Don't get your feathers ruffled with the headline news surrounding the markets. I think that this is a very strong market to be long right now. As told from Warren Buffet's 13F filing with the SEC, he is a supporter of QE2 and a bull on the market. His outstanding reputation might only be surpassed by his exceptional long-term investing record. To put it bluntly, if he is running with the bulls in Pamplona, you bet I am there hopefully a few strides ahead of the next guy.
The 30-day correlation coefficient between the 10-year Treasury yields and the S&P hit -.42. Stocks and bonds are not moving together anymore after reaching a high .89 in June. This is a major sign that investors are valuing companies based on their earnings and profit projections rather than the overall economy that has been scaring investors for the past couple of years. From the beginning of the third quarter to the end of the next year's third quarter of a President's third year in office, the Dow has averaged 15.5% since 1896. With the correlation coefficient so low, stock's performance reliant on earnings reports and financial results, and analysts forecasting 87% of S&P companies are going to have higher earnings next year, the market looks strong.
And for a Thanksgiving Week sendoff, a few statistics for the week historically:
59% of Thanksgiving weeks have the Dow higher
The Dow has fallen 3 of the last 4 Thanksgiving weeks
The Dow averages .59% gain
Enjoy the holiday and as always *preserve your capital*!
Wednesday, November 24, 2010
Thursday, November 4, 2010
Buy the rumor, Sell the news
This is an old saying that we constantly heard during earnings season, leading up to QE2. It is known as one of the old wives tales of investing. A fairly simple concept, but with many different analysts expressing their different opinions, it turned out to be a confusing idea to some.
Basically, the saying suggests that the rumors leading up to some sort of announcement fall short of the high expectations of the rumors the majority of the time. Much more of a concern to short-term investors than the long-term because of the quick swings of short-term reactions. When Apple was scheduled to release their earnings, you begin to hear thousands of possibilities of what their earnings are going to turn out to be. This anticipation has wild ranges and the stock price surged upward, crossing $300 a share for the first time, pricing the exceptional expectations into the stock price. Then, when the news is announced, and it doesn't meet the high expectations, the stock price drops. So, a profit seeking venture would have the short-term investor buying the rumors and selling when the news is finally released. In the case of Apple, hopefully that investor got back in as now Apple is flirting with $320 like it's the hottest girl in town.
Basically, the saying suggests that the rumors leading up to some sort of announcement fall short of the high expectations of the rumors the majority of the time. Much more of a concern to short-term investors than the long-term because of the quick swings of short-term reactions. When Apple was scheduled to release their earnings, you begin to hear thousands of possibilities of what their earnings are going to turn out to be. This anticipation has wild ranges and the stock price surged upward, crossing $300 a share for the first time, pricing the exceptional expectations into the stock price. Then, when the news is announced, and it doesn't meet the high expectations, the stock price drops. So, a profit seeking venture would have the short-term investor buying the rumors and selling when the news is finally released. In the case of Apple, hopefully that investor got back in as now Apple is flirting with $320 like it's the hottest girl in town.
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