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Stocks & Equities

Technically Speaking: Predicting The Future Is Difficult

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Posted by Lance Roberts - Real Investment Advice

on Wednesday, 29 November 2017 06:49

Last week, as traders were all on vacation, the market surged to 2600 as the “inmates ran the asylum.” The expectation of a better than anticipated shopping holiday season and ongoing hopes of “tax cuts and reform” lifted stocks higher. The current advance, is still working the general year-end pattern I laid out three weeks ago as shown below.

SP500-MarketUpdate-112717

 

With earnings season nearing its conclusion, the markets will begin to focus more heavily on the economic data which has been weak as of late. Furthermore, with the Fed continuing to hike rates, and professional investors waiting to take gains until January, the risk of a Q1 sell-off has risen markedly in recent weeks. This is particularly the case given the short-term deviation from longer-term trends in the market.

The chart below shows the percentage deviation above the 3-year monthly moving average. Previous deviations have resulted in an eventual reversion to, or beyond, the 3-year moving average. A reversion to the monthly moving average currently would entail a -15.8% decline. While such a decline would not register as a “bear market,” which would require a 20% decline, given the record length of time without so much as a 3% correction, such a decline will certainly “feel” like a bear market.

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Stocks & Equities

The Dogs of the Dow Are About to Rally

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Posted by Chad Shoop - The Edelson Institue

on Tuesday, 28 November 2017 06:35

F-Trader-Tanking-1-262x126The look on his face let you know it wasn’t going well.

He was clearly frustrated, almost in tears running up and down the court, and it wasn’t even halftime.

I was at my 8-year-old son’s basketball playoff game, and they were down by 10 in the second quarter.

For this age group, scoring 20 points in a game is a lot. So, to be down by 10 seemed impossible to come back from.

But basketball is a game of runs — where teams can rally back into a game.

That’s exactly what his team did, and they made it a great game before it was all over.

The nature of going on runs sums up how the markets work.

Certain asset classes are going to be in favor for some time, where it seems like they can’t do anything wrong in analysts’ eyes.

Eventually, that favor will switch, and the stocks that no one liked will eventually be in favor.

We are at such a point in the market right now, and one segment of the market will outperform over the next year as it goes on its comeback rally.

Let me explain …

A Select Group of Stocks

So far this year, a select group of dividend stocks, known as the “Dogs of the Dow,” have underperformed the market.

The Dogs of the Dow are simply the 10 highest-yielding stocks in the Dow Jones Industrial Average (DJIA) at the end of each year.

So the stocks we are talking about were the highest-yielding stocks in the DJIA at the end of 2016.

And to find a year where this group of dividend stocks underperformed the DJIA this bad, you have to go back to 2009 — a much different time in the market.

The End of a Bear Market



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Stocks & Equities

Bulls Beware - We Are Finally Closing In On A Top

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Posted by Avi Gilburt - ElliottwaveTrader.net

on Monday, 27 November 2017 06:53

Screen Shot 2017-11-27 at 7.06.21 AM

When former bears call for a “New Golden Age” of the stock market, with targets of the DOW set at 100,000, well, it is clearly time for bulls to beware.

In fact, the Dow 100,000 prediction of this former bear is explained as follows:

“This is not some pie in the sky prediction.

It simply assumes a continuation of existing trends in demographics, technology, politics, and economics. The implications for your investment portfolio will be huge.”

I mean, markets always continue their current trend unabated, especially since financial markets are purely linear environments . . . right!?!? So, why not set your target for 1,000,000 rather than 100,000 based upon the exact same thesis?

And, while another widely read author on Seeking Alpha, who has been bearish for the last year and a half, did not exactly turn bullish, he certainly took a major step towards the old claim that we have entered a “new paradigm:”



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Stocks & Equities

The Uncertainty Principle In Markets

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Posted by Charlie Bilello - Pension Partners

on Wednesday, 22 November 2017 06:39

As an investor, what do you prefer: certainty or uncertainty?

Certainty, of course. We all do.

When things seem certain, the future looks bright and we embrace risk-taking. When things seem uncertain, it’s hard to imagine things ever getting better, and we shun risk at all costs.

But is there really such a thing as a certain environment when it comes to investing? No. There is always risk in markets, even if you can’t see it, and by extension, there’s always uncertainty.

It is only our perception of risk that changes.

If the recent past is a calm market filled with good news, we perceive things to be quite certain. If the recent past is a volatile market filled with bad news, uncertainty is deemed to be high.

How are investors feeling today?

Quite certain.

Volatility over the last year has been lower than any period in history.

certain1

At the same time, performance has been well above average, leading to one of the highest risk-adjusted return environments we’ve ever seen.



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Stocks & Equities

Ride the Market Rally With Options

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Posted by Chad Shoop - The Edelson Institue

on Tuesday, 21 November 2017 05:10

Editor’s note: You could jump in and buy stocks as they trade near all-time highs. Or you can “lease” stocks for a lot cheaper with buying options. The low volatility in the markets helps make a compelling case.

The one thing I was certain would happen over the past 12 months turned out to be the exact opposite.

Last November, the newly elected president was committed to stirring up the typical D.C. drama.

President-elect Donald Trump had a mission to “drain the swamp.”

He promised to be a president who went against the grain of how things were done.

I, along with many others, expected the one thing the markets would experience in his presidency would be wild market swings, also measured as volatility in the stock market.

After one year, we saw the exact opposite.

Volatility, as measured by the CBOE S&P 500 Volatility Index (VIX), is at all-time lows.

The stock market has experienced one of the longest runs in history without a 5% correction.

In short, there is a remarkably low amount of volatility in the markets.

And I hope you are taking advantage of that by riding the market rally with options. Let me explain …

Use Volatility to Your Advantage

Options aren’t something most people associate volatility with, but it is the first thing that comes to mind for me.

See, options are a leveraged bet on a stock moving in a certain direction. And many people use options to do just that — place bets.

But you can also strategize with options to use volatility to your advantage.

Let’s start by looking at a chart of the VIX.

112017 1739 RidetheMark1



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