The Week in Review November 17-21, 2008

Recap: The S&P 500 Index has now corrected 53% from the high set in October 2007 (1,576) to the low set Friday just before stocks shot higher (741).

Review: The S&P 500 had a picture perfect double top technical formation right at the high set last October (1,576). With the huge snapback rally on Friday it looks like the market could hold the 740 level with a potentially equal picture perfect double bottom technical formation (just under the 800 mark).

See chart below.
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=SP500&sid=&o_symb=SP500&freq=2&time=20

What to do: Folks, make no mistake, this is a huge, catastrophic, eye popping, bone crushing, paralyzing correction in the stock market. However, we see a few signs that say investors should be buying, buying, buying!!!!

1) Stocks are simply cheap. Dell trades at 7 times forward earnings, and 6 times trailing earnings. Historically, stocks on the S & P 500 trade at 17 times earnings. Dell just made $727M this past quarter. That is profit, not revenue. So, in the absolute worst economic/business environment since the 1930's the largest PC maker in the world still made $727M or roughly $2.9B annually. On the flip side of the coin Dell is slashing costs. Apparently, that is also working as the company reported earnings of six cents above estimates. Yet, the stock goes down? Well, that is the market we are in. Investors are scared, confused, fearful, and that equals inaction, selling, and panic. It also equals a value investors dream.

2) We have noted, anecdotally, that many times market tops and bottoms are marked by simple "you have to be 'expletive' kidding me" events. These events are not hard science, but simple common sense observations. The President of France, Nicolas Sarkozy, said this week that France will host, "The anti-American Capitalist conference" January 8,9, 2009 in France. Does that come with French Fries? Nicolas, have you been talking to Giselle Bundchen, the World famous Brazilian supermodel, who at the absolute low in the dollar demanded to be paid in euros, and not dollars? The US dollar is not going away, and neither is the US economic juggernaut.

Quote of the Week: "The optimist sees opportunity in every danger; the pessimist sees danger in every opportunity." Winston Churchill