5 reasons the market is seeing red
5 reasons the market is seeing red

Geopolitical crises are taking a toll on stocks as we head into the seasonally weak month of August.

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The sell-offs in silver, oil and stocks are necessary for markets to go higher on the basis of reality.

By Jim Cramer May 12, 2011 9:08AM

jim cramerthe streetLooks like total end-of-the-world alert time. Let's spin it: Commodities prices are collapsing because there is a sudden cessation in demand, brought about by skyrocketing commodities prices. Because gasoline (which is going down now) had gone up so much, the consumer doesn't have enough left to spend. And because food prices (which are going to plummet) went up so much, households don't have enough left from their paychecks to buy anything.

 

When we see the prices of the big metals come down, something that the Chinese government has been waiting for so it can stop tightening its economy, then we have to sell stocks, because the Chinese government is tightening.

 

Housing prices, which are being kept down by aggressive selling of foreclosed homes, as the most recent existing-home sales numbers tell you, will keep going down because the foreclosed homes are weighing on pricing. Of course, the fact that even with all of the foreclosed homes being sold pricing is only off about 5% doesn't matter. Housing is crashing!

 

Got that?

 

This week's corrections have turned the outlook for the markets almost upside down, at least in the short term. A big rally will be needed soon to get the uptrend back on track.

By MoneyShow.com May 11, 2011 6:49PM
By Tom Aspray, MoneyShow.com

The sharp reversal in the crude oil and stock market has weakened the short-term outlook for both markets.

Though the stock market in particular has done everything to surprise us on the upside, I am seeing similar short-term chart formations in both commodities and stocks that suggest the current decline will continue.

The key support levels to watch are the lows we made last week. If we can hold these levels tomorrow, we can keep the short-term uptrend intact. If not, than we are likely to see a drop back to—and possibly below—the April lows.

The good news is that the S&P A/D line did make new highs this week, so after a correction the stock markets’ overall uptrend should resume. On the other hand, the failure of the Russell 2000 A/D line to move above the early April highs favors further weakness. 

Let’s look at the charts.
 

The top executive at Philip Morris International tells shareholders that smokes aren't so addictive.

By Kim Peterson May 11, 2011 3:02PM
Image: Man smoking (© Steve Mason/Photodisc Blue/Getty Images)I've known only one person who easily gave up cigarettes. He threw his last pack away and simply stopped then and there. It truly was that simple. Of the other ex-smokers I know, quitting was a nightmare.

Perhaps it was this person that Philip Morris International's (PM) chief executive was thinking about recently when he said that it's "not that hard to quit" cigarettes. Louis Camilleri was asked about the issue at the company's annual shareholder meeting. A nurse said that one of her patients told her it was harder to quit cigarettes than crack, cocaine or methamphetamine.

Camilleri acknowledged that cigarettes are harmful and addictive. "Whilst it is addictive, it is not that hard to quit," he told the nurse. "There are more previous smokers in America today than current smokers." 

But this time it might succeed. Private equity and eBay, which still owns 30% of Skype, could sell.

By V.N. Katsenelson May 11, 2011 2:35PM

When I wake up in the morning and check news for the companies I own, I worry.  I don't worry that my companies missed their quarterly guidance by a few pennies – running a business is an art, and things don't usually work out in a precise, linear fashion.  The companies that have a "deliver the quarter" culture often just play their financial statements as a musical instrument. 


No, I am not worried about that.  What worries me is that a company in my portfolio will pull a "Microsoft" – announce a stupendous, "transformative" acquisition, like the $48 billion takeover of Yahoo that Microsoft announced in 2008, but that Yahoo's management was too ... (fill in the blank) to accept.  (I spent some time looking at Yahoo last week. Its stock is at $18, almost half the price that Microsoft offered, and I find the company only mildly undervalued if you give a significant value to the assets alibaba.com and Alibaba Group that Yahoo acquired in 2006 and which were not worth nearly as much in 2008.)

 

The new First Trust NASDAQ Global Auto Index Fund offers investors a way to tap the growth in the global car industry.

By TheStreet Staff May 11, 2011 1:21PM

By Don Dion, TheStreet

 

The ETF market now boasts over 1,000 funds, according to the April fund flow data compiled by the National Stock Exchange.

 

The industry's rapid growth and expansion has resulted in products designed to reach corners of the marketplace. Despite this wide selection, there are still areas that have remained largely untouched by ETFs.

 

The car industry has traditionally been one such category. Despite the fact that the industry's resurgence has been one of the major success stories in the global economic revival, there is no pure-play ETF option available, leaving auto enthusiasts to struggle to capture the strength of car makers and parts suppliers.

 

Reverse splits aren't always the kiss of death.

By Motley Fool Pick of the Day May 11, 2011 12:50PM

By Dan Caplinger

 

Sirius XM Radio (SIRI) fought against it for years -- and won. Fellow Fool Rich Munarriz thinks YRC Worldwide (YCRW) needs it bad. And now that Citigroup (C) has finally succumbed to its allure, the question remains: Will the big bank's reverse split spell disaster for the company's stock?

 

As fellow Fool Cindy Johnson explains here, many think the answer is a definite yes. But judging from its first day of trading after its 1-for-10 reverse split took effect, Citi investors are answering with a resounding "I don't know." Having closed at $4.52 last Friday, the stock finished at $44.16 yesterday, amounting to a 2.3% loss on an up day for the market. But longer term, shareholders must wonder whether it would be better to get out now before any more damage gets done.

 

Why reverse splits are scary
It's been a while since the go-go days of the 1990s, when stock splits seemed to be a dime a dozen. But back then, companies paid close attention to their share prices, making sure that investors who were used to dealing in 100-share lots wouldn't find their stock too expensive as it grew in value. To remedy the situation, when a stock's price got too high, the company would split its shares. The split would have no effect on the value of current investors' positions -- they'd have more shares at a lower price each -- but it would make those 100-share lots cheaper for new investors.

 

Emerson Electric, Baker Hughes and PNC Financial are well positioned for growth as the global economic recovery takes hold.

By TheStreet Staff May 11, 2011 12:11PM

By Stephanie Link, TheStreet

 

Global economies and equity markets have improved significantly from their March 2009 lows. Manufacturing activity continues to improve, the global banking system has strengthened and corporate earnings have recovered significantly.

 

Simply put, the last three years of easy global fiscal and monetary policy (including the Federal Reserve's massive QE2 program in the United States) not only rescued the world economies from one of the most severe recessions, but have provided the stimulus for growth. Commodities have surged, GDP has recovered and the consumer has remained resilient.

 

Of course, all is not perfect. China continues to try to slow its economy, European debt remains problematic and Japan has endured an incredible personal and economic tragedy. But a recovery is evident, and I see three stocks that should benefit as economic growth continues to pick up.

 

Slow profit growth is a worry one leader of Indonesia's telecom sector.

By Jim J. Jubak May 11, 2011 12:09PM
Jim JubakIt’s hard to understand how Telkom Indonesia (TLK) -- or, more formally, Telekomunikasi Indonesia -- managed to turn its first quarter into a disappointment.

But it did.

The company, Indonesia’s biggest telecom business, broke through the 100 million-subscribers ceiling in the quarter. And it also predicted that it would add 10 million to 12 million subscribers this year.

But big increases in operating and marketing costs negated all that good news. First-quarter 2011 net profit rose just 1.4% from the first quarter of 2010, to 2.83 trillion Indonesian rupiah ($330 million) from 2.79 trillion rupiah.

Marketing costs rising fast enough to wipe out profit increases from new subscribers are a bad sign in the telecommunications sector. It’s usually an indicator that the company is experiencing so much churn that it has to spend lots of money to replace those departing subscribers.
 

After April's rough patch, retailers have regained their footing, utilities are hopping and we are finally getting credit for Friday's terrific jobs number.

By Jim Cramer May 11, 2011 11:41AM
thestreetjim cramerDid the rough patch end? Did world growth begin to re-accelerate? We all know that the U.S. economy, and maybe the world's, hit a rough patch in April, perhaps in reaction to the suddenly high price of oil or because economic tightening policies are beginning to take effect -- although there are mixed emotions about China's inflation level this morning.

 

But the reports I am getting now about May do not indicate that things are slowing any further. And some of my auto, retail and industrial contacts say things are pretty darned good again. I know that it shouldn't fluctuate like this, but it does seem like the world's still humming.

 

Two of the best gauges I have -- the S&P Retail Index and the utilities -- are flashing out-and-out green after worrying me for a bit. The utilities, ones like Exelon (EXC) and FirstEnergy (FE), took huge hits not that long ago, when it looked like things were turning down again. Now they are hopping.

 

With growth slowing and inflation rising, we face a repeat of the difficult economic environment of the 1970s. Stocks will suffer as a result.

By Anthony Mirhaydari May 11, 2011 11:19AM

Speculative commodities like silver, gold, and crude oil have been on a flyer lately on big concerns over inflation. This, it was believed, would be caused by robust global growth as well as supply disruptions. Ultra-loose monetary policy from the Federal Reserve was also a contributor.


But things are changing now as the economy shows signs of slowing. We now face a rising threat of stagflation -- or high inflation with stagnant growth.


What's more, the problem is global. China is battling inflation, with consumer prices rising at a 5.3% annual rate. Britain's inflation rate is expected to hit 5% this year even as GDP growth stalls. And Europe is under pressure with growth slowing. This is a dangerous situation since there are no easy solutions or quick fixes for stagflation. Morgan Stanley warned clients that equities would "fall significantly" in this scenario -- one that looks increasingly likely.

 

It's the second hike in 2 months, signaling an industrywide trend.

By InvestorPlace May 11, 2011 10:35AM

investorplaceNo matter where you go these days for a burger, be prepared to pay more. Wendy’s/Arby’s Group (WEN) is the latest fast-food chain to announce it will raise prices on select menu items to cover the rising cost of beef and other food commodities.


It’s the second time in as many months that Wendy’s said it will raise menu prices, and a sign that more increases could be cooking.

 

An industrial giant is the highest flier, and a tech icon is the biggest dud.

By InvestorPlace May 11, 2011 9:32AM

By Jeff Reeves, editor of InvestorPlace.com.


jeff reevesinvestorplaceA lot of folks don’t put a lot of credence in the Dow Jones index. They think it’s an antiquated group of 30 blue chips that reads less like a list of stocks to watch and more like a list of stocks past their prime.


Take General Electric (GE), which first joined the index in 1896 – and adjusted for splits is barely above where it traded back in 1996. To many investors, GE is the perfect example of an outdated, under-performing stock in the Dow Jones.


But not all the 30 components are sleepy blue chips. Here's one fast moving winner that has doubled the index so far in 2011 - and the biggest dog of the Dow that is deeply in the red:

 

Will Dunder Mifflin hire the Oracle of Omaha to lead its Scranton office?

By Kim Peterson May 10, 2011 2:27PM
Credit: (© Michael Buckner/Getty Images)
Caption: Businessman Warren BuffettWould Warren Buffett be a good fit at Dunder Mifflin? I think he'd be a fine replacement for Michael Scott. He'd buy the whole company by lunchtime, double its assets by the end of the day, fill the break room with See's candies and give Dwight Schrute plenty to grumble about.

We'll soon find out how the Oracle of Omaha fares in Scranton. Buffett will guest star in the May 19 season finale of "The Office," The Hollywood Reporter notes. He will be interviewing for the opening created by Michael Scott's departure.

Buffett will have plenty of company on the set. The finale has a number of guest stars lined up, including Ricky Gervais, Jim Carrey, Ray Romano and James Spader.

Buffett has a good relationship with "The Office" folks. At Berkshire Hathaway's (BRK.A) recent shareholder meeting, investors watched a tape of Steve Carell and other "Office" actors, The New York Times reports. In the video, Carell's Michael Scott says Berkshire Hathaway is best known for producing all of Anne Hathaway's movies. 

Semiconductor companies are poised for a breakout, which could be exactly what the techs need. Here are a sector ETF and 2 component firms that could lead the charge.

By MoneyShow.com May 10, 2011 1:14PM
By Tom Aspray, MoneyShow.com

The technology sector is still stalled below the February lows, and an upside breakout may be needed to push the major averages to the next major upside targets. Many investors have been impressed by the tech earnings this quarter.

Despite this, the technology stocks still seem to be out of favor by many analysts, and this week's action may be critical.

Looking at the components of the semiconductor industry group, you get a mixed picture—but the chart of the Semiconductor HOLDRs Trust ETF (SMH) does look positive. As for the individual companies, I favor those that have successfully held above the 2010 highs and show positive volume patterns.
 
Tags: etf

The technology world tries to decipher the software giant's intentions and what the purchase will mean for everyone.

By Kim Peterson May 10, 2011 11:52AM
Microsoft (MSFT) has never made a buy as big as Skype. The $8.5 billion cash deal to buy the online calling company is huge, and the tech world is full of opinions about what it means for Microsoft and the competition.

Does Microsoft see something in Skype that other companies don't? People had pretty much dismissed Skype after its disastrous acquisition by eBay (EBAY) for $2.6 billion in 2005. EBay wanted to integrate Skype into its auction platform, perhaps allowing buyers and sellers to contact each other, but that never worked out. (Microsoft owns and publishes MSN Money.)

EBay sold 65% of Skype to an investor group in 2009 at a $2.75 billion valuation, wisely keeping a significant stake for itself. Skype delayed plans last year to go public and lost about $7 million last year.

So is Microsoft crazy, or is Skype really worth an $8.5 billion gamble? 

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[BRIEFING.COM] The stock market punctuated July with a broad-based retreat that sent the S&P 500 lower by 2.0% with all ten sectors ending in the red. The benchmark index posted a monthly decline of 1.5%, while the Russell 2000 (-2.3%) underperformed to end the month lower by 6.1%.

To get a better feel for what led to today's retreat, we'd like to look back to Wednesday, when the market had ample reason to rally, but did not. Instead, it ended basically flat after a sloppy day of ... More


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