Buy, Sell, or Hold? What to Do Right Now

Buy, Sell, or Hold? What to Do Right Now
by Mitchell Clark, B. Comm.

With precious metal prices being strong of late, more companies are jumping on the price strength bandwagon. The world’s largest gold producer, Barrick Gold (NYSE/ABX), just announced that it wants to become totally unhedged going forward. The company even plans to issue $3.0 billion of new shares to buy out its existing hedged positions. Basically, Barrick is saying that it can make a whole lot more money with gold at or over the $1,000-per-ounce level. This is a short-term bullish signal for the commodity.

The price of a barrel of oil is trading around the $72.00 level and if it ticks a few dollars higher, it will very likely run to the $80.00 per barrel level. It seems like we’re on the cusp of a new bull market in commodities.

As for stocks, they’ve already had a good run and I think it’s fair to say that most market participants don’t have any defined sense as to where stock prices are going to go. It’s a very weird stock market environment in that a thoughtful, reasoned case can be quite easily be made for either a bullish or bearing outlook. Nobody really knows what’s going to happen and even institutional investors are wary. They are wary, but they are still buying, because they don’t want to be left out of any further price appreciation.

I wouldn’t really be much of a buyer of equities at this time. September and October can be wacky times for stocks. Also, we still didn’t get a decent enough stock market consolidation and I think this is also something that’s on the minds of institutional investors. It isn’t healthy for stock prices to keep going up without a major pullback.

In June and early July, the broader stock market experienced some price consolidation. Then prices advanced smartly to current levels. I think we won’t get any major new trend until we get into third-quarter earnings season, which is not that far off. Investors need corporate earnings news to confirm the current price action in stocks. As we slowly move out of recession, corporate earnings will be the driver for investors.

I think the consensus on second-quarter earnings was that the numbers were quite positive, all things considered. This bodes well for the upcoming third quarter. I’d sit on the sidelines over the very near term until we get into earnings season. Investment risk is high right now, because the market has run so far in such a short period of time.