Posts Tagged ‘bull market’
Bull Market Not Over, but a Correction May Be on the Horizon
By George Leong, B.Comm. for Profit Confidential
I was watching CNBC Asia two nights ago and marveled at the talk of how well Japan was doing, noting the obvious enthusiasm for the record level of the stock market.
And just like it was back in late 1999, there are more bulls coming out on Wall Street and saying how high the Dow could run. I have heard talk of the Dow at 20,000 and the S&P 500 at 1,800.
Then there’s the recent cheerleading on the stock market from perennial bull Jeremy Siegel from the Wharton School of business, who thinks the Dow could trade at 17,000 this year. (Source: Navarro, B.J., “Jeremy Siegel Still Sees Dow 17,000,” CNBC, May 31, 2013.)
With all of this bullishness, I’m now thinking of an exit strategy. Everyone who thinks this stock market is going higher without some sort of correction may be surprised.
The way I see it is the stock market is vulnerable to selling, but as I said a few days ago, stocks will likely end up higher by the year’s end, as long as the Fed continues to offer easy and cheap money. (Read “How the Stock Market Staged a Rally and Not a Meltdown This May.”)
Never mind the speculation surrounding the Federal Reserve cutting its bond buying at the upcoming Federal Open Market Committee (FOMC) meeting on June 14 and 15; as long as the jobs picture remains fragile, the Fed will likely refrain from doing so until there are stronger economic signals.
The ADP Employment Change was weaker than expected at 135,000 new jobs in May (source: Automatic Data Processing … Read More
Why Practicing Caution Best Strategy for Investors These Days
By Michael Lombardi, MBA for Profit Confidential
Economic conditions in the global economy are taking a quick turn in the wrong way!
Consider the Purchasing Managers’ Index (PMI) of the U.S. economy tracked by the Institute of Supply Management. Last month it contracted for the first time since November of 2012 and only the second time since July of 2009!
The PMI registered 49.0 in May, compared to 50.7 in April. (Source: Institute of Supply Management, June 3, 2013.) Any reading below 50 suggests the manufacturing sector is experiencing a contraction.
But it’s not just the U.S. economy that’s experiencing a contraction in manufacturing (and affirming the possibility of an economic slowdown). China, the second-biggest hub in the global economy, is seeing the same. In May, the Chinese PMI also showed contraction. The HSBC China Manufacturing PMI registered at 49.2 in May, compared to 50.4 in April. (Source: Markit, June 3, 2013.) Again, any reading below 50 suggests a contraction in the manufacturing sector—which happens to be China’s biggest industry.
Germany, the fourth-biggest producer in the global economy, has been seeing its manufacturing sector contract for some time now. The German PMI registered below 50 in May, the same month the International Monetary Fund slashed the country’s growth outlook in half! The German economy is expected to grow by only 0.3% this year, compared to 0.6% in its previous forecast. (Source: Wall Street Journal, June 3, 2013.)
All of this shouldn’t come as a surprise to Profit Confidential readers. I have been harping on about this issue in these pages for some time now: the global economy is on the brink of an economic slowdown.
Warning: … Read More
China to Buy $344 Billion Worth of Gold?
By Michael Lombardi, MBA for Profit Confidential
As economic conditions in the U.S. and the global economy deteriorate, and as central banks around the world print more money in their misguided attempts to spur growth, more and more analysts are saying that gold bullion’s best days are behind it. Their reasoning: the economy is improving, the Fed will cut back on its monetary stimulus, the worst is behind us, and there’s no more crisis, so there’s no more reason for gold to rise—this is the exact opposite of what I’m saying!
The gold bears fail to realize there are fundamental forces at play behind the gold bullion bull market.
Central banks around the world are looking at gold bullion as an alternative to the currencies they hold in their reserves. It is well documented in these pages how major central banks like the ones from Russia and Turkey continue to buy gold bullion.
Then there is the central bank of China. Its official reserve reached a value of $3.44 trillion in the first quarter of 2013—similar to the size of Germany’s economy. China increased its reserve by $128 billion in the first quarter, making it the biggest increase in reserve since the second quarter of 2011. (Source: Financial Times, April 11, 2013.) My bet is that most of that reserve is in U.S. dollars, which China would desperately like to get rid of.
With that said, China doesn’t have as much gold bullion to back its reserves as countries like the U.S., Germany, and France have. As a matter of fact, the Chinese central bank only holds 1.6% of its reserves in gold … Read More
Why the Housing Market Is Eyeing the Fed’s Bond-Buying Strategy
By George Leong, B.Comm. for Profit Confidential
The housing market is on full alert as interest rates are edging higher after the Federal Reserve said last week that it may have to reduce its bond buying each month.
Data just came out from the Mortgage Bankers Association that showed the rise in the average contract interest rate for 30-year fixed-rate mortgages has risen 12 basis points to 3.90%, representing the highest level since May 2012. For 20-year mortgages with a balance in excess of $417,500, the rate jumped 14 basis points to 4.07%. (Source: Robinson, M., Mortgage “Applications Down 3rd Week as Rates Jump,” Mortgage Bankers Association web site, last accessed May 30, 2013.)
The impact of the higher rates on the housing market is clearly seen in the demand for mortgage applications, which declined for the third straight week. For the refinancing segment of the mortgage market, the demand plummeted 12% to the lowest point since December 2012.
Now I’m not saying the housing market is set for a collapse, but you need to be careful and take some profits off the table, which is always a prudent strategy to undertake. (Read: “Why Greed Is Not Your Friend When It Comes to Investing.”)
Based on my technical analysis, the chart of the S&P Homebuilders Index below shows the current hesitancy to move higher at the upper resistance, as indicated by the top blue line. If you look back to December 2012, there’s clearly a chance that prices can falter back to the lower support level, as indicated by the red oval in the chart below.
Chart courtesy of www.StockCharts.com
The reality is that the … Read More
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