The week ahead may be volatile, but markets are greeting it with less anxiety than we've seen in several weeks.
That doesn't mean fear won't pop up again overnight (or during the trading day), but stocks are closing out a second week of gains after battling some serious headwinds in recent days. Of course, the benefit of giant Fed rate cuts doesn't hurt.
In the week ahead, the markets will watch super Tuesday, the night where some two dozen state primaries should show the front runners for each party in the Presidential race.
Earnings news will continue to dominate the headlines, and there is a relatively light economic calendar. However, there are some Fed speakers that bear watching, and the Bank of England and European Central Bank hold their rate meetings on Thursday.
Market Madness
Stocks finished another volatile week with the Dow up 4.4 percent at 12,743. The Nasdaq jumped 3.75 percent for the week and the S&P 500 was up more than 4.8 percent.
Microsoft's bold $44.6 billion uninvited bid for Yahoo was a positive Friday in a market starved for bullish deal news. Even before Microsoft reaches an agreement with Yahoo, the House Judiciary Committee said it would hold a hearing on the potential deal next Friday and any deal is expected to face intense, antitrust scrutiny.
CastleArk Management President Jerome Castellini is someone who thinks the market may be in position to rally from this level. He doesn't agree with the view that the market needs to re-test lows, a common theory we've been hearing among traders and strategists.
"When markets finally come in, stocks get back to support levels, and insiders start buying. The newsletter guys get really, really bearish, which they really have been and everything's at a cheap enough price," he said. Fed rate cuts should makes financing easier and "we've got the making of a sustainable rally."
What would hurt that rally would be a sharp jump in oil prices or another substantial credit problem. He believes the situation with bond insurers, which has been scaring the market of late, will be worked out but the process will be painfully slow. "That'll make you nervous until it's done," he said.
Castellini is also not in the recession camp, despite Friday's very negative jobs data. He said it's a good sign that inventories are dropping, evident in the fourth quarter GDP data this past week. He sees manufacturing as resilient and a beneficiary of the weak dollar.
"You take out the financial companies, and 70 percent of all reported earnings are better-than-expected. If this is the recession, we're missing something," he said.
"In 27 years, I've been through four hard recessionary environments, and this is the most managed I've ever seen," he said. (I pointed out at this moment in our discussion that it is also one of most political environments as well.)
So what stocks does Castellini like? "I think it's time to noodle around in some of these retailers. Those are the things that have been hit as hard as any of these financials. They're not dealing with balance sheet risk," he said. He said he favors a mix of stocks in the group that hit different parts of the sector and economy. For instance, sporting goods, like Dick's and Underarmour are on his list along with Tiffany's and TJX and J.C. Penney . "You get exposure all around so you get a broad range. You're not stuck with just the specialty guys or the big uglies."
Castellini also likes energy and his favorites in the group are natural gas stocks. "This year is starting out much better. It will be up 50 percent in this space this year." Some of the companies he's buying include Southwestern Energy, XTO and Range Resources. He still likes oil majors like Exxon, big winners last year, but they "are probably washed out here. The refining side was a little washed out in the fourth quarter," he said.
Voting with their Own Stock
When CEOs and other executives buy their own company's stock, many market participants take it as a bullish sign. One would think they know something we don't know, and the converse would also be true. We hate to see them head for the hills. Castellini mentioned improvement in this trend so I thought I'd check it out.
Michael Painchaud of Market Profile Theorems, which tracks insider activity among other things, said that just last week his monitor on insider activity signaled a buying opportunity. Aggregate insider activity records had its strongest score since mid-August, just before the market started to rally to those October highs. "It's extremely bullish," said Painchaud, who is director of research and principle.
He said he's seeing a ratio of 1.3 purchases for everyone one sale. The insider index is one of several that Painchaud follows. "I'm very comfortable with a bullish call in this market," he said.
The insider signal certainly seems to have come just around the time a lot of pundits started saying that the market may have bottomed. It also coincides with those confidence building rate cuts from the Fed.
The question remains though whether the "bottom" is a short-term one that will be revisited. The wild cards for sure are the lingering credit problems and the economy.
Earnings Central
Media companies report in the coming week with News Corp. on Monday, Disney on Tuesday and Time Warner Wednesday.
Earnings news in the coming week includes Archer Daniels Midland , Clorox , Wendy's and Humana Monday .
On Tuesday, NYSE Euronext, Avon and Duke Energy report. Cisco, EDS, Sunoco, Devon Energy and Biogen Idec are among companies reporting Wednesday. Glaxo and Pepsi report Thursday, as does Deustche Bank and Unilever. Weyerhaeuser and Alcatel-Lucent report Friday.
Econorama
After last week's Fed action and heavy data calendar, the coming week is relatively light. Factory orders are Monday at 10 a.m. and ISM non manufacturing is Tuesday at 10. On Wednesday, productivity and costs are reported.
Thursday has weekly jobless claims at 8:30 a.m.; pending home sales for December at 10 a.m., and consumer credit for December at 3 p.m. Wholesale trade data for December is reported is reported Friday at 10 a.m.
Treasury Secretary Henry Paulson will be on Capital Hill Tuesday, Wednesday and Thursday discussing President Bush's fy 2009 budget, which will be released Monday.
The Senate will continue to discuss economic stimulus in the week ahead. It should decide early in the week whether it will push its own plan or back the House stimulus package, which could then be signed by the President more quickly.
The Senate will continue to discuss economic stimulus in the week ahead. It should decide early in the week whether it will push its own plan or back the House stimulus package, which could then be signed by the President more quickly.
Fed Speak
Fed speakers include Federal Reserve Governor Randall Kroszner who gives the keynote address at the American Securitization Forum in Las Vegas Monday. He'll take questions from the audience, and we'll pay special attention to that conference.
Richmond Fed President Jeffrey Lacker speaks Tuesday at a luncheon in Charleston, West Virginia on the economic outlook and he speaks again Wednesday at Marshall University. Kroszner speaks on changes to the Truth in Lending Act and on the Home Ownership and Equity Protection Act at the Women in Housing and Finance Subprime Symposium Wednesday at 12:30 p.m.
Philadelphia Fed President Charles Plosser speaks about the economic outlook in Birmingham Ala. Wednesday at 1:40 p.m. He will take questions. Atlanta Fed President Dennis Lockhart speaks Thursday in Atlanta to the Association for Corporate Growth conference. San Francisco Fed President Janet Yellen speaks at an economic conference in Honolulu Friday, and Lockhart speaks in Atlanta at the Southern Center for International Studies Friday.
Markets Redux
In the last week, oil fell $1.75, or 1.9 percent, closing the week at $88.96. Gold fell $2 for the week to $908.70 per troy ounce. The dollar fell 0.2 percent against the yen and 0.9 percent against the dollar. Since the beginning of the year, the dollar is 1.4 percent weaker against the euro and 4.4 percent weaker against the yen.
Ten-year treasurys lost 5/32 this past week, with the yield rising to 3.598 percent. The two-year ended the week, yielding 2.081 percent.
CNBC's Rick Santelli alerted us to some action worth watching in eurodollar futures Friday afternoon. He said there was a widening of spreads in the nearby eurodollar futures. Those contracts shadow Libor and rates were spiking. In the further out contracts, rates were dropping. He said traders saw this is indicative of fears about the credit markets. This type of move, he said, has not been seen in a month.
Super bowl
Of course the big news of the week comes Sunday night when the Boston Patriots play the New York Giants. It sure is hard not to root for an undefeated team, but then again you can see Giants stadium from Wall Street. So whoever wins, in my view, is a win.
Questions? Comments? marketinsider@cnbc.com
