Last week's Wall Street action brings back old friends

By BRIAN NEILL

bneill@bradenton.com

I got a little misty eyed Thursday, the last day the market was open before the three-day Easter weekend.

It looked a lot like the good old days and the troops that rallied six months to a year ago were back in fine form.

I'm talking about the Apples, the Bank of Americas, the Targets and the nice 200-plus-point showing from the Dow.

I'll confess, I had been ready to be the skeptic again.

I knew for sure the explosive 400-point rise in the Dow on Tuesday following the Federal Reserve's three-quarter-point rate cut was nothing more than a sucker's rally and we'd be right back to where we were before the next day. After all, hasn't that been the pattern lately?

"Yep," I thought to myself the next day, when the Dow gave back about 300 points - right on my pessimistic cue.

But Thursday's action seemed to have some belief behind it. And it started to make a believer out of me.

And it's worth noting that at the same time the beaten-down sectors were rallying, those safety darlings of late - gold and commodities - were getting slammed hard. Gold, which hit an all-time high of $1,017 an ounce last Monday, plunged $80 an ounce by the end of the week.

Indeed, Wall Street types have suggested that the implosion of Bear Stearns (BSC) is exactly what we needed to signal the bottom. Such a major event, they argue, had to happen before investor confidence could be restored and the belief that the worst is behind us could prevail.

Punk Ziegel & Co. analyst Dick Bove declared Thursday to MarketWatch that the financial crisis is over and it's time to buy bank stocks.

Others, however, are more cautious and think we're not quite clear of the nightmarish headlines that may lie ahead.

Friday's Wall Street Journal highlighted one of those who has heralded buying stocks of homebuilders and banks now that they've fallen. But he may have some back-pedaling to do.

It was Bill Miller, the famed stock-picker of Legg Mason who was known for his 15-year track record of consistently beating the S&P 500 Index (the streak ended in 2005).

Miller was speaking at a conference, where he was espousing the same theory of picking up beaten down homebuilders and financials - including Bear Stearns, a holding of his fund.

The investing guru, the Journal reported, was shocked at the end of the presentation when a member of the audience raised his hand and asked if Miller was aware Bear was down 15 percent that morning (we know what happened after that). Miller apparently didn't know.

That said, Bank of America (BAC) and Citigroup (C) were up 9 percent and 10 percent Thursday.

Centex (CTX), a homebuilder that's one of the stocks in our mock portfolio, was also up nearly 10 percent Thursday.

Would I be surprised to wake up this morning and see the indexes pointing lower again or another financial institution blowing up? Nope.

But I do sense the tide may be starting to shift. Let's hope so anyway.

Mock portfolio performance

As noted above, Centex had a good run-up this week, making it the head of the heap in our mock portfolio of six stocks.

Financials and homebuilders got a boost from all of the Fed action of late, which cutting the Fed funds rate and also lowering the rate at which commercial banks can borrow from the Federal Reserve Bank. Another of our holdings, Wachovia Bank (WB), got a nice 8 percent bump Thursday to close up $2.42 to $30.72.

A nice gain, but Wachovia still has far to go to get back in our good graces. It has still lost us just over 28 percent since we fake bought it in December.

Overall, we've lost $2,490 on our initial phony investment of $33,699 - a loss of 7.38 percent.

Let's hope today is a follow-through of Thursday's action.

TAKING STOCK

Brian Neill x takingstockmanatee. blogspot.com