A Buy Signal Is Flashing
These are trying times for anyone who has money in the stock market. As I write, late in the last trading day of the week, the S&P 500 Index is off 2.8%, the Dow Jones Industrial Average is down 2.9%, and the Nasdaq Composite has shed 3.5%.
And that’s just Friday’s carnage.
There’s no question now that this is the worst start to a year in stock market history.
And there’s a particular apprehension for people who manage portfolios on behalf of other people or do research and make recommendations for self-directed investors.
Yeah, it’s hard to believe.
According to a study conducted at the University of Notre Dame last year, 51% of Wall Street executives making more than $500,000 a year said they thought it likely their competitors have engaged in unethical or illegal activity to gain advantage in the market.
More than a third of these top financial executives said they have personally witnessed or otherwise had firsthand knowledge of wrongdoing in the workplace.
And a quarter said they had signed or had been asked to sign confidentiality agreements barring them from reporting unethical or illegal activities.
That’s not us. We operate in the world of financial markets, but we are not of Wall Street.
And based on a few one-on-one conversations I’ve had this week, my colleagues – analysts who make recommendations for subscribers to Wall Street Daily’s premium services – are genuinely concerned about the impact of this correction on their readers.
Our goal is to develop relationships that endure over the long term. And we do that by providing a high-quality service.
Providing that level of service starts with a commitment to rigorous fundamental and technical research.
Go Where the Research Takes You
As Senior Analyst Jonathan Rodriguez notes in this weekend’s Saturday Spotlight, we’re basically “picking up where 2015 left off.”
Jonathan’s focus is on technical research. And he’s put together an enviable track record as the lead research analyst for Trigger Point Pro.
Yes, all three major U.S. equity indices are well into correction territory. Just since the 2016 trading year began on January 4 the S&P 500 has shed 8.1%, the Dow 8.5%, and the Nasdaq 10.6%.
It’s ugly. But it’s no time for investors to panic.
Here’s the Big Takeaway from Jonathan’s presentation: “Momentum is going to swing to the upside very soon.”
The Quantity of Motion
The “stock market,” however broadly defined, is not an object. But we can use physical terms to describe it.
A favorite term among technicians is “momentum,” and the relative strength index (RSI) is the chief indicator.
As Jonathan explains, RSI measures the momentum of a stock or an index on a scale of zero to 100. This is the measure folks are referring to when they describe the market as “oversold.”
Jonathan makes another critical observation, one that’s related to the Big Takeaway: “Price moves in waves in the stock market – it never goes straight up, and it never goes straight down.”
If you’re an investor, you can’t be surprised when markets slide 10%, or even 20%, in a relatively short time frame. Nor can you be caught off guard when markets surge 10%, or even 20%, in another relatively short time frame.
If you’re an investor, you’re prepared for these types of events, by managing risk in the first case, by having a list of stocks you want to buy in the second.
The Market Is Oversold
We can measure these waves using an indicator such as RSI.
When RSI pushes through 70 on the upside, a stock or an index is said to be “overbought.” When it crashes through 30 on the downside, it’s said to be “oversold.”
S&P 500 RSI right now is at 29, with 18% of its components “oversold.”
(The most widely followed equity index in the world is also trading three standard deviations below its 50-day moving average, another sign of heavy volatility and that the selling has gotten way out of hand.)
The Dow Jones Industrial Average and the Nasdaq Composite are also in “oversold” territory.
Jonathan takes us through the ins and outs – and the ups and downs – of RSI, providing solid insights that will help us identify momentum swings and determine optimal buying opportunities.
The bottom line is we might be in the midst of one of the best buying opportunities we’re going to see all year.
The market has gotten very oversold very quickly, a circumstance that doesn’t happen very often. Borrowing Jonathan’s analogy, the rubber band has gotten stretched really, really thin really, really fast.
The most recent comparable is August 2015, which was marked by one of those “flash” crashes that have become part of the market experience. The rebound off a short-term, double-digit decline was decisively positive.
It’s due to snap back, with extreme – and perhaps extremely profitable – force.
Stocks aren’t going to stay this weak for much longer.
Break out your watch list. Now is the time to buy.
Mr. Rodriguez has set the price.
On one hand, rising interest rates are supposed to negatively impact share prices of publicly traded utilities.
On the other hand, during periods of extreme downside volatility, the predictability of essential-service stocks makes them suitable and safe even for “widows and orphans.”
Senior Analyst Jonathan Rodriguez, featured in this weekend’s Saturday Spotlight, puts one of America’s oldest utilities, Consolidated Edison Inc. (ED), under his microscope, evaluating the investment case based on technical as well as fundamental criteria.
Investors have flocked to “safe haven” dividend-paying stocks such as ConEd in the early, ugly days of 2016.
But that trend could soon reverse.
Senior Analyst Greg Miller examines another conundrum: Despite the natural beauty and lifestyle options of the Bay Area, why would tech companies continue to expose themselves to the “ultimate boogeyman,” California’s state government?
The Golden State’s Department of Motor Vehicles recently issued a new set of rules that seem crafted with the specific purpose of destroying the nascent autonomous automobile industry in its infancy.
Indeed, the only thing standing in the way of widespread adoption of driverless car technology is regulation.
Chief Income Analyst Alan Gula takes a look back at 2015 to establish some context for the early days of 2016.
The first 10 days of the year have been wild. And compared to last year, it’s been absolutely insane, as “…2015 was actually pretty tame.” That’s based on Alan’s evaluation of actual price changes over the course of the entire year.
As Alan notes, the key to insulating your portfolio against volatility is diversification.
Chief Technology Analyst Lou Basenese has Part Two of his look at 2016 from a technology perspective, including five more predictions.
Among the major trends to keep your eyes on over the next 12 months are the impact of declining lithium-ion battery prices on installations of distributed power solutions by homes and businesses.
This, in addition to rising interest rates, is another big deal for the utilities space.
Finally, Global Markets Analyst Martin Hutchinson provides some solutions for income-focused investors starved because valuations on U.S.-based dividend-paying stocks have been pushed too high.
Look across the pond to Europe, where after years of struggle, “economic prospects are now looking distinctly better.”
Martin has three investment ideas to act on, including an exchange-traded fund and two companies with solid liquidity in the U.S. Both are located in attractive home markets with solid fundamentals, and both pay decent dividends.