A dip to buy -- or something worse?
Stocks have been sliding after a dramatic end-of-June surge. Here's why the uptrend isn't finished yet.
Stocks have been suffering bouts of panic selling over the past few days as concerns about the future of the new plan to use eurozone bailout funds to directly recapitalize weak banks (such as those in Spain) dampened spirits. German ratification of the plan will be delayed by the country's constitutional court for as long as three months, according to reports in Der Spiegel.
Some better industrial production data out of Europe and rumors of additional policy easing by the People's Bank of China weren't enough to overcome those worries. Have the four consecutive losses (with a fifth possible on Wednesday) opened the door to a new medium-term downtrend? Or is this merely a buying dip within a larger uptrend?
Just look at the performance of small cap stocks vs. heavyweights like IBM (IBM) and Microsoft (MSFT). The last time the Russell 2000 jumped ahead of both companies like this was last October (the upsurge on hopes for the Bailout 2.0 plan for Greece) and last December. It suggests the smart-money folks are quietly continuing to build positions in the most economically sensitive, riskiest stocks out there, while retail folks are shedding their blue chip holdings. (Microsoft owns and publishes Top Stocks, an MSN Money site.)
The latest futures data backs this up. Big commercial traders have extended their net short position against Treasury bonds above levels seen back in mid-2010 as the initial panic over the Greek bailout gave way to the QE2-fueled uptrend courtesy of the Federal Reserve. They've also extended their bullishness for precious metals, especially silver (the more dynamic of the gold-silver pair).
And they've increased their bets against the dollar and with the euro to levels that exceed the extremes seen in 2009 and 2010 -- as shown in the chart above, courtesy of the McClellan Financial Publications.
The breadth data also remains supportive with the cumulative NYSE advance-decline issues line recently rising to hit a new all time high even as stocks remain mired in a two-week flat spot. Looking back, the folks at Sundial Capital Research find that historical precedent suggests the dissonance will be resolved to the upside. In other words, breadth is telling the true story of the market's underlying strength. Not price.
Since 1940, the NYSE cumulative A-D line has 13 times hit a five-year high while the S&P 500 is more than 3% below its one-year high. In all but one occurrence, stocks were higher three months later. In every case, the S&P 500 set a new 52-week high sometime during the next quarter. That's a fantastic track record.
On average, it took stocks 18 trading days to set a new one-year high. And the average three-month return was nearly 6%.
While it's certainly possible this time is different, I believe it's unlikely. The bad economic news and eurozone political fracas has already been discounted. Earnings expectations are low. And central banks are becoming increasingly aggressive with their new stimulus efforts.
After all, there's a reason people are slowly buying more and more stocks on the up days and selling fewer and fewer stocks on the down days. My newsletter subscribers are still holding a 1.5% relative performance advantage over the S&P 500, so I feel comfortable waiting for the uptrend to return despite the recent intraday dramatics.
I am adding programming icon AMC Networks (AMCX) to the Edge Letter Sample portfolio. Shares are breaking out of a five-month downtrend despite the softness in the overall market, thanks to indications the network's dispute with Dish is nearing resolution.
Disclosure: Anthony has recommended AMCX to his newsletter subscribers.
Check out Anthony's investment advisory service The Edge. A two-week free trial has been extended to MSN Money readers. Click here to sign up. Contact Anthony at email@example.com and follow him on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
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Up late. Do not believe anything tese 'pundits' say. I will say it again....the 'streeters' are just churning money in K's and pensions and endowments. There are no 'investors' .... no middle class investors...what is left of the middle class. The GDP is hanging by a thread and contirived.
IE...went to WalMart and got some grape fruit juice that was 2.50 ...it is now 3.25. There is you GDP growth. Do not kid kid yourselves. ... We are in a depression. We are an entitlement nation, period. This will not change for years' to come. The dye is cast and we allowed it and are allowing it.
This guy is manic and MUST GET PAID BY THE WORD so he writes sometimes two opposite articles the same day. Here is from "A Dip to Buy":
Just look at the performance of small cap stocks vs. heavyweights like IBM and Microsoft. The last time the Russell 2000 jumped ahead of both companies like this was last October (the upsurge on hopes for the Bailout 2.0 plan for Greece) and last December. It suggests the smart-money folks are quietly continuing to build positions in the most economically sensitive, riskiest stocks out there, while retail folks are shedding their blue chip holdings. (Microsoft owns and publishes Top Stocks, an MSN Money site.)
THE FACT IS THAT THE RUSSELL 2000 INDEX (SMALL CAP STOCKS) IS ACTUALLY DOWN EVERY SINGLE DAY FOR THE LAST FIVE STRAIGHT SESSIONS!!! He just makes this up as he goes along. Must be good stuff in those msn pipes .....
the last time this t***d was right was... Never!
Jim Cramer without the histrionics. Listen to his gobbledygook at your own peril.
everyone thinks there is this big secret group of people in wall street trying to take the "little guys" money. while this may be somewhat true, the stock market is as true as can be. There are many stocks that if you pick correctly, you win. back when the market tanked, all i wanted to do is buy everything in site! if i would have i would never need a job again!
there are ways to make money, and these idiots are sometimes right and sometimes wrong. you see, they HAVE to right a column every day. if they only wrote a column when the ABSOLUTELY knew they were right, we could listen to them. THE MEDIA IS OUR ENEMY, not the financial institutions. at least with the financial institutions you can guarantee all they are doing is stealing. WIth the media, you never know their motivation.
Well TA doesn't have any value for me, but in Tony's defense, he has a column while you morons are probably drawing unemployment checks.
Go Mitt go all these posters blow!
I have two conflicting theories which are about to be tested over the next month:
Theory 1: When the authorative analyst say the economy is shrinking, that earnings will be crap, and stock values will drop, it's a good idea to listen to thier advice, and dump everything before you lose your money.
Theory 2: The authority lies. They want you to dump so that they can push prices down before they swoop in and ride big rally, they want you to lose, which means they win. Best ignore the authority and instead listen to people like Anthony who try to figure out where the "smart money" is follow it.
Which theory is right? Well, now we have the perfect test. All the main-stream analyst are giving us endless barrage of opinions saying to expect a horrible earnings seasons. Meanwhile, a few, like Anthony, are telling us the opposite, and that the heavy hitters are setting themselves up for a rally.
We'll see what happens in a few months.....
I am seeing that value is being added to my holdings in this down turn and agree with Anthony for the first time in 5 years. I usually go the opposite direction than what Anthony is supporting and WIN.
If value is being robbed from stocks there is no rebound at the end of the day and big losses are counted. I agree that the big dog's are repositioning for a leg up.
This is a election year and the euro is to big to fail at the printing press.
High risk YES !!! Protect your backside.
I guess I can be wrong...... Back to normal
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