All major U.S. stock indices finished in the red again last week except for the Russell 2000, which gained 2.8%, reversing the pattern that we have seen for most of this year where small-cap stocks lag the market. This emerging strength in small caps may be a good sign for the market between now and year end. But, for now, the broad market S&P 500, blue-chip Dow industrials and tech bellwether Nasdaq 100 are all negative for 2014 with no clear sign of a bottom in sight. #-ad_banner-#All sectors of the S&P 500 posted losses last week except for industrials,… Read More

All major U.S. stock indices finished in the red again last week except for the Russell 2000, which gained 2.8%, reversing the pattern that we have seen for most of this year where small-cap stocks lag the market. This emerging strength in small caps may be a good sign for the market between now and year end. But, for now, the broad market S&P 500, blue-chip Dow industrials and tech bellwether Nasdaq 100 are all negative for 2014 with no clear sign of a bottom in sight. #-ad_banner-#All sectors of the S&P 500 posted losses last week except for industrials, materials and utilities. One potential bright spot is that my own ETF-based metric shows the biggest inflow of investor assets last week went into energy. Should this continue, it may be a leading indication of a fourth-quarter buying opportunity in this downtrodden sector. Stay tuned. Keep Your Eyes Focused on Europe In last week’s Market Outlook, I discussed a bearish head-and-shoulders formation in Germany’s DAX index that targeted an additional 11% decline to 7,800. I said the positive long-term correlation between the DAX and the S&P 500 implied that the broader U.S. market may also be… Read More

I could tell you that October trading has been rocky, but then I’d just be preaching to the choir.    While I’m not ready to declare that the sky is falling, I think the smell of fear among bulls is palpable. Global issues, Ebola news, seasonality and panicked profit-taking are having quite the effect on the markets.   #-ad_banner-#While the recent pull backs may just be corrections ahead of another upswing, the possibility looms that bigger downward volatility could be right around the corner. Keeping this uncertainty in mind, it’s wise to start thinking defensively, in the event this instability… Read More

I could tell you that October trading has been rocky, but then I’d just be preaching to the choir.    While I’m not ready to declare that the sky is falling, I think the smell of fear among bulls is palpable. Global issues, Ebola news, seasonality and panicked profit-taking are having quite the effect on the markets.   #-ad_banner-#While the recent pull backs may just be corrections ahead of another upswing, the possibility looms that bigger downward volatility could be right around the corner. Keeping this uncertainty in mind, it’s wise to start thinking defensively, in the event this instability is here to stay.     To be more specific, I’m talking about protecting profits, considering products that perform well in both bear and bull markets and speculating to make money in the meantime.   Protect Your Profits With the recent rash of 1% moves in equity markets, now is a good time to take a closer look at your portfolio and see if an overhaul is due. For your longer-term, blue-chip “Forever” stocks, stay the course.  Short-term fluctuations should not matter and attempting to time the market is difficult to do profitably.   For your more… Read More

We spend a lot of time here at Profitable Trading showing you how to use options to generate income and hedge your portfolio. Investors are slowly opening up to the idea of actively using options for market-beating returns and consistent income.  For example, my colleague, Amber Hestla, has generated 54.5% average annualized gains with a simple put selling strategy on her way to a perfect track record. You can see the details here. While many have shed their reservations about using options for trading, there is another use for derivatives that we haven’t talked about much. … Read More

We spend a lot of time here at Profitable Trading showing you how to use options to generate income and hedge your portfolio. Investors are slowly opening up to the idea of actively using options for market-beating returns and consistent income.  For example, my colleague, Amber Hestla, has generated 54.5% average annualized gains with a simple put selling strategy on her way to a perfect track record. You can see the details here. While many have shed their reservations about using options for trading, there is another use for derivatives that we haven’t talked about much.  One of my favorite uses for options is not for direct buying or selling, but as a gauge of market sentiment. #-ad_banner-#While no indicator is perfect, this is one of the most widely followed by professional traders and can actually help you time the market. In fact, it is by using this powerful options indicator that I avoided much of the sell-off in stocks when the market crashed in 2008. This indicator started flashing warning signals in 2006 that the market was too exuberant about future returns. I gradually started to hedge my positions in 2007, and waited… Read More

All major U.S. stock indices finished in the red again last week, led lower by the small-cap Russell 2000 and tech-heavy Nasdaq 100. The decline pushed the Dow Jones Industrial Average into negative territory for the year where it joins the Russell 2000, which has been residing there for some time. #-ad_banner-#​On Sept. 15, the title of the Market Outlook was “Correction May be Getting Under Way — Protect Your Profits.” The bellwether S&P 500 peaked four days later, on Sept. 19, and has since declined by 113 points, or 5.6%, through the end… Read More

All major U.S. stock indices finished in the red again last week, led lower by the small-cap Russell 2000 and tech-heavy Nasdaq 100. The decline pushed the Dow Jones Industrial Average into negative territory for the year where it joins the Russell 2000, which has been residing there for some time. #-ad_banner-#​On Sept. 15, the title of the Market Outlook was “Correction May be Getting Under Way — Protect Your Profits.” The bellwether S&P 500 peaked four days later, on Sept. 19, and has since declined by 113 points, or 5.6%, through the end of last week. The collapse below major support levels at 1,080 in the Russell and 8,215 in the Dow Jones Transportation Average, both highlighted in last week’s Market Outlook, in addition to continued weakness in European markets, warn that an even deeper U.S. market decline may be emerging. Investors May Buy the Dip in the Diamonds In the Sept. 22 Market Outlook, I pointed out that daily assets invested in the SPDR Dow Jones Industrial Average ETF (NYSE: DIA… Read More

Over the past few years, a predictable trend has dominated earnings season. Analysts lower their profit forecasts in the weeks and months ahead of quarterly results, and then companies manage to slightly exceed the lowered set of expectations. It’s happening again. #-ad_banner-#According to FactSet Research, on an aggregate basis, analysts lowered Q3 profit forecast by 4.2%, slightly above the typical 2.7% downward revision of the prior 20 quarters. In theory, lowering the bar further should boost the chances that companies manage to exceed current consensus forecasts. But the typical “cut and beat” game may not be the key theme this… Read More

Over the past few years, a predictable trend has dominated earnings season. Analysts lower their profit forecasts in the weeks and months ahead of quarterly results, and then companies manage to slightly exceed the lowered set of expectations. It’s happening again. #-ad_banner-#According to FactSet Research, on an aggregate basis, analysts lowered Q3 profit forecast by 4.2%, slightly above the typical 2.7% downward revision of the prior 20 quarters. In theory, lowering the bar further should boost the chances that companies manage to exceed current consensus forecasts. But the typical “cut and beat” game may not be the key theme this time around. As third quarter earnings season gets underway later this week (as Alcoa (NYSE: AA) weighs in on Wednesday, October 8), a range of cross-currents promise to make this one of the more unpredictable earnings seasons in quite some time. Both positive and negative factors are likely to keep analysts and investors on their toes. This is not time to take a casual approach to earnings season. After rising 6% in the first six months of 2013, the S&P 500 rose less than 1% in the third quarter. Here are four key themes you need to monitor to help… Read More

Despite Friday’s strong rebound, fueled by much better-than-expected September employment data, all major U.S. stock indices finished in the red last week. Once again, the decline was led by the small-cap Russell 2000, which lost 1.3% for the week and is now down 5.1% year to date. The other major indices are still positive for 2014. #-ad_banner-#Last week’s decline was led by the energy sector, which fell 4.1%. Not surprisingly, my own ETF asset flow-based metric shows that the biggest sector-related outflows over the past one-week, one-month, and three-month periods came from energy. Meanwhile, the… Read More

Despite Friday’s strong rebound, fueled by much better-than-expected September employment data, all major U.S. stock indices finished in the red last week. Once again, the decline was led by the small-cap Russell 2000, which lost 1.3% for the week and is now down 5.1% year to date. The other major indices are still positive for 2014. #-ad_banner-#Last week’s decline was led by the energy sector, which fell 4.1%. Not surprisingly, my own ETF asset flow-based metric shows that the biggest sector-related outflows over the past one-week, one-month, and three-month periods came from energy. Meanwhile, the biggest inflows over the past one-week and one-month periods were into health care, which has outperformed the S&P 500 by 4 percentage points since August. Investors Remain Nervous The tech-heavy Nasdaq 100 broke down below key underlying support at 4,000, which I discussed in the Sept. 29 Market Outlook, amid a still elevated CBOE Volatility Index (VIX) that indicates an apprehensive market that is vulnerable to more near-term weakness. The VIX has been above its 50-day moving average since Sept. 22. Read More

An article by StreetAuthority’s David Sterman recently caught my attention. It highlighted an indicator that I haven’t looked at for a while —  it measures the market cap of the Wilshire 5000 relative to gross domestic product of the United States. It is one of Warren Buffett’s favorites, has been incredibly prescient in detecting changes in the market and is now flashing a sell signal. The measure, shown in the chart below, is simple and intuitive. When the value of the stock market surpasses the value of the economy, it indicates that investors are… Read More

An article by StreetAuthority’s David Sterman recently caught my attention. It highlighted an indicator that I haven’t looked at for a while —  it measures the market cap of the Wilshire 5000 relative to gross domestic product of the United States. It is one of Warren Buffett’s favorites, has been incredibly prescient in detecting changes in the market and is now flashing a sell signal. The measure, shown in the chart below, is simple and intuitive. When the value of the stock market surpasses the value of the economy, it indicates that investors are paying a premium for assets. Going back to the last two market busts, when the indicator crosses the 100% threshold, the 12-to-18 month outlook has not been promising. This threshold was breached in March of last year and now signals stocks are about 15% overvalued. While the indicator defied all reason to reach nearly 137% before the 2000 selloff, it only made it to 105% before the last market bust. With the Federal Reserve set to raise rates next year, and global growth not picking up the slack, 2015 could bring the… Read More

Just a few months ago, all was quiet on the investing front, as most market indices continually broke new all-time highs. But in early August, the quiet was broken by a sudden surge by the dollar against the euro, the yen, Australian dollar and other currencies. At the time, the rallying dollar was merely seen as the beneficiary of a relatively robust U.S. economic growth rate in 2015, at least compared to Europe and Japan. #-ad_banner-#In hindsight, the currency shifts now appear to be the result of something more concerning: European economic activity has slowed to a crawl, the Chinese… Read More

Just a few months ago, all was quiet on the investing front, as most market indices continually broke new all-time highs. But in early August, the quiet was broken by a sudden surge by the dollar against the euro, the yen, Australian dollar and other currencies. At the time, the rallying dollar was merely seen as the beneficiary of a relatively robust U.S. economic growth rate in 2015, at least compared to Europe and Japan. #-ad_banner-#In hindsight, the currency shifts now appear to be the result of something more concerning: European economic activity has slowed to a crawl, the Chinese government is leaning towards a policy of reform over stimulus — compounded by brewing political troubles in Hong Kong — and U.S. investors are finally waking up to the reality that global economic growth will likely be subpar in 2015. That dim view may also explain why West Texas Intermediate Crude Oil has now slipped below $90 a barrel for the first time in 17 months. Then again, oil prices may be slumping because the dollar is rallying, which always hurts the price of commodities such as oil. Or perhaps it’s the fact that too much… Read More

All major U.S. stock indices finished in the red last week, led lower by the small-cap Russell 2000, which lost 2.4% and is the only major U.S. index in negative territory for the year. #-ad_banner-#The key takeaway heading into this week is that the U.S. stock market is at another near-term decision point: Assuming the market’s larger 2014 advance is still healthy and intact, we should see its September pullback end. Put another way, if U.S. stocks can’t get any traction from their current level, a deeper correction could potentially extend well into October. Watch Key… Read More

All major U.S. stock indices finished in the red last week, led lower by the small-cap Russell 2000, which lost 2.4% and is the only major U.S. index in negative territory for the year. #-ad_banner-#The key takeaway heading into this week is that the U.S. stock market is at another near-term decision point: Assuming the market’s larger 2014 advance is still healthy and intact, we should see its September pullback end. Put another way, if U.S. stocks can’t get any traction from their current level, a deeper correction could potentially extend well into October. Watch Key Support Levels This Week The first chart displays what is probably the most influential index and price level to watch this week. In the Aug. 25 Market Outlook, I pointed out major overhead resistance in the market-leading Nasdaq 100 (NDX) at the 4,147 September 2000 high, which the index has been testing and holding ever since. Last week’s decline from 4147 has positioned NDX right on top of underlying support at 4,007 to 3,998, which represents its July 24 high and 50-day moving average. Read More

They’re popping the champagne corks in Denver, Colorado, where fund management firm Janus Capital Group, Inc. resides. Shares of Janus surged more than 43% on today, inflating the company’s market value by nearly $1 billion. Investors figure the sudden and unexpected hiring of legendary bond fund manager Bill Gross will generate massive amounts of new business for Janus. Yet, it may be time to put the cork into the champagne bottle. The road ahead for Bill Gross — and the bond market — is likely to be much more challenging. #-ad_banner-#Make no mistake, Bill Gross is one of the brightest… Read More

They’re popping the champagne corks in Denver, Colorado, where fund management firm Janus Capital Group, Inc. resides. Shares of Janus surged more than 43% on today, inflating the company’s market value by nearly $1 billion. Investors figure the sudden and unexpected hiring of legendary bond fund manager Bill Gross will generate massive amounts of new business for Janus. Yet, it may be time to put the cork into the champagne bottle. The road ahead for Bill Gross — and the bond market — is likely to be much more challenging. #-ad_banner-#Make no mistake, Bill Gross is one of the brightest minds in the bond business. His wise prognostications helped draw $270 billion into his firm’s Pimco Total Return Fund (Nasdaq: PTTRX). And Janus executives hope he will have a similar magic touch at his new firm.  Even before his arrival, Janus rebounded from its tarnished dot-com legacy and now manages more than $30 billion in bond assets.  According to various media reports, Gross will oversee Janus’ Global Unconstrained Bond Fund (Nasdaq: JUCAX) — which was launched in May 2014 — and he will also help further develop the firm’s fixed-income investment strategies. An unexpectedly long rally When I started… Read More