Archives For June 2013

Market Update

June 25, 2013

S&PWe all know that what goes up must come down.  In the last several weeks, we’ve noted that the stock market had been stretched and just like a rubber band, when it gets stretched (creating a higher level of risk) it wants to return to a more normal position.  Additionally, the Federal Reserve System’s policy of Quantitative Easing has kept interest rates artificially low – creating higher risk in the bond market.

Last week, we witnessed a pullback in the stock market and rising interest rates in the bond market and falling gold prices – after Ben Bernanke announced a probable slowdown in the Fed’s Quantitative Easing towards the end of the year.  The simple announcement of the probability of that happening was enough to spook the stock and bond markets.  Remember the commercial from several years ago that said, “When EF Hutton speaks… people listen”?  Well apparently in this day and age, when Ben Bernanke speaks, people not only listen – they act!

To make things worse, those who have invested in gold for a hedge against inflation didn’t fare well last week either, as the price of gold declined approximately 6.7% last week, and is down 33% from its high in October, 2011.

Please click on the video or link below to view.

 

Charts included in this posting and video were created by Dorsey Wright and Associates.  The postings on this site are my own and do not necessarily represent Dorsey, Wright & Associates positions, strategies or opinions.

Pump-and-Dump

June 14, 2013

If you are like me, you are receiving several emails each week that highly recommends some unknown penny-stock that is about to take-off and deliver unprecedented returns.  If you’re like me, you suspected that something isn’t right with these emails and wondered what is behind some or all of these recommendations.  The link below officially clears it up.  The scheme is called “Pump-and-Dump”.  The senders of many or most those emails are hoping that many will respond and invest quickly.  Then, as soon as the promoters see the price rise for that penny stock, they’ll sell their position and leave those who hold on with losses.  McAfee is reporting a sharp rise in the number of these emails.  The other thing I want to know, is how did they get my email?http://www.dreamstime.com/stock-photo-email-box-image29168070

 

http://www.advisorone.com/2013/06/12/sec-finra-warn-of-email-pump-and-dump-stock-scheme?utm_source=compliance61413&utm_medium=enewsletter&utm_campaign=compliance

 

Market Update

June 6, 2013

Declining S&PIn my last post, I talked about the stock market being at an all-time high and interest rates in the bond market beginning to rise. Both of these situations are pointing towards higher risk in the stock and bond markets, and  evidence of deterioration from high levels is now appearing – see the chart in this post and you’ll see the decline.

The technical indicators that I follow to measure the market include short-term, intermediate term, and long-term. This week, the short-term indicators moved to a negative trend.  How long they will stay negative is anyone’s guess.

After seeing the run-up the market has experienced over the last few months, it’s hard to watch a pullback. We have now seen two weeks of back-to-back losses in the S&P 500, totaling about 4%. On the surface that doesn’t seem like a big deal, but to add to that, the short-term indicators for the market have now turned negative.  This is the first time that we have seen back-to-back losses in the market since November, 2012.

Normally, we don’t see losses in both the stock market and the bond markets in the same week, but last week Ben Bernanke spooked the bond market when he talked about the Fed curtailing the purchase of bonds. When the Fed finally ends its purchase of bonds it will be both good and bad. It will be bad for those who own bond funds and target date funds (typically found in a 401(k)), but it will be good going forward because it will produce higher interest rates.

What to do now?

One approach is to work more like a dimmer switch than  a light switch. In other words, while it may not make sense to move completely out of the market, it may make sense to manage individual positions and move out of them as they begin to deteriorate.

 

 

The chart above was created by Dorsey Wright and Associates.  The postings on this site are my own and do not necessarily represent Dorsey, Wright & Associates positions, strategies or opinions. The information in this post should not be construed as investment advice.  You should consult an investment professional prior to making any changes.