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).

The Week Went Perfect

It's really amazing to me how much can totally change in the markets over just a week. All three major indices are set to hit 2-year highs next week. QE2 is locked in at a point very slightly above the lower expectations of $500 billion. Jobs numbers were surprisingly good for the previous month. We have a republican house and democratic senate, and Obama appears to be making a concentrated effort to spark the economy and the markets in particular.

Here are some articles that summarize all this data:
Stocks Finished Week At 2-Year High On QE2 And Jobs
Treasuries Drop, Stocks Fluctuate as Jobs Growth Tops Estimates

And of course the bears want their say too:
Analysis: Fed's QE2 raises alarm of commodity bubble
QE2: $600 Billion Fed Move Targets New Jobs, But Risks Inflation

I am very much bullish on this market, especially after Friday. I felt if the market had gone up big again on Friday, the drop on Monday could have a longer lasting price effect than needed. If the market had gone down and erased some or even all of Thursday's gain, I would be afraid of the negative sentiment it would leave over the weekend. Luckily, in my opinion, the market stayed essentially flat all day. To me this signifies that the market has now moved into a new range.

Of course there will be some profit taking in the next week or two that will pull the markets down from those 2-year highs, but only briefly. I expect the rest of November to be a great buying oppportunity and by the end of the month I expect to be breaking through some of those multi-year highs. In other words, if you wanted a time to get into the market, I think watching for some profit taking in any stocks you are interested in will be the best price opportunity you will get for the next year or two, possibly more.

Something that has me very excited about the future of the economy is Obama's apparent new attitude. Coming out after the elections and saying the things he needed to say was a great sign. Now Obama is touring Asia on what he has said will be a markedly domestic trip, primarily about the US economy. And this announcement today out of India may be some of the biggest news of the week, though we may not see its full impact for a year or more. For those of you in Boeing (BA) or GE, (I own some GE), kudos!! This is nothing but good news for the two companies, though you may not see any immediate effects, the long term impacts could be huge.

I can barely wait for the next few weeks, to establish some more solid positions! Here are my anticipated moves for the week:
Citigroup (C) - $50
Kraft (KFT) - $70
Marathon Oil (MRO) - $50
AT&T (T) - $30

I use Sharebuilder because of my low liquidity and they allow you to purchase fractional shares on a weekly, non-commissioned trade. I don't normally put in this much in one week, but I have to put my money where my mouth is these next two weeks!

*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 do hold positions in GE, C, KFT, and T already and will be establishing a position in MRO this week.

Big Week for Financial News

So this week will have some big impact on United States and world economies. With elections today, the Fed talking QE tomorrow and the Bank of Japan, European Central Bank, and Bank of England's policy committee all concluding meetings at some point this week, we could be facing a rather large fundamental shift in the world economies. Of course currencies have been impacting the markets quite a bit lately, and most if not all of these meetings will relate directly to currency valuation. All of this is coming just a couple of weeks after the G20 leaders agreed to not devalue their currency intentionally, well three of the biggest players will be doing exactly that this week. We will have to wait and see the impact this will have on world politics as well as economy. However, the impact of this on the economy may not be as drastic as you might expect, as the market has had a little time to factor all of this in to some extent. This applies to policy and elections, but lets not forget that the outcome of both of these are still unknown and the expectations may or may not be accurate. I personally am ready for a slightly more volatile week than normal, though I don't see any immediate market changers coming from this.

Current Positions:
Overall, I still feel very bullish on my larger holdings. I am particularly interested in the prospects of Kraft (KFT), Macys (M), and Ford (F). I really like all of their long term potentials, though I expect Macys to be the first of the three to start feeling a pullback. I feel very confident (as many other analysts) that Ford will be trading in a higher range in 2011 and really want to build up my position as well as a possible option for Mid 2011.

I am making a more short-term play on Intel (INTC) this week. I feel it is trading at a great value at this point and hope to get a decent holding (relative to my very small available funds) established in the $20 - 22 range. I would put a price target of about $26 by late 2011. The reason for my short term interest in Intel is the fact that they will be in all the new Macs, which is coming out with a new operating system Summer 2011 which could increase hardware purchases as well. This is a relatively new, and growing, market for Intel that hasn't been factored into their price in the past. In addition to this, businesses in the US are sitting on very large amounts of capital and I think IT spending would be a great place for some companies to spend this money.

In small caps, I am still happy with my USAT trade, though it seems to have settled into the $1.25 to $1.50 range for now. I am very happy and still willing to buy up more of OCZ as I have a strong bullish sentiment to the solid state drive industry and having recently been in the market for one, I feel OCZ is the best quality to price in the industry. And finally it appears I missed the best buying opportunity on KSP as they came out with earnings yesterday and rose 25%.

My options are still up, though less than a week ago. AKAM is still my largest bet at this point. Yesterday it took a hit for what appeared to be profit taking. My option is for January 2011, so I will be holding onto this option until I get a more favorable return. DEER is still solidly up and appears to be locked into a new range for the time being. I am undecided on what move to make here, but I must move DEER or AKAM to get back some capital. And finally AKS is still down significantly. A break even at this point would be a best case scenario and still seems possible.

Future Moves:
As I mentioned above, I am interested in an option on Ford, though I am not sure I will get the return I want yet so I am holding out for a possible lower price point. As far as options are concerned I will be waiting at the very least until next week, but also will need to decide to move DEER and/or AKAM before I will have the funds to make another options move. For my long positions, I am in the market for an energy company and some early leaders on my board are Total (TOT) and Exxon (XOM). I will certainly be looking for a high yielder in this sector and I am unsure if now is the time to get into oil as green energy seems to be gaining some momentum finally. In light of that I will also consider a solar company.

Final Notes:
In short I don't think the market will make any very large moves this week, but I think the potential for a large, unpredictable shift is large enough for me to stay on the sidelines this week. All of this news will have a larger impact on the long term than the short term and so I am waiting out this week to get the information I need and try to draw what conclusions I can from there. And finally, I am still very much torn over China. I feel the market has a huge upside that I would hate to miss, but the unpredictable nature of their government, economy, and political agendas leaves you open to a blind side at any point. For now I am just feeling out the water, but the more time I'm out, the more upside I am missing.

*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 do hold positions in all of the mentioned stocks except KSP, TOT, and XOM.