How I’m playing this volatile market

Founder and Publisher of the Switzer Report
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The job figures in the USA were not good for President Barack Obama, the US economy, the unemployed of America, or Wall Street. But over the next few weeks, it will be company reporting that will determine the direction of stocks, unless something crazy comes out of Europe or something surprisingly weak comes out of China.

Investors’ wealth rests on these three key geographic and economic regions – USA, Europe and China – but I believe the Yanks hold the trump cards for stocks. If US companies can surprise to the high side compared with expectations for the June quarter – despite a run of disappointing and weak economic data over the period – then stocks could easily rally higher.

Changing game

In reality, it seems hard to imagine. US companies did well when their economy was weak as they were able to sell to Europe and China while the greenback was lower. Now both those two customers are growing slower and the dollar is higher. Against these negatives, the US consumer is more confident and housing is starting to look marginally stronger, but it is early days in this overdue recovery and it could easily peter out.

The Dow is up 4.54% so far this year, the Nasdaq is 12.75% higher, while the S&P 500 has added 7.72%, making this a great half-year.

Our market has progressed only 2.4% and so we need a good half-year to close out 2012, and that’s where my money is going. But I do this with some reservation because not of all of the stars are aligned.

Nouriel Roubini, the so-called US guru who called the Global Financial Crisis (GFC) market collapse, has continued warning of bad times and so Wall Street’s massive jump since the lows of 2009 has underlined his mortality. He thinks 2013 will be a perfect storm of bad news, but I’m betting he’s wrong.

Game, set, match

The year ahead will be like a game of tennis between the bulls and the bears and given the start we’ve had to the year, the bears, the doubters and all of the other negative types will be giving it their best shot as we head towards September – historically the worst month of all for US stocks.

What I liked about the weekend sell-off on Wall Street was the extent of the fall; the Dow was off 124.2 points or 0.96% to 12,772.47, while the S&P 500 lost about the same, but the VIX, or fear index, remained at a low 17.

Hurting stocks was the job number that came in at 80,000 for June, softer than the low 90,000 that was expected. Unemployment was steady at 8.2% and all up it makes you think that the US slowdown is worse than expected, giving credence to the expert doubters who are pulling out the R-word. However, I don’t see a recession in the States. Neither does the US Federal Reserve (despite the June quarter being the weakest for two years), or it would have tried a third quantitative easing package (QE3) by now.

The hurdles

I wouldn’t try to tell you that there aren’t some negatives out there that short-sellers and hedge funds could use to their advantage over the next three months.

With a US election in November, the US fiscal cliff at year’s end, European negotiations on its fiscal union, debt and liquidity plans, concerns about what might happen to the Chinese economy, and the implications of all of this for the global economy threatening stocks, my long-term investor view is that bad news will be a buying opportunity for me.

That said, I don’t want to see a buying opportunity of that kind. I would prefer to see bad news turn into OK news and then better news because when that happens I will tell our readers that the worst is behind us and the big rally will begin. And that will be a real buying opportunity!

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Anyone should consider the appropriateness of the information in regards to their circumstances.

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