The Stock Market has crashed - Now what?

The stock market has crashed now what? Obviously it depends, there are a lot of variables. If you are trading credit spreads then you do not worry you made money coming down and you’ll make money going back up. However what about your investments?

You may or may not know that I supplement my investments with credit spread trading. I use my monthly profits from my credit spread trading account as money to put into my investment account. Luckily I have been mostly in cash this past crash so I am not affected however what should I do now? Well I am still young and have over 20 years (traditionally) before I retire - so I should put my money back in! Right now is the time, when prices are low, I can gain 5 years, because they have not been this low in the past five years. Now is the time to buy.

And don’t take my word for it - here is another opinion that makes complete sense -

Stock Market: The Sky Is Falling And I Want My Mommy!

Here is an excerpt on what you should do -

#1 - DON’T PANIC!

Remain calm and level headed
Try not to base your financial decisions on emotions
Remember: There will be good days and bad days
Educate yourself about personal finances
Understand your own finances
Seek professional advice
Stay invested, if possible
Continue contributing to your retirement accounts, if possible

Very sound advice John!

investments, investment account, stock market

S&P 500: What a Bounce!

After yesterdays disaster in the markets as the S&P 500 dropped 106 points, we recovered over half that amount on a bounce today of 58 points! Dangerous times to be in the market, but since we are lets look at we we are at specifically support and resistance.

First - We are definitely still bearish - S&P is well below the 200dma, made new 52 week low yesterday, and the 50dma is sloping down.

So look for Bear Calls folks!

Second - support and resistance - Support is easy - it is yesterdays low just above 1100; Resistance on the other hand is a little more gray. There is obvious strong resistance at 1300 and again at the 200dma of 1330. Now for weak resistance we are looking at 1200 as the continuation of a bear channel and 1250 as a double top from previous days this month. Both of these are weak and easily broken with the right amount of coaxing such as a spectacular deal from the Federal Government - HA HA HA! I crack myself up sometimes - spectacular deal and Federal Government in the same sentence…ROFL, but in any case it would be a perception of a deal that may break those resistance points, but do not expect the S&P or the rest of the market indices to break the 200dmas.

Just be happy that you are trading credit spreads and you can take advantage of these drops in the market and still make money, just stay above resistance and sell bear call spreads.

bear call spread, markets, resistance, S&P 500, support

Earnings Preview for Sep 22 – 26

The big bailout will be a key focus of the markets.

Congress is expected to meet over the weekend to discuss legislation proposed by Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson. The details of the proposal, and any additional measures designed to help homeowners struggling with mortgage payments, could impact market direction.
The temporary ban on short selling could also affect trading early in the week. Part of Friday’s rally was the result of quadruple witching. Traders are being forced to close short positions rather than roll them over into new contracts.

On the earnings front, we have confirmed reports from 33 companies. Included in this group are S&P 500 members Autozone (AZO), Bed Bath & Beyond (BBBY), Discover Financial (DFS), Jabil Circuit (JBL), KB Home (KBH), Lennar (LEN), McCormick (MKC), Nike (NKE) and Paychex (PAYX). I expect only limited reaction to the homebuilders (KBH and LEN), because of the proposal under discussion.

The economic calendar includes two reports on August home sales, but is otherwise light.

• Wednesday: August existing home sales, weekly crude inventories

• Thursday: August durable goods orders, August new home sales, weekly initial jobless claims

• Friday: Final September University of Michigan consumer confidence survey, final Q2 GDP
Bernanke has three scheduled appearances before Congress.

On Tuesday, he will discuss the financial markets before the Senate banking committee. The chairman will provide his economic outlook to the Joint Economic Committee on Wednesday. Finally, on Thursday, Bernanke will review the recent proposals and actions before the House financial services committee.

Companies That Could Issue Positive Earnings Surprises
AutoZone Inc. (AZO) has topped market expectations twice in the last three quarters. Ahead of the company’s fiscal fourth-quarter report, brokerage analysts have raised their forecasts. The consensus earnings estimate now calls for earnings of $3.90 per share, a penny higher than a week ago. The most accurate estimate is even more bullish at $3.92 per share. Autozone is scheduled to report on Monday, Sep 22, before the start of trading.

Companies That Could Issue Negative Earnings Surprises
H.B. Fuller (FUL) recently cut its profit forecast, citing high costs of raw materials. The chemical manufacturing company now expects third-quarter earnings of 35 cents per share, excluding a tax benefit. Brokerage analysts responded by lowering their forecasts to 35 cents per share from 48 cents per share. FUL has missed consensus earnings estimates in two consecutive quarters. H.B. Fuller will report on Tuesday, Sep 23, after the close of trading.

---

Charles Rotblut is the Vice President of Web Content for Zacks Investment Research and the Senior Market Analyst for Zacks.com. He oversees the editorial staff, manages the market-beating Focus List, Timely Buys and Top 10 portfolios, and plays an instrumental role in the development of new products. For more information, visit www.zacks.com.

bailout, earnings, markets, market direction

Staying Focused on the Long-Term

Quadruple witching has led the fourth day of triple-digit intraday moves for the Dow. The ban on short-selling forced many traders to close out their positions rather than roll them over.

The big gains on Friday were really just an extension of what we saw on Thursday. Anyone who did not own stocks at lunchtime on Thursday missed out on the rally. The rally happened too fast for most investors to take advantage.

The speed and intensity of the rally demonstrated the importance of maintaining an allocation to stocks. The biggest rallies often happen without much forewarning.
Therefore, it is important to continue to focus on the long-term. Over time, stocks have consistently created more wealth than any other investment vehicle. A diversified portfolio will weather bear markets and will thrive in bull markets.

Our Strategy for the Focus List
In managing the Focus List, we treat each stock pick as an investment, not a trade. We are willing to move quickly when conditions change, but day-to-day swings in the market are not going to change our management style. Our plan is to continue to find fundamentally sound stocks with rising earnings estimates that are trading at attractive valuations.
In accordance with this objective, we will be adding ReneSola (SOL), Smith International (SII) and Sohu.com (SOHU) to the Focus List. All three stocks are trading at an attractive valuations and have rising earnings estimates.

SII provides a complete range of oilfield drilling products and services, from the rig floor to the drill bit. A sizeable portion of its business is tied to long-term projects in the Eastern Hemisphere, which historically has provided less volatile revenue streams. Smith International is also a shareholder friendly company, having both raised its dividend and repurchased stock. Zacks Equity Research analyst Sheraz Mian recently upgraded SII to a long-term buy.

SOHU is the leading Internet search engine and web portal in China. The company has been experiencing rapid growth in both revenues and earnings, but recent weakness in the Chinese stock market has made shares of this company a bargain. SOHU trades at just 18x projected 2008 earnings of $3.55 per share and is a Zacks #1 Rank (”strong buy”) stock.

SOL is being added to both the Focus List and the Timely Buys List. This company manufactures solar wafers and supplies many of the major manufacturers of solar cells and modules. Unlike many other alternative energy companies, ReneSola has been profitable. Equally important, the company’s earnings are projected to rise approximately 70% next year to $2.40 per share. SOL is a Zacks #1 Rank stock trading at just 5.9 projected 2008 profits.

The Focus List does not have any exposure to the industries in which these companies operate. Therefore, adding these companies will improve the diversification of the portfolio, which in turn reduces its volatility.

Regulatory and Market Events
I’m going to reiterate what I said on Zacks.com concerning the week’s events and new regulatory proposals.

Traders are reacting quickly to the ever evolving events, which has included the bankruptcy of Lehman (LEH), the government takeover of AIG (AIG), the closing of a Putnam money market fund, an infusion of liquidity by several central banks and a proposal for a massive bailout of financial firms. Not to mention that short-selling has been banned on nearly 800 financial stocks here in the U.S.

In describing the week’s events to David Gaffen, who writes the excellent MarketBeat blog for the Wall Street Journal, I opined, “Throughout the year there’s been so many people saying this is bottom, and we hear about (the major financial firms) throwing in everything including the kitchen sink, but now we’re finding they’re throwing in the dishwasher, the refrigerator, and who knows what else.”

Treasury Secretary Henry Paulson’s and Fed Chairman Ben Bernanke’s latest response to the financial crisis is the creation of a new entity that would purchase a significant amount of the distressed debt plaguing many financial firms. The assumption is that if the toxic debt can be moved off of corporate balance sheets, calm will be restored to the financial system.

Taxpayer money could be used to fund this entity, which is why the proposal is being brought before Congress. And, since this is an election year, it is highly likely that some type of bailout for homeowners at risk of defaulting on their mortgages will be included.

Rest assured, the decisions being made right now will be criticized in the future. But in a crisis situation, fast action is often better than no action. Give Bernanke and Paulson credit for being creative.
At the root of the credit crunch is a psychological problem - lenders don’t trust borrowers. The entire financial system is based on the expectation that both parties engaged in a transaction that will meet their obligations. When counter-parties don’t trust each other, deals don’t get done and loans don’t get made. It was a lack of trust that caused Bear Stearns to collapse so quickly, and it is a lack of trust that has created questions about the viability of Morgan Stanley (MS) as a stand-alone firm.

The Markets
The S&P 500, and other major averages, set new lows for the year, only to bounce right back into their previous ranges. Trading this week was not driven by technicals, but rather speculation and reaction to news events. I expect more of the same next week as we start to learn the details of the proposed bailout.

The VIX shot well above 30 this week, signaling an elevated level of fear. Recently, spikes above 30 have signaled short-term bottoms. Given the ban on short sales and the proposed bailout, it’s very possible that another bottom has been set.

---

Charles Rotblut is the Vice President of Web Content for Zacks Investment Research and the Senior Market Analyst for Zacks.com. He oversees the editorial staff, manages the market-beating Focus List, Timely Buys and Top 10 portfolios, and plays an instrumental role in the development of new products. For more information, visit www.zacks.com.

investing, markets

Next Page »