(Fourth quarter positions)
This week, twenty (20) percent of the companies on the stock market will report their quarterly earnings. So far it seems over eighty (80) percent of those beat analysts expectations. Most companies have lowered their earnings, making it easier to beat. FactSet estimated that the earnings will be four-and-half (4.5) percent lower.
Rarely have we had a market this bullish. A recent analyst this week called for the market to have a huge surge in 2020. I think some of this may be valid, if certain data is accurate and certain events come to fruition. Right now we still feel that the market is overvalued and contains a lot of hype. Looking at the headwinds of BREXIT and the Tariff War with the assumption that both of these have a solution that is agreed upon, would the global recession turn itself around?
Let’s say it does turn itself around. Would it resemble a Yugo making a U-Turn or more like a Star Destroyer? Changing direction would take quarters if not a year to do so. I think that as history is being written, so are the new rules of free-trade. This is why being conservative right now with investments seems to be the practical. One toe in and one toe out. There are far more bullish investors than me out there. Charts seem to show the upper limit for the S&P500 to be around 3150. I will be watching the Relative Strength Index (RSI) and the Volatility Index. If we go into an oversold status, I expect the market to rollover.
Downside right now looks as if a fifteen (15) to twenty (20) percent correction is in order. anything more than that and most call it a recession. This puts twenty-five-hundred (2,500) for the S&P 500 in view and if we do go through that then below two-thousand (2,000) is being called for. Remember Warren Buffett said there was a probability even for a forty (40) percent drop. Not much, but a possibility.
As this market grinds higher or if there is a speculative surge of buyers in the short run, please do me a favor and sell. Take some profits off the table. Cash, bonds or buying the VIX is my recommendation. As the old traders called it “Keep the Powder Dry.” If this occurs, I am bullish on next year. With the Federal Reserve lowering rates and very low inflation in hand, there is room for the consumer index to gain momentum and live with a little more money in their hands. The consumer index has remained strong. If they hold in there and the recent layoffs don’t accelerate beyond job growth, then I think we see higher earnings and a turn around next year. I maybe off by six months but stock-market timing is not an exact science. Take your fourth quarter positions now. The last two have been ones to remember. I think the 3rd time will be the charm.
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Andrew F. Kotyuk, CIMA* is CEO and Principal of Alpha Wealth Management LLC
For questions or investment topics please email me email@example.com.
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