Markets Rise Again - Is Correction Over?

A question that is the topic of a lot of discussion among both the active investors and the individual consumer is “is the market fall over?”. We all have an opinion on it and they vary as much now as they did as the markets were in free fall. Here is my take on both the economy and the markets.

Economy:

I really don’t see any fundamentals about the economy that would indicate the markets should be powering ahead like have done for the last few weeks. The unemployment figures appear to be getting somewhat better but are still at record levels.

General Motors (GM) finally threw in the towel and filed for Bankruptcy. This was not a surprise and 2oversold.com readers know we blogged this would happen before the first dollar of bailout money was given to them. But finally after billions in bailout money GM files. But there is a twist. One that I think is about as absurd as the original bailouts, and that is more bailout money! Yup, GM will get more money from the government now to help in reorganization. Some figures say the tax payer will now own up to 73% of the company or something like that. Amazing. But it was enough to lift the markets.

Both Citi Group and GM gets the boot from the DOW. Now it was not that long ago that it would have been unthinkable that either of these companies would get booted from the DOW and if something of this magnitude would have happened the markets would have fallen like a rock. Yet once again they shrugged off the news and traded higher. And why not. GM was trading around a buck and Citi still at penny stock levels.

The Markets:

It is often said the market trades in anticipation of the future. And this is the only explanation that I can find to support a DOW of 8700 which is where we currently stand. This is about the midway point from the recent low of 6500 and the 10,500 range before the big correction started.

I admit I am surprised to see DOW 8700 at this point in the economy. And I do not think it can hold but then that is what makes markets. Time will tell if those jumping in now are making some good investment decisions or if they will be caught in another downward spiral that will test the DOW 6500 level.

2oversold.com continues to think that mining companies like Northgate Minerals (NXG), Yamana Gold (AUY), will continue to trade higher as well as consumer value plays like Majesco Entertainment (COOL) .

The two mining companies saw some profit taking and selling pressure as gold slid the last two trading sessions while Majesco Entertainment made an impressive move on the week to close at $2.05. At 2oversold.com we continue to have little belief that the economy is back on track and think defensive and consumer “value” orientated companies will continue to be worth a look for the long term.

2oversold.com is a blog for the individual consumer and private investor. We are not experts in the markets nor do we make any recommendations of any company. The companies we blog about are discussed for the purpose of this blog only and this should not be considered as investment advice.