Hey folks, back for my weekly stock market wrap-up. If you browse through my diary you will find a series of posts on the market mixed in with my political postings. If anyone knows how to delete or supress diary holdings I'd appreciate a tip. In general, I had intended this diary as only for the market, but I can't help myself and post other diary entries on politics. Oh well.
The market continued its pullback from the early November yearly highs last week. The S&P 500 closed at 1035.20, -1.4% for the week. The NASDAQ closed at 1893.88, -1.9% for the week. Since its yearly high on 11/3, the S&P has fallen 2.2%. The NASDAQ has fallen 4.2% from its yearly high on 11/6.
In last week's diary, i posted this:
It appears that all the good news on the economy and corporate earnings was anticipated in the run-up and despite continued news that would suggest the economy and corporate profits are strong, the market has stalled. So far, every stall and pullback from highs has been met by buyers taking advantage of the dip. In prior posts, I noted that these dip buyers are probably fed by performance anxiety as many professional and amateur investors have not made as much money as they could have this year. Thus, pullbacks are met with buying from those hoping to capture a year end rally. This coming week will be interesting to see if the pattern continues or if the selling last week was the beginning of a more severe pullback. My own view is that we may see weakness through Thanksgiving followed by one more run to year end. Much will be made of another few percent down being the end of the rally, but I think the market can drop another 5% plus without violating the uptrend in place since spring.
I stand by my opinion that we will pullback into Thanksgiving and then rally to new highs between Thanskgiving and year end. I read some data that said that the day before and day after Thanksgiving have incredibly positive historical correlation to up markets. Many investors know this and will be looking for a rally this week. We'll have to see. I'd note that the character of the market has changed a bit these last few weeks as the dip buyers are not being nearly as aggressive as earlier.
There was not a lot market moving news this past week. And the coming week should be quiet as well. We might look for action in wireless stocks as number portability goes into effect on Monday. Most wireless service providers like AWE and PCS have done poorly but rallied late in the week as some analysts suggested value levels had been reached. I'd agree and would look for good returns form these levels at AWE in 2004. Watch churn levels for a clue to stock performance.
My own holdings had a decent week. Nothing new to report on CETV, MICC, NTLI, MBFI, UCOMA, or CSCO. AEN was in the news as a long discussed combination with Loews Cineplex is back under consideration. Both companies publicly announced they are in discussions about a merger. At the right price, this could be a good deal for AEN and the positive action in AEN shares on the possibility on a major merger suggests others feel the same. Most mergers don't work and investors normally bid down the acquiror. Theatre chains aren't worth a large valuation as they don't control their destiny. If the movies are good, people come. However, after a disasterous period of overbuilding, the industry has healed. Circuits are in good shape and don't require much new investment. Free cash is building and balance sheets are reliquifying. AEN has a particularly good balance sheet by industry standards. As an investor, I find them to be a bit overcapitalized. Thus, a deal adding some debt is fine with me. Again, the price must be right. At close to 6 times forward EBITDA or less would be ideal. In general, I like stocks that offer either financial or operating leverage. After all, the goal in equities is produce above average returns. Operating or fniancial leverage helps as long as the fundamentals are moving in the right direction.
That's it for now. I plan to buy any further weakness and a still expect new 2003 highs before year end. As stated above, the character of trading has changed slightly and that bears watching. I think a little more downside will not violate the uptrend, but it is possible that we are witnessing the beginning of of a shift. Stay on your toes.