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

Posts Tagged ‘NASDAQ’

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

Stock Market: Where the Real Risk Is in 2014…

By for Profit Confidential

Risk Returns to Earnings ResultsThe Dow Jones Transportation Average is still very close to its all-time high, and so are countless component companies. The airlines, in particular, have been very strong in a classic bull market breakout performance. Many of these stocks have roughly doubled over the last 12 months.

Commensurate with continued strength in the Russell 2000 index of small-cap stocks and year-to-date outperformance of the NASDAQ Composite, this is still a very positive environment for equities. The NASDAQ Biotechnology Index continues to soar.

While strength in transportation stocks is a leading indicator for the U.S. economy, so is price strength in small-caps. Smaller companies are more exposed to the domestic economy, and while it’s too early for many of these companies to report fourth-quarter earnings, the Russell 2000 has outperformed the Dow Jones industrials and the S&P 500 over the last five years, confirming the primary upward trend.

Instead of an actual correction in stocks, we’ve only experienced price consolidation; the latest being in blue chips since December.

This is very much a market in need of a pronounced price correction, if only to realign expectations with current earnings outlooks. Fourth-quarter numbers, so far, are mostly showing limited outperformance, and those companies that have beat consensus are still, for the most part, just confirming existing guidance, not raising it. If this is a secular bull market, it’s time for a break.

A meaningful price correction in stocks would be a very healthy development for the longer-term trend. Corporations are in excellent financial shape, and the short-term cost of money is cheap and certain.

In order for this market to turn in a … Read More

Could This Bull Market Last a Decade—Or Longer?

By for Profit Confidential

Why I Believe This Bull Market Could Have Many Years AheadHere we are in just the third week of 2014 and the media is all over the stalling in the stock market, saying that perhaps we are at the end of the bull stock market that is now in its fifth year.

I’m hearing about the low level of the S&P 500 Volatility Index (VIX), also known as a measure of fear in the stock market. Yes, it’s low and perhaps the stock market is too relaxed, but that doesn’t always imply that we are headed for a stock market correction.

Traders are also concerned with the lack of buying so far in January, which, if it ends in the red, could suggest a down year for stocks based on historical tendencies—albeit, I doubt that.

We are seeing some stalling on the charts, as the new approach to investing this year appears to be one of prudence and not bidding the stock market higher until we see evidence of a healthier economy, stronger jobs creation, and earnings/revenue growth from corporate America.

I’m not surprised by this shift, given the massive stock market gains in 2013.

The impact of the Federal Reserve and its proposed tapering timeline appears to be less of a factor this year, as it is expected that the tapering will continue. The uncertainty surrounding tapering that drove the erratic trading of 2013 is gone; traders are now discounting in the tapering. (See “Stock Market’s Dependence on Easy Money Weakening?”)

My view is that as long as the withdrawal of the bond buying is slow and the economy delivers stronger and steady growth, market participants … Read More

Why the NASDAQ Will Outperform the Other Major Indices in 2014

By for Profit Confidential

Why 2014 Bodes Well for Blue ChipsSo far this year, the NASDAQ Composite Index has outperformed the other large-cap averages, and this is a positive indicator.

At the beginning of last year, blue chips shot out of the gate with uncommon capital gains, and as confidence in the rally grew, investors slowly felt more comfortable with more speculative issues, which are often listed on the NASDAQ.

After a pronounced consolidation during the summer of last year, large-cap NASDAQ stocks, like Microsoft Corporation (MSFT), Juniper Networks, Inc. (JNPR), and even Intel Corporation (INTC), reaccelerated.

I view the price reacceleration in large-cap technology stocks as a combination of attractive valuations and yields and improved expectations for growth. Microsoft’s fourth-quarter sales are expected to grow some 10%.

While blue-chip strength is always helpful, large-cap technology stocks must be a big part of the long-term trend, as they are such a large part of the daily economy now.

The Russell 2000 Index of small-caps is also holding up extremely well and is another positive indicator for the broader market. While stocks are very much in need of a correction, it won’t happen without a major catalyst, and trading action among large-cap technology and small-caps is reason enough to expect more capital gains. The chart of the Russell 2000 Small Cap Index is featured below:

Russell 2000 Small Cap Index Chart

Chart courtesy of www.StockCharts.com

Also not to be forgotten is the Dow Jones Transportation Average, which is still just a hair off its all-time record-high. Transportation stocks are always a leading indicator, and if you attribute any worth to the performance of airline stocks, their year-to-date performance is also a positive signal.

Given current information, … Read More

Where the Gains Will Be in 2014

By for Profit Confidential

New Year to Be Bullish for Stock Market InvestorsIn 2013, the Federal Reserve gave stock market investors some of the easiest gains in history as a result of its quantitative easing. Now, as we move into 2014, while I believe it will likely be another up year for the stock market, I doubt the gains will be as good as last year’s.

Let’s take a look at the situation in 2014.

Fed Chairman Ben Bernanke will be gone in a few weeks and in will come Janet Yellen, another dovish banker who loves to use easy monetary policy to drive the economy. This implies that the tapering process could be slow and could take into 2015 to complete—good news for the stock market.

But the reality is that the unprecedented flow of the Fed’s easy money into the stock market over the last four years is a thing of the past. The flow of money will now depend on the rate of economic renewal and, more specifically, the jobs market and whether the rate of job creation continues to move along at a steady pace.

Since the announcement of the Fed’s $10.0-billion-a-month cut in bond buying (which I believe is a sensible move at this point, given the current economic renewal and jobs market growth), some uncertainty has been removed from the stock market; as a result, the S&P 500 and Dow Jones Industrial Average (DJIA) have reached record highs. (See “Fed’s Move to Taper the Right Choice for the Stock Market in 2014?”)

If the economy continues to strengthen, jobs are created, and the Fed tapers slowly, the stock market could be rewarded for the … Read More

The One Place New Money Can Go to in This Stock Market Right Now

By for Profit Confidential

This Hot Stock Proof You Shouldn’t Buy This MarketThere are so many esoteric good businesses out there, but very few attractive investment opportunities for new money right now.

In equities, I search for consistency from a company—consistency of corporate operating performance, diligent management in good times and bad, and a good track record of return on investment on the stock market. A stock’s past performance isn’t directly indicative of its future performance, but I find it goes a long way to improving your odds.

One company that provided the kind of consistency I’m referring to, and which I reviewed at the beginning of the year and again in October, is A. O. Smith Corporation (AOS). This is a Milwaukee-based water heater company. This stock has proven to be an exceptional moneymaker as of late. (See “How This Solid Old Economy Company Keeps Beating Tech Stocks.”)

But while the company’s business is growing, it’s not growing exceptionally; it’s not some highflying new technology company or some 3D printer manufacturer. A. O. Smith simply manufactures and sells water heaters, and while I really like this business, I don’t think it’s worth 23-times its forward earnings.

The Fed’s unprecedented monetary stimulus has boosted the share price performance of the most mature enterprises to the point that they’ve significantly outperformed their historical track records. This company is one of those enterprises. A. O. Smith’s 20-year long-term stock chart is featured below:

Smith AO Corp. Chart

Chart courtesy of www.StockCharts.com

While shareholder return in a company like A. O. Smith has been great over the last few years, there is seemingly little value in accumulating the stock now. Price momentum can always surprise with … Read More

How Risk-Averse Investors Can Capitalize on 2014’s Expected Record Drug Approvals

By for Profit Confidential

biotechnology stocksOne of the most spectacular performances in the stock market over the last five years has come from biotechnology stocks, and the NASDAQ Biotechnology Index continues to soar.

There are approximately 118 component companies in this index, which makes its performance that much more impressive. Its return has been broad-based and substantial, and it’s likely to have continued momentum until monetary policy changes.

Biotechnology stocks are 100% risk-capital securities. But because there’s so much money in pharmaceuticals, it’s an equity market sector that’s worthy of some effort if you’re a speculator.

There are two unique features to biotechnology stocks that are not necessarily as prevalent in the rest of the equity market: 1) they have a tendency to trade on their own corporate developments, with less correlation to the action in the broader market; and 2) because so many biotechnology stocks are not going concerns, meaning that they are not established businesses but development companies that have little prospect of immediate profitability, extreme price volatility is a certainty.

Over the years, I’ve considered a number of biotechnology stocks in this column. There are several standouts in this market that continue to provide excellent returns to stockholders.

One large-cap company that continues to distinguish itself is Biogen Idec Inc. (BIIB). This company developed a treatment for multiple sclerosis (MS), and while it is nowhere near a cure, the drug is helping treat patients with MS.

We first considered this stock near the end of April at $219.00 a share. The position consolidated for a while, then took off once again. Last month, when we looked at it, the stock was … Read More

Dow Jones Transports Leading the Market?

By for Profit Confidential

economic indicatorThis market is definitely looking tired after such a strong run since mid-October.

The performance of transportation stocks has been noticeable this year. The Dow Jones Transportation Average has actually outperformed the NASDAQ Composite year-to-date. In my mind, when there’s leadership from this group, it’s a compelling, traditional bull market indicator. Countless component companies are pushing record highs.

Equally as impressive is the performance of the Russell 2000 index, which has pretty much mimicked the NASDAQ Composite over the last two years.

A divergence became apparent in the beginning of July, as the Dow Jones Industrial Average began underperforming the other indices. It’s as if investors upped their risk tolerance, willing to bet on more risky equity assets as they felt more comfortable being bullish on a stock market that’s already gone up.

Over the last 12 months, the Dow Jones Transportation Average has been the leading index (excluding biotechnology stocks, which aren’t comparable). While outperforming the Russell 2000 by a slim margin and the Dow Jones Industrial quite significantly, I think the Dow Jones Transportation Average remains the leading index going into 2014 and a great indicator for the broader market.

Among the railroad stocks that are included in the Dow Jones Transportation Average, Union Pacific Corporation (UNP) bounced back nicely higher over the last five weeks after experiencing a lasting price consolidation the past six months. It will be interesting to see if the stock can hold above its all-time record-high of $165.18. Doing so will be meaningful.

CSX Corporation (CSX) is also a component of the Dow Jones Transportation Average, and it, too, seems to have broken … Read More

Nobel Prize Winner Confirms My Concerns of Stock Market Vulnerability

By for Profit Confidential

Federal ReserveIt’s hard to believe we are nearing the end of another year. It seems as though the move into 2013 was just yesterday. I was bullish at the start of the year, but I was not expecting the kind of stock market advances we have seen with the NASDAQ and Russell 2000 up more than 30% and the S&P 500 nearing that level with multiple record-highs.

Recently, I wrote about the need to ride the current market higher, as the signs point to more upside moves ahead. (Read “Why Stocks Likely to Head Higher into the New Year.”) But at the same time, I remain nervous about the vulnerability of the stock market.

The soft results from what was pumped up as a killer Black Friday failed to materialize, as sales on the Thanksgiving weekend fell 2.7% year-over-year, according to the National Retail Federation (NRF). The NRF did estimate sales during the next few weeks prior to Christmas could rise 3.9%, but while it may pan out, it will only do so because of heavy discounting to clear inventory.

What continues to linger on my mind is the fact that we have yet to see a correction of 10% or more during this four-year bull market, which began in March 2009. This makes me nervous.

Robert Shiller, who was one of three Americans who just won the 2013 Nobel prize for economics, believes there is a bubble in the U.S. stock market, especially given the run-up in stocks in spite of what has been a fragile economic recovery. (Source: Clinch, M., “Nobel Prize winner warns of US stock … Read More

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