Connect with us

Stocks

A serious warning sign for investors

Published

on


By Dr. Richard Smith, Founder, TradeStops:

It’s been three months since the stock market was rocked in early February with downward moves of close to 10%. The February drop represented an explosion of volatility.

For all of 2017, the major market indices had been their least volatile in decades. One of the most profitable trades of 2017 was being “short” volatility through the purchase of inverse VIX ETFs.

(Don’t feel bad about missing the short volatility trade. It completely “blew up” in February with multiple ETFs completely wiped out.)

February’s volatility sea-change was jarring to longtime market participants. Jack Bogle, the founder of Vanguard and a leading advocate of passive investing, said this in the weeks that followed:

“I have never seen a market this volatile to this extent in my career. Now that’s only 66 years, so I shouldn’t make too much about it, but you’re right; I’ve seen two 50% declines, I’ve seen a 25% decline in one day and I’ve never seen anything like this before.”

Since February’s big jump in volatility, things have calmed down a little. The Dow and the S&P have not seen as many wild swings and two percent range days.

But that doesn’t tell the whole story. The averages are now breaking down internally.

As of this past Wednesday, our new Ideas by TradeSmith indicators showed that more than 40% of the stocks in each of the major averages are currently in the Stock State Indicator (SSI) Red Zone.

We showed you in this article how dangerous the markets become when more than 40% of the stocks are in the Red Zone. Here are the current numbers:

  • S&P 500 – 43% in SSI Red Zone
  • S&P 400 Midcap – 44% in SSI Red Zone
  • S&P 600 Small cap – 45% in SSI Red Zone
  • Nasdaq 100 – 46% in SSI Red Zone
  • DJIA – 60% in SSI Red Zone (18 out of 30 stocks are stopped out!)

In the past six weeks alone, the Nasdaq 100 has seen 15% of its stocks move into the SSI Red Zone, yet the index is essentially the same as it was in the third week of March.

undefined

How can that be? What is keeping the Nasdaq 100 afloat when almost half of the stocks are in the SSI Red Zone?

Just three stocks are doing the heavy lifting: Apple (AAPL), Amazon (AMZN), and Microsoft (MSFT).

These three stocks make up more than 30% of the Nasdaq 100 Index. And these three stocks have done quite well, highlighted by blowout earnings from AMZN and AAPL. They all remain in the SSI Green Zone.

The Nasdaq is still benefiting from a halo of good earnings news in regard to the FANG companies. Google’s earnings were also excellent, and Facebook eased investor fears with its continued ability to book profits in spite of the Cambridge Analytica scandal.

Then too, Apple got a boost on reports of more aggressive buying from Warren Buffett. Berkshire Hathaway reportedly bought an incredible 75 million Apple shares in the first quarter.

But the good news from FANG stocks is mostly in the rearview mirror now, and arguably “priced in” to current stock valuations. So, what happens if even one of these stocks begins to stumble? It could result in the swift downturn we warned you about here.

With so much optimism already baked into FANG shares, there’s a chance that selling pressure in other areas of the market could catch up to them. And that selling pressure is being increased by a strengthening U.S. dollar.

One of the indicators we follow is the relationship between the S&P 500 and the U.S. Dollar. Historically, they are negatively correlated. This means they have an inverse relationship.

The dollar index bottomed at the same time the S&P 500 made its all-time high, as you can see via the chart below. Since then, the dollar has been rising, and the market is falling. The inverse relationship remains intact.

undefined

Our proprietary time-cycle forecasts suggest the dollar’s move higher should continue into the summer and fall. This would be a negative for stocks, both in terms of historical correlations and the impact on corporate profits in the S&P 500.

undefined

Companies in the S&P 500 earn close to half their revenue from overseas. When the dollar strengthens, U.S. exports become more expensive and thus less competitive, while overseas earnings booked in foreign currency become less valuable.

At the same time, the time-cycle forecast for the S&P 500 is bearish over a comparable time window. These forecasts (for a stronger dollar and a weaker S&P) thus reinforce each other… in a bearish direction for stocks.

undefined

Here is the takeaway: Rising volatility plus market weakness plus bearish time-cycle forecasts – not to mention the negative U.S. dollar correlation and the impact of a “sell in May” period of historical weakness for equities, which runs from May to October – all combine for a serious warning sign that investors should heed.

With the major U.S. indexes showing more than 40% of their stocks stopped out, you too may have had a large percentage of your stocks hit their SSI Stops. You should already have a risk management plan in place. If not, don’t delay!

I’ve been stopped out of some of my positions and am happy to be holding more cash given these current market conditions.

These are challenging times for investors, no doubt. Please note, however, that I’m not saying that it’s time to dig up your buried gold and run for the hills. It’s just a time to be more vigilant, defensive, and selective.

undefined

Richard Smith

Crux note: If you want to hear more from Richard, as well as a (practically guaranteed) lively debate from Porter Stansberry and Steve Sjuggerud on the final investment you need to make in this bull market – click hereYou don’t want to miss the live event on May 10…


×
Subscribe to Crux



Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Stocks

What the hell happened at General Electric?

Published

on

By


Few corporate meltdowns have been as swift and dramatic as General Electric’s over the past 18 months – but the problems started long before that.


From Fortune:

It’s a bad day for a CEO when he announces he’s retiring and the stock goes up. That was Jeff Immelt’s day on June 12, 2017. The news of his departure was in one sense no surprise – some investors and analysts had been urging his ouster for years – but it was also a shock.

He’d been General Electric’s CEO for almost 16 years, and outsiders were unaware of any specific succession plans or that ­Immelt, at age 61, had any intention of stepping down. Suddenly they were told that in just seven weeks he’d be gone as CEO (he remained nonexecutive board chairman an additional two months), to be succeeded by John Flannery, head of GE’s health care business and a 30-year employee. Investors didn’t need long to decide this was good news. The market was flat that day, but they bid GE stock up 4%.

Their optimism was at best premature. The stock closed at $28.94 on June 12 and has not reached that price since. As economies boomed worldwide and U.S. stock indexes soared, GE has collapsed in a meltdown that has destroyed well over $100 billion of shareholder wealth. Pounded by a nonstop barrage of bad news, investors are traumatized and disoriented. “They just can’t figure it out and don’t want to invest,” says analyst Nicholas Heymann of William Blair & Co. “This isn’t like surveying the landscape. It’s spelunking with no lights and no manual.” Analyst Scott Davis of Melius Research says some investors have become permanently disillusioned: “Many have told us they will never own GE again.”

undefined

Retirees and employees who bought heavily into the stock are furious; some picketed GE’s annual meeting in April. Former executives are dumbfounded. “It’s unfathomable,” says one. “You couldn’t possibly dream this up. It’s crazy.” After all, this is GE, a corporate aristocrat, an original Dow component, the world’s most celebrated management academy, now revealed as a financial quagmire with a deeply uncertain future. Its bonds, rated triple-A when Immelt became chief, are now rated five tiers lower at A2 and trade at prices more consistent with a Baa rating, one notch above junk.

In response to this debacle, GE has repudiated its previous leadership with a zeal unprecedented in a company of its size and stature. Gone in the past 10 months are the CEO, the CFO (who was also a vice chair), two of the three other vice chairs, the head of the largest business, various other executives—and half the board of directors. The radical board shake-up “could be one of the most seminal events in the history of U.S. corporate governance,” says a longtime vendor and close student of GE.

undefined

Immelt (left) and Flannery announcing the succession. Flannery would soon replace much of Immelt’s top team and strategy. Courtesy of General Electric.

Immelt declined to be interviewed for this article but sent Fortune a statement in which he cited accomplishments and said, “None of us like where the stock is today. I purchased $8 million of stock in my last year as CEO because I believe in the GE team. I love the company, and I urge them to start looking forward and win in the markets.”

Flannery’s strongest message is how completely he’s breaking with GE’s recent past. “The review of the company has been, and continues to be, exhaustive,” he told investors last October. Specifically: “We are evaluating our businesses, processes, [the] corporate [function], our culture, how decisions are made, how we think about goals and accountability, how we incentivize people, how we prioritize investments in the segments …  global research, digital, and additive [manufacturing]. We have also reviewed our operating processes, our team, capital allocation, and how we communicate to investors. Everything is on the table …  Things will not stay the same at GE.”

Inescapable conclusion: This place is an unholy mess.

Continue reading at GE…


×
Subscribe to Crux



Source link

Continue Reading

Stocks

Investors have completely given up on this commodity

Published

on

By


From Steve Sjuggerud, Editor, True Wealth Systems:

It’s been beaten down, left for dead, and just forgotten.

When an asset underperforms for multiple years, investors tend to give up on it. They get burned and move on… at least for a while.

Today, we are looking at a commodity in that exact situation.

It’s down 44% since peaking in 2014. Investors want nothing to do with it… But history says a triple-digit jump is possible thanks to this extreme negative sentiment.

Here are the details…

When you think about commodities, you probably think of oil and gold… maybe even crops like corn and wheat.

Today’s commodity is a bit more obscure. It’s probably off your radar. Honestly, it’s probably off everyone’s radar.

We’re talking about hogs.

You see, hog prices have fallen dramatically over the past three years. The commodity is down 44% since peaking in 2014. And not surprisingly, investors want nothing to do with it.

It only takes a quick glance at the Commitment of Traders (COT) report for hogs to see this extreme sentiment.

The COT report is a real-time indicator that shows what futures traders are doing with their money. It’s a great investment tool. It shows us contrarian bets when futures traders all agree on an outcome.

When futures traders are all making the same bet, the opposite is likely to occur. Right now, futures traders are all betting on lower hog prices. Take a look…

undefined

Their bets have only been this extreme a few times over the past decade.

We saw similar extremes in 2009, 2012, and 2015. Each extreme lead to dramatically higher hog prices in the following months…

From August 2009 through April 2011, the commodity jumped 134%. Then another similar setup happened in mid-2012. Hog prices bottomed shortly after and then rallied 85% in less than two years.

In mid-2015, investors gave up on hog prices again… right before the commodity soared 70% in less than a year.

These are incredible returns. But it’s what can happen when investors completely give up on an asset. Today, futures traders have given up on hogs once again.

One way to take advantage of this is through the iPath Bloomberg Livestock Subindex Total Return ETN (COWTF). The fund tracks the Bloomberg Livestock Subindex Total Return Index. Its main focus is on hog and cattle futures.

We aren’t officially recommending COWTF today. The uptrend simply isn’t strong enough. But this is a fantastic long-term setup. And when the uptrend returns, hog prices could potentially see triple-digit gains.

Crux note: Steve’s trading strategies cover every corner of the market – more than 40 different sectors – so readers will always have the opportunity to make money somewhere… even in hogs.

And only Steve’s True Wealth Systems subscribers can get immediate access to the team’s weekly Review of Market Extremes.

For more details, click here.


×
Subscribe to Crux



Source link

Continue Reading

Stocks

Cramer’s charts suggest investors buy Akamai and sell Walmart

Published

on

By


In an emotional market where investors struggle to process the White House newsflow, CNBC’s Jim Cramer likes to fall back on the technicals to find actionable opportunities.

“In the stock market, emotional decisions tend to be bad decisions,” the “Mad Money” host warned. “So we need to do everything we can to check our emotions at the door. And that’s why, every week, we like to play off the charts.”

For Wednesday’s charts, Cramer turned to technician Marc Chaikin, the founder and CEO of Chaikin Analytics and the inventor of key technical tools like the accumulation-distribution line, the Chaikin volume indicator, the Chaikin oscillator and the Chaikin Money Flow.

Three weeks ago, Chaikin recommended three stocks on “Mad Money” based on his formula for finding winners and losers: Marathon Petroleum, EOG Resources and General Electric.

Since then, Marathon and EOG have gained 8.2 percent and 4.6 percent, respectively, and GE was up 9 percent as of Tuesday before its CEO gave a poorly received presentation.

“Two out of three ain’t bad, and if you’d taken profits on GE yesterday, you would’ve had a phenomenal trade,” Cramer said.

Chaikin’s formula uses three key indicators: the Chaikin Money Flow, which measures buying and selling pressure in a stock; the Chaikin Relative Strength, which compares a stock’s performance with the S&P 500’s over the last six months; and the Chaikin Power Gauge, which uses 20 different fundamental and technical inputs to produce a bearish or bullish reading.

This time around, Chaikin’s formula flashed particularly bullish signals with the daily stock chart of Akamai Technologies, a cloud play that helps companies get content like streamed video online securely and glitch-free.

Shares of Akamai have been soaring since activist fund Elliott Management said it took a 6.5 percent stake in the company last December, but Chaikin’s three indicators showed more room to run.

The Chaikin Money Flow turned positive, meaning that institutional investors were buying the stock, the Chaikin Relative Strength has been strong for months, and the Chaikin Power Gauge is sending green bullish signals.

Still, the technician warned that the stock is very overbought, suggesting that investors wait for a pullback to the $72 to $74 level before picking up some shares.

“My view? I like Akamai here — we recommended it at $73 in mid-March — but I’d like it even more into weakness because I believe in Elliott Management’s ability to take this business to the next level,” Cramer said.

Chaikin’s formula can also signal when a stock should be sold. On Wednesday, Chaikin zoomed in on the stock of Walmart, down over 4 percent since the company’s earnings report.

Having spent months in the red, the Chaikin Money Flow inched up after the report, but is still flat, Cramer said. The Chaikin Relative Strength indicator is also negative, reinforcing the stock’s decline. Unsurprisingly, the Chaikin Power Gauge is flashing bearish signs, too, he added.

“My view? I like Walmart long term, but Chaikin may be right about the short term,” Cramer said. “Wall Street really dislikes the fact that the company’s spending so much money to grow its business, including that acquisition of Flipkart, the Indian e-commerce play. I think these bets are ultimately going to pay off, but it could take time.”

“Bottom line? The charts, as interpreted by Mark Chaikin, suggest that you should buy Akamai here and sell Walmart,” the “Mad Money” host concluded. “Given his track record, I think you need to take his advice very seriously, especially on the stock of Akamai.”



Source link

Continue Reading

Trending

Copyright © 2017 Zox News Theme. Theme by MVP Themes, powered by WordPress.