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

Posts Tagged ‘NASDAQ’

Guess Who Is Pushing the Stock Market Higher Now

By for Profit Confidential

So That's Why Stocks Have Been Moving Higher…When I look at the stock market, I ask who in their right mind would buy stocks?

While key stock market indices creep higher, the fundamentals suggest the complete opposite. But despite valuations being stretched, insiders selling, corporate revenue growth being non-existent, and the U.S. economy contracting in the first quarter of this year, the S&P 500 is up seven percent since the beginning of 2014, the Dow Jones Industrial Average is getting closer to the 17,000 level, and the NASDAQ is back above 4,000.

As I have written before, a company can buy back its stock to prop up per-share earnings or cut expenses to improve the bottom line, but if revenue isn’t growing, there is a problem. In the first quarter of 2014, only 54% of S&P 500 companies were able to grow their revenue. (Source: FactSet, June 13, 2014.)

Going forward, things aren’t looking bright either. For the second quarter of 2014, 82 S&P 500 companies have already provided negative guidance for their corporate earnings. I expect this number to climb higher.

And consumer spending, the driver of the U.S. economy, is very weak, as evidenced by negative gross domestic product (GDP) in the U.S. economy in the first quarter of this year.

So if the overall environment is negative for the equities, who is buying stocks and pushing the stock market higher?

The answer (something I suspected some time ago): central banks are buying stocks.

A study done by the Official Monetary and Financial Institution Forum (OMFIF) called Global Public Investors 2014, states that central banks and public institutions around the world have gotten involved … Read More

Why the Old Adage “Sell in May, Buy Back in October” Could Make Extra Sense This Year

By for Profit Confidential

How to Make Use of Your Holdings if Stocks Drift SidewaysAfter some bouts of selling in May, the stock market appears to be edging higher again as we are at the end of the trading month today.

As I said in January, it will not be easy to make money this year, given the cuts in easy money flowing into the capital markets. The S&P 500 is leading the pack with a 3.46% gain as of Tuesday. If you annualized the five-month return, the advance comes out at 8.3%. I expected to see the index advance about 10% to as much as 15% this year, so we may be lucky to reach the lower estimate if the stock market can manage to move higher. (Read about some dividend-paying stocks to boost your returns in “Five Dividend-Paying Stocks for When the Market Slides Lower.”)

Growth stocks, which were the Wall Street stars in 2013, are now the dogs of Wall Street, as investors shift their capital into lower-risk big-cap stocks. The NASDAQ is up a mere 1.45% this year, while the small-cap Russell 2000 is languishing with a 1.86% decline.

Now keep in mind that we are currently in the worst six-month period for the stock market from May to October, based on historical tendencies.

This doesn’t mean there’s no hope for the stock market going forward, but again, it won’t be easy. May is looking to produce a positive advance, so there’s some optimism.

What I think will likely continue to happen is the stock market will tread cautiously in the absence of any fresh new catalyst to entice investors to buy in.

We are entering into the … Read More

The Start of the Collapse for “Internet Darling” Stocks?

By for Profit Confidential

Amazon Stock The Fall from Grace StartsIf you want to see what happens when irrationality over a stock comes to an end, check out this chart of Amazon.com, Inc. (NASDAQ/AMZN).

In 2013, Amazon.com stock went up 63%. So far this year, the stock has collapsed 25% as investors realize converting growing revenues into corporate earnings for Internet-based stocks on key stock indices is not an easy task.

Mind you, Amazon.com isn’t the only tech stock on the key stock indices that is getting hit. Other tech stocks are under pressure, too, as evidenced by the NASDAQ being down for the year.

But despite stocks being overvalued—and some very big-name Internet stocks on the key stock indices coming down in price—investors continue to buy.

Amazon.com Chart Chart courtesy of www.StockCharts.com

In the first three months of this year, the long-term stock mutual funds saw inflows of $54.13 billion. (Source: “Historical Flow Data,” Investment Company Institute web site, last accessed May 12, 2014.) April’s monthly figures aren’t available just yet, but from weekly data, we estimate another $10.0 billion worth of long-term stock mutual funds were bought in April.

And they are buying stocks with borrowed money. As of March, margin debt on the New York Stock Exchange (NYSE) stood at a record $450.2 billion, up 19% from March of 2013. (Source: New York Stock Exchange web site, last accessed May 12, 2014.)

But this is what I find most interesting…

Even though investors have borrowed more money than any other time in history to buy stocks, most key stock indices are flat for the year. Among the key stock indices, the Dow Jones Industrial Average is up marginally, while … Read More

Multi-Month Price Consolidation in the Cards

By for Profit Confidential

How Profit Choppy Market HighThere still is no real trend in the equity market. One day, stocks sell off big-time; the next, the S&P 500 and Dow Jones Industrial Average hit new record-highs.

This is a very tough market to figure; anything can happen when monetary policy is highly accommodative.

A lagging NASDAQ Composite isn’t a worry. Neither is the Russell 2000 index. Stocks won’t come apart so long as so many large-caps are pushing their highs.

And not all technology stocks are retrenching, either. Some of the old technology bellwethers are actually doing quite well these days. Microsoft Corporation (MSFT) is trading right at a multiyear high, with a 2.8% dividend yield and a forward price-to-earnings ratio of approximately 14.

Even Intel Corporation (INTC), which is having a pretty tough time generating much in the way of top-line growth, is recovering on the stock market and is very close to breaking out of a multiyear price consolidation. Intel currently offers a 3.4% dividend yield and is not expensively priced.

One day, stocks are reacting to geopolitical events in Ukraine; the next, it’s Chinese economic data, then it’s mergers and acquisitions…

If anything, the reaction to first-quarter earnings was pretty muted. But even though the beginning of the year started out with considerable downside, stocks recovered strongly after policy reassurance from the Federal Reserve. While the action’s still choppy, underlying investor sentiment is holding up.

This is a market that continues to favor existing winners, but not necessarily at the speculative end. (See “Risk vs. Reward: Is It Time to Cash Out of This Bull Market?”) The reticence that launched blue chip … Read More

The Only Place to Put New Money in Today’s Economy

By for Profit Confidential

Invest New Money During a Stock Market's HighA lot of stocks are rolling over, breaking their 50- and 200-day simple moving averages (MAs). This is a tired market that could very well consolidate or correct right into the fourth quarter.

And the economic data has been softer, as well. Throw in geopolitical tensions with Russia and we have the makings of a material price retrenchment.

There’s still resilience, however, in some of the most important stock market indices. Stocks composing the Dow Jones Transportation Average are holding up extremely well, especially compared to the Russell 2000, the NASDAQ Biotechnology index, and the NASDAQ Composite index itself.

While the main market indices are mostly flat on the year, I don’t think investors can expect any capital gains until perhaps the fourth quarter.

From my perspective, relative price strength in the Dow Jones industrials, transportation stocks, and most of the S&P 500 index means that the longer-run uptrend remains intact.

With speculative fervor still coming out of initial public offerings (IPOs) and select biotechnology stocks, this action is an indicator of a tired market that’s long in the tooth, as investors are clearly less willing to speculate on those stocks that don’t offer income or relative safety in their earnings.

Risk aversion won’t kill a secular bull market. But it does mean that risk-capital opportunities are a lot less plentiful. Currently, among speculative stocks, one of the only sectors still experiencing decent price action is oil and gas drilling and exploration.

This is still a market that I think favors existing winners—blue chips, in particular. (See “Top Stocks for the Coming Correction.”)

These are the stocks to … Read More

When the Cows Go Out for Slaughter a Second Time

By for Profit Confidential

When the Cows Go Out for Slaughter a Second TimeDid you see this story in the Wall Street Journal last Friday?

“Retirement investors are putting more money into stocks than they have since markets were slammed by the financial crisis six years ago… Stocks accounted for 67% of employees’ new contributions into retirement portfolios in March… That is the highest percentage since March 2008…” (Source: Wall Street Journal, May 2, 2014.)

You read that right. With stocks at a record-high (and valuations stretched), retirees are pouring back into stocks. Are they getting ready to get slaughtered again? I believe so.

If you are a long-term reader of Profit Confidential, you know my take: the “bear” has done a masterful job at convincing investors the economy has recovered and the stock market is a safe place to invest again. Meanwhile, nothing could be further from the truth.

We are living the slowest post-recession recovery on record. And that recovery has been manipulated by the tampering of the Federal Reserve. You see, the Federal Reserve played a key role in driving the key stock indices higher. In 2009, in the midst of a financial crisis, the central bank started printing money and buying bonds. This resulted in lower bond yields. Those who had money in bonds, who had essentially paid nothing, moved into stocks.

And those record-low interest rates enabled companies in the key stock indices to borrow money and issue new equity, using the money to buy their own stock, thus pushing up per-share corporate earnings.

The end result? 2013 was a banner year for stocks on the key stock indices. But as 2014 came around, we began … Read More

How to Profit from These Vulnerable Stocks

By for Profit Confidential

Top Plays for Weak Small-Cap & Tech StocksFolks, there is a technical breakdown on the charts of the small-cap, growth, and technology groups in the stock market. I can’t say I’m surprised, given the major run-up in 2013 and the lack of any significant stock market correction.

The fact that the majority of the high-momentum technology stocks have corrected more than 20% is a red flag that there could be more breakdowns on the charts. (Read “My Simple, Safe Investment Strategy for Playing Risky Stocks.”)

While I’m not saying that a bear stock market is on the horizon, I do suggest that the stock market risk is above-average at this time, and we could see a bigger correction pending.

On May 6, there was a downside break of the Russell 2000 to below its key 200-day moving average (MA) of around 1,114. This could signal additional downside moves. As of that time, the index was down 4.78% in 2014 and 8.56% from its record high. The previous time the index corrected 10% from its high, it was subsequently met with buying support in the stock market. Note the downward-trending channel on the Russell 2000 chart below.

Russell 2000 Small Cap Index Chart

Chart courtesy of www.StockCharts.com

With the break, you could consider adding the iShares Russell 2000 (NYSEArca/IWM) exchange-traded fund (ETF) as a play on a possible bounce in small-cap stocks, especially if the index corrects more than 10%.

Technology also continues to be fragile, with the NASDAQ south of its 50-day MA. Watch for a possible move and testing of the 200-day MA at 3,982. This index has corrected 6.67% from its recent high and looks to be setting … Read More

Five Reasons This Tech Stock Tops My List

By for Profit Confidential

What Makes This Tech Stock AttractiveWith the stock market at its high, it’s more difficult to be a buyer. But when certain stocks break down because they got ahead of themselves, they can be worth a second look if the underlying businesses are still growing.

FARO Technologies, Inc. (FARO) out of Lake Mary, Florida is an interesting technology company that manufactures three-dimensional (3D) measurement and imaging systems used in manufacturing and industrial applications.

The company’s sophisticated products are used for the inspection of components, assemblies, and structures in 3D. With more than 30,000 systems installed all over the world, FARO’s products and software are also used in the reconstruction of accidents and crime scenes.

The stock was on a tear last fall but broke down with the broader market in January. The company then missed consensus revenue expectations, and the position tumbled. This doesn’t mean FARO is no longer a good business, though.

The company’s one-year stock chart is featured below:

Faro Technologies ChartChart courtesy of www.StockCharts.com

First-quarter sales for 2014 grew 12% to $73.4 million. Earnings grew more modestly, coming in at $5.0 million, or $0.29 per share, up from $4.6 million, or $0.27 per share, in the first quarter of 2013.

Management cited double-digit sales growth in the Americas and Asia, and mentioned that the company’s European markets are improving. FARO plans to increase its spending on new research and development this year and hopes to create new products for use in architecture, engineering, construction, and forensics.

FARO has lots of cash in the bank and practically no debt. Yet for the stock market, the first quarter wasn’t quite good enough.

The stock was at … Read More

Former Momentum Stocks Signpost to Sell?

By for Profit Confidential

Price Momentum Suggests Portfolio RebalancingA good amount of speculative fervor has come out of this market so far this year, but there’s still quite a bit of valuation froth around.

Across the board, 3D-printer stocks have come back. 3D Systems Corporation (DDD) still boasts a trailing price-to-earnings (P/E) ratio of around 150.

Tesla Motors, Inc. (TSLA) is still going strong. It’s one of few super-hyped stocks that made a strong recovery in January after a material sell-off months before. (See “Buy High, Sell Higher: Top Investment Strategy for Buoyant Markets?”) The position just bounced off $265.00 per share. Next year, Wall Street estimates the company will do more than $5.0 billion in sales.

Looking at the stock market currently, there’s a lot of indecisiveness and geopolitical events are overshadowing the action.

Watch large-cap biotechnology stocks (or the NASDAQ Biotechnology Index) for their trading action specifically. This group of stocks reaccelerated strongly in February and is very much overdue for a material correction.

I’ve noticed several key momentum stocks within the group have started rolling over. This should be a strong contributing indicator to the short-term action unrelated to specific events happening in Ukraine.

Gold is holding up well with the geopolitical tensions, and oil prices are too, but to a lesser degree.

Stocks are due for a break. What looked like the makings of a material correction in January, equities reversed direction after the Federal Reserve, once again, reiterated its willingness to be highly accommodative to capital markets.

This kind of market (after such a strong 2013 for stocks) warrants a significant degree of caution. I wouldn’t be jumping onto any bandwagons. … 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

If This Indicator Turns, the Stock Market’s in Trouble…

By for Profit Confidential

Factors Now Creating a Positive Backdrop for This Stock MarketWith the stock market jittery due to geopolitical events, its underlying strength is highlighted by the relative outperformance of the NASDAQ Composite, the Dow Jones Transportation Average, and the Russell 2000. If these indices are doing relatively better than the S&P 500 and Dow Jones Industrial Average, then there is still an underlying strength to a market that hasn’t experienced a material correction for far too long.

The stock market has done a very good job of recovering from January’s sell-off. Certainty from the Federal Reserve, fourth-quarter earnings results that were modest but mostly met expectations, and strong corporate balance sheets are providing a decent fundamental backdrop. The stock market can have another decent year if it isn’t sidetracked by some sort of lasting shock.

The other indicator that is not directly related to the stock market but certainly is worth taking note of is the spot price of oil. Oil prices have been holding quite solidly above the $100.00-per-barrel level.

Stronger oil prices are a reflection of their own specific fundamentals, but they’re also a barometer or gauge on the part of speculators regarding future economic activity. The spot price has brought back a lot of oil stocks that recently sold off and valuations are creeping up close to previous levels (which was very expensive for Bakken oil stocks).

I maintain a positive outlook for the stock market given current fundamentals and recognize, of course, that geopolitical events can turn investor sentiment on a dime. If the stock market were to experience a substantial price correction right now, I would view it as a buying opportunity.

Earnings estimates for … Read More

Strength in These Stocks a Classic Signal of Bull Market Momentum?

By for Profit Confidential

What Strength in These Stocks Is Telling UsThe NASDAQ Composite index sold off significantly in January to around 4,000. Then it recovered to its current level at 4,300, which is a pretty substantial move.

For a number of months now, the NASDAQ has been outperforming both the S&P 500 and Dow Jones Industrial Average. This relative outperformance continues to be a positive overall sign regarding sentiment.

I don’t really expect much from stocks this year, although the prospect of rising dividends still remains very good in the bottom half. 2013’s stock market performance was so exceptional and so substantial, especially among blue chips, that it’s time for earnings to catch up with share prices.

Not to be excluded, the performance of the Russell 2000 index has also been relatively strong compared to larger-caps. But this index still can’t quite keep up to the outperformance of the NASDAQ.

Stock market leadership from large-cap technology stocks is always a good thing. And a lot of it has been from older brand-name companies, the kind of former fast-growing stocks that are now almost income plays.

Oracle Corporation (ORCL) has been on the comeback trail after several quarters of disappointing results. This position has been treading water since the beginning of 2011, and its recent breakout on the stock market is not immaterial. The company’s five-year stock chart is featured below:

Oracle Corp. NYSE Chart

Chart courtesy of www.StockCharts.com

Following a similar trading pattern over the last several years, Microsoft Corporation (MSFT) has recently been strong. The stock is up $10.00 a share over the last 12 months, and Wall Street earnings estimates have been going up across the board for this fiscal year and … Read More

Where to Find the Best Buying Opportunity in This Stock Market Going Forward

By for Profit Confidential

Buying Opportunity for Stock Investors Going ForwardAt the beginning of the year, I thought the technology sector would deliver some of the top potential for gains this year.

Nearly two months into the year, the technology sector has, so far, made the biggest strides in what has been a relatively cautious start to the year.

So far this February, the technology sector is leading the broader stock market with the NASDAQ closing higher for eight straight sessions as of the end of Tuesday. With the steady advance, the NASDAQ hit a new 13-year high, up 4.12% in February and 2.28% in 2014. The NASDAQ is the only major stock market index in the black this year.

And it looks like the NASDAQ could test its all-time nominal high of above 5,100 sometime in 2015 if everything pans out. We could even see a test later this year if the technology sector can maintain its positive sentiment and continue to edge higher, based on my technical analysis.

It has been nearly 14 years since that infamous period back then when the technology sector imploded.

The valuation and froth this time isn’t as bad, but we have been seeing some euphoric trading in the Internet services space and social media stocks. (Read my take on Facebook in the social media space in “My Top Stock Pick in the Internet Space.”)

A look at the long-term chart of the NASDAQ reveals that the relative steadiness of the current move towards 4,000 is not unlike what happened more than 13 years ago. Note that the index is now near its previous nominal high as indicated by the top … 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

Strategies for Defending Your Portfolio in a Down Market

By for Profit Confidential

What Investors Can Learn from the Super BowlIf you watched the boring Super Bowl game on the weekend, you’d have realized that a strong and superior defense can go a long way against a sound offense. But the battle in the trenches was easily won by the defense, and it’s an analogy I use in my trading strategy.

January ended on a sour note, being the first down month since August 2013. With the losses, we are now witnessing an uprising of the bears suggesting 2014 will be a negative year for the stock market. This reasoning is based on the Stock Traders’ Almanac that suggests there is a 46% chance of losses this year. I’m not convinced the stock market is heading lower, but the current stalling and inability of the stock market to move higher is a red flag. Despite an extremely oversold technical condition, I have yet to see any signs of strong buying support emerge—and in my view, this is worrisome and likely means more losses.

The irony in January was that the S&P 500 and Dow Jones Industrial Average actually lost more ground than the higher-risk NASDAQ and Russell 2000, which only lost 1.76% and 2.89%, respectively.

The key will be to watch how the S&P 500 reacts at its key support levels around 1,750 to 1,775. We already saw a bounce off this level, and now the index is staging a retest. As I have said in a recent commentary, failure to hold could see the index fall to 1,700, based on my technical analysis.

The stock market is failing to see any major positive catalyst. Earnings season has been average … Read More

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