Stock Market Video
The Triple Whammy of the Fed, Greece and China
This Week’s Fortune Cookie
In Case You Missed It
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Stock Market Video
In this week’s Stock Market Video, Mike Cintolo takes a cautious short-term view of the market, especially with so many Greece-related uncertainties floating around. However, he’s seeing little changed with the intermediate- to longer-term trend, and the action of individual growth stocks has been solid! Mike continues to “lean bullish,” and talks about some constructive set-ups he’s seeing right now.
Note: I have some important things to say about what’s happening in the stock markets, but I can’t let the Fourth of July holiday pass without wishing you a safe and glorious (by which I mean LOUD holiday). I hope your picnics and barbecues are delicious, your weather beautiful, your friends abundant and your fireworks spectacular. Happy Independence Day!
The Triple Whammy of the Fed, Greece and China
Markets are used to all kinds of stressful events, and for the past year or so have taken the Greek debt crisis pretty much in stride. Up through last week, what we saw in the market was an unemotional averaging out of all investors’ estimates of the probability of a Greek default and the likely fallout (including Greece’s exit from the Eurozone). But as good as markets are at rational discounting in the face of a crisis, they are definitely not good at handling three crises at once. So when the Chinese stock market began to implode last week—the result of a year of speculative buying by Chinese investors and the government’s unexpected tightening of margin requirements—on top of the Greek default and referendum, the result was extreme. Coming on top of the long-running Fed policy tease, investors must have felt like they were trying to play tennis while under attack from a pit bull at their ankles and a swarm of bees around their heads. So, a bit of panic was understandable.
The reaction from alarmed investors has pulled all of the major market indexes below their 25- and 50-day moving averages and back into the lower parts of their multi-month trading ranges.
For China and emerging market investors, this drop has been especially dramatic, as this chart of the PowerShares Golden Dragon Halter USX China ETF (PGJ) shows. (The Golden Dragon tracks Chinese stocks that trade on U.S. exchanges as ADRs.)
The chart shows quite clearly the March–April blastoff in those shares and the bumpier follow-through gains in May and June. The selloff last Friday and today is quite emphatic, and shows what happens when a three-front attack triggers investors’ flight reflex.
How long this correction will last and how deep, I don’t know, and neither does anyone else, even if they’re willing to offer predictions. The important thing now is to cut your losses short, take some profits in a couple of emerging market stocks and avoid most new buying. There will be plenty of bargains around when this flood of negativity subsides, but trying to call bottoms in either the market or individual stocks is a loser’s game. For growth stocks, capital preservation is the name of the game now. Once you have trimmed your growth portfolio’s sails to meet this new storm, you can relax and start building your watch list from among the casualties. But don’t even think of just holding onto everything and hoping that things will turn around quickly. Instead, respect the market’s action by raising some cash, keep your stocks on tight leashes and work on a watch list for when the markets improve. ---
Here’s this week’s Fortune Cookie. Remember, you can always view all previous Fortune Cookies here and Contrary Opinion buttons here.
“There is no point in arguing with the inevitable. The only argument available with an east wind is to put on your coat” -- James Russell Lowell
Tim’s comment: As with the weather, so with the stock market. While people will speculate endlessly (and often to no end) about what is coming next, what’s far more important is what’s happening now, and how you react to it. With the market having given a clear shot across the bow last week, it’s now time for heightened vigilance and reduced risk.
Paul’s comment: The rules of growth investing are pretty simple (although applying them can get a little tricky). But Lowell (a 19th century American poet, abolitionist and diplomat) clearly anticipated one of them. That is that you need to know which way the wind is blowing (or the market is going) and act accordingly. I guess we all need to keep hearing that, over and over.
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The Week In Review
In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, there are links below to each issue.
Cabot Wealth Advisory 6/29/15 – Why Greece’s Potential Default is Important to You
Nancy Zambell, editor of Investment Digest and Dividend Digest, writes about the possible consequences of a Greek default and advises rebalancing your portfolio to reduce Greek exposure. She notes the five ETFs with the highest exposure to Greece.
Cabot Wealth Advisory 6/30/15 – Investors and the Genuinely Horrible Day
I write in this issue about how to handle a terrible streak like the one that markets have been on, noting also why it might not be a bad thing if we got a moderately strong correction to clear the air. Stock discussed: China Biologic Products (CBPO).
Cabot Wealth Advisory 7/2/15 – Using Options to Hedge Your Portfolio
Chief Analyst Jacob Mintz, the options genius behind Cabot Options Trader and Cabot Options Trader Pro, writes about active options strategies for protecting your portfolio from unexpected market movements (and making money in the process).
Have a great weekend,
Paul Goodwin
Learn more about Paul’s advisory here!
