11/6/08

Economics

This Week’s Data

Weekly mortgage applications fell 14%--really disappointing after some tentative signs of improvement in the housing market.

The Institute for Supply Management reported its October nonmanufacturing index at 44.4 versus expectations of 48.0 and 50.2 recorded in September.

Other

Politics

Domestic

International War Against Radical Islam

The Market

Technical

A look at historically how the stock market has performed in November following a down October (must read):

http://bigpicture.typepad.com/comments/2008/11/novembers-in-th.html

How the market performs following a down day after a presidential election:

http://bespokeinvest.typepad.com/bespoke/2008/11/the-market-votes.html

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The indices (DJIA 9139, S&P 952) remain in a trading range (DJIA 7853--9707; S&P 839--1062), after having traded up to prior resistance levels (the 2004 low in the case of the DJIA and the recent trading high for the S&P). The volatility rebounded but did not rise above the lower boundary of the uptrend off the September low. That suggests further weakness in the VIX which in turn points to higher stock prices. Volume continues low. The day started with more poor economic numbers--again; but stock prices didn’t roll over till later in the day. Finally, the late in the day sell off hinted that margin call/fund redemptions may not be over.

Cramer thinks there is more hedge fund selling to come:

http://www.thestreet.com/p/_htmlrmd/rmoney/jimcramerblog/10446286.html

Bottom line: nothing suggests that stocks won’t stay in the current trading range. Tuesday and Wednesday’s pin action added strength to the notion of the October 2004 low’s as a resistance level (the top of the trading range). Right now I am focusing on two things (1) on the level at which stocks will find support. Right now there are two easily identifiable ones: the 10/10 intraday lows [see above] and the up trend line defined by the series of higher lows off the 10/10 intraday low. (2) a Buy List when that support level is more clearly defined.

Fundamental

The High Yield Buy List

Company Close 11/5 Buy Value Range

Leggett & Platt $16.69 $14-16

Mercury General 42.23 40-46

Pacer Int’l 11.00 11-13

Pfizer 17.00 17-20

Reynolds American 47.07 45-52

Sanofi Aventis 29.69 26-30

Zenith Nat’l Ins 31.34 32-37

News on Stocks in Our Portfolios

Tuesday, Sun Hydraulic (Aggressive Growth Portfolio) reported third quarter earnings per share of $.40 versus expectations of $.41 and $32 recorded in the comparable 2007 quarter. However, the stock got whacked (-20%) on management’s cautious comments about fourth quarter earnings. Like Alcon and Avon, I think that this sell off was overdone--the stock traded down to its 10/10 low. I am doing more work but Aggressive Growth Portfolio will probably Buy more shares (approximately half of the shares of the original position had been sold in prior transactions) assuming that I don’t come up with anything more negative than what we already know and the stock stabilizes as ACL and AVP did.

Wells Fargo (Dividend Growth Portfolio) announced yesterday that it would issue $10 billion in common stock which was approximately one half of what it had previously said that it issue.

A positive write up on Manulife Financial (Dividend Growth Portfolio):

http://seekingalpha.com/article/104395-manulife-financial-enduring-value?source=front_page_long_ideas

More Cash in Investors’ Hands