Posts Tagged ‘stock market risk’
Why the Money-Driven Fed Rally Is Impressive
By George Leong, B.Comm. for Profit Confidential
This market is on steroids. The Federal Reserve is the dealer and the market participants are the buyers. This is a particularly dangerous stock market risk.
So it’s not a surprise to see stocks go up and up without any signs of a pending correction. You really want to see a market adjustment, especially during a bull market rally.
Yet the fact is that the market is pushing higher to new records, and I see stock market risk.
Enjoy the ride, but don’t get too comfortable, as I still feel a market correction and stock market risk are on the horizon, especially if you believe that the best six-month period for market gains is ending in two weeks. (Read “Why You’ll Want to Spend More Time Gardening, Less Time Stock-Picking This May.”)
I would also advise you to be careful, given the light volume we have been seeing, which creates a negative divergence between rising stock prices and lower volume, based on my technical analysis, along with stock market risk.
And as the market continues upward, it seems like everyone is latching on for the ride. Investors dangerously drop their guard and, like a boxer, are opening up themselves to some vulnerability and stock market risk.
Take a look at the CBOE Volatility Index (VIX)—also widely known as the “fear factor” of the market—based on the S&P 500.
The VIX reading is currently quite low, sitting just above 12, and as shown on the chart, the current stance is well below some of the high readings since 1990.
Chart courtesy of www.StockCharts.com
What the low VIX implies … Read More
Don’t Be Fooled by the Dow’s Recent Record-Highs
By George Leong, B.Comm. for Profit Confidential
I will be first to say that this is a difficult market to play, and it’s certainly full of stock market risk. On one hand, the Dow Jones Industrial Average eclipsed a new record last week when the blue chips index surged to an all-time new record high of 14,413, easily blowing away the previous mark of 14,164 achieved on October 9, 2007. But my trading sense is telling me that we may be close to a near-term top.
I’m not trying to scare you, but do you really think the Dow can advance 42% this year? I doubt it, unless you believe the Dow will reach 18,607 by the year’s end. This figure is based on an annualized return of 9.9% year-to-date. This alone indicates stock market risk.
In my view, the rally in the Dow has been overdone. After trading just above 8,000 a few years back prior to the most recent bull wave that resulted in the current record high, this only adds to the stock market risk.
While I like records, I wonder if the Dow deserves this one. While the big U.S. companies are faring better, the growth is nowhere close to what we saw prior to the Great Recession in 2008.
The reality is that the pumped-up stock market may have more to do with the excess liquidity that is being pumped into the monetary system by the Federal Reserve and central banks around the globe—which adds to the stock market risk. The low interest rates translate into low-yielding bonds, unless you’re willing to take the risk to invest in Spain, Italy, Portugal, … Read More
The Potential Market-altering Events in the Fourth Quarter
By George Leong, B.Comm. for Profit Confidential
We are entering the always intriguing fourth quarter, during which I expect to see some major surprises that could alter the current investment and political climates and increase the stock market risk.
The Dow Jones Industrial Average and the S&P 500 have recorded four straight months of gains, yet the stock market risk remains high, given the strong advance this year. Blue chips and large-cap stocks showed decent buying in September with technology trailing. For the year, the NASDAQ continues to be tops with a 19.6% advance, followed by the S&P 500 at 14.5%. The Dow is trailing at just under 10.0%.
The key event with the most stock market risk at this point is the uncertainty of the presidential election on November 6, when President Obama will try to extend his policies into a second term. But on January 1, 2013, the country will face the potential “fiscal cliff,” when the terms of the Budget Control Act of 2011 are scheduled to go into effect, resulting in automatic spending cuts across the board and tax increases. The problem is that cutting fiscal spending at a time when economic renewal is still fragile is risky; it could hamper the impact the Federal Reserve’s third round of quantitative easing (QE3) might have on the U.S. economy and could add to the stock market risk.
Federal Reserve Chairman Ben Bernanke reiterated his support for QE3 and said that the easy money will be available even as the economy recovers. The fear is the easy money could drive up inflation, and in reality, it is more of a vehicle for the wealthy…. Read More
Get Ready for Some Action in the Second Half
By George Leong, B.Comm. for Profit Confidential
We are at the mid-point of the year, and so far it seems like a rollercoaster ride driven by heightened stock market risk. We had a stellar January, followed by some softness in February and March. April and May, followed by losses, but we saw some oversold buying in June. The key stock indices are still down from the end of the first quarter, and with many unknowns and stock market risk, it may likely be a rocky second half.
Taking a look at the mind of investors tells us the situation. Since May 15, there have only been five bullish investor sentiment days on the NYSE and seven on the NASDAQ. Compare this to the start of the year when each session in January and February saw bullish sentiment along with the majority of March. The second-quarter sentiment has been muted.
Not only do you have the European debt crisis dragging on in the eurozone, but China is stalling, and the U.S. economy, while growing, is relatively stagnant. Combined, it means high stock market risk.
Corporate America may struggle in the second-quarter earnings season to begin on Monday, which I discussed in “Don’t Expect Much from Second-quarter Earnings.”
There is also nearly $16.0 trillion in U.S. national debt and deficit levels, which adds to the stock market risk. California is nearly broke and many other states are trying to squeeze the coffers, looking for money. And while this is going on, you have about 13 million Americans looking for work and probably about 25 million Americans who are unemployed or underemployed.
We also have stock market … Read More
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