Nasdaq’s Rally is Exactly What the Bulls Needed

Friday, May 3, 2013

Nasdaq’s Rally is Exactly What the Bulls Needed

English: A view from the Member's Gallery inside the NYSE (Photo credit: Wikipedia)

Buyers' focus may be shifting toward growth-oriented stocks

By Sam Collins, InvestorPlace Chief Technical Analyst

New York, May.3, stock advice .- Almost all of Wednesday’s losses were overcome as stocks rallied Thursday on strong economic news and better-than-expected earnings from the technology sector. The Nasdaq, up 1.3%, was the chief beneficiary of the rally. The broad-based S&P 500 gained 0.9%, setting another new all-time high.

Visa (NYSE:V) jumped 5.7% after reporting better-than-expected earnings and revenues. Facebook (NASDAQ:FB), up 5.6%, andYelp (NYSE:YELP), up a whopping 27%, also gained on better results.

Unemployment benefits fell to the lowest level in over five years, and non-farm business labor productivity increased 0.7% in Q1 versus a drop of 1.7% in Q4 2012.

At Thursday’s close, the Dow Jones Industrial Average was up 129 points to 14,830, the S&P 500 rose 15 points to 1,598, and the Nasdaq jumped 41 points to 3,341. The NYSE traded 676 million shares and the Nasdaq crossed 409 million. On both major exchanges, advancers exceeded decliners by 3-to-1.

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Fear gripped traders on Wednesday when weak economic data drove stocks lower, erasing the week’s gains and threatening to break into the support zone below 1,575 and the 50-day moving average at 1,556. But the reaction to the unfavorable data lacked volume with just 4-to-1 negative breadth on the NYSE and less than 3-to-1 on the Nasdaq.

Thursday’s reversal not only overcame Wednesday’s losses, but even ran, by 0.02 points, to a new closing high.

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But Thursday’s big news, from a technical perspective, was the Nasdaq’s reaction to the better economic numbers, i.e., new highs and a renewed drive into uncharted territory.

It appears investors have finally focused on some of the most undervalued technology stocks that drive the fortune of the Nasdaq. If that is true, then the focus of buyers may be shifting toward growth-oriented stocks instead of income-oriented stocks.

I’ve noted lately my disappointment with the market’s failure to include the techs, since without their participation, there is an incomplete rotation of sectors and that could stymie a significant broad breakout.

Conclusion: It’s a powerful stock market that can withstand the unfavorable economic reports of Monday and Tuesday, and respond with a snapback of the Dow with a triple-digit gain and new highs on the Nasdaq on Thursday.

Thursday’s reports included unemployment claims that are the lowest since January 2008, a trade deficit that narrowed sharply, plus U.S. productivity gains of 0.7% in Q1. The crucial April monthly employment report will be released this morning at 8:30 a.m., and the market’s reaction to it could chart the course of stocks for the month of May..

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Benjamin Graham Was A Crappy Hedge Fund Manager

Jack Bogle, the outspoken godfather of index funds and passive investing strategies, didn't approve of a recent Wall Street Journal article defending hedge funds.

In particular, he took issue with the author's reference to Benjamin Graham, the legendary Columbia finance professor who literally wrote the book on Security Analysis and mentored Warren Buffett.

Bogle wrote a letter to the editor. Here's an excerpt: Citing Benjamin Graham as the first "hedged fund" operator is an especially unfortunate example. "The trick," Mr. Rice writes, was Graham's "clever way to make money . . . whether it [the market] continued to rise, or started to fall." ...

Proposal for New Hedge Fund Fee Structure: 1% + 33% of Alpha

By The Big Picture

One of my pet peeves is the way that insiders -- whether corporate CEOs, hedge fund managers, or elected politicos -- capture compensation (or credit) for normal cyclical gains they had little or nothing to do with.

This is the approach favored by the Crony Capitalists — those people pretending to be free market participants, and who merely pretend to be creating value. They are taking credit for structural successes that would have occurred with or without them. What they are actually doing is capturing value, not creating it — and then transferring it from its true owners (shareholders/investors) to themselves.

This is wrong; it is legalized theft.

If you want to see a good example of how CEOs transfer shareholder wealth to themselves, a good place to start is Roger Lowenstein’s 2004 book, Origins of the Crash: The Great Bubble and Its Undoing. The section on CEO compensation is astounding; these guys were essentially getting wildly overcompensated for being CEOs during a bull market. The prime example was the CEO of Heinz, who gave himself (with the tacit approval of his Board of~~Crony~~ Directors) a $90 million bonus. And this was back in the early 1990s, when $90 million was real money.

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