Brenda Buttner and was joined by: Gary B. Smith, RealMoney.com columnist; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; Adam Lashinsky, senior writer for Fortune magazine; and Mike Norman, publisher of The Economic Contrarian.
Trading Pit
Dow 5,000? That's right, some of the best in the business think that's where the blue chips are going.
But to get there, the Dow would have to drop 37% from Friday's close of 7,986.02. And a close of 5,000 would be 57% below the all time high of 11,722.98.
Adam does not think that the Dow is headed all the way down to 5,000. He said some that think so are looking at the low dividend yieldwhich means stock prices are highbut they are not taking into account that every stock does not pay a dividend.
Tobin said the problem is that the Dow is a price-weighted index, so if a company like 3M (MMM), which trades around $120 comes out with extremely poor earnings and gets cut in half, the Dow would lose 800 points. However, a company like General Electric (GE), which has a much larger market cap than 3M, but trades at almost ¼ the price, would not have as big of an effect on the Dow if its price was cut in half.
Mike thinks the Dow can potentially hit 5k, but it may take 10 years to get there.
Gary B. charted the Dow since May of this year. He's bearish on the average because it is going down. He believes that averages going down tend to keep going down. The only logical bottom he sees is the July low of about 7,500.
Scott said the Dow won't fall to 5,000, but will hit the 1997-98 panic lows near 7,000 and this will be the ultimate low for this bear market.
Stock X-Change
Toby, Scott, and Mike all picked stocks they think will go up, if the market continues to go down.
Toby thinks Barrick Gold (ABX) will win if the Dow goes to 5,000 because to go that low, there would have to be a recession. If this happens, Toby reasons the dollar will drop in value and gold will become more valuable. (Toby owns the stock.) Mike likes the stock. Scott likes gold, but likes AngloGold (AU) better.
Scott said Hong Kong Electric (HGKGY) will head north when the rest of the market is sliding south because it is a stable stock and has a 5% yield. Mike likes the stock, but Tobin does not.
Mike recommended Mitsubishi Tokyo Financial (MTF) because the Japanese government is going to start helping out its banks that made bad stock market investments. Tobin and Scott both do not like the stock.
Chartman
Gary B. and Adam came back to examine some stocks Gary thinks might be ready to break out and run with the bulls.
Gary B's first pick was KB Home (KBH). He thinks this stock is ready to break out because after a strong few years, it is now moving sideways digesting those gains. He said the chart is still strong, but he'd wait until the stock closed over $53 before buying. (KBH closed at $48.69 on Friday.)
Adam was not as optimistic about KB Home because he thinks housing will never get better than it is right now. Also, he thinks mortgage rates will rise, but the stock won't.
Gary B. then brought his AT&T (T) chart to the table. He said this stock is much closer to a breakout than KBH and is a buy if it can close above $13. (AT&T closed at $12.43 on Friday.)
Adam likes AT&T because it is taking on local phone companies. He admitted the stock is boring, but it is a good bet.
Predictions
Gary B: Dow hits 7400 next week; then huge rally!
Tobin: Gary too optimistic; Dow below 7000…then rally!
Adam: News on tech stocks gets worse this week
Scott: NiSource (NI) fuels bottom line in bad market
Mike: Inflation & interest rates rise; home bubble bursts
Get all the stories you need-to-know from the most powerful name in news delivered first thing every morning to your inbox