A popular investment strategy is to buy quality stocks and plan to hold them forever. The buy-and-hold strategy became popular because it works well — sometimes.#-ad_banner-# From 1982 to 2000, buying and holding delivered exceptional returns. At other times, the results are nothing short of disastrous. Bank stocks offer an example of the latter case. In 2006, Bank of America (NYSE: BAC) was one of the world’s largest banks, with a profitable mortgage originating division. It seemed like the perfect company for a buy-and-hold investor, with the ability to earn steady profits from mortgage servicing rights and other banking operations. Read More

A popular investment strategy is to buy quality stocks and plan to hold them forever. The buy-and-hold strategy became popular because it works well — sometimes.#-ad_banner-# From 1982 to 2000, buying and holding delivered exceptional returns. At other times, the results are nothing short of disastrous. Bank stocks offer an example of the latter case. In 2006, Bank of America (NYSE: BAC) was one of the world’s largest banks, with a profitable mortgage originating division. It seemed like the perfect company for a buy-and-hold investor, with the ability to earn steady profits from mortgage servicing rights and other banking operations. BAC began trading down as home prices peaked despite assurances from many analysts and policymakers that the housing market did not present a risk to the overall economy. BAC has gained 500% since March 2009. Despite that gain, the stock remains more than 65% below its 2006 high, and long-term buy-and-hold investors are still showing losses. Anyone who bought the stock before May 2010 still has a loss on their position. Investors who bought in 2008 or earlier are also likely to be showing a loss. Some buy-and-hold investors will point out that the dangers of individual stocks… Read More

In the three months since Alcoa (NYSE: AA) kicked off the third-quarter earnings season, much has happened:#-ad_banner-# • U.S. consumers moved further into hibernation, leading to another period of weakness for major retailers (at least those not named Amazon.com (Nasdaq: AMZN)). • The U.S. government botched a much-anticipated rollout of the Affordable Care Act, aka Obamacare. • Natural gas prices surged to multi-year highs on the back of an unusually cold winter. • Companies began picking up the pace of hiring, leading the Federal Reserve to begin tapering its stimulus program. Read More

In the three months since Alcoa (NYSE: AA) kicked off the third-quarter earnings season, much has happened:#-ad_banner-# • U.S. consumers moved further into hibernation, leading to another period of weakness for major retailers (at least those not named Amazon.com (Nasdaq: AMZN)). • The U.S. government botched a much-anticipated rollout of the Affordable Care Act, aka Obamacare. • Natural gas prices surged to multi-year highs on the back of an unusually cold winter. • Companies began picking up the pace of hiring, leading the Federal Reserve to begin tapering its stimulus program. • And the S&P 500 Index delivered a 9.8% quarterly gain, which works out to more than 35% on an annualized basis. With Alcoa set to once again kick off earnings season this week on Jan. 9, it’s time to look ahead and ponder what the quarter ahead holds for investors. Here are four key themes you should be tracking as you digest the raft of quarterly conference calls set to take place over the next month. 1. More Buybacks And Dividends One of the hallmarks of this bull market (which will hit the five-year mark in… Read More

With 2014 off to a lackluster start, investors need to consider whether they should take action to avoid a likely sell-off. A Pullback is Not a Sell Signal On the first trading day of the year, SPDR S&P 500 (NYSE: SPY) fell 0.96% and extended its loss with a small decline on Friday. For the week, SPY fell 0.51%. The two-day sell-off at the end of the week was not a very significant event, but in a search for new indicators, some commentators are trying to compress the January Barometer into an… Read More

With 2014 off to a lackluster start, investors need to consider whether they should take action to avoid a likely sell-off. A Pullback is Not a Sell Signal On the first trading day of the year, SPDR S&P 500 (NYSE: SPY) fell 0.96% and extended its loss with a small decline on Friday. For the week, SPY fell 0.51%. The two-day sell-off at the end of the week was not a very significant event, but in a search for new indicators, some commentators are trying to compress the January Barometer into an ever shorter time frame.#-ad_banner-#​ The January Barometer claims that the market will end the year up if the S&P 500 moves up in January. A lower close for the index in January is bearish for the full year. Several years ago, a widely admired technical analyst, Louise Yamada, CMT, revealed she had found a way to improve the January Barometer. She told The New York Times that when there is a gain in the first five trading days of January and a further climb through the end of the month, “there is a 94% chance of the market being up… Read More

By the time the U.S. budget deficit reached $1.4 trillion in fiscal (October) 2009, alarm bells were sounding everywhere. Unless the government could get its fiscal house in order, the future promised years of misery as the U.S. kowtowed to its bondholders in China, Japan and elsewhere. But this crisis simply never came to pass. Thanks to a range of factors for which both political parties can take some credit, the budget gap has already narrowed sharply. According to the Congressional Budget Office (CBO), the budget deficit will fall even further in fiscal 2014 and 2015. A Fast-Shrinking Deficit… Read More

By the time the U.S. budget deficit reached $1.4 trillion in fiscal (October) 2009, alarm bells were sounding everywhere. Unless the government could get its fiscal house in order, the future promised years of misery as the U.S. kowtowed to its bondholders in China, Japan and elsewhere. But this crisis simply never came to pass. Thanks to a range of factors for which both political parties can take some credit, the budget gap has already narrowed sharply. According to the Congressional Budget Office (CBO), the budget deficit will fall even further in fiscal 2014 and 2015. A Fast-Shrinking Deficit In another bit of good news, the recent era of very low interest rates has enabled Uncle Sam to keep interest payments in check. Five years ago, the government was paying a roughly 4% interest rate on its debt. That figure has fallen by more than 150 basis points since then. *CBO estimate #-ad_banner-#The net result of the drop in interest rates: Uncle Sam has saved nearly $200 billion in annual interest expense (in light of the growing total debt since then and assuming interest rates had stayed constant at 2008 levels). The tougher… Read More

Seasonality is bullish for gold but bearish for stocks. The outlook for gold is confirmed by more traditional indicators and could provide one of the best trading opportunities in the next few months. Seasonals Favor Lower Prices SPDR S&P 500 (NYSE: SPY) gained 1.26% last week and is now up 31.71% in 2013.#-ad_banner-#​ Seasonals indicate the market could be due for a pullback. There are seasonal trends in almost all markets, and these indicators work with varying degrees of effectiveness. Traders should not base buy and sell decisions solely on seasonals, but… Read More

Seasonality is bullish for gold but bearish for stocks. The outlook for gold is confirmed by more traditional indicators and could provide one of the best trading opportunities in the next few months. Seasonals Favor Lower Prices SPDR S&P 500 (NYSE: SPY) gained 1.26% last week and is now up 31.71% in 2013.#-ad_banner-#​ Seasonals indicate the market could be due for a pullback. There are seasonal trends in almost all markets, and these indicators work with varying degrees of effectiveness. Traders should not base buy and sell decisions solely on seasonals, but they are a factor to consider. While the idea of seasonal tendencies might not be widely followed, they can be profitable as the popular “sell in May and go away” rule often is. The chart below shows the seasonal pattern for SPY. This indicator uses all of the available history and shows how the ETF has done, on average, on any given day. If history repeats, the year-end rally in the stock market could stall as seasonals point toward a flat market with some downside risks for the next three months. Seasonals are known in advance, and the… Read More

Investors in small-cap stocks have rarely had it this good. The Russell 2000, which stood below 400 in early 2009, is quickly approaching the 1,200 mark.  It’s as though two decades worth of gains have been packed into just five years. The small-cap surge shouldn’t have come as a total surprise. As I noted on our sister site InvestingAnswers.com a few years ago, small-cap stocks often outperform large-cap stocks when the overall economy is coming out of a recession. Post-Recession Performance (prior to 2009) Yet as we turn the page and head into… Read More

Investors in small-cap stocks have rarely had it this good. The Russell 2000, which stood below 400 in early 2009, is quickly approaching the 1,200 mark.  It’s as though two decades worth of gains have been packed into just five years. The small-cap surge shouldn’t have come as a total surprise. As I noted on our sister site InvestingAnswers.com a few years ago, small-cap stocks often outperform large-cap stocks when the overall economy is coming out of a recession. Post-Recession Performance (prior to 2009) Yet as we turn the page and head into 2014, it’s crucial that you understand how a changing economy will influence this trend. For a host of factors, small caps are likely poised to underperform their large-cap peers.#-ad_banner-# In August, I explained why investors should shift assets into larger companies, and since then, the reasons for owning big-cap companies have only strengthened. First, the market has moved even higher since last August, with the Russell 2000 up another 9% and the S&P 500 Index rising another 8%. If investors are looking to lock in profits in 2014, then larger companies, especially those with robust buyback and dividend policies, are… Read More

In the 1930s, a financial editor at Forbes magazine pieced together chart patterns. Richard Schabacker, who is considered the father of technical analysis, went beyond identifying how patterns looked on charts. He also looked broadly at investor psychology and noticed that it could explain why some chart patterns form. Psychology can be a valuable tool for traders to understand. We have made some notes on the chart below that describe the feelings of some investors at various times during the past few years. #-ad_banner-#Investor psychology does help explain resistance on a chart, for example. After a bear market,… Read More

In the 1930s, a financial editor at Forbes magazine pieced together chart patterns. Richard Schabacker, who is considered the father of technical analysis, went beyond identifying how patterns looked on charts. He also looked broadly at investor psychology and noticed that it could explain why some chart patterns form. Psychology can be a valuable tool for traders to understand. We have made some notes on the chart below that describe the feelings of some investors at various times during the past few years. #-ad_banner-#Investor psychology does help explain resistance on a chart, for example. After a bear market, there will be some investors who will be thankful to recover their losses. They might sell when the market gets back to its old highs. This appears as resistance on the charts. After resistance is broken and prices start moving higher, we often see a market “melt-up” as investors rush in since they are worried about missing out on the upside. This is an oversimplification, but investor psychology does help us to understand a great deal about the market action. This idea was also recognized more than 100 years ago by Charles Dow, the creator of the Dow Jones Industrial… Read More

Short sellers are wrapping up another tough year, as a liquidity-fueled rally has helped to levitate even the most dubious business models.#-ad_banner-#​ Some short sellers have even thrown in the towel, noting that John Maynard Keynes’ maxim that “the market can stay irrational longer than you can stay solvent.” But signs are emerging that this losing approach to the market may finally be gaining traction. In recent weeks, a range of heavily-shorted stocks have indeed begun to move lower, which may be a sign that short selling will again be a useful component… Read More

Short sellers are wrapping up another tough year, as a liquidity-fueled rally has helped to levitate even the most dubious business models.#-ad_banner-#​ Some short sellers have even thrown in the towel, noting that John Maynard Keynes’ maxim that “the market can stay irrational longer than you can stay solvent.” But signs are emerging that this losing approach to the market may finally be gaining traction. In recent weeks, a range of heavily-shorted stocks have indeed begun to move lower, which may be a sign that short selling will again be a useful component of your broader portfolio strategy in 2014. If you are looking at potential short sale candidates, here are four that are in the targets of short sellers right now. 1. Bank of America (NYSE: BAC )​ Shares of this banking giant have rebounded more than 200% over the past two years. Joining its major banking peers, Bank of America finally trades back up above book value, taking away one of the lone pillars of value. That argues for muted upside in the year ahead. Yet it’s the downside risk that is coming into focus as well. In… Read More

Federal Reserve action gave stocks a short-term boost last week, but without additional news, trading volume is expected to be low through the holidays. Traders Cheer the Fed SPDR S&P 500 (NYSE: SPY) gained 1.94% last week after the Fed gave traders everything they seemed to want. Asset purchases will continue, but instead of buying $85 billion worth of bonds every month, the Fed will only be buying $75 billion a month starting next month.#-ad_banner-# The general expectation seems to be that there will be a gradual decrease in the purchase amount announced at future Fed meetings unless the… Read More

Federal Reserve action gave stocks a short-term boost last week, but without additional news, trading volume is expected to be low through the holidays. Traders Cheer the Fed SPDR S&P 500 (NYSE: SPY) gained 1.94% last week after the Fed gave traders everything they seemed to want. Asset purchases will continue, but instead of buying $85 billion worth of bonds every month, the Fed will only be buying $75 billion a month starting next month.#-ad_banner-# The general expectation seems to be that there will be a gradual decrease in the purchase amount announced at future Fed meetings unless the economy weakens. Even though the amount of the purchases will be smaller, the Fed should still be adding a significant amount of money to the economy through this program. Reducing purchases by $10 billion after every meeting would result in $460 billion in monetary stimulus to the economy next year. The Fed is a bullish factor for the stock market in 2014. However, earnings and economic growth will probably be the factors that determine how stocks actually do in the next year. For now, those factors are bullish and gains for the full year seem likely unless earnings disappoint or… Read More

Despite an impression that too many investors focus only on quarterly results, most investors assess a stock’s value on future trends. The notion that “the market looks ahead” is based on the idea that 2013 share prices reflect projected financial results in 2014 and 2015.#-ad_banner-# That’s the only way you can explain the stunning gains for casual dining stocks. Recently, they’ve been continually setting new all-time highs, even as consumer confidence and spending remain in a funk.  According to Deutsche Bank, this group of stocks trades for 24 times 2014 profits. That’s well above the five-year average of… Read More

Despite an impression that too many investors focus only on quarterly results, most investors assess a stock’s value on future trends. The notion that “the market looks ahead” is based on the idea that 2013 share prices reflect projected financial results in 2014 and 2015.#-ad_banner-# That’s the only way you can explain the stunning gains for casual dining stocks. Recently, they’ve been continually setting new all-time highs, even as consumer confidence and spending remain in a funk.  According to Deutsche Bank, this group of stocks trades for 24 times 2014 profits. That’s well above the five-year average of 18. “Our biggest concern heading into 2014 is that investors decide restaurant stocks are too expensive and seek out better values elsewhere,” Deutsche Bank’s analysts noted in a recent report. To my mind, such a rotation appears inevitable. Better Days Ahead? To be sure, restaurants are expected to benefit from falling agricultural prices. On an aggregated basis, these restaurant operators predict that their food costs will rise just 2% in 2014, which would be the lowest rate since 2010. “However, lower food inflation can be a double-edged sword to the extent this leads to heightened discounting,” note the Deutsche… Read More