stocks in the spotlight - The Current Market

The markets closed mostly higher on the week, but as to why the jury is still out. That indices are starting to close in on the 52 week highs and once that happens, the markets become very overbought.

The Dow 30 actually traded higher then the 52 week high during the day, but ended the day with the loss. This is great, even if the stock fell back in the good part is the Dow 30 is not alone. None of the indices are in correction territory anymore, after being there for several month's and the furthest from the 52 week high would be the New York index, off -9.17% from the 52 week high.

The positive as many of indices have around 4% to fall for finding a new 52 week high. If there is a negative, it would be that the broad market are the furthest away and, of course, the broad market's are the real markets.

It is nice to see the markets continue to rally, but we must remember that when the indices are at or near the 52 week highs, the market's are at or near becoming overbought.

We don't have to go very far to find out a recent for the wild swings the market's. Most of it we can easily blame on your own, or should I say Greece, as the ups and downs in trying to solve their financial crisis continue. It all seems that with each country, and now we have to even consider Portugal, as to do with how much they have to pay to borrow money.

There will be no quick solution to this problem and many believe there will be an economic collapse in Europe because of it. At the least we can probably bet on a recession in Europe and this will slow economic growth and in turn could shave a point off of our growth in the good old U.S.

This is the kind of market, where it is very hard to bet on consumer attitude, as it changes from day to day, and we can't blame them. The investing world of today, to say the least, it's very confusing, since the markets are supposed to tell us what is going to happen six months ahead of time but in the world of today, no one knows what will happen six months from now.

I still believe that we should avoid the metals, especially after the recent run-up, and I also believe the big stocks are tonight to enter but still okay to hold. I am looking for a correction, just not yet. We need to watch the indices. As they approach new 52 week highs. If they failed to reach highs after a few attempts, the markets will go down, but if all of them reach new highs the market will go down much further.

Stay with the smaller stocks, as it takes less buying power to make them move. As long as they have a value and offer news at a steady pace and their trading closer to the low end of the trading range, this is where we want to look.

Asfar as gold prices, this is going be a hard one to predict, but lately the trend has been up and prices have been climbing, by if we see any thing strong out of Europe it could turn gold prices back down. It may be okay to hold here, but I feel too high to buy.

A "best guess" says gold is still the riskiest investment anywhere and should be played only by investors that can handle a strong sell off. Yes, there may be another shot up in gold again, but prices have reached a point of just too expensive for the average investor. I am also guessing the metals markets will continue selling with a near term bottom target of $1450 on gold.

Gold closed out the week at $1,732.20, up + $68.20 on the week and up + $165.40 for January. Gold closed up + $169.00 for August, off - $172.30 for September, up + $122.20 for October, off - $61.50 for November, and off - $135.00 for December. Gold closed back over the $1600 level for the 4th week after staying under it for 1 week after staying over for one week, back over the $1700 level after staying under it for 6 weeks after 2 weeks over it under the $1800 level for 18 weeks. The weekly "record" closing high is $1,876.90 , reached on 9/2/11.

A recent report has the Gold/CPI indicator suggesting the “Fair Value Average” of gold is $734 and the “Fair Value Median” to be $610 . WOW! Talk about an overpriced investment.

Oil prices lost on the we after gaining one week after losing two weeks. The threat of Iran causing problems at sea is the main culprit for higher oil prices, but odds of Iran closing off the oil supply are pretty slim. Oil closed the week at $99.56 a barrel (February's) futures on Friday's close), up + $1.10 on the week. Friday's close is back under the $100 level for the 3rd week after staying over it 1 week.

The record "weekly" closing high is $145.29 a barrel, set 7/3/08. Expect prices to hold here and possibly ease a bit lower. The price for a barrel of oil has been climbing but the slowing world economy will end up the winner. The $95 level is a strong resistance/support level.

The table above shows the DJT, VL, RUT and SPREAD still leading the pack, with all of them having more than 20% to fall before reaching a new 52 week low. The DOW Transports (DJT) is the only narrow index to join the bigger indices, but with only 20 stocks in it it teaches us little.

The SPREAD & Value Line failed set another new 52 week high & all-time high for 39 weeks.

None of the indices are in correction territory for the 2nd week, first time in several months and none of the indices are losing more than 10% from the 52 week high. The Russell 2000, the Value Line and the SPREAD all pulled back out of bear market territory for week 9 after 1 week in it after staying out of it for 4 weeks. The SPREAD, VL, RUT & DJT all set new "all-time" highs 39 weeks ago but none since.

Since the SPREAD & Value Line (VL) are leading indices, the discount of -6.28 & -7.07% is bullish for the near term markets. Now we have to see the indices reach new 52 week highs.

J.R. Budke was a stock broker from 1981 to 2000, an options principle since 1982 and a branch office manager since 1987. JR became inactive as a stockbroker on 12/31/99. J.R. writes most of the articles and opinions for the Stocks in the Spotlight. The stories and stocks found on this site, or any "Stocks in the Spotlight" written material, are the opinions of J.R. Budke, unless other wise stated, and should not be considered as advice. You should not purchase any stocks solely on the opinions found on the "Stocks in the Spotlight's" web site or in any of its written material. You should also be aware that options are not for everybody and carry a high degree of risk.

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