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

Don’t Be Fooled by the Dow’s Recent Record-Highs

Wednesday, March 13th, 2013
By for Profit Confidential

Don’t Be Fooled by the Dow’sI will be first to say that this is a difficult market to play, and it’s certainly full of stock market risk. On one hand, the Dow Jones Industrial Average eclipsed a new record last week when the blue chips index surged to an all-time new record high of 14,413, easily blowing away the previous mark of 14,164 achieved on October 9, 2007. But my trading sense is telling me that we may be close to a near-term top.

I’m not trying to scare you, but do you really think the Dow can advance 42% this year? I doubt it, unless you believe the Dow will reach 18,607 by the year’s end. This figure is based on an annualized return of 9.9% year-to-date. This alone indicates stock market risk.

In my view, the rally in the Dow has been overdone. After trading just above 8,000 a few years back prior to the most recent bull wave that resulted in the current record high, this only adds to the stock market risk.

While I like records, I wonder if the Dow deserves this one. While the big U.S. companies are faring better, the growth is nowhere close to what we saw prior to the Great Recession in 2008.

The reality is that the pumped-up stock market may have more to do with the excess liquidity that is being pumped into the monetary system by the Federal Reserve and central banks around the globe—which adds to the stock market risk. The low interest rates translate into low-yielding bonds, unless you’re willing to take the risk to invest in Spain, Italy, Portugal, and Greece. This is the interest rate dilemma and a major reason why stocks, especially the dividend-paying Dow stocks, are faring so well; but it’s also the reason for all of this stock market risk. What happens when interest rates begin to creep higher?

The high interest rates will wreak havoc on the average American who is carrying significant debt and is just managing to make the minimum payments due each month.

  • Still worried about the economy? Become an elite charter member of George's DAILY PROFITS and you could...

    TRIPLE YOUR MONEY IN A MONTH!

    George gave us the $2.8-billion IT infrastructure provider, up 4,745.20%; the $1.8-billion advertising agency, up 1,295.44%; and the $762-million business software company, up 1,213.19%.

    Only charter members can follow George daily.

    Learn how here!

And then there are the $1.2-trillion sequestration budgetary cuts and the automatic $85.0 billion in annual budget cuts, which will have a widespread negative impact on the economy and will add to the stock market risk. But let’s be honest; the country’s money printing presses must stop, and America must deal with its own austerity measures now, or we will end up leaving this burden to our future generations.

Now, we still haven’t even considered what would happen to the stock market risk if the eurozone recession worsens or if China cannot pull out of its stalled gross domestic product (GDP) growth. I sense the market is underestimating the major debt and growth situation in Italy and the muted growth in Germany and France. (Read “Why Eurozone’s Problems Are Headed for America.”)

And then there’s also news that consumer inflation in China has risen to 3.2%, beating the three percent estimate. The problem in China is that the new government’s strategy to drive consumer spending to spur economic growth will add to the inflationary pressures and overall stock market risk.

So you can see that everything isn’t so rosy, and this is why I don’t feel the stocks are deserving of their multi-year highs. It’s currently a speculator’s market, full of stock market risk; so you better be careful and not chase stocks higher. Instead, use put options as a hedge against a possible sell-off.

VN:F [1.9.22_1171]
Rating: 10.0/10 (1 vote cast)
VN:F [1.9.22_1171]
Rating: 0 (from 0 votes)
Don’t Be Fooled by the Dow’s Recent Record-Highs, 10.0 out of 10 based on 1 rating

This is an entirely free service. No credit card required.

We hate spam as much as you do.
Check out our privacy policy.

George Leong - Financial Planner, ConsultantGeorge Leong, B. Comm. is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services. Add George Leong to your Google+ circles

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.

Our 27-year-old research firm feels so strongly about this, we’ve just produced a video to warn investors called, “The Great Crash of 2014.”

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.

We were one of the first major advisors to turn bullish on gold.

Throughout 2002, we urged our readers to buy gold stocks; many of which doubled and even tripled in price.

In November of 2007, we started begging our customers to get out of the stock market. Shortly afterwards, it was widely recognized that October 2007 was the top for stocks.

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

And in March of 2009, we started telling our readers to jump into small caps. The Russell 2000 gained about 175% from when we made that call in 2009 to today.

Many investors will find our next prediction hard to believe until they see all the proof we have to back it up.

Even if you don’t own stocks, what’s about to happen will affect you!

I urge you to be among the first to get our next major prediction.
See it here now in this just-released alarming video.