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

Investor Sentiment

Investor sentiment is the view of the market by investors. This is the combined view of all investors at any one time. Since this is not static, but rather always changing, investor sentiment is usually seen in three general categories: extremely optimistic (bullish); extremely pessimistic (bearish); and neutral or equal in number of optimists and pessimists. The view of investor participants can be based on either fundamental or technical reasons. Investor sentiment is seen as moving the main indices, which will push individual stocks in its wake. For example, a company might not be a great stock, but if the investor sentiment for the overall index is extremely bullish, this optimism will push up the price of most, if not all, stocks. Many view extreme market sentiment readings as a contrary indicator; when most people are bullish (optimistic), the market is close to a short-term top and vice versa.

Top Stock to Watch Among These Three Winning Techs

By for Profit Confidential

Top Three Winning Techs, but Only One to WatchFor years Micron Technology, Inc. (MU) struggled on the stock market as both competition and demand in the personal computer (PC) market took its toll on the chip maker.

Now the company is experiencing a bit of a renaissance, and the stock has been trending higher on genuine business growth.

In my mind, if Micron Technology is experiencing improved business conditions, it’s a positive indicator for almost everything else. This $34.0-billion company has really had a tough time since the technology bubble burst in 2000.

But the position broke out strongly at the beginning of last year. In January of 2013, the stock was trading for just less than $7.00 a share. Now, it’s more than $30.00 and is in a solid uptrend.

The company’s stock chart is featured below:

Micron Technology Inc Chart

Chart courtesy of www.StockCharts.com

In its most recent quarter, the company’s third fiscal quarter of 2014 (ended May 29, 2014), revenues grew 72% over the same quarter of the previous fiscal year to $3.98 billion.

Earnings were $806 million compared to $43.0 million.

Micron Technology recently acquired a Japanese chip maker, and as the company’s share price action illustrates, investors are more enthusiastic about the memory chip business.

This stock is not expensively priced, and it likely has more near-term legs in this market.

The business cycle is slowly changing, and so is investor sentiment. The semiconductor industry is notoriously volatile and boom-and-bust, but if business conditions are improving for Micron Technology, then there certainly is more optimism regarding the dynamic random access memory (DRAM) market.

Intel Corporation (INTC) recently surged on the stock market after the company raised its … Read More

The Downside to Dow 20,0000

By for Profit Confidential

Where the Stock Market Could Head NextWith the Dow Jones hitting 17,000 being pretty likely in the not-too-distant future, from there, it’s only another 18% or so until the Dow hits 20,000, which is pretty incredible.

These numbers seemed so unrealistic just a few years ago but now, it’s not too farfetched. The most amazing thing to me is that stocks still haven’t experienced a material price correction since the financial crisis.

Stocks aren’t necessarily stretched in terms of valuation, especially with corporate earnings outlooks holding up for this year and going into 2015. What is stretched is investor determination with a market at its high.

Johnson & Johnson (JNJ) is a great company and a worthy long-term investment (see “Three Blue Chips Set to Drive Higher”), but it’s tough to buy stocks at all-time record-highs. In Johnson & Johnson’s case, the position’s up almost 20 points since the beginning of February, and this is on top of a previous 20-point gain in 2013.

One of these days, stocks are going to get walloped. But there’s got to be some sort of catalyst for it to happen.

The Federal Reserve can be a catalyst if it decides to suddenly change its outlook for interest rate certainty. The catalyst could also be a geopolitical event or something that comes out of nowhere, like a big derivatives trade gone bad.

In any event, there will have to be a shock that is perceived to have a lasting effect on capital markets.

In the lull between earnings seasons, which we’re currently experiencing, stocks reaccelerated on the back of very modest economic news and that in itself is … Read More

A Stock Market Break? These Indices Say No

By for Profit Confidential

These Turning Indices Show How Stocks Can Go HigherThe great monetary expansion is still alive and well and the effect on equity securities continues to be profound.

But what I find striking about the stock market’s continued advancement is that it’s blue chips that are pushing through to new record highs.

Speculative fervor in several sectors has diminished, but hasn’t completely disappeared. But it’s the big brand-name companies—a lot of which pay dividends—that just keep on trucking as institutional investors buy earnings safety and outlook reliability, and are betting on revenue and earnings acceleration going into 2015.

Union Pacific Corporation (UNP), a benchmark railroad stock, just hit another new record high on the stock market, breaking through the $100.00-per-share level. It was $35.00 a share this time in 2010.

And this from an old-economy, industrial enterprise that is probably not on many investors’ wish lists.

Amazon.com, Inc. (AMZN) broke down considerably at the beginning of the year when it was trading around $400.00 a share. It recently broke $300.00 a share, but has bounced back significantly and the position looks to be fighting hard.

And this is one of the speculative stocks on which investors booked their profits. This stock is on the comeback trail and so are Cisco Systems, Inc. (CSCO), The Priceline Group Inc. (PCLN), Oracle Corporation (ORCL), Apple Inc. (AAPL), and Google Inc. (GOOG).

The stock market has been digesting continued mediocrity in domestic economic data and slightly more positive numbers from China. Institutional investors are buying. I think that, in the absence of some kind of shock or new catalyst, the stock market can slowly keep grinding higher. It could very well turn … Read More

Rise in Financials a Good Sign for the Broader Market?

By for Profit Confidential

Financials Supporting Bullish Stock Market SustainableThis stock market continues to show material resilience as financials have turned a bit and are helping the S&P 500 index.

Wells Fargo & Company (WFC) just hit a new record-high on the stock market with a forward price-to-earnings ratio of just under 12, offering a 2.8% current dividend yield.

Most of the big banks have actually been in a downtrend in recent months, including Bank of America Corporation (BAC), Citigroup Inc. (C), and JPMorgan Chase & Co. (JPM). Wells Fargo is the exception; the position has doubled in value since November of 2011.

Also coming back from a recent share price downtrend are the credit card companies. Visa Inc. (V), MasterCard Incorporated (MA), Discover Financial Services (DFS), and American Express Company (AXP) have done a good job bouncing off their stock market retrenchment in March and April.

Having the financials moving again is bullish and good for the broader stock market. Institutional investors are definitely willing to buy stocks if the news isn’t too bad.

In a very low interest rate environment, investors are still rewarding share buybacks, increases to dividends, and quarterly “outperformance.” It is, of course, continued short-term thinking. A sustainable new business cycle in the U.S. economy is only possible if corporations unleash some of their cash hoard and make real investments in their businesses.

I suspect this will happen in 2015, especially if the slight momentum in the U.S. economy can continue with relative stability from policymakers and geopolitical events (to the extent that this is possible).

Ever since the financial crisis, the stock market crash, and the Great Recession, corporations have been extremely unwilling … Read More

Multi-Month Price Consolidation in the Cards

By for Profit Confidential

How Profit Choppy Market HighThere still is no real trend in the equity market. One day, stocks sell off big-time; the next, the S&P 500 and Dow Jones Industrial Average hit new record-highs.

This is a very tough market to figure; anything can happen when monetary policy is highly accommodative.

A lagging NASDAQ Composite isn’t a worry. Neither is the Russell 2000 index. Stocks won’t come apart so long as so many large-caps are pushing their highs.

And not all technology stocks are retrenching, either. Some of the old technology bellwethers are actually doing quite well these days. Microsoft Corporation (MSFT) is trading right at a multiyear high, with a 2.8% dividend yield and a forward price-to-earnings ratio of approximately 14.

Even Intel Corporation (INTC), which is having a pretty tough time generating much in the way of top-line growth, is recovering on the stock market and is very close to breaking out of a multiyear price consolidation. Intel currently offers a 3.4% dividend yield and is not expensively priced.

One day, stocks are reacting to geopolitical events in Ukraine; the next, it’s Chinese economic data, then it’s mergers and acquisitions…

If anything, the reaction to first-quarter earnings was pretty muted. But even though the beginning of the year started out with considerable downside, stocks recovered strongly after policy reassurance from the Federal Reserve. While the action’s still choppy, underlying investor sentiment is holding up.

This is a market that continues to favor existing winners, but not necessarily at the speculative end. (See “Risk vs. Reward: Is It Time to Cash Out of This Bull Market?”) The reticence that launched blue chip … Read More

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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.

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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.

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

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