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Category: Chart of the Week

Used Car Prices are  Crashing, Meaning Big Trouble Ahead for Car Companies and Other Auto  Lenders

Used Car Prices are  Crashing, Meaning Big Trouble Ahead for Car Companies
and other Auto  Lenders.  As the chart below shows, economic dislocation caused by the corona virus
has triggered the biggest decline in car prices since the 2008 great
recession, And some analyst say the declines this time could be far worse as
a result of years of subprime lending practices by major car  companies and
other auto financiers, Why? They ignored the risks inherent in loose lending
practices to spur sales. Now, the chickens are coming home to roost.  JP
Morgan Chase says the finance arms of Ford and General Motors are facing
multi-billions in losses.  Trouble also  is on the horizon for major auto
lenders such as Ally financial Inc, Santander Consumer and Credit
Acceptance. They, like the car makers, are reportedly experiencing
fast-growing delinquency rates. And  that likely will spur repossessions
that will flood the car market along with streams of cars that are coming
off cheap long-term leases. Obviously, the more used cars that flood the
market, the greater the decline in prices.  Which means bigger and bigger
losses for lenders who will be unable to sell the cars for the value of
their outstanding loans and leases.

Used Car Prices are  Crashing, Meaning Big Trouble Ahead for Car Companies and other Auto  Lenders
Used Car Prices are  Crashing, Meaning Big Trouble Ahead for Car Companies
and other Auto  Lenders

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Sector Sum Indicator Warning Stock Market is Extremely Risky

Sector Sum Indicator Warning Stock Market is Extremely Risky.  The proprietary Investor Intelligence Sector Sum Indicator measures how much the stock market is overbought or oversold. It has been a very reliable advance indicator of the direction of the equity market. The indicator works by analyzing the number of bull trends among the 45 major industry groups. As you can see from the chart below, at more than +40 the indicator is signaling the stock market is at its highest overbought level in the last 12 months. In other words, the stock market is extremely risky.  The indicator ranges from +40, overbought, to -40, oversold.  You’ll note in the chart how quickly the indicator has climbed to the present overbought +40 from an extremely oversold -40. The quick move from oversold to overbought is a clear warning for investors to lighten their portfolios. Moreover, it is another indication of how volatile the markets have become in this era of extreme economic uncertainty.

Sector Sum Indicator Warning Stock Market is Extremely Risky
Sector Sum Indicator Warning Stock Market is Extremely Risky

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Strong Insider Buying is Good News for Stock Market

Strong Insider Buying is Good News for Stock Market. Corporate insiders have been buying their companies’ shares much more than selling them while investors were dumping stocks freaked by the coronavirus pandemic (See chart below). In fact the ratio of companies with insider buying vs. insider selling was 1.75 for March. This level is the highest level since March 2009, according to Washington Service. The fact that corporate executives with insider knowledge have been seeing value in their companies’ shares.  Insider buybacks in such strong numbers historically is a bullish sign for the stock market and the economy.

Strong Insider Buying is Good News for Stock Market
Strong Insider Buying is Good News for Stock Market

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Surge in Selling Climaxes Suggests Stock Market Bottom for Near-to-Intermediate Term

Surge in Selling Climaxes Suggests Stock Market Bottom for Near-to-Intermediate Term. Investors Intelligence notes that last week saw a significant number of stocks reversing out of their 52-week lows (see below).

Surge in Selling Climaxes Suggests Stock Market Bottom for Near-to-Intermediate Term
Surge in Selling Climaxes Suggests Stock Market Bottom for Near-to-Intermediate Term

Historically, that is yet another indicator suggesting that the stock market major indices have bottomed for the short-to-intermediate terms. Selling climaxes occur when a stock makes a 52-week low but then closes the week with a gain. That generally indicates that stocks are moving from weak to strong hands.

Surge in Selling Climaxes Suggests Stock Market Bottom for Near-to-Intermediate Term
Surge in Selling Climaxes Suggests Stock Market Bottom for Near-to-Intermediate Term. Copyright 2019 by Stockcube Research Ltd.

 

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High Dividend Yields Could Start Attracting Big Investors Back Into the Stock Market

High Dividend Yields Could Start Attracting Big Investors Back Into the Stock Market.  Major stock declines have raised dividend yields to levels investors haven’t seen in years. As as result, we believe, could be a trigger for some major institutions to return to the markets to buy high-yielding stocks that they perceive now have become oversold by the recent Corona-induced rush out of equities. Below is a  chart of earnings yield+dividend yield-treasuries starting to show value.

High Dividend Yields Could Start Attracting Big Investors Back Into the Stock  Market
High Dividend Yields Could Start Attracting Big Investors Back Into the Stock Market

The chart below from SentimenTrader shows that there haven’t been as many S&P 500 stocks with dividends of 5% or more since the 2008 financial crisis.

High Dividend Yields Could Start Attracting Big Investors Back Into the Stock  Market
High Dividend Yields Could Start Attracting Big Investors Back Into the Stock Market

The  chart below we created with  Adam Newar of Eden Capital shows the ratio of dividend yield to Treasuries is among the most attractive in 50 years. Something positive that could start to signaling a potential bottom as the  result of the recent major declines.

High Dividend Yields Could Start Attracting Big Investors Back Into the Stock  Market
High Dividend Yields Could Start Attracting Big Investors Back Into the Stock Market

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