Where stocks are headed next
Interview: Shields & Co--Gretz, Frank---Analyst (slow)
>> the major stock indexes rose as an industry report indicated the economy will accelerate. the dow jones industrial average up on the day 113 points, 9,659. the s&p up 13 at 1,039. the nasdaq at 1,909, better by 26.5 points. volume at the big board just under 1.5 billion, 2,148 stocks advancing, 1,073 declining. nasdaq, 2 billion shares, 1,911 advancing, 1,209 declining. wilshire 5000 up a half on the day, just a hair below the 10,000 level. treasuries declined in new york after the leading economic indicators rose for a fourth straight month. as you see the latest trade, the 10-year note is up 4/32. the five-year note is unchanged. on the shorter end there is your decline, three-year note down 2/32. the dollar fell to its lowest level against the yen in new york trading after the benchmark stock average closed at its highest level since june of 2002. many stocks hit significant new highs in today’s session. both the dow and s&p 500 closed at their highest level of june of 2002, while the nasdaq closed at its highest level in 18 months. here to take a look at where stocks are headed next is frank brek, chief market analyst at shields and company. welcome.
>> nice to be here.
>> anything not to like about the market rally?
>> there is not much not to like about it today. a lot of the averages moved to new highs but those are the stock averages. if you look at the advance/decline numbers of the average stock , that’s what you have to look at, you want strength in the average stock as well. the numbers were great. also if you look at volume. rallies without volume are rallies not to be trusted, but you had plenty of volume today so it’s positive.
>> the volume is back because it is september, everybody is back. the question is september has been quite volatile the last few years. october is certainly legend. what do you look forward to there?
>> i think we could do well in september. perhaps the surprise will be october. because in august everyone was looking for correction. then in september, well then we are sure we are having a correction. so we haven’t had a correction. maybe they will force that money in here at the end of the quarter and set us up for a setback in october would be my guess. but right now it’s just a guess.
>> on the bloomberg we’ve got the s&p 500 going back to the beginning of the year. it’s been quite a run. how much more can it go.
>> it’s a nice run but you can see we were in a trading range for most of the summer. it’s only recently we’ve broken out. from a technical standpoint this is another perfect picture where you run, you rest, and hopefully you run again. but that’s a typical pattern. a lot of stocks have had a good run but gone sideways, consolidated and now they seem to be moving again.
>> let’s look at the key stocks in this market. i’m going to bring up a chart of i.b.m. and its activity here. i have the 20 and 30 day moving averages on here. what does this tell you about the breakout in i.b.m. shares and where it’s going next? we are taking this from march 18th to today.
>> i.b.m. has really been in its own kind of trading range and it hasn’t been much help to either the s&p which it’s a big part of or obviously the dow. here you have i.b.m. breaking out. it’s been a market that’s been characterized by rotation as well as by what the averages have done. when you have one group of stocks act well, i.b.m. hasn’t been a big help, then suddenly i.b.m. is helping along with microsoft, two big stocks that have been laggards.
>> let’s bring microsoft up on the bloomberg. you have a very different looking chart. however, it too is clearly above its 20 and 30-day moving averages.
>> it’s above its recent little peaks. it finally seems to be moving in the right direction. more importantly there is a change here. these stocks have been laggards and now they are moving.
>> still a ways to go for microsoft to break through it’s mid 2002 high, at least its most recent peak back here.
>> well, yeah.
>> is that going to break through there?
>> all these trends start somewhere.
>> you are also taking a look outside of technology to other parts of the market. i have the drug index up here, the pharmaceutical names. again, this one is breaking out as well from the shorter moving averages. what does this tell you?
>> here is a group of stocks , like the consumer stocks generally that went down for most of the summer, one of the few areas that have declined. so you’ve broken that downtrend. things start somewhere. you break a downtrend before you start a new up-trend. looks to me like you are on the way to starting a new up-trend. again, i think this could be part of the rotation. everyone wants to talk about tech stocks but suddenly bristol-myers is acting why.
>> the rotation is key. explain how important the rotation is here and what you are watching.
>> we’ve had a good run in some areas. the s&p had a good run rue june, not it rested for most of the summer. stocks only go so far without some kind of consolidation, regardless of the fundamentals, they only go so high, then they go sideways, hopefully, then they go again. what this market has been characterized by is a lot of areas have had a good run like the cyclicals. they’ve been resting for the last couple of weeks. looks like they could be coming on again.
>> if you see this rotation and the stocks that have led will not necessarily fall back as much as you are seeing new industries gain, is that the expectation you are seeing here?
>> industries begin to perform well, while at the same time a lot of stocks that have had good runs, groups of areas that have had good runs, they are not going down as much as sideways. what you don’t want to see is some particular area come on like the dow acts well but other stocks are going down. it’s been more a case of stocks going sideways while new things come along to move the averages.
>> frank gretts, thank you very much. chief market analyst at shields and company. hurricane isabel has hit land.
