In looking at the markets this morning, I'm seeing a couple red flags in some stocks and in certain sectors. Ford (which I own) has seen its share price rise by over $4 over the past 5 months to $17.50/share, and recently came out with great earnings for the 3rd quarter; a possible bad omen I'm seeing is that since the company posted great earnings, the stock has not been performing well (which is why I'm starting to sell some of what we own). Usually when a conmpany has a good earnings report and raises guidance, the stock usually goes up in price, but when you see a specific stock or sector do the opposite of what would be expected, then it could foreshadow that the stock has run its course and needs to consolidate its gains (selloff).
Another flag I've been watching is how the recent high flying "momentum" stocks, such as Priceline and Google and Apple and Netflix (to name a few) have lost their so called momentum (hence the term they've been given). The stocks and sector that has been performing best of late have been the consumer durables, such as P&G (Proctor and Gamble) and Clorox...just to name a two. This sector is known as a "defensive" sector b/c that's where the fund managers and money managers move their money to when they think the markets in general might sell off.
Of late, the financial sector has been underperforming the broader markets and as it says in the Investment Bible, as go the financial so goes the markets....(I didn't make that up a fellow money manager who I've followed over the years coined that phrase and I like it - and it is actually true!).
The last red flag or bad omen I'm feeling might cause the markets to struggle is what came out of the Federal Reserve meeting yesterday...in summary here are a few of the main points that were found in the released minutes from the meeting:
- the economy continues to grow at a rocky yet moderate pace (which is not necessarily bad but it does show that the Fed sees uncertainty in our economy)
- the unemployment rate is not getting meaningfully better
- while potentionally harmful to the economy, the Fed could possibly stop propping up the economy by stopping to flood the markets with free money (giving away cheap money to corporations but putting the country deeper into debt...if they stop the economy and markets could turn negative)
- they mentioned how the housing market has stalled over the past several months....
- they also made mention of how they were pleased that the stock market had performed well so far this year but that gives me cause for concern because when everyone starts talking about how good stocks are, it's usually not long (historically) before the markets sell off
I'm not trying to just focus on the boo (I'm mean bad) signs/flags I've been noticing of late, but I did want to throw some of them out there, especially since it's Halloween!
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