I talk with Dave Skarica just about every single day on the phone about the markets. He helped me realize the value of buying into GREK in August and it has become one of my best investment positions. I talked with him yesterday about what is happening in the markets and we both came to the conclusion that stuff in Europe is in the process of breaking out right now. Funny thing is CNBC is totally ignoring this and most investors are too - to their detriment.
Stock Market Commentary
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I just read this email question I got:
"mike, thanks for sharing so generously your opinions on the market! i am in metals. mlps and reits. my lowest high "dividend" stock pays about 8%. i feel that these high dividend stocks are doomed due to the coming seemingly set in stone dividend tax on high earners. what do you think? thanks!"
The stock market has been in a correction for weeks, but last Friday went up a little from a very oversold position. It seems likely to me that the market will bounce for a few days and then drop again to bring a final panic washout bottom either next week or the week after.
Interestingly enough the historical market trend is for the stock market to rally in the days leading into Thanksgiving, the day immediately after, and then to drop two days after Thanksgiving.
Yesterday was another nasty day for the stock market as the DOW fell 185 points. The stock market has been in a correction since September within a cyclical bull market that began in 2009. We have seen corrections like this before as they have happened at least once every year for the past three years. The last time one happened was back in the Spring when the market peaked in March and made a bottom in June.
We are still in a corrective phase in the market and I do not see a sign that it is over, but it seems to me that in 2-3 weeks judging by sentiment surveys we will be in a new uptrend in the market. How we get there though is not totally clear to me. We either will see the market bottom here and just go sideways and then turn up in December or continue lower and have another panic drop. That could lead to further losses up to 5% for the US market averages and is a big possibility.
Looking at the short-term trend I don't like the action of the past few days. After a big dump like we saw on the 330 point DOW down day last week normally you see the stock market make a big bottom or else pause a few days and then drop again. It seems like the latter is more likely. Yesterday the S&P 500 was even while the VIX fell over a point. That is the type of action you see during a correction that makes it look like it is not over.
One of the stocks I own, SCCO, recently announced that it is going to pay a dividend of $2.75 to shareholders on record on November 7th. Of course the stock has gone up on this news and the dividend is so large that it gives the company an annual dividend rate of 28.9%. Incredible.
The company is one of the largest copper produces in the world with operations in Mexico, Peru, and Chile.
The Greece PM Minister and international bankers have agreed to austerity measures for Greece and its bailout package. According to CNN:
"Debt-stricken Greece has agreed on final details with its international creditors on the terms for the next installment of a bailout deal, the prime minister said Tuesday."
I've been following the Mebane Faber blog now for the past few months. He has written a book that is well worth your time reading called the Ivy Portfolio about how to use funds to construct a portfolio that can beat the market.
Today he posted this data on his site showing the cyclically adjusted P/E's of various countries at the end of the 3rd quarter:
Yesterday the DOW dumped over 200 points and the VIX got near 20. The put/call ratio went above one again and the ratio of down to up volume on the NYSE reached 95% for most of the day. Yes this is more panic selling. The fear is also showing up in investor surveys and even emails I'm getting from people now. This morning's Investors Intelligence poll shows that the number of bulls fell again in this past week while the bears have gone up. The numbers now stand at 41.5% bulls and 27.7% bears.
On CNBC yesterday investment thinker Marc Faber stated that he thinks that there will a big mess in the markets and global economy in 5-10 years due to the growing government debt crisis. "I think the regimes will try to keep the system alive as it is for as long as possible, which means there's no fiscal cliff, there's a fiscal grand canyon," he said.
"I think the deficit here (in the United States) - irrespective of who is in the White House - will stay above a trillion dollars per annum for at least as far as the eye can see," Faber said.
I did this video after the close yesterday.
Last night I went through the market and found several stocks that look like compelling buys. I wrote about them in a special PDF Power Investors only report. If you are a member just go to the right sidebar and type the username and password to login to read it. If you aren't a member join the group now by going here.
I just bought EWP 700 shares @ 28.78
and EWI 1,600 shares @ 12.799.
I consider this part of my core investment positions of ETF's and funds. The others include EWK, EWO, RSX, GREK, GDXJ, GLD, GCC, and GNT. These are all funds invested in cheap European markets just starting bull markets or gold and commodity related issues. For a great article on using valuations to invest in world markets and beat the overall market check out this article.
I bet you have forgotten all about Greece. It seemed up until recently the debt crisis in Greece was the nonstop talk of the news and at times was causing scary gyrations in the the financial markets. The Greece stock market actually put in a bottom in the spring and has been the strongest rallying market in the world since then. I personally bought in the Greece market back in August and it has been one of my own top gaining positions ever since.
Even during this rise I got emails from people scared of Greece. Talk about climbing a wall of worry.
Yesterday the DOW went up about 100 points in the morning and then closed down 20 points. The S&P 500 and Nasdaq also went up in the morning and then dumped in the afternoon. The markets have been in a corrective phase for the past few weeks and action like yesterday suggests that they have not bottomed yet.
My guess is that we will see an end to this correction after a little more selling in the US markets. The bottom may come next week on a bad earnings release that causes a gap down.
Yesterday the Nasdaq fell over 45 points as several Wall Street analysts downgraded Intel and some other tech companise on earnings worries. Next week Intel will report earnings. Usually if the market rallies up into earnings it sells off a bit afterwords once earnings announcements come out while if it falls into earnings it rallies once they come out. What happens is that traders pretty much position themselves ahead of earnings so the news gets all baked in by the time it gets on to the TV screen.