Wednesday, October 22, 2014

Accentuating the Positives (excerpt)

Over the past few weeks, as stock prices plunged, investors all focused on the reasons behind the rout. It wasn’t too hard to come up with a worry list. Now that stock prices have been rebounding over the past few days, the worry list seems a bit less worrisome, as I noted on Monday.

After falling as much as 2.3% below its 200-day moving average last Wednesday, the S&P 500 rebounded to 1.8% above it yesterday. On a closing basis, the S&P 500 dropped 7.4% from its record high on September 18 to its recent low last Wednesday. That’s more of a dip than a correction. Even on an intra-day basis, the drop was 9.8%, just shy of the 10% definition of a certifiable correction.

The S&P 500 Transportation index actually held its 200-dma last week, and rebounded dramatically since then above its 50-dma and yesterday to within a whisker of its September 18 record high. It had sold off, led by airline stocks, on fears that Ebola would depress passenger traffic. Now that Ebola fears are subsiding, investors are focusing on the positive impact of lower fuel prices on transportation companies.

So far, buying on dips remains in fashion. That’s because the news about the most worrisome issues of the past few weeks has become less worrisome, while stocks have gotten cheaper. The panic over Ebola seems to be subsiding as it becomes more apparent that the virus isn’t easily transmittable. The US economy continues to perform very well. Members of the Federal Open Mouth Committee are chattering about possibly delaying raising the federal funds rate next year. The ECB has started buying Eurozone bonds sooner than expected. The region’s auto sales continue to recover. China’s economy is experiencing a soft rather than a hard landing.

Today's Morning Briefing: Accentuating the Positives. (1) V-shaped stock rebound toys with moving averages. (2) Transportation stocks flying high again. (3) Buying on dips still in fashion. (4) Oil provides a nice windfall for consumers. (5) US federal income tax revenues up big. (6) S&P 500 forward revenues in record-high territory. (7) Forward earnings still moving forward. (8) The current earnings season is mostly upbeat. (9) What about Q4? (10) ECB is back in the game. (11) China continues to emerge. (More for subscribers.)

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