Big Week But What's the Catalyst?
Market Commentary
By Charles Payne, CEO & Principal Analyst
It's been a strong summer for the stock market but it has come on extraordinarily light volume with tons of skepticism. This is a serious make or break week for the market. The big questions are, first, whether money-printing can move markets; thus far it has worked wonders, especially the actions taken by the ECB that turned our market out of freefall late in 2011. Then there's the idea of economic data slipping. Recent manufacturing data points to contraction, and Friday we're looking for 130,000 jobs created - a woefully low number. That figure would be down from the previous month (163,000) and nowhere near enough to change the unemployment crisis.

Failure to Break Out

On April 2, the Dow touched 13,264 then ran out of gas
* By April 10, the Dow tumbled to 12,715

On May 2, the Dow tickled 13,268 then ran out of gas
* By June 4, the Dow fell to 12,101

Now 12,986 (50-day moving average) is key support and the inability to hold that level leaves the index vulnerable to 12,671 but we'd have to be mindful of that 12,101 June low too. That key support point held today and helped spur an intraday rebound in the market.

The market must make a stance this week - not sure where it comes from but there are a ton of events.

Acquirer Stock Spikes a Bullish Signal

This morning Valeant (VRX), Canada's largest publicly traded drug company made a $2.6 billion bid for Medicis (MRX), a maker of acne drugs and wrinkle creams. The offer is 39% above Friday's close and the way the stock is trading suggests the Street expects a bidding war (VRX lost out on Cephalon last year to Teva (TEVA)). Consolidation is important for the market and can mean business is bulking up for a spike in demand. But there is also another interesting trend emerging. The shares of acquiring companies have surged higher on takeover news, a phenomenon that goes against history.

VRX is up 7% today but there have been at least 18 acquiring companies we've tracked at www.wstreet.com that have moved up big time since April. Last week, Hertz (HTZ) shares spiked on news they are taking over Thrifty. I think this reflects a market that is so oversold these deals look like bargains. Heck, Thrifty was $0.73 back in February 2009 so even though it was up more than 118 times from there, the Street still thought this was a great deal (Hertz's market share climbed to 24% from 19% versus Enterprise 39%).

I think there are so many individual names that are significantly undervalued, not reflecting recent gains but profits made over the last decade. The way the Street reacts toward these announcements backs that up. But somehow there has to be a way for the entire market to reflect true value because they all can't be involved in blockbuster acquisitions. Can they?

Acquirers whose shares spiked on the news:

DGI
MU
HTZ
GY
BUD
PENN
GIII
MTB
WWW
WAB
UPS
FLO
AET
ASNA
GWR
WLP
CALX
VRX

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