Articles about the Stock Market and your Investments
The latest rally began in earnest on March 13, 2003 when rumors of bin Laden capture was all over the news and the media was reporting Iraqi army in talks with U.S. to surrender, before the war even got underway. 'Short' covering caused additional positive momentum and by the end of the day, the market was well on its way, with the DOW posting 269 point gain.
The positive environment continued through June 5, 2003 when the positive environment in the market was discounting bad news left-and-right. At that time a pullback was overdue and by June 17, 2003 the market was preparing for the June ISM-PMI report. The ISM report was less than favorable and traders discounted much of it and other economical data, in favor of hoping for a last-half (2003) recovery.
That takes us to June-July 2003 when discounting bad news is becoming harder to do. The Barometer models indicate that the most likely scenario is- the market continues in and around the Barometer-channel until either good or bad news, of sufficient means, moves the market one way or the other. Assuming the market trends sideways (Barometer-channel) for two weeks, the next big economical reports are the Chicago PMI and the ISM PMI due out in two weeks. These reports should move the market one way or the other.
If the reports turnout negative, traders probably will sell until a market base can be found (support-level). 'Shorts' most likely will continue the momentum, once they see how negative it is. If the reports are exceptionally good, that could be cause for a short sell-off followed by a rally at some point (sell to rally timeframe unknown). If the reports are considered neutral- that too could be cause for a sell-off or mostly negative environment (timeframe unknown).
Bottom line. The market has come a long way since March and a pullback, out of the developing channel, will occur at some point. The longer the market can continue the advance without a healthy pullback (or lengthy consolidation) gives cause that when a significant pullback does come it could be violent and deep. So it's better, healthier, for the market to make these corrections (small relevant corrections) from time to time- not all at once.
Be prepared, markets cannot go in only one direction. The market will go where there is less resistance- and today resistance is being tested (upper and lower bands of the developing channel)- that is why the Barometer-plot is bouncing back and forth.
Terrorist attacks- are the attacks generated by al-Qaida?
Any coordinated attack by terrorist groups, especially al-Qaida, will affect trader thinking. Any news of organized attacks and the market would sell-off immediately. It will depend on how devastating the attack is to how traders will react. The reverse is also true. Any al-Qaida officials, or top leaders that are captured or killed should be a rallying point for the markets, assuming all other things are equal.
(Alternate spelling: al Qaeda and al-Queda).
how war with Iraq could affect the U.S. stock market.
Although there is no absolute answer to this, we can take a look at what causes markets (stocks) to move.
First of all, understand that traders and investors are a very nervous. Especially nowadays, when so much pain has been taken over past years- you cannot really blame anyone for wanting to minimize a loss in the market.
Think about why you buy stocks. None of us buy stock in hopes that when its sold it will be lower in price- a loss. Unless you need a loss for end of year tax purposes, you most likely buy stocks to make a profit. The more certain you are about a stock and its future, the more likely you are to buy it, if you're in the market to buy.
So the more certain you are about a particular stock, the more likely you are to buy it. The opposite of certainty is uncertainty. The more uncertain you are, the less likely you are to buy the stock.
Uncertainty doesn't have to be directly related with just the stock, but could have to do with the environment the stock is in. Example. Lets say you are looking at company 'ABC', and ABC, has in the past, grown 50 percent a year and is projected to continue that growth, and the market for ABC products is very good, you might buy some of the stock.
Let's say you complete your analysis of ABC and a ZNN breaking news headline grabs your attention and it's stated that certain overseas countries are talking about building their own ABC plant. Now they may or may not build that plant, but at this point there is some uncertainty.
Throw in to the mix- Rumors that war is about to break out in another country that imports ABC products and now you have another uncertainty. The uncertainty can be just about anything that could impact the companies stock directly or indirectly.
That is the nature of being uncertain, you just don't know. That's why the market can fluctuate violently sometimes (market volatility).
It's like getting sick. If you get sick you begin to feel bad. The worse sick you get the worse you feel. Once you begin to get better, you probably begin to feel better. Same thing with stocks. The worse it gets for a stock, sector, or the market, the more you stay away until you just don't want anything to do with it. Unless the uncertainty (sickness) is terminal (Enron), at some point- it gets better. The less uncertain (the better you feel) it gets, the better chance the stock, sector, the market will rise. At some point the stock, sector, market (after enough selling) will find a base of support from which prices rise, all other things equal.
If you have a lot of time on your hands, you can track all of this yourself and you can determine when it's time to get in- most likely it's when you don't want anything to do with that stock, or the sector, or the market- is when you should consider getting in.
Here's a little history- before war broke out in Iraq- when it was uncertain what would happen.
There are probably 2 ways we can deal with this question. Either the U.S. does or does not attack Iraq.
1). The US will not attack. The reason- it appears Iraq is complying with U.N. resolutions (key word here is appears). President Saddam Hussein cannot be totally naive. He must know any attempt to hide weapons of mass destruction (WMD) will be dealt with in the total destruction of himself and his government. Unless he is totally crazy, he will comply- Although he will try and get away with whatever he thinks he can- to sting out the process. You have to wonder how long can the US and Britain keep 200,000 plus troops in the region.
2). Hussein is hiding these weapons and the US does attack. If this were to happen, we would get plenty of warning of an attack because the US would want to stay on the good side of the UN and world opinion. It was originally thought that an attack could come at any time but since Iraq appears to be complying, it would take time for the US to make a case to the UN and the world.
Bottom line. Perception is what it's all about. President Bush and Prime Minister Blair must keep the UN and the world focused and 'pumped-up'. The free world has too much to lose if terrorist can organize and attack with weapons of mass destruction.
Normally, if unexpected war or conflict breaks out, the reaction of traders would be to sell. This occurs because the market would not have built-in war or conflict (into trading strategy) and traders do not like anything that is uncertain- so they sell. In the case of the current situation (2002-2003) with Iraq, the possibility of war has pretty much been factored in.
There are two war opinions.
1) If the market is in a pre-war rally, the market most likely will sell-off once the bombs begin to drop. Market probably will continue the sell-off until very good news changes sentiment. The kind of news that could reignite a rally are:
Hussein is eliminated.
War reports are encouraging.
2) If the market is in a pre-war sell-off or consolidation (risk of war already factored), and war breaks out- a rally most likely would occur sending prices higher.
Factors that can change market-reaction predictions are numerous and most times are not known when the prediction is made. Unexpected events can and do occur regularly. We know about N. Korea and the kind of things they can do to influence traders thinking!
There is a non-war opinion. The US and Britain keeps pressure on Iraq and continually threaten Hussein with war if he doesn't comply week by week- a stringing out process. The problem is you cannot keep 250,000 plus troops in a desert indefinitely. There's a limit to how long you can keep troops battle-ready. But this option limits loss of life and could get the job done over a long period of time. The problem with this option is- the pressure would have to be daily and President Bush, the UN, and the world can't focus on Iraq much longer, let-alone months or years. This may be attractive to some but out of the question for the US and Britain. End of History
Investors searching for relatively low-risk investments that can easily be converted into cash often turn to certificates of deposit (CDs). A CD is a special type of deposit account with a bank or thrift institution that typically offers a higher rate of interest than a regular savings account. Unlike other investments, CDs feature federal deposit insurance up to $100,000.
Here’s how CDs work: When you purchase a CD, you invest a fixed sum of money for fixed period of time – six months, one year, five years, or more – and, in exchange, the issuing bank pays you interest, typically at regular intervals. When you cash in or redeem your CD, you receive the money you originally invested plus any accrued interest. But if you redeem your CD before it matures, you may have to pay an "early withdrawal" penalty or forfeit a portion of the interest you earned.
Although most investors have traditionally purchased CDs through local banks, many brokerage firms and independent salespeople now offer CDs. These individuals and entities – known as "deposit brokers" – can sometimes negotiate a higher rate of interest for a CD by promising to bring a certain amount of deposits to the institution. The deposit broker can then offer these "brokered CDs" to their customers.
At one time, most CDs paid a fixed interest rate until they reached maturity. But, like many other products in today’s markets, CDs have become more complicated. Investors may now choose among variable rate CDs, long-term CDs, and CDs with other special features.
Some long-term, high-yield CDs have "call" features, meaning that the issuing bank may choose to terminate – or call – the CD after only one year or some other fixed period of time. Only the issuing bank may call a CD, not the investor. For example, a bank might decide to call its high-yield CDs if interest rates fall. But if you’ve invested in a long-term CD and interest rates subsequently rise, you’ll be locked in at the lower rate.
Before you consider purchasing a CD from your bank or brokerage firm, make sure you fully understand all of its terms. Carefully read the disclosure statements, including any fine print. And don’t be dazzled by high yields. Ask questions – and demand answers – before you invest. These tips can help you assess what features make sense for you:
The bottom-line question you should always ask yourself is: Does this investment make sense for me? A high-yield, long-term CD with a maturity date of 15 to 20 years may make sense for many younger investors who want to diversify their financial holdings. But it might not make sense for elderly investors.
Don't be embarrassed if you invested in a long-term, brokered CD in the mistaken belief that it was a shorter-term instrument-you are not alone. Instead, you should complain promptly to the broker who sold you the CD. By complaining early you may improve your chances of getting your money back. Here are the steps you should take:
We will forward your complaint to the firm's compliance department and ask that they look into the problem and respond to you in writing.
Please note that sometimes a complaint can be successfully resolved. But in many cases, the firm denies wrongdoing, and it comes down to one person's word against another's. In that case, we cannot do anything more to help resolve the complaint. We cannot act as a judge or an arbitrator to establish wrongdoing and force the firm to satisfy your claim. And we cannot act as your lawyer.
You should also contact the banking regulator that oversees the bank that issued the CD:
Is the market overbought? Do you think stocks are overvalued?
One way of determining what the value of a particular stock is, is the price to earnings ratio (P/E ratio). A lot of analysts would say yes, stocks are overvalued, especially tech stocks. Yet others will tell you that stocks may not be overvalued, they simple say that a stock might be overvalued only when the stock is sold off- who is to say what stock is or is not overvalued. A P/E ratio is just a measurement that, over time, analysts have used to produce someway of measuring a stocks worth. Consider this about today's market environment. If you look back nearly two years ago on the Barometer chart, you'll see that the Barometer-plots are on the same horizontal line. Compare 10/3/03 (Friday) to that of November 27, 2001. You'll see the Barometer-pots are exactly on the same horizontal line. If you check out where the indices were back then compared to 10/3
you will see that the major indexes are still below the 11/27/01 close. And back two years ago the markets peaked and began the long two year slid that we are just now coming out of. Back then the stock market anticipated a worsening economy and ended up with a depressed market. Today though, the economical indicators are picking up and companies appear to be recovering as is the economy. Barring geopolitical news, non-market related events, the case can be made that the next several years could bring much higher market levels. What stocks to buy is definitely a different question than where the market is headed. What sector to buy, small vs. large capital stocks, stocks vs. funds- it comes down to risk level and time that each investor has to spend studying- research and analysis. Unless this is a false start of a recovering economy, look for significantly higher market levels in the next one to two years.
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