70% of S&P 500 Companies are Overbought

I recently discovered a graph that shows the overbought and oversold percentages of the S&P 500.  It is interesting to see that 70% of these companies are overbought, which is very concerning.  It is also concerning that it looks as if the rally is turning.  Some analysts and financial forecasters such as Mike Turner from Street Authority (streetauthority.com) that predict that the recent rally's gain will be erased.  His reasoning is mostly the fact that the rally wasn't based on any good economic news or positive event. 

Now that its October (historically one of the worst months for stocks), 70% S&P components are overbought and the recent rally was based on no significant factor, we could be facing some problems.  It is important to be cautious and if you made money last month, sell it and lock in those gains. 

The Fed is expected to make a few moves by early November.  Whether they will continue quantitative easing, buyback bonds, or change rates is yet to be determined. 

Trade:  A good play for this environment would be Proshares Ultra Short S&P 500 ETF (SDS).  This will be a great addition to provide security for your portfolio.  SDS moves at twice the rate in the opposite direction of the S&P 500.  SDS is currently trading at $28.56.

Disclosure: No position as of this writing, intent to open a position in near future.

Disclaimer: Invest Chief is not held accountable to any loses sustained by stocks recommended. It is always important to do your own research of the stock before you invest. These trades and ideas are the opinions of the crew of Invest Chief. Invest Chief receives absolutely no compensation from companies that are recommended. We are a private organization, dedicated to promoting financial well being and prosperity.

October Stock of the Month

This month's Stock of the Month is: Ford Motor Corp (F).


Ford is a comeback story of the ages.  Ford has a rich history that certainly have had highs and lows.

Henry Ford created Ford Motor Company in 1903 and created the revolutionary Model T.  For the longest time, Ford dominated the little competition they faced.  Ford successfully survived the Great Depression and had decades of prosperity and dominance in the car market.  It can be said that Ford began its decline in the late 1970s.  This is when Toyota and Honda were becoming very popular in the United States and were said to be more "reliable" than the declining Ford models.

Ford experienced relatively low levels of sales compared to its Japanese counter parts for many years...until recently.  Once the recession hit the world in 2008, it was as if Ford rose from its decline into the top tier once again.  While Toyota and Honda are experiencing major recalls on safety issues, Ford has outsold all other car companies for almost a year straight.  GM brands have also had some issues with recalls but have overall done well but not as well as Ford.

The government's "Cash for Clunkers" program, combined with incentives and a new image have once again shot Ford up to number 1.  Now Ford is considered a major growth stock that will rise with the correction of the economy.  Ford's management team has a clear plan for the future and has clearly showed that American Made is back and in style.

Fundamental Analysis: As far as the balance sheet goes Ford is pretty healthy with about $18.32M in cash and $109.63M in investments. Ford has $117.38M in total debt. The PEG ratio is a way undervalued at .41 and a P/E of 7.74. Ford Motor is very undervalued and will produce great gains over the long term as the recovery continues. It is also important to note that institutions own 63% of shares of Ford Motor.



Technical Analysis: The RSI shows a signal of neither overbought or oversold.  Bollinger Bands point to a higher stock price as they are beginning to opening up.  The MACD shows a neutral signal and the Williams%R shows a moderately overbought senario.  However, it is not bad to where I would be worried.  Latly, the Stochastics shows a mild overbought senario, which again, I would not be worried about.

Outlook:  Ford (F) is currently priced at $13.01 (as of October 5, 2010).   Over the next 12 months we are projecting a $15.50/share and higher.  If Ford can capitalize on its growth in Europe and China, as well as the US, Ford could be hitting $20 by 2012.

Disclosure: No position at time of writing.

Disclaimer: Invest Chief is not held accountable to any loses sustained by stocks recommended. It is always important to do your own research of the stock before you invest. These trades and ideas are the opinions of the crew of Invest Chief. Invest Chief receives absolutely no compensation from companies that are recommended. We are a private organization, dedicated to promoting financial well being and prosperity.

October Book of the Month

Its that time again to designate a book for the month of October.  This month's book is, in my opinion, one of the best books if you like reading about crisis of 2008.  More specifically, the fall of Bear Sterns.

October's Book of the Month is: Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street by: Kelly Kate.

"Street Fighters" is a very indepth book about the last 3 days of Bear Sterns.  Kate documents every move made by the board of directors that were scrambling for every dollar, desparately trying to get a "loan" (bailout) from the US Treasury.  It also takes about how Bear Sterns ended up selling themselves for $2/share to JP Morgan.  I highly recommend this book that describes the fall of the first mighty investment bank on Wall Street.

Here is a quick summary from NY Times:

"The acclaimed New York Times bestseller-updated for the second anniversary of the collapse of Bear Stearns.
The fall of Bear Stearns in March 2008 set off a wave of global financial turmoil that continues to ripple. How could one of the oldest, most resilient firms on Wall Street go so far astray that it had to be sold at a fire sale price? How could the street fighters who ran Bear so aggressively miscalculate so completely?
Expanding with fresh detail from her acclaimed front-page series in The Wall Street Journal, Kate Kelly captures every sight, sound, and smell of Bear's three final days. She also shows how Bear's top executives descended into civil war as the mortgage crisis began to brew."

Best part is through my link, you can buy this book for $2.97 from Amazon.  We recieve a very small commission desparately need some more capital.  Thank you very much for your support!!