Entries Tagged 'Investing' ↓

Six months ago, I asked a question on this blog, “What does DOW 11,000 mean?” At the time I was a little bearish because of the quick move higher. The markets sold off shortly after crossing 11,000 six months ago and have been range bound ever since then. Now, as we cross through DOW 11,000 again, what are my thoughts?

Fundamentals

The DIA (SPDR Dow Jones Industrial Average ETF), which currently trades a 12 times earnings is historically low for the average. The weak dollar could push earnings higher as most of these companies are growing their international earnings faster than U.S. earnings. This could cause the earning to mislead investors into thinking that earnings are growing when in fact the dollar is just cheaper allowing international companies to boost profits without boosting sales.

Technicals

Looking at the chart above, you can see the current trend is almost identical to the trend that crossed 11,000 in April. The current trend has yet to pull back or have a correction and stochastics trading at 93, the market looks to be overbought. Be aware: stochastics can be oversold or overbought for long periods of time. If you believe the Dow is going higher watch around the 11,200 level. If you believe the Dow is going lower watch the 10,700 level.

Other Factors

Jobs, jobs, jobs! If the job recovery doesn’t pick up, the market will stall out. Main street is still hurting no matter what the market is doing. Retail investors don’t want to be in stocks but rather in bonds. The so called “Currency War” that some are referring could really come back to hurt Americans and the U.S. Dollar. The dropping U.S. Dollar will make import prices higher, along with higher gas prices. Remember when looking at stocks or ETFs to look at more than just stocks, take a look at what else that could affect the potential stock or ETF.

As the stock market remains range-bound, looking into the mutual funds may tell you what the retail investors are buying. Although mutual fund inflows bounce up and down monthly, there has only been one month with a negative inflow this year. Taking a deeper look at the inflow of the type of fund may give retail investors an inside into where the market is heading.

Is Now The Time For Stocks

Stock Mutual fund inflows since May have been net negative, but could that be part of the “Sell in May, and go away” theory? The S&P that currently trades at 13X trailing twelve months (ttm) earnings might seem cheap to some, while others may say the earnings of the past twelve months are artificially inflated by government intervention. If you are in the bullish camp, look at individual stocks and make them give you a reason for buying them. The S&P 500 is still unable to stay above 1150 and until then the market looks range-bound.

Are You Afraid Of Stocks?

If you are afraid of stocks, the game is not over; you can still buy many different types of bonds. Although the returns are meager on bonds, they can and sometime will beat the overall stock market. Just remember as with stocks, the riskier the bond is, the more of a chance you have at losing money. Bonds are a great way to add income to your portfolio but some stocks and/or ETFs yield more than bonds.

Whichever way you decide to go whether long/short stocks or bonds, keep your portfolio diversified and have cash ready to make your next move.

Earnings season is right around the corner and stock are deeply oversold. So, is now the time to buy or should you wait until after earnings are reported? Is now the time to buy and wait for a quick pop from earnings or should you wait until earnings disappoint and buy the sell-off?

Many stocks are trading at single digit P/E ratios and valuations that make the market look cheap. Although I am not too much into fundamental investing, I have to consider fundamentals when trading. Value investors are working overtime right now trying to distinguish whether these valuations are of actual value or whether they are pointing to a weaker earnings outlook.

What Am I Doing?

Sitting it out for now. If I am not in the market, I can’t lose money. I see companies hoarding cash, retailers reporting mixed numbers, employment not improving, and terrible housing data. The technicals of the markets say there is more room to the downside but with any earnings season around the corner, volatility is the only certain thing in the markets. Some stocks will win and others will lose, I will sit on the sidelines and wait.

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Schwab US Broad Market ETF (SCHB)
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Schwab US Large-Cap Growth ETF (SCHG)
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Are Charles Schwab’s ETFs Right For You?

If you are a investor looking for longer-term investments or trades and like using indexes; then these ETFs are worth looking at. For traders and shorter-term investors, the volume is too low for me to recommend them. When trading stocks and ETFs (other than the Schwab ETFs listed above), commissions rates are $8.95 – $19.95, depending on the amount of trades placed.

Understand that commission free trading is nice, but with Charles Schwab, you are limited to a few ETFs that you can trade. If the volume rises in these ETFs, it might be worth looking into. For now, the products are too limited and commissions on other ETFs and stocks are higher than most online brokers.

Get more information on opening an account and Charles Schwab ETFs @ www.schwab.com.

I recall watching CNBC when the DOW crossed 10,000 a little over a week ago. What was it that made the traders and investors on the floor cheer? Why is the 10,000 milestone so important? What makes this time different from the first time the DOW passed the 10,000 mark 10 years ago?

The Decade That Flat-lined

To me, the DOW crossing 10,000 means nothing fundamentally and technically it is another whole number to trade off. The DOW crossing 10,000 did not create any new jobs, nor did it help the declining dollar. As I mentioned earlier, the DOW crossed the 10,000 milestone 10 years ago. If you had put your money into an index fund 10 years ago, it has done nothing…not counting dividends. Dividends that, if reinvested, have lost value and taxes you paid on them probably wipes out anything you might have gained.

Dow 10,000 – The Second Time Around

With a decade of no performance, where do we really stand? Well, 10,000 today is not the same 10,000 as it were 10 years ago. Thanks to inflation, your investment in an index fund that tracks the DOW might have returned you the same dollar amount as you invested but it gave you a dollar with a significantly weaker buying power. Want to know more about the loss in your buying power? Head over to ZeroHedge.com and read an article called “DOW 10,000!!!! OhWait, Make That 7,537.”

Investing In Index Funds

If you are investing in index funds think about this post. Ten years of no gains and loss of buying power will make anyone poorer than they were 10 years ago. Do not get me wrong, I am not saying that index funds are a terrible investment. I am saying that the buy and hold theory should be history. A decade of losing 25% of your buying power and no investment gains is an obstacle you do not want in a retirement account.