More on the Stock Market Rally No One Is Talking About
Monday, August 11th, 2008
By Michael Lombardi, MBA for Profit Confidential
With the Dow Jones Industrial Average jumping 302.80 points on Friday, we are getting closer to the bellwether index having rallied 10% in less than one month. All this is happening rather quietly as the media focuses primarily on the poor housing market. If there ever was a time that the stock market was climbing a wall of worry, this is it.
Three factors are sending stock prices higher. The U.S. dollar has gained four percent against the euro in less than four weeks. The dollar had its biggest weekly gain against the euro in almost eight years last week. And a higher U.S. dollar leads to lower oil prices – - something the stock market loves.
Oil prices fell on Friday to $115.00 U.S. per barrel — down from their peak of $147.00 on July 11, 2008. Lower oil prices equate to higher profits for companies, which equates to higher stock prices for those companies.
Finally, stock prices became severely oversold by the first half of July. With all the doom and gloom we have been fed, and those stifling oil prices, stock prices fell too quickly and too deeply. A rebound from the severely oversold condition stocks had fallen into was more than due. And I expect further gains ahead.
Just this past Wednesday, I wrote a column in PROFIT CONFIDENTIAL entitled, “An Explosive Stock Market? You Won’t Read It Elsewhere.” This was the most important paragraph from the commentary:
“As a contrarian, I’ve always done well betting and going against the crowd. And the obvious and strong consensus today is that the U.S. economy is pathetic. But the stock market is telling us a different story. While we read and hear that this is the worst economy in two decades, the stock market is not trading at its bottom — it is rallying from it!”
The flavor of the day is against commodities. With the European economy no better than ours, and with China’s stock market down to a new 19-month low, investors are returning to American stocks. As stock investors, we need to savor, enjoy and profit from the moment.
Commodities became overbought and the stock market became oversold. The roles have reversed for now, and while I will do my best to keep my readers informed as to when the trend will again change again, the bottom line is that stocks are now in a definite uptrend.
I’m assuming the rallying stock market is putting severe pressure on the record number of shorts on the New York Stock Exchange. As the market moves higher, and those shorts are forced to cover, we could see more explosive single-day stock market rallies.
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
