Big Week
10/31/2004
I write this before the US election results. I think there is a more than 50% chance we do not know on November 3rd who is the President because of legal challenges. If that happens the uncertainty should push the markets lower. If we do get an unequivocal Bush victory we will almost certainly see a sharp move up. The point is, for those who trade options or 'OCO' (one cancels other where if the price moves up you go long (see the jargon buster at the end of this column) and if it moves down you go short), this week is ideal.
I am a reactive not a predictive trader. I wait for the price to move in a particular direction before I make my move.
Away from the elections looking at US earnings 79 percent of S&P 500 companies have reported earnings. Operating profit is up 14 percent from the same period a year ago, below the 31 percent gain shown in the second quarter and the first quarter's 27 percent.
More importantly, a total of 64 percent of earnings have come in above expectations, 16 percent have matched and 20 percent have missed according to Thomson research. Companies are beating estimates by 2.9 percent, in line with the long-term average of 3 percent. The company's negative-to-positive ratio stands at 1.6 for the fourth quarter, meaning there have been 1.6 negative pre-announcements for every positive one. The long term average is 1.8.
The bottom line: don't look at earnings to be the driving force for the market. Back to the President.
Takeover Bids
With the Alan Leighton speculation over Sainsbury, here is my list of bid targets: Glaxo, Royal & Sun or Prudential, Unilever, ITV, BT. I know, I know, it is unthinkable companies.
Drop me an email with your postal address to alpesh@tradermind.com if you would like a free multi-media CDROM on 'Investing Better' posted to you.
Value-Growth
On my value growth criteria which are based on stocks meeting revenue and profit growth and good value based on criteria such as price earnings growth, the following names come up. Remember they are for a 6 month outlook. SABMiller, Findel, Hitachi (back on after a few weeks off), DTZ Holdings, Hunting.
Crazy Small Stock
These are high risk volatile stocks which could move sharply higher or move sharply lower in my view, but will almost certainly not stand still. Names on the radar include Character Group, Dawson International, GB Group, Alterian.
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