Friday, August 6, 2010

Is it time to bail on stocks?

Many financial advisers have reached this conclusion. One popular CFP in the Dallas area already has his clients in cash or alternative investments. I'm debating -- with myself mostly -- on whether I should reduce my exposure to stocks.

One key component of my decision will be capital gains taxes. If they are set to double, then I may take profits this year. A lot of other people may do the same. This may create heaving selling, which would create a bear market.

While the chart shows a mini-bull session, it may not last. Here's why:

1. Unemployment is not improving. Without new jobs, the economy is not going to grow much. There is not one thing the Obama administration has proposed that will stimulate job growth.
2. While earnings have been impressive so far, revenues have been weak. These earnings have come from cost-cutting, not revenue growth. So earnings may stagnate or decline. This is key to stock market returns.
3. Uncertainty over taxes and regulations have business treading water. They are sitting on cash, waiting to see what Congress and the Feds do. They are not hiring.  A lot will depend on the elections in November.
4. Investment taxes, such as those on dividends and capital gains, are set to go up, maybe. Another uncertainty. Many investors may start more selling just based on this. As uncertainty rises, so does risk.
5. The market top in late April may indeed be a market top. While 10 to 20 percent corrections are the norm, this one may not reverse significantly. Volume on upticks has not been encouraging.

The chart below shows the SP500 for the last six months. Once the 20-day dips below the 50-day MA, and the MACD trend is negative, it may be -- probably will be -- time to sell. Volume will be a confirmation (down ticks on heavy volume is bearish).

Disclaimer: This is not a recommendation, so don't go buy and sell stocks and then come back here and tell me I'm wrong. I could very well be. Do your own research and due diligence.


Anonymous said...

It's 'due' diligence, rookie. And for once, your 'advice' may be correct. Been gradually bailing for months....

Steve said...

Good catch. You're right, it is due diligence. Though I don't understand the snide "rookie" comment. It was a long day.

Hey, if this is FamGuy, your post a couple of days ago about the wars (under the subject of military suicides), I happen to agree with most of that.

Good article on the subject at American Thinker

Why is it you can't post something without a personal attack, even if subtle?

Anonymous said...

Sorry, was just a knee jerk reaction to someone giving financial advice w/such an obvious misnomer. Agree w/ the main thought, AND, in thinking back, can't forget how close we were in the 'political quiz', which determines your true thoughts. Again, sorry. Am trying to mellow out, and you caught me.

Jim said...

Steve u could just take away his "freedom of speech" or invoke the "fairness doctrine on him since all he seems to want to do is make personal attacks and backs very little if anything he says with facts. I offered comments with facts on his page and he deleted em despite his wanting lurkers to do more than lurk and leave comments. When he disagrees with someone with facts he deletes em. Guess he can't stand the truth, to discuss it just wants to blame bush for everything is his answer. Well you are a better man for not deleting his comments so we can see what he is all about.

Steve said...

Like most liberals, he views conservatives and/or Republicans -- maybe even libertarians -- as morons, evil, racist, homophobic and generally not worth debating, since anyone who doesn't think like him is clueless.

When you come from that frame of reference, you need to discredit your opponent rather than enter into a debate. IMHO