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

Market Sentiment

Market sentiment is the general view of investors towards the market. This is the combined view of all investors at any one time. Since this is not static but always changing, market 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 market participants can be based on either fundamental or technical reasons. Market 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 market 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), this is close to a short-term top and vice versa.

Bearish Bank Stock Analyst Turns Bullish; Should You Follow?

By for Profit Confidential

Bearish Bank Stock Analyst Turns BullishEver since the financial crisis several years ago, market sentiment has been quite negative on bank stocks. While the initial pessimism was well warranted, bank stocks today are radically different than they were in 2008. Clearly, from the massive gains in the share price of most, if not all, bank stocks, the market sentiment has shifted dramatically. The question: is the bull market over for bank stocks?

One of the most critical analysts against bank stocks has been Meredith Whitney. However, on December 18 in an interview with CNBC, following her extensive research, she has now become bullish on bank stocks.

As she stated in the interview on CNBC, “There’s an incredible growth opportunity within the financials… I think the underlying support is housing is close to bottom, so that is a great headwind relief for banks… They’ve come a long way.” (Source: CNBC, December 18, 2012.)

One of her main calls is for the bull market in Bank of America Corporation (NYSE/BAC) to continue, as she believes the Federal Reserve will approve their dividend increase request. Whitney believes Bank of America could quadruple its dividend.

It is expected that the Federal Reserve will release the results of stress tests on the bank stocks in January. In March, it will state whether or not increases in dividends and share buybacks can resume. Considering how much the bank stocks have changed over the years in terms of improving their balance sheets, I do not expect there to be any problems for most of the bank stocks. Market sentiment might still be underweighting this sector ahead of these key releases.

Of course, … Read More

Don’t Trade Apple Until You Read This

By for Profit Confidential

Trade AppleNo one can deny that Apple Inc. (NASDAQ/AAPL) has had an extraordinary run. Both the company itself and the stock have been the clear leaders among technology stocks. This has led to the current market sentiment, which is overtly bullish. This can be dangerous for investors, when market sentiment is leaning so much in one direction—either bullish or bearish. This could be a problem if, at some point, everyone who wants to own the stock already does; then there’s no one left to buy it. While many technology stocks are starting to underperform, Apple has continued its strength.

The question: is market sentiment shifting? The stock’s move up from the summer until the peak in September was on expectations for the new “iPhone 5.” Many investors try to jump ahead of product announcements from technology stocks, hoping to profit from the upcoming publicity. This does appear to be a good trading strategy, as many times technology stocks subsequently pull back once the announcement takes place. This is an old phenomenon called “buying on the rumor, selling on the fact.”

One must be aware that, for Apple, a huge part of its corporate earnings come from the iPhone. While it does have a suite of products it sells, a disproportionately large amount of profit stems from one product. Technology stocks are certainly not sitting back and allowing Apple to dominate; they’re fighting to regain market share. Obviously, Apple has a significant lead, but it appears the competition has stepped up their game.

While other technology stocks have had to play catch-up with Apple’s innovative products, this iPhone represents the reverse. Other … Read More

JPMorgan Set to Continue Higher in Spite of Frivolous Lawsuit

By for Profit Confidential

JPMorgan Set to Continue Higher in Spite of Frivolous LawsuitWhen it comes to bank stocks, it seems that JPMorgan Chase & Co. (NYSE/JPM) is Public Enemy Number One. It’s unfortunate that so many retail investors have such a negative market sentiment towards JPMorgan since it has the potential for large returns, with a dividend yield of 2.9%.

The latest cheap shot is nothing short of a publicity stunt by a future politician, as the office of New York Attorney General Eric Schneiderman has just filed a civil lawsuit against a unit of JPMorgan, The Bear Stearns Companies, Inc., for alleged fraud.

Of course, I don’t condone fraud; in fact, I think the penalties we have are far too lax when it comes to all companies, not just bank stocks. The problem is that this is clearly not about what’s in the best interest of America, but rather the need for a high-profile case to catch the public attention for the Attorney General to move up the rungs of the political ladder.

When bank stocks were in the middle of the financial crisis several years ago, market sentiment for the group was extremely poor. No one was willing to lend or help out other bank stocks with such a negative market sentiment. The federal government essentially forced JPMorgan to take over Bear Stearns. Initially JPMorgan balked, stating that it didn’t have enough time to conduct due diligence. The federal government essentially said, “Don’t worry; we’ll cover you.”

Now that the political tide on bank stocks has shifted with market sentiment, the bull’s-eye is on the back of JPMorgan, among other bank stocks. Obviously, this is a lesson: if you are … Read More

Is the Stock Market Where It Should Be After QE3?

By for Profit Confidential

business arrow diagramOn a lot of occasions, the stock market sells off on the reality of its expectations, but it hasn’t since the Federal Reserve announced a third round of quantitative easing (QE3). The main stock market indices are holding up very well, consolidating more so than selling off on the news. Stock market sentiment continues to be relatively positive, with some hope for the economic future and the expectation that third-quarter earnings season won’t be terrible.

There’s still a lot to be said for the stock market’s reasonable valuation, given the earnings picture. With fairly priced stocks, a lot of which are trading close to their 52-week or all-time highs, there’s always room for a little more expansion in price and less contraction on the downside. A stock market that isn’t expensively priced gives the marketplace a lot more leeway for changes.

Some benchmark stocks that I follow on a continual basis are holding up extremely well, leading me to expect further upside ahead until we get into the heart of third-quarter earnings season. Union Pacific Corporation (NYSE/UNP) is an important component of the Dow Jones Transportation Index, and this stock is trading right at its all-time high, still with a current dividend yield of 1.9%. (See “The Top Stocks Making Money in This Market Right Now.”)

Take a look at Union Pacific’s stock chart:

Union Pacific Corp NYSC + BATS Stock Chart

Chart courtesy of www.StockCharts.com

On the comeback trail is industry benchmark General Electric Company (NYSE/GE), which was hit very hard during the financial crisis in 2008/2009. The stock is about halfway through its recovery to its pre-financial crisis level, lagging most of the stock market. See … Read More

Further Signs of Trouble for Zynga

By for Profit Confidential

Trouble for ZyngaThere are few technology stocks that have encountered sharp decline in market sentiment quicker than Zynga Inc. (NASDAQ/ZNGA). Technology stocks in the social media space have had a bumpy ride lately. Market sentiment continues to plummet, as the initial rush into this sector by early investors now appears quite foolish.

The market sentiment is obviously all over the place in these technology stocks. But, for those thinking they’re cheap, I’d say be careful of trying to catch a falling knife. I’ve repeatedly made this warning for many stocks in the past, including Zynga and Groupon, Inc. (NASDAQ/GRPN).

Just recently we learned that Jeff Karp, chief marketing and revenue officer for Zynga, has resigned. This makes the number of senior-level executives who have recently left the company more than half a dozen. This type of mass exodus from the senior management level of any of the technology stocks should worry investors. Obviously, with Zynga near its lows of the year, market sentiment is correct to be negative on the company.

With the decline of over 70% this year alone, Zynga appears to be one of the worst technology stocks in recent memory. As I previously stated, with so many questions about the way management ran the company, market sentiment should have been cautious from the beginning.

Technology stocks that encounter this kind of situation ultimately end up having extremely low morale amongst any of the employees who stayed. This essentially means that the best and brightest leave to better companies, while those who stay with the company try to stop the bleeding. Frankly, I think market sentiment should and will remain … Read More

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