Light Volume

The Dow Jones Industrials has come within 68 points of my 10,500 target. And while stocks have made another strong push higher over the last two weeks, I notice that volume has been getting lighter during this last move. Now, I’m not sounding the "abandon ship" alarm. But volume is something to watch as an indicator of the rally’s health.
Something like 70% of all volume on the New York Stock Exchange comes from institutional investors, like mutual funds, hedge funds, and pensions. So when volume increases, it means these institutional investors are buying. When volume falls, it means they aren’t trading as much. And I would guess the institutional crowd is buying less because stocks, as a whole, have priced in much of the positive expectations for an economic recovery.
Third quarter earnings have been excellent. The vast majority of companies that have reported have beaten expectations. Of course, we’ve talked at length about how analysts’ expectations for earnings were way too low. But that doesn’t change the fact that earnings were good.
We’ve also seen signs that retail sales are improving, and today’s new jobless claims number suggests the rate of firings and layoffs may finally be stabilizing. These are both good signs, for sure. But again, stock valuations are accounting for much of this good news already.
How much recovery is priced in? Well, that’s the $64,000 question. And it’s what makes analysis and investing so interesting and challenging. Investors and analysts put together complicated earnings projections and economic forecasts. But these always reflect that analysts’ or investors’ pre-conceived notions about how the economy is doing now, and will do in the future.
It really does boil down to a matter of opinion much of the time. That’s why stocks move on news that either confirms or debunks a prevailing opinion. Right now, the prevailing opinion seems to be that economic recovery is priced in and it’s time to slow down on adding stocks. We’ll see if that opinion proves correct.
*****Just to let you know, I am not selling all the stocks I’ve recommended to my various advisory service members. In fact, I will continue to recommend stocks I feel are attractively valued and have upside potential. Just because the rally may take a breather does not mean there aren’t companies out there that are growing revenues and earnings and offering attractive opportunities for investors to get invested.
*****I received another nice email from a Daily Profit reader I want to share. Patrick P. writes:
I am pleased to inform you that I bought MPG [Maguire Properties (NYSE:MPG)] on your recommendation at $1.40 and was very pleasantly surprised when the stock soared to nearly $3.00 in a few days. I put a trailing stop on it at this stage and sold 2/3 for $2.83 for a very nice profit. This was even better than Jazz [Jazz Pharmaceuticals (Nasdaq:JAZZ)] which I sent you an e-mail on a couple of weeks ago also. I have tried a lot of other services out there and I can say you guys are the best! You have the Midas touch!!
Of course, congratulations are in order for Patrick. And this is the absolute best reward for me, your humble editor. As you know, I do, from time to time, include a stock recommendation here in Daily Profit. And it is great to know that readers have managed to make money on these, as well as from my market and economic analysis.
But this brings up an important issue about how Daily Profit operates. I spend several hours every day to make Daily Profit a valuable source of free investment information. To offset my costs, I allow select advertisers to run advertisements to the Daily Profit list. I try to make sure that you know that these are third party advertisements by including text that says "paid advertisement" or "special offer" at the top of the email. I receive occasional emails from readers who have purchased the stocks discussed in these advertisements.
Like with any investment, sometimes these stocks have performed well, and other times they haven’t performed so well. I never want to see anyone lose money on an investment. But I also don’t want to be held accountable for a stock that I haven’t recommended. So I encourage you to check out the emails that you receive from Daily Profit, and if it says "paid advertisement," than you should know and understand that this is a third party marketing message.
As a Daily Profit reader, you will also receive advertisements for my own advisory services, like SmallCapInvestor PRO and Top Stock Insights. I stand behind every recommendation that appears in my advisory services and in Daily Profit. Please understand that I can’t be responsible for stocks that are recommended by outside advertisers.
And like with the recommendations I make in this letter and in my other advisory services or any recommendation you receive whether it’s from me, another advisor, or anywhere else, I strongly encourage you to do your own research before buying any stock.

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