Somebody put the Dow Jones in a straight jacket
September 12th, 2008 by Lou Muddaris
Closing Data
| Dow Jones up 165 @ 11,433 | NASDAQ up 29 @ 2,258 | Gold down 6.6 @ 744.9 |
| Oil down 1.71 @ $100.95 | FTSE down 47 @ 5,318 | Silver down .15 @ $10.50 |
| Copper up 99 @ 6,965 | Lead up 60 @1,847 | Zinc up 45 @ 1,775 |
| Aluminum down 3 @ 2,575 | Nickel down 8 @ 18,423 | Tin up 453 @ 18,863 |
SPI up 40 @ 4,875.
Somebody put the Dow Jones in a straight jacket
We are living history. Never, ever, ever have the markets been so volatile. Not content with a 290 point rally on Monday followed by a 280 point fall on Tuesday the market out did itself last night with an early fall of 170 points only to rally 165 points in literally the final 20 minutes. This kind of extreme dichotomized price action could be seen as an indicator of a major directional change approaching, however we favour a more stable upward movement in stocks.
The Lehman Brothers debacle is dominating the markets. The number 4 investment bank saw its shares drop 42% to $4.22 (those Hedge Funds are having a field day) as they desperately seek a buyer. However, the market rallied in the final 20 minutes on a report appearing in the Washington Post that Bank of America are in take over talks with Lehmans. How the mighty have fallen; Lehman shares only 18 months ago were trading over $90!
General Motors, who are technically bankrupt, saw its shares rise 11% overnight on talk of another Government bail out…whatever happened to “laissez faire” economics?
Oil hit $97 in London on reports that Saudi Arabia have no plans to cut output. Commodies continue to trade lower, with Gold hitting $740. Interestingly the stock markets appear to have decoupled from the lower commodity prices as they refocus on the financial sector.
Sectors are important. Some sectors are actually rising despite the indexes falling. In the U.S, the housing/property shares have risen by over 40% since the Dow Jones made the lows on July 15th. Also, the consumer discretionary shares have showed substantial gains with the resource/commodity shares collapsing. These trends are still very much in place particularly with interest rates world wide falling. Conclusion? We remain positive on the outperforming stocks such as Lend Lease, GPT and Toll Holdings (positive trade recommendations made in July/August).
Remain positive on BHP and the banking sector, particularly favouring CBA and ANZ. On ANZ you can write an October covered call for $1, representing a 6% premium.
It is worth mentioning that Citicorp yesterday predicted that NAB will be writing down between $500 mln to $1 billion in “toxic” securities. It does beg the question however, just how much bad news is priced in the NAB share price as it nears its 6 year low of $23.40.
Expect a quieter day with traders desperate for the weekend break!
Have a great weekend yourselves!
QUOTE OF THE DAY:
“A Psychologist asks a lot of expensive questions your wife asks for nothing”
Contact your Freeman Fox Stockbroker on 07 3031 9960 or 1800 003 369 Ext 7.
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