Market Rally Has Legs

 |  Includes: BCE, BMO, CM, DIA, MACDY, MFC, SPY
by: Chris Damas
The US stock market rally turnaround after a nine day sell-off is impressive and has “legs” in my opinion.
As soon as I see the “Most Wanted” PermaBears in the media (David Rosenberg in the Globe and Mail a day ago, Nouriel Roubini cancelled his morning interview on CNBC) trotting out their overly-used arguments that the market bull rally is speculative and therefore “false” (because they missed the call), I get more bullish and want to buy my favorite businesses.
To All Economic Cassandras: If you expand your mental box to include the possibility worldwide economic growth needs a spark rather than a pail of cold water, you might “get it.”
At 10:30 am we had DJIA up 188 at 11,185; S&P 500 up 20 to 1,199; Canadian S&P/TSX up 187 to 12,845.
As you may know, General Motors (NYSE:GM) went public today, with the shares up $2.63 at $35.63 on 200 million traded.
The Obama regime strikes a capitalist note, getting partial repayment on the bailout last year, selling 359 million shares at the IPO price of $33 US/share - “What is good for General Motors, is good for the Government,” to put a twist to the famous saying.
The Government of Canada and the province of Ontario are selling 20% of their combined position and reducing their interest from 11.7% to 9.6%, before the over-allotment option exercise.
(I expect to turn my 94 Pontiac Transam complete with leather bucket seats into a new scuba diving site in Lake Simcoe, because the chance of getting reasonable after-market parts has dropped to zero).
I woke up this morning at 4:00 am to see how Asia was faring – Japan’s Nikkei 225 index closed above 10,000, highest since Spring, and the Chinese Shanghai index rallied a percent as fears of China interest rate tightening abated. The European stock market indices soon rallied over 1% on the news of a possible EU-IMF loan package for Ireland.
As predicted in this space on Tuesday, the EU in conjunction with the IMF, is gearing up to help Ireland even though the latter is not in a short-term liquidity squeeze, preparing to lend the country “tens of billions” of euros, according to Irish central bank governor Patrick Honohan.
The November Philadelphia Federal Reserve Bank Business Outlook Survey diffusion index came in at 22.5 versus an expectation of 5, which was an unexpectedly strong showing and a supportive number for the market, offsetting the big negative surprise in the New York Empire State index result on Monday.
Importantly, October Leading Indicators for the US (+0.5%) and Canada (+0.2%) released today, are signaling continued expansion. US jobless claims continued to be stable at the 439,000 level.
Here are some trading notes to follow if you have been watching the shares we have been recommending over the past couple of months:
1) We bought BCE (NYSE:BCE) Dec 34 Call options @ $.30-.40 yesterday. BCE has “$35” written all over it as the Dec. 13 dividend ex date approaches. We expect to exercise and get paid the 45.75 cent divvy which would cover the option cost.
2) If, like me, you looked over Western Coal (OTC:WTNCF) at $4 and change, and now are crying into your coffee that you didn’t pull the trigger with Walter Energy (NYSE:WLT) offering $11.50 this morning, I suggest MacArthur Coal (OTC:MACDY)[ASX:MCC] in Australia as a likely target for US coal companies such as Peabody Energy (BTU). Peabody offered $15 AUD for MacArthur back in the Spring (rejected by management). MacArthur is now priced at $11.90 due to wet weather in Queensland reducing coal production in the latest quarter. It trades on the Sydney ASX with two steel companies including POSCO (NYSE:PKX) as significant shareholders.
3) The Canadian bank stocks are finally rallying after a sharp downturn. Part of the problem may have been the Ontario government's threat to unilaterally regulate their usage of derivatives, made public yesterday. We are recommending Bank of Montreal (NYSE:BMO) and Canadian Imperial Bank of Commerce (NYSE:CM) as the most attractive Canadian bank stocks. For conservative equity investors requiring sector diversification, we recommend the iShares Canadian Capped Financial ETF [TSE:EWC] @ $22.60 to participate in the banks as well as Manulife Financial (NYSE:MFC) which seems to be recovering. The XFN ETF [TSE:XFN] goes "ex" 5.44 cents on November 24 and the estimated annualized yield is 2.9%.

Disclosure: Long BCE, BMO, CM, XFN.TO, MCC.AX