Market Comments And Update After The Pullback On Tuesday. Lange Financial Services Update

[ 0 ] March 2, 2011 |

We received this from Lange Financial Services and are posting it here to follow up on their bulletin last week.

Lange Financial Services- Tuesday March 1, 2011

From the close on Friday February 18, the Dow fell about 400 points, or about 3.5% to slightly under 12,000 on Thursday afternoon before a sharp rally late in the day. The S&P fell comparably to slightly under 1300. Other popular indexes fell about 5% .

Early Thursday afternoon we sent out a bulletin to continue to buy quality growth stocks on weakness. Our target of a 3%-5% pullback was reached. Since the positive buy stocks memo last Thursday afternoon just prior to the bottom and the follow up stock recommendations note on Friday, the indexes recovered about 300 points. For the short term, we cannot rule out a test of the recent lows of about Dow 12,000 followed by a trading range generally for the shorter term, or a consolidation of the gains enjoyed since August.

More important at this juncture is to concentrate on the merits of individual stocks and not be especially concerned about the fluctuations of   the popular market indexes that most pundits seem to be keyed on. Most of these “experts” have effectively missed the rally since the highly successful test phase last August as a consequence. The substantial appreciation from depressed levels has discouraged many from participating fully in the market advance reflecting a concurrent fear of another decline, and the belief that the economy would not right itself.

We still believe many stocks are attractively valued based on earnings prospects expected over the next 12-18 months with our target for the S&P 500 still being 1550. We remain bullish as we have since the July 2010 bottom.

The S&P 500 is only selling around 13 times earnings and about 12 times next year’s projections. These valuations are historically low. These projections have been in effect since last fall and are well ahead of the STREET. Given mounting economic strength these forecasts could easily prove conservative.

For the short term the market is confronted by the uprisings in the Middle East and the increasing price for crude oil and the consequent volatility. Developments will have to followed closely to determine the levels of market support as the market quiets down. We remain bullish though the short term volatility may test one’s convictions.

Accumulation of quality companies continues to be recommended. For a list of current favorites see the blog post on February 25, 2011.

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Category: Economics, Markets and Trading