See a positive outlook
Interview: Morgan Keegan---Wilson, John--- Equity Strategist
>> breaking news from exxon. the company says it has reached an agreement with the i.r.s. to settle a tax dispute over natural gas deductions. the company will say that the after-tax settlement impact will be $2.2 billion in terms of its effect on cumulative earnings. the settlement is at this point apparently about $600 million. more from exxon coming up shortly. they’ve reached a deal with the i.r.s. that will have a $2.2 billion impact on cumulative earnings. stocks sold off at the end of the day’s trading, finishing lower for a first day. our next guest says stocks are poised for a year-end rally. john wilson, director of equity strategy at morgan keegan, joins us from memphis to look at the markets from a technical perspective. i’m glad you have a sunny disposition. it’s raining in new york for a couple of days and the markets have been down. tell us why you see a positive outlook.
>> i think a number of things. first of all, the valuation of the s&p 500 compared to the 10-year bond remains very favorable to stocks . it’s back up to a 29% discount with today’s selloff in the market and the strength in the bond market. it doesn’t look like rates need to go up substantially so that implies the disparity will be closed by depreciation in the s&p 500. and i think a lot of people are trying to call the top. you notice when the market gets near the top, the put-call ratio moves back up and the rideex ratio moves up and obvious signs of people positioning themselves for the downside. and couple with that a great year. you have a lot of portfolio managers trying to lock in a decent year. it’s probably been three years since some of them got bonuses and with a strong year like this year, a lot are lagging the indexes. i doubt that the market is likely to accommodate them. i suspect that after we get through this week, we’ll turn up with a decent rally.
>> you mentioned the put-call index. we have a chart showing it has turned up over the past month or so. you can see it’s rising as the market has turned down a little bit. what’s it going to take to turn the market around and get those people who may be short to start selling off?
>> it’s a great thing to keep an eye on and it tends to put the nail in the coffin, if you will. if you look at a number of oversold indicators, you like for them all to line up. when you have the maclellan oscillator showing an oversold condition and the arms index moving up and you see the put-call ratio jump up over 100% for a couple of days, anyone with an internet connection can track that intraday and it’s a good indicator to keep in mind because when it gets over 90% to 100%, it’s spectulative of a short-term bottom here.
>> i talked to somebody in the previous hour about that. we are in a situation where markets don’t seem to be paying attention at this point to earnings or to the economy but to external shocks like terrorism. in that kind of situation, can technicals really give you a good guide?
>> well, i hope so. first of all, the market has been reacting to earnings up to a couple of weeks ago. we’re getting an atypical pullback as the market sticks its neck into new ground. it turned out to be a great quarter and the economy came out with good numbers and good numbers today, again. tomorrow’s a slack day and an expiration day. typically, interestingly enough, if you look at the market over the last 100 years, and look at it day by day, you get your best moves at the end of the month and beginning of the month so maybe we’re in that middle-of-the-month period when we need to get through tomorrow’s expiration day and get into the final week of the month. all in all, i see a market that still looks undervalued to me in terms of stocks versus bonds. i see the various measures of oversold indicators beginning to paint a picture that the market is oversold. we may need a few more days, maybe a week or so, to get down to levels that might be extreme enough to cause a sharp rally. that seems to be the message in the market today. sometimes you don’t have a clue why the market went down. frankly, it was almost a textbook reversal with a down morning, up, another tip to take the market down and rally into the close except that last hour. and the market turned down apparently a couple of good sell programs hit. if, in fact, it was the result of the bombing in istanbul, coupled with renewed terrorist fears, i suspect the market will shrug it off quickly.
>> thank you very much. john wilson, director of equity strategy at morgan keegan. plenty of economic data in the pacific rim will have investors busy for the friday session and we’ll go live to tokyo for a preview.
