Does the rally have legs? People are talking about how stocks have hit bottom, again. For a while, at least, it may be true.
October 11, 2002: 5:43 PM EDT
By Justin Lahart, CNN/Money Staff Writer
NEW YORK (CNN/Money) - A sharp rally in stocks has got investors hoping, once again, that the market has finally touched bottom. For a while, at least, those hopes may come true.
Few rallies in recent years were met with as much skepticism as Thursday's. Even as the Dow cruised 247 points higher, cries of how it was just another suckers' rally abounded. Then came Friday when, in the face of weak retail sales report and an atrocious reading on consumer sentiment from the University of Michigan, the Dow rocketed 316 points higher.
But it wasn't just Friday's point gain that had Wall Streeters humming as they headed home for the weekend. Trading volume was big (1.8 billion shares on the New York Stock Exchange) and, more important, the volume on advancing issues was just shy of 90 percent of volume. Whenever that happens it suggests that there are a lot of investors who suddenly regret recent sales.
"It's like, 'Whoops, I better buy some," said Todd Clark, managing director of listed trading at Wells Fargo Securities. "It usually means you've made some kind of low."
The question for the coming week is, with all the good signs abounding, can the rally hold. (Click here for a line-up of key events in the week ahead.)
"I can't say this is the bottom, but things are lining up better than they have in the past," said Steve Goldman, market strategist at Weeden.
This has been, Goldman says, one of the longest bear markets of the past 100 years, and, with the value of the stock market halved since its 2000 peak, one of the most extreme. Investor pessimism is severe and the valuation on the average stock has come down near where it was in 1991. Finally, October is the month where, historically, the market tends to hit lows.
With earnings season kicking off in earnest in the week ahead, stocks have one more thing going for them. Although the news on the corporate front has hardly been good, usually by the time earnings reports start coming in almost all of the companies that are going to disappoint have already issued warnings.
The results of the companies that remain are generally in line or better than expectations, which can help cheer investors. There aren't too many economic reports, either -- which is a plus given the economy's sputtering performance lately.(Click here to see 10 earnings reports that matter.)
But don't go betting what's left of the ranch just yet, cautions John Bollinger, head of Bollinger Capital Management.
"Two days rally off a low doesn't prove much," he said. "There are people falling all over the themselves for an opportunity to be bullish, but I would counsel moderation here."
Bollinger is encouraged by recent market action, but he thinks that many people remain overinvested in stocks, and that many of them will take any big rallies as an opportunity to trim back. It will be hard for stocks to make significant headway through that selling pressure.
"We're still in a position where stocks are too widely owned," said Bollinger, "and the people that own them own too much."
Key events in the week ahead
There are earnings galore in the week ahead. Click here to see the ones that matter most.
Wednesday, business inventories for August get released. Economists surveyed by Briefing.com think they grew by 0.2 percent, after ticking 0.4 percent higher in July. Worried about the future, businesses continue to keep inventories trim.
Thursday, September housing starts get released. With all the heavy mortgage activity, housing's still hot. Economists' forecast starts came in at 1.636 million against August's 1.609 million.
Thursday the Federal Reserve releases industrial production and capacity utilization figures for September. With the slowing in the manufacturing sector, economists think both will be weak. The forecast is that industrial production grew by 0.1 percent, after dropping 0.3 percent in August, and that capacity utilization held steady at a low 76 percent.
The Philadelphia Fed releases its survey of manufacturers in its region Thursday -- the first read on how the manufacturing economy is doing in October. Economists expect it came in at 2 against last month's 2.3. Zero is the break-even mark for growth at the region's manufacturers.
Friday brings the trade balance for August. Economists think the trade deficit swelled to 35.2 billion from 34.6 billion the month before. While demand for imports has moderated with the economy, foreign economies aren't in very good shape, either, putting a cap on exports.
Friday the key read on inflation in September, the consumer price index, will be released. Economists think it grew by 0.2 percent, lower than August's rise of 0.3 percent. Investors don't worry much about inflation these days -- the threat of deflation has become by far the bigger concern. |
