Good news and (mostly) bad….
Last week’s drop in the US and Overseas market came just at the time when markets seemed to be looking up. Oil, after peaking at 140/ barrel seemed to have topped out and traded in the 135/barrel region. At the same time the dollar had firmed against the Euro.
I have been saying for months now, that the underpinnings of this market have been consistently weak. The bounce back after the March lows was highly indicative of a bear market bounce. Lawry’s Investors on-demand Research has been warning of a lack of a conviction by buyers and a stronger conviction by sellers to sell into rallies.
So last Thursday’s plunge was, according to the news media a reaction to a number of important downgrades of high profile companies as well as a lowering of earnings forecast from different analysts about other important market leaders.
Both Citigroup and General Motors fell sharply after being downgraded by certain analysts. A few major technology companies also fell after announcing softer expectations for earning in the months ahead.
And did oil rally. The President of Opec was quoted on French Television saying that Oil would go to between 150 and 170 per barrel by the end of the summer before puling back later in the year. This sent oil soaring to 141 per barrel, breaking the trading range of 133-137 we had been seeing for weeks. On this news as well, the dollar fell sharply against the euro falling to $.63 per euro.
That was the bad news. Hidden among all of this dour data, was some encouraging news. Initial jobless claims remained the same last week and economists were expecting an increase. Also, realtors said existing home sales increased 2% last month.
Okay so those are some of the existing facts we know today. What do you do with it. If you have been listening regularly to me you know that I don’t try and predict future market trends. It’s useless and dangerous to do. What I do say, however is that there are always periods when markets will be on the decline and like the farmer, I know that it makes little sense to plant in the fall with the knowledge that winter is right around the corner.
All investments have a cyclical component. Unfortunately unlike the farmer, these cycles don’t occur at the same intervals every year. So we can use some technical information to help us understand current conditions. One indicator I like to use is an examination of the degree of conviction buyers and sellers are exhibiting. This conviction is not necessarily reflected in the value of the markets. In other words, the stock market can be rising, but underneath it all it may be due to a lack of sellers entering the market. If buyer demand were steady, and selling demand eased up, priced would generally rise. This is a lot different thatn seeing prices rise because strong buying is entering the market.
For many months now, we have not been seeing strong buying commitment even though the market has been rising. Now last week, we say strong selling conviction, this may be a sign that things will get worse before they get better.
So what does that mean to you??
Here’s how to think about. It’s all about time.
If you are in the accumulation stage, meaning you are saving and growing your assets in order to become financially secure, and Especially if you are making regular commitments to your financial assets, keep buying. Low prices are your friend. You may feel psychologically less secure, you may feel you are throwing money into a well as you contributions get swallowed up by declining prices but you ARE buying more shares of your mutual funds. When –and not if—when the market cycles higher, maybe next year maybe not—all this money that you have invested in the bad times will rise to new heights because you were diligently investing through the tough times.
Remember, when you are accumulating bad times are your friend. Low prices are your friend.
Now if you are taking income from your portfolio or getting ready to do so in the next few years, it is completely different. Market declines are NOT- repeat- NOT your friend.
In a worse case which we experienced between 200 and 2002, the S&P 500 declined 40%. This is not good if you need to get income out of the portfolio. A 40% decline means that you will need a 67% in crease just to get back to even. This isn’t an easy thing to do.
So protect your assets. Don’t completely time the market but lighten up in uncertain economic times. There is nothing wrong with parking some money in a money market while you wait for thins to improve. Using mutual funds which hedge their portfolios or some others which can take advantage of declining markets are not a bad idea either.
Corporate bonds yield about 2 to 3% over treasuries. They look attractive today. Some preferred stocks are yielding 8.5% to 9%.
Anyway, there a lot of ways to reduce your rick and maintain some level of income while you wait.
(Repeat for people who might have just joined in.)
That’s my market commentary,
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Good news and (mostly) bad….
Last week’s drop in the US and Overseas market came just at the time when markets seemed to be looking up. Oil, after peaking at 140/ barrel seemed to have topped out and traded in the 135/barrel region. At the same time the dollar had firmed against the Euro.
I have been saying for months now, that the underpinnings of this market have been consistently weak. The bounce back after the March lows was highly indicative of a bear market bounce. Lawry’s Investors on-demand Research has been warning of a lack of a conviction by buyers and a stronger conviction by sellers to sell into rallies.
So last Thursday’s plunge was, according to the news media a reaction to a number of important downgrades of high profile companies as well as a lowering of earnings forecast from different analysts about other important market leaders.
Both Citigroup and General Motors fell sharply after being downgraded by certain analysts. A few major technology companies also fell after announcing softer expectations for earning in the months ahead.
And did oil rally. The President of Opec was quoted on French Television saying that Oil would go to between 150 and 170 per barrel by the end of the summer before puling back later in the year. This sent oil soaring to 141 per barrel, breaking the trading range of 133-137 we had been seeing for weeks. On this news as well, the dollar fell sharply against the euro falling to $.63 per euro.
That was the bad news. Hidden among all of this dour data, was some encouraging news. Initial jobless claims remained the same last week and economists were expecting an increase. Also, realtors said existing home sales increased 2% last month.
Okay so those are some of the existing facts we know today. What do you do with it. If you have been listening regularly to me you know that I don’t try and predict future market trends. It’s useless and dangerous to do. What I do say, however is that there are always periods when markets will be on the decline and like the farmer, I know that it makes little sense to plant in the fall with the knowledge that winter is right around the corner.
All investments have a cyclical component. Unfortunately unlike the farmer, these cycles don’t occur at the same intervals every year. So we can use some technical information to help us understand current conditions. One indicator I like to use is an examination of the degree of conviction buyers and sellers are exhibiting. This conviction is not necessarily reflected in the value of the markets. In other words, the stock market can be rising, but underneath it all it may be due to a lack of sellers entering the market. If buyer demand were steady, and selling demand eased up, priced would generally rise. This is a lot different thatn seeing prices rise because strong buying is entering the market.
For many months now, we have not been seeing strong buying commitment even though the market has been rising. Now last week, we say strong selling conviction, this may be a sign that things will get worse before they get better.
So what does that mean to you??
Here’s how to think about. It’s all about time.
If you are in the accumulation stage, meaning you are saving and growing your assets in order to become financially secure, and Especially if you are making regular commitments to your financial assets, keep buying. Low prices are your friend. You may feel psychologically less secure, you may feel you are throwing money into a well as you contributions get swallowed up by declining prices but you ARE buying more shares of your mutual funds. When –and not if—when the market cycles higher, maybe next year maybe not—all this money that you have invested in the bad times will rise to new heights because you were diligently investing through the tough times.
Remember, when you are accumulating bad times are your friend. Low prices are your friend.
Now if you are taking income from your portfolio or getting ready to do so in the next few years, it is completely different. Market declines are NOT- repeat- NOT your friend.
In a worse case which we experienced between 200 and 2002, the S&P 500 declined 40%. This is not good if you need to get income out of the portfolio. A 40% decline means that you will need a 67% in crease just to get back to even. This isn’t an easy thing to do.
So protect your assets. Don’t completely time the market but lighten up in uncertain economic times. There is nothing wrong with parking some money in a money market while you wait for thins to improve. Using mutual funds which hedge their portfolios or some others which can take advantage of declining markets are not a bad idea either.
Corporate bonds yield about 2 to 3% over treasuries. They look attractive today. Some preferred stocks are yielding 8.5% to 9%.
Anyway, there a lot of ways to reduce your rick and maintain some level of income while you wait.
(Repeat for people who might have just joined in.)
That’s my market commentary,
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Posted in On The Money! Commentary