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

Posts Tagged ‘Dow Jones Industrial’

Why Dow Jones 30,000 Will Become Reality; But What You Should Know First

By for Profit Confidential

Why Dow Jones 30,000 Will Become Reality; But What You Should Know FirstAs many of you know, I’m a big supporter of equities as an investment over the long run, especially with small-cap stocks.

But I’m also pragmatic and feel you should always look to take some money off the table—especially after such strong advances in the stock market as we saw in the first half of this year.

But there are also those bulls like Ron Baron of Baron Capital who estimates the Dow Jones Industrial will reach 30,000 in 10 years and 60,000 in 20 years. (Source: LaRocco, L.A., “Dow Will Hit 60,000 in 20 Years: Ron Baron,” CNBC, July 8, 2013.)

While the estimates by Baron appear to be crazy at first glance, they are actually achievable at a compounded rate of 7.73% per year for the next 10 years and 7.46% annually to reach 60,000 within 20 years. For this to happen, everything related to economic growth needs to play out positively.

But in reality, there will continue to be ups and downs in the stock market.

While Baron doesn’t really believe in trading the market and advises a buy-and-hold strategy, I’m leaning more toward taking some profits on strong advances and buying on stock market corrections.

The current situation points to another possible buying opportunity to come in the stock market.

After a correction that drove the S&P 500 down more than five percent from its May peak, the stock market has rallied to narrow the decline to a mere 2.74% from the peak.

I really had hoped for and expected more of a correction in the stock market as a buying opportunity. I still feel there … Read More

Today’s Technical Analysis: Chart Congestion in Place

By for Profit Confidential

Today’s Technical AnalysisWhile January was one of the best months for stocks, the moves in April did some stalling, which shouldn’t be a surprise given the rapid move and the reality that the rate of gains cannot be maintained without periodic market adjustments.

My technical analysis is that stocks in an uptrend go through periods of ups and downs, which is normal and healthy as long as the subsequent highs and lows are higher on each upward wave.

You also need buying conviction on the buy side, which helps to provide the underlying strength. The continued lack of trading volume indicates apprehension.

Small-cap stocks have been impacted the most with a decline of 1.69% in April based on the close of Monday. The Russell 2000 has lost some steam after a strong start to the year and is hovering at its key 50-day moving average (MA) of 817, but threatening to break lower. My technical analysis shows possible near-term topping at above 800 and a subsequent decline to below its 20-day and 50-day MAs. The index is sitting precariously at the 50-day MA and failure to hold could see a drop to 750.

The Russell 2000 Chart

Chart courtesy of www.StockCharts.com

The chart resistance has been tough to break based on my technical analysis. The Dow Jones Industrial is hovering above 13,000, but is not on firm legs just above its 50-day MA of 13,042. The chart continues to show the overextension and the need for a market adjustment, which may be inevitable based on my technical analysis.

 The Dow Jones Industrial Chart

Chart courtesy of www.StockCharts.com

But what makes me nervous is the failure of the Dow Jones Transportation … Read More

This Large-cap Chinese ETF
Ideal for Long-term Investors

By for Profit Confidential

Chinese stocksThe Shanghai Composite Index (SCI) has been rallying and is up 9.3% this year as of Thursday, which is ahead of the Dow Jones Industrial and just below the S&P 500.

However, playing the Chinese capital markets involves excessive political and economic risk. The country is also stalling, but continues to grow well above other global regions, including Europe and the eurozone. My investment advice is that you need to build a well-diversified portfolio that would enable you to play Chinese growth stocks, especially small-cap stocks.

China is the second largest economy in the world and is continuing to roll along at a nice pace in spite of the country’s gross domestic product (GDP) slowing to 8.1% in the first quarter, down from 8.9% in the fourth quarter. The International Monetary Fund (IMF) estimates that the U.S. will grow its GDP by around 2.5% this year, compared to around 8.5% for China.

While the risk is high in trading Chinese stocks, especially of the small-cap variety and for smaller trading accounts given the selling of Chinese reverse merger stocks over the past year, you could also play China via some good exchange-traded funds (ETFs). If you are looking for some Chinese Internet plays, find out which stocks are the most interesting in Surfing China’s Internet for Profits.

In the ETF area, I like the PowerShares Golden Dragon Halter USX China ETF (AMEX/PGJ), which has strong small-cap components.

If you are looking for more of a blue-chip focus, take a look at the iShares FTSE/Xinhua China 25 Index (NYSE/FXI), which holds the top major companies in China. Holding this … Read More

Iconic Chart Shows Biggest Devaluation of Our Generation

By for Profit Confidential

Yesterday, China’s central bank said its foreign-exchange reserves have hit $3.0 trillion for the first time in its history. China is awash in dollars. The U.S. itself has too many dollars floating in its financial system. Is it any wonder the U.S. dollar is collapsing in value against a basket of currencies made up of other major currencies?You own a company and you have one customer that accounts for 25% of your sales. Your customer is in another country and pays you in currency from his country. Unfortunately, you have a few other customers who also pay in that currency.

As the years go by, you start to accumulate more and more of the currency of your customer’s country. You take some of that money and buy assets in that customer’s country, like stocks, bonds, real estate, and anything you feel has value. You even buy some bonds issued by the government of your client’s country.

But after 30 years of taking in your customer’s money, even though you are investing it back in your customer’s homeland, you are still left with too much of a currency you really don’ t want.

That’s where China sits right now. Yesterday, China’s central bank said its foreign-exchange reserves have hit $3.0 trillion for the first time in its history. China is awash in dollars.

Aside from China, the U.S. itself has too many dollars floating in its financial system. Is it any wonder the U.S. dollar is collapsing in value against a basket of currencies made up of other major currencies?

The chart below is worth a thousand words. It is an iconic chart showing the collapse in the value of the U.S. dollar against the six major currencies: the euro; yen; pound; Canadian dollar; Swedish krona; and Swiss franc.

Chart courtesy of www.StockCharts.com

The U.S. dollar is only five percent away from falling below its record low set in early 2008. Will it happen? Sure it will. What … Read More

Stock Market Trend Intact—But Correction Risk Rising

By for Profit Confidential

It’s always wonderful when the stock market is going up. The vast majority of equity investors are making money. But I always look at the stock market in terms of risk, not potential return. When you have a market that’s been going virtually straight up for the last six months, I view investment risk for new positions as very high. Investment returns on new positions only happen if the momentum lasts and, if history is any teacher, it usually doesn’t.

Really, the stock market’s been going up with considerable fervor ever since the low set in 2009. A lot of the gain was just about recovery from the financial crisis, but the stock market’s move has been very pronounced and investors would have done great just trading the index and not even worrying about picking individual stocks.

Last summer, investor sentiment was terrible and this was reflected in share prices. The S&P 500 Index hit the 1,200 level, retreated to 1,000, and then bounced around 1,100 for a while, before accelerating once again. I think that the broader stock market is due for a similar kind of consolidation (or correction, if that’s a better term) and this would be a healthy development. This year, however, I see the S&P 500 Index hitting 1,500, which would basically complete the right shoulder formation on the chart that looks so ominous.

Like I say, I view a rising stock market as rising investment risk for new positions. The higher the stock market ticks, the more reticent I become about picking new stocks in which to speculate. I suppose this is due to my … Read More

The Stock Market’s Gift

By for Profit Confidential

The rally I was expecting form the stock market’s severely oversold condition was delivered yesterday, with the Dow Jones Industrial Average up a whopping 276.74 points to 11,239.28, or 2.5%. This was a stock market “gift” many investors were happy to see.

I expect this rally to continue for now, as investors realize the market was so oversold. The key will be how much of a rally we get. The stronger the rally, obviously the better, but a weak rally would be an omen for the market.

Financial stocks had their biggest one-day rally in history yesterday. Again, this was a matter of the financial stocks being so oversold. As I noted yesterday, U.S. bank stocks were down 60% for the year as of Tuesday.

Speaking of banks, JPMorgan Chase, the third largest U.S. bank, reported this morning that it made $2.0 billion, or $0.54 a share, in the second quarter of this year. That profit was about 23% more than analysts had been expecting. JPMorgan shares are down only 15% this year, as the company avoided the big write-downs many of its competitors faced.

So where do we go from here with the market?

In spite of the gloom you read about in the newspaper or see on the TV about job losses and the weak economy, the stock market has several positive things going for it right now.

Firstly, oil price have come down $10.00 in the past two days. The stock market loves lower oil prices. The Dow Jones Industrial Transport Index had an unbelievable day yesterday, up 5.3%.

Secondly, so far, the Dow Jones Industrial Average … Read More

My Great Stock Market Question

By for Profit Confidential

I need to share with you a question that’s been on mind for several weeks now:

Why would investors take the risk of buying big cap stocks like those in the Dow Jones Industrial Average that give a cash return of only 2.25% when they can buy U.S. Government guaranteed 90-day T-bills that pay 4.97%? My simple answer: Because investors are wrong to pick the Dow stocks over T-bills in today’ economic environment.

Similarly, why would investors risk their money in big blue chip stocks such as those in the S&P 500 that pay a dividend of only 1.89% when they can get a return 163% better by buying 90-day U.S. T-bills? Same answer from me.

But hold on, the typical investor would say. There’s the capital gains element. That’s it. Investors buy stocks so they can sell them to the next fellow at a higher price. Only one problem: Stocks are down six years in a row.

Dear beloved reader, the general stock market doesn’t rise when interest rates rise. Yes, there are many special situation stocks that do well no matter what the general stock market does. And, at our company, we have the pleasure of publishing many stock market letters that cover small, little-know small-cap and special situations. But, if you are looking at the big blue chip stocks and big-cap stocks… like many investors have in their mutual funds… I just don’t see those stocks presenting any kind of real opportunity.

There are analysts and economists out there that are now predicting the Fed will raise rates more aggressively than previously thought. We won’t know that … Read More

The Two Scenarios Unfolding in the Stock Market Today

By for Profit Confidential

The way I see it, we have two different scenarios happening in the stock market today.

Scenario 1: Contrary to what you may have read or heard from other market watchers, I do not believe the general stock market is in correction mode. In my opinion, the general stock market (which includes big cap and blue chip stocks) has been in a bear market since the year 2000.

If you look at my beginning of my year 2006 predictions, I had predicted 2006 would be another down year for stocks. In that prediction, I also stated that I expected this year to be the sixth consecutive year the popular Dow Jones Industrial Average would fail to rally above its record high set in early 2000. As of yesterday, the Dow Jones Industrial average is down 2% for 2006.

Bottom line on big cap and blue chip stocks for me: not a correction, but an ongoing bear market that started in the year 2000.

Scenario 2: Contrary to what others are saying about gold stocks and precious metals (that the bull market is over for metals), I see the current action in the precious metals market as a correction within the confines of a long-term bull market. I have written many times that no investment goes straight up in price without a correction somewhere along that upward line.

And that’s exactly what I see happening in the gold market. Gold bullion had moved from $250 U.S. per ounce to $732. I’ve recently written that I expect the correction in the precious metals market to take gold to $575 U.S. an ounce–and … Read More

What’s Really Happening in the Stock Market

By for Profit Confidential

You may recall early last week when I wrote an article, “A Roaring Start to the New Year,” and talked about how little faith I had in the big-cap stock rally that started at the beginning of January. I even gave my “logical reasons on why the rally in the Dow Jones Industrial Average will be short-lived.”

Well, the rally that started in big-cap stocks came to a grounding halt this past Friday with the Dow Jones falling 1.96% — the popular index’s biggest one day drop in almost three years.

Something else — very important — happened on Friday. The yield curve inverted Friday for the second such incidence in less than two months. For a time on Friday, you could have bought a two-year U.S. bond that that would have yielded more than a 10- year U.S. bond. In the past, when this has happened, the U.S. has sunk into a recession.

While I’m not going to think too much about a yield curve that has failed to significantly diverge, I’m going to listen to what the big- cap stock market told me on Friday past.

In my opinion, Friday was a terrible day for the stock market, causing severe technical damage to big-cap and blue-chip stocks. Not only were moving averages broken by the popular indices, but, more significantly, the Dow Jones closed below its lowest level of the preceding month. And with 29 of the Dow Jones’ 30 stocks being down on Friday, I have absolutely no reason to change my bearish stance on the general stock market.

Most of the popular financial media reading I … Read More

A Roaring Start to the New Year

By for Profit Confidential

A warm New Year’s hello to all my beloved Profit Confidential readers! I say warm because the temperature this year has been uncharacteristically high. This holiday season, I enjoyed the best weather ever in Southern Florida with warm sun every day. In Toronto, there’s no snow on the ground (today, anyhow). And in New York, a raincoat will do.

But it’s not just the weather that’s warming up. So are many investment markets. Because of the recent “heated” activity in the markets, I thought I’d offer my two cents on what I see going on in the stock market so far in the first few days of 2006.

All the news in the business sections of the newspapers (I read four papers a day) of late is about the Dow Jones Industrial Average having hit the 11,000 level for the first time in four years. To this, I say, “So what?”

The facts are there for us all to see: stock P/E ratios continue near record highs, while dividend yields are at record lows; earnings growth has slowed substantially; the Federal Funds rate has risen from 1% just two years ago to over 4% today. With the average American household having close to $10,000 in credit card debt alone, where are consumers going to get the money to keep the American economy moving?

What I’ve written above are my logical reasons why the rally in the Dow Jones Industrial Average will be short-lived. But here’s a seemingly illogical scenario my readers should not take for granted.

The futures market points to the Fed raising interest rates one more time on … Read More

Thinking Small Pays Off

By for Profit Confidential

I can’t tell you how many times I have heard investors talk about the merits of large-cap stocks. For instance, some believe large-cap stocks tend to be more immune to market shocks. Sounds good, but this is not really true. Just go and ask anyone who owns eBay Inc. (NASDAQ/EBAY), Amazon.com Inc. (NASDAQ/AMZN), or General Motors Corp. (NYSE/GM).

 I always hear about large-cap stocks being called “widow stocks.” You buy them and hold them until you retire. Along the way, you should not worry about the ups and downs, or so the theory goes. Again, this may be largely valid and could earn you 7% to 8% annually, but I think you can do much better than this.

 Now, I’m not saying large-cap stocks have no place in your portfolio. They do. But, to attain higher portfolio returns, you should add some small-cap stocks to try to boost the overall return.

 Since the end of the bear market in 2002, the small-cap Russell 2000 Index has easily outperformed both the blue-chip Dow Jones Industrial Average and the broader S&P 500. And at the midpoint this year, the trend has continued, as the Russell 2000 is outperforming the larger-cap indices. The small-cap barometer is down a mere 1% this year, versus 5.07% and 4.99% for the NASDAQ and DOW, respectively. The S&P 500 is down 1.71%.

 The Russell 2000, in fact, has been the only index to hold above its key technical support level. The other three major indices have all retrenched below key technical support levels after failing to hold at key resistance levels (Dow–10,600, NASDAQ–2,100, S&P 500–1,200).

 So will … Read More

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