The stock market rally that began in 2009 is witnessing its demise. Looking forward, there is more bad news than there is good news for the key stock indices in the U.S. economy. Reality is kicking in for the markets.
Fundamentally speaking, key stock indices are becoming weak at a quicker pace than some may have anticipated. Companies that are constituents of these key stock indices are struggling to keep their earnings growth. Firms across different industries in the U.S. economy are showing concerns about current economic conditions and warning investors about possible hurdles along the way. This is something I have been warning since the summer stock market rally kicked into high gear—earnings growth, the most important factor of a stock market rally, simply isn’t there.
Similarly, looking from a technical analysis point of view, the key stock indices are gaining momentum towards the downside—and it is happening quickly. Since the beginning of September, key stock indices in the U.S. economy have been generally trending lower. They gave up significant amounts of gains that were produced during the stock market rally in the summer of this year. Since mid-September, the Dow Jones Industrial Average has fallen 6.4%, the S&P 500 has declined 6.6%, and the NASDAQ Composite Index decreased 9.4%
In recent development, key stock indices, like the Dow Jones Industrial Average and the NASDAQ Composite, have broken below their 200-day moving averages (MAs). Looking at the charts below, they make me a bigger advocate of key stock indices falling.
Chart courtesy of www.StockCharts.com
Chart courtesy of www.StockCharts.com
When a stock or index falls below its 200-day MA, it is considered to be an indicator of bearish sentiment pouring into the markets. It can also be looked at as the “health index” of the market—if the price breaks below, it means that sellers dominate the market, and vice versa.
The stock market rally that started in 2009 was driven by printing money—and a market can only advance so much on monetary expansion alone. Dear reader, capital preservation is looking to be the best investment strategy right now. Key stock indices are entering very dangerous areas.
Where the Market Stands; Where It’s Headed:
As I have illustrated above, major stock market indices are falling quickly. Will 2012 be a break-even year for stocks? We’ll soon find out. But for 2013, I’m saying all bets are off. We’re in for trouble.
What He Said:
“Over the past few weeks I’ve written about subprime lenders and how their demise will hurt the U.S. housing market, the economy, and the stock market. There’s no escaping the carnage headed our way because the housing market and subprime business are falling apart. The worst of our problems, because of the easy money made available to borrowers, which fueled the housing boom that peaked in 2005, have yet to arrive.” Michael Lombardi in Profit Confidential, March 22, 2007. At the same time Michael wrote this, former Fed Chief Alan Greenspan was quoted as saying “the worst is over for the U.S. housing market and there will be no economic spillover effects from the poor housing market.”
Will Key Stock Indices Hold Their Ground? was last modified: November 19th, 2012 by Michael Lombardi, MBA
Michael Lombardi founded investor research firm Lombardi Publishing Corporation in 1986. Michael is also the founder of the popular daily e-letter, Profit Confidential, where readers get the benefit of Michael’s years of experience with the stock market, real estate, economic forecasting, precious metals, and various businesses. Michael believes in successful stock picking as an important wealth accumulation tool. Michael has authored more than thousands of articles on investment and money management and is the author of several successful investing publications,... Read Full Bio »
Forecasts Aug. 30, 2015
Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.
Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.
Estimates Aug. 30, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)