Can you say Groundhog Day? If you look back at the markets during the summers of 2010 and 2011, the old adage of "sell in May and go away" held true. Will 2012 make it a triple crown? Sorry, I am still in Kentucky Derby mode.
Back to the point. Let's review the past two months of horrific job data (in bullet form):
*Weekly Initial Unemployment Claims
*Monthly Non Farm Payrolls Reports
These are major headline numbers and traders and investors should be aware of them. In my most recent article, not only did I review the Non Farm Payrolls Report, but also I talked about three ways traders and investors can take advantage of down trending markets to possibly generate income by selling puts (a wonderful income strategy if you understand the risks and obligations).
A word of caution though as I reviewed my technical analysis today. The markets can go lower, a lot lower. We seem to have the perfect storm of poor economic data, an overbought equity market and the beginning of a long, winding road in European solvency measures.
As I begin to go through my watchlist, I am looking at sectors and stocks that I think are commodities. I can't just rely on the Federal Reserve to step in and save every sector out there (not that they can't). So retail that has done so well, may not be as interesting to me. The tech sector may not be as interesting to me.
What is interesting, you ask?
Let's look at a few stocks. And another word of caution. Since I am thinking that there are additional headwinds out there, I never put all my eggs in one basket and I never over trade my account risk (meaning I don't over-leverage myself into any one holding) and more importantly, I can get out if my fundamental and technical analysis changes. You are fully in charge, keep that in mind. Your analysis should be "updated" day to day as you review the news, the charts and your positions.
General Electric (GE). The old standby is now off about 4% in the past five days. GE offered a 3.5% dividend last year and due to its internal sector diversification, it resembles buying a mutual fund as you spread across various industries.
Chesapeake Energy (CHK). Yes, this company has a lot of financial issues at the moment, but as I said above, you don't have to be married to any position if you use sound fundamental and technical analysis. I am not saying that CHK is "the buy." I am saying that I like the valuation of the underlying product that it produces. You can track the price of natural gas by following iPath Dow Jones-UBS Natural Gas Subindex Total Return (GAZ) and comparing that to the United States Oil Fund LP (USO), which I mentioned in my last article as well. CHK also offered a 2% dividend last year.
Vale SA (VALE) is another commodity player (iron ore). It is also an ADR (a foreign company that trades on the American exchange). Its dividend yield was 2.75% last year and its stock price is dropping to make that yield more attractive.
The bottom line is that each trader and investor should be carefully reviewing watchlists and holdings and looking at the fundamentals and technicals within each specific holding. But even before that happens, it is crucial to stay on top of the macro-fundamental stories using an economic calendar. If you were watching the horrific data over the past few months, you had very good fundamental reasons to be a little nervous as to why the equity markets weren't reacting to it.
I guess you could call it the Perfect Storm of events that finally broke the camel's back. Or you could call it reality.