Despite all of the news flow, the major indexes aren't moving much. Rather, stocks are stuck in a typical late-summer environment.
Volume has been unimpressive at best. I saw some stocks trade at less than half of the average daily volume this week. It's neither good nor bad, but rather just what often happens this time of year.
Late-summer vacations and the end of earnings season are both big reasons why many traders are sitting out. The uncertainty about the economic environment is also playing a role. Then there is Russia, which has become more militarily aggressive.
In environments like this, I feel sorry for people like Jim Cramer who feel obligated to make something out of nothing. This is a quiet market environment and nothing else. My advice is let events unravel and see what trends develop after Labor Day.
The markets will change from day-to-day; your investing strategies shouldn't.
And part of your strategy should be to always maintain some exposure to stocks. Those who try to time the markets are often the ones who take large losses and miss out on the big gains. Conversely, the most successful investors never stop researching stocks.
Financial Stocks
As I have previously stated, we have intentionally kept financial stocks out of the Focus List. Earnings estimates continue to be cut for both 2008 and 2009 as the credit crisis continues. Banks still don't know what is on their balance sheets, making it impossible for brokerage analysts to do little more than guess what future earnings will be.
The other big problem, that is not getting as much press, is the damage being done to shareholders. The actions taken by many financial companies to stay afloat are dilutive, at best, to existing shareholders. Unfortunately, many firms have gotten themselves into such a large mess that they don't have much choice.
Lehman Brothers (LEH) is talking to Korea Development Bank because it can't find other suitors. Fannie Mae (FNM) and Freddie Mac (FRE) are in need of massive taxpayer help because they have been so mismanaged. These are the type of situations that investors should avoid rather than using the latest rumor of salvation to pick up shares at discounted prices.
Always remember that just because something is cheap doesn't mean it is a bargain.
The Markets
The late-summer environment is evident in the charts of the major U.S. indexes, which show trading ranges.
Focus List Updates
Parker Hannifin (PH) was sold because of a drop in profit projections for fiscal 2009. The company remains fundamentally strong, but we are concerned that there could be additional short-term weakness in the stock.
We are watching shares of Central European Distributors (CEDC). Our presumption is that the recent weakness in the stock is being caused by the military situation in Georgia. Earnings estimates are up during the past 30 days and CEDC is a Zacks #2 Rank ("buy") stock.
We are looking for new additions, as we would like to increase the number of stocks within the portfolio to about 35.
Charles Rotblut is the Vice President of Web Content for Zacks Investment Research and the Senior Market Analyst for Zacks.com. He oversees the editorial staff, manages the market-beating Focus List, Timely Buys and Top 10 portfolios, and plays an instrumental role in the development of new products. For more information, visit www.zacks.com.
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