Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Why the Stock Market Just Doesn’t Make Sense Anymore

By for Profit Confidential

Clear Signs Stock Market Acting IrrationallyThe concept of corporate earnings being the single biggest factor that drives key stock indices like the S&P 500 higher has been thrown out the window.

While I continue to see analysts issue buy recommendations for the S&P 500, the fact of the matter is that profits at companies that make up the S&P 500 are declining. For the first quarter of 2014, corporate earnings for the S&P 500 companies are actually expected to decline by 1.6%. (Source: FactSet, April 11, 2014.) That’s the biggest drop in public company profits since 2009!

But the stock market doesn’t care if corporate earnings are declining…just like it doesn’t care if interest rates are rising. These are clear signs the market is acting irrationally—an indicator of a stock market bubble.

Just look at what happened with The Coca-Cola Company (NYSE/KO). This well-known S&P 500 company reported that its first-quarter 2014 corporate earnings declined by eight percent and revenues dropped four percent compared to the same period one year early. (Source: The Coca-Cola Company web site, last accessed April 15, 2014.)

But the market took Coca-Cola’s stock price higher on the bad results!

Below is the chart of Coca-Cola’s stock price, just as the markets opened (circled area) after the company reported its poor corporate earnings results. The stock gapped up 2.8%! This confirms my take that the fundamentals don’t count anymore to investors.

Coca Cola Co ChartChart courtesy of www.StockCharts.com

At the end of the day, all of this seems too familiar to us. This is what we have seen prior to other stock market sell-offs: investors discounting all forms of time-proven stock market valuations because they believe stock prices will keep rising no matter what.

I see the upside for key stock indices like the S&P 500 as being very limited and the probability of a massive downside move is very likely…. Read More

Stock Slammed in 2007/08 Making Strong Comeback

By for Profit Confidential

Harley-Davidson Riding New Wave BuyersFirst-quarter earnings results for Harley-Davidson Inc. (HOG) were good. The motorcycle manufacturer did a solid job boosting its bottom line on what was a decent gain in sales, particularly internationally. First-quarter earnings per share grew 22% to $1.21.

U.S. dealers sold 35,730 new motorcycles in the quarter for a three-percent gain. International dealers sold 21,685 new motorcycles during the quarter, up 11%, with comparative Asia-Pacific sales up 21%.

This produced total bike sales of $1.31 billion in the 2014 first quarter for a gain of 13% over the same quarter of 2013. Gross margin was higher and management reiterated previous guidance of a seven- to nine-percent increase in motorcycle shipments this year.

It was a solid quarter for the company, and the stock bounced nicely higher on the news.

So far this earnings season, the numbers have been pretty modest. Two emerging trends from reporting companies include strengthening business conditions in Europe and Asia, along with the confirmation of existing 2014 guidance. (See “Two Big Trends to Emerge This Earnings Season?”) Generally, the numbers are OK.

Stocks have been able to work through recent jitters and the main indices. Most of the economic data hitting the wires is actually meeting consensus expectations, and this is helping investor sentiment.

However, the NASDAQ Composite and Russell 2000 both have a lot higher to go if the market is to resume an upward trend. The Dow Jones Industrial Average is holding up extremely well.

Harley-Davidson got slammed in 2007 and 2008, dropping from more than $70.00 a share to less than $10.00 in the March low of 2009. What a buying opportunity.

The stock’s been working its way back up to its all-time record-high and, over the last two years, has handily beat the S&P 500. The company’s seven-year stock chart is featured below:

Harley Davidson Inc ChartChart courtesy of www.StockChartsRead More

My Simple, Safe Investment Strategy for Playing Risky Stocks

By for Profit Confidential

Here's a Strategy to Play Momentum Stocks While Limiting RiskThere’s some hand-holding required out there in the stock market. We have seen destruction in the momentum biotech and Internet stocks that have corrected by more than 30%.

Now we are hearing some analysts on Wall Street saying to jump back in—but I’m hesitant at this juncture, as the downward risk is likely not over yet.

The reality is that, given the superlative gains recorded in 2013 by many of these biotech and technology momentum stocks, you shouldn’t be surprised to see the current malaise.

The fact that many of these highflying stocks in the stock market have more than doubled in a year should be a red flag. My simplest advice is to wait for the selling to subside in the stock market before you jump into these stocks.

You also need to be careful when hearing the bullish comments by Wall Street firms on these momentum stocks. Many of these firms have investment banking relationships with these stocks; it’s only natural to support your clients in the bad times.

Don’t get fooled by the stock market rhetoric. Instead, take a prudent approach to the stock market.

You don’t want to be caught exposed on this stock market unless you are fine with losing money should the selling intensify. Like I wrote at the beginning of the year, making money on the stock market will not be easy this year and capital preservation should be your objective.

Now, if you are willing to risk some capital and feel a stock market bottom is near, then what I suggest you do is consider using call options as a risk management investment strategy.

By employing call options, you can partake in a possible stock market bounce, while also controlling the amount of capital you have at risk, which is the premium paid for the option.

Let me show you how this simple strategy works using Tesla Motors, Inc. (NASDAQ/TSLA) as an example. (Note: this is only for illustration and is not meant to be an actual trade recommendation.)… Read More

The Great Crash of 2014

A stock market crash bigger than what happened in 2008 and early 2009 is headed our way.

In fact, we are predicting this crash will be even more devastating than the 1929 crash…

…the ramifications of which will hit the economy and Americans deeper than anything we’ve ever seen.

Our 27-year-old research firm feels so strongly about this, we’ve just produced a video to warn investors called, “The Great Crash of 2014”

In case you are not familiar with our research work on the stock market:

In late 2001, in the aftermath of 9/11, we told our clients to buy small-cap stocks. They rose about 100% after we made that call.

We were one of the first major advisors to turn bullish on gold.

Throughout 2002, we urged our readers to buy gold stocks; many of which doubled and even tripled in price.

In November of 2007, we started begging our customers to get out of the stock market. Shortly afterwards, it was widely recognized that October 2007 was the top for stocks.

We correctly predicted the crash in the stock market of 2008 and early 2009.

And in March of 2009, we started telling our readers to jump into small caps. The Russell 2000 gained about 175% from when we made that call in 2009 to today.

Many investors will find our next prediction hard to believe until they see all the proof we have to back it up.

Even if you don’t own stocks, what’s about to happen will affect you!

I urge you to be among the first to get our next major prediction.
See it here now in this just-released alarming video.

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