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Markets Defy Skeptics to Rally
Visit us online at Tracey’s Market Update
August 2, 2007
All last weekend, the financial press was going on and on about how the end was near for this Bull. The markets had come too far too fast and were due for a major correction. It certainly seemed that way after last week’s roller coaster drops. Yet many times when the financial press and analysts are all saying the markets will go one way, they go the other.
And so for the last two trading sessions we have seen mysterious rallies in the final hour of trading that have pushed the indexes comfortably into the green. Some chatroom posters have been saying it’s a government conspiracy to keep the markets artificially inflated (as the Dow mysteriously saw a quick gain of 217 points in Wednesday’s session in only minutes of trading and right before the close.)
Who am I to comment on conspiracies?
Oh, all right. If I must.
The trading action IS a bit bizarre- even by normal crazy Wall Street standards. I’m not saying there is a greater power involved, I’m just telling you that the volatility is quite high right now. No rally is safe. No sell-off is certain.
One thing we can say for sure is that energy shares are getting hammered. ExxonMobil is off $8 after hitting its all-time high of $93.62 only a week ago, falling to $85.18. ChevronTexaco is off even more, falling from $95.00 to $83.89 on no new news. Ditto with Conoco. And what about poor Marathon? They announce better than expected earnings and that they’re buying Western Oil Sands and what do they get? Crushed. Marathon traded at $67.04 and now trades at $51.74, after falling another $2.48 today.
You know what I’m going to say about the energy sector. I liked it two weeks ago when we were hitting new highs. And now that it’s selling off? Yes, I would be a buyer at these levels. Crude is still hovering around $77 a barrel- near its highs. I especially like the direction Marathon is heading right now and the big sell-off makes it even more of a bargain. But I like just about everything to do with the sector.
What about some of the others that have been selling off? Pfizer has rebounded a bit from its 52 week low. I wouldn’t buy here. I would wait for more weakness. And knowing Pfizer, you’ll get more weakness, believe me.
MasterCard has had quite a large sell-off in the last few sessions despite reporting pretty good earnings in line with estimates. MasterCard was down nearly 5% today and closed at $142.62, down from its all-time high of $174.60.
It seems like the mice are abandoning the MasterCard ship- for now. Lots of people have big gains in that stock and now with it on the downswing, some are locking in the profit.
Has MasterCard’s story changed or is it irrational selling? Like I said- their earnings were good. Transactions were up. The fear is that consumers are overextended and won’t be able to pay off the credit cards as easily now that the Housing ATM is going away. It’s probably unjustified fear- but MasterCard was trading at a very rich multiple and it was only going to take one little slip-up to push the stock down. It’s still too rich for my blood, but I’m watching it.
Starbucks also had earnings and came in with a 9% gain in profit and in-line with analyst estimates. Same store sales were up 4% (in the range of the 3% to 7% the company gives.) Starbucks doesn’t seem concerned that its 9 cent a cup price increase is going to hurt the bottom line by turning customers off. They last raised prices only a year or two ago. Understand this: costs have gone up 80% at the world’s largest coffeemaker- mainly from energy and dairy price increases. They’re doing pretty well to be making the margins they’re making given those inflationary increases.
The stock finished down .28 to 26.92. It has bounced off its lows in recent sessions. I recommended buying it a few weeks ago when it went below its 52 week low- but I’m sitting on the sidelines here. Still love the company and the product but feel the stock is unloved and will go lower again.
I would be remiss if I didn’t mention the saga that is Cost Plus World Market. In the Thrilling Thirty portfolio, Cost Plus has had issues for several years now ranging from product lines that are out of date, to ugly stores, to furniture that is no longer unique. Cost Plus needs help. Its stock also needs a transfusion. Remember that $1000 that was invested nearly 5 years ago? It must be down to, oh, $200 now. I haven’t looked lately because it’s too painful. CPWM fell another 6% today in a sad pathetic sell-off to close at $6.10, after hitting a new low during the session of $6.04. The company has lost money three quarters in a row. (I think we bought in at around $28 five years ago, if that tells you anything.)
Brutal.
And yet, there are no rumblings of bankruptcy. Still, the stock is in a freefall as some investors are getting out now (before it’s too late.) If it falls much cheaper, there won’t be any risk in investing (really) at that point. Stay tuned.
Some observations about these crazy markets: the small caps are selling off quicker now. There is a flight to quality in the big cap staples like Altria Group (up .56 to $67.14 today) because the smokers are going to keep smoking, right? And Altria has a lot of cash on hand to withstand a recession- if it comes to that.
The Street is on the look-out for more mortgage contagion. After the close today, rumor has it American Home reportedly told its employees it was closing at the end of the week. They had over 7,000 employees in several states. Like I said earlier this week, they were one of the more stable mortgage companies and had been in business nearly 20 years. They were no Johnny Come Lately to that game. They survived the early 90s housing recession.
Mortgage brokers are the new dot-com’ers unfortunately.
Employment report is out tomorrow. Who knows how the markets will react. If it’s good, it means that inflation could be heating up. If it’s bad, it means we could be heading into recession. Conclusion: you can’t win.
I continue to see more negativity in the market than full bullish mode. That means investors are nervous- never a good thing for the markets. Hold on tight- the wild ride is likely to continue.
The Dow finished up 100.96 to 13463 (up 0.76%).
The NASDAQ finished up 22.11 to 2575.98 (up 0.87%).
The ten year treasury closed at 4.75%.
Questions or Concerns?
Contact Tracey at tracey@traceysmarketupdate.com
Mom and Pop Investors LLC is an independent publisher. Mom and Pop Investors LLC is not a registered investment advisor. Please consult your investment professional before making any investment decision. Sources of information are deemed reliable but they are in no way guaranteed to be complete or without error. The Editor may have positions in and may from time to time buy or sell any security mentioned herein. Past results are no guarantee of future performance.
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