Stock market risk is the risk that an investor assumes when investing in securities that trade on the stock market and that are issued by public corporations (companies that have many shareholders). Stock market risk can come in many forms. Rising interest rates and a rising inflation rate can increase stock market risk. A recession and economic contraction, where corporations will make less money, is another stock market risk. And, of course, there is individual public corporation stock market risk, where the individual company in question is not operating in good faith (an example would be Enron).
The Dow Jones Industrial Average (DJIA) is down 2.3% from its record-high on May 28, but just like the S&P 500, the DJIA appears to be flashing some fatigue on the charts, suggesting some stock market risk and possible market correction.
Now, this may only be a temporary pause, or it could be foreshadowing some upcoming selling, stock market risk, or a potential buying opportunity.
The chart featured below of the DJIA (shown in the red candlesticks) and the Dow Jones Transportation Index (in green) shows a decline in both (marked by the larger purple oval). This may indicate that something bigger is coming, or, as the case was in mid-April (as indicated by the smaller purple oval), we may just be seeing a market adjustment prior to another rally.
Chart courtesy of www.StockCharts.com
What will be interesting to monitor is if the transports follow the industrials higher on the chart. If so, it would help to confirm the move in the industrials.
If the transports fail to follow the industrials higher, however, it could suggest a bearish divergence and stock market risk, pointing to some upcoming selling.
The reasoning of Dow theory makes sense: if the country is producing and selling more goods, then we can expect the shipping business to also rise, including rail, truck, and ship, which is something the transports will indicate.
At this point, the industrials and transports are confirming each other. On the industrials, watch the 14,500 to 14,750 area on the above chart. Failure to hold here could drive stock market risk and cause the industrials to retrench to their previous sideways channel … Read More
The market is moving lower, and there’s nothing that appears to be supporting it. The S&P 500 has lost nearly eight percent since its peak of 1,465 in September.
The fact that the S&P 500 failed to hold above 1,400 was not a surprise, based on my technical analysis. In May, the break at 1,400 was the S&P 500’s fourth top above 1,400 since 2008.
Since the election, the market has edged lower in six of seven sessions due to heightened stock market risk.
On average, only about 37% of U.S.-listed stocks are trading above their respective 200-day moving averages (MAs), versus 61% a month ago. The short-term weakness is even more prevalent with about 19% of stocks above their respective 50-day MAs, versus 61% a month ago.
What happened to what were supposed to be the best six months of the year for investment gains?
Based on historical records, investing in the six months from November to May has produced the best returns for stocks versus the June to October period, according to the Stock Trader’s Almanac.
So far, November has been horrible, with the key stock indices down more than four percent. But as I said when I previously discussed this pattern, things could be different this time around, given the abundant stock market risk, including the financial crisis in the eurozone, a stalling economy in China, tension in the Middle East, and the presidential election and upcoming fiscal cliff in the U.S.
We are seeing some selling capitulation in the market because of the abundant stock market risk and lack of any positive news that would encourage … Read More
When I look at this market and how it has performed to date this year, I’m somewhat encouraged and surprised at the same time. While the advance has been decent, I continue to wonder why traders appear to be underestimating the overall stock market risk, which could lead to investor mistakes.
The third-quarter earnings season will likely be weak on both revenues and earnings. We are seeing more major companies slash jobs to compensate for the lower business volume.
I can tell you, considering my trading strategy and my desire to avoid investor mistakes, I’m taking some profits off the table, especially on some of my bigger winners; at the same time, I’m leveraging put options as a hedge against the potential vulnerability I see on the charts to avoid investor mistakes.
The charts are at a crux with technology stocks and small-caps turning lower as the market risk increases. So far, the NASDAQ is down over two percent in October and its gains from the end of the first quarter have disappeared. Moreover, the NASDAQ has broken below its 50-day moving average (MA) at around 3,084, and it is threatening to move lower, based on my technical analysis. The same situation is occurring for the small-cap Russell 2000 index, which is sitting just above its 50-day MA. With the Relative Strength Index (RSI) weakening, I would not be surprised to see more downside moves, so be careful to avoid investor mistakes.
I have talked about the earnings season and the market expectations that growth will be muted and driven more by cost cuts than revenue growth. Keep this in … Read More
Bellwether parcel delivery company FedEx Corporation (NYSE/FDX) recently announced it was cutting jobs due to the slowing demand from Europe and Asia. However, the stalling from Europe is not confined to a single sector, but spreads out across the board, and this poses stock market risk. Economies around the world, from the U.S. to Europe and China, are impacted.
This dire situation is not going away soon, and in my view, it will take years—perhaps decades in the case of Greece—to resolve, adding to the stock market risk. The irony is that traders appear to be underestimating the potential impact from Europe and the stock market risk.
In reality, the market is betting on a resolution and calm returning to the eurozone. Spain will likely require a full bailout when it makes a formal request. European Central Bank (ECB) president Mario Draghi said the central bank would help Spain once it formally requests a bailout. Spain has already received about $130 billion to avert a financial crisis in its fragile banking system. In my opinion, the ECB wants to see Spain put together a tough austerity program in exchange for a bailout, but Spain is trying to avoid this.
The yield on the 10-year Spanish bond fell to a seven-week low of 6.2% on Monday after trading over the critical 7.0% level. Optimism towards a Spanish bailout is helping to support and is reduce the high stock market risk for traders.
The yield had been on a steady upside move since trading around 5.0% in late February. The reality is that the high yields are unsustainable and add to the … Read More