Volatility With A Capital V
The Dow rose 140 last Monday, was down 330 on Tuesday, up 260 on Thursday, and down 250 on Friday (before a late-day save and finishing down 145). This morning, the Dow is up by nearly 100. There are numerous reasons for the loss of market memory, not the least of which are wild moves by global central bankers and even wilder moves in currencies…but stated simply we are experiencing moves in stock prices that have not been seen before and can only be described as being like that of a roller coaster (hence the name of my blog). Looking at the market from a technical perspective, this uneven market performance has created unease, which, according to contrarians, represents a potentially postiive near-term influence. For example, the 10-day put/call ratio has not dropped. Meanwhile, most short-term momentum measures are moving into oversold (the McClellan Oscillator is the most oversold since year end). On the other hand, the McClellan Summation Index has just started to turn down from its peak level. This doesn’t rule out a rally, but it does say the market (with its negative divergences) is on the defensive and has a lot to prove. That said, a large percentage of the market is in a bear market, as leadership narrows (a condition that has been occuring for months). This includes most of what the famous money manager Dennis Gartman calls stocks you can drop on your feet and get hurt: gold, energy, oil and gas, steel, copper, aluminum, coal, silver. Meanwhile, bond-equivalent stocks (e.g. REITs and utilities), gaming machinery, ag equipment, disk drives and anything dollar-related (e.g., Procter and Gamble (PG), Coca-Cola (KO)) or defensive (food, beverages, tobacco, household products) are weakening. On the other hand, biotech and regional bank stocks are the upside stars of late. Biotech has the best relative strength (and is at 52-week highs), but is extended and regional banks are close to breaking out from a lengthy sideways pattern and could provide future market leadership. I have not purchased any individual bank stocks as they all appear to be overvalued and their respective dividend yields are not that attractive. All of this being said, the best way to deal/invest in this market is to understand that we are in a transitionary period where the economy is chugging along and interest rates are soon to be on the rise (both of which have not been the case for 5+ years). The best thing to do, and what I am doing, is to own high dividend yielding stocks, a few stocks that can provide explosive returns to a portfolio, and several “core” investment mutual funds. When owning these mutual funds (right now we are centered on U.S. Large Cap Growth and European focused Large Cap International Growth Funds), if the markets go down and stock prices drop, then take whatever cash you have sitting on the sidelines and add to your current mutual fund investments…in do so when the market does in fact go up in price, you will own more of the mutual fund and make more money. Stated simply, the market is a crazy rollercoaster these days and should be handled with kid gloves! (not to mention the lack of constant direction is extremely frustrating).
Originally posted here:
See which stocks are being affected by Social Media
