Stock Rally
A rally in stocks is when prices rise for an extended period of time. This is due to the fact that there are more buyers than sellers of stock. Once the supply of shares at any one level is exhausted and more buyers are willing to accumulate shares, the remaining sellers raise their price at which they would be willing to sell their holdings.
DOW at Record High; Are You Protected?
By George Leong, B.Comm. for Profit Confidential
The market appears to have another bull leg with the DOW and S&P 500 closing higher in seven of the last nine sessions to March 6. The blue chip stocks have been especially strong, with the DOW hitting a record close of 14,296.24 and intraday at 14,320 last Wednesday. The S&P 500 is also approaching its historical high.
With the advance, there are now questions regarding the sustainability, which you can read about in “Why Near-Term Prospects in the Stock Market May Be Limited.”
While the global economy is improving, the catalyst for the upward move in stocks has largely been the easy monetary policy worldwide that has resulted in a low-interest-rate environment and the search for alternative investments other than low-yield bonds.
So while all is fine now, I still sense a correction could be in the works, especially if the S&P 500 stalls.
You need to think about a viable investment strategy as a defensive posture. I firmly believe in having an investment strategy in place and adopting strong risk management to protect your investments.
One investment strategy would be to take some profits off the table, but then you may miss out on a potential stock rally.
A popular investment strategy to protect gains is the use of put options as a defensive hedge against market weakness. This strategy is called a protective hedge.
Under this investment strategy, investors may be somewhat bearish or uncertain and want to protect the current gains against additional downside moves in the stock or the market with the use of index put options.
For those of you not familiar … Read More
Stock Market – Fragile Conditions Mean You’d Better Have Protection
By George Leong, B.Comm. for Profit Confidential
Spain may need to seek a bailout. Italy is not there yet, but the high yields will hurt and are unsustainable for these eurozone countries struggling with high sovereign debt and muted growth. China is facing slower growth and is planning to pump money into the economy. You need to think about a viable investment strategy.
The charts are bearish at below the 50-day moving average (MA) and void of any momentum. And, while it looks like the key stock indices will hold above the 200-day MA, you never know. For instance, if Spain goes belly up, the impact would be felt in Europe and globally.
An investment strategy would be to take some profits off the table, but then you may miss out on a potential stock rally.
At this juncture, stock markets are pausing and showing some uncertainty. And, while I do not pretend to have a crystal ball, I do firmly believe in having an investment strategy in place and adopting strong risk management to protect your investments.
The last thing you want is to watch your gains disappear.
A favorite investment strategy to protect gains is the use of put options as a defensive hedge against market weakness. This strategy is called a “protective hedge.”
Under this investment strategy, investors may be somewhat bearish or uncertain and want to protect the current gains against additional downside moves in the stock or the market with the use of index put options.
For those of you not familiar with options, a buyer of a put option contract buys the right, but not the obligation, to sell a … Read More
Stock Rally Looking Good—How Can We Keep It Going?
By Mitchell Clark, B.Comm. for Profit Confidential
The key index that provided extra gas for the most recent stock rally was the Dow Jones Transportation Average, and it did so in the face of higher oil prices. This was excellent confirmation and its recovery from late February was necessary in order for the stock market to keep on going up. The Dow Jones Transportation Average’s technical picture still looks good and, despite some investors’ view that this index is “old school,” I keep following it for confirmation of the main stock market trend. In my experience, it works. (See Stock Market: The Good News for 2012.)
We’re on the cusp of a new earnings season and the current stock rally will now be based on event-driven, corporate news. The stock market has already placed its bets and investors are already expecting good first-quarter earnings reports. Corporate visibility will be very important and corporate expectations for the rest of the year will make or break this year’s stock rally.
After first-quarter earnings season is over, I expect some sort of correction. It would be very unusual not to have a price correction after the broader stock market appreciated so much in a short period of time. The only catalyst that would keep any correction short-lived would be much improved economic news. If we get much better economic news on employment and housing, then this year’s stock rally should continue with fervor. Investor sentiment among institutional investors is strong enough.
I continue to be amazed at the specific stock rally in large-cap technology shares. A lot of the big, brand-name companies like Microsoft Corporation (NASDAQ/MSFT), Intel Corporation (NASDAQ/INTC), … Read More
Current Stock Rally Has a Little More
Legs, But a Correction’s Imminent
By Mitchell Clark, B.Comm. for Profit Confidential
There is a good possibility that the stock market will experience a major retreat/correction in the near future, as it has done so over the last two years starting in late spring. It’s related to the old stock market adage, “Sell in May and go away,” and it’s likely because the current stock rally has been going on very consistently since the beginning of the year.
This is another reason why I’m not very enthusiastic about being a buyer in the stock market at this time. A big change in investor sentiment at the beginning of the year fostered the current stock rally, aided by the Federal Reserve, temporary action on Europe’s sovereign debt crisis, and reasonable stock market valuations. The market expects good results this earnings season, as well as decent visibility. Without it, the currently stock rally will be over.
Even with good corporate news, this is a stock market that’s in need of a break—just like precious metals a little while ago. A lot of good news is now priced into stocks and I think it’s likely this year’s stock rally will take a break in the next month or so for the rest of the summer. Then, before the election, the stock rally should resume its final leg. That’s my best guess for the rest of this year. For 2013, all bets are off.
Without question, investors do not need to be buyers in this market. It might seem odd for a stock market analyst to advocate not investing in a stock rally, but the current environment is a time to reap, not sow new … Read More
Bulls in Control, But It’s Not Clear Sailing Ahead
By George Leong, B.Comm. for Profit Confidential
With February in the books, the stock rally over the first two months of the year and especially in January has been more substantial than I expected. I was thinking of 1,400 for the S&P 500 if everything worked out, but with 10 months left in the year, the index is a mere 28 points from 1,400 and at its highest levels since 2008. The blue-chips Dow Jones Industrial Average closed above 13,000 on Tuesday—the first time it has been done since 2008—and is within 1,160 points of its high of 14,164.53 on October 9, 2007.
Tech and small-cap stocks continue to lead the broader market similar to what we saw in 2010 when the NASDAQ and Russell 2000 surged 16.88% and 25.28%, respectively. The NASDAQ is already up 14.62% as of the close of Tuesday and will likely take a run at bettering its 2010 results. Small-caps have more room to advance to match the index’s performance of 2010.
With the upward stock rally in stocks, we are again beginning to see euphoric comments from the press talking about the stock rally moving towards the historical highs.
While the market sentiment continues to be bullish, with the new-high/new-low ratio displaying a bullish reading in each of the last 30 straight sessions dating back to January 17, I doubt the stock rally will continue to advance higher at the current rate.
After a blistering January, February has shown some stalling, with the stock rally facing more upper resistance on the charts. I expect this to continue.
A look at the technical picture shows an overextended rally that is technically overbought … Read More
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