David Asman guest hosted for Brenda Buttner and was joined by: Gary B. Smith, TheStreet.com columnist; Pat Dorsey, Morningstar.com columnist; Scott Bleier, chief investment strategist at Prime Charter; Tobin Smith, portfolio manager of the ChangeWave Fund, Royce Kanofsky, chief market strategist for Investec, Ernst & Co, and Jonathan Hoenig, Portfolio Manager of Capitalist Pig Asset Management.
Tobin, Gary B, Pat, Scott, Royce and Jonathan entered the "Trading Pit" with host David Asman how to determine a "sucker's" rally from the real thing. Last week, there were huge gains for stocks on Thursday, only to be negated by a sell-off on Friday. As a matter of fact, on Thursday, the Dow gained just over 400 points, and the Nasdaq gained 146. However on Friday, the Dow then lost 127 points and the Nasdaq lost 65. On the March 31 show, Scott correctly predicted that the markets would rally-which they did on Thursday-but after Friday's fall, David asked if this was a "sucker's" rally. Scott answered, "The only way to really know a 'sucker's' rally is if it gives back more than half of the gains very, very quickly. And as of Friday's close, Nasdaq gave back more and the Big Board gave back less…I think that Nasdaq has a little more work to do, and the Big Board is going to continue to struggle to make the low 9,000's a good low."
Tobin responded that Thursday's gains were a result of short covering (the process of betting against stocks). "There is more short interest, about 20% more, than in the history of the Nasdaq. So hedge funds are all betting short," he said. "When this little rally came, it was individuals. There were no block trades. These were individuals buying tech stocks."
Pat then jumped in and said, "It was a 'sucker's' rally because it was sparked by bad information. It was sparked by Dell (DELL) saying, 'We're going to meet our numbers, but we don't know what the rest of the year is going to be.' And simply an upgrade on Yahoo! (YHOO). That's not the kind of thing that's going to drive stocks forward long term."
Gary B. "Chartman" Smith looked at his charts and is bearish on the Nasdaq. He said, "Sometimes markets go up [or] go down for reasons they should or should not." He continued that when looking at the Nasdaq's chart, "It's pretty simple to me. You have a downtrend line…for weeks and months at a time and really indices and stocks tend to move up and down within that downtrend. But unless they pierce the top of the downtrend line, then you really have to classify it has a 'sucker's' rally."
Jonathan disagreed. He said for the short term, he is bullish. He also thinks that a lot of things were oversold, especially the Nasdaq 100. Royce agreed. He reasoned, "A 'sucker's' rally implies that people are going to get hurt. If they position now, twelve months out, they will not get hurt."
Another correct call by Scott, this time on the February 17 show was the other topic of discussion for the Bulls & Bears. This time, Scott correctly predicted that Lucent (LU) would fall to $6. On that show, Scott said he would buy the stock if it fell that low, and Gary B. said he would buy it as well. The stock did reach that low, however Scott did not buy the stock. He explained, "Quite frankly, I didn't have the guts to buy it because I think that Lucent has to get rid of their entire core business. I think it's going to be a shell." True to his word, Gary B. said he did buy the stock, but not at the $6 price, he actually jumped in a little early and bought it a $6 ½ a share. But, he did issue the warning, "Sometimes stocks like this are no more than lottery tickets. You buy a very small amount. You figure if it goes to zero, you haven't lost a lot. But in this case, I just said, 'Hey look it's got a name, maybe people don't let it go out of business.'"
Are consumer stocks the way to go in down times? The "Chartman" and Pat took on that topic in another head to head segment. First up, Procter & Gamble (PG). Gary B. was bearish on the stock because it has took a shellacking, and has taken a year to recover. Also, he believes that there are plenty of more dynamic stocks to focus on. Pat agreed, not because of the company's chart, but because of its fundamentals. He cites the facts that Procter & Gamble is losing market share, earnings are at a standstill, and there is uncertainty about their current restructuring program.
Next up, Kimberly-Clark (KMB). Different stock, but same bearish opinion for Gary B. He said that Kimberly-Clark is similar to Procter & Gamble, but the former is in its rut near a new high. The chart is currently in a sideways movement, and he believes the best bet is to stay away until breaks this trend. Different stock, different story for Pat though. He's bullish on the stock because it is gaining market share, has solid earnings growth, and is a steady performer.
Finally, the group got back together for "Predictions". Here they are:
• Scott's Prediction: Companies start to give brighter outlook on earnings
• Pat's Prediction: Bad investments hurt company's bottom lines this earnings season
• Royce's Prediction: Agere Systems (AGRa) a good buy under $10
• Tobin's Prediction: Energy stocks rally; NRG (NRG) the one to own
• Gary B's Prediction: Disney (DIS) buckles; trades at $12 by year-end
• Jonathan's Prediction: Bull market in bonds, not stocks, over the next year