Time for the Two Minute Hate

In George Orwell's 1984, the totalitarian Big Brother regime of Oceania created a way for its citizens to express their state-required loathing for official enemies in a public spectacle known as the "Two Minute Hate." The "Two Minute Hate" was a required daily ritual in which the people of Oceania would take to the streets en masse to shout, curse and denounce traitors, turncoats and other enemies of Oceania as their images were displayed on huge public television screens.

I thought about the "Two Minute Hate" while listening to traders like Barry Ritholz on Bloomberg this morning puzzle over whether or not we have reached that optimal loathing point when epeople hate stocks enough to create a bottom in the markets. As we have talked about for weeks in the Weekly Outlook, there will be no meaningful bottom in stocks until we reach that "I'm Mad as Hell" moment when, damn the torpedoes, investors decide it is time to move full speed ahead and start buying stocks.

As I suggested last week (Year-to-Date Lows: Testing 1-2-3?), the likelihood of retesting the lows of mid-January before the markets were able to move meaningfully higher was great. And it is precisely this kind of retest, this sense of "oh no, here we go again!" that tends to create the requisite despair that a Two Minute Hate--and an enduring bottom in the markets--requires. Indeed, the last time the S&P 500, for example, was this oversold in the 2-period RSI was the mid-January/year-to-date lows, after which the S&P 500 rallied some 6% in eight days.

The Nasdaq, for its part, has already made a new closing low for the year. But both the S&P 500 and Dow Industrials are holding up, relatively speaking. This gives some credence to the notion, suggested by investors like Ken Fisher, that larger cap stocks will outperform their smaller counterparts in 2008. A growing preference for dividend-paying stocks, and the safety of larger, better-established companies with solid track records for steady, if unspectacular growth, is further testament to this.

But there will be little applause for outperformance of any kind until the markets start moving higher. And while it may be hard to believe, we still think that the lower the markets move in the near term--under the current circumstances--the higher they are likely to be in the intermediate and long-term.

If not, then perhaps we could replace the colorful animated advertisements of Times Square with streaming pictures of mortgage lenders, bond insurers and the stock symbols of companies like Citigroup and General Motors. Broadway and Seventh seems like as good a place for a stock-denouncing, market-cursing "Two Minutes Hate" as anywhere else.

What's New at TradingMarkets

A fascinating comparison of the Federal Reserve Bank's approach to monetary policy with that of the European Central Bank was published earlier this week at the New York Times. The long and short of that article was that the ECB managed to create a much smoother curve in terms of its cash rate, while virtually ignoring many of the things that seem to twist American central bankers into knots, such as the fate of the stock market, or the apparent responsibility to avoid recession no matter the cost.

I bring up central banks not to bury them--nor to praise them--but as a way of reminding readers about the TradingMarkets Up or Down Forex Contest that just started this week. By predicting whether or not one of our seven currency pairs will be higher or lower by the close of trading (effectively 5 p.m. Eastern time), contestants can compete to win more than $12,000. Monthly winners can earn up to $1,000 every month and a bonus of $2,500 will be awarded to the contestant with the highest percentage of correct predictions for the year.

To learn more about the TradingMarkets Up or Down Forex Contest--or to register for free--click here. Game on!

Stocks in the News

Stocks making news headlines this week included a number of technology companies from Dell to National Semiconductor, as well as positive words from retailers like Costco and Wal-Mart.

The week began with news that United Technologies (UTX@UTX | Quote | Chart | News | PowerRating) was making an unsolicited $2.63 billion bid for Diebold (DBLD@DBLD | Quote | Chart | News | PowerRating), which has initially rejected the offer.

American International Group (AIG@AIG | Quote | Chart | News | PowerRating) recorded a massive loss to the tune of more than $5 billion. The culprit? Surprise, surprise: more subprime-related mortgage writedowns.

Dell (DELL@DELL | Quote | Chart | News | PowerRating) fell hard this week after both profits and revenues missed analyst expectations for the quarter.

Membership-based warehouse retailer Costco (COST@COST | Quote | Chart | News | PowerRating) announced a surge in profits of more than 30% for the quarter due in large part to sales of food items.

Intel (INTC@INTC | Quote | Chart | News | PowerRating) lowered its forecast this week, adding that falling prices for flash memory chips would likely slow the company's expansion into that market.

The market responded quickly and positively to Big Lots (BIG@BIG | Quote | Chart | News | PowerRating) report of an earnings beat this week, though some buyer's remorse has settled in as investors digest news that earnings growth was due largely to a share buyback program.

In some surprisingly good news from the technology sector, National Semiconductor (NSM@NSM | Quote | Chart | News | PowerRating) impressed analysts with earnings that were above expectations.

Wal-Mart (WMT@WMT | Quote | Chart | News | PowerRating) reported February revenues that were up big due to sales of both food items and personal products, including medicines.

Ambac (ABK@ABK | Quote | Chart | News | PowerRating) lost more than 20% in a single session mid-week on news that the company would be seeking upwards of $1.5 billion to keep its AAA credit rating.

What to Look for Next Week

Monday: Wholesale Trade
Tuesday: International Trade
Wednesday: Treasury Budget
Thursday: Retail Sales / Jobless Claims
Friday: Consumer Price Index

Best Performing Stocks (PR 8-10) of the Last Five Days

Here are some of the best performing, high Long Term PowerRatings stocks of the past five days. This week, all of the listed stocks have PowerRatings of 9 or 10.

iShares COMEX Gold Trust ETF (IAU@IAU | Quote | Chart | News | PowerRating). Long Term PowerRating 10.
ProShares Short S&P 500 ETF (SH@SH | Quote | Chart | News | PowerRating). Long Term PowerRating 10.
CurrencyShares Japanese Yen Trust (FXY@FXY | Quote | Chart | News | PowerRating). Long Term PowerRating 10.
Johnson & Johnson (JNJ@JNJ | Quote | Chart | News | PowerRating). Long Term PowerRating 9.
Coca Cola (KO@KO | Quote | Chart | News | PowerRating). Long Term PowerRating 9.

Worst Performing Stocks (PR 1-3) of the Last Five Days

Here are some of the worst performing, low Long Term PowerRatings stocks of the past five days. This week, all of the listed stocks have PowerRatings of 2.

Countrywide Financial (CFC@CFC | Quote | Chart | News | PowerRating). Long Term PowerRating 2
Cynosure Inc. (CYNO@CYNO | Quote | Chart | News | PowerRating). Long Term PowerRating 2
ETrade Financial Corporation (ETFC@ETFC | Quote | Chart | News | PowerRating). Long Term PowerRating 2
Fannie Mae (FNM@FNM | Quote | Chart | News | PowerRating). Long Term PowerRating 2.
Jackson Hewitt (JTX@JTX | Quote | Chart | News | PowerRating). Long Term PowerRating 2

David Penn is Senior Editor at PowerRatings.net.