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

Posts Tagged ‘stock market risk’

Why the Money-Driven Fed Rally Is Impressive

By for Profit Confidential

Money-Driven Fed Rally Is ImpressiveThis 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.

$VIX Volatility Index New Methodology stock chart

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 for Profit Confidential

Don’t Be Fooled by the Dow’sI 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 for Profit Confidential

Potential Market-altering EventsWe 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 for Profit Confidential

Stock Market Second HalfWe 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

Market Risk Update: No May Flowers for Stocks

By for Profit Confidential

market correctionThe stock market risk is high right now. Maybe you should take a vacation from investing.

As an investor, you should be aware that the six-month period from May to October has been historically the worst-performing months for stocks, according to the Stock Trader’s Almanac. And so far, this stock market risk and historical pattern appears to be staying true to form.

The charts continue to be bearish. I said this in March and in April. I had sensed some near-term topping action several weeks back, as the stock market risk intensified after several attempts to move higher failed to be sustainable. For instance, the S&P 500 at 1,400. Moreover, the lack of volume on up days has been a major red herring and stock market risk for the buy side—indicating a lack of mass market interest.

The key stock indices have been devoid of any momentum or signs of sustained buying interest—down in the red over the past five days and month.

And, while stocks continue to hold in positive territory for 2012, the key stock indices are in the red since the end of March below their respective 50-day moving averages. Technology stocks, which fared the best this year, had been up over 18% in March, but have seen gains dwindle down to just over 11% on higher stock market risk. The NASDAQ is down 6.11% since the end of the first quarter, only trailing the 6.27% market correction in the Russell 2000.

The overall Relative Strength is weak, indicating that more weakness may be in the works or the upside gains may be limited, but watch … Read More

January: It’s All About the Bulls,
Mining Stocks…and Market Risk

By for Profit Confidential

With only two sessions remaining in January, the month delivered strong returns in the stock market. And, while the advance has been strong to begin the year, you might recall that a similar start in 2011 ended in a mixed trading year. While investor sentiment is bullish and breadth is positive, the lack of mass market participation is worrisome and opens up stocks to downside risk.

The charts of the key stock market indices remain strong, but only the blue-chip Dow Jones Industrial Average is showing a bullish golden cross, with the 50-day moving average (MA) above the 200-day MA. And, despite bullish near-term signals, the NASDAQ, S&P 500, and Russell 2000 are holding on to a death cross, in which the 50-day MA is below the 200-day MA.

A bullish event on the charts occurs after the key stock indices have peaked on three successive upward moves with lower peaks; stocks have broken higher and suggest more gains.

And, as I said, the light volume on up days is a red flag and indicates stock market risk. The end result is a bearish divergence forming between price and volume, adding to the stock market risk.

The European debt crisis continues to be a major risk factor. The talks between Greece and its creditors to reach a debt swap deal have yet to be done and there is speculation that the country will be allowed to have a form of controlled default. The problem is that this would likely send jitters through the eurozone and global markets, wreaking havoc.

My advice is to ride the upward moves in the … Read More

Why Do All Markets Go Down Together?

By for Profit Confidential

As we just completed the December meeting of the Federal Reserve, the continued market sell-off accelerated. This was following the previous week’s European Summit, which was supposed to alleviate concerns about the eurozone. Neither the Fed nor the summit in Europe changed the market view that the situation is in crisis mode.

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.

Stock Market Risk Just Keeps
Climbing Higher

By for Profit Confidential

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.

Market Risk: Why Upside Moves Will Not Be Easy

By for Profit Confidential

October was one of the best months for the stock market in history in spite of the market risk. Everyone was buying and it didn’t matter if it was technology, industrial, or some new never-heard-before-technology. Everything went up, which is why we are now facing some selling pressure.

Why We Can’t Have a Sustained
Economic Recovery

By for Profit Confidential

Things are looking up for the economy again. Unfortunately, things are not always as they seem. The U.S. Commerce Department said that the U.S. economy grew at 2.5% in the third quarter—the fastest pace in a year. Moody’s Investor Services last week raised the corporate ratings of both Ford Motor Company (NYSE/F) and General Motors Company (NYSE/GM), an indication that the car companies are doing better as well. All of a sudden, people are feeling good about the U.S. economy again.

How to Play China with Less Risk

By for Profit Confidential

Chinese stocks continue to be in the dumps compared to the rally in U.S. stocks. The benchmark Shanghai Composite Index (SCI) is firmly in the red this year, down 13.28%. However, the plus is that Chinese stocks are no longer trapped in a bear market.

Debt Crisis Aside—Let’s Get Down to Business with the Real Numbers

By for Profit Confidential

The European debt crisis has not gone away. The fix comes only at the end of the debt crisis’ beginning. Frankly, I’m kind of annoyed it took this long for policymakers to act. The domestic stock market has suffered long enough because of a lack of firm action on the European sovereign debt crisis. It isn’t going away anytime soon, but thankfully, the debt crisis is now being addressed.

Economic Analysis: And Then
Came Rapid Inflation

By for Profit Confidential

Here’s how the story plays out…After a 25-year to 30-year leveraging period, as the credit crisis developed in 2008, a period of great deleveraging was born. Banks, which were once all too happy to lend money to people, some of whom should have never qualified for a loan in the first place, put in tough rules for businesses and consumers who wanted to borrow money. Consumers, after years of negative savings, started saving money. During the later part of the “leveraging” years, the personal savings rate in America was negative…consumers spent more than they made. Today, in a period of deleveraging, the personal savings rate in America is five percent—a high not seen in years.

Stocks Facing Many Hurdles Ahead

By for Profit Confidential

The upside potential is limited at this time. The problems are global in nature. You have the massive debt crisis in Europe and the U.S., along with deepening U.S. deficit situations. We are seeing state governments take days off here and there in order to save a few extra bucks. But this is merely a loose bandage strategy and not a remedy for the ailing U.S. economy. President Obama and the Fed realize the extent of the hurt. Obama introduced a $447-billion plan to drive job creation, but whether it will work or not is up in the air. It’s not going to be easy and everyone realizes this.

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