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

Posts Tagged ‘DOW’

Why You Shouldn’t Overhaul Your Portfolio Right Now

By for Profit Confidential

Stocks Rolling Over Signal TroubleBiotechnology stocks and the Russell 2000 began rolling over at the beginning of July, followed by transportation stocks at the end of the month.

It’s definitely a signal that the stock market is tired, but after such a strong breakout performance in 2013, the market still hasn’t experienced a material price correction in quite some time.

Second-quarter earnings came in mostly as expected and many blue-chip stocks sold off on good results, while companies backed existing full-year guidance. This happens often, as management teams try to make it easier for the company to “outperform” Street consensus. In a lot of cases, the only reason earnings per share advanced comparatively was increased share repurchases.

But it was mostly a decent earnings season and corporate balance sheets remain strong.

There’s not a lot of action to take in this market. Stocks have gone up tremendously and earnings are playing catch-up with valuations.

A little extra cash isn’t a bad thing with equities at their highs; however, finding good value with the prospect of growth in this market is becoming difficult.

I still think the domestic energy sector has a lot to offer investors, particularly those who are looking for income. Pipelines are a good business to be in as they throw off lots of cash and in many cases, revenues are not tied to the spot price of the underlying commodity.

With speculative fervor now reduced as evidenced by the trading action in biotechnology stocks, initial public offerings (IPOs), and select technology companies, it’s reasonable to expect the next couple of months to be pretty lackluster in terms of trading action. (September … Read More

Small-Cap vs. Big-Cap: The Real Winners in This Market

By for Profit Confidential

Why I'm Not Giving Up on Small-Cap StocksHealthy second-quarter results from technology and banks are helping to drive buying in stocks. On Tuesday, the S&P 500 traded at an intraday record and is again looking toward 2,000, while the blue-chip DOW is edging toward another record.

While we are hearing about how the S&P 500 will break 2,000 and the DOW will reach 20,000, we are not hearing much about small-cap stocks, which have been under some pressure this year after leading the pack in 2013.

The Russell 2000 is struggling after failing to hold above 1,200 on two occasions; it’s currently down about 0.66% this year and 4.6% from its record.

Russell 2000 Small Cap Index Chart

Chart courtesy of www.StockCharts.com

I recently read how the failure of the Russell 2000 to follow the broader stock market higher is a red flag that could warn of a pending correction in the stock market.

Now, while small-cap stocks are probably the most vulnerable to selling at this time, I don’t feel that it’s time to simply ignore this high-beta growth group and focus solely on big-cap stocks.

My thinking is that investors are simply dumping some risk from their portfolio after recording strong returns in 2013. It’s not that small-cap stocks are inferior to the S&P 500 companies. In fact, as long as the economy continues to grow, small-cap stocks will fare well.

You just need to have some patience and think longer-term, as some of these small companies will become big companies. Case in point: I highlighted touchscreen technology provider Synaptics Incorporated (NASDAQ/SYNA) in October 2013, when the stock was a small-cap at around $46.00. The stock has since nearly doubled … Read More

How to Put Your Assets to Good Use in a Stalling Market

By for Profit Confidential

How to Profit in a Stalling MarketThe stock market appears to want to go higher, but it’s going to take a push by investors. While we could see the S&P 500 edge higher, I’m not convinced the gains will be that great unless the underlying stock market fundamentals improve.

I am talking about the economic renewal that appears to be stalling. The International Monetary Fund (IMF) slashed the country’s estimated gross domestic product (GDP) growth to an even two percent this year from the previous 2.8% in April. Growth in 2015 is expected to rise to three percent. These are OK numbers, but they’re not great and they indicate that the economy will likely struggle to find ground in the short-term. As far as the global economy goes, the World Bank cut its estimates, too.

Moreover, you also have the recent weaker-than-expected housing starts and building permits numbers. Both readings for May came in below both the estimates and the readings in April. The decline in building permits by 6.4% to below one million annualized units suggests there could be some stalling in the months ahead.

Geopolitically, you have the escalating conflict in Iraq and the continued standoff in Ukraine. Oil is above $107.00 a barrel and could head higher should the internal conflict escalate in Iraq and impact the flow of oil, which could affect global economic growth.

So here we have the stock market, namely the S&P 500 and the DOW, coming off record-highs.

If the stock market fails to find its footing (namely a fresh catalyst), we could see mixed and volatile trading in the months ahead as the stock market looks for … Read More

Stock Market Setting Up for Its Next “Fire Sale”?

By for Profit Confidential

Investment Opportunity I Missed ThenWhile I was watching the screens on Monday when the stock market began to sell off on news Russia was performing military exercises off the border of the Ukraine, the last thing on my mind was to run for the exits. In fact, I was thinking that a great buying opportunity might be near.

Here’s the thing: I look at chaos or a struggling stock market as a potential buying opportunity to purchase shares that are essentially going on sale. I love stock market sales. Why pay higher prices for stocks, when you can wait and buy on weakness?

Think back 14 years to early 2000, when the stock market was imploding due to excessive euphoria and valuations in the technology sector. (Read “Where to Find the Best Buying Opportunity in This Stock Market Going Forward.”) When the dust had settled, there was a reluctance to enter and buy after the stock “fire sale.” Investors were clearly nervous that the stock market would venture even lower and cause 401(k)s to dry up.

My thinking was that it was a good buying opportunity to purchase stocks during a “fire sale” after what was clearly an extremely overvalued stock market, in which people were calling for the Dow Jones Industrial Average to reach 20,000. If you bought the NASDAQ back then, you would have more than doubled your money now, as the index steadily approaches its record-high of just above 5,100, which will likely be tested in the first half of 2015.

The same situation occurred back in October 1987, when I first started out as a junior analyst working … Read More

Why It’s Clear the Bulls Are Driving the Market

By for Profit Confidential

Investing in a Bull-Driven Stock MarketAt this time last month, the stock market was full of anxiety as we were heading for one of the worst Januarys in recent memory. The talk was about how the decline in January would trigger additional selling pressure in the stock market. The Stock Trader’s Almanac suggested there was a 47% chance the stock market would decline in 2014, but I was pretty confident on the other 53% that stocks would inevitably return positive gains this year, albeit at a slower rate.

As we enter into the final stretch of the first quarter, the month of February returned some strong gains in the stock market that I must admit caught me off guard.

Now I’m not suggesting the gains are not deserved, but I am somewhat perplexed with the rate of the rally despite what I feel is a lack of any fresh new catalyst to drive stocks higher.

The S&P 500 drove to a new record-high on February 25 and looks bullish, advancing more than 3.7% in February and into positive territory for the year. The chart of the index below displays a bullish “V” formation, which has been followed by a breakout to the record-high.

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

The upside bullish sentiment is holding, as we continue to see the number of new highs easily outpace the number of new lows, which is positive confirmation in an up-trending stock market, based on my technical analysis.

Even the number of S&P 500 stocks trading above their respective 200-day moving averages has been on the rise and is currently above 81%, as reflected by the chart below. In … Read More

How Last Week’s $28.3B Withdrawal from Equity Funds Could Benefit Investors

By for Profit Confidential

Billion Withdrawal from Equities Could Benefit Your PortfolioThe stock market may have staged a decent rally last Thursday, but it’s not enough to convince me that the worst is over. In reality, I think there are more downside moves and opportunities to buy on the stock market ahead.

The Dow, S&P 500, and NASDAQ are down by about four to five percent, so it’s really not a stock market correction at all—but simply an adjustment. A correction is generally seen to be a loss of 10% or more.

Even so, investors are scrambling to exit positions. Based on research by Citi Research, there was a record $28.3-billion weekly withdrawal from U.S. equity funds for the week ended February 5. (Source: Eisen, B., “Equity funds have record week of withdrawals: Citi,” MarketWatch, February 7, 2014.) Of that $28.3 billion, about $14.8 billion was funneled into bond funds. The research also indicated $6.4 billion was taken out of emerging markets funds in the stock market.

Then there’s Dr. Marc Faber, also known as “Dr. Doom” on Wall Street, who feels there’s more selling to come. He also singles out the technology sector as being bubble-like, especially with the overvaluation of the social media space. (Source: Lewitinn, L., “Dr. Doom: Tech stocks even more overvalued now than in 2000,” Yahoo! Finance, February 7, 2014.) (For my analysis on the social media space, read “Two More Internet Stocks to Watch.”)

To some degree, I do agree with Dr. Doom, but I don’t believe there’s a bubble in the technology stock market like there was during the meltdown in 2000. My feeling is that just some areas of the … Read More

Why Stocks Likely to Head Higher into the New Year

By for Profit Confidential

retail sectorToday is Cyber Monday, when consumers will flock online and spend over a billion dollars. In 2012, $1.47 billion in sales occurred on this day and the expectations are that the number could swell to $1.68 billion today. (Dengler, P., “Cyber Monday Predictions For 2013,” Business2Community.com, October 28, 2013.) We will also find out today how Black Friday and the key weekend shopping period were for the retail sector. A big surprise and the stock market will reach higher.

The stock market has shown little signs of wanting to slow and is continuing to show bullish investor sentiment and the ability to move higher this month and into 2014.

The S&P 500 is at 1,800 and the DOW Industrial at 16,000. The positive momentum is in place for additional gains. The S&P 500 moving to 2,000 next year, up 11.11%, is realistic depending on what the Federal Reserve does and how the economy behaves. The Dow 20,000 may have to wait a few years. Of course, this is contingent on the five-year bull market holding.

On the charts, technology and small-caps continue to lead the broader stock market higher. The NASDAQ closed above 4,000 for the first time since September 2000, when the index was on the decline after trading at a record 5,132 in March. The buying in technology and growth is not a surprise, as buyers have chased risk and potential this year. The top sectors offering the most sizzle at this time are Internet services, mobile, and social media.

COMPQ Nasdaq Composite Chart

Chart courtesy of www.StockCharts.com

Small-cap stocks continue to lead the pack this year as the economy recovers, albeit … Read More

How the Stock Market Staged a Rally and Not a Meltdown This May

By for Profit Confidential

Stock Market Staged a Rally and Not a Meltdown This MayMay was supposed to a dud, according to the Stock Trader’s Almanac. In 2012, the month of May was a disaster, with the Dow and the S&P 500 plummeting 6.21% and 6.23%, respectively. The technology and small-cap sectors fared even worse, with the NASDAQ and Russell 2000 giving up 7.19% and 6.74%, respectively, in May 2012.

Fast-forward a year, and this May has been blooming for the stock market. The key stock indices recorded excellent gains, with the NASDAQ staging its best month in over a year.

The reality is that in spite of several days of selling in mid-April, the current upward move in the stock market this year really hasn’t faced any hurdles, which is a surprise.

In fact, we have yet to see sustained selling or a down month this year, with the exception of the 0.42% decline posted by the Russell 2000 in April. Small-caps came back with a vengeance in May, advancing nearly five percent.

And there will likely be more highs and records in the stock market to come as long as the Federal Reserve and other global central banks continue offering easy money and driving down interest rates. And if 2012 is any indication, it’s looking like full steam ahead.

In 2012, the stock market staged a strong rally following the May meltdown, reporting gains in each month from June to September.

Now, I’m not totally convinced this pattern will happen again this year, but the investment climate as far as the economy and easy money is better than it was in 2012.

The only thing that concerns me is that … Read More

DOW at Record High; Are You Protected?

By for Profit Confidential

DOW at Record HighThe 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

Protecting Investment Gains:
One of My Favorite Strategies

By for Profit Confidential

The charts of the key stock indices look ominous after the selling on Tuesday in which the DOW and S&P 500 lost over two percent. Small-cap stocks fared the worst, with the Russell 200 down 3.26%. The selling was on above-average trading volume above the 50-day moving average (MA).

Stocks Looking Good After
Break at 50-day MA

By for Profit Confidential

We are at the mid-point of the year. The year started with a bang, but reversed course in May and early June, with stocks trending down on rising global risk.

At the mid-year, the key indices are up between four and seven percent in the first half, with hopes for a better second half, albeit the global market risk continues to be high.

Special Stock Market Chart Review:
Charts Point to Further Weakness

By for Profit Confidential

The six-day losing streak finally came to an end on Thursday, but I sense that the buying was likely more to do with oversold buying than a change in market sentiment.

The charts continue to show fragility and exhaustion, with the near-term view being bearish on weak Relative Strength (RS). My investment advice is that stocks could move lower in the near term.

All four of the key indices remain below their respective key 50-day moving average (MA)—a bearish sign. Watch for buying support due to an oversold technical condition.

Current Stock Outlook: Why it’s Uncertain

By for Profit Confidential

April was a record for stocks. Unfortunately, the same cannot be said for May, which has been characterized by uncertainty and a lean towards the downside.

Since May 2, stocks have closed lower in 11 of the 20 sessions to May 27. And to make matters worse, the buying was normally accompanied by light volume.

Stocks Looking to Go Higher; Ride
the Gains & Take Some Profits

By for Profit Confidential

It has been a great few weeks for stocks. The major indices have edged higher in nine of the last 11 sessions to April 28. The upward moves to the highest levels since June 2008 are impressive and indicate what appears to be a potential breakout on the price charts after the multiple tops. The DOW and Russell 2000 are up over 10% this year.

Stock Market Update: Stocks Look
to Higher Ground

By for Profit Confidential

Stocks continue to edge higher following the recent breakouts by the DOW and S&P 500, which are at their highest levels since June 2008. The bias continues to be bullish. There is some hesitancy on the charts, but stocks are powering higher. The DOW, NASDAQ, and S&P 500 are all up over five percent this year, with blue-chip stocks leading the pack.

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