OTCPicks Penny Stock Blog

December 8, 2008 -

Wallstreet charged ahead bullishly on Mnday as the Dow and S&P 500 surged ahead more than 3% as investors bet that the automakers will get a first installment of a bridge loan from congress, and on Barack Obama's weekend comments on a plan to implement a major infrastructure investment to help avert a deeper economic slump.

One of the infrastructure heavyweights that are Monday beneficiaries include heavy equipment maker Caterpillar (CAT) up 12%, Freeport-McMoRan (FCX) up 20%, and automakers including Ford (F) and General Motors (GM) were both up more than 16% in early trading on Monday.

After Friday's shocking payroll data that showed the economy shed more than half a million jobs in November, Obama took center stage over the weekend outlining plans for a very ambitious infrastructure investment, the largest since the 1950's.

The news was not all good on Monday. Dow Chemical Co. became the latest company to announce job cuts and plant closures and said on Monday it would close 20 facilities, divest several businesses and cut 5,000 jobs, or 11 percent of its global workforce, in response to the global economic slump. Fears that the year-long U.S. recession will deepen prompted DuPont to cut 2,500 jobs and phone company AT&T to eliminate 12,000 jobs.

U.S. stocks in recent weeks have broken their freefall and overall market down trend. It is likely given the bad news that are likely coming in jobs, continuing foreclosures, in the coming months that the market will continue its bottoming process in a somewhat drawn out way. Stocks are likely to continue to trade sideways within a range into 2009 as the economy struggles to get it's footing.

Stocks do, however, lead the broader economy out of recessions. Upward moves in the stock market always proceed the economy as a whole. So, now it the guessing game as to when stocks will begin to make that sustained upward move, and when the market bottoming process will be complete.

For now, however, there is lots of opportunity to make money if you are a short term trader. It is becoming common to have 3% to 5% swings in the market most any market day lately so you can make money buying stocks, or playing options just on trading the swings.

Also on Monday, investors also appeared more comfortable that the government is closer to legislation that would dole out billions to America's three biggest automakers within a week. Congress is expected to pass a $15 billion bailout for Ford Motor Co., General Motors Corp., and Chrysler as soon as Tuesday.

Other movers on Monday included Dell (Dell) up 12%, KBR Inc. (KBR) up 11%, Nucor (NUE) and Apple Computer was up just under 6%.

November 3, 2008 -

At the end of the day on Friday I walked outside as the closing bell rang and I swear I could hear the universe exhaling with a collective sigh of relief ending one of the most volitile months ever in the U.S. and global markets.

October saw some of the biggest single-day point drops and single-day point gains ever seen in the market, and overall one of the worst months since the 1987 meltdown. Then in the last week of October we saw one of the best weeks in almost 34 years. The huge gains of the final week were reminiscent of the sharp recoveries from bear market lows in 1974 and 1982. Both of those moves came while the economy was mired in recession, as it almost certainly is now. Last week, the Dow and the Nasdaq each rose 11%, while the S&P 500 gained 10.5%.

An Upside Breakout from Here?

So, October is finally over! What's next now for U.S. and global markets? Did we see the market bottom out in October, or is there more of a downside lurking in the shadows out there? Here is a chart showing the DOW daily close line chart with some oscilators shown. It appears that the DOW is right now at a top side resistance level around 9400. If the DOW breaks out to the upside from here it might indicate a confirmation of a bottom formation and maybe we head up from here. If it does not breakout on the upside from this level we might be looking at more downside or a period of time trading within the low side range while consolidation takes place and while the market figures out how the recession will play out.

Downside Risks Still a Good Possibility

I still think there are downside risks hanging out there depending on how long and how deep investors believe this recession will take us. The markets are obviously trying to price in what they are seeing, but no one knows what the next few months will bring in terms of the slowdown and earnings reports, market data and numbers, rebound in housing, etc. Exports are slowing down dramatically as the dollar rises and as global markets follow the U.S. into their own economic slowdowns.

U.S. Factory Output Falls in October

U.S. factory activity contracted sharply in October, falling to its lowest in 26 years as the financial crisis ravaged the world's largest economy and its trading partners around the globe.

The one bright spot in the report was that its main gauge of inflation, the prices paid measure, recorded its biggest one-month drop ever. This should allow the Federal Reserve to keep interest rates low to fight off what many fear will be a deep recession.

The Institute for Supply Management (ISM) said its index of national factory activity fell to 38.9 in October from 43.5 in September. That was well below the 50 level separating contraction from expansion, and a reading below 40 is exceptionally weak.

The global slowdown is bad news for the United States, where manufacturing had been kept afloat until August by buoyant exports helped to a great extent by a weak dollar making U.S. products financially attractive in global markets. October's report showed new export orders contracted, ending 70 consecutive months of growth, the ISM said.

In fact, the report was uniformly weak, and employment in the sector was dismal. The ISM's gauge of employment suffered its biggest one-month drop in 20 years and fell to its lowest since March 1991. The data highlighted an already crappy outlook, with the index of new orders hitting its lowest since 1980. Most analysts are saying that it will take a while for the correction to take place and for the government's economic efforts to gain traction and have a reversing effect.

Election Watch

Election history indicates that U.S. stocks may have a better chance in the first year of an Barack Obama presidency than a John McCain administration.

Since 1900, the Dow average rose 9.8 percent in the 12 months after the Democratic Party captured the White House, based on the median change following the election of seven Democrats from Woodrow Wilson to Bill Clinton. Only twice did the index drop, after Wilson's victory in 1912 and Jimmy Carter's in 1976.

Polls show Democrat Obama ahead of Republican McCain as the economy looms as the main concern among voters. Obama, 47, widened his lead to 8 percentage points over McCain, 72, in an average of polls released in the last week, according to RealClearPolitics.com.

Dollar Libor Falls to Lowest Since Lehman Failure on Rate Cuts

The London interbank offered rate, or Libor, that banks charge one another for three-month loans in U.S. currency slid 17 basis points to 2.86 percent today. It was the 16th day of consecutive declines and has not been this low since the failure of Lehman Brothers Holdings Inc. on Sept. 15. The overnight rate dropped 2 basis points to 0.39 percent. Asian rates declined.

Interest rates on commercial paper and short-term debt companies sell to cover expenses such as payroll and rent, fell to the lowest level since Aug. 8. This is a confirmation that the nearly $3 trillion of emergency funds provided by global governments have extended to financial institutuions to battle the credit crisis may be working. The drop in three-month dollar Libor last week capped the first monthly slide since May.

Looking for November Calm

Stocks will be volatile but should be a little calmer in November after the crazy days of October. The presidential election should give the market a bounce this week, but once that is over the markets will shift their focus back to the economy when jobs data is released Friday.

Traders say the election Tuesday is the key to the week ahead. But they will also be watching to see if credit markets continue to improve. The market generally rallies because the headwind of an election is over and now you have greater certainty. The market has priced in some of a potential Democratic victory, as Sen. Barack Obama leads in the polls, but not entirely. Look for moves in sectors that would be affected by Obama's policies if he wins on Tuesday. Sectoral plays like construction and engineering that might benefit in an Obama Administration are currently beaten down. Health care stocks have been used as a defensive play, but they could see some selling pressure if Obama wins. Alternative energy stocks might see a post-election boost if Obama wins as well. In the week and day after the 2006 election, the stock market went up fairly significantly.

There is also a heavy calendar of economic data, and quarterly earnings from some big names, like Cisco Systems (CSCO), Walt Disney (DIS) and Berkshire Hathaway (BRK).

GM's U.S. Sales Tank in October

General Motors Corp (GM.N) on Monday reported a whopping 45 percent slide in U.S. sales, blaming the steep decline on low consumer confidence stemming from the uncertainty over a deepening credit crisis. GM said it sold 170,585 vehicles in October, down from 310,008 a year earlier. GM truck sales were down 51 percent while car sales were off 34 percent. GM reaffirmed its fourth-quarter production target at 875,000 vehicles, including 407,000 cars and 468,000 trucks. The targeted production is 16 percent lower than a year ago.

Oil Continues Slide Despite Improving Stock Market

Light, sweet crude for December delivery that had crested above $69 in early trading, tumbled $3.31 to $64.50 a barrel on the New York Mercantile Exchange and gasoline futures prices dropped more than 7 percent in early trading.

Declining gasoline futures have led to sharp drops in the price of gasoline. The price for a regular gallon of gasoline dropped to $2.41 nationally on Monday, down more than 30 percent from last month, according to auto club AAA, the Oil Price Information Service and Wright Express. In a report Monday, Credit Suisse forecast the sharpest drop in global oil demand since 1982. Most analysts expect oil to trade wtihin the $60 to $70 range for the near term.

Airlines and Telecommunications Sectors Lead Advancers Today

The Amex Airlines Index was up 5.28% today, the Amex North American Telecommunications Index was up 4.93% and the Morgan-Stanley Health Care Payor Index advanced 4%. Sector losers today were Oil & Gas and Housing Sectors.

What's Does the Rest of 2008 Hold in Store for Investors?

Looking back at 1987 and 1929, years with similar market profiles, we might extrapolate what we might expect for the rest of 2008 and beyond. In these prior market years, the market (Dow) was higher from the October crash lows by year-end. In 1987, the market came back 39% by year-end; in 1929 the Dow managed a 25% recovery from the lows seen during the October free fall. So sitting with a 19% gain from the October lows leaves probable upside room going into the last two months of the year.

Investors should look for opportunities that will lead the market out of recession, that have been over sold and which could benefit from the policies of the next U.S. administration.