“This is a very choppy market, and I will be surprised if we have a one-direction of market movement that lasts very long.” – David Resler, chief economist at Nomura Securities International quoted in The Wall Street Journal (11/14/07)
Resler’s remarks correlate to what I wrote for the current Weekly Summary: “Expect to see larger swings in either direction.” I also wrote in the Weekly Forecast daily entries that the market would be choppy. Yesterday’s market action was anything but that, as the indices were on an upward trajectory that accelerated into the close.
In my humble opinion, yesterday’s rally was due to short covering after the market seized on comments Goldman Sach’s (GS) CEO Blankfein made at an investor conference that GS doesn’t expect any “significant writedowns”. (I’m not aware that anyone questioned Blankfein to define “significant”.) No matter. Forget about Bank of America’s (BAC) unexpected $3B writedown.
Once the financials got bullish, it was time to move to the retailers after Wal-Mart’s (WMT) stock closed up $2.65 to $45.97 in its biggest one day gain in 5 years. (Never mind that it is still lower than where it was one month ago.) So they raised full year guidance by 4 cents. Most of WMT’s gains reported were due to improved cost and inventory controls as customer traffic continues to decline. The happy talk got soo happy that even Home Depot (HD) was up despite a 27% decline in 3Q net and lowered guidance.
Oil’s big drop yesterday was also a contributor. Beyond the IEA reducing their worldwide demand forecast (which they’ll probably tinker with next week), December crude options expired yesterday and December futures expire on Friday. (And this is when I got totally blindsided by writing in Monday’s forecast that oil would be up when expiring options/futures contracts expiring will trump planetary cycles!)
Lower oil propped up the airline stocks and revived the merger talk that airlines always fall back on to pump up their stock prices. The latest was Delta (DAL) saying they would be an acquirer in any mergers. Happy talk ignores how you’d get a merger approved by the government during this climate of unfriendly skies for passengers.
Despite the broad-based rally yesterday, there were only 29 new highs on the NYSE vs. 166 new lows. On the NASDAQ, there were 38 new highs vs. 135 new lows. In the Options market, 791,100 puts traded vs. 411,800 calls.
I totally agree with Jim Cramer not to be fooled by this rally as Jupiter (optimism/expansion) is not a long-term influence.
* A song from Rogers & Hammerstein’s musical “South Pacific”
RELATED POST: “Wal-Mart’s One Day Wonder” (10/11/07) found in the Stocks and Predictions sections.