This month’s Spotlight Stock is a household name that ran into some challenges that put a dent in its stock price. But now with a new management team and favorable industry trends, the turnaround looks promising, and the stock price is certainly discounted—and attractive.
Wall Street’s Best Investments 798
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Market Views
Cautious and Taking Profits
The Dow closed at another historic high last week—up about 100 points for the week. We think things are getting a little pricey, and so we would be taking profits on those stocks that are extended and at risk of declining. And as we have said on many occasions, “Stocks don’t go up forever.” We believe that decertifying the Iran nuclear treaty could be the catalyst that sends the market on a downward path.
Joseph Cotton, Cotton’s Technically Speaking, www.cottonstocks.net, 727-289-4436, October 16, 2017
Bullish for Diversified, Undervalued Holdings
With Q3 earnings reporting season hitting a higher gear this week, we remain optimistic about the prospects for equities in general and our broadly diversified portfolios of undervalued stocks in particular. Part of the reason for our enthusiasm is that we just are not seeing the kind of investor excitement one might expect with the markets marching continuously higher. Also, given that many of the companies in which we are invested have substantial operations overseas, we like the news that has been coming out on the global economic front. Last week, the International Monetary Fund provided a relatively upbeat update to its World Economic Outlook, echoing a similar forecast out a couple of weeks ago from the Organization for Economic Co-operation and Development (OECD).
John Buckingham, The Prudent Speculator, www.theprudentspeculator.com, 877-817-4394, October 16, 2017
Watch the Treasury-Bund Spread
The big Treasury-Bund spread is not just a problem for the value of the dollar. It also has an impact for the stock market. Here is an updated chart showing that comparison:
The divergence between the Treasury-Bund spread and the DJIA is now 10 months old and counting, but such divergences can last for a long time before they finally matter. The Treasury-Bund spread peaked in June 1999, which was 6 months ahead of the DJIA’s monthly closing high, and 14 months ahead of the August 2000 peak for the SP500.
There was another peak in the Treasury-Bund spread in June 2006, which was 16 months ahead of the DJIA’s final peak in October 2007. And a lesser divergence was seen in 2010-11, with the Treasury-Bund spread peaking in April 2010 which was 12 months ahead of the DJIA’s monthly closing high in April 2011, ahead of the post-QE2 price drop.
This is an admittedly small sample size for gauging how long of a divergence we should expect this time before the stock market finally turns down. But if we go with that range of 12-16 months, compared to the current 10-month duration of the divergence, then there should still be a few more months before the Treasury-Bund spread’s downturn finally gets echoed in stock prices.
Tom McClellan, The McClellan Market Report, www.mcoscillator.com, (253) 581-4889, October 13, 2017
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THE NEXT Wall Street’s Best Investments WILL BE PUBLISHED November 15, 2017
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