Posts tagged investor sentiment
Global equities rocked by US economic fears
Aug 31st
World stock markets sank heavily on Tuesday as investors shunned risky assets amid renewed fears over the United States economy, while Tokyo also dived on concern over the soaring yen, dealers said.
In morning European deals, London shed 1.05 percent as British investors returned from a long weekend after a public holiday on Monday. Frankfurt slid 0.79 percent, Paris dived 1.00 percent and Madrid dipped 1.35 percent.
“The market is still definitely in a negative mindset, as the engine of world growth — the United States economy — seems to be stalling,” said analyst Phil Gillett at trading firm Spreadex in London.
“Risk aversion is still at the forefront of traders’ minds,” he added.
Wall Street slumped on Monday after weak consumer spending figures and ahead of key data later this week expected to show the US economic recovery is slowing down.
Before the weekend, New York had rallied after Federal Reserve chief Ben Bernanke said the US central bank was ready to step in if the economy faltered.
“Continued concerns about the pace of economic recovery — specifically in the US — have provoked further risk aversion since Friday’s post-Bernanke bounce,” added CMC Markets analyst Michael Hewson.
In Asia on Tuesday, Japan‘s multi-billion-dollar plans to boost its economy and rein in the yen were shrugged off as a fresh set of poor US data and the strong yen weighed on investor sentiment.
Tokyo plummeted to a 16-month low, one day after the government unveiled an 11-billion-dollar package of stimulus measures aimed at kickstarting growth and spending in the nation.
That came hours after the Bank of Japan (BoJ) announced a fresh batch of monetary easing aimed at taming the soaring yen which is hampering the export sector that is key the economy’s health.
However, traders were unimpressed with the efforts and, with weak consumer figures in the US pointing to a global slowdown, they bought into the safe-haven yen, sending it up against the dollar and euro.
The Tokyo stock market plunged 3.55 percent to 8,824.06 points — its lowest closing level since April 2009 — wiping out Monday’s gains, as worries over a strong yen hit exporters.
“It would appear that market reaction to the BoJ’s extra stimulus has merely served to reinforce the perception of central bank impotence in the face of deteriorating economic conditions, thus fuelling risk aversion and equity market sell-offs,” added Hewson.
The dollar, which had struck a 15-year low last week, slipped to 84.30 yen in morning London trade, from 84.55 yen late Monday in New York.
Investors got an anaemic lead from Wall Street, where the Dow fell 1.39 percent on Tuesday after the Commerce Department released data showing July consumer spending rose by just 0.4 percent and incomes gained 0.2 percent.
The data was largely in line with forecasts but analysts said the numbers were disappointing as they showed spending outpacing income.
Consumer spending is a key driver of US economic growth, usually accounting for two-thirds of output.
Kenneth Broux, markets strategist at Lloyds Banking Group, said equities were being hampered by two factors.
First, he cited “the rate of US economic deterioration in the third quarter”.
And secondly, Broux added that there was “a realisation that US and Japanese central banks have played their cards — and additional now be on key US economic data due to be released this week, including industrial manufacturing numbers on Wednesday and key employment figures on Friday.
In Zurich, the Swiss franc reached a historic high point against the euro when the Swiss refuge currency continued to strengthen.
The euro dipped to 1.2912 Swiss francs, a record low level since the European currency was introduced in 1999, after hovering either side of the symbolic 1.30-franc barrier for the past week.
“The psychological barrier of 1.30 has definitely been breached,” said analysts at Zuercher Kantonalbank (ZKB).
Analysts believe the Swiss franc will continue to strengthen to record levels against the euro, despite a pattern of intervention by the Swiss central bank earlier this year to dampen its rise and avoid deflation.
Weekly Outlook – Bernanke Bounce on Friday
Aug 31st
Bernanke Bounce on Friday
Last week’s currency trading review
The Dollar finished the week of a weak footing after Bernanke’s speech at the Jackson Hole Symposium helps risk asset’s rally on Friday. Earlier in the week safe haven flows had supported the Dollar and most pairs tested month lows led by the Euro. Existing Home Sales slumped 27% to 3.83m in July. The Euro managed small gains on better than forecast German IFO in August and Dollar Selling on Friday. EUR/JPY was also a big mover as the USD/JPY reacts to BOJ intervention talk. The EUR/USD gained +0.39% closing at 1.2761, after opening the week at 1.2711.
The Japanese Yen was volatile against most pairs with the USD/JPY surging on Friday after reports of a special BOJ meeting surfaced and the PM got ready to meet with the BOJ Governor Shirakawa. Deflation continued with August CPI at -1.1% y/y. The USD/JPY fell -0.48% closing at 85.20 vs. 85.60 previously. The GBP some good economic data was unable to help the pound rally with sentiment towards pair still weak and investor sentiment mixed. Q2 GDP was revised higher to 1.2% vs. 1.1% initial reading. The GBP/USD fell -0.03% closing at 1.5526 after opening at 1.5531. The AUD traded under 0.8800 mid week before staging a stunning rally on Friday with AUD/JPY surging over 200 pips and AUD/USD testing 0.9000. Q2 CAPEX missed forecasts at -4.0% vs. 2.3% previously. The AUD/USD gained +0.57% closing at 0.8988 after opening at 0.8937.
The Forex Trading Week Preview
In the States; On Tuesday, June CS Home Prices forecast at 3.6% vs. 4.6% y/y previously. Also released, August Chicago PMI is forecast at 50.9 vs. 50.0 previously along with August FOMC minutes. On Wednesday, August ADP Employment Change is forecast at 17k vs. 42k previously. Also released, August ISM Manufacturing is forecast at 52.8 vs. 55.5 previously. On Thursday, Weekly Jobless Claims are forecast at 475k vs. 473k previously. On Friday, August Non Farm Payrolls are forecast at -100k vs. -131k previously. We will provide our previews and reviews of these data releases in the daily summary.
In the Eurozone; On Tuesday, August CPI is forecast at 1.6% vs. 1.7% y/y previously. On Thursday, ECB rate announcement and press conference forecast to hold at 1.0%. On Friday, July Retail Sales are forecast at 0.2% vs. 0.3% m/m previously. In the UK, on Wednesday, August PMI Manufacturing is forecast 57 vs. 57.3 previously. On Thursday, August Nationwide House prices is forecast at -0.3% vs. -0.5% m/m previously. On Friday, August PMI Services previously at 53.2 previously. We will provide our previews and reviews of these data releases in the daily summary.
In Japan; On Tuesday, July Retail Trade forecast at 0.5% vs. 0.4% previously. In Australia; On Wednesday, Q2 GDP is forecast at 0.9% vs. 0.5% Q/Q. On Thursday, July Trade Balance forecast at 3.1bn vs. 3.539bn previously. We will provide our previews and reviews of these data releases in the daily summary.
| Currency | Sup 2 | Sup 1 | Spot | Res 1 | Res 2 |
| EUR/USD | 1.2152 | 1.2434 | 1.2750 | 1.2933 | 1.3000 |
| USD/JPY | 81.85 | 83.60 | 85.80 | 86.38 | 88.12 |
| GBP/USD | 1.5125 | 1.5324 | 1.5545 | 1.5713 | 1.5999 |
| AUD/USD | 0.8634 | 0.8771 | 0.9015 | 0.9080 | 0.9222 |
| XAU/USD | 1190.00 | 1210 | 1234 | 1247 | 1265.00 |
| OIL/USD | 72.50 | 75.00 | 75.40 | 76.00 | 78.00 |
Euro – 1.2750
Initial support at 1.2434 (61.8% retrace of 1.1877-1.3334) followed by 1.2152 (June 29 low). Initial resistance is now located at 1.2933 (Aug 12 low) followed by 1.3000 (Big figure Resistance)
Yen – 85.80
Initial support is located at 83.60 (August 24 low) followed by 81.85 (May 1995 low). Initial resistance is now at 86.38 (August 13 high) followed by 88.12 (July 28 high).
Pound – 1.5545
Initial support at 1.5324 (38.2% retrace of 1.4231-1.5999) followed by 1.5125 (July 21 low). Initial resistance is now at 1.5713 (Aug 12 high) followed by 1.5999 (Aug 12 high).
Australian Dollar – 0.9015
Initial support at 0.8771 (Aug 25 low) followed by the 0.8634 (July 19 low). Initial resistance is now at 0.9080 (August 17 high) followed by 0.9222 (Aug 6 high).
Gold – 1234
Initial support at 1210 (Aug 13 low) followed by 1190 (Aug 10 low). Initial resistance is now at 1247 (June 30 high) followed by 1265 (June 21 high).
Oil – 75.40
Initial support at 75.00 (Intraday Support) followed by 72.50 (Intraday Support). Initial resistance is now at 76.00 (Intraday Resistance) followed by 78.00 (Intraday Resistance).
| Source: Easy-Forex.com |
Weekly Outlook – Bernanke Bounce on Friday
Aug 31st
Bernanke Bounce on Friday
Last week’s currency trading review
The Dollar finished the week of a weak footing after Bernanke’s speech at the Jackson Hole Symposium helps risk asset’s rally on Friday. Earlier in the week safe haven flows had supported the Dollar and most pairs tested month lows led by the Euro. Existing Home Sales slumped 27% to 3.83m in July. The Euro managed small gains on better than forecast German IFO in August and Dollar Selling on Friday. EUR/JPY was also a big mover as the USD/JPY reacts to BOJ intervention talk. The EUR/USD gained +0.39% closing at 1.2761, after opening the week at 1.2711.
The Japanese Yen was volatile against most pairs with the USD/JPY surging on Friday after reports of a special BOJ meeting surfaced and the PM got ready to meet with the BOJ Governor Shirakawa. Deflation continued with August CPI at -1.1% y/y. *The USD/JPY fell -0.48% closing at 85.20 vs. 85.60 previously. The GBP some good economic data was unable to help the pound rally with sentiment towards pair still weak and investor sentiment mixed. Q2 GDP was revised higher to 1.2% vs. 1.1% initial reading. *The GBP/USD fell -0.03% closing at 1.5526 after opening at 1.5531. The AUD traded under 0.8800 mid week before staging a stunning rally on Friday with AUD/JPY surging over 200 pips and AUD/USD testing 0.9000. Q2 CAPEX missed forecasts at -4.0% vs. 2.3% previously. The AUD/USD gained +0.57% closing at 0.8988 after opening at 0.8937.
The Forex Trading Week Preview
In the States; On Tuesday, June CS Home Prices forecast at 3.6% vs. 4.6% y/y previously. Also released, August Chicago PMI is forecast at 50.9 vs. 50.0 previously along with August FOMC minutes. On Wednesday, August ADP Employment Change is forecast at 17k vs. 42k previously. Also released, August ISM Manufacturing is forecast at 52.8 vs. 55.5 previously. On Thursday, Weekly Jobless Claims are forecast at 475k vs. 473k previously. On Friday, August Non Farm Payrolls are forecast at -100k vs. -131k previously. We will provide our previews and reviews of these data releases in the daily summary.
In the Eurozone; On Tuesday, August CPI is forecast at 1.6% vs. 1.7% y/y previously. On Thursday, ECB rate announcement and press conference forecast to hold at 1.0%. On Friday, July Retail Sales are forecast at 0.2% vs. 0.3% m/m previously. In the UK, on Wednesday, August PMI Manufacturing is forecast 57 vs. 57.3 previously. On Thursday, August Nationwide House prices is forecast at -0.3% vs. -0.5% m/m previously. On Friday, August PMI Services previously at 53.2 previously. *We will provide our previews and reviews of these data releases in the daily summary.
In Japan; On Tuesday, July Retail Trade forecast at 0.5% vs. 0.4% previously. In Australia; On Wednesday, Q2 GDP is forecast at 0.9% vs. 0.5% Q/Q. On Thursday, July Trade Balance forecast at 3.1bn vs. 3.539bn previously.We will provide our previews and reviews of these data releases in the daily summary.
TECHNICAL COMMENTARY
Currency
Sup 2
Sup 1
Spot
Res 1
Res 2
EUR/USD
1.2152
1.2434
1.2750
1.2933
1.3000
USD/JPY
81.85
83.60
85.80
86.38
88.12
GBP/USD
1.5125
1.5324
1.5545
1.5713
1.5999
AUD/USD
0.8634
0.8771
0.9015
0.9080
0.9222
XAU/USD
1190.00
1210
1234
1247
1265.00
OIL/USD
72.50
75.00
75.40
76.00
78.00
Euro – 1.2750
Initial support at 1.2434 (61.8% retrace of 1.1877-1.3334) followed by 1.2152 (June 29 low). Initial resistance is now located at 1.2933 (Aug 12 low) followed by 1.3000 (Big figure Resistance)
Yen – 85.80
Initial support is located at 83.60 (August 24 low) followed by 81.85 (May 1995 low). Initial resistance is now at 86.38 (August 13 high) followed by 88.12 (July 28 high).
Pound – 1.5545
Initial support at 1.5324 (38.2% retrace of 1.4231-1.5999) followed by 1.5125 (July 21 low). Initial resistance is now at 1.5713 (Aug 12 high) followed by 1.5999 (Aug 12 high).
Australian Dollar – 0.9015
Initial support at 0.8771 (Aug 25 low) followed by the 0.8634 (July 19 low). Initial resistance is now at 0.9080 (August 17 high) followed by 0.9222 (Aug 6 high).
Gold – 1234
Initial support at 1210 (Aug 13 low) followed by 1190 (Aug 10 low). Initial resistance is now at 1247 (June 30 high) followed by 1265 (June 21 high).
Oil – 75.40
Initial support at 75.00 (Intraday Support) followed by 72.50 (Intraday Support). Initial resistance is now at 76.00 (Intraday Resistance) followed by 78.00 (Intraday Resistance).
BoJ move Shifts Investor Sentiment Back to Dollar
Aug 30th
The U.S. Dollar is strengthening this morning after the Bank of Japan decided to invoke an emergency easing plan. The BoJ avoided an intervention but instead decided to provide liquidity in an attempt to weaken its currency. The plan includes expanding its current 20 trillion Yen quantitative easing program to six-months from its current three-month time frame. It also increased the amount of funds available by 10 trillion Yen.
Forex traders reacted to this plan by purchasing the Dollar against most major currencies in what can best be described as a flight-to-safety rally.
Technically, after an attempt to breakout to the upside through the last swing top at 85.91, the USD JPY is now trading sharply lower. The last main bottom at 83.59 seems safe at this time, but could be challenged later in the day if 84.75 cannot hold today’s break.
A Head and Shoulders BOTTOM!?
Aug 30th
There has been a certain amount of chatter lately re the prospects of a head and shoulders topping pattern.
To the best of my knowledge, however, I am unaware of anyone who has put forth the prospects of a head and shoulders BOTTOM. So, here goes.
The accompanying chart illustrates the prospective bullish pattern with the obvious necessary future price action to make it happen.
While not fitting the textbook version of the pattern, considering the heavy bearish sentiment in the air such an outcome would have to rank fairly high as a contrarian call. The measured move of the pattern is not a biggie – 100 points above the neckline, which is around 1120. That means the upside potential is limited to the approximately the previous high, which is around 1220. And that gets us into a whole other set of potential patterns. (Double tops, anyone?)
A Word of Caution
As someone who has conducted numerous events and interviews with some of the very best in technical analysis, when it comes to head and shoulders patterns there is one piece of advice each of these veterans of technical analysis cite: NEVER anticipate a head and shoulders pattern. Like a good boy scout, being prepared is always a good thing to do. Whether to act or not before the fact is risky business.
That said, acting on what others might act on can be a profitable exercise. Which brings me to the main point of this blog commentary.
If you have read my blog for any length of time you know I am not a chart pattern guy. Like investor sentiment and volume measures, I find chart patterns necessary to be aware of as so many others reference and sometimes act upon them. However, as a highly predictive tool in and of themselves, not so reliable. Therefore, as a student of the market, it is essential that I understand the market structure and the behavioral aspects of how the game is played. In other words, knowing the nature of the beast (structure and participants) should be an essential part of every investor’s investment decision-making toolkit.
Accordingly, the structure of the market (e.g. high frequency trading, the role of ETFs, dark pools and structured products and how they disguise the true nature of investor interest) and the players, their motives and behavior (e.g. hedge funds, traditional institutional investors, the virtual disappearance of individual investors) has become an essential part of the investment decision-making process. Put differently, if you are sitting at a card table and don’t know who the sucker is, it’s you. In all this, pattern recognition and other use such tools (that others tend to use) are most helpful when it comes to playing the game, hopefully tilting the odds more in your favor.
What About The Bounce?
By the way, the bounce potential for stocks is intact. The bottom parts of the accompanying chart show near term weakness (momentum and MACD) and a short term oversold (slow stochastics). The conclusion reached the other day is unchanged – a bounce and little more.
Whether the bounce is like a ball going down a flight of stairs, bouncing up after each progressive lower step (the reverse of most of last year’s market action) or the start of some stabilization culminating in the head and shoulders bottom remains to be seen.
This post orginally appeared at Vinny Catalano’s blog and is republished here with permission.
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Citi: Sentiment Is Panicked And Valuations Are Cheap
Aug 28th
The latest PULSE Monitor product from Citi highlights the potential for a stock market rally in Q4, based on the fact that valuations have become particularly cheap on a relative basis to U.S. government bonds and that investor sentiment has fallen further.
Citi’s Tobias Levkovich:
Our model using Baa yields instead of the 10-year Treasury shows the market is undervalued at 3.36 standard deviations below the mean.
Valuations using 10-year average earnings show stocks being relatively inexpensive versus A-rated bonds. Our most highly correlated valuation metrics now shows the S&P 500 to be more than 30% undervalued.
Sentiment just gets uglier:
Our Panic/Euphoria climbed remained in panic territory. This week’s Panic/Euphoria reading was -0.35; versus last week’s revised number of -0.31, generating a high probability of a rally over the next six-to-12 months.
Even if you aren’t sold on the strength of the recovery, this could still be viewed as a trading call.
Basically Every Analyst Thinks Potash Is Probably Heading Higher
Aug 18th
Below is a few analyst quotes regarding BHP/Potash.
The gist: Pretty much everyone thinks Potash will probably head higher.
———–
Citigroup
Potash Value Unlocked; Target Price to $170 on Replacement Analysis
P.J. Juvekar
18 August 2010
Potash Value Unlocked – BHP’s $130 per share bid highlights the desirability of potash assets, but surprised us with a paltry 16% premium. Given the easier takeover laws in Canada, we think BHP can buy POT, but it will have to be at a much higher price, in our view. We are raising our target price to $170 and maintain our Buy on POT.
So What’s POT Worth? – Our detailed replacement value analysis indicates a conservative $170 per share valuation. We think there is scarcity value for potash assets given a greenfield mine takes 5-7 years to complete with no cash flow during that period. So in its “Buy vs. Build” decision, BHP has resorted to buying. It is possible BHP used its proposed Jansen mine in Canada as “smoke screen” for the bid.
Raising Our Price Target – We are raising our price target to $170 per share which represents a 10% premium to POT’s replacement value. We think top shareholders are unlikely to sell their stake at the current proposed price and that BHP will have to raise its bid for POT. Maintain our Buy on POT.
UBS
PCS rejects “grossly inadequate” BHP bid
Brian MacArthur
17 August 2010
Given the current bid for PotashCorp by BHP, we note that investor sentiment toward potash is more positive and could support future pricing. Furthermore, given PotashCorp’s unique quintuple leverage, we believe it has the greatest Potash potential within the potash industry to take advantage of an improving potash market. We also note historically tier one assets, such as PotashCorp’s, have traded/sold for premium multiples.
Our $170 price target is based upon our sum-of-the-parts analysis utilizing nitrogen, phosphate, and potassium multiples of 5.5x, 5.5x, and 10x (up from 9x given improving potash fundamentals) to 2011E segment EBITDA and adding a 35% premium for control of tier one assets with large optionality and adding the value of investments.
National Bank Financial
Raising price target to US$180 assuming protracted takeover battle
Hari Sambasivam
18 August 2010
Stock likely to appreciate further given POT’s features
We expect BHP’s unsolicited bid for POT to trigger a long takeover battle, and expect POT to trade higher based on a) world class potash assets with long reserve life and low cash costs; b) attractive potash industry structure; c) largest source of potash capacity expansions, that position POT to capitalize on demand recovery; d) strong presence in the phosphate and nitrogen segments; e) ongoing consolidation in the Russian potash industry (Uralkali, Silvinit) that might reduce the number of manufacturers; and f) potential for competing bids from other global mining companies (e.g., Rio Tinto, Vale). POT stock has already traded through the bid to $140 (intraday, Aug. 17).
Raising target to US$180 assuming protracted takeover battle
We have raised our price target to $180 based on a) the range provided by the EV/EBITDA and P/E based approaches (See Figure 1); and b) 60% premium to yesterday’s price, which is similar to the takeover premiums for Dofasco, Alcan and Inco (Source: PotashCorp). We derive a target of $206 based on P/E multiples, and $172 based on EV/EBITDA multiple. Upside to our estimates could come from strengthening grain prices, given the recent global production shortfalls for wheat, and the concomitant increases in potash prices. We are at present modelling conservative potash prices of US$400/tonne FOB Vancouver for 2011 (spot mid-western potash price at $390-$397/tonne).
CIBC
BHP’s Initial Offer Rejected But Expect A Higher Bid
Jacob Bout
17 August 2010
BHP’s bid for POT likely reflects its positive outlook for the potash market and potential consolidation in the Russian potash industry. BHP has indicated that its strategy when entering an industry is to be one of the top players. Acquiring POT would immediately make BHP the largest producer.
We believe that BHP will remain committed to it acquisition of POT. BHP has made known its desire to enter the potash industry and we believe there is a likelihood that it will increase its bid from its current offer of $130/share. POT’s assets are the crown jewel of the potash industry.
Will Mining Penny Stocks Wake Up? Goldman Sachs is Bullish on Gold
Aug 13th
Goldman Sachs recently came out with a bullish call on gold. Although many gold bugs and conspiracy theorists are calling for $2000 per ounce. Goldman’s $1300 target within 6 months should still be positive for gold stocks. Mainly because there are only four or five Wall St. firms that have the ability to change short term investor sentiment. For obvious reasons the boys at GS fall into that elite category.
Flight-to-Safety Driving Dollar, Yen Higher; U.K. Lowers Growth
Aug 11th
The U.S. Dollar is trading sharply lower against most major currencies with the exception of the Japanese Yen. Investor sentiment has shifted away from risk leading to weakness in the commodity-linked currencies. A reduction in the outlook for U.K. GDP is leading to a huge sell-off in the British Pound.
Technically, the Euro main trend is down on the daily chart. Downside momentum is building which is expected to drive this market into an uptrending Gann angle at 1.2816. Ultimately this market is likely to retrace 50% of its recent range to 1.2605.
The main trend is also down in the British Pound. There is minor support at 1.5635. Watch for a technical bounce following a test of this level. The next major downside target is an uptrending Gann angle at 1.5429.
Emotions Can Lead To Poor Investment Returns
Aug 7th
Benjamin Graham, often referred to as the father of value investing, once said,
“Individuals who cannot master their emotions are ill-suited to profit from the investment process.”
Graham’s quote was alluding to the fact that individual investors tend to make incorrect investment decisions when they let their emotions overtake investment discipline. Behavioral finance has shown that investors have a much stronger preference for avoiding investment losses than they do investment gains. As a result, this bias against losses causes investors to sell an investment after the investment has already incurred substantial loss. A recent article in the Financial Analyst Journal, titled Relative Sentiment and Stock Returns ($), provides research supporting this conclusion.
The below chart details mutual fund equity flows relative to the performance of the S&P 500 Index. As the chart shows, equity outflows are at their greatest near the bottom of market cycles.
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| From The Blog of HORAN Capital Advisors |
The impact on investors’ investment returns due to this behavioral bias is lower overall investment returns. During the height of the financial crisis in late 2008 and through 2010, investors who maintained their exposure to stocks through the crisis have generated a higher level of return than those who sold all their stocks and stayed out of the market or those that sold all of their stocks and jumped back into the market.
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| From The Blog of HORAN Capital Advisors |
Because of the tendency for individual investors to let emotions influence investment decisions, at HORAN we review various sources of sentiment data on an ongoing basis. In last week’s individual investor sentiment report released by the American Association of Individual Investors, it shows bullish sentiment fell over nine percentage points to 30.4%. Bearish sentiment increased to 38.2% versus the prior week’s bearishness level of 33.3%. A result is the bull/bear spread was reported at -7.9% versus the prior week’s spread of 6.7%.
 |
| From The Blog of HORAN Capital Advisors |
Data Source: American Association of Individual Investors
In concluding, investors should use this behavioral knowledge to review ones appropriate asset allocation and risk tolerance. Additionally, investment decisions should be grounded in a disciplined process to reduce the likelihood of making decisions that can harm overall investment returns. Also, choosing an investment approach that has its foundation built on lower volatility, especially in down markets, can reduce the feelings that influence ones emotions during volatile market periods.
Source:
Defending Your Investment Brain
Market Analysis, Research & Education
Fidelity Management & Research Company
July 29, 2010
http://personal.fidelity.com/products/funds/content/pdf/defending_your_investment_brain.pdf
See Stock Growth in Action
Jul 30th
As an investor, stock growth is one of the most important things that you are looking for. Many investors specifically seek out stocks that are meant for growth. Stock growth is the main area in which investors make a return on their investment. Even though they can also receive dividends, capital appreciation is where most of the big money is made.
How Stock Grows
Stock growth is generated by the actions of the company. However, the growth is spurred by investor sentiment. If the investors in the market do not believe that a company has good potential, then the price is not going to continue to grow. The company should have good fundamentals in order to grow. A good company structure will enable a company to make good business decisions and grow a business. However, this may or may not impact the price of the stocks themselves.
Long Term
In order to take advantage of stock growth, you will be required to commit to a long-term investment. Stock growth does not occur overnight. Most growth stocks require you to invest in them for at least three to five years before you make a profit. Long term growth is best for stocks.
Tax Advantages
As an investor, you will tax advantages when you invest in growth stocks. The government has set up a tax system that rewards those that stick with a company for the long-term. If you purchase stock and you sell it before 12 months have passed, you will be required to pay taxes on the amount that you made at your regular marginal tax rate. If you are in the highest tax bracket, this could represent a 35 percent tax payment. On the other hand, if you invest in the company longer than a year, you receive a tax break. In that case, you will have to pay the long-term capital gains tax rate at 15 percent. The tax savings can be significant.
Example
For example, let’s assume that you are an investor and you find a growth stock that you want to invest in and you buy $10,000 into the stock, at $10 per share. This means that you own 1000 shares of the stock. Over the next five years, you stay with the stock. You watch it go from $10 per share all the way up to $100 per share. The company goes through massive amount of growth and success during that five-year run. When this happens, you are going to have stock that is worth $100,000. You essentially took your $10,000 investment and turned it into $100,000 just by selecting the right company and waiting it out. This example is simplified for understanding because most companies do not simply grow in the stock market, instead, there are ebbs and flows. Your stock may grow one year and lose its growth the following years.
It is also important to add that long term growth can also be affected by broker fees. Be sure to sign up with a company that has low maintenance fees. Brokerage fees can quickly eat up your profits, so be careful about what plan you choose for your investments.
And Just Like That, Investor Sentiment Marches Towards Super-Bullishness
Jul 30th
Get a few nice earnings reports, and a bit of a rebound in stocks, and voila, investor sentiment shoots back up.
Here’s the latest, via PragCap:
“Bullish sentiment rose 7.8 percentage points to 40.0% in the latest AAII Sentiment Survey. The percentage of individual investors who expect stocks to rise over the next six months is at a six-week high. The historical average is 39%.
European Strength Driving U.S. Futures Markets Higher
Jul 27th
Investor sentiment is up this morning, driving U.S. stock index futures higher in the wake of strong earnings results from European banking giants UBS and Deutsche Bank. Investors are also buying in anticipation of strong earnings results from Aetna, Inc., Anadarko Petroleum Corp., DuPont and Lockheed although banking stocks are expected to carry the market today.
Today traders will have a chance to react to two U.S. economic reports: the Case-Shiller 20 City Index and Consumer Confidence. The Case-Shiller housing report for May is expected to rise to 4.0% from 3.8%. This will be the biggest rise in the index since September 2006. Consumer Confidence is expected to come in at 51 which is down from 52.9. A greater than expected drop will fuel concerns about a double-dip recession.
Treasury Bonds and Notes are trading lower in anticipation of better housing numbers. A strong number will pressure the Treasurys as investors cut demand for the safety of government debt. Investors are facing a huge supply situation at this time. Today the U.S. Treasury will auction $38 billion in 2 Year Notes. Look for low demand at this auction as the expected record low yield is expected to keep investors on the sidelines. Furthermore, there is just too much demand for higher yielding equities at this time to warrant strong demand for the lower-yielding T-Notes.
Rise in Stock Reignites Interest in Carry Trade
Jul 27th
The Dollar is trading weaker across the board except the Japanese Yen. Investors are feeling more confident about the global economic recovery and shedding safer currencies. Commodity-linked currencies are trading higher let by the Australian Dollar as traders buy ahead of tomorrow’s CPI report. A stronger than expected inflation figure is expected to solidify a rate hike by the Reserve Bank of Australia. Strong demand for equities is reigniting interest in the carry trader which is pressuring the Japanese Yen.
Investor sentiment is up this morning, driving U.S. Dollar lower in the wake of strong earnings results from European banking giants UBS and Deutsche Bank. Investors are also selling the Dollar in anticipation of strong earnings results from Aetna, Inc., Anadarko Petroleum Corp., DuPont and Lockheed although banking stocks are expected to carry the market today.
Today traders will have a chance to react to two U.S. economic reports: the Case-Shiller 20 City Index and Consumer Confidence. The Case-Shiller housing report for May is expected to rise to 4.0% from 3.8%. This will be the biggest rise in the index since September 2006. Consumer Confidence is expected to come in at 51 which is down from 52.9. A greater than expected drop will fuel concerns about a double-dip recession. Strong housing data is likely to pressure the Dollar.
Flight-to-Safety Pushes U.S. Interest Rates Lower
Jul 27th
Filed under: Forecasts
Paraphrasing the great Mark Twain, if you don’t like the stance of institutional investors, just wait a while.
Case in point: Investor sentiment toward the United States’ large budget deficit and national debt.
A scant month ago, the talk was of bond vigilantes turning their wrath on the U.S., from Greece, Spain, Portugal and the rest of Europe’s debt-plagued nations — a predicament that would force interest rates up in the world’s largest economy.
Continue reading Flight-to-Safety Pushes U.S. Interest Rates Lower
Flight-to-Safety Pushes U.S. Interest Rates Lower originally appeared on BloggingStocks on Mon, 26 Jul 2010 17:00:00 EST. Please see our terms for use of feeds.
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Greece – Portugal – United States – Spain – Government debt
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Sentiment Swings From Bullish To Bearish
Jul 23rd
In this week’s investor sentiment survey reported by the American Association of Individual Investors, bullish sentiment fell 7.2 percentage points to 32.16%. Bearish sentiment rose by a like amount to 45.03%. The 8-period moving average was reported at 33.2% and is still off of the YTD high reported earlier this year in the low 40% range. The bullish sentiment reading remains below the long term average of 39%.
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| From The Blog of HORAN Capital Advisors |
Data Source: American Association of Individual Investors
Investor Sentiment Shifting Toward Risk-Off Scenario
Jul 17th
Forex investors did an about face from earlier in the week, ending the week by dumping higher risk assets. The sharp rise in the Yen and the sell-off in commodity-linked currencies is a strong sign that investors are shifting toward a risk-off trading strategy.
The Euro surged to the upside shortly after the New York opening and before the release of U.S. economic data, briefly piercing the 1.30 level for the first time since early May.
The last thrust to the upside in the Euro was in anticipation of weak U.S. economic data which has been the main driving force in the Euro this week. With traders anticipating bearish reports, the release of a weak consumer sentiment number as well as consumer price report became a “buy the rumor, sell the fact” scenario.
Strong Intel Earnings Drives Euro Higher into Close
Jul 14th
The U.S. Dollar is plunging into the close driven sharply lower this late in the session by the news that semiconductor chip maker Intel blew out quarterly revenue and profit guesses in its second-quarter results.
Investor sentiment has turned extremely positive following the release of the Intel data, driving up demand for higher risk currencies. This sharp increase in appetite for risk is likely to set the tone for a further drop in the Dollar overnight and renewed selling pressure when the stock markets open higher in New York tomorrow morning.
Tuesday’s rally was initially led by the British Pound and the commodity-linked currencies. A turnaround early in the trading session also underpinned the Euro after a weaker start.
Stronger Equity Markets Driving Up Demand for Risky Currencies
Jul 13th
Despite upbeat earnings from Alcoa last night after the close and a stronger equity market this morning, the Euro is down because of the renewed sovereign debt concerns. Last night Moody’s downgraded Portugal’s debt rating, sending a signal to traders that problems may still be lingering in the Euro Zone despite a month of calm.
Traders had expected the Euro to rally with the equity markets because of a recent shift in investor sentiment, but today’s weakness in the Euro demonstrates that short traders are still on a hair trigger and can take this market lower in a heartbeat should negative data arise.
The British Pound is attempting to break a three-day losing streak today following a report which showed inflation above economists’ forecasts and higher retail sales. This news helped reignite the case for a rate hike by the Bank of England.
Investor Confidence Is So Low, We’re Either In For A Bounce… Or A Major Crash
Jul 9th
The latest AAII investor sentiment reading, via PragCap, shows bullishness near its extreme lows, a signal that that we could be in for an extended bounce.
BTIG’s Mike O’Rourke discussed the the issue in his note last night:
This week’s reading of 26.8% Bullish (Bulls/(Bulls+Bears)) is the lowest reading since March 5th of last year. The way we apply this indicator is in a typical market environment. We use 40% as a buy threshold, and in a bear tape we tighten the parameters and use 30%. We consider the move since the April peak a correction within a bull market. Therefore, a 26.8% bullish reading is something we believe is worth being excited about. As the table below illustrates, the forward returns on readings below 30% Bullish healthily outpace typical returns. The caveat as well as potential positive is that the ugly readings registered in 2008 are included and 2008 also posted some very ugly returns.
So yeah, we’re almost certainly going up. Unless we go way down.
