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Four reasons why stock prices will bounce higher now
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2. Stocks have become severely oversold.
The stock market is acting as if we are
already in a recession. The dividend
yields on many major corporations are
back up over four percent…in an
environment where the 10-year U.S.
Treasury is yielding 1.9%.
The stock market is saying that it
believes companies will cut their
dividends. The bond market is saying
that we are headed for years of no
economic growth.
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3. I believe there is an overreaction to the
situation. As I have been saying for the past few
days, stock prices have fallen too fast, too
quickly. I believe that stock prices will bounce
higher from their current oversold levels. Here
are four reasons why stocks will bounce:
First, the number of bearish stock advisors sits at
its highest level since March of 2009. When you
have so many stock advisors bearish on the stock
market, the market usually does the opposite
and marches on higher. We all know stocks went
up 100% after March 2009.
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4. According to data compiled by Bloomberg, the
S&P 500 is trading at 10.2 times forecast 2012
earnings. The S&P 500 today is valued less than
in any other recession since 1957. Coupled with
dividends, I see the value in stocks, even if
earnings are cut. What is the alternative? Real
estate just keeps declining in value…the10-year
U.S. Treasuries pay less than two percent!
The Chicago Board Options Exchange Volatility
Index, also known as the VIX, sits at 40 today.
This has happened only three percent of the
time in the past 20 years and, each time the VIX
has hit 40, the stock market has rebounded.
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5. Finally, for the quarter ended September 30,
2011, the stock market put in its worst quarterly
performance since the quarter ended March 31,
2009. We all know what happened after March
2009. Stocks climbed 100%.
Let me perfectly clear. I still believe we are in a
long-term secular bear market for stocks, which
started in December of 2007. But right now, at
this immediate time, I believe that stocks have
fallen too quickly and are due for a big bounce
from their oversold levels.
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6. I’m not sure how many of my readers take me
seriously when I say that the citizen protests and
riots, like many European countries have
experienced this year, are headed to America.
They are already here and getting larger.
Three thousand people converged on a Bank of
America (NYSE/BAC) building in Boston on
September 30, 2011, to demonstrate against the
bank’s foreclosure practices. Twenty-one people
were arrested.
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7. In mid-September, the Occupy Wall Street rally
was organized in New York to protest against the
financial disparity between large U.S.
corporations and citizens and the government’s
beneficial treatment of financial companies
during the credit crisis, choosing to prop them
up with $700 billion in taxpayer money. At one
point, this group’s march in New York was
estimated at 10,000 people strong.
Frankly, I’m surprised it has taken this long to
get these protests organized and underway here
in America. And I believe that the marches,
protests and possible riots will only get more
frequent and larger. www.profitconfidential.com
8. I’ve been writing over the past few days that the
stock market has become severely oversold.
Well, the bounce-back is underway. Over the
past two days, the Dow Jones Industrial Average
has added about 300 points. With so many
investors, analysts and stock advisors, I expect
the stock market to continue riding the wall of
worry higher. I wouldn’t be surprised to see
stocks continue rising during the remainder of
2011.
The bear market rally in stocks that started in
March of 2009, although long in the tooth, is
alive and well, www.profitconfidential.com
9. “If the U.S. housing market continues to fall
apart, like I predict it will, the stock prices of
major American banks that lend money to
consumers to buy homes will come under
pressure—these are the bank stocks I wouldn’t
own.” Michael Lombardi in PROFIT
CONFIDENTIAL, May 2, 2007. From May 2007 to
November 2008, the Dow Jones U.S. Bank Index
of the world’s largest bank stocks was down 65%.
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