Is the rally over?
Europe's never-ending crisis threatens to thwart the post-June uptrend.
The selling pressure continued Wednesday as the situation in Europe devolved into political bickering and social unrest. Tensions are rising on the streets in Spain, Greece and Portugal. And Eurozone and International Monetary Fund officials are becoming increasingly incensed with each other over disagreements on issues like a new Greece debt write-down, the Spanish bank bailout and the ECB's new bond-buying program.
Stocks fell out of their multiweek stasis Tuesday with all the grace of ducks filled with bird shot as the U.S. dollar rallied against the euro. The drop in the euro unseated the entire risk-on complex of equities, commodities, high-yield bonds and precious metals, threatening to end the long post-June uptrend.
I'm recommending my readers and newsletter subscribers book profits (especially those big gains on precious metals), raise cash and consider a few short ideas in key areas of weakness, including retail, transportation and select industrials.
Why the change of heart? The economic data still looks good. Indeed, consumer confidence surged and U.S. home prices posted their best year-over-year gain since early 2010. The economic data keeps surprising to the upside, yet stocks and bond yields haven't really followed, as shown in the chart above.
Yet some short-term measures have become overbought. Cyclical, economically sensitive sectors are weakening against defensive noncyclicals. Inflation expectations -- a proxy for growth expectations -- are falling off. T-bonds are rallying. And options traders are becoming increasingly pessimistic, pouring into put-option protection.
I can't say how long the downtrend might last. But with signals becoming mixed to negative, it's prudent to "turtle" your portfolio for now.
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It's over under Romney hood:
Romney ' WHERE'S THE BEEF' to your 5 point economic plan, all fake.
Romney the numbers don't add up. 8 Trillion means BIG tax increases for middle income.
Romney "47% of the people, I'm not interested in them their victims."
Romney Bain mgt style was corp raider not empathic at all to people.
Romney State run healthcare isn't balanced and fair it's a circus.
Romney Mass. came in 47 of 50 states for job creation, when you were gov'r
Romney "let GM go bankrupt", isn't a plan it's a Bain corp raider tactic
Romney immigrants "let them self deport" ...
Romney "women have there place"....
Romney is King.....of 'FLIP FLOPPERS' is the only reality here.....
Before reading this article..... Yes, the rally is over. Here's why.
1. Everyone thinks the notion that QE3 will help the economy is a myth. That's the buzz (whether it's true or not), and that opinion will only grow, like a you-tube video gone viral. It's called "groupthink".
2. Earnings season is closing in, and the fundamental realities of the economy did not change over-night just because Ben announced QE3+. All the companies who had exaggerated earnings forecasts will be lowering expectations shortly (if they haven't already), so that they can "surprise" you when the actual data gets released. This can only serve to reinforce investor's perception that QE won't do anything. (even though it's too early to make that judgement, I never said investors follow logic.)
3. Election will get ugly. With Obama pulling further ahead, Romney is getting desperate. Expect lots of mud slinging, focusing on how terrible the economy is under Obama.
4. (Most importantly) PE ratio's hit a high mark a few weeks ago. Anything higher would be "exuberance". You can't have irrational exuberance pushing stocks in the over-priced range while psychological factors are working in the opposite direction.
I believe it will get better later, but for now, best to stay away from stocks.
Ricky Reitz, I’m with you pal. But, here are a few things to note about Wall Street.
Two weeks is a lifetime,
90 days is like a millennium,
One year is equivalent to infinity,
No one feels one iota of accountability or concern for what they said yesterday,
and that disclaimer of theirs, Past performance is no guarantee of future results, is the understatement of the millennium.
When are you going to start focusing on your creditability! Your article from 1 month ago (Aug 16), proclaimed "An Epic Stock Market Rally is under way, and it SHOULD Continue"!
Maybe someone at MSN money should start proof reading what you write...it's absolutely insane how quick you flip your stories!
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All hail the bull market, which ended the week with a big rally. But it also is starting to look a little like 1987, which suffered an epic blow-out.
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