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The Two Numbers to Watch Before You Get Bullish

By Frank Curzio, editor, Small Stock Specialist
Monday, June 21, 2010

Over the past eight months, I've been bullish on stocks.
 
Strong earnings, better economic data, and more government spending all made me optimistic overall. And record low interest rates made stocks an attractive asset class compared to low interest-bearing investments like Treasuries and CD's.
 
Morally, it wasn't easy being bullish. The government was restructuring mortgages for people who have flat-screen televisions in their bathrooms. Companies were reporting higher profits due to layoffs. Record low interest rates created profits for overleveraged financial institutions that were almost bankrupt less than 18 months ago.
 
However, my job is not to pass judgment on our government. It's to help my readers make money. Back in October, earnings estimates were conservative. I believed most of the risks – like record deficits and inflation – were longer-term problems.
 
Thus far, my thesis has been correct. Almost every major research firm has raised its forecasts for S&P 500 earnings over the past two quarters. The government continued spending money to prop up weak sectors. Inflation has been tame. Plus, stocks are up since October (even after the 10%-plus pullback in May).
 
 
Which brings me to today...
 
Based on some alarming data released in the past 30 days, I'm not convinced stocks will hold these gains until yearend.
 
For starters, last month's job report was a disaster. The U.S. added 41,000 private-sector jobs... more than 100,000 short of expectations. Then, retail sales in May declined for the first time in eight months.
 
I don't place too much emphasis on one month of data. But if we see another weak jobs report followed by terrible retail sales, it could be the start of a trend.
 
Also, Best Buy (BBY) shares fell 6% after reporting weaker-than-expected earnings on June 14. The electronic retailer is a consumer gauge for discretionary spending. Management said television sales were at their lowest levels in two years. Plus, fewer people are buying video games and DVD's.
 
On June 16, FedEX (FDX) followed Best Buy with a negative earnings report. FedEx is also viewed as an economic indicator. The transportation company said its customers continue to use ground shipping compared to premium air services. That means consumers and businesses are still in cost-cutting mode. Shares also fell 6% on the day.
 
Maybe FedEx is being conservative due to the uncertainty in the markets... Maybe 3D televisions will drive revenues for Best Buy in the coming quarters... May's weak jobs and retail sales numbers could have been a one-time event...
 
We won't know until next month, when we see June's jobs and retail sales data. Also, earnings season will be in full swing.
 
I'll let you know where I think the market's headed when we get these numbers in mid-July. But until then, I suggest tightening your stop losses through earnings season.
 
Good investing,
 
Frank Curzio




In The Daily Crux Recent Articles
Market Notes
Gold hits record high... explodes through $1,250; pushes above $1,260.
 
Silver rises twice as much as gold this week... still 3% below last month's highs.
 
Oil exploration stocks split from BP... Transocean jumps 14% this week while BP falls 6%.
 
Waste management quietly outperforming... new 52-week highs for Republic Services (RSG), Stericycle (SRCL), Waste Connections (WCN).
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1113.20 -0.4% +20.8%
Oil 35.33 -0.2% -7.0%
Gold 120.39 -2.0% +31.0%
Silver 18.33 -2.2% +31.0%
US-Dollar 85.99 +0.4% +7.0%
Euro 1.23 -0.6% -11.7%
Volatility 24.88 +3.9% -11.1%
Gold Stocks 479.10 -3.0% +41.0%
10-Year Yield 3.24 +0.6% -14.5%

World ETFs
Symbol Price
Change
52-Wk
USA 111.41 -0.3% +21.1%
Canada 27.51 -0.4% +26.4%
Russia 17.93 +1.1% +3.6%
India 31.03 +1.8% +9.9%
Israel 14.25 +1.7% +33.8%
Japan 9.76 +0.7% +3.0%
Singapore 11.76 +1.4% +32.0%
Taiwan 11.90 +1.6% +23.4%
S. Korea 48.89 +2.0% +40.7%
S. Africa 57.54 -0.3% +26.1%
China 41.60 +2.3% +11.6%
Lat.America 45.19 -0.5% +30.8%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 104.21 -0.8% +2.5%
Big Pharma 60.72 -0.5% +3.2%
Internet 54.26 -1.9% +27.3%
Semis 13.47 -1.3% +23.4%
Utilities 29.87 -0.7% +8.7%
Defense 17.53 -0.3% +22.1%
Nanotech 9.06 -1.3% +2.1%
Alt. Energy 8.98 -1.6% -13.2%
Water 16.36 -0.9% +12.4%
Insurance 14.82 -0.3% +27.5%
Biotech 18.19 -0.8% +32.9%
Retail 16.77 -2.6% +23.0%
Software 21.73 -0.9% +32.2%
Big Tech 46.60 -0.9% +28.9%
Construction 12.18 -0.8% +13.1%
Media 12.63 -0.3% +43.9%
Consumer Svcs 59.08 -1.1% +33.0%
Financials 53.41 -0.2% +24.3%
Health Care 61.18 -0.5% +14.1%
Industrials 56.34 +0.1% +33.3%
Basic Mat 59.53 +0.5% +34.9%
Real Estate 51.46 -0.7% +57.3%
Transportation 80.28 -0.1% +38.8%
Telecom 19.85 -0.6% +12.2%