Following a period of protracted decline in economic activity, a recovery occurs when business activity is increasing. This is viewed primarily with increases in Gross Domestic Product (GDP) and employment levels. As businesses increase their sales and are more confident about future activity, they hire more people. The new hires are more confident about their future and spend a portion of their income on business, and the cycle continues. The stock market usually leads an economic recovery, because stock investors look to the future. If investors see an economic recovery 12 months from now, they will start to accumulate shares in companies that will benefit.
Chinese stocks are a disappointment in 2013 and, at this point, are looking to underperform the U.S. stock market for the fourth consecutive year.
But while China sorts out its growth issues, across the East China Sea, Japan has been on a tear. The massive infusion of liquidity into the Japanese monetary system has driven down the yen and, in the process, is leading to an export-led economic recovery.
The benchmark Nikkei 225 stock market index is up a whopping 36.4% this year, breaking above the 14,000 level for the first time in close to five years.
Take a look at the technical analysis chart below, comparing the movement of the Nikkei 225 index, as indicated by the upward-trending solid green line, and the downward-moving yen.
As the yen weakens, the Japanese stock market rises, Japanese goods become cheaper to buy from foreigners, and this drives up sales of the many Japanese multinationals.
Chart courtesy of www.StockCharts.com
At the same time, the Shanghai Stock Exchange (SSE) Composite Index is down 1.5% and is struggling to convince the world that not all Chinese companies are deceitful. (Read my take in “China in a Holding Pattern, but There Are Opportunities Inside the Great Wall.”)
The chart below shows the movement of the Nikkei 225 stock market, as shown in the candlestick formation, versus the SSE Composite Index, as indicated by the green line.
You’ll notice the outperformance of the Shanghai stock market from 1990 to around 2008, and then the current rally by the Nikkei.
Chart courtesy of www.StockCharts.com
I must admit I was caught off guard by the strength … Read More
The beginning of the year was excellent for small-cap stocks as the Russell 2000 led the way with a 12% advance in the first quarter, including a 6.2% move in January.
We have been seeing some flight to safety in the risk preference of investors.
April has seen some profit-taking emerging in small-caps, as the Russell 2000 is down 2.3% as of Tuesday’s close and is currently trailing the blue chips and the S&P 500. (Read “Investors Down-Shift Risk, Search for Safety Ongoing Theme for 2013.”)
And with the economy continuing to strengthen in housing, manufacturing, and retail sales, small-caps will continue to have good upside potential.
The chart of the Russell 2000 below shows the upward break from the bullish ascending triangle. There’s some stalling and some potential for a relapse to back below 900, based on my technical analysis.
Chart courtesy of www.StockCharts.com
As we move forward, a lot of what happens to small-caps will be dependent on the ongoing strength of the economic recovery.
The key to investing in small-cap stocks is diversification and risk management.
Simply the risk is much higher when buying small-cap stocks. For instance, the emergence of bad news could drive small-cap stocks down 40%, while for a large-cap such a The Procter & Gamble Company (NYSE/PG), we would likely only see a decline of a few percentage points.
You should be sure to never load up on a sector and diversify across market caps and risk instead. In this way, you can achieve … Read More
The most important news to come will be in two technology stocks: Intel Corporation (NASDAQ/INTC) and Microsoft Corporation (NASDAQ/MSFT). What these two companies report in their earnings results will be very telling when it comes to the health of the personal computer (PC) market.
Both Intel and Microsoft are not expensively priced on the stock market at all. Intel, in particular, has a very fair valuation, and its dividend yield is well over four percent.
Of course, the key issue for both of these companies is growth. With the prevalence of tablets and all kinds of PC-derivative products, it is tough to imagine both these companies reporting strong growth in earnings.
Consensus earnings estimates for Microsoft are quite a bit stronger than they are for Intel.
With the stock market at its highs, all kinds of new initial public offerings (IPOs) have hit the market, and some are very interesting companies.
One small, but growing technology company out of Irwin, PA is The ExOne Company (NASDAQ/XONE), which is in the business of manufacturing three-dimensional (3D) printing machines. These machines help designers and engineers to produce industrial prototypes and production parts. The company sells to the aerospace, automotive, and heavy equipment markets.
ExOne is a company that’s still in its early stages. In its latest earnings report, 2012 fourth-quarter revenues grew to $12.7 million, up a substantial $10.0 million over the fourth quarter of 2011.
The company turned profitable in the latest quarter, with earnings of $0.9 million, up from a net loss of $2.8 million in the comparable quarter.
For 2012, total revenues were $28.7 million, representing growth of 88% … Read More
Silver is in a coma at this time, stuck below $30.00 and both its 50- and 200-day moving averages (MAs). Yet for traders, prices can easily spike on any firm sign of a sustained global economic recovery, since the white metal is used in numerous industrial applications, including in the pharmaceutical, technology, jewelry, and industrial areas. Traders can also watch for buying from India and China. (Read “China: This is Your Time!”)
With signs of a sustained economic renewal in the United States, don’t be surprised to see the demand for silver ratchet higher. The uncertainty is the timing of the move.
Yet with silver currently doing very little, sitting below $30.00, it may be time to begin looking at the white metal as a possible upcoming trade back above $30.00.
Silver has been declining, caught in a sideways trading channel since September 2011, based on my technical analysis. Over the past year, the metal has made a new high only nine times, but in that same timeframe, it managed to make 15 new lows. Shortening the time to six months shows an even worse scenario, with 19 new lows and only two new highs.
As you can see in the chart below, spot silver has absolutely no support at this time; but this will be tested, as it heads toward a key support line, as indicated by the lower horizontal blue line in the chart.
As it has appeared numerous times in the past few years, silver looks set for a bounce back up past $30.00 to the $35.00 level, as it did in 2011 and … Read More
It has been quite some time since I looked at Chinese stocks. The reality is that since the meltdown in Chinese reverse-merger stocks in 2011 and 2012, there has been an apprehension to buying Chinese stocks as reflected by the comparative performances.
In 2013 so far, the key U.S. stock indices represented some of the top performers on the world stage. The 11.3% return by the Dow Jones Industrial Average is second to the Nikkei 225 in Japan, which has advanced a surprising 10.3% as of the close of March 28. While Japanese stocks have done well, I continue to favor other global markets and am wary of Japanese stocks. (Read “Why You Need to Avoid Japan to Save Your Money.”)
China’s Shanghai Composite Index was down 1.5% as of Monday and continues to be a disappointment for investors in Chinese stocks. In fact, the glory days when investors could have made money simply by buying Chinese stocks are long gone.
The Bloomberg China-US Equity Index, comprising the top-55 Chinese stocks trading on U.S. exchanges, is down 11.5% this year and 7.2% year-to-date. These are poor metrics, but an interesting thing we are seeing is a pickup in speculative buying in Chinese stocks that underwent reverse mergers. After a major sell-off, there is some renewed buying. The Bloomberg Chinese Reverse Mergers Index is up a surprising 10.98% this year. While the rally is encouraging, I would still be extremely careful when looking at this group.
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