Corporate Spending Suggest Economic Rebound

So far this year the amount of money corporations (non-financial) have spent on capital expenditures has risen to $149 Billion, the best since 2008.


This is a VERY positive sign for the economic landscape and the stock market in general. Corporations have been sitting on their cash for years due to the uncertainty that was on the horizon. Everything from new government regulations to troubles in Europe to the tax code has kept the wallets closed. But now it appears that may be changing and if this trend continues it will lead to more jobs as demand for good and services increases.

This is a win-win for everyone involved. And one more reason I believe the stock market moves higher in the months ahead.

Here is the link to the article: http://www.bloomberg.com/news/2011-11-07/capital-spending-nears-2008-level-as-u-s-skates-new-recession.html

Today's Market Recap

The market was up today on the back on news out of Europe – there is a shocker!! The ECB had a surprise rate cut and the Greek referendum vote has been tabled, both good news for equities. The S&P 500 was up 1.9% and is back to breakeven for the year. It is amazing that after the wild ride that investors have had to endure the last 10 months that the market is essentially flat.

A continued barrage of solid earnings have provided a solid backdrop for the most recent rally. A big winner today was Estee Lauder Companies ($EL), which blew expectations out of the water and rallied 18% to a new all-time high. Communication equipment company Qualcomm ($QCOM) also beat expectations and the stock finished up 7.5% at a 3-month high.

In the world of commodities, oil was able to trade at the best level in 3 months – this is one of the better future indicators of global growth. If the world was in for a recession the price of oil would not be rallying. The US Oil ETF ($USO) was up 1.8%.

The top performing Sector ETFs of the day were a surprise. When the risk trade is back on, as it was today, typically the risky sectors will rise. Not the case today. The iShares Dow Jones Aerospace & Defense ETF ($ITA) was up 3.2% and the iShares Dow Jones US Pharmaceutical ETF ($IHE) was up 2.9%.

Market Wrap - Do Not Give Up

Do Not Give Up

The selling today should not come as a surprise to anyone that regularly reads this blog or to anyone that is realistic when it comes to investing. After a 20% rally from the low on 10/4 through the high of last week, it would be unrealistic to believe that stocks were not due for a pullback at some point this week.

Even though the selling was exasperated late in the day, this is no reason to give up on stocks completely and throw in the towel. I believe the S&P 500 will find support in the 1230-1250 area and at the point investors can begin to scale into new positions. Due to the large number of hedge funds and individual investors that are out of the market at this time, all weakness should be met with some buying. This is the biggest factor as to why stocks should find support by the end of the week.

Still a Record Month

Even after a wave of selling overtook the markets today, the month of October is one of the best on record. The S&P 500 will close with its best month since 1987 and the Dow has its best month since 1982.

In the months following the January 1987 rally the S&P continued to move higher as did the Dow after its October 1982 surge. Based on history, big months have been the start of a rally that lasts a few more months. Just one more reason to look at the pullbacks as opportunities to buy at discounted prices.

ETFs for the Nervous Investor

If you disagree with me and feel the market will continue lower or if you would like to hedge your portfolio you must read this short article I wrote last week. It includes a few ETFs that will protect your portfolio during another pullback. The four ETFs were up on average 1.6% today.

Here is the link:

http://stocks.investopedia.com/stock-analysis/2011/ETFs-to-Hedge-Another-Sell-Off-HDGE-SH-FXY-TLT1024.aspx#axzz1cO2fHJwW

Low-End Retailers Showing Strength

Last week a set of economic numbers pointed to consumers spending more than anticipated and at the same time they are saving less. This sounds like someone else I know - The US Government.

I do not agree with this strategy, however from the viewpoint of making money in the stock market it does suggest the holiday season will be a good one and why not look at the retail stocks.

Today some of the l0wer-end retailers are holding up well and showing relative strength versus the overall market. Here are a few:

• Big Lots ($BIG) is up 1.5% and holding support at $36 after the recent breakout.

• Ross Stores ($ROST) is up 1.3% and has been mentioned several times in my blog as a favorite retailer of mine.

• Family Dollar Stores ($FDO) is up 1.7% and has been a leader in the bargain shopping sector.

• Bed Bath & Beyond ($BBBY) is up 1.1% and was my stock pick of the week on Fox News Channel's "Bulls & Bears" this past weekend.

What to Do With Stocks Now!!

After a 20% rally from the low on 10/4 through last week's high there is no doubt in my mind that stocks are WAY overdue for a breather. This pullback appears to have begun this morning with the major indices down 1.25%.

The S&P 500 will likely fall back into the old resistance area (1230 - 1250) this week and at that point should attract more buyers.

The keys are to be patient when looking to establish new positions, look for support on the market and individual stocks, and do not be timid when a stock hits your buy area.

For reasons I will detail in a blog post later today, I feel the market is poised for higher prices into the end of the year. BUT, that does not eliminate volatility that will create wild daily swings and buying opportunities for patient investors.

Bear Market to Bull Market in 3 Weeks

On October 4^th, just over 3 weeks ago the headlines were touting a new Bear Market after the US markets fell at least 20% from their recent highs. That day happened to mark a 52-week low for stocks and since that time the S&P 500 has rallied 20% to a new multi-month high.

The poor, uneducated investors that decided to sell stocks after the headlines grabbed the attention of the media are now pacing and trying to figure out how to get back into the market.

This is just one more reason I always suggest individual investors stay away from attempting to “time the market”. Sure it is doable, but leave that up to people like me that look at the charts 24/7 and let us do our job. Granted I will be wrong, but the key is to remove emotions and use the research we have to make educated decisions – NOT Emotional Decisions.

The Big Question now is whether it is time to Buy into the current rally or Sell into the strength.

My answer is a little bit of both. I can guarantee investors are sitting on stocks/ETFs they have wanted to sell for weeks and were looking for a bounce. Well here is your bounce!!

If you are not comfortable with a position, sell into the rally. OR place a stop-loss a few percentage points below the current price in the event the stock begins to fall. This will allow for a higher sell price if the market rally continues.

Investors that are under invested can now look to stocks on their WatchList and use any type of pullback in the next week as an opportunity to play what I feel could be a year-end rally that takes stocks higher. The key is buying on weakness and Do Not Chase now and panic that you missed the entire rally.

US Dollar Set to Rally

The US Dollar Index has fallen nearly 5% in the last three weeks as the stock market has rallied and money has moved out of the safe-haven currency into the Euro and other foreign currencies.

There has yet to be a resolution out of Europe and as speculation that a big deal will not get done the stock market rally has faded and the US Dollar has found support. If the news is not very good out of Europe in regards to a Greece bailout I expect stocks to fall after hitting resistance and the Greenback will rally.

To play such a rally in the US Dollar there is the PowerShares US Dollar Index Bullish ETF ($UUP) that moves in tandem with the index. The ETF is attempting to make a short-term bottom today.

For the more aggressive trader there is the ProShares UltraShort Euro ETF ($EUO) which is double the inverse daily move of the Euro. So as the US Dollar rises the Euro will likely fall.

** All leveraged ETFs are very aggressive in nature.