The market is marking time and is about as lackluster as it could be; you want to talk about summer doldrums, it can’t get more boring than this. They say never short a dull or boring market but the internals are much worse than the broad readings. On that note, and despite closing swoons that have reemerged as a daily characteristic of the market, stocks in general are oversold. By some accounts 73% of the names on the S&P 500 are below their 50-day moving average. But they need a spark. Actually, stocks are seeking a series of sparks. Expectations in general have to move much lower after that horrific new homes sales report. Hey, America scored what some are calling a miracle goal at the World Cup today so anything is possible. I do see one, maybe two, big rallies before the year is over for a combination of reasons.
* Stocks are oversold and very attractive based on historical valuation comparisons
* Stocks are very attractive versus other potential investment vehicles
* Piles of cash can’t stay idle much longer, although election results in November will determine how much, if any, money goes to work
* Low expectations…nobody expects anything beyond mediocre economic results, maybe GDP growth of 3.0% in 2H10… maybe
How’s this for irony, U.S. home construction stocks are acting better than the broad market.
Borrowing Not So Smart
So many economists preach that it’s okay to borrow from the future in the name of generating a spark today. It’s a hokey theory that has failed miserably with respect to new home sales. The Street was looking for sales in an area of a 400,000 at an annualized pace, down from 500,000 in April. The 300,000 number is a new record low, and just like that borrowed sales have been completely mitigated. Sales decreased 32.7% month over month with the West (which includes California, Nevada, and Arizona among other states) freefalling more than 50%. The tragic part of the story is median home prices are now at levels last seen in December 2003.
Yet another complication with the Gulf oil disaster; it cost two more lives. It seems so crazy we can’t stop the leak with all of the intelligence, muscle, and might.
Today’s poll has triggered a flood of emails, all very thoughtful and smart. Overwhelmingly, people are saying McChrystal should keep his job. We are posting some of the comments on our homepage under “Main Street Wisdom.” Keep them coming. For what it’s worth, word is the general has been kicked out of the job like one of those soccer balls at the World Cup.
I think stocks are oversold, but investors just need patience. Admittedly, none of this has to be so tough if we had a more business-friendly Administration.
Charles Payne is the CEO and Principal Analyst of Wall Street Strategies . This post was republished, with permission, from his company’s column, WStreet Market Commentary.
