Crash Market Stocks - Financial Tips On Making Money In The Stock Market

The market has had two consecutive days of pretty strong rallying, which has to make bulls feel a bit better at this point. However, it continues to hit resistance at strong technical levels and is having a hard time staying above 10,000. Just as any stale mate in the markets is, earnings seems to always be the key for the next momentum. Last quarter, it was earnings that bolstered up the already rallying markets. It may be harder this time around, has it will be hard to beat 1st quarter numbers. So we will see.

Claus Vogt, from Money and Markets, gave a great update of why bear market scenario looks optimal right now. For those that read technicals, it makes a lot of sense:

The stock market’s rise since the March 2009 lows was nothing more than a bear market rally. Yes, it was a huge rally, but not out of the realm of similar historical examples.

Low trading volume, still high valuations and lingering economic problems — especially within the real estate sector and the banking system — have been strong arguments for my outlook. And the history of burst real estate bubbles could serve as a blueprint for our current dilemma.

I’ve never departed from that assessment of what was going on …

In fact, over the past months I’ve regularly predicted that the March lows would finally be broken and the stock market’s valuation would decline. What’s more, they would go all the way down to levels seen at historical secular lows and hit single digit price/earnings ratios.

Now it looks as if the bear market rally is over and the next cyclical bear market has begun. I say that because my cyclical stock market model has given me …

Five Bearish Signs

Sign #1— Valuations never fell Valuation metrics never fell to undervalued levels. But they quickly rose to overvalued again, as soon as the stock market recouped a good part of its losses.

Sign #2— Money dried up The liquidity indicators turned outright bearish. Not just in the U.S., but globally, too. These indicators are especially important during this cycle, because the rally since March 2009 was mainly liquidity driven.

It was simply a reaction to monetary and fiscal stimulus never heard of before, aside from during war times. And with liquidity drying up the uptrend was on rented time.

Sign #3— Excessive optimism Sentiment indicators reached levels indicating high complacency and even extreme optimism. Some put/call ratios fell as low as during the heights of the 2000 stock market bubble.

And the cash level of mutual funds fell to a record low. Lower than in March 2000, and lower than during the summer of 2007, the two former record lows. Both marked excellent times to get out of the stock market.

Sign #4— LEI fell

The Economic Cycle Research Institute’s Leading Economic Index fell below the zero line in early June. This leading economic indicator (LEI) for the U.S. economy came in at minus 7.7 percent. If history is our guide, this reading is a clear recession warning.

Until recently the only component for my model that wasn’t bearish was the technical situation of the stock market. Typically, important turning points are accompanied by negative divergences in market breadth indicators, such as the advance/decline line or the number of stocks making 52-week highs.

But that changed last week when …

Sign #5— The technical picture turned the corner

The technical component of my cyclical stock market model turned bearish on June 30. Have a look at the S&P 500 chart below to see what I’m talking about.

Source: Bloomberg

The market’s behavior since October 2009 looks like a well formed topping formation. Its lower boundary or neckline is the 1,040-1,050 area. The shape of the formation is a head and shoulders top, with the right shoulder having formed in June, accompanied by low volume, as it should be.

Then last Wednesday, the S&P 500 broke below this neckline. In doing so the topping pattern was finished with a clear technical sell signal.

This sell signal gets additional strength from the much oversold condition the market was in before last week’s breakdown took place, which is a sign of remarkable weakness. Normally a market as oversold as this one at least experiences a short-term bounce.

But that’s not all …

There is another strong technical argument signaling the end of the bear market rally and the beginning of a new cyclical bear market.

The upward trend of 200-day moving average of the S&P 500 has started to level off, also shown in the above chart. This moving average is a slow moving trend-following indicator. It won’t help you pick market tops or bottoms. But you can use it as a good sign post to tell you whether the cyclical trend is up or down.

And the 200-day moving average is not only a good indicator of the S&P 500 and most other major U.S. indexes, but also for the EuroStoxx 50 and the Nikkei 225 as shown in the two charts below.

Source: Bloomberg

Source: Bloomberg

Indeed, this adds fuel to the overall bearish message.

It’s Time to Get Out of the Stock Market

The evidence that a new bear market has begun is compelling. And I believe this downturn can easily last until 2012 with prices going much lower than in 2008.

In my opinion, the prudent thing to do now is to consider selling.

Best wishes,

Claus

It most scenarios, a week like the one we experienced (in regards to earnings), would usually yield strong gains in equity markets. Most all of earning reports were far better than expectations, as well as pretty decent guidance numbers. So far, it is estimated that 72% of the companies from the S&P 500 that have reported 4th quarter earnings exceeded expectations. However, even with what looks to be decent earnings, the markets are still at odds with each other.

Markets were a little uneasy after the Fed's announcement that it will be raising interest rates. It will be very interesting to see how the economy responds to a bit of pressure being put on government bailouts. After markets dashed down this morning following the announcement, it quickly regained its strength and stayed in the green most of the day. We also saw a "very convenient" rally to pull the market out of the red right before close, which was a very sharp turn around.

The transparency of earnings reports is the reason why investors are no longer cheering for better than expected reports. First of all, now we are comparing numbers to a very dismal 2009, which if companies were to do just as bad in 2010, would most likely result in a bankruptcy. Also, many companies are still adjusting 2010 forecasts (decreasing expectations), even when prior estimates had been made not more than a month ago. Companies are seeing that even with the existence of upward trending earnings, a sluggish 2010 is in our near future. My belief is that best case scenario, we are about as stable as we are now.

The rally which we saw at the end of 2009, in my opinion, was bolstered up to higher levels due to too much optimism. It is very easy to get caught up in the notion of a swift recovery, especially after experiencing one of the worst down turns in 70 years. However, with too much optimism, came buying at unhealthy levels and has now left us with a top heavy market. Now, we find us in a position where we don't really know where we are, we just hope that it gets better. If the government continues to slow the bailouts, we will begin to see just how sluggish this economy really is. As a result, Treasuries are rebounding as investors or steering clear of riskier investment vehicles at this point.

CPI data remained rather flat, which shows just how much deflation is taking place, when you consider all of the government spending and extra printing of currency, a flat CPI number shows the offset with deflationary indicators. No, we are not out of the woods for deflation. I expect to see a more aggressive week next week...investor's money is getting itchy. Happy Trading.

The next round of earnings for Q3 has begun and thus far investors have liked the results. I have discussed the earnings paradox in prior posts as the reported results can be very misleading when not looked into further. However, the recent trend has been: if it's better than expected, that's good enough for me. Unfortunately, even if the results ARE better than expected, companies are unsustainable if they continue to suffer profit losses, which most are.

Alcoa kicked off earnings with a favorable report which pushed markets up quite a bit. Mosaic was another company who gained favor in investor's eyes, despite suffering over a 60% loss to their revenues from a year prior. However, it still was BETTER THAN EXPECTED, so the stock rallied. Today, a handful of retailers set markets on fire by announcing favorable earnings, even though most of them still suffered losses compared to the prior year. Also, many analysts fail to keep in mind back to school shopping. Even though to most industries, the time of year means no net difference, to retail, it is one of their busiest times.

Luckily for Wall Street, not much significant economic data is being released this week, as the recent trend has shown economic indicators slowing down. Next week, we are not so lucky as there is a handful of reports that could definitely stir things up, one big one being CPI. In all this mess, I was able to find something worth buying. I picked several shares of DRV in my Zecco.com account before close as a I feel increased real estate woes should bring me some reward. With buying it, I set some strict stop losses in case of a nice Friday rally.

Bonds hit a wall today as $12 billion in 30-year bonds reach a 4.009% yield today. With the Fed obviously wanting to lessen the amount of US Treasury purchases, investors have become nervous. At the current levels, its hard to make sense at buying much anything. Insider trading remains critically high and big money is still remaining on the sidelines. We'll see what tomorrow brings. Happy Trading.

For the past month I have continually said that earnings would most likely decide the fate of the market for the next month or so, as we lingered in this stalling, head and shoulders trading formation. Thus far, it has been what people perceive as "positive earnings" reported, which has helped the market reach new 2009 highs. But how good are these earnings really and are these numbers really justifying the big move in the markets?

We closed out trading today with another 100+ day for the Dow. Texas Instruments reported earnings today, which as many have been, was above analyst expectations. Thus far, the trend has been to buy buy buy when reports beat market. However, investors are slowly learning that analysts are setting expectations that are not sustainable. Texas Instruments did indeed beat analyst's expectations, but their profits were half what they were the same quarter a year ago.

This is not the only time we've seen this. Most earnings that are being reported are suffering monumental losses from the year prior. However, it seems that investors feel that if they are within what market analysts are expecting, than all is well. There are not many companies that I know that actively position themselves in a way to be able to operate and sustain themselves for a long period of time while earnings 50% less profits from just the prior year. The hope is, of course, that these numbers are only temporary and that large profits will return shortly. However, that assumption is a big gamble that I'm not taking.

Thus far in the recession, we have not spent much time off the leash. During the first part of the crisis, the government quickly stepped in and wrote checks to almost every major industry to help absorb big losses. Literally, trillions and trillions of dollars were spent to keep the economy afloat. Eventually, that spending will be accounted for, which I don't look forward to that time. The point is, our government cannot afford to provide such aide during the next round, or else they risk a severe dilution of the dollar.

One thing can be sure, if profits remain at such low levels for many of these companies, we can expect many more bankruptcies. We did not see many of the bankruptcies of the Great Depression until well into the second year of the cycle. As we are continuing to see unemployment levels come to new highs, corporate bankruptcies will follow. I, personally, do not buy into the low balled expectations of broadcasting bobble heads. Instead, I read the numbers and see exactly just how sustainable they really are. I believe it's only a matter of time until this earnings phenom becomes exposed.

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Alcoa kicked off our new quarter of earnings season yesterday after the close with their interesting numbers. Their sales came in, just over $4 billion, compared to their $7.5 billion in sales the same period last year. Most would think such a difference would cause for some heartache and a negative response, however, not when you're playing the market expectations game. Analysts expected Alcoa to come in with $3.8 billion in sales, which is almost half of last year's number. The actual number, being slightly higher, caused for a 6% push in the stock during after hours yesterday.

After the push was over, Alcoa actually finished in the red today after people began to consider just how bad those actual numbers are. There is always a big push to beat out market expectations, however, considering the recent extreme low balling by many analysts, you really need to look closer at the numbers. When earnings numbers that are cut in half from the previous years number are considered an indication to buy, that is when I short it. Next week we will dive into several earnings announcements, which can be a great opportunity to turn some quick profits. For more earnings news you can use Morningstar Investment Research: Free Online Trial. 4,000 In-Depth Reports, Ratings. Data on 20,000+ Stocks and Funds. Happy Trading.

Markets opened up Tuesday sharply down, after yesterdays rather strong recovery. More weakness in the commodities and energy sector has investors worried that indeed deflation could be a real possibility. We have now seen some pretty strong selling momentum the past few weeks, which could become much more severe if that critical 880 number for the S&P is breached.

I have to begin to consider to take some profits on my DUG shares and DXO puts. I do believe we will continue to see weakness in the energy sector, however, we will probably continue to bobble back and forth for a bit. Plus, I've made some pretty strong gains in just a few days, so I can't be greedy.

All eyes are on up and coming earnings as they will most likely to decide the fate of the market for the next couple of months. However, as for today, the market looks to want to sell.

Well, as we have been anticipating, jobless numbers came in on Thursday and they were not pretty. Economists were expecting a loss of 360k, hoping that we would remain near last month's strengthening number. However, the actual number came in at 467k, crushing expectations. Like I have said all along, one or two months of strengthening data is not significant in proving a total correction, it all depends on sustainability.

As a result, the unemployment rate is now announced to be at 9.5%, which was actually less than expected, which really doesn't make sense, given the extremely large non farm payroll number. I expect that number to be revised. Also, something worth noting is the continuing drop in average work week, which if continues, usually means there is more layoffs to come. It is no wonder we saw a -220 point day for the Dow. Here's a 3-day trial on a pretty good upper income job finder FREE 3-Day Trial Offer. Happy Trading.

After another rather broad range of trading, Friday we saw the Dow close in red, ending the week as a whole down a few percent. The S&P closed pretty much flat, and the NASDAQ had a much better day than the others. Considering the range of trading today, and despite a what is usually a heavy buying option expiration Friday, the Dow was still able to close in the red. At this point it's hard for me to argue the point that indeed a pull back is here and I believe we're going to see that manifested even more so the next couple of weeks.

Hopes for a bettering job market were frustrated Friday by a new job report. All 50 states were studied, and as a result, 39 of the states had continuing job loss numbers. Out of those states, many of the larger states (California, Florida) reported record high unemployment numbers for the month of May. Michigan came in the highest with an unemployment rate estimated to be at 14.1%. Oregon was close behind, as was California, whom is struggling with a 11.5% rate as well as had the largest amount of total jobs lost for May (68,900). By the way if you have lost a job ResumeRabbit.com can be a great resource for finding a job, you can post your resume there.


I have always said that a recovering job market is the road back to stability. Unfortunately, as we continue to see more diminishing jobs at the large rate we've been experiencing, there is no way we can expect an increase in discretionary income or consumer spending. As such, I don't see much hope for a quick turn around in GDP numbers.

Earnings season is going to play a crucial role on how powerful this pullback becomes. Strong earnings showing hope could quickly turn around the pull back and possibly push us up into new highs, but I see that result being pretty unlikely. However, disappointing numbers would most likely send the market down faster. That mixed with the good possibility of deflation could be a recipe of disaster. As a result, I expect to see this pull back continue into next week and I will be looking to take some larger positions. Happy Trading.