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

Posts Tagged ‘Stock Market Analysis’

Stock Market Sees Worst Decline Since September 2011

By for Profit Confidential

unemployment rateThere were no proverbial May flowers this year when it came to the stock market, with the month showing the worst decline since September 2011. The NASDAQ fell 7.19% in May and 8.54% from the end of the first quarter. The DOW, S&P 500, and Russell 2000 lost over six percent in May. The DOW is up a mere 1.49% for the trailing 12 months, but will likely see a move to negative territory based on my stock market analysis. On Friday, the DOW broke below its key 200-day moving average (MA) of 12,250. This is a red flag.

My stock market analysis suggests that the technical picture is bearish and there could be more potential losses especially if a base is not found. As such, based on my stock market analysis, I would be hesitant to add long positions at this time. What will likely happen is that there could be an oversold bounce, but my stock market analysis view is that this is an opportunity to sell into it, as the upside sustainability will likely continue to be an issue. The key stock indices have been devoid of any momentum or signs of sustained buying interest.

The overall Relative Strength is weak, indicating that there may be more downside moves or that the upside gains may be limited, based on my stock market analysis.

The breach of the 50-day MAs was bearish, but a move below the 200-day MA would be a big red flag and renewed weakness on the charts, according to my stock market analysis.

The underlying strength, as indicated by the advance-decline line for … Read More

Is This the Time to Buy Stocks?

By for Profit Confidential

"Buying Opportunity: Timing’s Everything"Looking towards 2012, many investors are worried about their assets. Europe is in disarray, the U.S.debt is continuing to balloon, unemployment levels remain high, and no real concrete steps have been taken by political leaders to stem the negative sentiment. With all of this pessimism, in my opinion, this is a great buying opportunity for the long-term investor to acquire solid companies.

Generally speaking, you want to buy when people are selling, and sell when people are buying. The ICI, Investment Company Institute, tracks the flow of money into mutual funds. With December numbers in, the ICI reports that investors have been pulling money out of domestic mutual funds in every month since May; a total of $132 billion. That is a huge amount of money to be pulled out of the market, a sign of negative market sentiment. But, historically, when so many people have sold their stocks, it has provided a great buying opportunity.

Let’s take a look at recent history and see what has happened. We see a massive amount of money being pulled out of domestic mutual funds between September 2008 and March of 2009; again, poor market sentiment. The bottom of the market was March 2009. By looking at this one indicator of market sentiment, you can’t pick the exact top or bottom, of course. It is merely a tool to show you where the mass crowd of investors is moving their funds, but it gives you an idea that we’re closer to the bottom of the market. For someone with a long time horizon who averages into their trades, the aforementioned period in … Read More

The Ironic and Soon to Be Short-lived
Rush to U.S. Treasuries

By for Profit Confidential

Here’s how the fable goes…

Jim is in the boardroom talking to his three young analysts about where the mutual fund they manage should place its billions of cash, as the firm recently exited some equity positions.

“Where are we going to park those couple of billion we have raised?” Jim asks of the young analysts.

Bobby says, “Let’s not buy bank issued CDs. Banks really haven’t come clean with all their bad loans yet.”

Sammy says, “And let’s keep it out of the eurozone government bonds…they are paying good returns, but if they default, we will never get our money back.”

Joey finally gets up and says, “I’ve been studying the 10-year U.S. Treasury market and can’t believe funds like ours are pouring billions into 10-year U.S. Treasuries paying a paltry 1.9%. Everyone knows the U.S. government has the biggest debt load in the world…that our debt will be close to 150% of U.S. GDP in eight years…that our debt crisis is really bigger than the eurozone debt crisis.”

All faces look to Jim for an answer, “Where do we put our billions in cash?” Jim answers the question quickly by directing that all the cash they have be put into the 10-year U.S. Treasury.

Joey stands up again and says, “Sir, in all due respect, I’m not sure that is such a good idea. I’ve read articles that say the 10-year U.S. Treasury market is a bubble of its own.”

“Sit down Joey,” Jim starts. “Do you know why we don’t buy Italian or French bonds? It’s because we don’t know if we will get our money back. … Read More

What You Can Learn From the Solar Energy Market Meltdown

By for Profit Confidential

For the most part, good timing results in the majority of your investment returns, whether you’re investing in the broader stock market or in a specific market sector. The problem, of course, is that nobody can predict the future and trying to time the stock market is extremely difficult. (See The Best Stock Market Advice I Know: Get Ahead of the Business Cycle.)

How to Pick the Best Stocks
That Pay Dividends

By for Profit Confidential

As we all know, this is a very difficult stock market in which to make investments, based on major trends in the global economy. And, even if you identify, research and feel confident about an investment theme or trend on which to speculate, outside shocks like the eurozone debt crisis can blindside your holdings. Without question, the current environment continues to be a difficult one for stock market investors.

Trading Opportunities: Why Nothing
Looks Great at this Time

By for Profit Confidential

It’s a crazy trading environment out there. Whether you are in bank stocks, gold stocks, silver stocks, or even cyclical stocks, the stock market risk is high at this time, as we just completed a volatile week of trading. The European debt crisis is keeping buyers on the sidelines and waiting for something magical to happen. The economic recovery is showing improvement here, but, with a high unemployment rate and declining home prices, it will continue to be a difficult path.

The Next Stock Market Winners:
Technology’s the Place to Be

By for Profit Confidential

Everyone is looking for the next stock market winners, such as Apple Inc. (NASDAQ/AAPL), priceline.com Incorporated (NASDAQ/PCLN), or Google Inc. (NASDAQ/GOOG). While gold and gold stocks have provided some of best performing stocks, I continue to feel that technology will be the place to be as an investment opportunity for growth investors going forward.

Europe’s Debt Crisis Continues to Pound Domestic Investor Sentiment—Who Has the Power Now?

By for Profit Confidential

It’s not a good situation to have your own domestic investor sentiment strongly influenced by the reality in an economy that’s far away. The U.S. stock market is at the point now where it could be making real gains based on its own solid corporate fundamentals.The debt crisis in Europe continues to be a thorn in the side of domestic stock market investors and, to be very frank, the richer European countries are getting fed up with the less well managed countries that created the debt crisis on their own. From my perspective, I think that U.S. institutional stock market investors are attributing too much credence to Europe’s story—it’s a debt crisis that only Europeans can fix.

Nowadays, of course, financial markets trade on global news and sentiments and, because the American economy has been on the rails, institutional investors are now trading off of economic news from the debt crisis in Europe and China to a lesser extent.

Similar to the subprime mortgage crisis, the debt crisis in Europe is all about a lack of leadership from politicians. The party’s been going on for so long that no policymaker has had the strength to challenge the status quo with a real double-take on how poorly things have being run. Stock market risk in the U.S. is very high at this time because of the failure of European leaders to deal with a sovereign debt crisis that involves many of their member economies. Add in the fact that only a few euro member countries can be considered “wealthy” and an easygoing attitude towards entrepreneurship, worker productivity, and lifestyle; it’s not that hard to envision many of these countries spending beyond their means. Especially in the case of Greece, where not everyone pays their income taxes. (See The Cycle of Debt Must Be Broken for the Whole System to Correct Itself.)

So it’s a real … Read More

Marketplace Paralyzed by the Euro: Will it or Won’t it Fall Apart?

By for Profit Confidential

The world’s debt crises (that’s plural!) have being going on for years now and it will be several more years before Europe gets a handle on its situation. The U.S. debt crisis was mostly about subprime housing mortgages, while Europe’s debt crisis (mostly Greece at this time) is about sovereign debt. Greece has experienced too much government spending with too little taxable income to pay the bills, and the European Union and the euro currency are now at risk (see The Cycle of Debt Must Be Broken for the Whole System to Correct Itself).

The recently released Markit Eurozone Manufacturing Purchasing Managers Index (PMI) for October has been waning on the euro currency. This manufacturing index measures changes in the business activity of thousands of eurozone manufacturers. The October index fell to 47.1, revised downward from a preliminary reading of 47.3 and down from 48.5 in September. Similar to U.S. manufacturing data, a reading below 50 indicates contracting manufacturing activity. This is now the third consecutive month that this eurozone manufacturing PMI has been below 50.

So, with the economic numbers pretty grim in Europe, the sovereign debt crisis is like the icing on the cake in terms of bad news. With the expectation for recession in Europe, it’s a bear market in European stocks and the prospects for the euro currency seem weak.

The problem with the current debt crisis is that the European banking industry has heavy exposure to individual country bonds and any default will put them in jeopardy. If the debt crisis were to get out of control, then there would be heavy pressure on … Read More

Three Big Money Profit Stocks

By for Profit Confidential

The American corporate profit machine is in full swing: Stock market darling Google Inc. (NASDAQ/GOOG) reported late last week that its third-quarter profit hit $2.73 billion on sales of $9.72 billion. Earnings and revenue grew 26% and 33%, respectively, from the same period of last year.

Stock Market Charts Looking Dangerous

By for Profit Confidential

The climate for the stock market is dangerous at this juncture, with all signs pointing to additional downside moves on the charts. Technology and small-caps are especially weak. The third quarter turned out to be the worst since the financial crisis began in 2008. The key stock indices, including the DOW, S&P 500, and NASDAQ, lost over 10% in the quarter.

Stocks in Trouble…and It’s Not Over

By for Profit Confidential

The signs point to more troubles ahead. The stock market is in bear market territory for small-caps with the collapse on Thursday. There were several technical breaks materializing on the broad-based heavy selling. The small-cap Russell 2000 is a mess, down 17.89% this year and 25.46% from its 52-week high. The S&P appears to be heading towards support at 1,100. The downside risk is extremely high given the death cross on the stock index charts. When stocks traded at this level before, we saw buying support surface. Watch to see if it happens this time around.

Stocks & Economy: Contrarian View You Won’t Read Elsewhere

By for Profit Confidential

You’ll read a lot today about the Federal Reserve’s statement yesterday that it will buy long-term treasuries in an effort to bring down long-term interest rates. Why Michael thinks this is a counter-productive mistake.No, no, no! They’ve got it all wrong! The actions of the government and the Fed are contra to what the economy needs to get it going! More damage is being caused to the economy than good.

You’ll read a lot today about the Federal Reserve’s statement yesterday that it will buy long-term treasuries in an effort to bring down long-term interest rates. That’s a mistake in my opinion. It’s counter-productive.

Sure, the argument will be that lower long-term interest rates will be good for the real estate market. But we must realize that consumers are not interested in buying homes. The 30-year mortgage rate was already at a 30-year low before yesterday’s announcement and consumers were not buying homes. You can bring long-term interest rates to two percent and consumers will not move to buy houses, because they have no faith that housing will move up in price!

Now look at the repercussions of bringing long-term interest rates down:

  • Seniors dependent on long-term bond income will have less income, which means they will spend less, actually hurting the economy.
  • The rate of inflation will not outstrip the return on long-term bonds, making the dollar less valuable…any investor buying bonds today is losing the purchasing value of his/her money, as inflation outstrips investment returns.

Many economists said yesterday that the Fed’s attempt to lower long-term interest rates will not provide any significant stimulus. In fact, three Fed officials voted against the move.

You’ll hear news today that the stock market is going down because the Fed indicated yesterday that there is “significant downside risks” to the economy. Stocks are not … Read More

Stock Market’s Forming a New
Base, in Spite of Volatility

By for Profit Confidential

Investor sentiment is fragile and the stock market’s been volatile, but the trading action over the last little while has revealed one big consolidation, not a breakdown in the main stock market indices. What’s holding the market around 1,200 on the S&P 500 Index is the expectation for decent corporate earnings. From my perspective, third-quarter earnings results can’t come soon enough.

Is It Time to Buy Value
or Sit on the Sidelines?

By for Profit Confidential

Right now, the stock market is at a very important point. The third quarter is just about to end and another earnings season will begin. In terms of the main stock market indices, they all seem to be at a crossroads, right on the line of either staying where they are, or breaking down further.

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