Stay Vigilant in this Market
Monday, November 5th, 2007
By George Leong, B.Comm. for Profit Confidential
Markets took a beating last Thursday, as the DOW sank 362 points or 2.60%, along with similar losses by the technology and broader markets. The selling continued in Asian and European trading. With stocks in China gaining so much this year, Chinese stocks are extremely vulnerable to selling pressure and it could be dramatic.
The selling was driven by the surging oil prices and their potential impact on inflation, consumer spending, and economic growth. On November 1, oil surged to over $96.00 a barrel in overnight trading, while gold topped $800.00 an ounce. The surge in gold is generally as a safe haven investment in times of inflation or market concern. The decline in the U.S. dollar has also helped to drive up demand for gold.
The Federal Reserve cut the Fed Funds rate by 25 basis points, adding to the previous 50-basis-point cut in September. While positive for stocks, there is concern the Fed may be at the end of its rate-cutting cycle and this has investors concerned. In addition, there is no guarantee the rate cuts will lift the credit and housing markets out of their troubles. Inflation also remains a concern for the Fed.
The third quarter GDP reading of 3.9% was stronger-than- expected, but the S&P/Case-Shiller index, a measure of housing prices in 10 U.S. metropolitan areas, declined five percent in August. This was the eighth straight month of declines. The August reading was the largest year-over-year decline since June 1991. The data do little to suggest a turnaround in the housing market.
Softness in the housing market and credit concerns appear to be impacting the confidence of consumers and this could cause a slow holiday shopping season. The Conference Board Consumer Confidence Index fell to 95.6 in September, the lowest level since an 85.2 reading in October 2005.
In all, the market risk remains high despite the interest-rate cuts. Oil is a major concern and needs to be monitored. Be careful trading or investing in this market.
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Tags: chinese stocks, GDP, gold, U.S. Dollars
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.




