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There’s no doubt that there are investors who believe that current valuations for stocks and an improving economy offer money-making opportunity. It’s also true that there are plenty of investors who feel the exact opposite and are selling stock. And for the last three weeks, the sellers have been winning.
The fact that stocks couldn’t hold a 1% gain after a stellar 4Q GDP number on Friday is a little worrisome. That was a lay-up for the bulls, and still, stocks finished the day with losses.
Volume has been stronger on the down days lately, and the S&P 500 is now well below its 50-day moving average, a common measure of support. I expect we’ll see stocks bounce before Dow 10,000 is breached to the downside.
But at the same time, there’s nothing magical about Dow 10K. Just because it holds on the first test or two doesn’t make it an important line in the sand. The Dow is just 30 stocks. Far more important is the S&P 500. And interestingly, there is an important support point at 1064 on the S&P 500. And 1071 actually lines up with Dow 10,000 nicely.
*****There aren’t any market-moving earnings reports today, but tomorrow we get UPS (NYSE:UPS), Whirlpool (NYSE:WHR), News Corp (NYSE:NWS), DR Horton (NYSE:DHI), and British Petroleum (NYSE:BP).
Wednesday is a heavy day, with Black & Decker (NYSE:BDK), Cisco (Nasdaq:CSCO), Honda Motors (NYSE:HMC), Pfizer (NYSE:PFE) and Visa (NYSE:V).
Thursday, it’s Chicago Mercantile Exchange (NYSE:CME), Deutsche Bank (NYSE:DB), MasterCard (NYSE:MC), Starwood Hotels (NYSE:HOT) and Toyota (NYSE:TM).
Finally on a light day Friday, we’ll hear from Beazer Homes (NYSE:BZH) and Aetna (NYSE:AET).
Of all the companies to report this week, Cisco may be the most important because it’s the ultimate barometer of corporate spending. Cisco is one of the best run companies around. CEO John Chambers runs a tight ship and it’s unlikely Cisco will miss its numbers. An upside surprise, and more importantly, some improved guidance and a little optimism going forward would be good news.
*****Another item to watch for is kind of tax credit for business that hire new employees or expand their payroll. Politically, some kind of stimulus spending to help unemployment will be easy to accomplish. And now that TARP investigator Neil Barofsky is feeling better about how much TARP money the government will recoup, we’ll probably see new stimulus measures sooner rather than later.
And by the way, Barofsky initiated 25 more legal cases surrounding the use of TARP funds. That brings the total to 77 active cases.
*****The China bulls are starting to push back. All the talk that China is a bubble about to explode misses the important points: domestic consumption is growing in China, consumer spending rose 16.9% in 2009; China’s very high savings rate and foreign currency reserves acts as a foundation for lending; China’s government is proactively dealing with monetary policy before inflation becomes an issue (U.S., eat your heart out).
The recent sell-off has left Chinese banks trading at the same price-to-book ratios as early 2009. You may recall, Chinese stock put in a pretty good rally from these levels last year.
Right now is the time to take positions in quality Chinese stocks at attractive valuations.
SmallCapInvestor PRO members just discovered a $3 U.S. based company that makes amorphous alloy core transformers for the Chinese market. The Chinese government has mandated that old silicon steel core transformers be replaced by more efficient transformers, like the amorphous alloy core ones.
This isn’t earth-shaking news, but this little company is expanding capacity by 200% to meet the demand. I’ve got a $5.82 target for the stock, which is a 82% gain from current level. You can get the details HERE