A look at the charts makes me a bit nervous that the next stock market crash could be on the horizon. The fact is that the market has not witnessed a correction of any major proportions in excess of 10% since the stock market began to turn up in March 2009.
Sure, we have had the occasional five-percent adjustments in stocks, but these periods of selling were short-lived, always followed by periods of buying support. I suspect we could be on the verge of another correction that could drive the major stock indices down to test their respective 200-day moving averages (MAs) after already breaching the key short-term 50-day MA.
While we would all love to see stocks continue to creep to new record highs, this is not healthy for the overall bull market, which may or may not be sustainable.
Let’s be clear; I think a stock market crash like we witnessed in 1987 and 2000 is unlikely. The current valuations may be somewhat stretched but not enough, in my view, to cause a chaotic episode in stocks.
Chart courtesy of www.StockCharts.com
It’s true that corporate America is struggling to generate any revenue growth. And earnings continue to be driven by cost cuts. But we’re still seeing some bright spots like jobs and confidence.
What Could Drive the Next Stock Market Crash?
The current selling spree could pick up some steam and drive selling capitulation.
There’s anxiety regarding the current selling in global bonds that is triggering a rise in bond yields, which we all know is negative for the stock market.
The recent rally in oil prices to … Read More
I no longer own an “iPhone” and I don’t have plans anytime soon to order the “Watch,” a smartwatch from Apple Inc. (NASDAQ/AAPL). Yet despite my personal needs, I do think Apple is the king of the mountain in the stock market’s technology space.
Some are suggesting the iPhone will eventually meet its match, but I have yet to see this. Apple sold something like 74.5 million iPhones in its first quarter. This a huge number, and it could get even better if existing users of older iPhones decide to stay. I didn’t; I switched to the “Samsung Galaxy,” which I feel is a comparable alternative to the iPhone. But this is not about my personal taste.
The reality is that Apple has quickly become the Darth Vader of the stock market’s mobile space, ruling over the galaxy of smartphones. There will be challengers like Samsung and China upstart Xiaomi, which makes a similar phone that’s cheaper than the iPhone. Yet, in Xiaomi’s own backyard of China, it’s the iPhone that is running rampant and quickly becoming the mobile phone of choice within this massive market with over one billion users.
In the first quarter, Apple saw its revenues from greater China surge 71% year-over-year; this includes Hong Kong, Macau, and Taiwan. Clearly, the company’s alliance with China Mobile Limited (NYSE/CHL) was a key factor in driving up iPhone sales. The region generated about 30% of Apple’s first-quarter revenues second to the United States.
It’s impressive that Apple has been able to maintain its gross margin at 40.8% in the first quarter; obviously buyers are still willing to pay the … Read More
In the past, I have often talked about the quick money that can be generated trading big-volume momentum stocks in the Internet and social media spaces. Take a look at the biggest companies by market-cap on the NASDAQ and S&P 500, and you’ll find numerous highflying, valuation-defying stock market trades.
Of course, I’m talking about the likes of Facebook, Inc. (NASDAQ/FB), The Priceline Group Inc. (NASDAQ/PCLN), Twitter, Inc. (NYSE/TWTR), LinkedIn Corporation (NYSE/LNKD), Tesla Motors, Inc. (NASDAQ/TSLA), and Netflix, Inc. (NASDAQ/NFLX). Apple Inc. (NASDAQ/AAPL) is not in this group because the stock’s gains tend to be steadier, rather than in spikes on the stock market.
Just look at Netflix last week. The provider of video streaming to the global market has been delivering massive results. There was no reason to believe that this would not be the case for its first quarter. If you played the stock prior to the earnings release on Wednesday after close, you could have made tons of money via the stock or call options.
Buying Netflix at the $475.00 level on Wednesday during the normal session would have seen the price surge by $67.00, or 14%, to $542.00 by the morning on Thursday. That’s a $6,700 profit on 1,000 shares and $67,000 in easy money for an overnight trade of 10,000 shares. Even a small player buying 100 shares could have made $670.00 in quick cash. And more could have been made if you had played Netflix via the April 18 call.
‘Netflix, Inc. short-term chart,’
Chart courtesy of StockCharts.com
The point I’m making here is that momentum plays like Netflix provide exceptional risk-to-reward trading opportunities … Read More
Admittedly, McDonalds Corporation (NYSE/MCD) was somewhat of a staple in my diet growing up as a teenager. I couldn’t get enough of those golden fries and loved the taste of the “Big Mac.” But that was then; today, I’m no longer drawn in by the “golden arches.” And the stock market appears to be feeling the same way, as the fast food operator looks to turn things around.
My approach to McDonald’s, so far, has been one of patience, but until the company can figure out what to do with its sliding revenues, I see better opportunities in the restaurant sector.
McDonald’s Struggling to Stay on Trend and Its Numbers Show It
While the share price is only slightly off from its 52-week high, I feel it has more to do with hope than the underlying metrics. The revenue picture is flat. McDonald’s reported a slight increase in 2013, but returned to negative growth in 2014. If you are waiting for a miraculous turnaround as it did years ago, I’d stop waiting. Revenues are estimated to contract 7.8% this year, prior to minuscule growth of 0.5% in 2016, according to Thomson Financial.
The stock market is losing hope of a near-term turnaround. McDonald’s has come up short in four straight quarters. The fourth quarter witnessed a 0.9% decline in global comparable sales. The weakness continued into February, as the metric fell 1.7%.
The problem with McDonald’s is the massive infusion of competition from both fast food and sit-down venues. While the company looks to alter its menu, I think it will take some time to correct, which will likely see … Read More
Uncertainty appears to be influencing oil prices near-term, and the long-term outlook doesn’t look to be showing much strength. For the time being, oil prices are stuck in a trader’s market.
Current and Near-Term Action in Oil Prices
Oil prices are currently at a crossroads with the longs and shorts battling it out. On one hand, there appears to be some decent support at the $40.00 level for the West Texas Intermediate (WTI), as prices for the May futures contract has been bid up to the $52.00 level.
Conversely, I expect to see some resistance selling, as oil prices edge higher due to the record oil storage and the fact that the global demand side continues to be a major overhang. China is importing less oil than the previous year, as the country battles economic stalling.
The wildcard situation with ISIS and the oil-producing country of Iraq appears to have stabilized for the time being. Moreover, a highly tentative nuclear technology framework with major oil producer Iran may not pan out if the religious fanatics in the country can stop it. However, if a deal is eventually struck, we could see a gush of oil flowing out from the country and pressuring oil prices.
While I cannot say with conviction where oil prices will be a year from now, the commodity will likely continue to be a quick trade (not a buy-and-hold situation).
Where’s the Price of Oil Headed Next?
WTI futures point to oil prices rising to the $60.00 level by June 2016 and $64.00 by December 2017. The direction is clearly higher. We are also seeing a spike … Read More
Looking at the stock market, I can’t say I would’ve done that much last week, as the current action is somewhat dull for my liking. The way I see it, as a trader, I need a major unexpected event.
Why Stock Market Chaos Can Be a Good Thing
I need another currency collapse like what we witnessed with the ruble in Russia that ultimately led to a broad sell-off in Russia’s stock market, from oil to technology to steel. This selling wasn’t a surprise, given the massive collapse in the ruble means imports become much more expensive. But with the chaos in Russian stocks, I saw aggressive trading opportunities to make some quick money, primarily via the use of near-term call options that give me added leverage.
Of course, the most recent chaotic event for the stock market was the plummet in oil prices. First, we saw prices break below the $80.00 level, followed by $70.00, $60.00, and $50.00. The near-term futures contract fell below $44.00 at one point, prior to edging higher. Now there appears to be some base buying established at around $43.00. I would be looking for trading opportunities to buy call options on an oil-related exchange-traded fund (ETF) or some of the numerous battered oil companies in the stock market. If you are unsure on the timing, you could always look at LEAPS (longer-term options) as a calculated trade. The good news is that you have time for your strategy to play out; in fact, investors may be able to go out as far as two years.
First-Quarter Earnings Season to Deliver Trading Opportunities?
At this … Read More
There’s an ongoing debate over whether the stock market is overvalued and vulnerable to a bigger correction than we have seen in the recent year. Based on the earnings growth, the valuation of the stock market may be somewhat high, but pricing is more based on the prospects going forward. One area in which investors need to beware of valuations, though, are in the newest IPO debuts.
Pre-IPO Valuations Utterly Ridiculous
What really concerns me is the insane valuation given to many of the venture capital–backed pre-initial public offering (IPO) companies. In my view, the valuations are not sustainable and deserving; albeit, there is so much froth swirling around here.
Take the case of Uber, the provider of private car services that is trying to take the world by storm and push out the traditional taxi and car service companies. It’s a good idea, but the service is not always the cheapest and could rise in cases when demand is high. Based on the venture capital market, Uber is worth upward of $25.0 billion, which is utterly ridiculous.
I just read about a similar car service app in Hong Kong that is valued at around $8.0 billion. Again, insidious valuations.
The stock market climate for hyped-up pre-IPOs is extremely frothy. Last week, cloud-based service provider GoDaddy Inc. (NYSE/GDDY) debuted at $20.00 and surged more than 30% on its first day. While the company has a great advertising team, I really question the valuation. The company is a money loser, yet it’s now assigned $4.02 billion in market cap by the stock market. I wouldn’t be jumping in.
Then there’s gourmet … Read More
What if I told you the best six months for investing in the stock market are drawing to an end? Not good news, is it?
As we enter the second quarter, there is optimism based on the price action of the stock market in 2014. Yet as I mentioned, what is historically recognized as the best six-month period during the year for investing in the stock market, particularly the S&P 500 and Dow Jones Industrial Average, according to the Stock Trader’s Almanac, is coming to a close at the end of April. With the S&P 500 having returned only 0.44% in 2015 (better than the 0.26% decline in the Dow Jones Industrial Average), can we really expect much for the stock market following what was supposedly the historically high period for stock market investing this year?
Stock Market Exceptions
The stars in the stock market so far this year have been the higher-beta stocks, as traders and investors search for potential higher gains. The NASDAQ and Russell 2000 advanced 3.48% and 3.99%, respectively, in the first quarter.
Small-caps were tops in March with the only positive move. The Russell 2000 edged up 1.57% versus a 1.74% decline for the S&P 500.
But while the historical pattern for the stock market doesn’t always play out, as was the case in 2013, the odds are in its favor.
Retracing back to April 2014, the DOW and S&P 500 pushed upward, while the higher-beta NASDAQ and Russell 2000 fell 2.01% and 3.94%, respectively. Yet there was negative sentiment towards higher-beta stocks in the stock market that, so far, hasn’t been the case this … Read More
It has been a while since I talked about the prospects for Tesla Motors, Inc. (NASDAQ/TSLA), which continues to be one of the more actively traded momentum plays in the stock market.
In the past, I was encouraged by Tesla and felt a downside move to $185.00, based on my technical analysis, could be an aggressive investment opportunity. I no longer feel that way.
How Tesla Reached Its $24-Billion Valuation
While other momentum plays in the stock market are easier to evaluate, that has never been the case with Tesla. If you solely look at the number of units sold, it would make no sense why the stock market places such a high valuation on Tesla.
Many Tesla bulls talk about the great advanced electric-powered car produced by the company. They are correct. The company’s cars are a fantastic example of American ingenuity. That I can say. But for me, the story is becoming somewhat redundant and disappointing.
Tesla’s stock currently sits precariously at around $185.00. On the chart, one of two things will happen: 1) the momentum buyers in the stock market could bid the stock back to above $200.00; 2) there could be continued minimal support for the stock at below $180.00. Tesla is well down from its high of $291.42 in September 2014, but I wouldn’t be too anxious to enter on the long side of the stock market.
Chart courtesy of www.StockCharts.com
The breakdown of Tesla was highlighted by the 50-day moving average (MA) pushing below the 200-day MA, signaling a bearish death cross on the chart.
Now, I’m not saying whether to buy or short … Read More
The stock market continues to want to edge higher, but beware. I still sense there will be more downside moves that will provide a trading opportunity. At this juncture, I would be looking for sell-offs in the stock market and chaos.
Just like what we saw in 2008 when the stock market and big banks crashed, when a stock market correction comes, there will be aggressive trading opportunities for more active traders.
Stock Markets Down, but Bigger Adjustments Ahead
The strengthening dollar will make American goods and services more expensive for exports, which will likely result in a squeeze on the profit margins of multinational companies that do much of their business in the eurozone. The dollar would likely test parity with the euro, which in itself is a trading opportunity to play the European companies that benefit from the weak euro.
On the energy front, the basis West Texas Intermediate (WTI) oil declined to the $44.00 level after news of a record surplus in U.S. crude inventories and the fear that there will not be enough storage to hold the oil. Again, we could see oil move towards the $40.00 level. Take a look at strong energy companies that are currently under distress, but may be worth a look longer-term. If you think oil will rally over the next two years, you could look at call options expiring in January 2017 that will give you ample time for oil to rebound.
On the stock market charts, the S&P 500 and DOW remain below their respective 50-day moving averages (MAs). Small-cap stocks continue to attract new buying, as the Russell … Read More
When Lehman Brothers Holdings Inc. crashed after the impact of the sub-prime financial crisis in 2008, the financial sector was turned upside down. Regulators made a bold and smart decision to clean up the banking sector and its somewhat secretive high-risk activities.
Fast-forward nearly seven years, and the banking sector is clearly stronger and more trustworthy than it has ever been. Investors can thank the annual Federal Reserve bank stress test for this.
Fed’s Stress Test Making Banks the Safest Investment for Long-Term Investors?
The Fed’s financial crisis stress test aims to analyze the stability of the country’s largest banks with assets of more than $50.0 billion. It includes both a round one quantitative test and a round two qualitative portion.
After the rigorous testing based on the assumptions of a severe financial crisis, all but three banks passed. While all of them made it through the first round, only the U.S. units of Santander and Deutsche failed on a qualitative basis. The Bank of America Corporation (NYSE/BAC) was approved based on the acceptance of a new capital strategy by the end of September.
The financial crisis stress test is critical, as it gives investors and consumers confidence in the country’s banking system and pushes the banks to put measures in place to help avoid the mess we witnessed in 2008. The promise of the financial crisis testing is to put the various banks under the worst economic situations and see how they would fare. The assumptions under a financial crisis include severe recessions, high unemployment above 11%, plummeting home prices, and a crash in the stock market by 50%…. Read More
The NASDAQ may have passed 5,000, but investors shouldn’t get caught up in the excitement. A market correction may just be on the horizon, especially when you consider factors affecting the global economy.
NASDAQ, Stock Markets Near Highs, but Bull Market Slowing
After the NASDAQ’s recent breach of the psychological 5,000 level, there was talk about a move to another record at above 5,104, last encountered 15 years ago. At that time, in 2000, for the stock market, it was both a period of excessive greed and jubilation.
After the recent records by the DOW and S&P 500, I fully expect some pausing in the stock market. We are beginning to see that. Following a strong February, the major stock market indices are negative in March and are coming off their respective highs.
Now, I’m not saying the bull market is drawing to a close; rather, I’m saying that the gains we witnessed in February are not sustainable at the same rate. Prior to the stock market open on Monday, the DOW was up a mere 0.18% this year and the S&P 500 was up 0.59%.
The reality is that the bull market is now six years old after trading at a bottom in March 2009. I doubt the bull is dead yet, but I feel the beast may be slowing. I still believe the stock market will close up higher by year-end in just over nine months’ time, but the advance will be met with hurdles. We witnessed this in 2014, and it looks like we’re following a similar pattern this year…. Read More
Global Economic Factors Suggesting Coming Stock Market
The restaurant sector, including the fast food outlets, continues to reward investors with a good investment opportunity over the past years. The advance in the eateries has been somewhat overdone, as the stock market appears to be willing to price much higher on these stocks.
McDonald’s No Longer the Top Investment?
McDonalds Corporation (NYSE/MCD) was previously the top investment opportunity in the restaurant sector. Over a decade ago, the company recognized the market trend to healthier meals. In response, McDonald’s undertook a major transformation to its menu offering by expanding its menu to healthier choices, such as wraps and salads, to complement its hamburger and fries beginnings.
Chart courtesy of www.StockCharts.com
Yet McDonald’s is no longer the go-to restaurant stock, as the sector has seen a massive influx of new players offering a wide assortment of meals, from Mexican to Asian, to sandwiches and family sit-down meals. The market is extremely competitive. McDonald’s may still be an aggressive investment opportunity for some, but the company will need to turn things around in order to regain its previous glory.
The catalyst for the rise in restaurant stocks has been the economic renewal, jobs creation, and rising home prices. That means many more restaurants than just McDonald’s are seeing profits—and there are three that just might be a better investment opportunity than McDonald’s.
Chipotle Mexican Grill, Inc.
One of the hottest restaurant stocks at this time is Chipotle Mexican Grill, Inc. (NYSE/CMG), which has a market cap of $21.0 billion. In the past, I have written about how I have been bullish on a stock like this one as a potential investment … Read More
Many of you are probably happy to bid farewell to January. Not only was the weather nasty, but the stock market also traded in a volatile manner, with the bias to the downside.
The month ended in the red, with the major stock market indices trading below their respective 50-day moving averages and looking lower. The S&P 500 is below 2,000 once again and has been unable to get its footing above with any sustained momentum (as you can see in the chart below).
For traders who follow the historical cycles of the stock market, we know that the negative month suggests the stock market is in for some difficult times this year. But I’m not convinced the bull market is over quite yet.
Chart courtesy of www.StockCharts.com
When the markets start January down, the tendency is for a down year for the stock market about 80% of the time, but that is not always the case. As we saw in 2014, January also produced a down month but recovered with an up year. That month, the decline in the Dow and S&P 500 was greater than this January’s, but the S&P 500 subsequently closed higher in eight of the next 11 months.
Chart courtesy of www.StockCharts.com
Now, I’m not suggesting the same will materialize this year for the stock market, but it’s something to keep in mind as we move into February, which saw the markets bounce back in 2014.
The key for the main stock indices will be the 200-day moving average (MA), which is just below where the indices are sitting at now, with the exception of … Read More
While China has been struggling to regain its former luster as the top growth region in the world, we are seeing some dynamic growth in the technology space, namely the Internet and mobile areas, where the country is tops.
While still somewhat early in its infancy as a technology basin, China does offer the single largest market in the world, with more than one billion either surfing the Internet or tapping away on their mobile phones. The potential is enormous for the technology sector companies in China—and one major highlight American investors should add to their watch list (if they haven’t already) is Alibaba Group Holding Limited (NYSE/BABA).
Alibaba to Report Tomorrow
Tomorrow morning, prior to the market’s open, all eyes will be on Chinese Internet powerhouse Alibaba, which debuted in the U.S. in October and has become a major trading vehicle for technology and momentum traders. Under its somewhat underwhelming founder Jack Ma, Alibaba has become a dominant player in China and is aiming to become a thorn in the side of major U.S. Internet companies.
The stock has traded as high as $120.00, but it fell to $82.81 on October 15, which provided traders an opportunity to buy. Alibaba has since recovered to $100.00 and could launch higher, depending on its earnings news tomorrow morning.
In my view, it’s a win-win situation. If the results disappoint, we could see an investment opportunity to buy on weakness. A strong quarter, however, could see the stock vault out of the gate for current shareholders. In this case, some investors interested in the company will have to wait and buy on … Read More
What kid doesn’t love toys? But then again, what investor doesn’t love toys? They did, after all, gain traction in 2014, growing at four percent to $18.08 billion in U.S. sales. (Source: NPD Group, January 20, 2015.)
When we talk about the toy sector, companies such as Mattel, Inc. (NASDAQ/MAT) and Hasbro, Inc. (NASDAQ/HAS) usually come to mind as the top and biggest players. While Mattel and Hasbro may be a good investment opportunity, there are better risk-to-reward situations for more aggressive speculators who don’t mind taking on more risk to try to achieve higher gains. Here I’m referring to small-cap stocks in the toys sector.
Small-Cap Contrarian Toy Stock #1: JAKKS Pacific, Inc. (NASDAQ/JAKK)
The first of two stocks to watch in the small-cap toy area is JAKKS Pacific, Inc. (NASDAQ/JAKK; $5.92; Market Cap: $130 million), which is small compared to Mattel and Hasbro. JAKKS has lost 6.03% of its value over the past 52 weeks, underperforming the 9.63% advance of the S&P 500. At this time, JAKKS would be an aggressive investment.
The stock is down more than 30% from its 52-week high of $9.48 on July 17, 2014, which makes the stock an interesting one to watch as the company looks to deliver better results and profits. After a loss of $2.43 per diluted share in 2013, JAKKS is estimated to earn $0.66 per diluted share in 2015.
Chart courtesy of www.StockCharts.com
To achieve better results, JAKKS is moving with the times and shifting its focus to technology-based toys and electronics.
Compared to the big boys, JAKKS has a better valuation, but investors truly interested in this … Read More
The start to the New Year is probably not great if you are sensitive to stock market volatility. The past week was relatively what you can expect for this year—a weak and volatile stock market. (Fortunately, there are three investment strategies investors can consider to profit this year; you’ll find them below.)
The DOW had three triple-digit losses, cumulating in a decline of 661 points that was partially offset by two triple-digit gains of 525 points last Wednesday and Thursday. When the markets opened this week on Monday morning, the DOW was down 150 points.
If you don’t like stock market volatility, then the current trading action is not for you.
With the decline, the major stock market indices are holding precariously near their 50-day moving averages (MAs), which will likely be tested again, based on my technical analysis.
The problem we have is the failure of oil prices to hold after the break below $50.00 a barrel. West Texas Intermediate (WTI) crude oil is below $46.00; by all accounts, on the chart, prices could be heading towards $40.00. As long as oil is weak, the stock market will be volatile going forward.
And as I discussed last week, the stock market is looking for some support from the fourth-quarter earnings season reports. Based on what FactSet has to say, the reporting season doesn’t hold much promise. I’m already seeing some cracks emerging for the stock market that make me nervous.
For example, high-end jeweler Tiffany & Co. (NYSE/TIF) is down after cutting its FY15 earnings-per-share (EPS) outlook and reporting flat same-store sales during the holiday season.
In the chip … Read More
We are three days away from Christmas and just over a week from the New Year. This is the perfect time to look over your portfolio and holdings in the stock market.
To get set for trading in the stock market in 2015, take some winners if you haven’t already done so and dump some losers. Then consider what is occurring in the stock market and global economy (especially oil and Russian stocks) in relation to your economic outlook for the New Year.
Stocks were trading weak last Tuesday, with both the S&P 500 and DOW below their respective 50-day moving averages (MAs). We got an early Christmas present after the stock market surged on Wednesday and Thursday.
Now is a good time to consider taking this opportunity to realize some profits, as there are still uncertainties regarding oil prices and the tense economic and political situation in Russia that will surely affect stocks in the new year. On the plus side for aggressive traders, there’s actually a lot of money to be made in the stock market from the oil meltdown and the turmoil in Russia.
Russian President Vladimir Putin appears to be messing with the global economy after raising Russia’s interest rates to 17.0%, apparently in an attempt to combat the plummeting value of the ruble against the greenback and avert a mass exodus out of the German currency.
The end result has been a massive sell-off in Russian stocks listed on the MICEX and American depositary receipts (ADRs) on U.S. stock exchanges. The majority of Russian stocks are now trading as much as 70% lower from a … Read More
Tesla Motors, Inc. (NASDAQ/TSLA) is currently running into a traffic jam on the chart, having declined 27% since trading at $291.42 on September 4. But I see this kind of move in a stock like this as a possible investment opportunity.
Now we are hearing market watchers saying Tesla is dead money as long as oil and gasoline prices stay low. The problem I see with this argument is that it ties the value of Tesla to the direction of oil. While the lower oil prices may hurt Tesla as an investment opportunity, I’m not convinced.
My view is that investors are scrambling out of Tesla prematurely. I look at the situation as more of a valuation issue, given that the stock continues to trade at a high multiple of 73X its estimated 2015 earnings-per-share (EPS) and has a price-to-earnings growth (PEG) ratio of 4.25. The metrics are high, based on the old-school thinking towards valuation, but these are different times, when excess is acceptable.
In my view, Tesla has become more of an icon rather than a play on expensive gasoline. The cars are fantastic and look great. They are not clunkers, but battery-powered vehicles that can bolt out of the gate in 3.2 seconds to 60 miles per hour for the all-wheel drive model in testing. This vehicle also has an incorporated self-driving feature.
The reality is that those who are buying Tesla’s vehicles are not really trying to save a buck or two. The cars go for around $40,000 and up. It’s not really about cutting back on fuel costs; albeit, it does help that the cars … Read More
Retailers will be getting the aisles set to go when the big—and at-times legendary—Black Friday begins in four days’ time. This is the most important day of the year for the retail sector: it could be the difference between having a good year or a marginal one.
I have heard some retail pundits say this Friday could generate as much as 30% of the total year’s sales—on just this one day.
Why “Black” Friday? The “black” refers to the fact that it could potentially turn a year of losses into a year of profits based on this day’s sales. This is why the retail sector is pumped to go. We have already heard about an early start to Black Friday with some retailers opening prior to the traditional midnight, which of course entails shopping on Thanksgiving Day.
The battle for your dollars is competitive. Merchants need to try to get a leg up on their rivals in the retail sector in whatever way they can, whether it means earlier and longer hours or heavy discounting. Retailers will likely have to initiate deep discounting to win your wallet.
And the trip to the mall or stores will be made easier this year, given the major decline in gasoline prices at the pumps. Money saved here could help drive consumer sentiment.
If you want evidence of how important Black Friday is to retailers, take a look at the facts:… Read More
About 92.1 million shoppers were out at the stores on Black Friday in 2013
On the weekend, a whopping 248.7 million shoppers were at the stores and online
Cyber Monday is becoming an
One of the key tenets to success in the stock market, as I have learned from more than 20 years of trading, is the need to make sure you have a system in place to actively monitor your outstanding positions. Any major changes to the underlying fundamentals are critical.
Unless you invest in mutual funds or are happy with a buy-and-hold strategy, ignoring your positions is not prudent and will likely result in damage to your portfolio—and maybe even your quality of life.
In early October, when the Russell 2000 and the NASDAQ were down 14% and 100%, respectively, the thing to do was not to rush to the exits and liquidate everything. Making rash decisions at a time when stocks are selling off is dangerous. You could have sold some positions while waiting to see if the stock market could rally, which was the case.
For the majority of investors, you don’t need to be constantly staring at the screen, scanning every chart. What you need to do is be on the alert for any major changes in the sector, a company rival, or the company itself. Failure to recognize changes and red flags could result in major losses.
The risk for small-cap stocks is more intensified, as displayed by the Russell 2000 weeks earlier. Since then, the bounce has been good, with the index performing at its best in October. However, despite the rally in small-cap stocks, I would continue to be careful.
If you are in it for the longer-term, blue chips make the most sense, especially for the more conservative investors who look for steady long-term … Read More
The Federal Reserve made it official on Wednesday, announcing it would be cutting the remaining $15.0 billion from its monthly bond-buying program, also known as QE3.
So with that, the period of easy money flowing into the pockets of investors is over. Remember, it was the Federal Reserve’s relaxed easy monetary policy that helped to drive the S&P 500 up nearly 200% since 2009—and now it’s over, folks.
The stock market reacted with stocks heading lower, as there was a slight sliver of hope the Federal Reserve would decide to hold back on eliminating QE3. Investors will now have to deal with bond yields that could begin to move higher on the Federal Reserve’s move.
The Federal Reserve didn’t give a timeframe for when interest rates will begin to move higher from their near-zero levels, but the consensus is calling for the rate increase to begin sometime in mid- to late 2015. As you know, higher rates by the Federal Reserve will drive up yields and carrying costs for both companies and personal debt. Just think about the more than $17.7 trillion in national debt and how the higher interest rates will impact the government’s out-of-control carrying costs.
We are at what I would call a crux.
Stocks want to go higher but need a fresh catalyst to do so. The advance reading of the third-quarter gross domestic product (GDP) growth came in at a healthy annualized growth rate of 3.5%, which while down from the booming 4.6% in the second quarter, is nonetheless indicative that the economy is expanding.
At the end of the day, a strong economy, continued … Read More
The world is not coming to an end—even if it does look that way as global stock markets plummet.
Make no mistake about it; we are clearly witnessing some selling capitulation in the stock market. The bottom may be near for the stock market, or we could be in for further downside moves given that the correction on the S&P 500 has been around six percent, so there’s some wiggle room to the downside.
After multiple records by the S&P 500 and DOW in September, the DOW is now in negative territory in 2014. Meanwhile, the S&P 500 was negative intraday on Wednesday prior to rallying.
If you are looking to buy on weakness, you want to understand the downside risk is still there in the stock market—especially for the higher-risk small-cap stocks and technology growth stocks. The NASDAQ fell on Wednesday, experiencing a 10% correction, but managed to bounce back.
Many small-cap stocks on the Russell 2000 are already entrenched in a bear stock market, down more than 20% from their highs. This is not the area for timid investors yet.
Perhaps it’s time to stop chasing risk and look at adding some lower-risk proven plays in the stock market instead.
I like the consumer staples stocks that tend to perform in both up and down stock markets.
Some may want to go defensive in the stock market. Look to the big banks, consumer staples, and industrial sectors if so.
One of the top stocks over time has been General Electric Company (NYSE/GE), which has been a favorite of widow portfolios in the stock market since the company first … Read More
For investors in small-cap stocks, this year has been quite a different experience from 2013, when the sector was raging and sizzling on the price charts.
Small-cap stocks are the laggards this year, with the benchmark Russell 2000 down nearly 14% from its peak and established in a bear market. The selling may be somewhat extreme at first glance but consider that the Russell 2000 surged an excessive 33% in 2013.
The reality is that gains like what we witnessed in 2013 were unwarranted; they were driven solely by the easy monetary policy put forth by the Federal Reserve and excessive froth in the stock market. We are now paying for the euphoria small-cap stocks encountered in 2013.
Now, while I continue to feel small-cap stocks are excellent longer-term plays, the short-term looks weary, given the technical breakdown on the chart of the Russell 2000.
Dumping higher-risk small-cap stocks is clearly the line of attack this year. But if the economic renewal holds into 2015 and the global economy doesn’t tank, we could see small-cap stocks rally next year. Keep this thought in mind, but know that at this time, it’s safer to shift your money to the large-cap or blue-chip stocks that have been battered this year.
Buying mature, consistent large-cap stocks on weakness makes sense as these companies have proven themselves to be steady players over time.
Think about it this way: Small companies will tend to struggle if the economy declines. Compared to the larger companies that can deal with several quarters or even years of underperformance, small-cap stocks would have a much more difficult time.
For … Read More
In 2013, when it was announced that the eurozone had emerged from its double-dip recession, the European stock market was optimistic and drove stocks higher.
Yet there was a sense the route to higher gross domestic product (GDP) growth was not clear due to the massive debt still on the books of many of the eurozone’s weakest members, widely known as the PIIGS nations (Portugal, Ireland, Italy, Greece, and Spain). Yes, the countries have shown some recovery, but they continue to be plagued by massive debt and abnormally high unemployment.
Unemployment across the region continues to run in the low double-digits, around 12%. For the youth under the age of 25, it’s much worse, with the unemployment rate around 40% in some of the PIIGS countries.
The problem is that a weak jobs market in the eurozone doesn’t reflect positively for the economies.
We are now seeing growth issues with the two pillars of the Eurozone, Germany and France, which are widely credited with helping to save the eurozone from a financial Armageddon.
The effects of the economic sanctions placed on Russia for its involvement in the Ukraine crisis appear to finally be filtering their way through to the eurozone and Europe, specifically Germany. One of Russia’s biggest trading partners, Germany saw a 5.8% decline in its exports in September alone.
The reality is that a weaker Germany doesn’t bode well for the eurozone.
In addition, with more than 800 million inhabitants in Europe, the market is significant. Slowing in this market will surely have an impact on growth in China and the United States, as well as the global … Read More
The country’s gross domestic product (GDP) growth and jobs creation has been edging higher and providing some optimism for the stock market as we head into the third-quarter earnings season that begins officially with Alcoa Inc. (NYSE/AA) today.
A strong earnings season could likely be enough to drive stocks upward towards new highs. But as long as the outlooks from companies look good, the stock market will be heading northward.
The results from Alcoa will be closely watched, as the company is considered a barometer of the global economy due to the use of aluminum in many applications and across many sectors.
I want to see some leadership from the financials and technology sectors in the earnings season to help drive the broader market.
Over the past several earnings season quarters, the revenue side has been muted and earnings have been driven by cost-cutting rather than strong revenue growth. Based on the current estimates for the third-quarter earnings season, it looks like much of the same this time around as revenue growth is predicted at 3.7% for the S&P 500 companies versus 3.5% as of June 30, according to research from FactSet. (Source: “Earnings Insight,” FactSet web site, September 26, 2014.) The growth in this earnings season, while not earth-shattering, does show some promise, as it’s slowly rising, which is what we want to see.
Earnings are estimated to advance 4.7% in the third-quarter earnings season, which is well below the 8.9% estimate provided as of June 30. Again, this isn’t great, but it would be higher on a sequential basis.
The reduction in earnings isn’t impacting any of the … Read More
While it’s well known that technology has led the broader stock market higher, there is a safer and more conservative play for investors at this time, according to my stock analysis. Where? Investors may want to take a glance at the banking sector.
Banks have dug themselves out of the financial crater that was imposed on the group by the sub-prime debt crisis back in 2007, which sent the global economy and banks into a massive tailspin, as is well represented in my stock analysis.
But that was then. As my stock analysis indicates, the banking sector has been rallying over the past seven years, beefing up their balance sheets, cutting risk, and creating a much stronger overall structure.
The chart of the Philadelphia Bank Index below shows the upward move of bank stocks from their 2009 and 2011 bottoms. Bank stocks staged a nice rally, but retrenched from March to May 2012 on the European bank concerns and Moody’s downgrade of the sector. However, the group has since staged a rally back to above the index’s 50- and 200-day moving averages (MAs), as my technical stock analysis indicates.
Chart courtesy of www.StockCharts.com
What has helped to drive the banks upward on the charts, based on my stock analysis, has been the recovering global economy and the rules set in place to help prevent excessive risk among bank stocks. At the core of the changes was the establishment of the “Volcker Rule,” which was economist and ex-Fed chairman Paul Volcker’s move to cap the speculative trades and risk banks are allowed to assume. Since these changes were put in place, … Read More
Don’t let the new records by the Dow Jones Industrial Average and S&P 500 trick you into thinking everything is fine in the stock market.
Just take a look…
We have the rising military actions against ISIS in Syria and Iraq that involve five Arab countries, which could really increase the geopolitical risk worldwide.
China is continuing to deliver muted economic results and suggested there would be no additional monetary stimulus at this time. Meanwhile, the slowing in the eurozone and Europe, given the economic sanctions on Russia, will impact the demand for Chinese-made goods.
And while the domestic economy is holding, the Organisation for Economic Co-operation and Development (OECD) recently cut its gross domestic product (GDP) growth estimates for the United States to below two percent this year.
The Federal Reserve is helping to support the stock market via the likely extension of its near-zero interest rate policy into mid- or late 2016, but this will help only so much.
The stock market risk is evident on the charts.
Technology and small-cap stocks are attracting the most selling, with investors dumping high-beta stocks as overall stock market risk rises.
The small-cap Russell 2000 lost 1.6%, moving back below its 50-day and 200-day moving averages (MAs) on Monday. The index is now down nearly four percent in September. Considering the risk, I would be careful when looking at small-cap stocks in the stock market at this time.
Technology is also at risk in the stock market despite the NASDAQ continuing to lead the major indices this year with an advance of close to nine percent. Higher-beta stocks are generally the … Read More
The Federal Reserve has spoken and to no one’s surprise, there was really nothing new from Fed Chair Janet Yellen, who did as was expected after shaving off another $10.0 billion in monthly bond purchases. The Federal Reserve will cut the remaining $15.0 billion in October, bringing its third round of quantitative easing (QE3) to an end.
What the stock market here and around the world also heard was that the Federal Reserve will likely maintain its near-zero interest rate policy for a “considerable time” after the QE3 cuts.
The problem is that the stock market is focusing so much on when interest rates may begin to ratchet higher.
The consensus is calling for rates to move higher by mid-2015, but some feel it will not happen until 2016 if the economic growth stalls. The downward revisions in gross domestic product (GDP) growth around the world could extend the time before the Federal Reserve will raise interest rates.
In the eurozone, the European Central Bank (ECB) is adding more monetary stimulus to jump-start the economy that is faltering due, in part, to the mess in Ukraine.
The news release from the Federal Reserve says the economic growth is moderate but also warns the labor market still has work ahead of it, which appears to be the main focal point.
“To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate,” read the press release by the Federal Reserve. “In determining how long to maintain the current 0 to 1/4 percent target range for the federal … Read More
While the S&P 500 and Dow Jones Industrial Average race to new record-highs, there’s still a sense of caution and vulnerability on the side of investors towards the stock markets here in the U.S.
In fact, a study I read in Bloomberg estimated that around 47% of stocks listed on the NASDAQ stock market are currently in a technical bear stock market, down 20% or more from the highs. On the small-cap Russell 2000, the story is even worse with more than 40% in a bear stock market. And the study shows that the S&P 500 had a mere eight percent of stocks in a technical bear stock market.
There’s even talk of the S&P 500 reaching 2,300 by the year’s end, according to some of the optimistic bulls on Wall Street. I feel it’s pure fantasy that the index will rise by another 15% by year-end.
The reality is that the stock market is stalling. Without any fresh and inviting reasons to buy, I sense the stock market risk is quite high.
An alternative would be to invest in a foreign market, and while I like China, Israel is fast becoming the favorite for growth investors. Israel has produced some top companies in the past, especially in the technology and medical devices sectors.
Israeli stocks are the third most listed stocks on the U.S. stock markets. (China is second.) As a country, Israel may be small, but an excellent investment opportunity can usually be found there. Moreover, the risk for fraud is much lower than with U.S.-listed Chinese stocks. I can’t say that I have ever heard of fraudulent … Read More
I’m not sure how many of my Daily Gains Letter readers realize that Chinese stocks, as reflected by the Shanghai Composite Index (SCI), have outperformed the S&P 500 so far this year. After offering up underwhelming performances since 2009, the SCI has rallied 9.98% this year, compared to 8.44% for the S&P 500 and 3.23% for the Dow Jones Industrial Average as of Monday.
We’re not talking about resurgence in Chinese stocks and a return to the glory days more than five years ago; instead, I’m simply saying there’s finally some buying in an oversold Chinese stock market.
Chart courtesy of www.StockCharts.com
Of course, there’s the high anticipation of China-based Alibaba (NYSE/BABA) joining the U.S. capital markets on September 19; this move will likely stroke the enthusiasm of investors here. The Internet services company is massive and will give U.S. companies a run for their money, further opening the U.S. market to consumers and businesses worldwide. You can wait and pick up shares of Alibaba or you can play the company via Yahoo! Inc. (NASDAQ/YHOO), which holds a 23% stake in Alibaba.
Now, if you’re a regular reader, you may know that I have been, and continue to be, bullish on the Chinese economy and China. Yes, the economy is stalling, but we are still talking about growth of around 7.5% this year, which is far greater than the rest of the G7 countries.
Just like Facebook, Inc. (NASDAQ/FB) in the social media market with its more than one billion users and enormous potential, I feel the same towards China and its 1.3 billion people. When you have a market … Read More
The stock market appears anxious to move higher to new record highs.
In the past week, the Federal Reserve released its Federal Open Market Committee (FOMC) meeting minutes that suggested it wanted to see stronger, sustained growth before deciding on when to raise interest rates. This includes both economic growth and jobs creation.
On Thursday, the Bureau of Economic Analysis (BEA) will report the second reading of the second-quarter gross domestic product (GDP), which came in at a surprising annualized four percent for the advance reading.
The consensus is that the second reading will show the GDP growth holding at the same four-percent level. If it does, it would be excellent for the economy but at the same time, ironically, it would make investors and the stock market nervous about the status of interest rates.
The issue is that the Fed wants to see controlled and steady economic growth and a four-percent reading could raise red flags, pointing to inflation—which means higher interest rates. The inflation rate is benign at this time as consumers continue to hold back on spending.
The stock market will get anxious if the reading remains the same, but we would want to wait to see how the economy fares in the third and fourth quarters of the year before making any drastic moves.
Of course, the stock market is all about expectations going forward and clearly, a strong second reading of the 2Q14 GDP will send some to the exits.
The Fed also wants to see the jobs market continue to expand at its previous trend of generating an average of more than 200,000 monthly … Read More
Alternative energy plays have been around for decades, including Ballard Power Systems Inc. (NASDAQ/BLDP), a maker of hydrogen fuel cells that went public in 1993. The stock traded as high as $100.00 as a speculative investment opportunity in early 2000 but was unable to break into the automotive market. It is currently drifting at the $4.00 level.
However, what Ballard was hoping for is now materializing for battery-powered automaker Tesla Motors, Inc. (NASDAQ/TSLA), which has built a superhighway of charging stations across the U.S. and is expanding into Europe and China. Tesla is a great story and a decent possible investment opportunity.
Yet it’s not only vehicles that demand alternative sources of energy; we also see demand coming from numerous applications and, in some cases, manufacturing facilities.
The demand for alternative energy can be based on wind, solar, or water and has led to the development of a strong solar industry as an investment opportunity.
A small-cap that has been exciting the stock market while producing sizzling gains for speculators has been Plug Power Inc. (NASDAQ/PLUG), a developer of hydrogen fuel cells that power forklifts and other devices. The stock traded as low as $0.32 over the past 52 weeks, surging to $6.37 on Thursday morning after reporting strong results. Plug Power has been on my technical analysis screens for some time, as the stock consistently breaks higher. If interested, I would suggest investors look to this stock on weakness for a volatile speculative investment opportunity.
Chart courtesy of www.StockCharts.com
Another possible investment opportunity that may interest investors in the alternative energy space is FuelCell Energy, Inc. (NASDAQ/FCEL), which has … Read More
If you think Americans are firmly comfortable in the economy and jobs, think again. Yes, the stock market has returned strong gains and has been an investment opportunity over the past five years (since the end of the Great Recession in 2008), but much of it was artificially driven by the lax monetary policy put forth by the Federal Reserve. Now that the quantitative easing is dissipating and interest rates are set to edge higher sometime in mid-2015, I’m not all that comfortable.
The jobs numbers are improving, but they are still well below the 500,000 per month that some pundits deemed to be a sign of a healthy jobs market. We are generating about 200,000 jobs each month, which is well below what we want to see. In fact, we have only recovered the jobs lost during the recession—and we still need to build on that.
Given that there are still approximately 46 million Americans collecting food stamps, you’d understand why I still feel uneasy about the so-called economic growth in progress.
Consumers are still not spending at a rate many are hoping for. This is especially true in durable goods, which are not required for everyday living, so their buying can be bypassed.
As far as I’m concerned, the retail numbers still stink and don’t point to an investment opportunity in retail. Just take a look at the metrics at the big multinationals, such as Wal-Mart Stores Inc. (NYSE/WMT) and other retailers. While retail sales grow at a muted pace here, the growth is around 12% in China, where there is an investment opportunity in retailers.
Dick’s Sporting … Read More