A Shift in the Markets?

So I have previously been quite bullish on the market for 2011. Things may be changing on me though. I never want to be too quick to jump ship and claim the sky is falling, especially after feeling so confident that the opposite was true no more than a few weeks ago.

First let me say that this could very well be profit taking in action, and rightfully so. As long as the major indices remain above their lows in August, we will bounce back. For the Dow that is at 10,000, however, this week the Dow is trading very slightly above the 11,000 mark and if it drops significantly below this mark (closed 11/17/10 at 11,007.88) I think 10,000 is not out of the question. But this is purely technical, what is really driving my decision?

• Eurozone uncertainty - Here is a great article from Bloomberg summarizing most of the confusion going on right now. But of particular concern to me is Ireland and Greece. Ireland's debt problems have been widely publicized this week. There are some murmurs of Ireland becoming slightly more open to a bailout, though theses don't hold much water. Plus it is not that this is fantastic news, but the markets always prefer bad news to uncertainty. What is more troubling to me is Greece! In short Greece is in the process of getting bailed out right now. The next payout is due in January (or is it December?) and the Austrian PM is threatening to withhold his countries' portion. He later toned down his comments, but the socialists sweeping the local elections may not be the best sign of "austerity" measures going into place (and yes, I am rather fond of Socialism still, but I am also fond of facing the current reality). If either or both of these countries turn into bigger problems than they already are, there will be at the very least some dent to global markets.
• Chinese inflation - So inflation in China for the year has been quite significant, particularly in food prices. I have heard from that article and elsewhere that China would most likely make a move around the 20th, with Friday the 19th being a possible target. For those unaware (really??) China is "communist" to some extent and so exercise total control over the markets (directly opposed to free markets). I consider this an interesting experiment in the effects of controlled markets, as the Chinese may move to limit prices on commodities and government subsidies and disbursement. Regardless, all of this talk is causing a big hit on commodities with cotton taking it the hardest, but oil's price having a broader effect [UPDATE: Oil is up slightly after inventory news today]. If China makes these moves, it could have far reaching global impacts due to commodity prices as well as import/exports.
• US Debt - This may be more of a bearish concern than a realistic concern, but it still strikes me as worth mentioning. I read a recent article talking about a Crash of 2011. At first I merely brushed this off as bearish talk, but that was before my sudden change in attitude. After thinking back to it this week, I decided to do some digging. In that article he plays out a scenario in which the national debt ceiling doesn't get raised (which we will need sometime in 2011) and the US defaults or is late on its bonds interest payment. This would most certainly result in the US losing its AAA bond rating. Which sounds bad, like REALLY bad, so I did a little more digging and found that Moody's has threatened to downgrade their US Bond rating no later than February of 2010. This in addition to them upgrading China's rating and downgrading San Francisco bonds and Philadelphia bonds just today. Do these ratings really mean anything? Maybe not in fact books, but they mean something in the heads of the people who make trading decisions every day. If the US bond rating gets downgraded by one or more agencies, we could see a huge scare out of the market. Less traders, bigger losses.
• Tech sector - This one may be more important to me than other investors, but I feel it is still important to mention. As you may or may not have heard, Cisco (CSCO) came out with stellar Q1 2011 earnings but revised Q2 2011 and overall 2011 guidance down causing, not just the stock to drop, but the entire tech sector! Now, I don't have a hand in Cisco thank god, but I do in Akami (AKAM), Google (GOOG), and Intel (INTC). Akami and Google took significant hits, while Intel actually gained due to a nice dividend raise (thank you Intel!). Then today had the NetApp debacle has the tech sector looking even lower. One good thing from all this is that the issues are largely caused by growing price competition, which means it may be time to look for some growth tech stocks. If the tech sector is indeed entering a down cycle into the holidays, it will drag the entire holiday retail sector down, something my entire "booming 2011" projection was based on.

There are four ifs, some more probable than others and some having a larger effect than others. I think it is safe to say that if all four scenarios were to take the worst-case, we would face a very serious threat to the recovery. And if all four scenarios were to take the best-case, we could be flying high! Of course it will be somewhere in between, but it will either have a negative lean, neutral, or positive lean when all is said and done. 

So when is "all said and done"? Be darned if I know, or anyone for that matter, but I have to make at least a rough estimate for adjusting my strategies appropriately. So I will say sometime during the week of November 29 we will have a much better idea of what to expect for 2011. The Ireland issues should have a plan in place by this time, a decision on Greece's payout will come sometime in December but we should get some clues by this point, China should have made a decision on inflation, and a few more tech earnings releases may go one way or another. The US debt issues, however, will still be debatable, but a tax extension decision could be made and possible spending cuts could come out.

I am not ready to turn yet, though I am laying out some possible plans in case things go south and I will stick (mostly) to my current plan (high dividend, blue chips (75%) mixed with speculatives (25%)) if things stay the course. I think it is wise to keep up with global market news, especially in today's world.

Current Holdings:

Symbol (# of shares/contracts)

Stocks - AKS (1.19), BP (1.34), C (35.74), DB (0.64), F (17.71), GE (20.02), GOOG (0.57), GRO (14.99), IDT (2.30), INTC (9.81), KFT (6.11), KRY (15.05), M (12.16), MRO (2.68), OCZ (25.61), T (7.57), USAT (152.67), WEN (9.20)

Options - AKAM (1), AKS (1), DEER (1)

I am currently working on the best way to display my portfolio in all its glorious details, stay tuned!

*Note that these are all purely opinions of a very amature investor . In no way do I endorse or work for any of the mentioned companies. I own shares of Akami (AKAM), Google (GOOG), and Intel (INTC).