Posts Tagged ‘Stock Market Advice’
There was a stock market correction on Wednesday following a mini rally that drove some impressive upward gains in four of five sessions. I feel there is too much relaxation in the market, with traders ignoring the higher stock market risk.
One of the stock market’s darling large-cap stocks has been Caterpillar Inc. (NYSE/CAT), up until recently. The stock hit a new record high of $116.55 around May of this year, retreated to the $95.00 per share level and fought its way back to $110.00. The stock then fell off a cliff in mid-July and is now trading between $75.00 and $80.00 a share.
Something different for my readers today… I’m going to talk about food. But don’t worry; in the end, I’ll relate it back to the economy and the stock market, as I eventually do with all my stories. Okay, so I’m eating out every night here in Florence. And when I look around, I see few people with a bottle of wine at their table. Wine, inItaly— isn’t it cheap here?
What a day for the market yesterday. Wherever we looked, we saw a sea of deep red. Stocks got chopped. Gold was down. Bonds were down. My dear reader, you’ll read opinions here in PROFIT CONFIDENTIAL that you will not read elsewhere. (Maybe that’s why 30,000 people a month are flocking to us!). Here’s the bottom line as I see it…
Last Friday, I presented you with my seven top reasons why we should be worried about the long-term prospects for U.S. economy. Today, I’m going to shorten the time frame and tell you why I expect we will fall back into a recession soon.
Goldman Sachs is now saying that it’s time for commodity investors to take some money off the table, as the price cycle for oil, gold, corn and copper is getting tired. I agree with this view if you’re a short-term investor. Everything is looking tired in this market and stocks and commodities are most certainly due for a correction.
Over the last two years, the 105% advance in the S&P 500 recovered 697 points of the 909 points lost between October 2007 and March 2009. In percentage terms, the S&P 500 so far has recovered 77% of the 909 slide.
Comparably, the NYSE Composite recovered 73% of its bear market drop. A few indices have done even better. The Dow Jones Transports, the Russell 2000, and the NASDAQ Composite ended April 2011 a fraction of a percent above their 2007 bull market highs. However, the NASDAQ still remains 45% below its 2000 all-time high.
Well, there’s only one way to say this—the numbers so far haven’t been that great. So far this earnings season, it’s been a mixed bag of mostly underperformance, and this isn’t a good sign for the future. It’s not that there hasn’t been decent growth in revenues and earnings as of yet; only that most big companies that have reported haven’t met consensus estimates. It’s difficult to imagine a rising equity market when big companies can’t beat the Street.
My stock market advice to you at this time is to be careful. Stock picking is about trading the right direction, but also making sure you have a defensive strategy in place should the trade turn against you.
The sentiment in the market remains bullish, as stocks continue on a nice two-year rally from the March 2009 low. The trend of the NYSE new-high/new-low (NHNL) has been edging higher, with 180 of the last 190 sessions bullish as of April 11. In the technology area, 136 of the last 148 sessions have been bullish. Yet, both the NASDAQ and NYSE turned neutral on April 12.
“When in doubt, look at the charts.”
The above has been my motto for years. I believe that stocks and the stock market are leading indicators. They tell us what is going to happen with specific industries, various prices and the economy six to 12 months out.
One chart I have been studying closely this year is the Dow Jones Utilities Index. Utility stocks traditionally rise when interest rates fall and investors can get better yields off of secure utility stocks than they can get from CDs or T-bills. Similarly, when interest rates rise, utility stocks fall, as investors flee them to the rising yields of CDs, T-bills and bonds.
The big U.S. banks must be ecstatic.
After 100 people at the Federal Reserve ended their review of major U.S. banks, the Fed concluded that some of the largest banks in this country could increase their dividends, buy back shares and repay government loans.
The bias towards stocks remains bullish, as the market continues on a two-year rally from the March 2009 low. The trend of the NYSE new-high/new-low ratio has been edging higher, with 161 of the last 167 sessions flashing a bullish sign. In the technology area, 119 of the last 125 sessions have been bullish. All signs point to additional gains ahead.
The stock market is handling the world’s two recent crises very well. The story in Libya seems far from over and Japan’s terrible tragedy is a decades-long recovery, but domestic stock prices didn’t go down that much and it’s a testament to the strength of overall market sentiment. Investors still want this market to go higher and first-quarter earnings will be the catalyst.
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