Is This Rally Overdone?
Greg Che
TradingMarkets.com
09/28/2001 16:52 PM ET
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 [$VIX.X|$VIX.X] fell 5.9% and the Nasdaq 100 Volatility Index [$QQV.X|$QQV.X] lost 2.4%. Bias 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 [$XAL.X|$XAL.X] which climbed 6.6%.
The Oil Services Index [$OSX.X|$OSX.X] closed 6.3% higher.
And the Securities Broker Dealer Index [$XBD.X|$XBD.X] rose 5.0%.
Losing ground fractionally were the Gold and Silver Index [$XAU.X|$XAU.X] which fell 0.3%.
Stocks gaining, Continental Airlines [CAL|CAL] which climbed 15.3%.
Calpine [CPN|CPN] moved up 15.4% after 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 [GLC|GLC] tacked on 13.2%
Sage Inc. [SAGI|SAGI] shares shot higher 34.2% after Genesis Microchip [GNSS|GNSS] has agreed to acquire Sage.
Individual losers were Cullen Frost Bankers [CFR|CFR] sliding 19.3% after being downgraded by J.P. Morgan from Buy to Market Perform.
Universal [UVV|UVV] closed off 13.9% due to a downgrade by BB&T Capital Markets from Strong Buy to Long Term Buy.
Sony [SNE|SNE] shares lost 10.7%.
And ATMI [ATMI|ATMI] moved down 14.1% 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. |
