Market moving matters

[Deleted]

Copied from seeking alpha
By David Sterman
Back in late April, I cautioned that summer trading can be quite tricky, noting that May is a good time to take profits because the market often weakens in June and July. Little did I know that the "summer swoon" would actually start in May. Since hitting a recent peak in late April, the S&P 500 has lost ground every week for six straight weeks. And a quick look at the economic landscape may lead you to conclude that further market downdrafts lie ahead. (As I recently noted, there are a number of powerful economic headwinds that could really spook the markets.)

Yet some contrarian investors see an entirely different picture. They tend to distrust market rallies, but they also know that periods of gloom and doom actually present buying opportunities because investors tend to conflate short-term challenges with long-term catastrophes. After all, the economy looked to be getting steadily weaker in the summer of 2010, causing stocks to slump through August. But within a few short months, the economy looked healthier once again and the market rallied nicely higher into the winter -- the S&P 500 rose 28% from August 31, 2010 to February 17, 2011.

For investors that find it hard to believe that times are getting tougher, here are five potential positives that could help stocks move back higher in coming months.

1. The Japan-related slowdown improves
A number of recent economic reports have pointed to a slowdown in the manufacturing sector, with many companies noting that Japan's work stoppages after the tsunami/earthquake led to parts shortages throughout the global supply chain. Japanese manufacturers are starting to ramp up production again, and those supply chain issues should recede over the course of this summer. That could help U.S. manufacturing to resume the upward trajectory it had been on for much of the last 18 months.

2. The Biden factor
He's an eternal optimist, but Vice President Joseph Biden thinks increasingly constructive talks about the massive budget problems are taking place during the bipartisan meetings he is chairing. This coming week should see a stepped-up level of dialogue heading into the July 4 Congressional recess. If a deal can start to take shape, then a big overhang on the market would disappear.

3. Individual investors are always wrong
Last August, as the stock market was drifting ever lower, I noted that individual investors had turned bearish -- which is always a positive for stocks.

Guess what? They're bearish again. In the most recent survey conducted by the American Association of Individual Investors, bears make up 43% of surveyed respondents, while bulls make up just 29%. This is a modest improvement from the prior week, when only 24% of respondents were bullish, but it still represents one of the most bearish periods of the year. Keep an eye on this survey. If bullish sentiment drops below 25% once again, it would be an unmitigated signal to buy stocks.

4. A return to M&A
When an economy starts to cool, so does the talk among dealmakers. Economic uncertainty is just too risky for many executives to make bold moves. But if the economy stabilizes in coming weeks and months, then those same executives are likely to revisit any possible acquisitions they may have been mulling. And the market likes M&A activity. It provides a clear sense of private market valuations for stocks, highlighting which stocks and sectors may be undervalued. With so much cash parked on corporate balance sheets, we may be headed for a peak of deal-making in coming quarters -- if the economy obliges.

5. The bond market's dimming appeal
One of the key strikes against stocks is that bonds have seen so much interest among investors. Bond funds have been continually attracting inflows (news money coming in) while domestic equity funds keep seeing outflows (money being pulled out). But the time is getting closer for the Federal Reserve to start to hike interest rates. This means bond prices would fall and yields would begin to rise as a result. This is why some think we're near the end of the multi-decade rally in bonds, and a shift into other assets may be the next move. Might stocks be the beneficiary of all the liquidity sloshing around global markets?

The key takeaway is that stocks are feeling the heat of a string of sobering economic news. Yet it's no sure thing that the slowdown will result in a double-dip recession. The U.S. economy has often proven to be more resilient than many have expected. While a cautious stance is merited, you need to keep any eye on what could go right as well.

Retail stocks have been especially hard hit during the spring swoon, and valuations are quite reasonable. If signs that consumer spending can stabilize and even strengthen just a bit in coming months, then retail stocks will move back into favor.

The Amex Airline Index (AMEX: XAL) has fallen from 50 to 40 since last November, due to rising oil prices. A recent decision by Saudi Arabia to pump more oil could help push oil prices back down, breathing new life into the airline sector.



I am almost ready to pull the trigger on a few issues

July earnings reports will be the new catalyst....and we could see at least a 10-15% surge by end of year

I like to be buying, as others are selling

[verrip1]

Interesting article. I was flustered for a moment when I noted that Joe Biden was being used as a market predictor but I relaxed when I read the subject as being resolution of federal budget posturing.

The May thing always comes up. I'm sure that we'll hear about the September thing as well in a couple of months. Just because things happen on average, that is no guarantee that they will happen that way all the time.

Investor confidence as a contrary indicator hasn't seem to get much traction with a lot of shoot-from-the-hip folks. I suppose that's because it is somewhat counter-intuitive to beginners.

I'm watching the cycles. Twice this year the S&P 500 has topped in the 1350/60 ish range, only to drop down to 1260/70 ish bottoms. Each half cycle has been about 45 days. If this pattern continues, another topping would occur in early August or so. I have no way of knowing if that will happen, I just see it as one possible pattern: one that meets the reality of the the numbers. If it occurs it would toss out the 'conventional wisdom' of being out in May, for this year, anyway. Coincidentally, the following dip if that pattern holds would hit in mid-September and possibly support the conventional wisdom of September being the worst month of the year for stocks.

[domeasingold]

Good insight gentlemen.
You too Frank!

ZOOM

[usaone]

Fed Ex had a very bullish conference call today.

Earnings will surprise to the upside and move this market forward.

K for Frank!

[dothedd]

Jun 22, 2011 16:33:21 GMT -5 @franktheimpaler said:

gdgyva-as you can see with the after hours earnings reports...the depiction of the markets demise has greatly been exagerated...I say again...13,500 on the DOW 12/31/2011

13,500 on the DOW 12/31/2011

I LIKE IT!

KFU

[verrip1]

Jun 22, 2011 18:31:57 GMT -5 domeasingold said:

Good insight gentlemen.
You too Frank!

ZOOM

Dayum, domer. That was one of my favorite lines. lololol.

[tyfighter3]

Refinery's are going to do well, hec they already are especially the ones that are buying our own oil. Holly and Frontier are ones to watch. Oil stocks have taken a beating, time to start putting positions back into them. Last earnings their Mark to Mark hedges killed them on paper but this time around it will be a different story. Production up, Revenues up. If gas prices stay in the low 3 to 3.50 range, consumers should be fine going forward for the next few Q's. Japan should start to pull out of their disaster's( will take time but should improve and has been improving) Inflation, who knows but I don't see it yet. For inflation to start running again we will have to see growth and a lot more than 2% for it to happen. This kind of environment, Stocks should do good going forward, the ones that pay good dividends and still have some growth potential. The Government will come to some sort of a budget. JMO
seekingalpha.com/article/276204-3-sectors-to-play-a-rebound-in-stocks?source=feed

[tyfighter3]

Frank, we are on the same page.

[Aman A.K.A. Ahamburger]

Nice assemet Ty. It makes sense to me. Thanks.

[Deleted]

Market was at 12130 or so when i posted this

I see 10-15% upside by end of year

So 13343 to 13949 is my call for 12/31/11

And the average of those is 13646 is my call for EOY number

[rovo]

Jun 22, 2011 19:43:22 GMT -5 usaone said:

Earnings will surprise to the upside and move this market forward.

I think we have seen the end of huge earnings increases. One reason is the comparables are now higher. Another reason is the increase in commodity prices are rippling through products.

So, my opinion is we will see more, many more, "in-line" earnings reports and quite a few misses to the downside. Overall it should be a positive but there will be a bunch of losers and they will be punished by huge share price declines. It will be a little more difficult, going forward, to find winning stock picks. Start looking at the fundamentals of the company.

[Deleted]

Earnings so far have been VERY positive

If you take financials out of the calculations, growth in earnings exceeds 12%

A lot will depend on what happens in next few days as far as the debt, but things are looking very positive for a general market spurt if we get our crap together