Via TheStreet.com:
A few weeks prior to the markets hitting a generational low a year ago, I created a watch list that enabled me to better gauge the bottom.
Now, nearly 13 months later and with the S&P 500 almost 500 points higher, it is time to focus on a new checklist of some potential adverse developments that could contribute to a market top and a reversal of investors' good fortunes since March 2009.
1. Interest Rates: The yield on the 10-year U.S. note might climb to over 4% (now at 3.85%). A 4.00% to 4.25% yield would likely provide a tipping point for increased competition to equities and produce an interest (mortgage) rate headwind to the nascent housing recovery at a time when stock dividend yields have nearly halved and when a large phantom inventory of unsold homes is about to begin to enter the residential for-sale market.
2. Jobs / Economy: A more sluggish-than-expected expansion in new jobs and the weight of higher taxes in 2011 might translate to a downturn in consumer confidence, reduced business fixed investment and a more shallow domestic economic recovery in the second half of this year.
3. Retail: Cautious forward comp guidance in retail could reverse the February-March strength.
4. Europe: There could be growing signs of weakness in the European economies.
5. Credit: Over there, we might witness evidence of more sovereign (Spain?) crises, and, over here, we could see more U.S. municipal -- the universe is large! -- financial woes. Forced austerity measures would likely produce lower growth.
6. Credit (Part Deux): Credit spreads might widen.
7. Geopolitical: We could see a possible rise in geopolitical tensions or even another terrorist act on our shore.
8. Monetary Policy: We might have a less dovish Fed in words (jawboning) and in action (through an increase in the federal funds rate).
9. Tightening Abroad: It is likely that central banks around the world will begin to clench their monetary fist, especially in China.
10. Protectionism, Trade and Currency Wars: Things might get ugly, especially on the U.S. / China front.
11. Housing: A renewed leg down in home prices is possible as the spring selling season could fail to appear. (It hasn't gotten off to a great start.)
12. Sentiment: We could witness the birth of a 5x to 10x levered bullish ETF, a burst in bullish investor sentiment, an expansion in hedge fund net long positions, a further drawdown in mutual fund cash positions, a meaningful increase in retail mutual fund equity inflows and massive outflows out of Rydex bear funds.
13. Technical: Stocks could fail to respond to good news, suggesting that the sharp corporate profit recovery has been baked into prices. A breakdown in financials and/or transports could occur. Overseas markets might fail to make new highs, or we could see a further contraction in NYSE / Nasdaq exchange volume.
14. Deflation: Industrial commodity prices could weaken.
15. Speculation: We might see an increasingly speculative market for low-price issues.
16. Underwritings: The emergence of a record syndicate calendar is possible.
17. Wall Street: A substantial increase in Wall Street industry hirings could be announced.
18. Dr. Doom vs. the Sunshine Boys: Dr. Nouriel Roubini could see green shoots, causing bullish strategists and money managers to demonstrate even more swagger. Reminiscent of late 1998, a sell-side analyst (perhaps the new Henry Blodgett) might raise his 12-month Apple (AAPL) price target to $375 a share, leading another analyst to top that target and move to $400 a share a week later.
19. The Media: CNBC could throw another celebratory party. Time magazine might declare the death of the bear market on its cover or run a cover story offering a new bullish economic and/or stock market paradigm. Sir Larry Kudlow could have trouble finding a single bear to appear on CNBC's "The Kudlow Report." Record ratings might induce the management of CNBC to expand "Squawk Box" from three hours to four hours (6:00 a.m. to 10:00 a.m.) and add an additional anchor to join Joe, Becky and Carl.
20. Dougie: Maybe I turn bullish.
Friday, March 26, 2010
Wednesday, March 24, 2010
Does trader contribute to the society
Taipan Daily: Do Traders Add Value to Society?
by Justice Litle, Editorial Director, Taipan Publishing Group
A few days ago, an interesting note showed up in the Taipan Daily mailbag. Via e-mail, reader James K. wonders aloud whether traders add value to society. He isn’t sure that
they do.
Here is an excerpt:
Dropping a ton of money into a company, running it up, and then pulling out your winnings can't be much benefit to society as a whole. It's not company ownership, or intending to own a company, it's company manipulation to make the few rich and have others less astute pay their bill…
The charge seems to be that investing is a legitimate activity, whereas trading is not. (After all, who would challenge the need to invest?)
Speaking as a trader, your editor is clearly biased. But, given that caveat, there are two ways of looking at this question. The first requires stepping back and contemplating what “adding value to society” really means. The second requires asking what service the act of trading provides (i.e. what do traders get paid for).
The Truth About Gold
Don’t invest a cent until you read my report. It reveals an astonishing fact few gold investors know: you can actually… Buy Gold for $438 an ounce! Yes, gold sells above $1,200 per ounce. But I’ve discovered an easy way to buy it for only $438 an ounce. That’s 65% off --- Not bad for free information.
Get my full gold report now.
Not About the Job
The first important point, from this trader’s point of view, is that it’s not about the job. That is to say, what you do to make a living is not the best reflection of your social worth (or your impact on society as a whole).
So a trader isn’t out to save the world – or even change it for the better – with his day-to-day actions. This is more or less true. But what about someone in middle management at a shampoo company? Does apple-scented conditioner really make a difference to the well-being of the human race?
Or what about the person who bakes chocolate chip cookies, sells aluminum siding, or manufactures those little buttons that sit on top of baseball caps? Do those humdrum activities really “make a difference” in the long run?
It’s actually a trick question. There are very few jobs that “make a difference” with dramatic and obvious flair. If you happen to be an ER doctor, a nurse who specializes in prenatal care, or a bush pilot who delivers food and medical supplies to disaster zones, then your “value add” is obvious (and has a certain Hollywood quality to it). But the vast majority of jobs – probably 99% of them – aren’t like that.
This is why, assuming you make your living legally, the better measure is what you do with your time and energy, not how you earn your daily bread. The man (or woman) who adds value to society is a good neighbor… a part of the community… a supporter of charitable causes, a loving parent and friend and so on.
Society is bettered by law-abiding citizens – and sometimes law-breaking citizens, when the law is in error – living out their lives in positive ways. Unless you are Tony Soprano, it’s not so much about the job.
What Service Do Traders Provide?
One can further ask, “what service do traders provide?”
We know that investors, at least in theory, provide capital on a long-term basis so that healthy businesses can grow. This process of capital allocation – again in theory at least – is driven by constant assessment and re-assessment of which companies deserve more capital and which do not.
But traders, as it has been pointed out, do not stick around long enough to make a difference to the ultimate fortunes of a business. So what is the service they provide? What do traders really get paid to do?
Your editor can think of at least five different “services” that traders provide. They are:
* Liquidity
* Price Discovery
* Risk Transfer
* Counterbalance
* Entertainment
Liquidity
The first thing that traders do is add liquidity to the markets. Liquidity is a measure of how easy it is to buy and sell something, possibly in large quantities.
A stock like Exxon Mobil (XOM:NYSE), which routinely sees 20 million shares a day change hands, is extremely liquid. Most “pink sheet” stocks, which might only trade a few hundred shares a day, are not.
If there were no traders, markets would be far less liquid. This is because traders buy and sell much more frequently than investors do. An investor, who may only want to buy or sell on infrequent occasions, enjoys the peace of mind of knowing that, when he wants to make a transaction, there will almost certainly be someone on the other side willing to provide him a fair price. All things being equal, the person on the other side will often be a trader.
Market makers and floor traders were the original liquidity providers. Their frequent activity, and their willingness to buy and sell over and over again as large outside orders came in, helped to literally “make the market.” These days, floor traders are a dying breed and market makers are being replaced by high-powered computers. But the liquidity providing function is still there.
Price Discovery
What is the proper price of crude oil at this very moment? How about lumber? Treasury bonds? Microsoft shares?
The answer is, nobody knows for certain what the proper price should be. There are millions of complex variables swirling around the market place, and those variables are shifting and changing moment by moment.
The only way to determine the proper price, then, is for active market participants to “vote” on their best estimation of that price, over and again, through their buying and selling decisions. (It’s not a democracy though – rather than “one man, one vote,” it is more like “one dollar, one vote.” The large player who buys a million shares has more clout than the thousands of smaller players buying 100 shares each. )
Traders participate in the price discovery process by “voting” – with their own capital – on what the proper price of something should be. To the degree that the trader is correct, he or she is paid in proportion to the number of votes cast (i.e. shares or contracts bought and sold).
The trader’s shorter time frame doesn’t matter. Whether the holding period is three weeks or three days, the only way for the trader to get paid, in the long run, is to be more right than wrong in terms of contribution to the price discovery process. If you help nudge a market that much closer to its “correct” price – a price that is always changing – then you get paid.
And this constant process of price discovery is valuable because it allows non-investors and non-traders to know the price at which it makes sense to transact. The trucking company can know that spot gasoline is X dollars per gallon at such and such a time, that price being determined by an open and competitive market (with the help of trader inputs).
Risk Transfer
Another very important service traders provide, particularly in the commodities markets, is that of risk transfer.
Say that you are a wheat farmer with a very large crop out in the field. Your entire livelihood depends on this crop. If something happens to the crop – blight, drought or what have you – your farming operation could be wiped out. How do you address this risk?
Or say that you are a cereal manufacturer with high exposure to fluctuating grain prices. If the price of wheat or corn rises too high, your input costs will be too high and your cereal operation will go bankrupt. Again, how do you solve this dilemma?
The answer to both questions is, you find a speculator who is willing to take the unwanted risk off your hands. This is why futures markets were invented – so that suppliers and end users of commodities, like farmers and cereal manufacturers, could get shed of their unwanted risk and “transfer” it to someone else.
This process is known as hedging. When a cereal manufacturer buys grain futures contracts, those contracts act as a “hedge” against the risk of grain prices rising. If the cereal manufacturer has to pay an extra 5 million dollars in the cash market for physical grain, but those costs were offset by a 5 million dollar gain on the futures contracts, then the risk has been “offset,” or hedged.
The trader, of course, is only willing to take on someone else’s risk if there is an opportunity to make a profit. And that is why speculators (traders) are willing to step in and take the other side of the farmers’ and cereal manufacturers’ positions. Their trading provides a service in the form of voluntary risk transfer.
Counterbalance
Another important service traders provide is counterbalance. One need only recall the many bubbles of the past two decades to observe that investors sometimes lose their minds.
The idea of the sober, rational investor who never lets emotions get out of hand is a complete fiction. Sometimes investors get euphoric and bid prices up to the sky. At other times investors become manically depressed and send prices crashing to the depths.
At times like these, contrarian traders are like chiropractors. When the market gets out of whack, they help “adjust it” back to more rational levels by going against the herd.
In order to provide this service, though, it is necessary to stand back from the investing crowd – to focus on exploiting temporary aberrations in the market, as opposed to ignoring fluctuations and always investing for the long haul.
Short sellers – who are almost always traders – can even help provide stability in a falling market. This is because short sellers routinely “cover,” or buy back, their short positions at various levels during a down move. If things are ugly, this may be the only buying coming into the market at that time.
Without short sellers (and traders in general) counterbalancing the herd-like activities of investors, markets would spend more time shooting straight up and then plummeting straight down.
How Gov’t-Sponsored “pShares” Could Hand YOU 808% Gains Within the Next 12 Months
As the U.S. government continues to funnel money into an industry most folks have foolishly left for dead… little-known “pShares” are shooting up as much as 808%.
Here’s how to claim your share…
Entertainment
Last but not least, good traders are like the friendly locals in a poker room. They are there to play with those who choose to play. If a tourist (or other casual player) wants to come in and make a market wager, the locals are happy to oblige.
And who knows? The tourist may, in fact, walk away with some money. When this happens, the locals do not begrudge the tourist their winnings. They smile and look forward to playing again some other time. (At least the smart ones do.)
In other words, traders provide an entertainment service in the marketplace. For those who want to play – to compete with the hope of winning money – the trader says “I’m your huckleberry.”
And when an investor buys a share of some super hot growth stock with the hope of making a killing, this is just what the investor is doing – competing! The trader provides a service in taking the other side.
Of these five dynamics – liquidity, price discovery, risk transfer, counterbalance and entertainment – no single dynamic dominates. The mix will vary from trader to trader, depending on the style employed. But most, if not all of them, are active to some degree at all times.
So what do you think? Do traders provide a useful (or at least justifiable) service to the marketplace… or are we all just parasites? Inquiring trader minds want to know: justice@taipandaily.com.
Warm Regards,
JL
by Justice Litle, Editorial Director, Taipan Publishing Group
A few days ago, an interesting note showed up in the Taipan Daily mailbag. Via e-mail, reader James K. wonders aloud whether traders add value to society. He isn’t sure that
they do.
Here is an excerpt:
Dropping a ton of money into a company, running it up, and then pulling out your winnings can't be much benefit to society as a whole. It's not company ownership, or intending to own a company, it's company manipulation to make the few rich and have others less astute pay their bill…
The charge seems to be that investing is a legitimate activity, whereas trading is not. (After all, who would challenge the need to invest?)
Speaking as a trader, your editor is clearly biased. But, given that caveat, there are two ways of looking at this question. The first requires stepping back and contemplating what “adding value to society” really means. The second requires asking what service the act of trading provides (i.e. what do traders get paid for).
The Truth About Gold
Don’t invest a cent until you read my report. It reveals an astonishing fact few gold investors know: you can actually… Buy Gold for $438 an ounce! Yes, gold sells above $1,200 per ounce. But I’ve discovered an easy way to buy it for only $438 an ounce. That’s 65% off --- Not bad for free information.
Get my full gold report now.
Not About the Job
The first important point, from this trader’s point of view, is that it’s not about the job. That is to say, what you do to make a living is not the best reflection of your social worth (or your impact on society as a whole).
So a trader isn’t out to save the world – or even change it for the better – with his day-to-day actions. This is more or less true. But what about someone in middle management at a shampoo company? Does apple-scented conditioner really make a difference to the well-being of the human race?
Or what about the person who bakes chocolate chip cookies, sells aluminum siding, or manufactures those little buttons that sit on top of baseball caps? Do those humdrum activities really “make a difference” in the long run?
It’s actually a trick question. There are very few jobs that “make a difference” with dramatic and obvious flair. If you happen to be an ER doctor, a nurse who specializes in prenatal care, or a bush pilot who delivers food and medical supplies to disaster zones, then your “value add” is obvious (and has a certain Hollywood quality to it). But the vast majority of jobs – probably 99% of them – aren’t like that.
This is why, assuming you make your living legally, the better measure is what you do with your time and energy, not how you earn your daily bread. The man (or woman) who adds value to society is a good neighbor… a part of the community… a supporter of charitable causes, a loving parent and friend and so on.
Society is bettered by law-abiding citizens – and sometimes law-breaking citizens, when the law is in error – living out their lives in positive ways. Unless you are Tony Soprano, it’s not so much about the job.
What Service Do Traders Provide?
One can further ask, “what service do traders provide?”
We know that investors, at least in theory, provide capital on a long-term basis so that healthy businesses can grow. This process of capital allocation – again in theory at least – is driven by constant assessment and re-assessment of which companies deserve more capital and which do not.
But traders, as it has been pointed out, do not stick around long enough to make a difference to the ultimate fortunes of a business. So what is the service they provide? What do traders really get paid to do?
Your editor can think of at least five different “services” that traders provide. They are:
* Liquidity
* Price Discovery
* Risk Transfer
* Counterbalance
* Entertainment
Liquidity
The first thing that traders do is add liquidity to the markets. Liquidity is a measure of how easy it is to buy and sell something, possibly in large quantities.
A stock like Exxon Mobil (XOM:NYSE), which routinely sees 20 million shares a day change hands, is extremely liquid. Most “pink sheet” stocks, which might only trade a few hundred shares a day, are not.
If there were no traders, markets would be far less liquid. This is because traders buy and sell much more frequently than investors do. An investor, who may only want to buy or sell on infrequent occasions, enjoys the peace of mind of knowing that, when he wants to make a transaction, there will almost certainly be someone on the other side willing to provide him a fair price. All things being equal, the person on the other side will often be a trader.
Market makers and floor traders were the original liquidity providers. Their frequent activity, and their willingness to buy and sell over and over again as large outside orders came in, helped to literally “make the market.” These days, floor traders are a dying breed and market makers are being replaced by high-powered computers. But the liquidity providing function is still there.
Price Discovery
What is the proper price of crude oil at this very moment? How about lumber? Treasury bonds? Microsoft shares?
The answer is, nobody knows for certain what the proper price should be. There are millions of complex variables swirling around the market place, and those variables are shifting and changing moment by moment.
The only way to determine the proper price, then, is for active market participants to “vote” on their best estimation of that price, over and again, through their buying and selling decisions. (It’s not a democracy though – rather than “one man, one vote,” it is more like “one dollar, one vote.” The large player who buys a million shares has more clout than the thousands of smaller players buying 100 shares each. )
Traders participate in the price discovery process by “voting” – with their own capital – on what the proper price of something should be. To the degree that the trader is correct, he or she is paid in proportion to the number of votes cast (i.e. shares or contracts bought and sold).
The trader’s shorter time frame doesn’t matter. Whether the holding period is three weeks or three days, the only way for the trader to get paid, in the long run, is to be more right than wrong in terms of contribution to the price discovery process. If you help nudge a market that much closer to its “correct” price – a price that is always changing – then you get paid.
And this constant process of price discovery is valuable because it allows non-investors and non-traders to know the price at which it makes sense to transact. The trucking company can know that spot gasoline is X dollars per gallon at such and such a time, that price being determined by an open and competitive market (with the help of trader inputs).
Risk Transfer
Another very important service traders provide, particularly in the commodities markets, is that of risk transfer.
Say that you are a wheat farmer with a very large crop out in the field. Your entire livelihood depends on this crop. If something happens to the crop – blight, drought or what have you – your farming operation could be wiped out. How do you address this risk?
Or say that you are a cereal manufacturer with high exposure to fluctuating grain prices. If the price of wheat or corn rises too high, your input costs will be too high and your cereal operation will go bankrupt. Again, how do you solve this dilemma?
The answer to both questions is, you find a speculator who is willing to take the unwanted risk off your hands. This is why futures markets were invented – so that suppliers and end users of commodities, like farmers and cereal manufacturers, could get shed of their unwanted risk and “transfer” it to someone else.
This process is known as hedging. When a cereal manufacturer buys grain futures contracts, those contracts act as a “hedge” against the risk of grain prices rising. If the cereal manufacturer has to pay an extra 5 million dollars in the cash market for physical grain, but those costs were offset by a 5 million dollar gain on the futures contracts, then the risk has been “offset,” or hedged.
The trader, of course, is only willing to take on someone else’s risk if there is an opportunity to make a profit. And that is why speculators (traders) are willing to step in and take the other side of the farmers’ and cereal manufacturers’ positions. Their trading provides a service in the form of voluntary risk transfer.
Counterbalance
Another important service traders provide is counterbalance. One need only recall the many bubbles of the past two decades to observe that investors sometimes lose their minds.
The idea of the sober, rational investor who never lets emotions get out of hand is a complete fiction. Sometimes investors get euphoric and bid prices up to the sky. At other times investors become manically depressed and send prices crashing to the depths.
At times like these, contrarian traders are like chiropractors. When the market gets out of whack, they help “adjust it” back to more rational levels by going against the herd.
In order to provide this service, though, it is necessary to stand back from the investing crowd – to focus on exploiting temporary aberrations in the market, as opposed to ignoring fluctuations and always investing for the long haul.
Short sellers – who are almost always traders – can even help provide stability in a falling market. This is because short sellers routinely “cover,” or buy back, their short positions at various levels during a down move. If things are ugly, this may be the only buying coming into the market at that time.
Without short sellers (and traders in general) counterbalancing the herd-like activities of investors, markets would spend more time shooting straight up and then plummeting straight down.
How Gov’t-Sponsored “pShares” Could Hand YOU 808% Gains Within the Next 12 Months
As the U.S. government continues to funnel money into an industry most folks have foolishly left for dead… little-known “pShares” are shooting up as much as 808%.
Here’s how to claim your share…
Entertainment
Last but not least, good traders are like the friendly locals in a poker room. They are there to play with those who choose to play. If a tourist (or other casual player) wants to come in and make a market wager, the locals are happy to oblige.
And who knows? The tourist may, in fact, walk away with some money. When this happens, the locals do not begrudge the tourist their winnings. They smile and look forward to playing again some other time. (At least the smart ones do.)
In other words, traders provide an entertainment service in the marketplace. For those who want to play – to compete with the hope of winning money – the trader says “I’m your huckleberry.”
And when an investor buys a share of some super hot growth stock with the hope of making a killing, this is just what the investor is doing – competing! The trader provides a service in taking the other side.
Of these five dynamics – liquidity, price discovery, risk transfer, counterbalance and entertainment – no single dynamic dominates. The mix will vary from trader to trader, depending on the style employed. But most, if not all of them, are active to some degree at all times.
So what do you think? Do traders provide a useful (or at least justifiable) service to the marketplace… or are we all just parasites? Inquiring trader minds want to know: justice@taipandaily.com.
Warm Regards,
JL
Friday, March 19, 2010
Identifiy big swing in prices
The Oxen Report: Five Keys to Fundamental Day Trading
Identifying the Fundamentals
Stocks move under the influence various factors that we can use to identify stocks that are likely to move 3-5% in a single day. Even the best technicals seldom give you 5% upward (or downward) movements intraday alone, but combined with fundamental factors, we can find stocks that are likely to make these large daily moves.
To begin to seek that perfect stock or ETF, we first need to look for something that can propel a stock or, in the case ETFs, the represented sector. This 3-5% movement is not from the previous day’s close, but between the market’s open and close. We want to identify a stock that can be bought sometime in the morning to give us that significant movement by the end of the day. The first type of information that is prone to easily move stocks is earnings.
1. Earnings
There are multiple ways to play a company’s earnings. One of the most effective ways to invest based on earnings is after a company has already announced their earnings. We are looking for earnings that were surprising, especially ones that say something about a sector.
For example, if one company announces positive earnings because it had a large profit from a lawsuit, this information does not tell us much about the earnings potential of the sector in general. However, if an important company in a sector has positive earnings due to an increase in sales or because it saw higher demand than anticipated, this information is more telling of its sector as a whole, and the news may move many similarly situated stocks.
We like the sector-telling earnings because it suggests something about the sector is most likely bullish (or bearish). For example, if Burger King Holdings Inc. (BKC) reported earnings and noted that they were seeing increased demand for fast food because customers were cutting back on more expensive restaurants, this would suggest a general transferring of food money from high-end restaurants to fast food. This information should propel not only BKC, but also McDonald’s (MCD) and Wendys/Arbys Group (WEN). The positive earnings may benefit companies that are closely related to the reporting company. Typically, we do not want to invest for a single day-trade in the specific company that reported the earnings. The reporting company is likely to gap up the next morning and have less room to run due to the large jump up from the closing price.
Instead, we look for competitors that will profit from the good news. Take for example, J. Crew Group Inc. (JCG) and Gap Inc. (GPS). On May 28, 2009, J. Crew, in after hours, announced earnings that significantly exceeded estimates when it reported an earnings per share at 0.34 EPS. The street was estimating 0.11 EPS. This was seriously bullish news for JCG. The next day the stock jumped 26.4%. The stock gapped up so heavily that traders jumping on in the morning missed most of that movement. So, in the morning, the Oxen Group recommended Gap Inc., a close competitor of JCG, especially with their Banana Republic line. On the same day, GPS moved up almost 5%. The Oxen Group was able to get in at the beginning of the day while the stock was still at a low price, and then ride the wave upwards.
We find that earnings releases can be used to make gains on competitor companies because the competitors’ stock often reacts slower than that of the company releasing the earnings. We look for competitors that have similar product lines. The same is true in the reverse direction. If a company bombs estimates, many similar companies will be pulled down with it, providing us with a good shorting opportunity.
Additionally, extremely good earnings in an important company within a particular sector may suggest a day-trade with an ETF that models the sector. In the case of JCG, related retail ETFs are sparse and have low volume, not the best vehicles for trading. But with an energy or financial company, sector ETFs are heavily traded, and playing an ETF the same way we played Gap could be very profitable.
In summary, earnings can be a very solid fundamental bull or bear signals for a single day-trade. However, earnings do not come out everyday. Where else can one look when trying to identify a bullish or bearish fundamental trade for the next day?
2. Upgrades/Downgrades
Upgrades and downgrades are extremely powerful mechanisms that can propel a stock up or down significantly. Ratings can move a stock up or down anywhere from 1% to 10% depending on the rating company’s significance, the ratings change, and the company being rated. Moody’s, S&P, Credit Suisse, Goldman Sachs, Morgan Stanley, and Fitch are rating companies that are particularly significant. Smaller equity firms tend to have less impact on a stock’s next day movement. Upgrades and downgrades typically come in the morning or intraday. However, when they do come in the evening, they work in the same way as earnings - an upgrade can give rise to a sizable stock movement.
An upgrade or downgrade will have a strong effect on an entire sector if it has something to do with the broader picture. If a company gets downgraded because of risky investments or bad credit, it is not likely to bring down its competitors. However, if the downgrade is due to lower sales expectations, its competitors are more likely to trade down in sympathy.
For example, on Saturday, June 6, 2009, Torchmark Corp. (TMK), an insurance company, was downgraded by Fitch Ratings for bad investments as well as a sector wide decline in the ability for insurance companies to be profitable in this market. All the insurers ended in the red, most likely due to the questioning of insurance companies’ profitability in general. Obviously, a multitude of factors go into companies within a sector, but upgrades and downgrades can be very significant in predicting the movement of single stocks and sectors.
3. Foreign Markets
Another way to gage how well a stock may do the next day is to see what is going on in foreign markets. Typically, this will have the most impact on commodities, such as oil, and products that are sold overseas or overseas companies that have a PLC or ADR on the American stock exchange system.
For example, oil, oil and gas stocks, oil and gas ETFs, and anything that has to do with oil will be affected by changes in the price of oil. What the oil market is doing overseas can be a great fundamental predictor of what the oil sector will be doing when our markets open.
For example, if the oil inventories are skyrocketing in Asia, demand is down, and the price of oil plummets in the Hang Seng and Nikkei, this will have an effect on the NYMEX. In our globalized world, what happens in one country affects us all. If oil demand is dropping in China, any company connected to selling gas or pumping oil out of China will be impacted by the demand drop. The price of oil will be affected negatively, which will in turn negatively affect other oil companies, oil producers, and ETFs.
The same is true, in reverse. On June 1, 2009, The Oxen Group recommended Toyota Motors Corp. ADR (TM). The company, in Asia, had skyrocketed due to booming Prius sales in Japan that were significant in Japan’s extremely weak consumer economy. Therefore, if Japan was able to do well with the Prius, one might conclude that while the car may not have done as well in America, it was bullish news that would positively affect the ADR. It was not so directly bullish, however, that it would send the stock up 5-6% out of the gates, and we would never have a chance to buy in. The stock did gap up, moved back, we were able to get in and make 2% off the ADR for the day.
4. Financial News
News can come in many ways and can be fundamentally bullish or bearish. Often, big news stories comes out intraday and move stocks so quickly that the opportunity is gone by the time you see it. Though intraday opportunities may vanish as quickly as they arise, investors should be looking for news after hours that may be significant enough to help a stock or a sector, as a whole, the next day.
For example, one of my favorite pieces of news to use to invest is box office weekends. The company that owns the movie that wins the box office tends to have a very good day on the Monday after that weekend, especially if the movie’s success was extremely bullish and surprisingly. For example, on May 29-31 "Up" won the box office and it was the third largest revenue maker for a Disney-Pixar animated flick, coming in way above estimates. It sent the stock up a solid 4% on that Monday simply based on that fundamentally bullish news. On June 5-7, "Up" retained the top spot but the news was less significant. Disney ended June 8, 2009 without the 4% gain and finished sideways.
News has to be significant to truly propel a stock. However, if the news is too large and too visible, the stock may jump too fast to buy it at a good entry point.
One of the interesting ways to use news is with a sector ETF. For example, if on a given day, in after hours, three or four major financial companies have some bearish news, it may be a good time to buy into an inverse ETF that will move in the opposite direction to the financial sector in general.
In trading news, however, be careful. It does not always have the effect you expect.
5. Futures
The final key telling-signal of fundamental bullishness or bearishness is the futures market for the Dow, S&P, and Nasdaq. These markets open at 12 AM on trading days and trade until the start of the session. The futures markets can give an investor a general sense of market direction.
For example, suppose you are excited about Dryships Inc. (DRYS) because the shipping indexes are jumping up significantly in Asia. At the same time, though, the futures are significantly in the red for the coming trading day, due to a multitude of bearish news and earnings that were reported the afternoon and night before for the American market. This could really hinder DRYS’s movement the next day because the market is in the red.
In the reverse, futures can help you feel more confident that a stock with fundamentally bullish indicators could continue upwards when the market is looking healthy. Futures are a helpful indicator to determine if a stock will be a good or bad day trade; they’re definitely worth considering.
So, there you have it — the five fundamental indicators to help you identify the perfect day trade. There are a number of other indicators that go into any trade. Technicals are very relevant, the entry and exits are important. The fundamentals are the start of the ability for a stock to move up. The patterns that were identified in the piece should help you find and search out stocks that would be bullish.
Everyday, the Oxen Group chooses our Oxen Picks starting with the ideas above.
The final piece of advice to keep in your tool belt is to stay confident in your picks. If you have done the research and the evidence is there for the stock to move up, then you should feel confident that your ideas will work. If it does not work to perfection, it is okay because if you keep identifying fundamentals, it will work more often than not.
Identifying the Fundamentals
Stocks move under the influence various factors that we can use to identify stocks that are likely to move 3-5% in a single day. Even the best technicals seldom give you 5% upward (or downward) movements intraday alone, but combined with fundamental factors, we can find stocks that are likely to make these large daily moves.
To begin to seek that perfect stock or ETF, we first need to look for something that can propel a stock or, in the case ETFs, the represented sector. This 3-5% movement is not from the previous day’s close, but between the market’s open and close. We want to identify a stock that can be bought sometime in the morning to give us that significant movement by the end of the day. The first type of information that is prone to easily move stocks is earnings.
1. Earnings
There are multiple ways to play a company’s earnings. One of the most effective ways to invest based on earnings is after a company has already announced their earnings. We are looking for earnings that were surprising, especially ones that say something about a sector.
For example, if one company announces positive earnings because it had a large profit from a lawsuit, this information does not tell us much about the earnings potential of the sector in general. However, if an important company in a sector has positive earnings due to an increase in sales or because it saw higher demand than anticipated, this information is more telling of its sector as a whole, and the news may move many similarly situated stocks.
We like the sector-telling earnings because it suggests something about the sector is most likely bullish (or bearish). For example, if Burger King Holdings Inc. (BKC) reported earnings and noted that they were seeing increased demand for fast food because customers were cutting back on more expensive restaurants, this would suggest a general transferring of food money from high-end restaurants to fast food. This information should propel not only BKC, but also McDonald’s (MCD) and Wendys/Arbys Group (WEN). The positive earnings may benefit companies that are closely related to the reporting company. Typically, we do not want to invest for a single day-trade in the specific company that reported the earnings. The reporting company is likely to gap up the next morning and have less room to run due to the large jump up from the closing price.
Instead, we look for competitors that will profit from the good news. Take for example, J. Crew Group Inc. (JCG) and Gap Inc. (GPS). On May 28, 2009, J. Crew, in after hours, announced earnings that significantly exceeded estimates when it reported an earnings per share at 0.34 EPS. The street was estimating 0.11 EPS. This was seriously bullish news for JCG. The next day the stock jumped 26.4%. The stock gapped up so heavily that traders jumping on in the morning missed most of that movement. So, in the morning, the Oxen Group recommended Gap Inc., a close competitor of JCG, especially with their Banana Republic line. On the same day, GPS moved up almost 5%. The Oxen Group was able to get in at the beginning of the day while the stock was still at a low price, and then ride the wave upwards.
We find that earnings releases can be used to make gains on competitor companies because the competitors’ stock often reacts slower than that of the company releasing the earnings. We look for competitors that have similar product lines. The same is true in the reverse direction. If a company bombs estimates, many similar companies will be pulled down with it, providing us with a good shorting opportunity.
Additionally, extremely good earnings in an important company within a particular sector may suggest a day-trade with an ETF that models the sector. In the case of JCG, related retail ETFs are sparse and have low volume, not the best vehicles for trading. But with an energy or financial company, sector ETFs are heavily traded, and playing an ETF the same way we played Gap could be very profitable.
In summary, earnings can be a very solid fundamental bull or bear signals for a single day-trade. However, earnings do not come out everyday. Where else can one look when trying to identify a bullish or bearish fundamental trade for the next day?
2. Upgrades/Downgrades
Upgrades and downgrades are extremely powerful mechanisms that can propel a stock up or down significantly. Ratings can move a stock up or down anywhere from 1% to 10% depending on the rating company’s significance, the ratings change, and the company being rated. Moody’s, S&P, Credit Suisse, Goldman Sachs, Morgan Stanley, and Fitch are rating companies that are particularly significant. Smaller equity firms tend to have less impact on a stock’s next day movement. Upgrades and downgrades typically come in the morning or intraday. However, when they do come in the evening, they work in the same way as earnings - an upgrade can give rise to a sizable stock movement.
An upgrade or downgrade will have a strong effect on an entire sector if it has something to do with the broader picture. If a company gets downgraded because of risky investments or bad credit, it is not likely to bring down its competitors. However, if the downgrade is due to lower sales expectations, its competitors are more likely to trade down in sympathy.
For example, on Saturday, June 6, 2009, Torchmark Corp. (TMK), an insurance company, was downgraded by Fitch Ratings for bad investments as well as a sector wide decline in the ability for insurance companies to be profitable in this market. All the insurers ended in the red, most likely due to the questioning of insurance companies’ profitability in general. Obviously, a multitude of factors go into companies within a sector, but upgrades and downgrades can be very significant in predicting the movement of single stocks and sectors.
3. Foreign Markets
Another way to gage how well a stock may do the next day is to see what is going on in foreign markets. Typically, this will have the most impact on commodities, such as oil, and products that are sold overseas or overseas companies that have a PLC or ADR on the American stock exchange system.
For example, oil, oil and gas stocks, oil and gas ETFs, and anything that has to do with oil will be affected by changes in the price of oil. What the oil market is doing overseas can be a great fundamental predictor of what the oil sector will be doing when our markets open.
For example, if the oil inventories are skyrocketing in Asia, demand is down, and the price of oil plummets in the Hang Seng and Nikkei, this will have an effect on the NYMEX. In our globalized world, what happens in one country affects us all. If oil demand is dropping in China, any company connected to selling gas or pumping oil out of China will be impacted by the demand drop. The price of oil will be affected negatively, which will in turn negatively affect other oil companies, oil producers, and ETFs.
The same is true, in reverse. On June 1, 2009, The Oxen Group recommended Toyota Motors Corp. ADR (TM). The company, in Asia, had skyrocketed due to booming Prius sales in Japan that were significant in Japan’s extremely weak consumer economy. Therefore, if Japan was able to do well with the Prius, one might conclude that while the car may not have done as well in America, it was bullish news that would positively affect the ADR. It was not so directly bullish, however, that it would send the stock up 5-6% out of the gates, and we would never have a chance to buy in. The stock did gap up, moved back, we were able to get in and make 2% off the ADR for the day.
4. Financial News
News can come in many ways and can be fundamentally bullish or bearish. Often, big news stories comes out intraday and move stocks so quickly that the opportunity is gone by the time you see it. Though intraday opportunities may vanish as quickly as they arise, investors should be looking for news after hours that may be significant enough to help a stock or a sector, as a whole, the next day.
For example, one of my favorite pieces of news to use to invest is box office weekends. The company that owns the movie that wins the box office tends to have a very good day on the Monday after that weekend, especially if the movie’s success was extremely bullish and surprisingly. For example, on May 29-31 "Up" won the box office and it was the third largest revenue maker for a Disney-Pixar animated flick, coming in way above estimates. It sent the stock up a solid 4% on that Monday simply based on that fundamentally bullish news. On June 5-7, "Up" retained the top spot but the news was less significant. Disney ended June 8, 2009 without the 4% gain and finished sideways.
News has to be significant to truly propel a stock. However, if the news is too large and too visible, the stock may jump too fast to buy it at a good entry point.
One of the interesting ways to use news is with a sector ETF. For example, if on a given day, in after hours, three or four major financial companies have some bearish news, it may be a good time to buy into an inverse ETF that will move in the opposite direction to the financial sector in general.
In trading news, however, be careful. It does not always have the effect you expect.
5. Futures
The final key telling-signal of fundamental bullishness or bearishness is the futures market for the Dow, S&P, and Nasdaq. These markets open at 12 AM on trading days and trade until the start of the session. The futures markets can give an investor a general sense of market direction.
For example, suppose you are excited about Dryships Inc. (DRYS) because the shipping indexes are jumping up significantly in Asia. At the same time, though, the futures are significantly in the red for the coming trading day, due to a multitude of bearish news and earnings that were reported the afternoon and night before for the American market. This could really hinder DRYS’s movement the next day because the market is in the red.
In the reverse, futures can help you feel more confident that a stock with fundamentally bullish indicators could continue upwards when the market is looking healthy. Futures are a helpful indicator to determine if a stock will be a good or bad day trade; they’re definitely worth considering.
So, there you have it — the five fundamental indicators to help you identify the perfect day trade. There are a number of other indicators that go into any trade. Technicals are very relevant, the entry and exits are important. The fundamentals are the start of the ability for a stock to move up. The patterns that were identified in the piece should help you find and search out stocks that would be bullish.
Everyday, the Oxen Group chooses our Oxen Picks starting with the ideas above.
The final piece of advice to keep in your tool belt is to stay confident in your picks. If you have done the research and the evidence is there for the stock to move up, then you should feel confident that your ideas will work. If it does not work to perfection, it is okay because if you keep identifying fundamentals, it will work more often than not.
Thursday, March 18, 2010
Appreciating the Yuan
First, no country including US has the right to tell other countries to appreciate their currency. The era of ‘you’re either my puppet or my enemy’ is long past and Obama is still living in the past glory. He blames China for all our ills, as he cannot fix our problems.
Keeping the Yuan low actually helps US's consumers and US in buying wind turbines or HSRs from China at lower prices. Not to mention the huge loans from China. China does not want to withdraw the bad loans as they do not want to kill the goose that lays the golden eggs.
The major products of China and US are not the same, so there are no direct competitions. If we do not buy the products from China, most likely we'll buy same products from Mexico or India.
Until China builds up its local market for its growing middle class, I do not see Yuan will appreciate by more than 5% a year.
A strong China is good for the world including US! China is just one part of the global economy. The other players are research companies from the west and the US, oil from Middle East and Africa, and commodities from Australia, Brazil… Everyone benefits including the consumers in every country.
Lord Obama and his 'advisers' including Uncle Ben and Tiny Tim can do a lot of good if they looked longer-term (more than 4 years for re-election). To give generous welfare to buy votes and creating jobs for the lazy government servants are definitely not good for the country. Have we learned from California?
Throwing money on HSR is stupid and reckless without calculating basic return of the investment. China is successful with HSR due to its dense population, but not here.
Keeping the Yuan low actually helps US's consumers and US in buying wind turbines or HSRs from China at lower prices. Not to mention the huge loans from China. China does not want to withdraw the bad loans as they do not want to kill the goose that lays the golden eggs.
The major products of China and US are not the same, so there are no direct competitions. If we do not buy the products from China, most likely we'll buy same products from Mexico or India.
Until China builds up its local market for its growing middle class, I do not see Yuan will appreciate by more than 5% a year.
A strong China is good for the world including US! China is just one part of the global economy. The other players are research companies from the west and the US, oil from Middle East and Africa, and commodities from Australia, Brazil… Everyone benefits including the consumers in every country.
Lord Obama and his 'advisers' including Uncle Ben and Tiny Tim can do a lot of good if they looked longer-term (more than 4 years for re-election). To give generous welfare to buy votes and creating jobs for the lazy government servants are definitely not good for the country. Have we learned from California?
Throwing money on HSR is stupid and reckless without calculating basic return of the investment. China is successful with HSR due to its dense population, but not here.
Tuesday, March 16, 2010
Dividend growth stocks
Working to summarize the blog on this topic from http://seekingalpha.com/article/193345/comments?v=1268663941&source=tracking
------
I'm a swing trader, so I do not pay much attention on dividends. However, I feel there is a place in our portfolio and do not have to sell them (just pass them to our heirs). Here are some random thoughts.
----
From my own research via over 250 searches (one search is one screen) and over many simulations (one simulation running all 250 searches for a period), dividend-growth stocks are never in the top-performing 10% in all phases of the market cycle. Yes, dividend-growth stocks should indicate a company is successful, but also indicates the company does not know how to re-invest the money (debatable). One man's research.
Total Return = Stock Appreciation + Dividend - Taxes
The simulations may miss the dividend part, so I need to add about 2% for the return for these stocks.
Taxes are more complicated as long-term and short-term appreciations and dividends could be different. Your state residence and your tax bracket make a difference too. The winning stocks will have the cost basis step down to the day you die, so most likely it is a tax advantage.
----------
Diversify as most bank stocks belong to this group before the crash.
---------
Hints from another investor:
So my conclusions/summary so far is:
1) Can't guess the market's direction.
2) For the average guy like me who can't pick stocks or time market, over the long term Div Growth Stocks are the best place to be.
3) Preferably buy them when their evaluation vs others in sector and their sector vs other sector's evaluations are low (out of favor) and the collary, sell them when both evaluations are high (when they are darlings).
4) Diversify into several div growth stocks, (I'm Canadian but live in Houston and when retire will probably be in Canada with travel in Europe and Asia and thus should diversify out of US into several countries or in global companies).
5) When possible, avoid the big failures like GE & C.
(Any corrections appreciated)
------------
It is not hard to write a search on the stocks that increase dividend yield every year.
------
I'm a swing trader, so I do not pay much attention on dividends. However, I feel there is a place in our portfolio and do not have to sell them (just pass them to our heirs). Here are some random thoughts.
----
From my own research via over 250 searches (one search is one screen) and over many simulations (one simulation running all 250 searches for a period), dividend-growth stocks are never in the top-performing 10% in all phases of the market cycle. Yes, dividend-growth stocks should indicate a company is successful, but also indicates the company does not know how to re-invest the money (debatable). One man's research.
Total Return = Stock Appreciation + Dividend - Taxes
The simulations may miss the dividend part, so I need to add about 2% for the return for these stocks.
Taxes are more complicated as long-term and short-term appreciations and dividends could be different. Your state residence and your tax bracket make a difference too. The winning stocks will have the cost basis step down to the day you die, so most likely it is a tax advantage.
----------
Diversify as most bank stocks belong to this group before the crash.
---------
Hints from another investor:
So my conclusions/summary so far is:
1) Can't guess the market's direction.
2) For the average guy like me who can't pick stocks or time market, over the long term Div Growth Stocks are the best place to be.
3) Preferably buy them when their evaluation vs others in sector and their sector vs other sector's evaluations are low (out of favor) and the collary, sell them when both evaluations are high (when they are darlings).
4) Diversify into several div growth stocks, (I'm Canadian but live in Houston and when retire will probably be in Canada with travel in Europe and Asia and thus should diversify out of US into several countries or in global companies).
5) When possible, avoid the big failures like GE & C.
(Any corrections appreciated)
------------
It is not hard to write a search on the stocks that increase dividend yield every year.
Wednesday, March 3, 2010
Coming crisis
If history teaches us anything, it’s that when even ONE major government defaults on its debts, economic chaos follows. Unfortunately, it’s a lesson that few investors have learned.
The truth is, when investors even suspect that such a thing could happen, the economic damage can be crippling. The following crisis unfolds in four, quick steps:
FIRST, since a sovereign debt default would inevitably cause ALL bonds to crash, investors stampede for the bond market exits, dumping as much as they can as fast as they can.
SECOND, as the bond market reels, interest rates skyrocket and credit tightens. The rates on 30-year fixed-rate mortgages, auto loans and other long-term debts soar. Rates tied to short-term money markets — on credit cards and variable mortgages — follow.
THIRD, consumers — whose spending represents fully 70% of the economy — snap their pocketbooks shut.
FOURTH, corporate earnings and stock prices crater. As the economy hits the skids, unemployment soars.
Clearly, these events would be the coup de grâce to an economic recovery as fragile as this one is.
They would almost surely transform a Great Recession into a Great DOUBLE-DIP Recession ...
Plunging us into the second bear market in three years ...
Lighting the fuse on a second explosion in unemployment, and ...
Triggering a second surge in personal and corporate bankruptcies.
Indeed ...
This disturbing scenario is already
beginning to unfold before our very eyes —
not just in ONE major Western country,
but in TEN of them!
We’ve known for some time that Italy and Ireland are at risk for default — and just this week, we saw how investors’ fears have caused them to begin dumping British pounds and gilts (bonds) like there’s no tomorrow.
Plus, the soaring cost of Credit Default Swaps — “insurance policies” that protect investors against default — on the debt of Greece, Portugal, Romania, Lithuania, Latvia, Iceland and the Ukraine is a clear sign that investors believe they are also at elevated risk of default.
Put simply, it would only take ONE sovereign debt default to crush this anemic recovery ... but no fewer than TEN major Western countries are now at risk!
What’s more, no fewer than THREE powerful forecasting tools are confirming that a great bond market conflagration, stock market decline and double-dip recession are now on the horizon ...
CYCLICAL ANALYSIS CONFIRMS IT: The cycles identified by the Foundation for the Study of Cycles have accurately anticipated nearly every major shift in market direction ... in every major asset class ... in advance ... for 39 years.
* And now, as the Foundation’s Research Director, Richard Mogey and I demonstrated in Nine Shocking New Forecasts for 2010-2012, the current cyclical analysis is confirming that a major new decline in the economy is coming later this year.
* U.S. stocks will decline starting this year and continue falling in a zigzag pattern through 2012.
* The U.S. dollar index may continue to firm somewhat as the European debt crisis drives investors into dollar-denominated investments. But then the greenback will collapse until late 2011 as the U.S. sovereign debt crisis runs its course.
* Serving in its capacity as a global crisis hedge, gold will skyrocket FAR higher than $2,000 per ounce by the end of 2011.
* Crippled by soaring interest rates due to the U.S. debt crisis, our economy will suffer a devastating double-dip recession in 2011.
POLITICAL ANALYSIS CONFIRMS IT: If the rise of the Tea Party movement or the results of recent elections in Massachusetts mean anything at all, it’s that many Americans are fighting mad.
They’re fed up with Washington’s bailouts of failed bankers and CEOs ... skyrocketing federal deficits and debts ... out-of-control borrowing by the Treasury ... mindless money-printing by the Federal Reserve ... and now, the specter of higher taxes ahead.
The handwriting is on the wall: With midterm Congressional elections only seven, short months away, any politician who votes for more of the same is practically begging to be thrown out of office.
That means the days of Washington bailouts and stimulus are numbered. And that, in turn, means that the momentary economic stability which that spending bought will soon come to an end.
VOLATILITY ANALYSIS CONFIRMS IT: Right now, the volatility indicators professional traders rely on — in the bond market ... in currencies ... and more — are signaling that the economic stability and investment trends most investors have depended on for the last year or so are coming to an end.
The smart money is now beginning to bet on major directional shifts in all major asset classes — and on the recovery coming unraveling before our very eyes.
Our conclusion is clear:
Huge investment dangers
and enormous profit opportunities
directly ahead!
All of this promises both unprecedented dangers and unprecedented profit opportunities that few investors understand — in every single asset class, including gold, stocks, bonds, currencies and more.
In fact, it’s with precisely this scenario in mind that we created our Million-Dollar Rapid Growth Portfolio: To help you protect yourself and profit in the chaotic days ahead.
Since 1971, the time-honored, scientific research upon which the portfolio is based — from the Foundation for the Study of Cycles — has anticipated almost every major directional shift in stocks, gold, bonds, commodities and currencies.
And based on my analysis of the Foundation’s materials published long before each major market turn, I calculate that, when applied to a diversified portfolio, their research could have helped you ...
* Beat the S&P 500 four to one ...
* Enjoy 18 consecutive winning years since 1992 ...
* Multiply your money more than 25 times over since 1971 ...
* And turn $10,000 into more than $258,000 ... $100,000 into nearly $2.6 million ... or $1 million into more than $25.8 million ...
* In nearly every imaginable investing environment — even as investors who trusted Washington and Wall Street lost their shirts!
In fact, Dr. Weiss is so confident in this revolutionary approach to building the optimal growth portfolio, he’s putting his money where his mouth is, using this strategy to invest $1 million. And I am personally investing some of my funds as well.
The best part: The Weiss Million-Dollar Rapid Growth Portfolio gives you the opportunity to invest your money the way I invest mine, with one major exception:
You can actually beat us to the punch by getting two full business days’ notice before we buy or sell anything!
The sheer size and power of this great debt crisis make this the ideal time to begin trading
a rapid growth portfolio.
In fact, I’m already eyeing an ingenious trade that’s designed to profit BOTH when the euro collapses AND when gold prices explode! I’ll give you explicit instructions on precisely how to make this trade.
And in each Trading Alert I send you, I will ...
* Name the asset classes the Foundation’s signals have identified as having the richest profit potential now ...
* Reveal what percentage of our capital I’ll invest in each asset class ...
* Name the individual vehicles — the stocks and ETFs — I’m recommending in each asset class ...
* Give you the precise percentage of your money to invest in each vehicle.
The truth is, when investors even suspect that such a thing could happen, the economic damage can be crippling. The following crisis unfolds in four, quick steps:
FIRST, since a sovereign debt default would inevitably cause ALL bonds to crash, investors stampede for the bond market exits, dumping as much as they can as fast as they can.
SECOND, as the bond market reels, interest rates skyrocket and credit tightens. The rates on 30-year fixed-rate mortgages, auto loans and other long-term debts soar. Rates tied to short-term money markets — on credit cards and variable mortgages — follow.
THIRD, consumers — whose spending represents fully 70% of the economy — snap their pocketbooks shut.
FOURTH, corporate earnings and stock prices crater. As the economy hits the skids, unemployment soars.
Clearly, these events would be the coup de grâce to an economic recovery as fragile as this one is.
They would almost surely transform a Great Recession into a Great DOUBLE-DIP Recession ...
Plunging us into the second bear market in three years ...
Lighting the fuse on a second explosion in unemployment, and ...
Triggering a second surge in personal and corporate bankruptcies.
Indeed ...
This disturbing scenario is already
beginning to unfold before our very eyes —
not just in ONE major Western country,
but in TEN of them!
We’ve known for some time that Italy and Ireland are at risk for default — and just this week, we saw how investors’ fears have caused them to begin dumping British pounds and gilts (bonds) like there’s no tomorrow.
Plus, the soaring cost of Credit Default Swaps — “insurance policies” that protect investors against default — on the debt of Greece, Portugal, Romania, Lithuania, Latvia, Iceland and the Ukraine is a clear sign that investors believe they are also at elevated risk of default.
Put simply, it would only take ONE sovereign debt default to crush this anemic recovery ... but no fewer than TEN major Western countries are now at risk!
What’s more, no fewer than THREE powerful forecasting tools are confirming that a great bond market conflagration, stock market decline and double-dip recession are now on the horizon ...
CYCLICAL ANALYSIS CONFIRMS IT: The cycles identified by the Foundation for the Study of Cycles have accurately anticipated nearly every major shift in market direction ... in every major asset class ... in advance ... for 39 years.
* And now, as the Foundation’s Research Director, Richard Mogey and I demonstrated in Nine Shocking New Forecasts for 2010-2012, the current cyclical analysis is confirming that a major new decline in the economy is coming later this year.
* U.S. stocks will decline starting this year and continue falling in a zigzag pattern through 2012.
* The U.S. dollar index may continue to firm somewhat as the European debt crisis drives investors into dollar-denominated investments. But then the greenback will collapse until late 2011 as the U.S. sovereign debt crisis runs its course.
* Serving in its capacity as a global crisis hedge, gold will skyrocket FAR higher than $2,000 per ounce by the end of 2011.
* Crippled by soaring interest rates due to the U.S. debt crisis, our economy will suffer a devastating double-dip recession in 2011.
POLITICAL ANALYSIS CONFIRMS IT: If the rise of the Tea Party movement or the results of recent elections in Massachusetts mean anything at all, it’s that many Americans are fighting mad.
They’re fed up with Washington’s bailouts of failed bankers and CEOs ... skyrocketing federal deficits and debts ... out-of-control borrowing by the Treasury ... mindless money-printing by the Federal Reserve ... and now, the specter of higher taxes ahead.
The handwriting is on the wall: With midterm Congressional elections only seven, short months away, any politician who votes for more of the same is practically begging to be thrown out of office.
That means the days of Washington bailouts and stimulus are numbered. And that, in turn, means that the momentary economic stability which that spending bought will soon come to an end.
VOLATILITY ANALYSIS CONFIRMS IT: Right now, the volatility indicators professional traders rely on — in the bond market ... in currencies ... and more — are signaling that the economic stability and investment trends most investors have depended on for the last year or so are coming to an end.
The smart money is now beginning to bet on major directional shifts in all major asset classes — and on the recovery coming unraveling before our very eyes.
Our conclusion is clear:
Huge investment dangers
and enormous profit opportunities
directly ahead!
All of this promises both unprecedented dangers and unprecedented profit opportunities that few investors understand — in every single asset class, including gold, stocks, bonds, currencies and more.
In fact, it’s with precisely this scenario in mind that we created our Million-Dollar Rapid Growth Portfolio: To help you protect yourself and profit in the chaotic days ahead.
Since 1971, the time-honored, scientific research upon which the portfolio is based — from the Foundation for the Study of Cycles — has anticipated almost every major directional shift in stocks, gold, bonds, commodities and currencies.
And based on my analysis of the Foundation’s materials published long before each major market turn, I calculate that, when applied to a diversified portfolio, their research could have helped you ...
* Beat the S&P 500 four to one ...
* Enjoy 18 consecutive winning years since 1992 ...
* Multiply your money more than 25 times over since 1971 ...
* And turn $10,000 into more than $258,000 ... $100,000 into nearly $2.6 million ... or $1 million into more than $25.8 million ...
* In nearly every imaginable investing environment — even as investors who trusted Washington and Wall Street lost their shirts!
In fact, Dr. Weiss is so confident in this revolutionary approach to building the optimal growth portfolio, he’s putting his money where his mouth is, using this strategy to invest $1 million. And I am personally investing some of my funds as well.
The best part: The Weiss Million-Dollar Rapid Growth Portfolio gives you the opportunity to invest your money the way I invest mine, with one major exception:
You can actually beat us to the punch by getting two full business days’ notice before we buy or sell anything!
The sheer size and power of this great debt crisis make this the ideal time to begin trading
a rapid growth portfolio.
In fact, I’m already eyeing an ingenious trade that’s designed to profit BOTH when the euro collapses AND when gold prices explode! I’ll give you explicit instructions on precisely how to make this trade.
And in each Trading Alert I send you, I will ...
* Name the asset classes the Foundation’s signals have identified as having the richest profit potential now ...
* Reveal what percentage of our capital I’ll invest in each asset class ...
* Name the individual vehicles — the stocks and ETFs — I’m recommending in each asset class ...
* Give you the precise percentage of your money to invest in each vehicle.
Thursday, February 18, 2010
Saturday, February 13, 2010
The 3 Waves
Risk Aversion: The Final Wave
by Bryan Rich
Dear Anthony,
Bryan Rich
Over the past months I've written extensively in my Money and Markets columns about the bubbling over of the risk trade. I also warned about the rising threats that would likely make a sustainable recovery, at this point, a low probability.
And as time passes, we're beginning to see that these threats, including a growing sovereign debt crisis, rising protectionism, and threatening asset bubbles, are becoming ripe and dangerous.
But in a world of instant information, it's easy for our focus to be drawn away from the underlying fundamental problems in the world economy ...
It can be difficult to see the forest for the trees when stock markets are rising, commodity prices are recovering and the media is touting hot burgeoning world economies.
Internal Sponsorship
Recovery a major DUD — what to do ...
A shocking new report out earlier this week gives the lie to the government-endorsed myth that the worst is behind us.
Official figures out of Europe show that the Eurozone barely had a pulse. The news from the U.S. wasn't much better: Foreign investors are recoiling in horror from Washington's spending and borrowing spree.
No wonder so many Americans are FED UP with Washington and Wall Street!
Click here to register for our FREE briefing with our NEW predictions for what's ahead ...
But if you step back and examine the activities in the global economy and the global financial markets over the past 2½ years, based on history it looks like the roadmap to sustainable recovery has three waves. And we're likely only two-thirds of the way through the economic drawdown.
Wave #1:
Panic
Wave number one was panic-induced, risk aversion. It was the unraveling of the credit bubble, the seizing of the financial system and the flight of capital from all corners of the world back toward the center (the United States).
Wave #2:
Stabilization
Risk appetite returned when central bankers blanketed the world with easy money.
Risk appetite returned when central bankers blanketed the world with easy money.
The second wave was the eye of the storm. Here, risk appetite bounced back. Global central banks engaged the biggest experiment in history in an effort to stabilize a rapidly deteriorating financial system. In the process, they opened up the money spigot and flooded banks with capital, backstopped failing giants, guaranteed obligations, and printed trillions of dollars.
For many, this started looking more and more like the recovery phase. But in reality, it was nothing more than a retracement of the initial, panic-induced risk aversion trade.
Wave #3:
Pain & Cleansing
Tony: We miss the graph here which indicates the market is going down.
The final wave is another bout with pain. This is where all of the underlying problems come home to roost. Ultimately the problems get faced and worked through, only after which a path to a sustainable economic expansion opens.
This phase is best described as the final leg of the risk aversion trade. This is where global investors, again, flee for safety as the uncertainty elevates surrounding the fallout from damaged economies and the ability of central banks to manage all of the aggressive policy responses.
Here, investors abandon the pursuit of return ON capital, in favor of return OF capital. And this is precisely what we're seeing now in response to the dominoes lining up with sovereign debt problems.
The final phase will be a time of higher savings and flight back to the U.S. dollar.
The final phase will be a time of higher savings and flight back to the U.S. dollar.
It's also a period that begins the healing of economies. And it's driven by austerity. This means increased taxes, higher savings and a lower standard of living. In short, it's a period of rebalancing and rebuilding.
A Technical View ...
The three-phase cycle I just described is nothing new. It follows a time-tested theory on the behavior of markets and human psychology called Elliott waves. This principle suggests that patterns in markets tend to form five-wave and three-wave structures.
The five-wave structure is the dominant trend (i.e. economic expansion), and the three-wave structure is the corrective trend (economic downturn). My analysis suggests the recent downturn carries the three-wave, corrective characteristic.
Let me simplify this for you ...
A good proxy for global risk appetite has been the U.S. stock market. This is where global risk taking, or lack thereof, is among the most easily identified.
When investors shy away from risk, the stock market tends to fall. When investors embrace risk, the stock market usually rises.
S&P 500
In the chart above, it's easy to see the first two waves that I've laid out: Wave #1 — Panic; Wave #2 — Stabilization.
Admittedly, Wave #3 — Pain & Cleansing, is highly debatable. But if I'm right, it could be the phase that finally flushes out the landmines in the global economy and puts us back on a sustainable path of growth.
How this Impacts Currencies ...
This third wave supports the thesis that I've been writing about for months in this column. That is, market participants will become more averse to risk.
And it also supports my argument from last year that the U.S. dollar's demise is greatly exaggerated.
In the greatest monetary experiment of all times, following the broadest and deepest downturn since the Great Depression, you can expect surprises.
We've seen those surprises with more frequency and growing intensity over the past two months — and there will be more to come.
As this third leg of risk aversion unfolds, the dollar will again continue to function as the safe parking place for global capital. Not because the U.S. is in superior economic condition, but purely because it's the best alternative.
Regards,
Bryan
by Bryan Rich
Dear Anthony,
Bryan Rich
Over the past months I've written extensively in my Money and Markets columns about the bubbling over of the risk trade. I also warned about the rising threats that would likely make a sustainable recovery, at this point, a low probability.
And as time passes, we're beginning to see that these threats, including a growing sovereign debt crisis, rising protectionism, and threatening asset bubbles, are becoming ripe and dangerous.
But in a world of instant information, it's easy for our focus to be drawn away from the underlying fundamental problems in the world economy ...
It can be difficult to see the forest for the trees when stock markets are rising, commodity prices are recovering and the media is touting hot burgeoning world economies.
Internal Sponsorship
Recovery a major DUD — what to do ...
A shocking new report out earlier this week gives the lie to the government-endorsed myth that the worst is behind us.
Official figures out of Europe show that the Eurozone barely had a pulse. The news from the U.S. wasn't much better: Foreign investors are recoiling in horror from Washington's spending and borrowing spree.
No wonder so many Americans are FED UP with Washington and Wall Street!
Click here to register for our FREE briefing with our NEW predictions for what's ahead ...
But if you step back and examine the activities in the global economy and the global financial markets over the past 2½ years, based on history it looks like the roadmap to sustainable recovery has three waves. And we're likely only two-thirds of the way through the economic drawdown.
Wave #1:
Panic
Wave number one was panic-induced, risk aversion. It was the unraveling of the credit bubble, the seizing of the financial system and the flight of capital from all corners of the world back toward the center (the United States).
Wave #2:
Stabilization
Risk appetite returned when central bankers blanketed the world with easy money.
Risk appetite returned when central bankers blanketed the world with easy money.
The second wave was the eye of the storm. Here, risk appetite bounced back. Global central banks engaged the biggest experiment in history in an effort to stabilize a rapidly deteriorating financial system. In the process, they opened up the money spigot and flooded banks with capital, backstopped failing giants, guaranteed obligations, and printed trillions of dollars.
For many, this started looking more and more like the recovery phase. But in reality, it was nothing more than a retracement of the initial, panic-induced risk aversion trade.
Wave #3:
Pain & Cleansing
Tony: We miss the graph here which indicates the market is going down.
The final wave is another bout with pain. This is where all of the underlying problems come home to roost. Ultimately the problems get faced and worked through, only after which a path to a sustainable economic expansion opens.
This phase is best described as the final leg of the risk aversion trade. This is where global investors, again, flee for safety as the uncertainty elevates surrounding the fallout from damaged economies and the ability of central banks to manage all of the aggressive policy responses.
Here, investors abandon the pursuit of return ON capital, in favor of return OF capital. And this is precisely what we're seeing now in response to the dominoes lining up with sovereign debt problems.
The final phase will be a time of higher savings and flight back to the U.S. dollar.
The final phase will be a time of higher savings and flight back to the U.S. dollar.
It's also a period that begins the healing of economies. And it's driven by austerity. This means increased taxes, higher savings and a lower standard of living. In short, it's a period of rebalancing and rebuilding.
A Technical View ...
The three-phase cycle I just described is nothing new. It follows a time-tested theory on the behavior of markets and human psychology called Elliott waves. This principle suggests that patterns in markets tend to form five-wave and three-wave structures.
The five-wave structure is the dominant trend (i.e. economic expansion), and the three-wave structure is the corrective trend (economic downturn). My analysis suggests the recent downturn carries the three-wave, corrective characteristic.
Let me simplify this for you ...
A good proxy for global risk appetite has been the U.S. stock market. This is where global risk taking, or lack thereof, is among the most easily identified.
When investors shy away from risk, the stock market tends to fall. When investors embrace risk, the stock market usually rises.
S&P 500
In the chart above, it's easy to see the first two waves that I've laid out: Wave #1 — Panic; Wave #2 — Stabilization.
Admittedly, Wave #3 — Pain & Cleansing, is highly debatable. But if I'm right, it could be the phase that finally flushes out the landmines in the global economy and puts us back on a sustainable path of growth.
How this Impacts Currencies ...
This third wave supports the thesis that I've been writing about for months in this column. That is, market participants will become more averse to risk.
And it also supports my argument from last year that the U.S. dollar's demise is greatly exaggerated.
In the greatest monetary experiment of all times, following the broadest and deepest downturn since the Great Depression, you can expect surprises.
We've seen those surprises with more frequency and growing intensity over the past two months — and there will be more to come.
As this third leg of risk aversion unfolds, the dollar will again continue to function as the safe parking place for global capital. Not because the U.S. is in superior economic condition, but purely because it's the best alternative.
Regards,
Bryan
Saturday, February 6, 2010
Stock screen on penny stocks
A Purely Systematic Strategy
Our process screens for companies exhibiting some, if not all of these characteristics:
1. Earnings growth > 50% (and accelerating)
2. Revenue growth > 30% (and accelerating)
3. PEG Ratio < 1.50
4. Debt-to-equity < 0.5
5. Current-ratio > 1
6. Return-on-equity > 20%
7. Management ownership of stock > 10%
8. Double-digit (and increasing) profit margins
9. Market size of $1 billion or more
10. Institutional accumulation
11. Dividend yield < 1%
12. Short interest < 25%
In short, we hone in on tomorrow's big gainers with pinpoint accuracy – using a systematic, rigorous and completely proprietary 12-factor screening process. (See sidebar to the right for full details.)
By doing this we drill-down and target a very specific "sub-niche" of penny stocks.
One that's almost always profitable.
It's a certain kind of penny stock that meets very specific criteria.
Introducing SAFE
Penny Stocks
Fact is, our revolutionary screening methods – which we spent five years perfecting – let us identify SAFE penny stocks that can hand you astounding gains no matter what the markets do.
Our process is so effective because it doesn't merely focus on the upside. That's the risky way to invest in penny stocks.
It also focuses on the downside.
You see, it weeds out risky stocks, too. It does this by targeting factors such as significantly leveraged balance sheets or pending legal problems that can undercut growth and stock price.
This is why we believe that these penny stocks are one of the safest and easiest ways for you to get rich in the markets today.
Our process screens for companies exhibiting some, if not all of these characteristics:
1. Earnings growth > 50% (and accelerating)
2. Revenue growth > 30% (and accelerating)
3. PEG Ratio < 1.50
4. Debt-to-equity < 0.5
5. Current-ratio > 1
6. Return-on-equity > 20%
7. Management ownership of stock > 10%
8. Double-digit (and increasing) profit margins
9. Market size of $1 billion or more
10. Institutional accumulation
11. Dividend yield < 1%
12. Short interest < 25%
In short, we hone in on tomorrow's big gainers with pinpoint accuracy – using a systematic, rigorous and completely proprietary 12-factor screening process. (See sidebar to the right for full details.)
By doing this we drill-down and target a very specific "sub-niche" of penny stocks.
One that's almost always profitable.
It's a certain kind of penny stock that meets very specific criteria.
Introducing SAFE
Penny Stocks
Fact is, our revolutionary screening methods – which we spent five years perfecting – let us identify SAFE penny stocks that can hand you astounding gains no matter what the markets do.
Our process is so effective because it doesn't merely focus on the upside. That's the risky way to invest in penny stocks.
It also focuses on the downside.
You see, it weeds out risky stocks, too. It does this by targeting factors such as significantly leveraged balance sheets or pending legal problems that can undercut growth and stock price.
This is why we believe that these penny stocks are one of the safest and easiest ways for you to get rich in the markets today.
Tuesday, February 2, 2010
Proposed taxes
NEW YORK (CNNMoney.com) -- President Obama, in his proposed 2011 budget, is calling on Congress to make a number of tax changes for individuals.
Some ideas are new. Many others were made last year, but not enacted by Congress. So the estimates of the revenue that may be raised by his proposals may be overly optimistic.
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Across the universe of individual and corporate taxes, "what's most striking is how little new ground [the president's budget] ploughs," said Clint Stretch, managing principal of tax policy at Deloitte Tax LLC.
Here's a breakdown of some of Obama's key proposals for 2011 and beyond that would affect individuals:
High-income households
Let tax cuts expire: The 2001 and 2003 Bush tax cuts are scheduled to expire by 2011. Obama is sticking to his call to let those tax cuts expire for high-income households ($200,000 for individuals; $250,000 for families). The White House estimates close to $700 billion would be raised over 10 years.
This provision would raise the top two individual income tax rates to where they were in 2001, before passage of the Bush tax cuts. The 33% bracket would become 36%. And the 35% bracket would rise to 39.6%.
In addition, the long-term capital gains tax rate would increase to 20%, up from 15% currently.
The provision would also reinstate so-called phaseouts for high-income households, which would essentially reduce their eligibility for a host of personal exemptions.
The House may be amenable to letting the tax cuts expire in 2011 for wealthier Americans. But Stretch said it may be a tougher vote in the Senate, where there may be more of an inclination to wait until 2012 when the economy is expected to be on firmer footing.
Limit itemized deductions: The president proposes to cap at 28% the rate at which high-income households can itemize their deductions. Currently the value of a deduction is equal to the deductible amount multipled by one's top income tax rate, which can range well above 28%. So deductions will be worth less to a high-income tax filer under the president's proposal.
Capping itemized deductions is a proposal he made last year and it went nowhere. That's in part because many in Congress said it would seriously curb charitable giving, even though that is not a foregone conclusion. If the measure gains any traction this year, it's likely Congress would limit the cap to only certain types of deductions, thereby muting its revenue-raising effect.
The White House estimates that capping the rate on deductions could raise $291 billion over 10 years.
Obama maps routes to lower deficits
Keep the estate tax: The president's budget assumes the estate tax will be made permanent at a $3.5 million exemption level per person and a top rate of 45% on taxable estates. That's much more generous than current law, which calls for a $1 million exemption level and a 55% top rate starting in 2011.
But it's less generous than a proposal getting bipartisan support in the Senate. The Senate proposal would institute a $5 million exemption level per person and a top rate of 35%.
Altering the estate tax to the levels Obama has proposed would increase the deficit by $262 billion over 10 years.
Raise taxes on investment fund manager profits: Obama would like to tax the portion of profits paid to managers of hedge funds and private equity funds as ordinary income rather than as a capital gain. That would subject it to much higher tax rates than the 15% capital gains rate currently imposed. The White House estimates the measure would raise $24 billion over 10 years.
This is a carryover proposal from last year. While Congress hasn't acted on it yet, there's a fair chance they may move on it in the next year, since lawmakers will be looking for ways to pay for other costly legislation they'd like to pass.
Eliminate capital gains tax on small business stock: There are currently capital gains tax breaks in place for investors in small businesses, defined as companies with gross assets of $50 million or less. But the president is proposing to eliminate the capital gains tax altogether on stock in small businesses held for at least five years. The measure would only apply to stock acquired after Feb. 17, 2009. The cost of the president's proposal is an estimated $8.1 billion over 10 years.
Lower and middle income households
Make tax cuts permanent: The president's budget assumes all the 2001 and 2003 tax cuts will be made permanent for everyone making less than $200,000 ($250,000 for couples), which is the majority of American households.
That means, among other things, that today's rates on income tax, capital gains and dividends would remain the same.
It's an expensive proposition, however, costing federal coffers nearly $2 trillion over 10 years.
Permanently protect the middle class from the "wealth" tax: The administration assumes in the president's budget that Congress will permanently change the parameters of the Alternative Minimum Tax (AMT). That would protect tens of millions of middle-income families from having to pay the tax, which was originally intended only for the highest earners.
The cost of such a provision is close to $660 billion over 10 years.
Extend the Make Work Pay credit: The president's 2011 budget calls for a one-year extension of the stimulus-created tax credit that adds a few dollars to workers' paychecks every pay period. The extension is estimated to boost the deficit by $61.2 billion over 10 years.
Calling for just a one-year extension is a switch from Obama's call to make the credit permanent last year. The hope may still be that the credit is renewed every year -- as many tax breaks are. But by only calling for a one-year extension, the impact on the 10-year deficit appears to be less.
Permanently expand a low-income tax credit: The stimulus package temporarily expanded the Earned Income Tax Credit for very low-income families with three or more children. The expansion meant such families could claim a credit equal to 45% of their qualifying earnings, up from 40%, so that they could get a maximum credit of $5,657. President Obama wants to make that increase permanent at an estimated cost of $15.2 billion over 10 years.
Expand child-care tax credit: Under the president's budget, families making less than $85,000 would be able to claim nearly double the child and dependent care tax credit for which they currently qualify. The White House estimates the increase will raise the deficit by $12.6 billion over 10 years.
Permanently extend the American Opportunity Tax Credit: Created under stimulus legislation, the American Opportunity Tax Credit expanded for 2009 and 2010 the existing Hope Scholarship tax credit and made it partially refundable -- meaning that a tax filer could get money back even if it meant he or she would be getting back more from Uncle Sam than paid in federal income tax.
The credit is worth up to $2,500 for higher education expenses, up from $1,800 previously. The president would like to make the measure permanent, adding to the deficit by $75.4 billion over 10 years
Some ideas are new. Many others were made last year, but not enacted by Congress. So the estimates of the revenue that may be raised by his proposals may be overly optimistic.
* Digg
* Buzz Up!
* Comment on this story
CDs & Money Market
MMA 0.87%
$10K MMA 0.96%
6 month CD 0.89%
1 yr CD 1.31%
5 yr CD 2.63%
Find personalized rates:
Rates provided by Bankrate.com.
Across the universe of individual and corporate taxes, "what's most striking is how little new ground [the president's budget] ploughs," said Clint Stretch, managing principal of tax policy at Deloitte Tax LLC.
Here's a breakdown of some of Obama's key proposals for 2011 and beyond that would affect individuals:
High-income households
Let tax cuts expire: The 2001 and 2003 Bush tax cuts are scheduled to expire by 2011. Obama is sticking to his call to let those tax cuts expire for high-income households ($200,000 for individuals; $250,000 for families). The White House estimates close to $700 billion would be raised over 10 years.
This provision would raise the top two individual income tax rates to where they were in 2001, before passage of the Bush tax cuts. The 33% bracket would become 36%. And the 35% bracket would rise to 39.6%.
In addition, the long-term capital gains tax rate would increase to 20%, up from 15% currently.
The provision would also reinstate so-called phaseouts for high-income households, which would essentially reduce their eligibility for a host of personal exemptions.
The House may be amenable to letting the tax cuts expire in 2011 for wealthier Americans. But Stretch said it may be a tougher vote in the Senate, where there may be more of an inclination to wait until 2012 when the economy is expected to be on firmer footing.
Limit itemized deductions: The president proposes to cap at 28% the rate at which high-income households can itemize their deductions. Currently the value of a deduction is equal to the deductible amount multipled by one's top income tax rate, which can range well above 28%. So deductions will be worth less to a high-income tax filer under the president's proposal.
Capping itemized deductions is a proposal he made last year and it went nowhere. That's in part because many in Congress said it would seriously curb charitable giving, even though that is not a foregone conclusion. If the measure gains any traction this year, it's likely Congress would limit the cap to only certain types of deductions, thereby muting its revenue-raising effect.
The White House estimates that capping the rate on deductions could raise $291 billion over 10 years.
Obama maps routes to lower deficits
Keep the estate tax: The president's budget assumes the estate tax will be made permanent at a $3.5 million exemption level per person and a top rate of 45% on taxable estates. That's much more generous than current law, which calls for a $1 million exemption level and a 55% top rate starting in 2011.
But it's less generous than a proposal getting bipartisan support in the Senate. The Senate proposal would institute a $5 million exemption level per person and a top rate of 35%.
Altering the estate tax to the levels Obama has proposed would increase the deficit by $262 billion over 10 years.
Raise taxes on investment fund manager profits: Obama would like to tax the portion of profits paid to managers of hedge funds and private equity funds as ordinary income rather than as a capital gain. That would subject it to much higher tax rates than the 15% capital gains rate currently imposed. The White House estimates the measure would raise $24 billion over 10 years.
This is a carryover proposal from last year. While Congress hasn't acted on it yet, there's a fair chance they may move on it in the next year, since lawmakers will be looking for ways to pay for other costly legislation they'd like to pass.
Eliminate capital gains tax on small business stock: There are currently capital gains tax breaks in place for investors in small businesses, defined as companies with gross assets of $50 million or less. But the president is proposing to eliminate the capital gains tax altogether on stock in small businesses held for at least five years. The measure would only apply to stock acquired after Feb. 17, 2009. The cost of the president's proposal is an estimated $8.1 billion over 10 years.
Lower and middle income households
Make tax cuts permanent: The president's budget assumes all the 2001 and 2003 tax cuts will be made permanent for everyone making less than $200,000 ($250,000 for couples), which is the majority of American households.
That means, among other things, that today's rates on income tax, capital gains and dividends would remain the same.
It's an expensive proposition, however, costing federal coffers nearly $2 trillion over 10 years.
Permanently protect the middle class from the "wealth" tax: The administration assumes in the president's budget that Congress will permanently change the parameters of the Alternative Minimum Tax (AMT). That would protect tens of millions of middle-income families from having to pay the tax, which was originally intended only for the highest earners.
The cost of such a provision is close to $660 billion over 10 years.
Extend the Make Work Pay credit: The president's 2011 budget calls for a one-year extension of the stimulus-created tax credit that adds a few dollars to workers' paychecks every pay period. The extension is estimated to boost the deficit by $61.2 billion over 10 years.
Calling for just a one-year extension is a switch from Obama's call to make the credit permanent last year. The hope may still be that the credit is renewed every year -- as many tax breaks are. But by only calling for a one-year extension, the impact on the 10-year deficit appears to be less.
Permanently expand a low-income tax credit: The stimulus package temporarily expanded the Earned Income Tax Credit for very low-income families with three or more children. The expansion meant such families could claim a credit equal to 45% of their qualifying earnings, up from 40%, so that they could get a maximum credit of $5,657. President Obama wants to make that increase permanent at an estimated cost of $15.2 billion over 10 years.
Expand child-care tax credit: Under the president's budget, families making less than $85,000 would be able to claim nearly double the child and dependent care tax credit for which they currently qualify. The White House estimates the increase will raise the deficit by $12.6 billion over 10 years.
Permanently extend the American Opportunity Tax Credit: Created under stimulus legislation, the American Opportunity Tax Credit expanded for 2009 and 2010 the existing Hope Scholarship tax credit and made it partially refundable -- meaning that a tax filer could get money back even if it meant he or she would be getting back more from Uncle Sam than paid in federal income tax.
The credit is worth up to $2,500 for higher education expenses, up from $1,800 previously. The president would like to make the measure permanent, adding to the deficit by $75.4 billion over 10 years
Monday, February 1, 2010
Saturday, January 30, 2010
Investing in China
Dear Cabot Wealth Advisory Reader,
Some of my readers are very good writers, and today I want to share one of
their letters with you.
"Timothy,
"I work in the offshore oil industry--my specialty is making the rigs
designed for ultra deep water work right. I work all over the planet, but
spend a lot of time in Korea and Singapore where we build them. We are
starting to build the big rigs in China, where construction will move over
the next decade.
"I travel business class, and frequently sit next to business people
headed to China.
"You are spot on. China is like a cage of tigers in the middle of a flock
of sheep, with one more bar to chew in half. They are going to EXPLODE
out of the cage.
"Here is what I am seeing.
"Ten years ago we had bare hulls built in China, then would tow the hulls
to the USA to outfit with machinery. On each of the hulls I saw, we had
$50,000 rework of bad welds. That's probably 10% of the rework we would
have to do if we built the hull in Finland or the USA.
"Today we are building more of the rig in China, and a few brave souls are
doing the whole thing. The Chinese haven't a clue how to build such a
complex machine, but they are HUNGRY, and I expect them to learn in two to
three years, not the 10 years required in Singapore and Korea.
"I flew to Shanghai with a former Electronics Arts guy who has a startup
computer games company in China. Short version, he is struggling to keep
up with sales growth, but not struggling to assemble talent. His biggest
worry is training his programmers to develop new media as fast as the
Chinese demand better games.
"In October 2009, my CEO told me I had to teach a course on ultra deep
water for 14 employees of CNOOC (I work for Transocean). Our goal is
convincing CNOOC to have us build some $900 million drill ships for them.
As I do nothing by halves, I contacted the guy who was coordinating the
Chinese employees and asked him to fill me in. His comments were that
they were junior staff, petroleum engineers, not very clever, over here to
see what we have and report back. I reviewed my teaching material and got
ready.
"Day one we introduced ourselves. I have lived and worked in Asia for 30
years, so I know a bit of the culture. And as Xie and Wu and Han and Du
walked in, the other 10 acted like eunuchs of the Imperial Court! The top
four sat across from me, slightly separate from the rest. Hmm. They
introduced themselves saying, "We are involved with drilling for CNOOC."
Hmm. When I did the introductions, I asked them to describe where they
had drilled. After hearing their answers, I switched tracks and taught at
my highest level.
"That night I spent four hours researching and found these guys had "grown
up" developing some of the toughest oil fields on earth. I made up some
nice looking certificates and brought them to class.
"Day two I started by showing the certificates and telling them I would
award achievement certificates if they passed my test, and that I needed
names and titles to put on the certificates. That's when I learned Xie
was President of CNOOC, the next two were Assistant Presidents, and the
fourth guy was head of drilling for the entire planet! The other 10 were
the cream of the younger management. Turned out I had 3 millionaires in
the class--in Chinese currency, but millionaires nonetheless. All 14 had
started out in dirt-floored huts. Subsequently, I became friends with
them, as I treated them with the respect they deserved, not as "don't know
anything, here to learn" rubes.
"They are taking this knowledge back to China and will launch their own
deep water drilling industry. They will argue with their government to
buy the first two rigs from us, but only two. The rest of the training we
are giving them has served to convince them that China isn't far behind
after all. They explained to me several things.
"1. They grew up in huts with dirt floors, 10 to a room. They now live
on Berber carpet, five to a room. Their grandchildren will live like we
do.
"2. They couldn't see the sky as children, today it's clear most of the
time, and their great-grandchildren WILL NOT breathe smog.
"3. Rivers that were green and yellow are crystal clear, though you can't
drink it, and fish don't survive, but their great-grandchildren WILL CATCH
TROUT in those streams.
"4. They are going to buy two rigs from us, then build 200.
"You are spot on, and I am looking east. As the US sinks further into
corruption, and Obama not only fails to correct Bushanomics, but also
layers another set of crooks on top, I think our economy is doomed to
become like the citizens of the matrix, quiescent and drained.
"China and Vietnam are rising and soon, Africa will follow. Africa is
another place I visit that is growing exponentially better by the hour,
but nobody notices because they are so far down that doubling performance
still leaves them near zero. However, look for Nigeria to turn the
corner, with Angola close behind. We are struggling to work in both
countries because the corrupt governments are increasingly coming under
pressure from the population, who are staring in through the gates and
wanting their chance.
Best Regards,
L.W."
To me, this letter is just one more piece of evidence to support the idea
of investing in China.
Yet many people remain afraid to invest in China.
Some say the stocks have come too far, that they're too high.
Some distrust the accounting of Chinese companies.
Some criticize the country's human rights record.
And some simply some fall back on the old refrain that it's wrong to deal
with communists, ignoring the fact that China has in fact evolved into
something far more effective at improving the lot of its citizens.
Whatever the reason, my message to you today--if you're not investing in
China--is to overcome your fear. Read the writing on the wall. China is
where the growth is, and China is where the growth is likely to be in the
years ahead.
I recognized at least some of this growth potential when I began
publishing Cabot China & Emerging Markets Report back in 2004, and I'm
happy to report that it's paid off very well for subscribers who've
followed our advice.
In fact, if you'd followed every recommendation of editor Paul Goodwin
over the past five years, your account would be up a hefty 164%! In the
same period, the S&P gained just 2.1% ... and that includes dividends!
Paul's performance was so good that Hulbert Financial Digest ranked his
newsletter the #1 performer over the past five years.
Some of the credit for this remarkable achievement goes to Paul; he's a
smart guy, and he's done a remarkable job of adapting the time-tested
Cabot growth investing system to Chinese stocks traded on American
exchanges as American Depositary Receipts.
But a lot of the credit goes to China, a juggernaut of economic growth
that shows no sign of slowing down.
Now, I'm not saying the road ahead is paved with diamonds. Doubtless
there will setbacks in China's growth, just as there were occasional dips
in the long rise of housing prices, and occasional bumps in the long fall
of interest rates. But I'm saying that the Chinese era is in its early
stages, and if you truly want your money to grow, you've got to have a
decent chunk in the best growth stocks of China.
So, if your goal is profits ...
If you're ready to apply the lessons of a time-tested investment strategy ...
If you're ready to invest in the leading stocks of China ...
And if you're ready to take advice from the leading expert in the field, I
invite you to join Paul Goodwin's grateful subscribers by taking a trial
subscription to Cabot China & Emerging Markets Report.
Give it a try today. With my money-back guarantee, you've got nothing to
lose and everything to gain!
http://cabotmail.net/t/864217/18273018/622/0/
Best wishes for all of your investments,
Timothy Lutts
Publisher
P.S. If you're afraid of investing in China, consider this. Many things
in life are scary until you try them ... like swimming, kissing girls and
eating sushi. But after, they become some of life's greatest pleasures.
So don't delay, try Cabot China & Emerging Markets Report today!
http://cabotmail.net/t/864217/18273018/622/0/
Some of my readers are very good writers, and today I want to share one of
their letters with you.
"Timothy,
"I work in the offshore oil industry--my specialty is making the rigs
designed for ultra deep water work right. I work all over the planet, but
spend a lot of time in Korea and Singapore where we build them. We are
starting to build the big rigs in China, where construction will move over
the next decade.
"I travel business class, and frequently sit next to business people
headed to China.
"You are spot on. China is like a cage of tigers in the middle of a flock
of sheep, with one more bar to chew in half. They are going to EXPLODE
out of the cage.
"Here is what I am seeing.
"Ten years ago we had bare hulls built in China, then would tow the hulls
to the USA to outfit with machinery. On each of the hulls I saw, we had
$50,000 rework of bad welds. That's probably 10% of the rework we would
have to do if we built the hull in Finland or the USA.
"Today we are building more of the rig in China, and a few brave souls are
doing the whole thing. The Chinese haven't a clue how to build such a
complex machine, but they are HUNGRY, and I expect them to learn in two to
three years, not the 10 years required in Singapore and Korea.
"I flew to Shanghai with a former Electronics Arts guy who has a startup
computer games company in China. Short version, he is struggling to keep
up with sales growth, but not struggling to assemble talent. His biggest
worry is training his programmers to develop new media as fast as the
Chinese demand better games.
"In October 2009, my CEO told me I had to teach a course on ultra deep
water for 14 employees of CNOOC (I work for Transocean). Our goal is
convincing CNOOC to have us build some $900 million drill ships for them.
As I do nothing by halves, I contacted the guy who was coordinating the
Chinese employees and asked him to fill me in. His comments were that
they were junior staff, petroleum engineers, not very clever, over here to
see what we have and report back. I reviewed my teaching material and got
ready.
"Day one we introduced ourselves. I have lived and worked in Asia for 30
years, so I know a bit of the culture. And as Xie and Wu and Han and Du
walked in, the other 10 acted like eunuchs of the Imperial Court! The top
four sat across from me, slightly separate from the rest. Hmm. They
introduced themselves saying, "We are involved with drilling for CNOOC."
Hmm. When I did the introductions, I asked them to describe where they
had drilled. After hearing their answers, I switched tracks and taught at
my highest level.
"That night I spent four hours researching and found these guys had "grown
up" developing some of the toughest oil fields on earth. I made up some
nice looking certificates and brought them to class.
"Day two I started by showing the certificates and telling them I would
award achievement certificates if they passed my test, and that I needed
names and titles to put on the certificates. That's when I learned Xie
was President of CNOOC, the next two were Assistant Presidents, and the
fourth guy was head of drilling for the entire planet! The other 10 were
the cream of the younger management. Turned out I had 3 millionaires in
the class--in Chinese currency, but millionaires nonetheless. All 14 had
started out in dirt-floored huts. Subsequently, I became friends with
them, as I treated them with the respect they deserved, not as "don't know
anything, here to learn" rubes.
"They are taking this knowledge back to China and will launch their own
deep water drilling industry. They will argue with their government to
buy the first two rigs from us, but only two. The rest of the training we
are giving them has served to convince them that China isn't far behind
after all. They explained to me several things.
"1. They grew up in huts with dirt floors, 10 to a room. They now live
on Berber carpet, five to a room. Their grandchildren will live like we
do.
"2. They couldn't see the sky as children, today it's clear most of the
time, and their great-grandchildren WILL NOT breathe smog.
"3. Rivers that were green and yellow are crystal clear, though you can't
drink it, and fish don't survive, but their great-grandchildren WILL CATCH
TROUT in those streams.
"4. They are going to buy two rigs from us, then build 200.
"You are spot on, and I am looking east. As the US sinks further into
corruption, and Obama not only fails to correct Bushanomics, but also
layers another set of crooks on top, I think our economy is doomed to
become like the citizens of the matrix, quiescent and drained.
"China and Vietnam are rising and soon, Africa will follow. Africa is
another place I visit that is growing exponentially better by the hour,
but nobody notices because they are so far down that doubling performance
still leaves them near zero. However, look for Nigeria to turn the
corner, with Angola close behind. We are struggling to work in both
countries because the corrupt governments are increasingly coming under
pressure from the population, who are staring in through the gates and
wanting their chance.
Best Regards,
L.W."
To me, this letter is just one more piece of evidence to support the idea
of investing in China.
Yet many people remain afraid to invest in China.
Some say the stocks have come too far, that they're too high.
Some distrust the accounting of Chinese companies.
Some criticize the country's human rights record.
And some simply some fall back on the old refrain that it's wrong to deal
with communists, ignoring the fact that China has in fact evolved into
something far more effective at improving the lot of its citizens.
Whatever the reason, my message to you today--if you're not investing in
China--is to overcome your fear. Read the writing on the wall. China is
where the growth is, and China is where the growth is likely to be in the
years ahead.
I recognized at least some of this growth potential when I began
publishing Cabot China & Emerging Markets Report back in 2004, and I'm
happy to report that it's paid off very well for subscribers who've
followed our advice.
In fact, if you'd followed every recommendation of editor Paul Goodwin
over the past five years, your account would be up a hefty 164%! In the
same period, the S&P gained just 2.1% ... and that includes dividends!
Paul's performance was so good that Hulbert Financial Digest ranked his
newsletter the #1 performer over the past five years.
Some of the credit for this remarkable achievement goes to Paul; he's a
smart guy, and he's done a remarkable job of adapting the time-tested
Cabot growth investing system to Chinese stocks traded on American
exchanges as American Depositary Receipts.
But a lot of the credit goes to China, a juggernaut of economic growth
that shows no sign of slowing down.
Now, I'm not saying the road ahead is paved with diamonds. Doubtless
there will setbacks in China's growth, just as there were occasional dips
in the long rise of housing prices, and occasional bumps in the long fall
of interest rates. But I'm saying that the Chinese era is in its early
stages, and if you truly want your money to grow, you've got to have a
decent chunk in the best growth stocks of China.
So, if your goal is profits ...
If you're ready to apply the lessons of a time-tested investment strategy ...
If you're ready to invest in the leading stocks of China ...
And if you're ready to take advice from the leading expert in the field, I
invite you to join Paul Goodwin's grateful subscribers by taking a trial
subscription to Cabot China & Emerging Markets Report.
Give it a try today. With my money-back guarantee, you've got nothing to
lose and everything to gain!
http://cabotmail.net/t/864217/18273018/622/0/
Best wishes for all of your investments,
Timothy Lutts
Publisher
P.S. If you're afraid of investing in China, consider this. Many things
in life are scary until you try them ... like swimming, kissing girls and
eating sushi. But after, they become some of life's greatest pleasures.
So don't delay, try Cabot China & Emerging Markets Report today!
http://cabotmail.net/t/864217/18273018/622/0/
Thursday, January 28, 2010
Finding micro cap stocks
Hi Tony - I tend to find ideas for stocks in a lot of different places and then do research from there. Typically, it might be something someone says on a conference call that makes me look for a competitor or supplier who might benefit or it could just be a macro thesis that I have and I then go and look for industries that would benefit. I also use various stock screeners like the one on Yahoo! and Bloomberg that allow me to filter by market cap and by other criteria such as having more assets than debt, limited goodwill positions, rising sales, positive earnings, etc.
Very rarely will I look at a stock that I feel like someone is trying to "sell" me. Whether that means a active message board, a broker or articles that seem like they are slanted or about hype. The best way to turn me off to an idea is to tell me that I need to buy now.
Since I'm typically seeking value, I prefer to find the idea on my own and then do research from there.
As far as the pink sheets go, I won't even consider a stock that trades on them. If a company isn't going to do regular filings, it's a deal killer for me. If one of the stocks I owned went to the pink sheets, I'd probably sell, but typically I go into these positions understanding that 100% loss is possible and will refuse to sell even when I'm down (with the exception of some tax loss situations) I do own one over the counter stock and while I've lost a bundle on that one, I feel more comfortable with it because it's in a highly regulated industry that would make it tough for management to commit fraud. Doesn't mean that the company can't go bankrupt, but I'd rather make a bad bet on actual business results then realize that I'm helping to fund an endless underwriting. In the past my other OTCBB investments have done very well, but you need to research their management about 20 times more than you would a small cap.
Very rarely will I look at a stock that I feel like someone is trying to "sell" me. Whether that means a active message board, a broker or articles that seem like they are slanted or about hype. The best way to turn me off to an idea is to tell me that I need to buy now.
Since I'm typically seeking value, I prefer to find the idea on my own and then do research from there.
As far as the pink sheets go, I won't even consider a stock that trades on them. If a company isn't going to do regular filings, it's a deal killer for me. If one of the stocks I owned went to the pink sheets, I'd probably sell, but typically I go into these positions understanding that 100% loss is possible and will refuse to sell even when I'm down (with the exception of some tax loss situations) I do own one over the counter stock and while I've lost a bundle on that one, I feel more comfortable with it because it's in a highly regulated industry that would make it tough for management to commit fraud. Doesn't mean that the company can't go bankrupt, but I'd rather make a bad bet on actual business results then realize that I'm helping to fund an endless underwriting. In the past my other OTCBB investments have done very well, but you need to research their management about 20 times more than you would a small cap.
10 reasons why US is down
I love my country - the chaos, the hurly burly of democracy, the hard work of quiet people on Main Street, and the great big heart, as shown by our private donations to Haiti at a time of near 20% unemployment and underemployment. We forgive wayward politicians, and athletes, let our children make more decisions than virtually any people on earth and unlike other nations, except Britain and its former colonies (I guess we are one), stand for something. A true city on a hill. But right now, the city itself is in political chaos - and a bit broke.
It is time to short the US - for a couple of years - until our crisis gets so severe Congress commits mass seppuku and replacements arrive who get something done. Perhaps Gandalf will come to us from Middle Earth and lead us to better times. I am betting on Gandalf. Yes, I am letting Obama off the hook - you always let rookies off the hook, don't you - and unless Congress changes dramatically, his rookie mistakes are going to become sophomore and junior year mistakes and the nation will suffer. I am long the US, long term - I am a Buffett kind of guy and laugh when I think of any truly long term problems in the US compared to other developed nations (more on that in a later column). But short term, well, here are ten reasons to short the US, metaphorically and in the market, in the next 1-3 years.
1. Economic Growth: We will see misleading - and therefore worse than meaningless - GDP numbers on Friday due to flawed data and inventory accumulation. In the real world, we are already entering a double dip recession and once this is over unemployment - real unemployment, which means those who have dropped off the work force, those looking for work and those looking for more than part time work - will continue near the 20% level for at least another two years.
2. Private Sector Debt: The Fortune 500 is borrowing - and no one else. Small business cannot get money, directly or via credit cards, and consumers continue to de-leverage. And they will do so for five to ten years - maybe more - as debt levels retreat to those of the early 1990s. De-leveraging drives reductions in consumer spending and asset values. Get used to it. And with this consumer discretionary stocks will stall or take a pounding, including retailers. Look at shorting the XRT.
3. Public Debt: Large and rapidly growing deficits and public debt at the federal and state level will eventually lead to a rise in interest rates and to the crowding out of other spending as government services debt. That will not happen for a while but will start near the end of this year or early in 2011. And please, don't blame the Dems; the party of fiscal rectitude, those red state guys, doubled the debt while they controlled the White House and Congress, financing a war off the balance sheet, led by a cheerleader in chief who told people to go shopping rather than tighten their belts after 9/11. Historically red staters spend more on their key constituents than the Dems, so if they grab power, nothing will change. Plenty of ETFs around to short T-Bills.
4. Housing: Ain't comin' back my friends. The bullishness and optimism on Wall Street about housing is surreal given all the data one needs to forecast housing values, mortgage defaults, foreclosures and new home starts is in the public domain or can be bought with some soft dollars not used for travel and entertainment (excuse me, that would be illegal!). You can find the data somewhere else - or read some older columns - but housing prices are going to fall for another couple of years (nationally) as foreclosures hit 6-7 million in the next 30 months and as the 600,00-800,000 homes foreclosed but not yet listed are added to housing inventory. Not to mention more than one third of Americans would sell their homes tomorrow if the price were right. Add tightened credit standards, no market for jumbo mortgages anywhere in sight, the end of the home buyer tax credit in April, and the slowing down of Fed purchases of agency debt in April. This constitutes a witches' brew that creates headwinds that will last until foreclosures peak and those homes hit the market - late 2011 to mid 2012, and foreclosures will not hit historical norms until a year or two after that date. Avoid or short the homebuilders via an ETF -- the XHB - or an individual company with a weak balance sheet.
5. Consumer Spending: The New Normal is not going to be normal as reduced national income due to unemployment, reduced consumer spending power due to tightened credit, reduced wealth due to falling home and stock market values and reduced confidence due to all of the above create a new culture of a "new Frugal." We have never been good at being a frugal nation, but have been frugal in spurts and we are already seeing the beginnings of one. It would take a thousand words or more plus data to prove the point so just go to the mall and ask people questions (I do), or look at your own spending. What to short? Weak retailers and restaurants, either in overcrowded segments (Saks SKS) or weak balance sheets (Macy's M).
6. The Banks: Banks are the kink between financial markets and the Main Street economy. They are also the lubricant - when they are lending - of a growing economy. US banks, using time honored but now discarded accounting standards, are, as a group, insolvent. They are hoarding cash because deep in the recesses of little offices, they know they are insolvent if they had to dump toxic assets on the market. They are also looking at reduced activity due to the economy and new taxes and regulations, and therefore lower profits. When interest rates rise - Federal Reserve interest rates - their spreads will contract, also hitting profits. Consumer delinquencies continue to be at historical highs yet this past earnings season the banks managed their earnings and actually reduced their loan loss provisions. And did I mention the rapid rise in defaults in commercial real estate? And Obama is not done with them. What to short? The big money center banks, not the investment banks, and check out some regionals with huge exposure to commercial real estate.
7. Congress: You could probably short Congress - metaphorically - for a century and never lose money. To steal a line from the movie Charlie Wilson's War (very true to the book by the way), "Why does Congress say one thing and do another?" He is asked and he answers "Tradition, I guess." But even by the low standards Congress sets - and should set, we are a democracy which means they are supposed to react to bad and good news, not create it - this Congress is laughable. Polarization between left and right when all the country wants is some practical intelligence residing in the political middle has frozen the indecisive (most of them) and the cowardly (those up for re-election this year). If you want to read a great piece by an acquaintance, Steve Pearlstein, Pulitzer Prize winning columnist for the Washington Post, check out his column Wednesday on the State of the Union address he would deliver. What to short? Nothing, really. It's just damned depressing.
8. Obama: He has done a fair job for a rookie given the pile he was handed - two wars with no end game or plan, a federal deficit and dent, a broken economy, broken financial markets and so on. His mistake? He believed his own campaign promises and some lousy advice from his economic advisors and made the economy a secondary priority after passing a filled stimulus bill that so far has cost us $200,00--$400,000 for every job supposedly saved or created. But he has failed to lead, and will probably do so again. His instinct is to organize and drive, not pull, and we need someone pulling the train right now. What to short? Again, nothing. Or everything.
9. The Market: The market is wildly overvalued given the trajectory of the economy. Profits cannot hold up throughout the year, and are being driven by traders. The trade of the day continues to be dollar/commodities/China but more and more individual stocks are being rewarded or whacked based on fundamentals, a good thing for stock pickers but bad for the vast majority of money managers who know little more than the movement of the indices. What to short? Companies with weak balance sheets; the leaders in this market that will lead the market down, the banks; and over a two year period, the market itself.
10. The Doubters: Long term, the US is in far better shape than almost all developed nations except for some of the small British colonies with commodities and reasonable public policy - Canada, Australia, New Zealand. Our population is growing faster than any OECD country; our debt is not half as bad as Japan or some European nations; our higher education system is several orders of magnitude better than all but Britain and its former colonies (trust me, I have twins going off to college this September, have visited 17 and counting); and we have an economic system and culture that lends itself to growth, not stasis. What to short? Short the doubters - go long the companies that do what the good old US of A does best - go long biotech, go long selective chip stocks, go long the great brands and innovators, i.e. Apple (AAPL).
After the State of the Union address, the blow dried pundits (or the corpulent ones with no real hair) will be screaming at us. Ignore them. Ignore people who doubt our long term future - craven fear mongers like Jim Rogers, who so admires the Chinese for all the honesty, transparency and dignity they show their own people; ratings hawkers like Glenn Beck; xenophobes like Lou Dobbs; cartoon-like ideologues ranging from Robert Reich and Paul Krugman to Rush Limbaugh - ignore them all. The ten and fifteen year plan will work. How? Turn to another movie - Shakespeare in Love - for when crisis seems to overwhelm everything and the producer of the play is confronted with disaster and asked how things will work out, he answers "I don't know, it's a mystery."
It is time to short the US - for a couple of years - until our crisis gets so severe Congress commits mass seppuku and replacements arrive who get something done. Perhaps Gandalf will come to us from Middle Earth and lead us to better times. I am betting on Gandalf. Yes, I am letting Obama off the hook - you always let rookies off the hook, don't you - and unless Congress changes dramatically, his rookie mistakes are going to become sophomore and junior year mistakes and the nation will suffer. I am long the US, long term - I am a Buffett kind of guy and laugh when I think of any truly long term problems in the US compared to other developed nations (more on that in a later column). But short term, well, here are ten reasons to short the US, metaphorically and in the market, in the next 1-3 years.
1. Economic Growth: We will see misleading - and therefore worse than meaningless - GDP numbers on Friday due to flawed data and inventory accumulation. In the real world, we are already entering a double dip recession and once this is over unemployment - real unemployment, which means those who have dropped off the work force, those looking for work and those looking for more than part time work - will continue near the 20% level for at least another two years.
2. Private Sector Debt: The Fortune 500 is borrowing - and no one else. Small business cannot get money, directly or via credit cards, and consumers continue to de-leverage. And they will do so for five to ten years - maybe more - as debt levels retreat to those of the early 1990s. De-leveraging drives reductions in consumer spending and asset values. Get used to it. And with this consumer discretionary stocks will stall or take a pounding, including retailers. Look at shorting the XRT.
3. Public Debt: Large and rapidly growing deficits and public debt at the federal and state level will eventually lead to a rise in interest rates and to the crowding out of other spending as government services debt. That will not happen for a while but will start near the end of this year or early in 2011. And please, don't blame the Dems; the party of fiscal rectitude, those red state guys, doubled the debt while they controlled the White House and Congress, financing a war off the balance sheet, led by a cheerleader in chief who told people to go shopping rather than tighten their belts after 9/11. Historically red staters spend more on their key constituents than the Dems, so if they grab power, nothing will change. Plenty of ETFs around to short T-Bills.
4. Housing: Ain't comin' back my friends. The bullishness and optimism on Wall Street about housing is surreal given all the data one needs to forecast housing values, mortgage defaults, foreclosures and new home starts is in the public domain or can be bought with some soft dollars not used for travel and entertainment (excuse me, that would be illegal!). You can find the data somewhere else - or read some older columns - but housing prices are going to fall for another couple of years (nationally) as foreclosures hit 6-7 million in the next 30 months and as the 600,00-800,000 homes foreclosed but not yet listed are added to housing inventory. Not to mention more than one third of Americans would sell their homes tomorrow if the price were right. Add tightened credit standards, no market for jumbo mortgages anywhere in sight, the end of the home buyer tax credit in April, and the slowing down of Fed purchases of agency debt in April. This constitutes a witches' brew that creates headwinds that will last until foreclosures peak and those homes hit the market - late 2011 to mid 2012, and foreclosures will not hit historical norms until a year or two after that date. Avoid or short the homebuilders via an ETF -- the XHB - or an individual company with a weak balance sheet.
5. Consumer Spending: The New Normal is not going to be normal as reduced national income due to unemployment, reduced consumer spending power due to tightened credit, reduced wealth due to falling home and stock market values and reduced confidence due to all of the above create a new culture of a "new Frugal." We have never been good at being a frugal nation, but have been frugal in spurts and we are already seeing the beginnings of one. It would take a thousand words or more plus data to prove the point so just go to the mall and ask people questions (I do), or look at your own spending. What to short? Weak retailers and restaurants, either in overcrowded segments (Saks SKS) or weak balance sheets (Macy's M).
6. The Banks: Banks are the kink between financial markets and the Main Street economy. They are also the lubricant - when they are lending - of a growing economy. US banks, using time honored but now discarded accounting standards, are, as a group, insolvent. They are hoarding cash because deep in the recesses of little offices, they know they are insolvent if they had to dump toxic assets on the market. They are also looking at reduced activity due to the economy and new taxes and regulations, and therefore lower profits. When interest rates rise - Federal Reserve interest rates - their spreads will contract, also hitting profits. Consumer delinquencies continue to be at historical highs yet this past earnings season the banks managed their earnings and actually reduced their loan loss provisions. And did I mention the rapid rise in defaults in commercial real estate? And Obama is not done with them. What to short? The big money center banks, not the investment banks, and check out some regionals with huge exposure to commercial real estate.
7. Congress: You could probably short Congress - metaphorically - for a century and never lose money. To steal a line from the movie Charlie Wilson's War (very true to the book by the way), "Why does Congress say one thing and do another?" He is asked and he answers "Tradition, I guess." But even by the low standards Congress sets - and should set, we are a democracy which means they are supposed to react to bad and good news, not create it - this Congress is laughable. Polarization between left and right when all the country wants is some practical intelligence residing in the political middle has frozen the indecisive (most of them) and the cowardly (those up for re-election this year). If you want to read a great piece by an acquaintance, Steve Pearlstein, Pulitzer Prize winning columnist for the Washington Post, check out his column Wednesday on the State of the Union address he would deliver. What to short? Nothing, really. It's just damned depressing.
8. Obama: He has done a fair job for a rookie given the pile he was handed - two wars with no end game or plan, a federal deficit and dent, a broken economy, broken financial markets and so on. His mistake? He believed his own campaign promises and some lousy advice from his economic advisors and made the economy a secondary priority after passing a filled stimulus bill that so far has cost us $200,00--$400,000 for every job supposedly saved or created. But he has failed to lead, and will probably do so again. His instinct is to organize and drive, not pull, and we need someone pulling the train right now. What to short? Again, nothing. Or everything.
9. The Market: The market is wildly overvalued given the trajectory of the economy. Profits cannot hold up throughout the year, and are being driven by traders. The trade of the day continues to be dollar/commodities/China but more and more individual stocks are being rewarded or whacked based on fundamentals, a good thing for stock pickers but bad for the vast majority of money managers who know little more than the movement of the indices. What to short? Companies with weak balance sheets; the leaders in this market that will lead the market down, the banks; and over a two year period, the market itself.
10. The Doubters: Long term, the US is in far better shape than almost all developed nations except for some of the small British colonies with commodities and reasonable public policy - Canada, Australia, New Zealand. Our population is growing faster than any OECD country; our debt is not half as bad as Japan or some European nations; our higher education system is several orders of magnitude better than all but Britain and its former colonies (trust me, I have twins going off to college this September, have visited 17 and counting); and we have an economic system and culture that lends itself to growth, not stasis. What to short? Short the doubters - go long the companies that do what the good old US of A does best - go long biotech, go long selective chip stocks, go long the great brands and innovators, i.e. Apple (AAPL).
After the State of the Union address, the blow dried pundits (or the corpulent ones with no real hair) will be screaming at us. Ignore them. Ignore people who doubt our long term future - craven fear mongers like Jim Rogers, who so admires the Chinese for all the honesty, transparency and dignity they show their own people; ratings hawkers like Glenn Beck; xenophobes like Lou Dobbs; cartoon-like ideologues ranging from Robert Reich and Paul Krugman to Rush Limbaugh - ignore them all. The ten and fifteen year plan will work. How? Turn to another movie - Shakespeare in Love - for when crisis seems to overwhelm everything and the producer of the play is confronted with disaster and asked how things will work out, he answers "I don't know, it's a mystery."
Wednesday, January 20, 2010
Market timer guru
The following confirming market uptrend was written by a market guru yesterday and today the market is plunging. What we learn are:
* Even the best guru could not predict the market direction esp. short-term.
* There is no perfect market timing.
* However, the author has a good opinion on the sectors.
* I did OK if the market still slides in next few days. Yesterday I thought my market timing on down trend was dead wrong. So, never be too emotionally attached. Guessing right 51% of the time could beat S&P by a good margin.
----------
The DJIA, S&P 500, NASDAQ Composite, and the NYSE Cumulative Daily Advance-Decline Line all rose to new 15-month highs, thereby confirming a broad-based, major uptrend for the general market. All 3 indexes remain well above 50- and 200-day simple moving averages, which are rising bullishly.
Not all stocks are so strong. So, stock selection remains critical.
Health Care Stock Sector Relative Strength Ratio (XLV/SPY) rose above 6-month highs on 1/19/10. XLV/SPY remains above its rising 50- and 200-day simple moving averages. Absolute price of XLV closed above its highs of the previous 15 months on 1/19/10. Support 32.03, 31.61, 31.07 and 30.88. Resistance 33.08, 33.37 and 33.74.
Growth Stock/Value Stock Relative Strength Ratio (IWF/IWD) rose above 7-day highs on 1/19/10 and rose above its 200-day simple moving averages on 1/12/10. Absolute price of IWF rose above 15-month highs on 1/19/10.
Russell 1000 Value ETF Relative Strength Ratio (IWD/SPY) fell below its 200-day simple moving average on 1/19/10. IWD/SPY has been in a downtrend since 9/18/09.
The Small Cap/Large Cap Relative Strength Ratio (IWM/SPY) rose above 2-week highs on 1/19/10. IWM/SPY remains above both its 50- and 200-day simple moving averages.
Crude Oil nearest futures contract price fell below 3-week lows on 1/19/10 but reversed to close higher on the day. Such a one-day reversal may or may not end Oil’s short-term price pullback.
Silver/Gold Ratio rose further above rising 50- and 200-day simple moving averages on 1/19/10, suggesting rising confidence in the world economy.
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Spotlight on event stocks: Here is a stock screen I designed to pick out potential event stocks, both Bullish and Bearish. Sometimes, stocks with large changes in price and volume are revealed to be deal stocks, sooner or later, or are the subject of some other extraordinary events, positive or negative.
Bullish Stocks: Rising Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
11.01% , CIEN.O , CIENA
8.10% , WMB , WILLIAMS
7.04% , EP , EL PASO
1.71% , SWH , Software H, SWH
7.07% , HUM , HUMANA
1.50% , PWO , OTC Dynamic PS, PWO
4.44% , LLY , ELI LILLY
4.88% , PH , PARKER HANNIFIN
1.73% , TYC , TYCO INTL
1.24% , ELG , Growth Large Cap, ELG
1.46% , DSG , Growth Small Cap DJ, DSG
2.18% , RZV , Value SmallCap S&P 600, RZV
1.31% , DGT , Global Titans, DGT
4.00% , LBTYA , Liberty Global Inc. (LBTYA)
5.61% , GRMN , GARMIN LTD
3.96% , MET , METLIFE
1.98% , IYH , Healthcare DJ, IYH
2.25% , RYAAY , Ryanair Holdings plc
1.76% , PWY , Value SmallCap Dynamic PS, PWY
2.85% , CEPH , Cephalon Inc
1.15% , JKD , LargeCap Blend Core iS M, JKD
1.08% , NY , Value LargeCap NYSE 100 iS, NY
1.95% , NWL , NEWELL RUBBER
2.93% , CI , CIGNA
1.83% , PWP , Value MidCap Dynamic PS, PWP
2.27% , WPI , WATSON PHARM
3.03% , HSY , HERSHEY FOODS
1.21% , ISI , LargeCap Blend S&P 1500 iS, ISI
1.14% , PRF , Value LargeCap Fundamental RAFI 1000, PRF
0.84% , PBJ , Food & Beverage, PBJ
5.23% , ZION , ZIONS
1.89% , PZI , Micro Cap Zachs, PZI
2.14% , PBE , Biotech & Genome, PBE
1.51% , UTH , Utilities H, UTH
1.89% , PIC , Insurance, PIC
2.56% , SEE , SEALED AIR
2.42% , XLV , Health Care SPDR, XLV
1.89% , IYM , Basic Materials DJ US, IYM
1.45% , PMR , Retail, PMR
1.41% , IGE , Natural Resource iS GS, IGE
Bearish Stocks: Falling Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
-2.27% , FAST , Fastenal Company
-2.35% , HMA , HEALTH MGMT STK A
-3.46% , THC , TENET HEALTHCARE
-2.05% , FHN , FIRST TENNESSEE
-2.17% , FRE , FREDDIE MAC
-1.33% , TAP , ADOLPH COORS STK B, TAP
-2.15% , DXD , Short 200% Dow 30 PS, DXD
-0.75% , CECO , CAREER EDUCATION CORP
-1.55% , CVG , CONVERGYS
-0.47% , PGF , Financial Preferred, PGF
-0.26% , LTD , LIMITED BRANDS
-0.30% , SIRI , Sirius Satellite
-1.40% , LVLT , LEVEL 3 COMMUNICATIONS
-0.33% , RDC , ROWAN COMPANIES
-0.53% , USB , US BANCORP
-0.21% , BAX , BAXTER INTL
-0.19% , ITF , Japan LargeCap Blend TOPIX 150, ITF
-0.16% , AGG , Bond, Aggregate, AGG
-0.89% , NIHD , NII Holdings, Inc.
-0.78% , PAYX , PAYCHEX
-0.61% , PMCS , PMC SIERRA
-0.08% , TIP , Bond, TIPS, TIP
-0.09% , PHM , PULTE HOMES
-0.28% , BA , BOEING
-0.20% , MO , ALTRIA, MO
-1.33% , ABK , AMBAC FINL GRP
-0.06% , AA , ALCOA
9 major U.S. stock sectors ranked in order of long-term relative strength:
Health Care (XLV) Neutral, Market Weight. The Relative Strength Ratio (XLV/SPY) rose above 6-month highs on 1/19/10. XLV/SPY remains above its rising 50- and 200-day simple moving averages. Absolute price of XLV closed above its highs of the previous 15 months on 1/19/10. Support 32.03, 31.61, 31.07 and 30.88. Resistance 33.08, 33.37 and 33.74.
Consumer Discretionary (XLY) Bullish, Overweight. The Relative Strength Ratio (XLY/SPY) fell below the lows of the previous 5 weeks on 1/12/10, but it has stabilized since then, although it remains slightly below its 50- day simple moving average. More significantly, XLY/SPY rose above its highs of the previous 32-months on 12/23/09, confirming its preexisting major uptrend. XLY/SPY remains above its rising 200-day simple moving average. Absolute price of XLY moved above its highs of the previous 15 months on 1/7/10. Support 29.77, 29.22, and 28.73. Resistance 30.54, 31.95 and 33.76.
Technology (XLK) Bullish, Overweight. The Relative Strength Ratio (XLK/SPY) fell further below the lows of the previous 6 weeks on 1/15/10, confirming a short-term pullback. This after rising above its highs of the previous 7-years on 12/31/09. XLK/SPY fell below its rising 50- day simple moving average on 1/11/10 but remains above its rising 200-day simple moving average. Absolute price of XLK fell to its lowest level in 3 weeks on 1/1/10. Support 22.46, 22.36 and 22.06. Resistance 23.15, 23.30, 23.48 and 23.83.
Materials (XLB) Bullish, Overweight. The Relative Strength Ratio (XLB/SPY) ) fell below the lows of the previous 8 days on 1/14/10, confirming a short-term pullback. More significantly, XLB/SPY broke out above 15-month highs on 1/6/10. XLB/SPY remains above its 50- and 200-day simple moving averages, which are rising bullishly. Absolute price of XLB rose above 15-month highs on 1/8/10. Support 33.63, 32.99 and 31.67. Resistance 34.52, 35.38, 35.55, 37.10, and 37.56.
Industrial (XLI) Neutral, Market Weight. The Relative Strength Ratio (XLI/SPY) rose above its highs of the previous 11-months on 1/12/10. Despite a modest pullback, XLI/SPY remains above rising 50-day and 200-day simple moving averages. Absolute price of XLI moved above its highs of the previous 15 months on 1/11/10. Support 28.56, 27.67 and 27.46. Resistance 29.61. 30.56 and 32.00.
Energy (XLE) Neutral, Market Weight. The Relative Strength Ratio (XLE/SPY) has been in a choppy sideways range for the past 15 months. XLE/SPY hovering near its 50- and 200-day simple moving averages. Absolute price of XLE briefly traded above 15-month highs on 1/11/10 but quickly pulled back into a trading range. Support 58.25, 56.98, and 55.88. Resistance 60.87 and 62.73.
Consumer Staples (XLP) Neutral, Market Weight. The Relative Strength Ratio (XLP/SPY) eased moderately below its lows of the previous 15 months on 1/8/10. XLP/SPY is below its falling 50- and 200-day simple moving averages. Absolute price of XLP has been correcting and consolidating gains since making a 14-month high on 12/4/09. Support 26.38, 25.96 and 25.77. Resistance 27.04, 27.18 and 29.29.
Financial (XLF) Bearish, Underweight. The Relative Strength Ratio (XLF/SPY) has been in a downward correction since 10/14/09. XLF/SPY crossed below its 50-day simple moving average on 1/15/10 and is now below both 50- and 200-day simple moving averages. Absolute price of XLF has been in a correction/consolidation phase since 10/14/09. Support 14.59, 14.30 and 14.01. Resistance 15.40 and15.76.
Utilities (XLU) Neutral, Market Weight. The Relative Strength Ratio (XLU/SPY) may be attempting to stabilize since probing 2-year lows on 11/18/09. XLU/SPY remains moderately below its 50- and 200-day simple moving averages. Absolute price of XLU has been in a correction since 12/14/09. Support 30.52, 30.28 and 30.19. Resistance 31.64 and 32.08.
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Emerging Markets Stocks ETF (EEM) Relative Strength Ratio (EEM/SPY) and absolute price both fell below 9-day lows on 1/15/10 to confirm a short-term pullback. Both remain above rising 200-day simple moving averages, indicating bullish trends for the intermediate term.
Foreign Stocks ETF (EFA) Relative Strength Ratio (EFA/SPY) fell below 50- and 200-day simple moving averages on 1/14/10. EFA absolute price rose to a 15-month high on 1/14/10--but still EFA has underperformed the SPY since 9/9/09.
NASDAQ Composite/S&P 500 Relative Strength Ratio rose above its highs of the previous 8-years on 1/4/10 and remains above its rising 50- and 200-day simple moving averages. Absolute price moved above its highs of the previous 15 months on 1/19/10.
Growth Stock/Value Stock Relative Strength Ratio (IWF/IWD) rose above 7-day highs on 1/19/10 and rose above its 200-day simple moving averages on 1/12/10. Absolute price of IWF rose above 15-month highs on 1/19/10.
Russell 1000 Value ETF Relative Strength Ratio (IWD/SPY) fell below its 200-day simple moving average on 1/19/10. IWD/SPY has been in a downtrend since 9/18/09.
The S&P 500 Equally Weighted ETF Relative Strength Ratio (RSP/SPY) rose further above previous 6-year highs on 1/8/10. RSP/SPY remains above its rising 50- and 200-day simple moving averages. Absolute price of RSP rose to a new 15-month closing price high on 1/8/10.
The Largest Cap S&P 100/S&P 500 Relative Strength Ratio (OEX/SPX) fell further below the lows of the previous 3 months on 12/22/09. OEX/SPX remains below its falling 50- and 200-day simple moving averages.
The Small Cap/Large Cap Relative Strength Ratio (IWM/SPY) rose above 2-week highs on 1/19/10. IWM/SPY remains above both its 50- and 200-day simple moving averages. Absolute price of IWM rose above 15-month highs on 1/8/10.
The Mid Cap/Large Cap Relative Strength Ratio (MDY/SPY) rose above the highs of the previous 8 weeks on 12/23/09 and has been going sideways since. MDY/SPY remains above its 50- and 200-day simple moving averages. Absolute price of MDY rose above 15-month highs on 1/8/10.
Crude Oil nearest futures contract price fell below 3-week lows on 1/19/10 but reversed to close higher on the day. Such a one-day reversal may or may not end Oil’s short-term price pullback. In any event, Oil remains above both rising 50- and 200-day simple moving averages, which normally is positive for the intermediate term. Support 76.76, 75.65 and 72.72. Resistance 80.36, 83.95, 85.82 and 98.65.
CRB Index absolute price closed above its highs of the previous 14 months on 1/6/10 but has been in a moderate correction since.
Gold nearest futures contract price rose above the highs of the previous 5-weeks on 1/11/10. The short-term trend still appears bullish. Gold remains above its 50-day and 200-day simple moving averages. Support 1118.5, 1115.5 and 1086.6. Resistance 1163.0, 1170.2, 1196.8 and 1226.4.
Gold Mining Stocks ETF (GDX) Relative Strength Ratio (relative to the Gold bullion ETF, GDX/GLD) fell below both 50- and 200-day simple moving averages on 1/15/10. The mining stocks have underperformed bullion since 9/17/09.
Silver/Gold Ratio rose further above rising 50- and 200-day simple moving averages on 1/19/10, suggesting rising confidence in the world economy.
Copper nearest futures contract price closed above 3-day highs on 1/19/10. Copper has been consolidating gains, short term, since making a 15-month highs on 1/7/10. Copper remains in a long-term major bullish trend. Rising copper prices suggest growing confidence about global economic prospects. Support 3.264 and 3.09. Resistance 3.544, 3.5625, 3.5625, and 3.79.
U.S. Treasury Bond nearest futures contract price consolidated short-term gains after rising above the highs of the previous 3 weeks on 1/15/10. That was a bullish signal for the short term. The problem is that the Bond fell below 6-month lows on 12/31/09, which confirmed its preexisting downtrend for the intermediate term. The Bond remains below its 50- and 200-day simple moving averages, which is bearish. Support 115.24, 114.16, 113.04 and 112.15. Resistance 119.08 and 120.08.
Junk/Investment-Grade Corporate Bonds Relative Strength Ratio (JNK/LQD) and absolute price both rose above the highs of the previous 15 months on 1/8/10, and both remain above rising 50- and 200-day simple moving averages. They have been consolidating gains mildly since1/8/10.
U.S. Treasury Inflation Protected / U.S. Treasury 7-10 Year Relative Strength Ratio (TIP/IEF) rose to another new 15-month high on 1/7/10, again confirming a bullish long-term trend. TIP/IEF remains above rising 50- and 200-day simple moving averages. Bond investors may be growing increasingly concerned about the inflation outlook, despite assurances of tame inflation by economists.
The U.S. dollar nearest futures contract price moved above 5-day highs on 1/19/10, after falling below the lows of the previous 4 weeks on 1/13/10. The short-term trend appears uncertain. USD has been holding above its rising 50-day simple moving average but is still below its falling 200-day simple moving average (since last May). Support 76.74 and 75.90. Resistance 78.44, 78.77 and 79.00.
The Art of Contrary Thinking: The various surveys of investor sentiment are best considered as background factors. The majority of investors can be right for a long time before a major trend finally changes course. The Art of Contrary Thinking is best used together with more precise market timing tools.
Advisory Service Sentiment: There were 53.4% Bulls versus 15.9% Bears as of 1/13/10, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear ratio was 3.36, up from 2.86 the previous week. This is the highest ratio of bullish sentiment in 6 years. The 20-year range of the ratio is 0.41 to 3.74, the median is 1.50, and the mean is 1.57.
VIX Fear Index collapsed to 17.55 on 1/11/10, its lowest level in 26 months, indicating falling levels of fear and growing confidence in the stock market. VIX is down from a closing high of 80.86 set on 11/20/08. VIX is a market estimate of expected constant 30-day volatility, calculated by weighting S&P 500 Index CBOE option bid/ask quotes spanning a wide range of strike prices for the two nearest expiration dates.
VXN Fear Index collapsed to 18.47 on 1/11/10, its lowest level in 26 months. VXN is down from a closing high of 80.64 set on 11/20/08. VXN measures NASDAQ Volatility using a method comparable to that used for VIX.
ISEE Call/Put Ratio rose to 1.68 on 1/11/10, a level indicating above-normal optimism. The ratio’s 6-year mean is 1.41, its median is 1.36, and its range is 0.51 to 3.16.
CBOE Put/Call Ratio fell to 0.49 on 1/8/10, a level indicating above-normal optimism. The ratio’s 6-year mean is 0.66, its median is 0.64, and its range is 0.35 to 1.35.
The Dow Theory last confirmed a Bullish Major Trend on 1/11/10, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed above their closing price highs of the previous 14 months. The Dow Theory signaled the current Primary Tide Bull Market on 7/23/09, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed above their closing price highs of the previous 6 months. That 7/23/09 signal reversed the previous signal: the two Averages signaled a Primary Tide Bear Market on 11/21/07, when both Averages closed below their closing price lows of August 2007.
S&P 500 Composite (SPX) rose above the highs of the previous 15 months on 1/19/10, confirming its preexisting Bullish Major Trend. SPX remains well above its rising 50- and 200-day simple moving averages. Support 1,130.38, 1,114.81 and 1,103.74. Resistance 1,158.76 and 1,220.03.
S&P 500 Cash Index Potential Resistance
1,576.09, high of 10/11/2007
1,552.76, high of 10/31/2007
1,523.57, high of 12/11/2007
1,498.85, high of 12/26/2007
1,440.24, high of 5/19/2008
1,406.32, high of 5/29/2008
1,381.50, Fibonacci 78.6% of 2007-2009 range
1,366.59, high of 6/17/2008
1,335.63, high of 6/25/2008
1,313.15, high of 8/11/2008
1,274.42, high of 9/8/2008
1,255.09, high of 9/12/2008
1,238.81, Fibonacci 78.6% of 1,576.09 high
1,228.74, Fibonacci 61.8% of 2007-2009 range
1,220.03, high of 9/25/2008
1,158.76, EW ABC measured move target
S&P 500 Cash Index Potential Support
1,130.38, high of 12/29/2009
1,114.81, low of 12/31/2009
1,103.74, high of 12/18/2009
1,093.88, low of 12/18/2009
1,083.74, low of 11/27/2009
1,066.83, high of 10/29/2009
1,029.38, low of 11/2/2009
1,019.85, low of 10/2/2009
1,014.14, Fibonacci 38.2% of 2007-2009 drop
1,007.78, Gann 37.5% of 2007-2009 range
998.80, Fibonacci 23.6% Retrace of 2009 range
991.97, low of 9/2/2009
992.72, Gann 25% Retrace of 2009 range
978.51, low of 8/17/2009
956.50, Dow 33.3% Retrace of 2009 range
956.23, high of 6/11/2009
935.35, Fibonacci 38.2% Retrace of 2009 range
930.17, high of 5/8/2009
884.08, Fibonacci 50% of 2009 range
869.32, low of 7/8/2009
826.83, low of 4/21/2009
832.80, Fibonacci 61.8% Retrace of 2009 range
814.53, low of 4/7/2009
813.62, high of 4/1/2009
779.81, low of 3/30/2009
775.43, Gann 75% Retrace of 2009 range
759.79, Fibonacci 78.6% Retrace of 2009 range
721.11, Gann 87.5% Retrace of 2009 range
666.79, intraday low of 3/6/2009
602.07, Fibonacci 38.2% of 1,576.09 high
One-Day Ranking of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol
3.18% China 25 iS, FXI
3.14% Ultra QQQ Double, QLD
2.53% SmallCap PS Zacks, PZJ
2.47% Ultra S&P500 Double, SSO
2.46% Ultra MidCap400 Double, MVV
2.42% Health Care SPDR, XLV
2.31% Microcap Russell, IWC
2.27% Biotech SPDR, XBI
2.22% Realty Cohen & Steers, ICF
2.22% Silver Trust iS, SLV
2.18% Value SmallCap S&P 600, RZV
2.17% REIT Wilshire, RWR
2.16% Pharmaceutical H, PPH
2.14% Biotech & Genome, PBE
2.14% Ultra Dow30 Double, DDM
2.09% India Earnings WTree, EPI
2.08% European VIPERs, VGK
2.06% South Korea Index, EWY
2.04% REIT VIPERs, VNQ
2.03% Health Care VIPERs, VHT
2.03% Emerging Markets, EEM
1.99% Pharmaceuticals, PJP
1.99% Real Estate US DJ, IYR
1.98% Healthcare DJ, IYH
1.94% Value LargeCap Euro STOXX 50 DJ, FEU
1.94% Healthcare Global, IXJ
1.93% Metals & Mining SPDR, XME
1.93% Biotech H, BBH
1.93% Internet Architecture H, IAH
1.91% Value SmallCap Russell 2000, IWN
1.90% Singapore Index, EWS
1.89% Insurance, PIC
1.89% Micro Cap Zachs, PZI
1.89% Basic Materials DJ US, IYM
1.84% SmallCap Russell 2000, IWM
1.83% Value MidCap Dynamic PS, PWP
1.81% LargeCap Blend Dynamic PS, PWC
1.76% Value SmallCap Dynamic PS, PWY
1.75% SmallCap S&P 600, IJR
1.75% Latin Am 40, ILF
1.73% Emerging VIPERs, VWO
1.72% Technology SPDR, XLK
1.71% Software H, SWH
1.71% Materials VIPERs, VAW
1.68% Growth SmallCap VIPERs, VBK
1.68% Value MidCap Russell, IWS
1.66% Growth BARRA Small Cap 600, IJT
1.64% Value 40 Large Low P/E FT DB, FDV
1.63% Value SmallCap S&P 600 B, IJS
1.62% Small Cap VIPERs, VB
1.61% Growth LargeCap NASDAQ 100, QQQQ
1.61% Dividend Leaders, FDL
1.60% Materials SPDR, XLB
1.60% Mexico Index, EWW
1.59% Growth SmallCap R 2000, IWO
1.56% Value SmallCap VIPERS, VBR
1.55% Growth SmallCap Dynamic PS, PWT
1.53% Value LargeCap Dynamic PS, PWV
1.53% Value Small Cap DJ, DSV
1.52% Technology DJ US, IYW
1.51% Value Line Timeliness MidCap Gr, PIV
1.51% Utilities H, UTH
1.50% OTC Dynamic PS, PWO
1.49% Growth SmallCap iS M, JKK
1.48% Australia Index, EWA
1.47% Homebuilders SPDR, XHB
1.47% Brazil Index, EWZ
1.46% Growth Small Cap DJ, DSG
1.45% Retail, PMR
1.45% Value SmallCap iS M, JKL
1.45% Semiconductor H, SMH
1.44% SmallCap Core iS M, JKJ
1.44% United Kingdom Index, EWU
1.43% Technology GS, IGM
1.41% Networking, IGN
1.41% LargeCap Blend Russell 3000, IWV
1.41% Natural Resource iS GS, IGE
1.41% LargeCap Blend S&P=Weight R, RSP
1.39% Value MidCap S&P 400 B, IJJ
1.39% Info Tech VIPERs, VGT
1.38% Oil, Crude, U.S. Oil Fund, USO
1.37% MidCap Blend Core iS M, JKG
1.37% Pacific ex-Japan, EPP
1.36% Spain Index, EWP
1.35% South Africa Index, EZA
1.35% Semiconductor SPDR, XSD
1.34% Emerging 50 BLDRS, ADRE
1.33% Consumer Discretionary SPDR, XLY
1.33% Growth S&P 500/BARRA, IVW
1.33% Nanotech Lux, PXN
1.32% Dividend SPDR, SDY
1.32% Blend Total Market VIPERs, VTI
1.31% Global Titans, DGT
1.29% Value VIPERs, VTV
1.29% Oil & Gas, PXJ
1.29% Value S&P 500 B, IVE
1.29% Value S&P 500, RPV
1.28% Dividend High Yield Equity PS, PEY
1.28% Software, PSJ
1.28% Growth VIPERs, VUG
1.28% MidCap S&P 400 SPDRs, MDY
1.27% Growth LargeCap NASDAQ Fidelity, ONEQ
1.27% Hong Kong Index, EWH
1.27% Financial SPDR, XLF
1.27% Extended Mkt VIPERs, VXF
1.26% LargeCap Blend Socially Responsible iS, KLD
1.25% Telecom H, TTH
1.25% S&P 500 SPDRs LargeCap Blend, SPY
1.25% MidCap Russell, IWR
1.24% Value LargeCap Russell 3000, IWW
1.24% Growth Large Cap, ELG
1.24% S&P 500 iS LargeCap Blend, IVV
1.23% Building & Construction, PKB
1.23% LargeCap 1000 R, IWB
1.23% Utilities VIPERs, VPU
1.23% Value MidCap iS M, JKI
1.22% Growth MidCap 400 B, IJK
1.22% LargeCap VIPERs, VV
1.21% Utilities DJ, IDU
1.21% Capital Markets KWB ST, KCE
1.21% LargeCap Blend S&P 1500 iS, ISI
1.20% Leisure & Entertainment, PEJ
1.20% MidCap VIPERs, VO
1.20% Euro STOXX 50, FEZ
1.20% Financials VIPERs, VFH
1.20% MidCap S&P 400 iS, IJH
1.20% Financial DJ US, IYF
1.19% Growth LargeCap iS M, JKE
1.19% LargeCap Blend Total Market DJ, IYY
1.19% Developed 100 BLDRS, ADRD
1.18% Value LargeCap iS M, JKF
1.17% Malaysia Index, EWM
1.17% Energy Exploration & Prod, PXE
1.16% Utilities SPDR, XLU
1.16% LargeCap Rydex Rus Top 50, XLG
1.16% LargeCap Blend S&P 100, OEF
1.16% Growth EAFE MSCI, EFG
1.16% Growth S&P 500, RPG
1.15% LargeCap Blend Core iS M, JKD
1.15% Semiconductor iS GS, IGW
1.14% Value LargeCap Fundamental RAFI 1000, PRF
1.14% Lg Cap Growth PSD, PWB
1.14% Global 100, IOO
1.14% Value Large Cap DJ, ELV
1.13% Oil Services H, OIH
1.12% Wilshire 5000 ST TM, TMW
1.12% Growth LargeCap Russell 3000, IWZ
1.12% Retail H, RTH
1.11% Dividend Appreciation Vipers, VIG
1.10% Industrial SPDR, XLI
1.10% Dividend DJ Select, DVY
1.10% LargeCap Blend NYSE Composite iS, NYC
1.09% DIAMONDS (DJIA), DIA
1.09% Growth 1000 Russell, IWF
1.08% Value LargeCap NYSE 100 iS, NY
1.08% Semiconductors, PSI
1.06% Software, IGV
1.06% Technology Global, IXN
1.06% Europe 350 S&P Index, IEV
1.06% Internet Infrastructure H, IIH
1.06% Industrial LargeCap Blend DJ US, IYJ
1.05% EMU Europe Index, EZU
1.05% Sweden Index, EWD
1.04% Water Resources, PHO
1.03% Value 1000 Russell, IWD
1.03% Technology MS sT, MTK
1.00% Utilities, PUI
1.00% Consumer D. VIPERs, VCR
1.00% Telecom Services VIPERs, VOX
1.00% Growth MidCap S&P 400, RFG
0.99% Consumer Cyclical DJ, IYC
0.98% Europe 100 BLDRS, ADRU
0.98% EAFE Index, EFA
0.97% Dividend International, PID
0.97% Telecommunications Global, IXP
0.94% Dividend Achievers PS, PFM
0.94% Telecommunications & Wireless, PTE
0.94% Value EAFE MSCI, EFV
0.94% Growth MidCap Russell, IWP
0.93% Energy VIPERs, VDE
0.91% Energy SPDR, XLE
0.89% Industrials VIPERs, VIS
0.87% Growth Mid Cap Dynamic PS, PWJ
0.84% Food & Beverage, PBJ
0.80% China LargeCap Growth G D H USX PS, PGJ
0.79% Aerospace & Defense, PPA
0.77% Telecom DJ US, IYZ
0.77% Financial Services DJ, IYG
0.76% Energy DJ, IYE
0.74% MidCap Growth iS M, JKH
0.74% Internet H, HHH
0.73% Asia 50 BLDRS, ADRA
0.72% France Index, EWQ
0.69% Consumer Non-Cyclical, IYK
0.67% Germany Index, EWG
0.66% Commodity Tracking, DBC
0.65% Italy Index, EWI
0.63% Consumer Staples VIPERs, VDC
0.61% Switzerland Index, EWL
0.60% Consumer Staples SPDR, XLP
0.60% Gold Shares S.T., GLD
0.55% Pacific VIPERs, VPL
0.49% Energy Global, IXC
0.49% Financials Global LargeCap Value, IXG
0.47% Netherlands Index, EWN
0.46% WilderHill Clean Energy PS, PBW
0.43% Short 200% US T Bond, TBT
0.36% Transportation Av DJ, IYT
0.30% Taiwan Index, EWT
0.30% Short 200% Bond 7-10 Yr T, PST
0.28% Bank Regional H, RKH
0.20% IPOs, First Tr IPOX-100, FPX
0.11% Canada Index, EWC
0.09% Bond, Corp, LQD
0.08% Belgium Index, EWK
0.04% Bond, High-Yield Corporate, HYG
0.02% Bond, 1-3 Year Treasury, SHY
0.00% Austria Index, EWO
-0.08% Bond, TIPS, TIP
-0.08% Preferred Stock iS, PFF
-0.10% Japan Index, EWJ
-0.16% Bond, Aggregate, AGG
-0.18% Bond, 10 Year Treasury, IEF
-0.19% Japan LargeCap Blend TOPIX 150, ITF
-0.29% Bond, 20+ Years Treasury, TLT
-0.47% Financial Preferred, PGF
-1.07% Short 100% Dow 30, DOG
-1.17% Short 100% MidCap 400, MYY
-1.22% Short 100% S&P 500, SH
-1.60% Internet B2B H, BHH
-1.72% Short 100% QQQ, PSQ
-2.15% Short 200% Dow 30 PS, DXD
-2.38% Short 200% S&P 500 PS, SDS
-2.53% Short 200% MidCap 400 PS, MZZ
-3.17% Short 200% QQQ PS, QID
* Even the best guru could not predict the market direction esp. short-term.
* There is no perfect market timing.
* However, the author has a good opinion on the sectors.
* I did OK if the market still slides in next few days. Yesterday I thought my market timing on down trend was dead wrong. So, never be too emotionally attached. Guessing right 51% of the time could beat S&P by a good margin.
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The DJIA, S&P 500, NASDAQ Composite, and the NYSE Cumulative Daily Advance-Decline Line all rose to new 15-month highs, thereby confirming a broad-based, major uptrend for the general market. All 3 indexes remain well above 50- and 200-day simple moving averages, which are rising bullishly.
Not all stocks are so strong. So, stock selection remains critical.
Health Care Stock Sector Relative Strength Ratio (XLV/SPY) rose above 6-month highs on 1/19/10. XLV/SPY remains above its rising 50- and 200-day simple moving averages. Absolute price of XLV closed above its highs of the previous 15 months on 1/19/10. Support 32.03, 31.61, 31.07 and 30.88. Resistance 33.08, 33.37 and 33.74.
Growth Stock/Value Stock Relative Strength Ratio (IWF/IWD) rose above 7-day highs on 1/19/10 and rose above its 200-day simple moving averages on 1/12/10. Absolute price of IWF rose above 15-month highs on 1/19/10.
Russell 1000 Value ETF Relative Strength Ratio (IWD/SPY) fell below its 200-day simple moving average on 1/19/10. IWD/SPY has been in a downtrend since 9/18/09.
The Small Cap/Large Cap Relative Strength Ratio (IWM/SPY) rose above 2-week highs on 1/19/10. IWM/SPY remains above both its 50- and 200-day simple moving averages.
Crude Oil nearest futures contract price fell below 3-week lows on 1/19/10 but reversed to close higher on the day. Such a one-day reversal may or may not end Oil’s short-term price pullback.
Silver/Gold Ratio rose further above rising 50- and 200-day simple moving averages on 1/19/10, suggesting rising confidence in the world economy.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spotlight on event stocks: Here is a stock screen I designed to pick out potential event stocks, both Bullish and Bearish. Sometimes, stocks with large changes in price and volume are revealed to be deal stocks, sooner or later, or are the subject of some other extraordinary events, positive or negative.
Bullish Stocks: Rising Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
11.01% , CIEN.O , CIENA
8.10% , WMB , WILLIAMS
7.04% , EP , EL PASO
1.71% , SWH , Software H, SWH
7.07% , HUM , HUMANA
1.50% , PWO , OTC Dynamic PS, PWO
4.44% , LLY , ELI LILLY
4.88% , PH , PARKER HANNIFIN
1.73% , TYC , TYCO INTL
1.24% , ELG , Growth Large Cap, ELG
1.46% , DSG , Growth Small Cap DJ, DSG
2.18% , RZV , Value SmallCap S&P 600, RZV
1.31% , DGT , Global Titans, DGT
4.00% , LBTYA , Liberty Global Inc. (LBTYA)
5.61% , GRMN , GARMIN LTD
3.96% , MET , METLIFE
1.98% , IYH , Healthcare DJ, IYH
2.25% , RYAAY , Ryanair Holdings plc
1.76% , PWY , Value SmallCap Dynamic PS, PWY
2.85% , CEPH , Cephalon Inc
1.15% , JKD , LargeCap Blend Core iS M, JKD
1.08% , NY , Value LargeCap NYSE 100 iS, NY
1.95% , NWL , NEWELL RUBBER
2.93% , CI , CIGNA
1.83% , PWP , Value MidCap Dynamic PS, PWP
2.27% , WPI , WATSON PHARM
3.03% , HSY , HERSHEY FOODS
1.21% , ISI , LargeCap Blend S&P 1500 iS, ISI
1.14% , PRF , Value LargeCap Fundamental RAFI 1000, PRF
0.84% , PBJ , Food & Beverage, PBJ
5.23% , ZION , ZIONS
1.89% , PZI , Micro Cap Zachs, PZI
2.14% , PBE , Biotech & Genome, PBE
1.51% , UTH , Utilities H, UTH
1.89% , PIC , Insurance, PIC
2.56% , SEE , SEALED AIR
2.42% , XLV , Health Care SPDR, XLV
1.89% , IYM , Basic Materials DJ US, IYM
1.45% , PMR , Retail, PMR
1.41% , IGE , Natural Resource iS GS, IGE
Bearish Stocks: Falling Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
-2.27% , FAST , Fastenal Company
-2.35% , HMA , HEALTH MGMT STK A
-3.46% , THC , TENET HEALTHCARE
-2.05% , FHN , FIRST TENNESSEE
-2.17% , FRE , FREDDIE MAC
-1.33% , TAP , ADOLPH COORS STK B, TAP
-2.15% , DXD , Short 200% Dow 30 PS, DXD
-0.75% , CECO , CAREER EDUCATION CORP
-1.55% , CVG , CONVERGYS
-0.47% , PGF , Financial Preferred, PGF
-0.26% , LTD , LIMITED BRANDS
-0.30% , SIRI , Sirius Satellite
-1.40% , LVLT , LEVEL 3 COMMUNICATIONS
-0.33% , RDC , ROWAN COMPANIES
-0.53% , USB , US BANCORP
-0.21% , BAX , BAXTER INTL
-0.19% , ITF , Japan LargeCap Blend TOPIX 150, ITF
-0.16% , AGG , Bond, Aggregate, AGG
-0.89% , NIHD , NII Holdings, Inc.
-0.78% , PAYX , PAYCHEX
-0.61% , PMCS , PMC SIERRA
-0.08% , TIP , Bond, TIPS, TIP
-0.09% , PHM , PULTE HOMES
-0.28% , BA , BOEING
-0.20% , MO , ALTRIA, MO
-1.33% , ABK , AMBAC FINL GRP
-0.06% , AA , ALCOA
9 major U.S. stock sectors ranked in order of long-term relative strength:
Health Care (XLV) Neutral, Market Weight. The Relative Strength Ratio (XLV/SPY) rose above 6-month highs on 1/19/10. XLV/SPY remains above its rising 50- and 200-day simple moving averages. Absolute price of XLV closed above its highs of the previous 15 months on 1/19/10. Support 32.03, 31.61, 31.07 and 30.88. Resistance 33.08, 33.37 and 33.74.
Consumer Discretionary (XLY) Bullish, Overweight. The Relative Strength Ratio (XLY/SPY) fell below the lows of the previous 5 weeks on 1/12/10, but it has stabilized since then, although it remains slightly below its 50- day simple moving average. More significantly, XLY/SPY rose above its highs of the previous 32-months on 12/23/09, confirming its preexisting major uptrend. XLY/SPY remains above its rising 200-day simple moving average. Absolute price of XLY moved above its highs of the previous 15 months on 1/7/10. Support 29.77, 29.22, and 28.73. Resistance 30.54, 31.95 and 33.76.
Technology (XLK) Bullish, Overweight. The Relative Strength Ratio (XLK/SPY) fell further below the lows of the previous 6 weeks on 1/15/10, confirming a short-term pullback. This after rising above its highs of the previous 7-years on 12/31/09. XLK/SPY fell below its rising 50- day simple moving average on 1/11/10 but remains above its rising 200-day simple moving average. Absolute price of XLK fell to its lowest level in 3 weeks on 1/1/10. Support 22.46, 22.36 and 22.06. Resistance 23.15, 23.30, 23.48 and 23.83.
Materials (XLB) Bullish, Overweight. The Relative Strength Ratio (XLB/SPY) ) fell below the lows of the previous 8 days on 1/14/10, confirming a short-term pullback. More significantly, XLB/SPY broke out above 15-month highs on 1/6/10. XLB/SPY remains above its 50- and 200-day simple moving averages, which are rising bullishly. Absolute price of XLB rose above 15-month highs on 1/8/10. Support 33.63, 32.99 and 31.67. Resistance 34.52, 35.38, 35.55, 37.10, and 37.56.
Industrial (XLI) Neutral, Market Weight. The Relative Strength Ratio (XLI/SPY) rose above its highs of the previous 11-months on 1/12/10. Despite a modest pullback, XLI/SPY remains above rising 50-day and 200-day simple moving averages. Absolute price of XLI moved above its highs of the previous 15 months on 1/11/10. Support 28.56, 27.67 and 27.46. Resistance 29.61. 30.56 and 32.00.
Energy (XLE) Neutral, Market Weight. The Relative Strength Ratio (XLE/SPY) has been in a choppy sideways range for the past 15 months. XLE/SPY hovering near its 50- and 200-day simple moving averages. Absolute price of XLE briefly traded above 15-month highs on 1/11/10 but quickly pulled back into a trading range. Support 58.25, 56.98, and 55.88. Resistance 60.87 and 62.73.
Consumer Staples (XLP) Neutral, Market Weight. The Relative Strength Ratio (XLP/SPY) eased moderately below its lows of the previous 15 months on 1/8/10. XLP/SPY is below its falling 50- and 200-day simple moving averages. Absolute price of XLP has been correcting and consolidating gains since making a 14-month high on 12/4/09. Support 26.38, 25.96 and 25.77. Resistance 27.04, 27.18 and 29.29.
Financial (XLF) Bearish, Underweight. The Relative Strength Ratio (XLF/SPY) has been in a downward correction since 10/14/09. XLF/SPY crossed below its 50-day simple moving average on 1/15/10 and is now below both 50- and 200-day simple moving averages. Absolute price of XLF has been in a correction/consolidation phase since 10/14/09. Support 14.59, 14.30 and 14.01. Resistance 15.40 and15.76.
Utilities (XLU) Neutral, Market Weight. The Relative Strength Ratio (XLU/SPY) may be attempting to stabilize since probing 2-year lows on 11/18/09. XLU/SPY remains moderately below its 50- and 200-day simple moving averages. Absolute price of XLU has been in a correction since 12/14/09. Support 30.52, 30.28 and 30.19. Resistance 31.64 and 32.08.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Emerging Markets Stocks ETF (EEM) Relative Strength Ratio (EEM/SPY) and absolute price both fell below 9-day lows on 1/15/10 to confirm a short-term pullback. Both remain above rising 200-day simple moving averages, indicating bullish trends for the intermediate term.
Foreign Stocks ETF (EFA) Relative Strength Ratio (EFA/SPY) fell below 50- and 200-day simple moving averages on 1/14/10. EFA absolute price rose to a 15-month high on 1/14/10--but still EFA has underperformed the SPY since 9/9/09.
NASDAQ Composite/S&P 500 Relative Strength Ratio rose above its highs of the previous 8-years on 1/4/10 and remains above its rising 50- and 200-day simple moving averages. Absolute price moved above its highs of the previous 15 months on 1/19/10.
Growth Stock/Value Stock Relative Strength Ratio (IWF/IWD) rose above 7-day highs on 1/19/10 and rose above its 200-day simple moving averages on 1/12/10. Absolute price of IWF rose above 15-month highs on 1/19/10.
Russell 1000 Value ETF Relative Strength Ratio (IWD/SPY) fell below its 200-day simple moving average on 1/19/10. IWD/SPY has been in a downtrend since 9/18/09.
The S&P 500 Equally Weighted ETF Relative Strength Ratio (RSP/SPY) rose further above previous 6-year highs on 1/8/10. RSP/SPY remains above its rising 50- and 200-day simple moving averages. Absolute price of RSP rose to a new 15-month closing price high on 1/8/10.
The Largest Cap S&P 100/S&P 500 Relative Strength Ratio (OEX/SPX) fell further below the lows of the previous 3 months on 12/22/09. OEX/SPX remains below its falling 50- and 200-day simple moving averages.
The Small Cap/Large Cap Relative Strength Ratio (IWM/SPY) rose above 2-week highs on 1/19/10. IWM/SPY remains above both its 50- and 200-day simple moving averages. Absolute price of IWM rose above 15-month highs on 1/8/10.
The Mid Cap/Large Cap Relative Strength Ratio (MDY/SPY) rose above the highs of the previous 8 weeks on 12/23/09 and has been going sideways since. MDY/SPY remains above its 50- and 200-day simple moving averages. Absolute price of MDY rose above 15-month highs on 1/8/10.
Crude Oil nearest futures contract price fell below 3-week lows on 1/19/10 but reversed to close higher on the day. Such a one-day reversal may or may not end Oil’s short-term price pullback. In any event, Oil remains above both rising 50- and 200-day simple moving averages, which normally is positive for the intermediate term. Support 76.76, 75.65 and 72.72. Resistance 80.36, 83.95, 85.82 and 98.65.
CRB Index absolute price closed above its highs of the previous 14 months on 1/6/10 but has been in a moderate correction since.
Gold nearest futures contract price rose above the highs of the previous 5-weeks on 1/11/10. The short-term trend still appears bullish. Gold remains above its 50-day and 200-day simple moving averages. Support 1118.5, 1115.5 and 1086.6. Resistance 1163.0, 1170.2, 1196.8 and 1226.4.
Gold Mining Stocks ETF (GDX) Relative Strength Ratio (relative to the Gold bullion ETF, GDX/GLD) fell below both 50- and 200-day simple moving averages on 1/15/10. The mining stocks have underperformed bullion since 9/17/09.
Silver/Gold Ratio rose further above rising 50- and 200-day simple moving averages on 1/19/10, suggesting rising confidence in the world economy.
Copper nearest futures contract price closed above 3-day highs on 1/19/10. Copper has been consolidating gains, short term, since making a 15-month highs on 1/7/10. Copper remains in a long-term major bullish trend. Rising copper prices suggest growing confidence about global economic prospects. Support 3.264 and 3.09. Resistance 3.544, 3.5625, 3.5625, and 3.79.
U.S. Treasury Bond nearest futures contract price consolidated short-term gains after rising above the highs of the previous 3 weeks on 1/15/10. That was a bullish signal for the short term. The problem is that the Bond fell below 6-month lows on 12/31/09, which confirmed its preexisting downtrend for the intermediate term. The Bond remains below its 50- and 200-day simple moving averages, which is bearish. Support 115.24, 114.16, 113.04 and 112.15. Resistance 119.08 and 120.08.
Junk/Investment-Grade Corporate Bonds Relative Strength Ratio (JNK/LQD) and absolute price both rose above the highs of the previous 15 months on 1/8/10, and both remain above rising 50- and 200-day simple moving averages. They have been consolidating gains mildly since1/8/10.
U.S. Treasury Inflation Protected / U.S. Treasury 7-10 Year Relative Strength Ratio (TIP/IEF) rose to another new 15-month high on 1/7/10, again confirming a bullish long-term trend. TIP/IEF remains above rising 50- and 200-day simple moving averages. Bond investors may be growing increasingly concerned about the inflation outlook, despite assurances of tame inflation by economists.
The U.S. dollar nearest futures contract price moved above 5-day highs on 1/19/10, after falling below the lows of the previous 4 weeks on 1/13/10. The short-term trend appears uncertain. USD has been holding above its rising 50-day simple moving average but is still below its falling 200-day simple moving average (since last May). Support 76.74 and 75.90. Resistance 78.44, 78.77 and 79.00.
The Art of Contrary Thinking: The various surveys of investor sentiment are best considered as background factors. The majority of investors can be right for a long time before a major trend finally changes course. The Art of Contrary Thinking is best used together with more precise market timing tools.
Advisory Service Sentiment: There were 53.4% Bulls versus 15.9% Bears as of 1/13/10, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear ratio was 3.36, up from 2.86 the previous week. This is the highest ratio of bullish sentiment in 6 years. The 20-year range of the ratio is 0.41 to 3.74, the median is 1.50, and the mean is 1.57.
VIX Fear Index collapsed to 17.55 on 1/11/10, its lowest level in 26 months, indicating falling levels of fear and growing confidence in the stock market. VIX is down from a closing high of 80.86 set on 11/20/08. VIX is a market estimate of expected constant 30-day volatility, calculated by weighting S&P 500 Index CBOE option bid/ask quotes spanning a wide range of strike prices for the two nearest expiration dates.
VXN Fear Index collapsed to 18.47 on 1/11/10, its lowest level in 26 months. VXN is down from a closing high of 80.64 set on 11/20/08. VXN measures NASDAQ Volatility using a method comparable to that used for VIX.
ISEE Call/Put Ratio rose to 1.68 on 1/11/10, a level indicating above-normal optimism. The ratio’s 6-year mean is 1.41, its median is 1.36, and its range is 0.51 to 3.16.
CBOE Put/Call Ratio fell to 0.49 on 1/8/10, a level indicating above-normal optimism. The ratio’s 6-year mean is 0.66, its median is 0.64, and its range is 0.35 to 1.35.
The Dow Theory last confirmed a Bullish Major Trend on 1/11/10, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed above their closing price highs of the previous 14 months. The Dow Theory signaled the current Primary Tide Bull Market on 7/23/09, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed above their closing price highs of the previous 6 months. That 7/23/09 signal reversed the previous signal: the two Averages signaled a Primary Tide Bear Market on 11/21/07, when both Averages closed below their closing price lows of August 2007.
S&P 500 Composite (SPX) rose above the highs of the previous 15 months on 1/19/10, confirming its preexisting Bullish Major Trend. SPX remains well above its rising 50- and 200-day simple moving averages. Support 1,130.38, 1,114.81 and 1,103.74. Resistance 1,158.76 and 1,220.03.
S&P 500 Cash Index Potential Resistance
1,576.09, high of 10/11/2007
1,552.76, high of 10/31/2007
1,523.57, high of 12/11/2007
1,498.85, high of 12/26/2007
1,440.24, high of 5/19/2008
1,406.32, high of 5/29/2008
1,381.50, Fibonacci 78.6% of 2007-2009 range
1,366.59, high of 6/17/2008
1,335.63, high of 6/25/2008
1,313.15, high of 8/11/2008
1,274.42, high of 9/8/2008
1,255.09, high of 9/12/2008
1,238.81, Fibonacci 78.6% of 1,576.09 high
1,228.74, Fibonacci 61.8% of 2007-2009 range
1,220.03, high of 9/25/2008
1,158.76, EW ABC measured move target
S&P 500 Cash Index Potential Support
1,130.38, high of 12/29/2009
1,114.81, low of 12/31/2009
1,103.74, high of 12/18/2009
1,093.88, low of 12/18/2009
1,083.74, low of 11/27/2009
1,066.83, high of 10/29/2009
1,029.38, low of 11/2/2009
1,019.85, low of 10/2/2009
1,014.14, Fibonacci 38.2% of 2007-2009 drop
1,007.78, Gann 37.5% of 2007-2009 range
998.80, Fibonacci 23.6% Retrace of 2009 range
991.97, low of 9/2/2009
992.72, Gann 25% Retrace of 2009 range
978.51, low of 8/17/2009
956.50, Dow 33.3% Retrace of 2009 range
956.23, high of 6/11/2009
935.35, Fibonacci 38.2% Retrace of 2009 range
930.17, high of 5/8/2009
884.08, Fibonacci 50% of 2009 range
869.32, low of 7/8/2009
826.83, low of 4/21/2009
832.80, Fibonacci 61.8% Retrace of 2009 range
814.53, low of 4/7/2009
813.62, high of 4/1/2009
779.81, low of 3/30/2009
775.43, Gann 75% Retrace of 2009 range
759.79, Fibonacci 78.6% Retrace of 2009 range
721.11, Gann 87.5% Retrace of 2009 range
666.79, intraday low of 3/6/2009
602.07, Fibonacci 38.2% of 1,576.09 high
One-Day Ranking of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol
3.18% China 25 iS, FXI
3.14% Ultra QQQ Double, QLD
2.53% SmallCap PS Zacks, PZJ
2.47% Ultra S&P500 Double, SSO
2.46% Ultra MidCap400 Double, MVV
2.42% Health Care SPDR, XLV
2.31% Microcap Russell, IWC
2.27% Biotech SPDR, XBI
2.22% Realty Cohen & Steers, ICF
2.22% Silver Trust iS, SLV
2.18% Value SmallCap S&P 600, RZV
2.17% REIT Wilshire, RWR
2.16% Pharmaceutical H, PPH
2.14% Biotech & Genome, PBE
2.14% Ultra Dow30 Double, DDM
2.09% India Earnings WTree, EPI
2.08% European VIPERs, VGK
2.06% South Korea Index, EWY
2.04% REIT VIPERs, VNQ
2.03% Health Care VIPERs, VHT
2.03% Emerging Markets, EEM
1.99% Pharmaceuticals, PJP
1.99% Real Estate US DJ, IYR
1.98% Healthcare DJ, IYH
1.94% Value LargeCap Euro STOXX 50 DJ, FEU
1.94% Healthcare Global, IXJ
1.93% Metals & Mining SPDR, XME
1.93% Biotech H, BBH
1.93% Internet Architecture H, IAH
1.91% Value SmallCap Russell 2000, IWN
1.90% Singapore Index, EWS
1.89% Insurance, PIC
1.89% Micro Cap Zachs, PZI
1.89% Basic Materials DJ US, IYM
1.84% SmallCap Russell 2000, IWM
1.83% Value MidCap Dynamic PS, PWP
1.81% LargeCap Blend Dynamic PS, PWC
1.76% Value SmallCap Dynamic PS, PWY
1.75% SmallCap S&P 600, IJR
1.75% Latin Am 40, ILF
1.73% Emerging VIPERs, VWO
1.72% Technology SPDR, XLK
1.71% Software H, SWH
1.71% Materials VIPERs, VAW
1.68% Growth SmallCap VIPERs, VBK
1.68% Value MidCap Russell, IWS
1.66% Growth BARRA Small Cap 600, IJT
1.64% Value 40 Large Low P/E FT DB, FDV
1.63% Value SmallCap S&P 600 B, IJS
1.62% Small Cap VIPERs, VB
1.61% Growth LargeCap NASDAQ 100, QQQQ
1.61% Dividend Leaders, FDL
1.60% Materials SPDR, XLB
1.60% Mexico Index, EWW
1.59% Growth SmallCap R 2000, IWO
1.56% Value SmallCap VIPERS, VBR
1.55% Growth SmallCap Dynamic PS, PWT
1.53% Value LargeCap Dynamic PS, PWV
1.53% Value Small Cap DJ, DSV
1.52% Technology DJ US, IYW
1.51% Value Line Timeliness MidCap Gr, PIV
1.51% Utilities H, UTH
1.50% OTC Dynamic PS, PWO
1.49% Growth SmallCap iS M, JKK
1.48% Australia Index, EWA
1.47% Homebuilders SPDR, XHB
1.47% Brazil Index, EWZ
1.46% Growth Small Cap DJ, DSG
1.45% Retail, PMR
1.45% Value SmallCap iS M, JKL
1.45% Semiconductor H, SMH
1.44% SmallCap Core iS M, JKJ
1.44% United Kingdom Index, EWU
1.43% Technology GS, IGM
1.41% Networking, IGN
1.41% LargeCap Blend Russell 3000, IWV
1.41% Natural Resource iS GS, IGE
1.41% LargeCap Blend S&P=Weight R, RSP
1.39% Value MidCap S&P 400 B, IJJ
1.39% Info Tech VIPERs, VGT
1.38% Oil, Crude, U.S. Oil Fund, USO
1.37% MidCap Blend Core iS M, JKG
1.37% Pacific ex-Japan, EPP
1.36% Spain Index, EWP
1.35% South Africa Index, EZA
1.35% Semiconductor SPDR, XSD
1.34% Emerging 50 BLDRS, ADRE
1.33% Consumer Discretionary SPDR, XLY
1.33% Growth S&P 500/BARRA, IVW
1.33% Nanotech Lux, PXN
1.32% Dividend SPDR, SDY
1.32% Blend Total Market VIPERs, VTI
1.31% Global Titans, DGT
1.29% Value VIPERs, VTV
1.29% Oil & Gas, PXJ
1.29% Value S&P 500 B, IVE
1.29% Value S&P 500, RPV
1.28% Dividend High Yield Equity PS, PEY
1.28% Software, PSJ
1.28% Growth VIPERs, VUG
1.28% MidCap S&P 400 SPDRs, MDY
1.27% Growth LargeCap NASDAQ Fidelity, ONEQ
1.27% Hong Kong Index, EWH
1.27% Financial SPDR, XLF
1.27% Extended Mkt VIPERs, VXF
1.26% LargeCap Blend Socially Responsible iS, KLD
1.25% Telecom H, TTH
1.25% S&P 500 SPDRs LargeCap Blend, SPY
1.25% MidCap Russell, IWR
1.24% Value LargeCap Russell 3000, IWW
1.24% Growth Large Cap, ELG
1.24% S&P 500 iS LargeCap Blend, IVV
1.23% Building & Construction, PKB
1.23% LargeCap 1000 R, IWB
1.23% Utilities VIPERs, VPU
1.23% Value MidCap iS M, JKI
1.22% Growth MidCap 400 B, IJK
1.22% LargeCap VIPERs, VV
1.21% Utilities DJ, IDU
1.21% Capital Markets KWB ST, KCE
1.21% LargeCap Blend S&P 1500 iS, ISI
1.20% Leisure & Entertainment, PEJ
1.20% MidCap VIPERs, VO
1.20% Euro STOXX 50, FEZ
1.20% Financials VIPERs, VFH
1.20% MidCap S&P 400 iS, IJH
1.20% Financial DJ US, IYF
1.19% Growth LargeCap iS M, JKE
1.19% LargeCap Blend Total Market DJ, IYY
1.19% Developed 100 BLDRS, ADRD
1.18% Value LargeCap iS M, JKF
1.17% Malaysia Index, EWM
1.17% Energy Exploration & Prod, PXE
1.16% Utilities SPDR, XLU
1.16% LargeCap Rydex Rus Top 50, XLG
1.16% LargeCap Blend S&P 100, OEF
1.16% Growth EAFE MSCI, EFG
1.16% Growth S&P 500, RPG
1.15% LargeCap Blend Core iS M, JKD
1.15% Semiconductor iS GS, IGW
1.14% Value LargeCap Fundamental RAFI 1000, PRF
1.14% Lg Cap Growth PSD, PWB
1.14% Global 100, IOO
1.14% Value Large Cap DJ, ELV
1.13% Oil Services H, OIH
1.12% Wilshire 5000 ST TM, TMW
1.12% Growth LargeCap Russell 3000, IWZ
1.12% Retail H, RTH
1.11% Dividend Appreciation Vipers, VIG
1.10% Industrial SPDR, XLI
1.10% Dividend DJ Select, DVY
1.10% LargeCap Blend NYSE Composite iS, NYC
1.09% DIAMONDS (DJIA), DIA
1.09% Growth 1000 Russell, IWF
1.08% Value LargeCap NYSE 100 iS, NY
1.08% Semiconductors, PSI
1.06% Software, IGV
1.06% Technology Global, IXN
1.06% Europe 350 S&P Index, IEV
1.06% Internet Infrastructure H, IIH
1.06% Industrial LargeCap Blend DJ US, IYJ
1.05% EMU Europe Index, EZU
1.05% Sweden Index, EWD
1.04% Water Resources, PHO
1.03% Value 1000 Russell, IWD
1.03% Technology MS sT, MTK
1.00% Utilities, PUI
1.00% Consumer D. VIPERs, VCR
1.00% Telecom Services VIPERs, VOX
1.00% Growth MidCap S&P 400, RFG
0.99% Consumer Cyclical DJ, IYC
0.98% Europe 100 BLDRS, ADRU
0.98% EAFE Index, EFA
0.97% Dividend International, PID
0.97% Telecommunications Global, IXP
0.94% Dividend Achievers PS, PFM
0.94% Telecommunications & Wireless, PTE
0.94% Value EAFE MSCI, EFV
0.94% Growth MidCap Russell, IWP
0.93% Energy VIPERs, VDE
0.91% Energy SPDR, XLE
0.89% Industrials VIPERs, VIS
0.87% Growth Mid Cap Dynamic PS, PWJ
0.84% Food & Beverage, PBJ
0.80% China LargeCap Growth G D H USX PS, PGJ
0.79% Aerospace & Defense, PPA
0.77% Telecom DJ US, IYZ
0.77% Financial Services DJ, IYG
0.76% Energy DJ, IYE
0.74% MidCap Growth iS M, JKH
0.74% Internet H, HHH
0.73% Asia 50 BLDRS, ADRA
0.72% France Index, EWQ
0.69% Consumer Non-Cyclical, IYK
0.67% Germany Index, EWG
0.66% Commodity Tracking, DBC
0.65% Italy Index, EWI
0.63% Consumer Staples VIPERs, VDC
0.61% Switzerland Index, EWL
0.60% Consumer Staples SPDR, XLP
0.60% Gold Shares S.T., GLD
0.55% Pacific VIPERs, VPL
0.49% Energy Global, IXC
0.49% Financials Global LargeCap Value, IXG
0.47% Netherlands Index, EWN
0.46% WilderHill Clean Energy PS, PBW
0.43% Short 200% US T Bond, TBT
0.36% Transportation Av DJ, IYT
0.30% Taiwan Index, EWT
0.30% Short 200% Bond 7-10 Yr T, PST
0.28% Bank Regional H, RKH
0.20% IPOs, First Tr IPOX-100, FPX
0.11% Canada Index, EWC
0.09% Bond, Corp, LQD
0.08% Belgium Index, EWK
0.04% Bond, High-Yield Corporate, HYG
0.02% Bond, 1-3 Year Treasury, SHY
0.00% Austria Index, EWO
-0.08% Bond, TIPS, TIP
-0.08% Preferred Stock iS, PFF
-0.10% Japan Index, EWJ
-0.16% Bond, Aggregate, AGG
-0.18% Bond, 10 Year Treasury, IEF
-0.19% Japan LargeCap Blend TOPIX 150, ITF
-0.29% Bond, 20+ Years Treasury, TLT
-0.47% Financial Preferred, PGF
-1.07% Short 100% Dow 30, DOG
-1.17% Short 100% MidCap 400, MYY
-1.22% Short 100% S&P 500, SH
-1.60% Internet B2B H, BHH
-1.72% Short 100% QQQ, PSQ
-2.15% Short 200% Dow 30 PS, DXD
-2.38% Short 200% S&P 500 PS, SDS
-2.53% Short 200% MidCap 400 PS, MZZ
-3.17% Short 200% QQQ PS, QID
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