D&D Note (8-9-2012) ~ 5 Year Anniversary Of Global Financial Crisis

D&D Note (8-9-2012)

Today marks the 5 year anniversary of the start of the global financial crisis that led to the collapse of Lehman Brothers. Today also marks the S&P 500’s longest rally since March of this year. The recent 5 day rally has lifted the index up nearly 10% since hitting a five-month low on June 1st. The question now is can the markets continue to drift up especially now that the S&P 500 is at 1,402.80. Traditionally August is a good month for stocks in an election year.

S&P 500 5-Year Chart:

Many savants on Wall Street are starting to call 1,420 as the top of the market. So we could see another couple weeks of drifting up until we get closer to the Jackson Hole conference, FMOC meeting, American elections, and ECB meeting. Once we get to September most likely markets will see a pullback or correction.

For Q3 corporate earnings, 80% of companies have guided down, signaling profits will be hard to come by. Obviously that leaves 20% of companies left that still look to beat estimates and stay inline with projections. In other words post September will be a stock pickers market and a blanketed index approach does not look to be a wise move.

While the FED is unlikely to ease further with the elections coming up, the ECB is likely to make some stimulus moves. Will the ECB pull out the bazooka? No one knows for sure, but if they do coupled with further Bank of England, China, and Japan Central Bank action we could see a year end pop in markets pushing the S&P 500 near 1440.

S&P 500 3-Month Chart:

It’s best to ride the current rally for at least another week or two before taking some profits off the table. Wait for the markets to pullback after the FED will most likely disappoint and the elections to conclude and then buy back your positions to ride into the end of the year.

Once we get to December 31st investors then face the fiscal cliff (read more about the fiscal cliff here) and potential hike on dividend taxes. No one would blame a trader for stopping out of all positions at the end of December. But most likely Congress will kick the can further down the road and buy at least another 6 months to decide the capital gains “Bush Tax Cuts”.

This week saw investors looking forward and anticipating an Obama victory – which will lead to that hike in dividend taxes. What traders have begun to do is rotate out of those dividend stocks and into cyclicals. Don’t dump everything, more so lock in gains, and eliminate positions that don’t still have growth opportunities.

Today the DOW (INDU) lost 10.45 points  at -0.08%. The S&P 500 (SPX) gained 0.58 points at 0.04%. And the Nasdaq (COMP) added 7.39 points at 0.25%.

Oil rose 1 cent to $93.36 a barrel.

Gold rose $4.20 to $1,620.20 an ounce.

The 10-Year Note fell on the day pushing the yield up to 1.69%.