvalued by around $300, while IBM is undervalued by $170.
An ongoing bid for safe haven Treasury bonds suggests the bulls are playing it defensively here — protecting critical technical support levels like the 200-day moving average of the Nasdaq, shown above, and the 125-day moving average on the S&P 500, rather than aggressively rushing the bears.
Bottom line: I suspect that while the worst of the mean-reversion smackdown of growth stocks is done, there is still more choppiness ahead that will bedevil bulls and bears alike. So if you are a trader, remember that the old war movie line about cigarettes also applies to profits: Smoke ’em while you got ’em.
Best wishes,
Jon
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EDITOR’S PICKS
After Five Years of Turbo-Charged Stocks, Where to Now? by Bill Hall Three-and-a-half months into 2014, stocks — as measured by the Dow Jones Industrial Average — are down about 1 percent for the year, leaving investors disappointed, especially after 2013’s 32-percent rise. The True Specter Haunting the World Right Now… by Larry Edelson A specter is haunting the world … and it’s NOT the specter of communism. Or the collapse of capitalism. It’s the specter of the ramping up of the war cycles I’ve told you about — bloody regional and civil wars like we haven’t seen since the 1930s … wars that may soon wreak havoc with your finances … further erode your civil liberties … and maybe even endanger your personal safety. by Don Lucek The recent declines in stocks bring to mind a cup of cappuccino: Investors blowing the froth off the top before getting to the substance, in this case earnings reports or any real news. |
THIS WEEK’S TOP STORIES
Where — and When — the ‘Smart Money’ Is Placing Its Bets by Mike Burnick Stocks remain under selling pressure this week as they have been since the start of the second-quarter of 2014. The Dow Jones Industrial Average reached a peak of 16,574 on April 4, and for the most part, it’s been downhill since then. The Silver Lining of the Recent Nasdaq Shakedown by Jon Markman Stocks have been under pressure in the past couple of weeks over concerns that central banks around the world are backing away from their commitment to monetary stimulus at a time when the global economy has still not sufficiently recovered from the 2008 financial crisis. by Mike Larson Interest rates are the sun around which all the other capital markets revolve. That’s one of the most important lessons I can share with you. So it stands to reason that IF you can figure out what’s going to happen with interest rates and monetary policy, you can make a killing in other markets as well. |
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Your colleague Bill Hall said it best: "the factors that have propelled stock prices higher and higher over this period (since 2008) are running out of steam."
How can your new Tech Superstar service continue to make these outstanding profits you advertise under conditions that are "running out of steam"?