In a week where there likely numerous traders set up waiting to profit from a move lower after last week's spike, the market failed to cooperate with the bears and the gains were sharp once again. The one risk to the rally (and it is a red flag when it comes to measuring the strength of the gains) is the moves are coming on low volume.
These type of sharp rebounds are why I never liked doing much on the short side in my days as a trader. Stocks can sometimes rally on no news and as a short-seller you need to have the gumption to either buy to cover and close a position or short more on the rallies. That's certainly a tough game when trying to fight the tendency of Wall Street analysts putting buy calls out on the majority of the stocks they cover. Yet there are plenty of short-sellers who don't mind the fight.
Getting back to today's action, positive Wall Street analyst calls on shares of Broadcom ( BRCM ), Honeywell ( HON ), and Rockwell Automation ( ROK ) had all three companies' shares nicely higher. Oil-service related plays like Halliburton ( HAL ), Schlumberger ( SLB ) and Baker Hughes ( BHI ) ran up as oil prices rose once again, gaining over $11 a barrel in the last week. Ironically, transport stocks didn't seem to mind, as many of the names we watched also gained. On the flipside, earnings results/guidance for Mattel ( MAT ) and Microchip Technology ( MCHP ) had both those companies' shares closing lower. Overall it was a big rebound week for the recently slaughtered commodity sector.
Gaining an Edge and Losing Credibility at the Same Time
There was a big story out a couple of days ago alleging Wall Street Journal Europe may have been channeling money through European companies in order to secretly buy thousands of copies of its own paper, thus misleading readers and advertisers about the paper's true circulation. Advertising is a tough gig for many companies already when it comes to trying to build or maintain a brand. Unfortunately when money is at stake, shortcuts will often be taken. Everywhere you turn theses days, you hear about questionable practices and metrics being used to justify companies spending their hard-earned dollars. There are services you can use to buy followers on Twitter, friends and "likes" on Facebook, and traffic to your website. When it comes to the publishing world, I have heard plenty of stories about publishers gaming the New York Times best-seller list with bulk buys in the first few weeks of a book's release. It's pretty pathetic, but it happens.
I truly believe that you can try all the tricks and play with all the numbers as much as you can, but in the end, only the highest quality products and services will have the staying power to provide something of real value. The long tail of success will give you plenty of chances to take a short cut. My simple advice: don't take it.
China Seeing More Scrutiny
More stories about the deteriorating state of the Chinese economy continue to hit the headlines. The real estate bubble there has apparently popped in many areas over the last few months, and things could get pretty dicey as far as the global fallout is concerned. With China's government funding much of the recent build-out, there is increased risk of how the central powers will respond to things spiraling lower. It's possible the country could try and save face, basically painting a rosy picture as the old Soviet Union used to do back in the 1950′s-1970′s (eventually the real picture in the U.S.S.R. trickled out and major revelations came to shape).
Copper prices have been dropping strongly over the last couple of months and many point to this trend as evidence China's growth engine has begun to stall. Besides commodities, China is the biggest investor in U.S. debt. What will happen to interest rates if China floods the market with treasuries? A sudden spike in interest rates would certainly create a huge obstacle to any hopes of a real estate recovery.
So you see why there is increased focus on how China can maintain its current course of growth. The question of whose economic policy is to blame for any further global economic pressures could be a big point of contention in coming months and years between the U.S. and China. We are certainly paying attention to what the ramifications can be when it comes China's situation as it affects one's investment portfolio and what dividend stocks would be best to own if things do indeed get dicey.
A Look to Next Week and a Weekend Preview
Looking ahead to next week, quarterly earnings will be super-heavy, with several big names slated to post their latest reports. We will see results from the likes of Wells Fargo ( WFC ), Coca-Cola ( KO ), Johnson & Johnson ( JNJ ), General Electric ( GE ), and plenty of others.
Be sure to catch up with our latest watchlist updates this weekend on Dividend.com Premium , including reports on earnings/story stocks, analyst upgrades/downgrades, dividend ETFs, and much more. And as always, you can view our current recommendations on our industry-leading Best Dividend Stocks List .
Thanks for reading, and I'll see this weekend! P.S. Please pass this e-mail on to someone you think can use some financial motivation as well as being kept in the financial news loop that could affect them.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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