Getting Close to a Severely Oversold Stock Market
Wednesday, July 9th, 2008
By Michael Lombardi, MBA for Profit Confidential
Crude oil prices fell $5.33 a barrel yesterday and, as can be expected, stock prices rallied, having their best day in weeks. But to get this stock market really moving, we are going to need a lot more than just a $5.00 reduction in oil prices. I was also surprised that the market did not rally more yesterday. Here’s the scoop:
I don’t believe most investors realize how sick and oversold the stock market really is today. The following stock indices are at or near their five-year low (“DJ” stands for Dow Jones):
– DJ U.S. Bank Index — DJ U.S. Automobile Index — DJ U.S. Home Construction Index — DJ U.S. Leisure Goods Index — DJ U.S. Retail Index — DJ U.S. Financial Services Index
If we look at the above indices, they all have one thing in common. They are indices of companies selling goods to consumers.
The banks are taking a hit as foreclosures rise. Consumers are not buying cars. Homebuilders are not selling houses. Nor are consumers spending on leisure goods. And if it wasn’t for Wal- Mart, the DJ U.S. Retail Index would be in much worse shape than it is. The bottom line is that consumer spending is down sharply in the U.S. and that is affecting the stock prices of the companies that make consumers goods.
So what stock indices are at their five-year highs? The following, of course:
– DJ U.S. Resource Index — DJ U.S. Oil and Gas Index
The companies that drill and produce crude are the ones laughing all the way to the bank in 2008. The good news is that cycles don’t last forever. I’m really surprised to see so many of the Dow Jones sub-indices breaking to new five-year lows. In due course, this will spell opportunity for retail stock investors.
Yesterday, we witnessed a big crack in oil prices. Hopefully, that is a sign of things to come. From a technical standpoint, I see the stock market today close to a severely oversold condition.
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Tags: dow jones, oil prices, stock market, stock prices
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
