|MV Weather Report: September Storms Spook Investors|
By Matt Theal SEP 01, 2009 4:35 PM
Rain or shine, we reivew the day's biggest stock stories.
The much anticipated September sell-off arrived today, on time nonetheless. After initially trading higher the S&P 500 went into complete freefall for about an hour. For the day, the index closed down by -2.21% to 998.
September is a historically the worst month for stocks, but there was no piece of news in particular that would lead to a selloff. For instance, the ISM index was released this morning and it came in a better than expected 52.9 vs. 50.5 consensus estimates. It was the seventh straight month over month increases for the manufacturing index and the first time is has showed expansion since January of 2008.
Today on the Buzz and Banter, Professor James Kostohryz gave his thoughts on the ISM and the current state of the market.
“On a fundamental basis, the manufacturing heavy indicators continue to point to a recovery that seems to be related to an inventory correction. On the other hand, questions about the sustainability of that recovery remain as various indicators point to various weaknesses in US consumption on the aggregate. This situation is likely to persist for a while so I may be sounding like a broken record.
“Technically, I think that the market above S&P 1,010 had to be given the benefit of the doubt. However, with the inability of the market to rally on good news and today’s decline below the aforementioned breakout range, the technical picture has turned more neutral in my view.
“My positions remain unchanged: Bullish side: Apple (AAPL), Bank of America (BAC), Palm (PALM). Bearish side: short Gold (GLD), Emerging Markets (EEM) and long Short China (FXP) and Short Crude (DTO). I am mainly long cash, however. I do not see clear reasons to be making big bets on the long side or the short side.”
Professor Kostohryz is right; the risk reward for making big bets right now is not there. On one hand, the market is selling off on good news, which shows it's priced in and investors are looking for reasons to take profits. On the other hand, every pullback since March has been met with buyers, showing money managers who missed the move (there are a lot of them) are suffering from performance anxiety and are anxious to put cash to work.
That being said, Professor Smita Sadana thinks we could be nearing a short-term oversold reading. Here's her buzz from today.
"You know what’s the most important thing on my radar as of now?
"McClellan Oscillator, which is getting close to short-term oversold levels.
"Oversold? I know it doesn't sound right even as I can confirm from the visual. Mind you, this is an extremely short term window, which can be worked both by price or time. None of my other short term indicators are flashing oversold right now.
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"Ideally, I would like to see the SP-500 at the first support level that I mentioned earlier, combined with oversold readings since a premature move from here can prolong the uncertainty.
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To summarize, September is historically a poor month for stocks, good news seems to be priced in but the dip buyers have always showed up and some indicators are flashing oversold readings. Therefore, as Professor Kostohryz said there is no reason to make big bets here.
Have a great night!