My Warning on the 25th Anniversary of Black Monday

Warning on the 25th Anniversary of Black MondayIf you based the condition of the market on the current trading action of stocks, you would think everything was fine and there were no worries. Yet with the recent 25th anniversary of the infamous Black Monday, when the DOW plummeted 22.6% on October 19, 1987, the current situation is far from being risk-free and is vulnerable, according to my stock analysis.

We have what will likely be a disappointing earnings season. Of course, you likely realize this, but accepting it is another story. You also have the stalling in China, where the country’s gross domestic product (GDP) fell to 7.4% in the third quarter, as the country’s economy is hampered by the mess in the eurozone. Should China fail to ignite its economic engine, it will send a ripple effect throughout Asia and the global economy, based on my stock analysis. Then there’s the inability of the eurozone to come up with a viable solution to its credit crisis, while Greece asks for more time to straighten out its austerity measures and Spain says it doesn’t need a bailout in spite of its massive debts, which makes little sense, according to my stock analysis.

And in spite of it all, my stock analysis tells me that stocks are holding up, as if the market was expecting the global economies to suddenly expand and the debt to go away. In reality, my stock analysis reveals that the eurozone could be heading for another recession in 2013, and America could see a stalling in economic growth with the looming fiscal cliff.

I recently warned you not to read too much into the early stages of the earnings season, especially with the good results coming from the big banks. (Read “Don’t Get Suckered in by Early Earnings Success.”) As you have seen during the past week, earnings and revenue growth in the third quarter are weak. This should not be a surprise.

According to my stock analysis, we are not seeing any leadership from the bellwether technology stocks, something that was evident during the recent bull market. Financials can provide leadership, but without the euphoria and momentum-buying in technology, the upside of stocks could be limited, based on my stock analysis.

Microsoft Corporation (NASDAQ/MSFT), Advanced Micro Devices, Inc. (NYSE/AMD), and Google Inc. (NASDAQ/GOOG) were the latest technology giants to disappoint.

The big news last week was the shocking and premature listing of Google’s quarterly results on the U.S. Securities and Exchange Commission (SEC) web site prior to a final approval and sign-off by Google CEO Lawrence Page. Google reported a disappointing $9.03 per diluted share that was well below the consensus estimate of $10.65 per diluted share, according to data from Thomson Reuters. The company’s revenues of $11.3 billion were short of the $11.9-billion consensus estimate, despite it being higher than the $7.5 billion reported a year earlier. Given that the market view was for another great quarter from Google, the company’s results are concerning.

Microsoft also lost steam following an earnings shortfall; the company, like many others, is struggling with the sliding demand in the personal computer (PC) sector due to the accelerating popularity of tablets, according to my stock analysis. The company will be betting on its “Surface” tablet to try to take some market share away from market leader Apple Inc. (NASDAQ/AAPL), which will not be easy. My stock analysis is that this will be like trying to wrestle a banana from a hungry gorilla.

Then you have the uncertainty of the presidential election.

All of this and stocks are continuing to hold. Am I missing something here?