Richard Band's Safe Haven Market Blog, powered by InvestorPlaceBlogs.com

Lighten Up...

Fri, 29 Aug 2008 09:53:33 -0500

Stocks put on a third good bounce in a row today. Hey, I'm not the kind of guy to whine about a 213-point jump in the Dow! But the question is: What do you do with days like this?

I spent most of the session on the sell side, lightening up on stocks and funds that have exhausted most of their near-term potential.

I advise you to do some trimming yourself before market's latest burst of strength fades. From a technical standpoint, today's session continued the "nice, but" pattern we've seen so many times over the past six weeks. Upside volume came in a bit stronger than yesterday, but again lacked the explosive punch that could kill the bear, once and for all.

So it's on to September. Odds are, after some seasonal strength around the turn of the month, the market will head back down to probe its July lows in the 1200 to 1215 zone, basis the S&P 500 index. I'll keep you posted as the events unfold...

Enjoy the long weekend!

Scouting for a Top

Tue, 19 Aug 2008 14:02:01 -0500

The clock is running out on the stock market's rally off the July lows. If you're sitting on stocks or funds that have given you trouble, now is the time to take your lumps and move on.

Sounds pretty dire, doesn't it? Not really. I've suggested to my subscribers for the past couple of weeks that the market will probably need to drop back to the vicinity of its July lows (1214 on the Standard & Poor's 500, closing basis) before we can get a durable recovery.

If we're lucky, the blue chip indexes won't undercut their July lows by more than a couple of percentage points. Then we can enjoy a solid fourth-quarter rebound that might well carry into the opening months of the New Year -- assuming Barack Obama continues to backpedal on his proposed tax hikes (or John McCain wins the election!).

But we mustn't run ahead of ourselves. Before a new bull market can begin, we have to get rid of the old bear. And technically, it will be almost impossible to kill the bear without at least one last stab at the lows by the major stock indexes.

By dumping some of your troubled equities now, you'll build a cash hoard to go shopping with a few weeks from now -- at lower prices. This is simply good money management: Buy the dips, sell the rallies.

What should you sell? A useful rule of thumb may be to look at the stock's July 23 and July 30 peaks. If the share price hasn't exceeded both of those peaks during August, it's a sign that buy-side interest is waning. Exit now and live to fight another day!

They Don't Know (What They Don't Know)

Wed, 06 Aug 2008 11:27:47 -0500

Are you pulling your hair out yet? If you aren't, you're lucky -- you haven't been paying attention to Wall Street. Before today's upside explosion, stocks skidded three days in a row, including some pretty nasty selling in the broader market (e.g., small caps) Monday. So will the real trend please stand up?

In due time, it undoubtedly will. For now, though, the only clear fact is that investors still haven't figured out whether we've seen the final lows for the bear market that began -- in earnest, anyway -- last October. The extreme volatility of the past few weeks is a sign of ignorance, not conviction.

Like most other market players, I welcome the drop in energy prices since mid-July, and the simultaneous rebound in financial stocks. I hope the pattern will continue.

However, I also recognize that if too many investors are wishing for the same thing, it's unlikely to happen -- at least not in the time frame most folks are expecting.

It troubles me, for example, that options traders rushed to buy calls as soon as the stock market indexes bounced off their July lows. Yesterday's session brought the heaviest call buying of 2008 on the Chicago Board Options Exchange.

To me, that smacks of "jumping the gun." The same eagerness to put the Big Bad Bear out of mind is very much evident on financial TV (for those hardy masochists who still tune in).

As I've told my Profitable Investing subscribers, I'm willing to turn out-and-out bullish if the market gives us even a few unmistakable signs of strength. A 9:1 upside volume day would certainly help.

To date, however, proof of a real turnaround has been lacking. So we must proceed cautiously on the assumption that a final market bottom is still waiting somewhere off in the distance -- perhaps later this month, perhaps in September or October.

The best buy right now is a "green" utility I've recommended to my subscribers. The company reported solid earnings last week, but the stock has dropped because the Street shortsightedly reasons that lower oil and gas prices will lessen the need for alternative energy sources.

Don't believe it. Fossil-fuel prices will snap back sooner or later, and when they do, investors will again clamor to own a piece this utility's business. The stock is a bargain in the alternative-energy space.

Moves by Mr. Market

Wed, 30 Jul 2008 15:33:15 -0500

Leave it to Mr. Market -- the guy who just can't stay on track for more than a day. Monday, he knocked 240 points off the Dow. Yesterday, he decided to pile on 266.

Let's take a dispassionate look at the numbers:

Yes, we had a strong session yesterday. In fact, we got the best day for upside volume since the latest rally began July 16. On the NYSE, the number of shares traded in advancing stocks amounted to nearly 83% of the total shares traded in advancing or declining stocks. Then again today the market sent us on a small roller coaster ride to a current 104 on the Dow with just a half an hour left before market close.

Still, that's not the overwhelming vote of confidence it may seem. In the first two weeks after the market's bottom in August 2007, for example, we had two sessions in which upside volume hit 90% of the total.

Around the November 2007 low, we also got two 90% upside days, one just before the bottom and one after.

After the January 2008 low, Mr. Market never gave us a 90% day, but we had three sessions in the first two weeks with stronger upside volume than yesterday's high.

Then, within two weeks of the March 2008 low, we again saw two 90% up days.

In short, the market is tipping its hand, ever so subtly. Could the advance continue a while longer? Sure it could. Chances are, though, the blue chip indexes will slip back a few weeks from now to "test" their July lows (around 1200 on the Standard & Poor's 500 index).

The Balm to Soothe Your Nerves

Fri, 25 Jul 2008 10:52:32 -0500

It seldom pays to read too much into one day's action on Wall Street. But yesterday's steep sell-off did telegraph an important clue -- and it's not what the bulls wanted to hear.

As you know, I've taken a cautious view of the rally that lifted off July 16. Last Thursday, I noted to my Profitable Investing subscribers that the stock market hadn't yet given us a day with overwhelming upside volume.

That problem continued even as the indexes worked their way higher through yesterday. Advancing stocks outnumbered decliners on the NYSE for six days in a row, but trading volume in the declining stocks remained higher than normal for a healthy rally.

We saw the result yesterday. The market buckled, led by the usual culprits (financials).

So where do we go from here? Today's session will speak volumes. If stocks can snap back strongly, the rally off the July lows could carry into August. However, a weak, lackluster bounce tomorrow (or, worse, another decline) would signal that the market intends to take out its July lows soon.

Hedgers, I suggest watching the Standard & Poor's 500 index carefully today. If the S&P trades in a tight range between 1247 and 1257 during the day, chances are the market is forming a "shelf" before another leg down. Position yourself accordingly, in double-bear funds or August put options, near the close of the session.

For the rest of us, it's a time to be extra cautious. Whether the slide continues today or resumes from somewhat higher levels, I suspect you'll be able to buy most stocks and mutual funds at lower prices in a few weeks than you would have paid today.

Hang on to your cash as long as possible, and dispense it sparingly. We'll get through this "harrowing of hell" eventually, but we'll need patience. Cash will soothe your nerves in the meantime.

Will WaMu Cheat the Hangman?

Thu, 24 Jul 2008 09:30:12 -0500

I'll remember Tuesday's madcap trading for a long time. How often does a blue chip company report an $8.9 billion quarterly loss -- and the stock proceeds to skyrocket 27% in a single session?

Yet that's exactly what happened with Wachovia (WB). The North Carolina-based bank not only announced that eye-popping loss but also slashed its dividend for the second time this year.

Predictably (one might almost say, sensibly), the shares plunged in the market's opening minutes. But then, suddenly, investors changed their minds about the report. Maybe this is as bad as it gets, they surmised. Perhaps the job cuts (10,700 in total) announced by new CEO Robert Steel -- fitting name for a machete wielder -- will really make a dent in WB's cost structure.

And the stock soared.

I certainly wouldn't chase WB shares after Tuesday's move. It was a little too much, too soon. However, a rally of this magnitude suggests we're close to the end of the long slide in the financial stocks. There will be individual casualties in the days and weeks ahead, but the industry will survive and start to heal.

After the close Tuesday afternoon, Washington Mutual (WM), another battered lender, posted its Q2 earnings. Ugly stuff, too: a $3.3 billion loss. Yet WaMu enjoyed a nice 6% bounce during the regular session, and the rally continued in after-hours trade.

With a significantly weaker balance sheet, WM will need a lot more time to recover than Wachovia. If you sold earlier to capture a tax loss, I see no need to rush back in.

Even so, it now looks increasingly likely that WaMu will cheat the hangman.

Bucking the Tide

Wed, 23 Jul 2008 08:48:13 -0500

While I'm definitely not aggressively recommending the purchase of banks right now, I have to admit, that a certain trio has caught my eye.

While so many other banks are slashing their dividends, or omitting them entirely BB&T (BBT), US Bancorp (USB) and Wells Fargo (WFC) are going in the other direction. In fact, they've distinguished themselves by raising their dividends in 2008, when most other banks either cur or eliminated their dividends all together. Not too shabby of a move forward, if I do say so myself.

Don't get me wrong, I'm not overly enthusiastic about the banking sector as a whole right now. I continue to foresee a continued high level of loan losses for at least the next several quarters. (Mostly bad mortgages, but also some problems with credit card debt and corporate bankruptcies as well.) However, these select few banks are managing success through turmoil and that counts for a lot these days. It's definitely something to keep one's eyes on.

Boeing Buys Insitu

Tue, 22 Jul 2008 12:46:14 -0500

It comes as no surprise that Boeing (BA) is once again growing and expanding. Today the company announced that it will be purchasing aircraft maker Insitu Inc. for an undisclosed amount.

The nifty thing about Insitu is that the company's aircraft fly unmanned. This allows for excellent intelligence, surveillance and reconnaissance missions. It comes as no surprise that with this high-tech equipment Insitu sales have managed to double every year for the past five years.

Boeing's purchase of this valuable company is expected to be complete by the end of September and will operate as a subsidiary of Boeing's Integrated Defense System's Military Aircraft division. This is great news for my Profitable Investing subscribers.

Sometimes Good Things Come in Ugly Packaging

Wed, 16 Jul 2008 09:15:55 -0500

It doesn't get much grimmer than this. And that, paradoxically, may be the best reason why the stock market is knocking on the gates of a rally that will at last deserve the name.

Yesterday, more than 1300 individual stocks touched new 52-week lows on the NYSE. That's an astounding figure. In fact, after deducting the handful of new highs, net new lows reached 39% of all the stocks traded on the Big Board today.

How significant is that dubious achievement? Well, over the past 30 years, there have been only eight daily spikes above 30% net new lows. Each has occurred at an important market bottom (though not necessarily the final bottom in a downtrend lasting many months).

In short, if you've felt like pressing the "sell" button in the past few days, don't. The market is about to bounce. As the rebound gets under way, we'll evaluate its health. Then, if necessary, you can reduce your exposure at somewhat more favorable prices.

All Hope is Not Lost

Fri, 11 Jul 2008 16:26:38 -0500

It's clear that the "crisis of confidence" in Fannie Mae (FNM) and Freddie Mac (FRE) was a prime factor in driving the stock market down this week to its sixth weekly loss in a row (Standard & Poor's 500 index).

Losing streaks of this length are rare. In fact, the last run of six down weeks ended at the major market bottom in October 2002. However, I still firmly believe that we're due for a bounce any day now, although the market will probably come back and "test" today's lows later in the summer.

Interested in Annuities?

Thu, 10 Jul 2008 12:56:46 -0500

There's an old investment tool that, after falling out of favor in the past few years, may be on the verge of a comeback. I'm talking about annuities. Annuities aren't designed to shoot out the lights in terms of investment performance. They do carry costs. However, they can also save on taxes (a key benefit if tax rates go up under a new presidency), while providing certain valuable guarantees.

Here's a quick overview of how annuities work. You deposit money with an insurance company. If you don't need cash back immediately, you'll opt for a deferred annuity. The insurance company will invest the money as you direct, either at a fixed rate or, if you choose a variable annuity, in one or more mutual funds offered by the annuity sponsor.

Interest, dividends and capital gains accumulate tax-free in the account until you begin withdrawals. (Because a 10% penalty tax normally applies on withdrawals before age 59-1/2, I recommend leaving money in a deferred annuity until you reach at least that age.) When you start taking money out, the IRS assumes that the tax-deferred earnings come out first, to be taxed at "ordinary" (wage and salary) income rates. The original principal you kicked in isn't taxed.

There are two basic ways to pull cash out of a deferred annuity:

Most annuities allow you to make withdrawals pretty much whenever, and in whatever amounts, you want, after the surrender charge (imposed by the insurance company) has lapsed. Assuming you're past the age of 59-1/2, you won't incur any tax penalty, either.

At any age, you can "annuitize," converting a deferred policy into a stream of monthly payments for life or a period of years. Bear in mind, though: Once you've elected to annuitize, you generally can't reverse the decision.

Like other insurance products, annuities can be used to sidestep probate. If the owner dies before annuitization has begun, his or her designated beneficiary receives the proceeds of the account. No will is needed to effect the transfer. After annuitization, the policy will normally lapse on death unless (1) a joint annuitant was named or (2) the terms of the annuitization call for payments over a minimum number of years. Under those two exceptions, the survivor or other named beneficiary will continue receiving payments.

It's a Start

Wed, 09 Jul 2008 09:07:07 -0500

It's a start. But only a start. Yesterday's 152-point jump in the Dow brought welcome respite from the relentless selling of the past four weeks.

On the hopeful side, the rally had good fundamental underpinnings, driven as it was by a steep drop in oil prices (down $9 a barrel over the past two sessions). In addition, the devastated financials got a lift from Fed chairman Ben Bernanke, who suggested in a speech that the central bank may extend its emergency lending facilities into 2009.

However, the real proof of the pudding will come in the next two or three days. From a technical standpoint, yesterday's rally fell into the "good but not great" category. Advancing stocks outnumbered decliners on the NYSE by a 2:1 margin, well short of the 3:1 (or better) preponderance I would like to see at a major bottom.

What can we learn from the terrible experience of the past 12 months, in which so many once sound financial institutions have imploded? It will take time to sort out all the lessons. But one immediately comes to mind: You can't automatically assume that a company with a great long-term track record will continue to succeed.

If future conditions are going to be radically different from the past, that track record will no longer apply. It's difficult to envision radical change, but as investors we constantly have to try. It's a large part of understanding the risks we face.

Fortunately, some businesses are less exposed than others to the threat of radical, discontinuous change. A food-and-beverage stock, for example, can enjoy the luxury of adapting gradually to change. I'm currently recommending one such well-known stock to my Profitable Investing subscribers and in this turmoil it's allowing them to get a good night's sleep.

P.S. A giant oak has fallen. Mutual fund legend John Templeton passed away yesterday at the age of 95. As a stockpicker, Templeton had few peers in his lifetime. (He almost single-handedly "discovered" Japan in the 1950s, when the nation and its stock market were rising from the ashes of World War II.) He was also a gentleman of the old Southern school, with a deeply religious streak. May he rest in peace.

Focus on Stocks with Above-Average Dividend Yields

Mon, 07 Jul 2008 16:52:35 -0500

The S&P's first-half decline of 12.9% was the steepest since 1940 for a year Americans have gone to the polls to choose a president. What's the scoop here?

As usual, it's not hard to discern at least some of the reasons for the market's sharp drop: soaring energy prices; the ongoing turmoil in housing and credit; rising unemployment. More difficult to piece out is whether these trends are about to get worse, or improve.

The market itself should give us a good deal more clarity soon. You might even say we're approaching a moment of truth.

Technically, stocks are about as deeply depressed as they ever get without launching a powerful bounce lasting several weeks (or longer). I'll be watching the bounce very carefully. If it's healthy and vigorous, with ample breadth and volume, I'm willing to increase my Profitable Investing subscriber's equity allocation, even if we have to pay somewhat higher prices.

On the other hand, a so-so rally like the one we had off the March lows would signal more trouble ahead. In that case, I've suggested that my Profitable Investing subscribers boost their cash reserves and take other defensive measures.

For now, it's OK to buy stocks, but do it gingerly and sparingly. Focus on names with safe, above-average dividend yields. These outfits boast enough fundamental earnings power to ride through almost any economic scenario you might imagine.

How to Play It

Thu, 03 Jul 2008 09:53:02 -0500

On Tuesday, traders found encouragement in the monthly Institute for Supply Management release, which surveys purchasing managers in the nation's manufacturing sector. The purchasers reported a slight uptick in manufacturing activity in June (to 50.2 on the ISM index), versus an expected decline. As in past months, exports provided a source of strength.

Construction activity for May -- a less important number, since it's released with a month's delay -- also proved a tad stronger than economists had forecast. Outside the battered housing sector, construction spending crept up 0.2% in May, after a 1.6% jump in April.

These morsels of favorable news, together with the market's pronounced tendency to rise on the first trading day of the month, pulled buyers off the sidelines Tuesday. With a little bit of bloomin' luck (in the form of a long overdue pullback in oil prices), stocks should be able to lift their head above water and take a good, deep breath over the next two or three weeks.

How to play it? Very cautiously. The housing and credit crunch has turned out to be more persistent, and more damaging, than I had imagined in my most pessimistic "what if" noodling a year or even six months ago. I'm rooting for a rally, but we need to see some real improvement in both relative and absolute performance of the financial shares if the broader equity market is to mount a sustainable advance.

Top 3 Techniques to Get You Through

Wed, 02 Jul 2008 09:59:07 -0500

If there's anything investors crave in these unsettled times, it's stability. They're looking for a little peace of mind. But where do you find it? Many folks look in the wrong places and come up disappointed. You don't have to be one of those people.

With three reliable techniques you can control your risk in today's roller-coaster markets. With a stable base under you, you can reach for all the great growth opportunities that our dynamic global economy has to offer.

The first, and most crucial, risk-control technique is to maintain an adequate reserve of cash and near-cash instruments. During market panics, it's often said that "liquidity has dried up." What is liquidity? In simple terms, it's the ability to turn your investments into cash, quickly, without having to accept a fire-sale price.

If you're holding plenty of cash, liquidity is never an issue. You can always meet your day-to-day obligations without being forced to sell stocks or equity mutual funds at disadvantageous prices. Better yet, your cash (because it pays interest) grows even when market fluctuations may have knocked down the value of your other investments. Thus, cash tends to cushion the shock of market declines.

A second way to tamp down your risk is by engaging in a limited, judicious amount of tactical trading. In fact, tactical trading can help you can raise the cash I mentioned in point #1.

I don't mean that you should tear your portfolio apart and then build it again from scratch. Instead, take a long, hard look at the stocks and mutual funds that you currently own. Are your winners overextended and unsustainably high? Are your losers unlikely to mount a meaningful recovery in the next couple of months?

As a final step toward stabilizing your portfolio, you should always look for chances to upgrade your holdings for greater safety, improved growth potential or both.