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

Buying Opportunity

A buying opportunity in a stock occurs when a short-term fluctuation allows for the security to be mispriced. Value is relative to an investor’s own criteria. An example is a one-time problem, such as a strike at a mine, which results in the shares of the firm being sold off. This selloff might offer a long-term investor the opportunity to buy shares of the mining company at a favorable value. Buying opportunities occur for various reasons, but the goal of any investor is to accumulate assets at favorable levels. If an asset is selling at below market value and an investor believed that the business would recover, this would be a great example of a buying opportunity.

About That Referendum in Switzerland…

By for Profit Confidential

Demand Shock for Gold Market Coming SoonOn November 30, Switzerland’s citizens will cast a very critical vote.

Through a referendum, they will vote for or against the Swiss National Bank increasing its gold bullion reserves to 20%, the central bank halting the selling of gold, and the storing of gold bullion in the country. (Source: Kitco News, September 30, 2014.)

If the results are in favor of the referendum, it will mean Switzerland’s central bank will be forced to buy a significant amount of gold bullion.

According to the most recent data from the World Gold Council, Switzerland has 1,040 tonnes of gold bullion in its reserves, equal to only 7.8% of its total reserves. (Source: “World Official Gold Holdings,” World Gold Council web site, last accessed October 16, 2014.) To bring its gold bullion holdings to 20% of total reserves, the central bank of Switzerland will have to buy 1,600 more tonnes of gold, or about 60% of all global mine output this year. Will the gold market be able to handle this kind of demand shock? I highly doubt it.

And if the central bank of Switzerland stops selling gold, a significant amount of gold will come off the market.

Finally, the vote on gold being stored in the country is just another example of the increasing appetite for the precious metal. We saw this phenomenon happen in Germany not too long ago when the country asked the U.S. for its gold back (the U.S. was “storing” it), but Germany was told it would have to wait seven years to get it.

The big picture: Since 2009, central banks around the world have bought … Read More

Former Wall Street Tech Favorite Set for a Comeback

By for Profit Confidential

How This Former Wall Street Tech Star Is Making a ComebackThe financial media and analysts are talking endlessly about the state and fragility of the stock market and whether a bottom may be near. I discussed the vulnerability to the downside in my last article. If you missed it, you may want to go back and read what I said. (See “Strategies to Protect Your Capital While Investing in This Market.”)

While stocks appear to be heading to negative ground in 2014, I view continued weakness as a buying opportunity to accumulate some stocks at a discount.

For the majority of you, I would advise staying away from the higher-beta small-cap and momentum stocks at this time and wait for things to settle down. In other words, I want to see some sustained buying support emerge to show some evidence the downside selling is coming to an end.

In the meantime, take a look at some of the bigger S&P 500 and DOW stocks that have moved lower to much more attractive entry points.

In the technology area, I like what’s happening at former Wall Street darling Microsoft Corporation (NASDAQ/MSFT) under the stewardship of CEO Satya Nadella.

While Nadella recently said some disparaging remarks on females in the workforce, what he has done at Microsoft since taking over from former CEO Steve Ballmer has been encouraging.

The rise in the stock price in Microsoft has even allowed Ballmer to pay an obscene $2.0-billon-plus for the LA Clippers. Ballmer’s failure to recognize and fully understand the big impact the mobile sector has on the technology space helped to make Microsoft insignificant for years.

MSFT Microsoft Corp Chart

Chart courtesy of www.StockCharts.com

Nadella has shifted his … Read More

Strategies to Protect Your Capital While Investing in This Market

By for Profit Confidential

How Investors Can Deal with the Current MarketThere are no secrets to dealing with the current stock market malaise. The key is to simply understand, manage, and deal with the inherent risk. I’m not talking just about the domestic risk, but also the economic risk from Europe and China, along with the geopolitical risk in Syria and Ukraine.

As you probably all know, the stock market hates uncertainty and there’s plenty of it. Until the uncertainties dissipate, the stock market will be vulnerable to a correction.

This is not difficult to understand as the stock market, with the exception of the small-cap segment, has not recorded a correction of six percent or more for quite some time. The reality is that the key stock market indices are only down less than three percent from their highs, so we could see additional selling.

Given that the technical picture is bearish, with the key stock market indices trading below their respective 50-day moving averages (MAs), we could be in for more downside moves.

In fact, failure to attract support at the 200-day MA would be negative, based on my technical analysis.

The S&P 500 could trade down to below 1,900 should the stock market correction hold in place. At that point, I would be looking to add to positions if support surfaces.

The fact is that I want to see some chaos develop in the stock market as situations like this usually provide an excellent buying opportunity. Simply put, panic means opportunities.

While the near-term trend is down and the intermediate trend is fragile, as long as the long-term trends remain in place, I would be looking to buy … Read More

Top Growth Areas Heading into 2015

By for Profit Confidential

Growth Areas Heading into 2015The stock market is clearly struggling to stay afloat at this juncture, balancing the domestic economic renewal with the global risk coming from ISIS, Russia, the eurozone, and economic stalling in China.

A major catalyst or a reason to buy is what investors are searching for. The focus later next week will shift to the third-quarter earnings season, which is carefully monitored by investors.

The start of the third-quarter earnings season will officially begin with Alcoa Inc. (NYSE/AA) reporting next Wednesday. Alcoa is a decent barometer of the global economy. The company reported an excellent second-quarter earnings season, albeit the quarter was relatively average.

All eyes will focus not only on the ability of CEOs to control the expense side to drive revenues, but also on the actual revenue growth. The strong second-quarter gross domestic product (GDP) growth will help.

For the third-quarter earnings season, the earnings growth is estimated at 4.7%, well down from a much higher 8.9% as of June 30, according to a report from FactSet. (Source: “Earnings Insight: S&P 500,” FactSet web site, September 26, 2014.)

Worse yet, the report suggests that nine of the 10 sectors have reduced their earnings season expectations. This is not supportive of the recent record moves by the DOW and S&P 500.

Only the healthcare sector appears to have increased its expected earnings growth, bumping it up to 10.6% for the third-quarter earnings season, up from 9.4% as of June 30. Investors could consider buying an exchange-traded fund (ETF) to benefit, such as the SPDR S&P Health Care Equipment ETF (NYSEArca/XHE). On the small-cap stocks side, a healthcare ETF to … Read More

A Rational Look at Gold

By for Profit Confidential

Rational Look at GoldThe fundamentals that drive gold prices higher are in full force and improving. Central banks are buying more of the precious metal (to add to their reserves), while countries that are known to be big consumers of gold bullion post increased demand.

According to the India Bullion & Jewellers’ Association, India’s monthly gold bullion imports are expected to rise by as much as 50% in the coming few months—in the range of 70 tonnes to 75 tonnes per month compared to an average of 50 tonnes to 60 tonnes now. (Source: Reuters, September 18, 2014.) This is mainly due to the festival/wedding season fast approaching in India.

If India continues to import 70 tonnes of gold bullion each month, then the total imports just to India will be 31% of all world gold mine production (based on 2,700 tons in annual mine production).

India used to be the biggest importer of gold bullion until China took over as the biggest importer of the precious metal two years ago. And demand for gold in China remains strong as well.

But while demand for the precious metal is rising, production is declining.

In the first five months of 2014, U.S. mine production was 85,400 kilograms (kg), down four percent from the 89,200 kg of gold bullion produced in the first five months of 2013. (Source: U.S. Geological Survey, last accessed September 22, 2014.) As I have written before, lower gold prices have caused gold companies to close mines where production made sense at $1,600 an ounce gold, but not at $1,200 an ounce gold.

While I won’t delve into all the talk … Read More

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