Is This Rally Overdone?
The markets opened higher Friday as we
end the quarter on an up note.
Stocks rallied in the session as
mutual funds continued with their end-of-quarter window dressing and
portfolio balancing. Is this rally going to last or is it overdone? Well the fact
is, we are heading into one of the most difficult months of trading in the
market’s history: October.
Aside from
the end of quarter, the public may view it as a time to buy especially since
stocks have been beaten up so much lately. Is this really the case? Well, if we
take a look at the forward earnings yield for the S&P 500, we see that the yields
are still below bond yields, which indicates at best that stocks are at fair
value, but not overly cheap. It really depends on how you look at forward
earnings, and most analysts are optimistic and view next year’s
earnings at or above their cyclical peak levels.
Is this a realistic view or not? With
indications that growth will be slow for the economy, thus affecting corporate
earnings, my opinion is that we should not hold our breath for those high flyers
with extremely high growth rates. We should be go back to basics and conduct a
more in-depth balance-sheet-analysis approach, looking for stocks with
consistent growth and sound technical patterns…hmm, sound familiar?
Breadth for the session was positive
with NYSE advancers leading decliners 2470 to 719. The same went for the Nasdaq
as advancers led decliners 2208 to 981.
The CBOE Volatility Index
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fell 5.9% and the Nasdaq 100 Volatility Index
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signals triggered indicating a downward bias for Monday.
The broader markets closed higher with
the Nasdaq Composite tacking on 2.5% and the Dow Jones Industrials gaining 1.8%.
Volume was robust for the session.
Sectors moving up were the Airline
Index
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The Oil Services Index
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closed 6.3% higher.
And the Securities Broker Dealer Index
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Losing ground fractionally were the
Gold and Silver Index
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Stocks gaining, Continental Airlines
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which climbed 15.3%.
Calpine
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CPN |
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the company said it expects Q3 numbers to be in line with estimates. The company
sees earnings in the range of 85 cents to 90 cents a share, analysts polled by
Thomson Financial/First Call were estimating a range of 75 cents to 95 cents
with a consensus of 89 cents.
Galileo International
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on 13.2%
Sage Inc.
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higher 34.2% after Genesis Microchip
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Individual losers were Cullen Frost
Bankers
(
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to Market Perform.
Universal
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due to a downgrade by BB&T Capital Markets from Strong Buy to Long Term Buy.
Sony
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And ATMI
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after the company warned that Q3 losses would be wider than expected. The
manufacturer of equipment for chipmakers now sees a loss of between 18 cents to
22 cents vs. analysts’ consensus of 9 cents, according to a survey taken by
Thomson Financial/First Call.