Investor Stocks #4 | Spain Unrest | Value Stocks
Investor Stocks Series #4
Momentum Rider forecasted last Sunday night for a test of 1,375 on the S&P 500 last week based on better than expected earnings and some help from Bernanke’s testimony. The market tested 1,375 on Wednesday and then finished at 1,372. On Wednesday night we forecasted for a push slightly higher on Thursday followed by weakness on Friday and into Monday.
The S&P 500 touched 1,380 on Thursday and then sold off on Friday to finish at 1,362. The market was extended going into Friday and the riots in Spain provided a reason for the markets to pullback as expected. The austerity measures being imposed on Greece, Italy, and Spain are starting to cause significant frustration with the general populations and workforce. The European markets were down big on Friday, especially Spain. Just as concerning is that the Euro currency is still falling and very weak.
The market is in a defined trading channel and it may continue to bounce inside it for a little longer between 1,340 and 1,400. Bernanke’s testimony provided a boost and the earnings beats have been higher than expected but that could change soon.
This week should start out down because of uncertainty around Spain. We believe that Monday will have more selling spillover from Friday and then earnings could stop the slide mid-week. A push down below 1,350 means that the lower trendline would be retested around the 1,340 area. A retest lower of the 50 SMA near 1,330 is possible this week and that is another key support for the bulls.
While many companies have been beating earnings estimates, the estimates set were very low. And, despite Bernanke’s view that a double dip recession is unlikely, many analysts and company heads are revising their numbers lower for the rest of 2012. Many do believe another recession is highly probable – including MR. That is an overhang for the market going forward.
MR thought it would be worthwhile to reiterate our concerns going into August by using part of our Wednesday night’s newsletter.
Reprint Caution from Wednesday newsletter:
But, at this point we have to remind investors and traders of the horrible 2011 selloff in August and September on European worries. The S&P 500 chart looked eerily similar in 2011 to the current 2012 chart and then the bottom fell out for a 16% plunge in late July and the first part of August. September 2011 was a bad month as well. Momentum Rider is not predicting that the same thing will happen at this point. However, institutions will be guarded going forward and we want investors to be vigilant and cautious. More frequent market attention and checking will be required from now on.
It is difficult this year to really get a dependable forecast on the second half of the year’s results. We always anticipate a strong fourth quarter based on seasonality and based on the last few years’ rallies. But with the “fiscal cliff”, European debt wildcards, China’s growth wildcards, and the uncertain Presidential election swings, this year will be more challenging than most. Try to be more tactical going into August and don’t get too overweight equities, especially ones with higher risk.
Power Stock Picks – Strong Investor Stocks (July 22):
Several of these strong investor stocks could be entered at better prices on pullbacks but all have the potential for more upside in 2012. Very strong investor stocks hitting near new highs usually head higher. Just be careful if their earnings disappoint because they can come off hard from the top.
Investor Notes:
MR recommends investors continue to remain cautious and lighter on riskier equities until after the longer term financial situation in Europe has more clarity. The short term is back to neutral with the potential for a higher move in earnings season. However, the 200 SMA is getting close so be ready to make some sells if necessary.
Gold and silver have not shown the strength MR anticipated in June and July. At this point silver needs to hold its final support at $27/oz or it could see a big drop. Gold’s key support area is $1,550/oz before creating increased selling. Precious metal investors need to be on watch to avoid a big fall and to free up cash to buy a big selloff if one comes. Both gold and silver are still great long term investments, but pain may be coming if buying doesn’t come very soon.
New Commodities Investor Alert: At some point in the Summer, MR believes that China will hit bottom and will start providing evidence of growth. This will be critical for the base metal and energy commodities and stocks to start moving up again. If the news is better than expected, then the commodities could be very strong late Summer and early Fall up to the election. This forecast is one reason we recently recommended select beaten down stocks in materials, energy, and agriculture. As an aside, China’s just released growth numbers showed that a hard landing is probably not going to happen – just a modest decrease in growth.
Some of our favorites in the commodities area could see 30%+ gains by year end from the current levels. Please refer back to our recent blog covering our top value stock favorites. Value Stocks in Commodities.
Also, MR just finished a blog for long term investors that want to take a little risk. MR made some value stock picks from 13 former superstars of the 1990′s in technology. The valuations are simply getting too attractive to not take a serious look at putting some money into these 13 companies. Several if not most of the stocks in this special list could see 30%+ gains in the next 6 to 12 months. Check it out here: 13 Value Stocks – 13 Former Tech Superstars
The caution alert for retirement accounts and investors is still present and will remain for the foreseeable future.
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Good luck in your trading and investing,
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