“Buying dips has been incredibly effective in the last few years, and with the central banks committed to monetary stimulation, the move is still in play”
This should be a big weak for the market. The event du jour is the presidential election, where the two candidates look virtually tied up going into the last 48 hours.
The general thought on the Street is that stocks would rally from a Romney victory. That’s because the republican candidate is considered more likely to extend the Bush tax cuts and avoid the fiscal cliff.
Removing uncertainty over the fiscal cliff would definitely give the market a short-term boost, but longer-term, big challenges await whoever wins. Like slow earnings and economic growth, uncertainty in Europe and slower growth in China.
That’s why my call is for the market to continue bleeding lower. A lot of good news has been priced into stocks in the last few months. And now, a lot of bad news is finding its way back into sentiment. I do not expect the market to crash, but another 5% lower would be a 10% pullback. Buying dips has been incredibly effective in the last few years, and with the central banks committed to monetary stimulation, the move is still in play.
As it stand, investors have been fairly cautious going into the election. the S&P 500 is down about 5% in the last few weeks after hitting a multi-year high in September. You can see that little pullback in the chart below. You can also see how the S&P 500 broke the trend line from the last 4 months and pulled back hard into the weekend, both signals of short-term weakness. Click on the chart for the expanded view.
Overall, I would say the market is hanging pretty tough right now. There are a lot of reasons for stocks to perform poorly but the S&P 500 remains just 5% below the recent 4-year high. I still see a little more down side in the short run as Europe is starting to get noisy again, but longer term I still views dips as a chance to buy.
Apple, Inc. (AAPL) had its worst week in a few years, falling 4.5% after the resignation of a key executive. Apple is definitely going through some growing pains right now, with shares in bear territory and down 20% from the recent high. But like I said above for the market, I view the dip as a chance to buy, because Apple will continue to sell lots of gadgets particularly going into the holidays.
Verifone Systems, Inc. (PAY) booked a solid 6% gain on the week after surging with the market on Thursday. That’s what happens when the market looks for growth, mid-caps like Verifone quickly fall back in favor. It’s been a tough year for Verifone, with shares down about 13%. But that 6% gain in one week is a good example of how this growth stock can move in a bullish market.
Cimarex Energy (XEC) was also on the move, gaining 8% on the week after reporting strong Q3 results that beat expectations. Energy stocks have also been weak this year, but the long-term trend in energy is undeniably bullish, so I view these dips as a chance to buy.
That’s all for this week, but until next time, here is some more insight into the longer-term effects of the election. Enjoy!
Your Investment Partner,
Michael Vodicka is the president and founder of the Vodicka Group, Inc., a Registered Investment Advisor (RIA). He specialized in trading fixed-income derivatives at the Chicago Board of Trade before spending five years managing equity portfolios for a private investment research company.
Michael graduated from the University of Kansas with a degree in business communications and is registered with the State of Illinois and the SEC (Securities and Exchange Commission) as a Licensed Investment Advisor (Series 65).