Major Averages End Lower
The major averages ended lower as the US dollar surged on Thursday. Volume, a critical component of institutional demand, was higher on both major exchanges which marked the latest distribution day for the popular indexes. Decliners trumped advancers by about a 4-to-1 ratio on the NYSE and by about a 3-to-1 ratio on the Nasdaq exchange. In terms of new leadership, it was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and Nasdaq exchange but the number of actual leaders breaking out of sound bases remains very light.
The stock market and a slew of commodities sold off on Thursday as the U.S. dollar rallied. The greenback rallied against 15 of 16 major currencies as the Federal Deficit soared to a new record of $176.4 billion in October. Elsewhere, billionaire investor Warrent Buffett said the financial panic is over and will be participating in a town hall event with fellow billionaire Bill Gates at Columbia University this evening.
Stocks sold off after Hewlett-Packard (HPQ) announced plans to acquire 3Com (COMS) for $2.7 billion. 3Com surged a whopping +31% on the news and enjoyed its single largest advance since 2007. This helped send a slew of computer networking stocks higher.
S&P Hits 13-Month High
Technically, the S&P 500, which hit a fresh 13-month high on Wednesday, failed to stay above the 1,100 mark for a second straight day. Since late October, 1100 has served as important resistance as investors continue to digest the latest round of earnings and economic data. That said, the fact that the S&P 500 remains perched below 1100 after having rallied +61% from its 12-year low in March and recovered nearly half of its steep decline from its all-time high in October 2007 is a very impressive feat. The S&P 500 currently sports a price-to-earnings (p/e) ratio of 21.81 which is the highest level since 2002. So far, over eighty percent of S&P 500 companies that reported Q3 results have topped estimates which has helped the market hold up rather well considering that profits were negative for a record ninth consecutive quarter.
What does all this mean for growth investors? Be patient and flexible with your approach. As always, continue to watch for leading stocks to breakout of sound bases before committing your capital. Do not force a trade, instead, let the market come to you; i.e. buy right and do not chase stocks. It is also important to remain cognizant of what is working in this environment: mainly buying very liquid large cap leaders as they bounce off their 50-day moving average lines or breakout of sound bases. Some of these leaders include: Apple Computer (AAPL), Amazon (AMZN), Priceline.com (PCLN), Google (GOOG), Baidu Inc. (BIDU) and Goldman Sachs (GS). The action in these names has served as a great proxy for the overall rally which began in March 2009. The timeless advice of famed investor Jesse Livermore remain true today: “Follow The Leaders.“