As most people saw, stocks were up big yesterday, led by the financial (my favorite) and technology sectors. The reason for the rally was three fold:
- one of the best and most respected banking analyst on Wall Street, Dick Bove, came out on tv and said that he thought the financials were ridiculously oversold and represented incredible buys
- economic data released by the government showed that while the economy growth is not robust, things are still improving, albeit at a slow pace (nonetheless this was viewed as a positive indicator of future growth prospects)
- as stocks started to move up, momentum traders jumped on the band wagon and the markets drifted higher and higher (just like sometimes selling begets selling, buying causes more buying)
This morning, stocks have moved up then down then up then down...like I said recently, I believe that the stock market has bottomed for the year, but I expect it to trade sideways for the remainder of the year. This as one can expect, will serve to frustrate investors as they attempt to reposition their portfolios in a manner where they can most benefit in the months going forward. As I have talked about, I like the financial sector and high yielding dividend stocks. To say the least, this definitely not a "buy and hold" type of environment..investors have to be opportunistic and take advantage of special stituations (such as mergers and acquisitions) and look for undervalued sectors of the market that have improving fundamentals (Citigroup, Bank of America, Suntrust Financial, Etrade, etc).
Interesting of note, with the recent selloff that occurred, several companies that have already received takeover bids from other companies/hedge funds are trading below the price that was offerred..two examples of this are:
Clorox - received a buyout offer of $80/share, but is still trading at $65 ($15 premium if the buyout occurs)
99 Cents Stores - received a buyout offer of $19.20/share, but is still trading at $18.20 ($1 premium if the buyout occurs).
And by premium, I mean that for every share of stock you own, then you would get the dollar amount (it's called the "spread"). These are just two examples of what I've been calling "special situations" opportunities.
