One on One with Michael Kahn, Technical Analysis Columnist for "Barron's" Online
Tuesday, July 29, 2008
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SUSIE GHARIB: Even though stocks rallied today, our guest calls it a bear market rally. Joining us now, Michael Kahn, technical analysis columnist for "Barron's" online and editor of the "Quick Takes Pro" newsletter. Hi, Michael.
MICHAEL KAHN, TECHNICAL ANALYSIS COLUMNIST, BARRON'S ONLINE: Hi, Susie. How are you doing?
GHARIB: I'm good. Thank you. Why don't we begin by you explaining why you're calling this a bear market rally?
KAHN: Well, a lot of reasons. First of all, after such a decline as we've seen in the stock market, it's kind of hard to say that the stock market is just going to turn around on a dime and head back up as if everything is really great again, and as we can tell from all the news that's out there, it really isn't all that great just yet. So a bear market rally is a rally that investors are hopeful, they get back in. We have a sentiment spike on the negative side, meaning that there was so much fear in the market that any kind of spark set this dry kindling on fire and it just went up like that. So there are a lot of reasons to believe it's going to end soon, but for now, might as well enjoy it.
GHARIB: So how soon is it? As a technical analyst, what are your indicators telling you?
KAHN: Well, looking at a trend line, which is just a connection on a chart of the highs in the market starting in the October peak of last year, and that brings me down to an S&P target of around 1350. And even as I say that, I think it's rather aggressive, so maybe a couple weeks going into late August. I don't really know if we're going to hit 1350, but that's kind of the best I'd be hoping for.
GHARIB: So how will we know when the bear market is over?
KAHN: Well, bear markets really don't end on panic. I think corrections end on panics, like we saw a year ago in August. Bear markets end when everyone has given up and no one is looking for that bottom anymore. Right now you just turn on any media source and you're going to find people saying the bottom will be this, the bottom will be that. When people give up, they start just getting rid of their stocks, not caring anymore. I think that's when we'll start looking for that bottom.
GHARIB: We saw financial stocks rallying today and also last week there were a couple good days with rallies. How solid is the leadership coming from financial stocks?
KAHN: Well, I don know if I'd call it leadership just yet. maybe short-term leadership. The financials are just the poster child for what I was talking about earlier about the spike and fear and when the companies were coming out with earnings that were bad, but not quite as bad as everyone was fearing, the stocks rallied. What happened was everyone piled into this market just because it was so beaten up, so oversold, as we say, and that just drove up prices, percentages that are just astronomical and seeing 18 or 15 percent gains in a day on some of these issues. So I think that the financials just had a capitulation, I think I heard that term earlier, a capitulation where the fear just was washed out. It doesn't mean the market is going up from here, but I do think that we've seen a pretty good bottom and the healing process is beginning.
GHARIB: There is a connection between oil prices and stock prices and we see that when oil prices drop, stock prices go up and vice versa. What are your indicators telling you about the direction of oil prices?
KAHN: I think oil is still in a long-term bull market and I would not be surprised to see $150 a barrel way before we can think of $100 a barrel. Oil has come down, as you mentioned, quite a bit and it's come to an area where I think that the risk and reward of going in and trying to nibble in some of these energy stocks is pretty good.
GHARIB: Are there any energy stocks that you're seeing that the trends are good?
KAHN: Sure. Most of these stocks are in the oil services group. I actually recommended to my subscribers on Monday a stock called T3 Energy which makes drilling equipment and it has held up pretty well, even today as oil prices went down. So I think there are good risk-reward ratios in the energy sector to be had.
GHARIB: So it is possible for investors to make money during these bear market times, right?
KAHN: Oh, absolutely. But it's a very selective type of process. You have to find the sectors where money is going. Right now money is falling into selected oil stocks. It's falling into selected health care, primarily biotech and that sector's actually doing quite well over the last two weeks.
GHARIB: All right. Michael, any disclosures that you want to make about the stock that you have mentioned?
KAHN: I think I did mention I did recommend it to my subscribers on Monday.
GHARIB: But do you own any of these stocks?
KAHN: No, I don't. I do not own any of these stocks.
GHARIB: All right, great, Michael, thank you for coming on the program. Nice to see you again.
KAHN: You too, thanks.
GHARIB: My guest tonight. Michael Kahn, technical analysis columnist for "Barron's" online.
