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

Market Rally

A sustained increase in stock prices over a period of time greater than one week is a market rally. Market rallies can last months or even years. There are up days and down days, but overall, the market moves higher over a period of time. The late 1990s saw one of the longest market rallies in history.

Who We Can Thank for Dow Jones 13,000

By for Profit Confidential

inflation rateInvestors are excited about the fact that the Dow Jones Industrial Average has touched 13,000—a four-year high—as it rides the bear market rally higher.

Let’s take a step back, dear reader, and explore the reasons to justify this current stock market rally and growing bullish investor sentiment. Let’s see why investors (outside of my family of Profit Confidential readers) believe the market has been rising:

If we take the last few recessions before this one, gross domestic product (GDP) growth in the U.S. regularly exceeded 4.0% coming out of a recession, leading to a sustained stock market rally. Let’s see; 2009’s U.S. GDP was minus 2.4%, 2010 saw GDP at positive 3.0%, and 2011 saw GDP growth of only 1.7%. U.S GDP is going the wrong way coming out of this recession. Hence, while investors might think the economy is recovering, it’s not.

Maybe investors think that income growth is propelling this market rally. Real income growth provides the consumer with real purchasing power. Unfortunately, over the last four years, real income growth has fallen (see “Michael’s Personal Notes” below).

Okay, so it must be strong earnings growth then that is exciting investors about this stock market rally. Yes, many large corporations had a great 2011. However, in the final quarter of 2011, corporations reported their lowest earnings growth since 2008 and many are pulling back on their outlook for 2012.

Well, if it’s none of the above, it must be strong economic growth worldwide that everyone can thank for this market rally. Actually, my readers are fully aware that Europe is in a recession that has caused China and … Read More

Corporate Insiders Bailing Out of Stocks

By for Profit Confidential

budget deficitThere are many reasons to be skeptical about this past January’s market rally. One of the most important key indicators flashing a warning sign is the fact that the stock market’s big rise in January occurred on very light trading volume.

But there’s another key indicator that is also flashing a red warning sign: insider selling.

Insiders are officers, directors and the largest shareholders of corporations. It is critical to follow whether insiders are buying or selling their company’s stock; it could be an indication that they expect to see their company’s stock rise or fall in price.

When insiders are buying, investors usually think it is time to buy. When insiders are selling, it could mean something is up, and so investors might consider selling.

Argus Research has posted some alarming numbers from their corporate insider key indicator concerning the overall market, to which investors should pay attention. Their ratio showed that insiders are selling their shares at a pace not seen since July 2011. If you remember, dear reader, the market proceeded to fall dramatically in August, September and October of 2011.

Their key indicator, the corporate insider sell-to-buy ratio, stood at 5.77-to-1, which means that, for every 100 shares corporate insiders bought, 577 shares were sold by insiders of the company for which they work. If companies listed on the New York Stock Exchange are taken in isolation, this key indicator gets worse…8.2-to-1.

To put some perspective on this key indicator, in November of 2011, before the over 25% market rally began, the sell-to-buy ratio stood at 0.81-to-1, which means that, for every 100 shares insiders bought, … Read More

The Best Signal of All: Railroad Stocks

By for Profit Confidential

It’s increasingly likely that stock prices will keep their positive bias going into 2011. That is, if there isn’t a major shock to the system like a new war or sovereign debt default. At the end of the day, the earnings picture, along with accommodative monetary policy, is supportive of rising stock prices.

Rally Facing Resistance, But Don’t Sell All Just Yet

By for Profit Confidential

Watching the charts on Monday, I noticed that the major stock indices broke below the intraday upward trend line at around 2 PM and reversed to the downside in a two-hour slide.

My feeling is that the failure to hold onto the rally that appeared to be in place was indicative of the lost momentum towards stocks, as reflected by the lower new highs on both the NASDAQ and NYSE.

What’s Going on with the Profit-taking?

By for Profit Confidential

I continue to be on the bullish side, but at the same time I am concerned with the mounting debt and deficit issues in the U.S. and debt issues overseas in Europe. In Ireland, investors are dumping Irish bonds on mounting speculation that the country will need to ask the European Union for bailout help similar to what Greece had to endure.

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