Stocks plummeted over three percent at the open on Thursday, as the selling capitulation held despite several up days due largely to the oversold technical condition

My investment guidance is to stay on the sidelines and wait for a base to form before entering into new positions. High frequency trading, specifically on the short side, could make the selling worse, as we have seen in the past. The Stock Market is dangerous.

Driving the bearish sentiment is increased concern towards the slower growth and debt issues in Europe, along with weak jobs and inflation data domestically.

The worrying about Germanys sluggish growth is conjuring up fears of another potential recession if the top country cannot reverse the situation. France is also slowing. There are also concerns that the major European banks with exposure to bad debts around the weaker European countries will be in trouble, which could trigger a financial crisis.

Morgan Stanley cut its global GDP forecast for 2011 and 2012 and added that the U.S. and the eurozone were dangerously close to a recession. Not exactly an endorsement. This tells me that the S&P downgrade of U.S. credit may have been the correct call.

And making matters worse was a jump in the headline Consumer Price Index (CPI) to 0.5% in July, above the 0.2% estimate and the 0.2% decline in June. Excluding food and energy, the core CPI was in line at 0.2%. This, along with a rise in the Producer Price Index (PPI), is worrisome.

The current sentiment does not look positive. In this country, we have the massive debt, the credit downgrade, stalling growth, high unemployment, and weak housing.

The charts continue to be negative, with a bearish death cross. Oil is also showing this. The near term is ominous. Be careful, as there is a lack of confidence in buying.

The near-term technical view remains BEARISH, as the key indices trade well below their respective 50-day moving average (MA) and 20-day MA on relatively weak Relative Strength.

The NASDAQ, S&P 500, and Russell 2000 continue to display a bearish death cross on their respective charts, an indication of potentially additional losses.

The downside risk remains extremely high and bearish.

I continue to sense that gains will not be sustainable. Until there is firm buying support and a base formation on the charts, it may be worthwhile to buy after a big dip and sell on a bounce. In other words, trade the current volatility.

The best call at this time continues to be gold. The October Gold broke $1,800 to a record $1,819 on Thursday morning. The chart looks bullish on strong Relative Strength. There is a golden cross on the chart, with the 50-day MA of $1,591 well above the 200-day MA of $1,467. I feel that gold prices will continue to edge higher, especially if the U.S. economy falters and another recession surfaces.

The best strategy for risk-averse traders is to protect via put options.

Again, you may want to be careful when buying on the current weakness. To be safe, stay on the sidelines.

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Couple weeks back, I wrote about stock investing tips and one of my final tips discussed using an online stock brokerage account once you get familiar with stock trading and have some experience behind you. To continue that topic, it would be helpful to know what features to look for in an online broker, as there are many options out there.

Whether you are a novice or seasoned veteran to online stock trading, here are some important features and points to keep in mind when you open an online stock trading account.

What trading tools do you need to conduct your research? Company historicals, independent market research, real time quotes, SEC reports, etc. Check to see what trading tools are provided by the broker, both free and premium tools, which may cost you.

What types of online trading are you planning to do, stocks, mutual funds, bonds, ETFs, retirement accounts, IRAs, etc.? Are these investments offered by the broker? What are the respective fees for each of these investments?

Are you a day trader or a buy and hold trader? In other words, how often do you expect to be buying and selling. If you trade often, then a low commission or trade fee is important. Otherwise, getting good customer service may be more important than a low fee trade.
How is the commission structured? Is it based on the size of the trade, size of the order, or a minimum balance in your account. Make sure to read the broker’s policy about commissions and fees on their website.

Most brokers will require a minimum amount to open an account. The low commission may also be limited to maintaining a minimum amount in your account. Check to make sure these amounts are within your financial limits.

Ensure there is no inactivity fees. If you buy and hold or trade occasionally, then this is important for you to know. Again, read the company’s website for details.

In some cases, especially if you trade more frequently, you may have cash sitting in your account. Compare the interest rate provided for cash residing in your account with the online brokers you are considering.

Read and review independent third party reports to see recent news, articles, and other evaluations by consumer research groups on the company to see if there is any information on the company that might concern you.

These days, online privacy and online security is of the up most importance. Read the company’s privacy policy, security policy to protect your personal information, and ensure that your account is insured.

Hope you found these tips valuable and will aid you with your search for a suitable online trading account. I am currently in the process of evaluating several online broker trading accounts. About 12 years ago, I opened my first online stock trading account with TD Ameritrade (it was just Ameritrade back then). Since then I have not looked at other companies or searched for other options. Well, over these 12 years or so, a lot has changed and there are a lot more options out there. Its time to review again and I plan to post a summary of my findings for our members. Keep an eye out for the report!

To make a comment on this article, visit us at http://www.financialresource.org/blog/what-features-do-you-need-in-an-online-stock-broker/ or if you would like to read other similar articles visit us at www.financialresource.org.

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Equity Intelligence eyes beaten-down stocks
BUSINESS LINE Mr Porinju Veliyath (right) Managing Director Equity Inteligence and Mr Abhilash Varghese Director Operations at a press conference at Kochi on Wednesday. – Photo: K. K. Mustafah.
Read more on The Hindu

Shares track Wall Street gain
HONG KONG: Asian markets rebounded yesterday as dealers picked up undervalued stocks following a recent sell-off while the first gain for the Dow in three days also provided some support.
Read more on Business Times

I know that predicting the market is a difficult if not impossible task, but are there any early “warning signs” to warn me of an upcoming recession?

Historically, how many times have corrections (10% drop in the market) turned into a true, full-blown recession (20% drop or more in the market)?

Thanks for your help!

Best answer:

Answer by Michael K
Stock market fluctuations and economic recessions are two entirely different animals, and a market decline doesn’t ‘turn into’ a recession, though it may anticipate an economic recession. There is a weak correlation between economic recession and (past) market returns, but the correlation to interest rates is stronger. One reason for this is that some industries are quite sensitive to interest rates, such as home building, and higher rates reduce demand for new houses; we’re seeing that effect now. If the Fed reduces rates later this year, home building will almost certainly pick up again. High interest rates also affect the demand for financed consumer goods, such as automobiles, and for capital expenditures. If you want a good leading indicator for the market, watch the Fed.

Give your answer to this question below!

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What are the dangers of a high dividend yield? What is a typical dividend yield for a blue chip stock on the TSX? What is a dividend growth stock and how does it work? What kind of premium can you expect to yield from dividend stocks? How have the dividend growth stocks performed in times of recession?

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The current stock market crash has spurred a vital national debate about the causes and catalysts of the Great Depression. The dominant school of thought believes that the stubborn refusal of then president Herbert Hoover to intervene after the stock market crash of 1929, and his preference for free market solutions, led directly to the ensuing decade-long catastrophe. Through this lens, our leaders ure us that the most recent raft of government measures will prevent another episode of bread lines, Hoovervilles and pencil salesmen. As usual they have it completely wrong. In my view, the Depression was created precisely because Hoover followed the path that our government is now taking.

When the stock market bubble of the Roaring Twenties (which was created as a result of the loose monetary policy of the newly created Federal Reserve) finally popped, Hoover would not allow market forces to correct the imbalances. His policies were aimed at propping up unsound businesses, artificially supporting prices, particularly wages, and providing Federal funds for public works projects. These moves went well beyond the progressive reforms of Teddy Roosevelt, and established Hoover as the most interventionist president ever up to that point. In fact, much of what eventually became the New Deal had its roots in Hoover’s policies.

However, at the time, there were those who recommended a different course. Andrew Mellon, the long-serving Secretary of the Treasury whom Hoover had inherited from the prior two Republican Administrations, was labeled by Hoover as a “leave it alone isolationist” who wanted to “liquidate labor, liquidate stocks, liquidate the farmers, and liquidate real estate.” Hoover would have none of it. In fact, during his nomination speech for his second term, Hoover bragged, “We determined that we would not follow the advice of the bitter liquidationists and see the whole body of debtors of the United States brought to bankruptcy and the savings of our people brought to destruction.”

Hoover chose to ignore the sound advice of his Treasury Secretary (in contrast to today where the current Treasury Secretary Henry Paulson is actually leading the charge over the cliff) and instead used every tool at his disposal to “fix” the problem. As a result, rather than allowing a recession to run its course, with healthy and rapid liquidations of the mal-investments built up during the boom, Hoover inadvertently created what became the Great Depression.

When Roosevelt took office he continued the same failed policies only on a grander scale. The magnitude and the idiocy of many New Deal programs, such as the wage and price setting National Recovery Administration (NRA), compounded the problems. So while Mellon’s advice would have caused a sharp but relatively brief economic downturn (which occurred after the Panic of 1907, for example), the Depression plodded on for nearly a decade until the country began gearing up for the Second World War.

In an amazing feat of revisionist history, somehow Hoover’s interventionist policies have been completely forgotten. It is taken as fundamental that his inaction led to the Depression and Roosevelt’s “heroics” got us out. Unfortunately, since we have learned nothing from history, we are about to repeat the very mistakes that led to the most dire economic circumstance of the last century.

A major difference however, is that the structure of the U.S economy today is far weaker than it was in the fall of 1929. Years of reckless consumer borrowing and spending, and enormous trade and budget deficits have resulted in a hollowed out industrial base and an unmanageable mountain of debt owed to foreign creditors. Instead of the support of a strong currency backed by gold, the public now must deal with a modern Fed free to print as much money as politicians want. So rather than getting the benefits of falling consumer prices (as happened during the Depression), consumers today will contend with much higher consumer prices, even as the economy contracts.

With Barack Obama now waiting in the wings to conjure a newer New Deal, far larger than even FDR could have imagined, and at a time when we cannot even afford the old one, this will not be your grandfather’s Depression. It may be much worse.

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