The Great Stock Rout of 2014

stock-market downstocks-down

Dear PGM Capital Blog readers,

In this weekend’s blog edition, we want to discuss with you the stockmarket rout that started on Friday, April 4th 2014,  which brought down most markets in the West down with approx. 5 percent during the last 6 trading days.

It all started Friday, April 4th, with the Nasdaq narrowly avoiding its worst one-day as it slumped 110.01 points or 2.60 percent, to finish at 4,127.73.

During the week the sell-off continued and became broader by hitting most of the markets in the West, bringing most of them in the red for the year as can be seen from below charts.

As can be seen from below chart, the Japan Nikkei index declined YTD 2,187.49 points or 14.32 percent as can be seen from below chart, making it up to now the worst performing market in the West.

Nikkei YTD Chart

Nikkei 225 Year to Date Chart

The Nasdaq Composite Index (^IXIC) is down 4.7 percent for the month of April so far, while the Dow Jones industrial average (^DJI) is down 2.6 percent.

Stocks closed sharply lower for a second straight day on Friday, April 11, as the  once high-flying biotech and Internet shares tumbled again, sending the Nasdaq composite index back below 4000 for the first time since Feb. 3.

The Nasdaq plunged 54.37 points, or 1.3% to 3999.73. The Dow Jones industrial average dropped 143.47 points, or 0.9% to 16,026.75 and the Standard & Poor’s 500 index fell 17.39 points, or 1% to 1815.69.

Investors remain jittery following Thursday’s big sell-off that saw the Nasdaq drop 3.1%, its worst plunge since November 2011 The Nasdaq is now down 8.2% from its 2014 high of 4,357.97 set on March 5 and is 4.2% lower for the year as can be seen from below chart.

Nasdaq YTD Chart

NASDAQ Year to Date Chart

The S&P 500 has fallen 4% from its record high close of April 2 and is 1.8% lower for the year.

As can be seen from below chart the Dow has retreated 3.3 percent from its Dec. 31 record close of 16,576.66.


Dow Jones YTD Chart

Volatility seems to be the name of the game in social media investing right now.

As can be seen from below charts Twitter (NYSE: TWTR) is down 40.67 percent  this year, while LinkedIn Corp. (NYSE: LNKD) has corrected 20.16 percent, bringing both into bear market territory.

Twitter on year chart

Twitter YTD Chart

Linkedin one year chart

Linkedin YTD year chart


In our New Year article and several other articles this year we have informed our readers that in accordance with fundamental analysis, the Japan and USA markets are overvalued for which social stocks are in a huge bubble and that it isn’t IF but WHEN, these markets and social media stock would go through a cruel correction.

On the other hand, markets in Asia, specially the Hong Kong Hang Seng Index and the China CSI-300 index with a P/E ratio of around 10, are very cheap.

With Central Banks all over the world printing money out of thin air, Gold and other precious metals are a screaming buy for investors who want to protect their savings from being diluted.

Below chart shows the Gold price performance against that of the Dow Jones YTD, for which the blue and the red graph represents respectively the performance of the DOW and the Gold price year to date.

Gold price versus Dow Jones Year to date

DOW versus Gold Price YTD chart

If we compare the performance of the DOW with the price movement of Palladium, – the best performing precious metal of this and last year – we can clearly see how Palladium has outperformed the Dow Jones YTD with almost 16 percent.

See below chart for details for which the blue and the red graphs represent respectively the performance of the DOW and the Palladium price year to date.

DOW versus Palladium prices YTD

DOW versus Palladium Price YTD chart

The charlatans will try to convince you that the sell-off in the USA markets and social media shares are a normal correction in a secular bull market, and that the price appreciation of Gold and other precious metals are just a dead cat bounce.

Based on fundamental analysis we believe that the sell-off in the USA capital markets still has a long way to go and that a further 10-15 percent correction can be expected, for which the correction in of the NASDAQ can reach 30 percent. Regarding the social media stocks, we believe that these are in a huge bubble and must correct at least 70 – 90 percent before they can reach a reasonable valuation.

When comparing the DOW with the Market Vector GOLD Miners ETF (NYSE : GDX) we see that the later one has outperformed the with 20 percent YTD as can be seen from below chart.

Market Vector Gold Miners ETF versus Dow Jones Industrial YTD

Market Vector Gold Miners ETF versus Dow Jones Industrial YTD

The Gold miners have a leverage on the price of gold, in both directions and are a leading indicator for the direction of the price of the yellow metal.

Last but not least, before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that the price of Precious metals as well as the stocks of their producers can be very volatile and that sharp corrections may happen in the short term.

Yours Sincerely,

Eric Panneflek

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