Put Protection for a Dow 10,000
By Kevin Grewal
The Dow Jones Industrial Average finally crossed the 10,000 mark for the first time this year marking a milestone indicating that investors see signs of an economic recovery.
Some driving forces behind this uptrend in the most well renowned index included a boost in retail sales, a positive trend in unemployment and upbeat earnings reports. September retail sales shocked analysts by rising 0.6% giving a sector that has been hurt by the consumer’s desire to penny pinch. In regards to unemployment, the number of newly laid-off workers has dropped to the lowest level since the beginning of the year indicating that companies are starting to ease up on handing out pink slips.
In the earnings game, JPMorgan Chase & Co (JPM) reported a $3.59 billion profit while announcing that it has doubled the money set aside for home and credit loan defaults in the quarter. Aluminum maker Alcoa (AA) shocked some analysts by reporting a quarterly profit through a combination of cost-cutting steps and higher aluminum prices. Lastly, chipmaker, Intel (INTC), beat analyst’s expectations indicating that the PC market is slowly turning around.
Although there is a lot of optimism flooding Wall Street investors must keep in mind that consumer spending is the bread and butter of the U.S. economy. Unemployment numbers are still far from improving and many suggest that total unemployment will surpass 10% before seeing a pull back. Granted employers aren’t laying off at the same pace as last year, but they aren’t hiring either. Some economists think that the labor markets are so weak that the jobs lost during the recession will not fully return until 2012.
As for corporate profits, it seems that companies are still resulting to cost cutting measures to boost profits. After all, business inventories in August were cut for the 13th straight month, dropping 1.5%. This indicates that business do not foresee an increase in consumer demand any time soon and are continuing to implement lean measures.
To protect yourself from a possible downward trend in the markets, implementing an exit strategy is important. Such an exit strategy, one with specific price points which indicate an upward trend could be coming to an end, can be found at http://www.SmartStops.net. The DIAMONDS Trust Series 1 (DIA), which tracks the Dow Jones Industrial Average is up 53% from its March low of $65.44 to close at $100.20 yesterday. According to http://www.SmartStops.net, an upward trend in DIA could come to an end at $96.16. These price levels fluctuate on a daily basis and updated data can be found at www.SmartStops.net.