s&r test
July 28, 2008
What is an alligator spread anyway?
Sector Watch: It’s Time To Keep Your Eye On More Than Just Hurricanes…Though That’s A Good Idea Too
July 28, 2008
Sector Watch: It’s Time To Keep Your Eye On More Than Just Hurricanes…Though That’s A Good Idea Too
Monday, July 28, 2008
by Jim Stanton, Technical & Quantitative Analyst, Smart Profits Report
The last time we checked in, I had written about a potential Dow Theory buy signal. Lo and behold, the very next day the indexes reversed and started moving higher.
Primarily due to frantic short covering in the financial sector, it was still helped along by declining oil prices and a little government intervention in the short sale department.
The Dow Industrials came very close to triggering a daily buy signal, which would give us a Dow Theory buy signal. But in order to accomplish that, the Dow Industrials need to trade above last week’s high.
Many of the financial stocks, which were deeply oversold, rallied 50% or more off their lows before pulling back late last week. And that means that much of the short covering is over; financial stocks will now have to perform on their own merits without the help of a large, overhanging short position.
Mixed Results For Nasdaq
The Nasdaq indexes have been the laggards over the past two weeks due to negative reactions from earnings reports in stocks such as Google, Microsoft, and Apple. And yet, the Nasdaq 100 has performed relatively better than the Dow and S&P 500 over the last few sessions.
Below is a Daily spread chart of the Nasdaq 100 over the S&P 500. This chart plots the differential between the two indexes, and is something I keep a close eye on. When the Nasdaq 100 outperforms the S&P 500, the spread price moves higher and vise versa.
Generally speaking, all of the stock indexes usually do well when the spread is moving higher and as you can see, the spread bottomed out last Tuesday and is now close to breaking above the downtrend line.
The spread differential closed last Friday at 588.79 and the downtrend line is currently around 592. Two closes above the 592 level should be a plus for all of the indexes.
Oil Industry Is Still Driving Markets Crazy
As I mentioned before, the financial sector and oil prices have been driving the markets lately. A although the government may have a few more tricks up their sleeve, since much of the short covering is probably over in the financial sector, I thought we’d take a look at the oil sector this week to see where it’s headed.
The only stock I follow that is a mirror image of the crude oil contract is the United States Oil Fund (AMEX: USO). It trades at about a 20% to 25% discount to the price of crude oil, due to the fund’s structure, but has about a 99% correlation to crude prices.
The stock made a new high above $119 on July 11, and held its gains for a day before falling over $5 on July 15, which was the same day that the Dow and S&P made its lows for the year.
USO has continued to fall since then and in the process, has closed below its 50 day moving average and the uptrend line drawn from the February lows.
The stock triggered a daily sell signal and - barring a new buy signal (and there’s only a 20% chance of that) - should undergo at least an A-B-C correction to the downside. That means that when this first “A” wave of selling is complete, we should see a “B” wave rally followed by a “C” wave decline to new lows.
On a short-term basis, USO is getting oversold and last Friday it tested the previous low point, which was made in early June at $98.62. If it can hold in this area, the “B” wave rally should begin shortly. When it does begin, the question is: How high will the rally go?
Predicting The Oil Market
Of course that’s a good question, and here’s the answer…or at least a range of possibilities.
If USO rallies from this area, a number of outcomes could play out. Considering Fibonacci’s Theory, note that the 38% Fibonacci retracement is around $106.50 which means that the 50% retracement would take it up to around $108.95. It could also rally back up to the bottom of the uptrend line, which moves higher every day or, it could test the 50-day moving average, which is currently around $108.
If the stock moves lower from here, these numbers will change a bit when the “B” wave rally begins but assuming that we’ll see higher prices sometime this week, I would be looking to buy some put options somewhere between the 38% and 50% Fibonacci retracement levels. If it only trades up to the $106.50 level when the “C” decline begins, the stock should drop down to at least the $96 area.
Act Now On The Oil Industry But Stay Tuned To Sector Watch
But just remember what time of the year we’re in the middle of. You’ll notice I said I would be looking to buy puts, not shorting the stock, or selling naked calls, and there’s a good reason for that.
Folks, we’re in hurricane season and if one gets into the Gulf of Mexico, all bets are off. While technical analysis is very reliable, it works off of averages, past records and trends. It quite simply can’t take into account any true surprises, which the weather is all about.
Playing the short side of oil during hurricane season can be very high risk so I would take a smaller-than-average position, with limited risk. Cheap puts are the best way to go right now.
That’s all for this time.
Jim Stanton
Sphere: Related ContentThe Best Hedge Against Market Woes… And The Best Way To Profit From It
July 24, 2008
Thursday, July 24, 2008
The Smart Profits Report Issue #543
Guest Editorial by Keith Fitz-Gerald, Investment Director, Money Morning & The Money Map Report
Editor’s Note: As I write, I’m in Scotland for my brother’s wedding tomorrow, nervously sweating over the speech I’m making at the reception. But it’s nothing compared to the angst that many investors are suffering over the stock market, as their hard-earned money vaporizes. But our friends at Money Morning will put you on the right track towards not only protecting your portfolio, but profiting, too. Originally published two weeks ago, Investment Director, Keith Fitz-Gerald shares some key tips on the best way to do that with the market’s favorite hedge investment. ~Martin Denholm, Managing Editor, Smart Profits Report
Beware The Gold Trap
One of the things people don’t understand about buying gold for diversification is that it doesn’t work all the time.
It works over time.
That means that you can’t simply switch from one asset class to another when the going gets tough and expect miracles. Nor can you expect higher returns.
And that’s the really cruel part…
Right now, many people are selling so-called alternative investments (with gold being the most notable) on the basis of recent high returns to salivating investors desperate to stop the bleeding in their portfolios.
No question, the yellow metal offers diversification. But trading near all-time highs, its “protection” is debatable at best when viewed against the harsh light of historical data.
That’s why, at the risk of receiving some very testy e-mail, we have to point out that if you bought gold the last time it was this high, you’d probably regret it now.
If you’d invested $10,000 in gold in January 1980, the current value of your investment would be $10,600.
Now compare that to the $279,000 you’d have if you’d invested that same $10,000 in the S&P 500 Index in January 1980 and you’ll see what I mean.
Does this mean that gold is worthless when it comes to riding out tough markets?
Not for a New York minute.
Precious, Protective And Profitable
Gold remains a powerful hedge - one that every investor should think about… but for reasons that are not commonly understood.
You see, while gold has never been proven to be a statistically viable inflation protector, it has a significantly correlated 10-to-1 relationship with interest rates and bond prices which, as you know, react to inflation. Therefore, if interest rates rise by 1%, the face value of bonds should fall 10% but gold should rise by 100%.
This suggests that 10% of the value of a bond ought to be put in gold… as a hedge.
Here’s how such an example would work…
If we allocate $10,000 to this strategy, $9,000 would go into bonds and $1,000 into gold.
If interest rates rise by 1% (as they’re likely to do and then some), the bonds should fall 10% to $8,100 and the gold should rise by approximately 100% to $2,000.
Overall, our portfolio would be worth $10,100 (give or take), which is right about where we started.
That suggests that a portfolio of bonds and gold is safer than either bonds or gold in isolation.
Obviously, gold has been bid up substantially in recent months, so the 100% rise we expect, based on historical patterns, may not be as extreme. Nor may it rise another 100% from current levels, but the point remains valid:
We don’t buy gold because it hedges bad times. We buy it because gold protects the income stream we get from our bonds - particularly when the economy is facing severe inflationary pressures like it is now.
So how do we make our move and when?
Making Your Gold Moves
Everybody has their own preferences for gold investing, including us. There are mining companies, bullion, coins and even jewelry. We prefer the SPDR Gold Shares ETF (NYSE: GLD).
The fund has three main benefits:
- It’s liquid
- It trades like a stock, so you can buy and sell easily through any online brokerage
- There’s no delivery risk
Plus, as so many residents who lived through Hurricane Katrina found out, you don’t have to worry about Mother Nature or hooligans stealing it either.
As for when to buy, now is probably a pretty good time. The U.S. Federal Reserve has only just begun to acknowledge the inflationary embers it’s been fanning for a long time. And as usual, they’re dramatically underestimating the 9%-10% we’re feeling in our pockets.
So even if they don’t officially raise rates, odds are that the markets will anyway as traders cope with rising costs on their own.
As you might suspect, though, there is a downside…
By taking part of the portfolio that would otherwise be placed in bonds and presumably generating income, this strategy dampens the returns we could potentially achieve with bonds.
But given gold’s protective qualities over time, we think that’s a good bet.
Best regards,
Keith Fitz-Gerald
Keith Fitz-Gerald is a former professional trader and licensed CTA, advising institutions and qualified individuals. You can read more of his investing wisdom on a regular basis by signing for Money Morning’s free, daily alert, sent to you before the stock market opens each day. The team’s mission is to show investors how to profit from the opportunities within what they say is “the greatest investing boom in almost 60 years” and “a seismic shift in the global economy.” When you join, they’ll get you started by sending you their new, free report: “Two Stocks Ready to Rocket With Oil Prices.” Click here for more details.
Today’s Smart Profits Notes
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Our Xcelerated Profits Report commodities expert recently rode the gold bull for a 37% gain in six weeks. He did so via the gold futures market, using one of the team’s signature investment strategies: A bull spread options position. To enjoy the kind of investment diversity and professional strategies that can lift you above the fleeing bear market crowd, click here.
Related Articles:
If You’re Prospecting for Gold, Tell Them Ben Bernanke Sent You
Five Ways to Profit as Gold Rallies Past $935 Amid Economic Mire
The Gold Market: Supply-Demand Issues Set To Send Gold Prices Higher
Sphere: Related ContentXcelerated Profits Report
July 23, 2008
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Sphere: Related ContentThe Financial Sector’s Future is Still Uncertain
July 22, 2008
Don’t Bank On The Financial Sector Rallying For Good Quite Yet…No Matter What They All Say
The Smart Profits Report Issue #542
by Marc Lichtenfeld, Sr. Equity Analyst, Smart Profits Report
What They’re Saying About The Financial Sector Sounds Nice…
As I was running to catch my early morning flight on Saturday, I grabbed a copy of the New York Times and Barron’s. I looked at the Barron’s cover and figured that I must not have gotten enough sleep and was still in dreamland.
Right there in big capital letters was the advice to buy banks, with the caveat that you should do it selectively.
And no, as it turns out, I wasn’t dreaming.
The article argues that valuations are low and the companies still have significant earnings power.
Last week’s sharp rally in the financials gave investors some hope that the banks were done cratering. And many took Wells Fargo’s (NYSE: WFC) strong earnings report as a sign that we’ve seen the worst in the sector.
…But The Worst Isn’t Over Within Financial Investments
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The way I see it, this magazine cover reinforces the idea that the bottom is nowhere in sight.
Now I’m not a conspiracy theorist, despite my belief that the 1985 NBA draft was rigged so that the Knicks would-thankfully-get Patrick Ewing. Nor am I a Chicken Little, as I believe any of my regular readers can attest to.
But while I’m not about to say the sky is falling, I do believe bank stocks will for a while.
This is not a stance I take lightly, especially considering that Mt. Vernon Research Investment Director Karim Rahemtulla, is well-schooled in picking and choosing from the financial sector. In fact, using his deep in the money covered call strategy, he has actually racked up gains on companies like JP Morgan, Wells Fargo, and US Bancorp.
(If you are going to get involved in financial investments, you really should only pick the stocks and strategies that Karim recommends in Xcelerated Profits Report.)
If anyone can pick winning stocks in a losing sector, it’s Karim.
But you have to look at it this way: if some of these banks needed to raise money and were offering bonds at a competitive rate, would you help finance them?
Would you buy a Lehman Brothers (NYSE: LEH) bond maturing in 2017 with a yield of 6.3%? I sure wouldn’t.
How about a Fifth Third Bancorp (Nasdaq: FITB) 4.9% yield maturing in 2018? Thanks but no thanks.
A Key Corp. (NYSE: KEY) bond maturing in 2014 paying 5.6%? Ummm…No, I think I’ll pass.
If I’m not certain that a bond will be paid back, why would I want to own the stock? After all, the bond owners get paid before the stock owners.
It’s my contention some of the banks and brokers don’t even know what they own on their balance sheets. The mortgage products and derivatives were so complex that the average CEO can’t explain them.
And these guys aren’t dumb. They may have made some poor decisions, but stupid they ain’t.
We may get a lift for a while, but there’s going to be a lot more pain in the sector as companies are forced to continue write downs when they realize the value (or lack thereof) of the garbage on their balance sheets.
Zig When They Say Zag
Furthermore, the magazine cover indicator has been a fairly reliable predictor of stock movements. It was even proven by academics at the University of Richmond.
The professors examined headlines from three major business publications over twenty years and compared the stock performance to the bias in the headline.
The study concluded that positive stories were typically published after periods of strong out-performance and negative stories after underperformance. In other words, these stocks had already made their strong moves.
Stocks with negative stories outperformed the overall market by nearly 13%, while positive story stocks outperformed by 4%.
The most famous example of a magazine cover as a contrary indicator is the August 13th, 1979 cover of BusinessWeek magazine which proclaimed, “The Death of Equities”. Of course, we know that the market is up well over 1000% since then.
Magazines tend to be late to the party for several reasons. Their job is to sell magazines. So they will often only publish a story-and especially a cover-when they know that the topic is already well into the public consciousness and is being talked about.
When was the last time you received a good investment idea, that everyone was already talking about?
Similarly, a stock often only catches the attention of a journalist or editor after it’s made a big move. Many of them are writers first and stock market mavens second, which means they’re going to put emphasis on the writing instead of analysis.
Where was the financial media calling for a bottom earlier last week when shares of Washington Mutual plunged 35%, Wells Fargo dropped 11% or Bank of America (NYSE: BAC) slid 15%?
Only after everyone was already talking about the remarkable comeback of the sector at the end of the week, did the writers at Dow Jones declare the bottom in bank stocks.
Why?
It’s what everyone wanted to read after the crazy events of the past five days. I guarantee that a cover that stated bank stocks are headed lower wouldn’t have sold as many copies.
In fact, I’m certain that a cover like I just described would not have made me pause long enough to pick up a copy, in my dash to the plane.
The bottom line is this: Covers that everyone wants to read sell magazines. They don’t accurately predict the stock market.
Hoping your longs go up and your shorts go down.
Marc Lichtenfeld
Today’s Smart Profits Notes:
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And speaking of banks, Fannie Mae and Freddie Mac are still capturing the unwanted spotlight. With the government likely to back them up with much needed funding, they might be able to pull through with this crisis with their businesses at least intact, though their reputation might not be able to claim the same. Together, they own or guarantee over $5 trillion in home loans.
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Wachovia felt the pressure this past quarter, with a just-reported loss of $8.86 billion. All told in the April-June period, it lost approximately $4.20 per share. But they seem to be taking responsibility for the poor numbers, if Chairman Lanty Smith’s comments are any indication. In an effort to build themselves back up, they’re taking action, including leaving the wholesale mortgage lending business altogether.
Commodities Corner: No Rest For The Wicked…Or Gas, Corn and Silver
July 21, 2008
Monday, July 21, 2008
by Lee Lowell, Futures Options & Commodities Specialist, Smart Profits Report
Welcome to another installment of our bi-weekly round-up of what’s been happening in the world of commodities. Once again, there’s been no shortage of wild action, so let’s get right to it.
Oil Resting For The Moment
The energy markets took a much-needed breather and retracement over the last few sessions. Since the oil market was reaching unsustainable heights, this was bound to happen, and it did.
Whether it continues to regain its lost ground and make newer all-time highs is yet to be seen, but it is still driving all the other commodities markets at this time.
Crude oil topped out at $147.27 /barrel (August futures contract) on July 11 and hit a low of $128.23 on July 18, knocking $19/barrel off its price. That equates to a dollar value of $19,000 on one futures contract. It currently sits at the $130.50 mark and is looking to make some consolidation here.
This chart shows it all.
http://futuresource.quote.com/charts/charts.jsp?s=CL%20Q8
Forget The Atkins Diet. Natural Gas Loses Weight All At Once
The other major energy player-natural gas-got walloped over the last week, shedding over 3000 points on the front-month futures contract. That equates to an astounding $30,000 on just one futures contract.
Just to give you a sense of the enormous amount of money flowing back and forth, keep in mind that there are traders out there controlling hundreds of these contracts at a time.
But while there could be a little more downside to go on this contract, it is getting close to an oversold level. Remember, we are right in the middle of hurricane season in the Southeastern U.S., so natural gas could pop back up at anytime.
Check out the chart below to see exactly what I mean.
http://futuresource.quote.com/charts/charts.jsp?s=NG%20Q8
Looking On The Bright Side
In our last update I commented on the current high price of corn futures due to the devastating rainstorms the Mid-West experienced last month. Well it seems that the damage might not have been as extensive as everyone originally thought, as the price of the nearby futures contract has taken quite a hit.
The U.S. government data and private farmers’ current assessments give the crop somewhat of a better chance of survival this season. In turn, this has sent the price of corn down over $1.75/bushel in the last two weeks. This is a dollar value of $8750 per single futures contract.
Of course, like any crop, corn prices are still very susceptible to weather factors, so any more disruptions to normal conditions can cause the prices to go right back up.
I’ve provided this chart for a closer look at its movement:
http://futuresource.quote.com/charts/charts.jsp?s=ZC%20U8
Hi Ho Silver; This One Is Going To Be Moving
And then there’s silver. Currently, the shiny substance-along with gold-is taking its cues from the oil market, just as everything else is.
But from a purely technical perspective, the charts show silver sitting on the 20-day moving average line and looking like it wants to keep going right on past its current breakout.
The luck of the Irish wasn’t with silver, as it had a very nasty fall right around St Patrick’s Day this year where it shed $5/ounce. While that might not sound like much, in dollar terms, that $5 move equates to a $25,000 change in equity.
Since that fall, silver has meandered in a $2/ounce range until we saw a recent breakout up to the $19.50/ounce level in just the last few trading sessions.
If the oil market gets back on its bullish horse, then we can possibly see silver take out that near-term high of $19.50/ounce. And it might possibly go even higher.
Keep an eye on that market and if you’re looking for bullish opportunities, stick with limited-risk option strategies.
You can see it edging its way upward again below.
http://futuresource.quote.com/charts/charts.jsp?s=SI%20U8
That’s all for this edition. I’ll catch you back here in a couple of weeks.
Lee Lowell
Sphere: Related ContentImmersion Is “Force-Feeding” Its Way Towards Solid Growth
July 17, 2008
Thursday, July 17, 2008
The Smart Profits Report Isue 541
by Paul Moore, Technology Specialist, Smart Profits Report
As the stock market continues to stumble its way through the dog days of summer, many investors are searching for companies with “rocket-like” potential that can defy the broader market trend and just go about their business.
One company that boasts this rocket-like potential is one we’ve held in our Xcelerated Profits Report portfolio since late 2005. And it’s already turned the potential into profits for longtime subscribers - a 117% gain on the first half of our position, to be exact.
A little over a year after bagging those profits, Immersion (Nasdaq: IMMR) remains loaded with potential, but still somewhat on the launchpad. As a small-cap company, it’s still volatile, so the stock market’s breakdown hasn’t helped its progress in trading terms.
But the promise of its industry (”haptics” - i.e. touch-screen and force-feedback technology) is tremendous and has received much greater press from the iPhone. Let’s take a look at this fast-growing trend, its future outlook, and where market leader Immersion is headed from here…
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The Technology Behind The Potential
While Immersion has met its financial expectations, the mass adoption curve for its technology has been pushed out and has overlapped a point in time where high beta stocks have been stripped of premium valuations.
That said, we believe the underlying fundamentals remain intact and the stock is attractive here.
In case you don’t know about Immersion’s industry, the company is a market leader in the field of haptics - a technology that simplifies and enhances human interaction with everyday technology. The company holds hundreds of patents and provides products and patent licensing to some of the world’s biggest firms.
We’ve already seen the first wave of enthusiasm, as Immersion’s technology is incorporated in cutting-edge consumer electronics products like cellphones (Immersion’s patented VibTonz software is already in Nokia (NYSE: NOK), Samsung, and Motorola (NYSE: MOT) handsets) and Sony PlayStation video games.
However, the company’s smaller segments (mobility, gaming, and automotive) are enjoying faster growth at the moment and offer the most opportunity. And as this technology matures, it will filter into products with lower price points that have mass appeal. At that point, IMMR’s top line will have the potential to grow exponentially in line with unit shipments.
Medical Division Set To Spring Back To Life, While Other Segments Rise Rapidly
While the consumer products receive most of the attention, the bulk of Immersion’s revenue actually comes from medical training devices that help surgeons learn their craft.
That core business has slowed in the US recently, but a push to expand in Europe and Asia is likely to reaccelerate revenues from this segment later this year. And even as its Medical division has slowed, Immersion has managed to offset that through rapid growth in newer areas.
For example, strength in the Mobility division saw sales shoot up by ten times during the most recent quarter and now accounts for 13% of revenues. And looking ahead to the remainder of 2008, there is plenty to be excited about…
The Buyer’s Favorite Word
Right off the bat, three major industries are set to toss more business Immersion’s way:
- Auto: BMW is expanding the use of iDrive into its 3-series models.
- Telecom: Samsung and LG are shipping handsets that leverage haptics and Nokia is expected to follow later this year.
- Gaming: 3M is producing casino gaming screens, which could offer upside over the second half of 2008.
That’s the business end. But what about the stock’s valuation?
In a word: Cheap.
While the concept of buying low and selling high is a mainstay of investing, every now and again, this simple concept temporarily eludes investors.
That explains why Immersion trades for less than two times its net cash. In the software industry, buying a profitable company at that price is relatively unheard of. But at a time when fear is rampant, you occasionally get the opportunity to snag a bargain.
In Immersion’s case, it boasts $4.52 in net cash per share. This is in cash equivalents that could be quickly liquidated if a majority holder were to buy the company.
This basically means that if a third party such as Sony or Apple or Oracle were to buy the company, it would be getting the operating business and patent portfolio for $2.30 per share (assuming a $6.82 share price). When stocks get to these levels, it becomes cheaper for a partner to acquire the firm than pay royalties for the licenses.
The Big Boys Bailed Out… But Are Now Getting Back In
Unless you took a vacation from the planet over the first three months of the year, you’ll probably know that it represented the worst start to the year for the stock market, as gridlock in the credit markets plunged financial institutions into dire straits.
That goes some way to explaining the unusual selling pressure that Immersion endured during the first quarter.
For example, Immersion’s largest holder, Goldman Sachs (NYSE: GS), all but liquidated its position over that period. Goldman sold 78% of its 3.1 million share position and if you assume that the firm sold those evenly throughout the quarter (a measured program of selling, rather than panic), it accounted for 5% of the daily volume each day. This represents a significant hurdle for a stock to overcome in a stable market, let alone a panic situation.
Since then, however, big institutions have ramped up their buying of Immersion shares. Two large shareholders have stepped up big-time, with Balyasny beefing up the size of its position by 131%, while Immersion’s largest current shareholder, Mazama, has bought 23% more stock.
This represents a strong vote of confidence from institutions that are intimate with Immersion’s story and have combined to own 15% of the shares outstanding.
Here’s The Skinny On Immersion’s Plan To Fatten Up
To sum up, Immersion has its finger on several different developing markets that have the ability to dramatically increase its growth.
If one of them catches fire, investors will benefit from accelerating profit growth and multiple expansion. Additionally, Immersion remains a buyout candidate for the likes of Sony or Samsung and a precedent was set earlier this year when Nokia acquired Navteq.
The downside scenario would be if Immersion’s share price stagnates at current levels. That could happen if increasing pressure on consumer spending delays the adoption of devices using haptics. However, the low valuation would likely still provide support for the stock and you’d merely sacrifice opportunity, which is much better than sacrificing investment capital.
Best regards,
Paul Moore
P.S. With 117% profits taken on the first half of our Immersion position, the second half remains in the Xcelerated Profits Report portfolio. While this is clearly a difficult time for most companies, battling against weakening economic growth and soaring inflation, Immersion’s technology is the real deal and as a market leader, we remain confident about the firm’s future prospects.
P.P.S. Speaking of the Xcelerated Profits Report, we’re almost ready to unleash the August issue to existing subscribers. In it, healthcare expert Marc Lichtenfeld gives six reasons to buy a fast-growing medical device maker that is defying the current broader stock market trend, while commodities specialist Lee Lowell makes an ultra-contrarian recommendation, showing two professional ways to play its downside. Click here to find out how you can join the team and claim some profits for yourself in this wild market.
Today’s Smart Profits Notes:
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Apple’s (Nasdaq: AAPL) iPhone buzz has certainly thrust touch-screen technology onto the front pages. In case you haven’t seen one, there are no buttons. Instead, all the user’s commands are computed via an interactive screen that responds to touch. This is Immersion’s core business - and is expected to be a $1.8 billion market this year, compared with $900 million in 2006.
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Just one week from today, we’ll have a better idea of how Immersion is faring in the current market. The company will release its second-quarter earnings results on July 31. As I said in my debut column on technolgy sector investments last week, cash is king in a market like this - and Immersion is in a strong position, with $140 million in the coffers and no debt.
Related Articles at:
Investing In Tactile Feedback: Haptics And Other Groundbreaking Touch Technologies Rumble With Investor Profits
Smart Money: The Best Way To Blaze Your Own Money Trail
Sphere: Related ContentThe Best Stocks To Invest In During A Bear Market
July 15, 2008
The Smart Profits Report #540
Tuesday, July 15, 2008
by Marc Lichtenfeld, Senior Analyst, Smart Profits Report
Bear markets are great equalizers. They tend to level the playing field considerably.
Take the current market, for example (now that all three major stock indexes have dropped 20% from their October highs and have officially descended into bear market territory). Bad stocks are getting pounded. But good stocks are getting whacked, too.
When fear is rampant, investors fleeing for safety tend to sell everything, not caring if they’re letting go of a quality company or a dog. They just want to get the heck out of Dodge.
This is the reason I like bear markets - and exactly why they offer some excellent opportunities to profit. You see, for folks like me, who are in the market for the long haul, you can find some outstanding bargains.
Like my last stock pick…
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An 11% Gain In Three Weeks… In This Market
In the most recent issue of the Xcelerated Profits Report, I picked a very well-known Big Pharma company in the midst of a strategic shift in its business model.
Not only is it taking steps to combat the widespread nemesis affecting the Big Pharma industry today (expiring patents and poor drug pipelines) by beefing up its pipeline through acquisitions, it’s also hugely undervalued in relation to its peers. Oh, and it pays a nice dividend, too.
Out of fairness to our paying Xcelerated Profits Report readers, I can’t reveal the name of the company, but I can tell you that it’s up 11% since my recommendation. Meanwhile, the S&P 500 has slid 7.4% during the same period.
That’s the benefit of looking for quality stocks at discount prices during a tough market. I’ll show you how to get a piece of the action for yourself in a minute - and hop on board with my latest pick, too. Meantime, here’s another effective strategy you can use to hunt for “bear bargains”…
Rewind: The Best Bear Market Bets From 2000-2002
When you’re faced with a challenging market, one option is to look for the stocks that historically perform well during downturns. You’ll often find that the companies that not only weather the storm, but thrive during it, are the ones that lead the pack once the market stabilize and heads higher again.
Here are some examples of stocks that held up well during the last bear market, which growled from March 2000 to October 2002. During that time, the S&P 500 lost a whopping 50.4%.
Ventas (NYSE: VTR): Check out these results. While most other stocks were in freefall, Ventas gained a sensational 578% and then went on to post additional gains of 356% at the stock’s high.
THQ Inc (Nasdaq: THQI): Investors who held on to THQI during the last bear were rewarded with a return of 68%. But that pales in comparison to the 178% gains at the stock’s high afterward.
Manor Care: Shares jumped 36% during the last bear market. However, by the time the Carlyle Group bought the company in 2007, its shares had rocketed another 255% since the end of the bear market.
But I imagine you want the best stocks to invest in during a bear market today. Below are a few stocks to look into. They are all trading well during what has been a treacherous market. That should be some indication that their prospects are especially bright.
Fast Forward: The Best Bear Market Bets Today
From solar power, to biotech, to healthcare and hospice services, these four companies are currently battling the bear head-on… and winning.
Canadian Solar (Nasdaq: CSIQ): Shares of this Ontario-based manufacturer of solar modules have skyrocketed over the past year. Although currently 25% off its high, the stock is still well-placed to profit from high oil prices, and with the company having recently raised its revenue outlook, there’s no reason to think that solar stocks will quit any time soon.
Note: Solar power is still a young, up-and-coming industry in stock market terms. Our newly added technology expert Paul Moore is cautious on the sector and I’m sure he’ll have more to say about solar in coming months.
Moving to the healthcare area, several names have recently hit 52-week highs…
Allos Therapeutics (Nasdaq: ALTH): Shares of this biotech company have recovered nicely since the firm’s brain cancer drug failed Phase III trials last summer. At the moment, its leading candidate, PDX, is in Phase II trials for T-cell lymphoma. The company raised over $65 million this spring, so it should have enough cash to fund its research in the near-term at least. Allos is not expected to generate any revenue this year, though.
Amedisys (Nasdaq: AMED): This profitable provider of home health and hospice services is projected to earn $2.73 per share this year and $3.32 next year. However, not everyone is bullish on AMED. Over 26% of the float is sold short. So either the bears know something, or there could be a big short squeeze coming if the stock continues to rise. Note: The company’s earnings report is scheduled for July 29, which should provide more clues.
Sequenom (Nasdaq: SQNM): This genetic and molecular diagnostics company has seen its shares quadruple since April. But the stock really started cooking in June when the company announced very strong results in tests to determine Down Syndrome in fetuses using the mother’s blood. The Down Syndrome testing market is at least $1 billion and if Sequenom’s tests are proven superior, the company could be in the position to grab much of that revenue.
The Next Company You Should Add To Your Portfolio
Before I sign off, just a quick note to let you know that I’m about to unleash my next stock pick on Xcelerated Profits Report readers.
I’ve spent the past few weeks deep in research on a medical device company that has racked up some outstanding sales growth this year… has just cornered a crucial market… and boasts terrific prospects, with earnings growth expected to rise by more than 20% annually over the next five years.
What’s more, its stock has completely ignored the current market downturn and set off in a solidly higher direction. I believe this is just the beginning, with its shares poised for an 18% rise over the next month or so - and significantly higher after that. I invite you to join me here.
Finally, do keep in mind that cycles change and the sectors that may perform well now, might easily be next year’s laggard. But keeping tabs on the strong stocks during this year’s bear market is a good way to get a jump-start on the next bull market.
Hoping your longs go up and your shorts go down.
Marc Lichtenfeld
P.S. Update On Karim’s South America Trip: As Karim mentioned here last week, he’s off to Argentina and Uruguay this November in search of some much-needed “bang for his buck.” And he wants you to join him on his venture.
He just told me that only SIX of the 16 places on the trip remain, so you must be quick if you want to take advantage.
Personally, I’d love to hit South America in November, but my Stateside duties call. For you, however, it’s a chance to discover some real investment value and diversify your portfolio away from the ailing dollar and into some long-term, high-return investments.
Hit the beach… drink some fine wine… tour some geographical and architectural wonders… it’s the perfect mix of business and pleasure. You’ll even travel on a private, chartered plane, so you can jet across the continent in style and with ease and speed.
I’m officially envious! You can get all the details about the trip here:
http://www.agoratravel.com/investsouthamerica/
And be sure to tell me all about it! If you have any questions, or would like to reserve one of the remaining spots, please call Agora Travel Director Barbara Perriello. Dial: 800-926-6575 or 561-243-6276 - extension 104. It’s her direct line.
Today’s Smart Profits Notes:
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While Marc Lichtenfeld picks through the stock market rubble to find stellar companies during a bear market, our commodities expert Lee Lowell is riding the commodities bull market. Today, in fact, he instructed Xcelerated Profits Report readers to cash out of a bull spread position in the gold market - a 37% gain in just six weeks. To enjoy the kind of investment diversity and professional strategies that can lift you above the fleeing bear market crowd, click here.
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Sphere: Related ContentSector Watch: Mr. Market Meets Mr. Bear… What This Reliable Indicator Reveals About The Next Move
July 14, 2008
Monday, July 14, 2008
by Jim Stanton, Technical & Quantitative Analyst, Smart Profits Report
I hope you like bears… because Wall Street has just officially snagged a big one.
Last week’s volatile stock market action sent the S&P 500 into what economists officially call bear market territory, having fallen 20% from its 2007 high. It joins the Dow Industrials, Nasdaq Composite, NYSE Composite, and S&P 100 in “bear ground” and in making new lows for the year.
With the market still under heavy pressure from record oil prices, the financial sector fallout, and now the failure of massive mortgage brokers Fannie Mae and Freddie Mac, it feels like the bears are in complete control.
It was the fourth straight weekly decline for the Dow and the sixth consecutive weekly decline for the S&P 500 and the Nasdaq.
However, while the Dow and S&P 500 had weekly declines of around 1.75%, the Nasdaq was only down 0.3% and the smaller-cap indexes (Russell 2000, S&P Mid-Cap, and S&P Small-Cap) actually closed higher for the week.
The biggest surprise last week was the Dow Transports, which gained close to 100 points.
So far, the Dow Transports, Nasdaq and smaller-cap indexes have managed to stay above their lows from earlier this year.
But hey, there is a glimmer of hope…
A Silver Lining… Albeit A Thin One
Let me preface this by reminding you that markets can stay oversold longer than expected.
However, as long as there are no new surprises in the financial sector and the oil market calms down from its frantic up and down action of last week, we should see a rally begin sooner rather than later.
That’s because on an intermediate-term basis, the indexes are pushing into oversold territory. Based on the action in the Dow Transports, Nasdaq, and smaller-cap indexes last week, they look ready for at least a technical rally in order to work off the oversold conditions.
That’s the intermediate-term. Longer-term, however, the jury is still out. As I noted at the top, all three major stock indexes have descended into bear market territory.
As of this morning, the Dow Industrial Average is down 21.6% from its record closing high of 14,164.53 in October.
The S&P 500 is down 20.8% and the Nasdaq is off 21.7%.
A Long-Term Lag
Quite frankly, I don’t put much stock in the 20% bear market theory - I prefer to read the charts, rather than adhere to any official bear market tags.
And both the daily and weekly charts show me that the correction may have further to go over the longer-term. The Dow and S&P 100 did reach their minimum downside targets last week, but the S&P 500 and the NYSE Composite should have gone lower to set up an ideal reversal point.
The most bullish scenario would be a high volume, panic selloff with a very high $VIX (volatility index) and put/call readings. This would clear out all the sellers and set the market up for a sustainable rally.
This is still a possibility over the next week or two, but if the markets rally prior to that happening, and the volume and advance decline readings are unimpressive, we can probably expect more selling once the rally runs out of steam.
Let’s take a look at two of the most crucial indexes…
Dow Theory Revisited
Aside from a few exceptions (mostly commodity-related), most of the ETFs and sector charts look very similar, so let’s take another look at what “Dow Theory” is telling us over the longer-term.
If you’re not familiar with the Dow Theory, it simply states that the Dow Industrials and Dow Transports must move in unison in order for a trend to continue. If one makes a new high or new low, which is not confirmed by the other, it sets them up for a reversal.
And who said technical analysis was complicated?!
If you want to read about the concept in more detail, just take a look at a couple of my previous columns - one in this “Sector Watch” on May 19 and another one here.
The Theory In Action… How The Sell Signals Worked
Take a look at those red asterisks on the charts. Just like at a traffic light, they indicate a stopping point for the indexes - that is, a non-confirmation by one of them. In turn, this led to Dow Theory sell signals.
In addition, the Transports made a token new high on May 19, but reversed immediately, setting up another Dow Theory sell signal.
On the other hand, the lows (marked in blue) occurred at the same time, meaning that it was a confirmation that the downtrend was still intact.
As you can see, both of these sell signals worked, as the Dow Industrials failed to make new highs and the index is sitting at new lows for the year.
However, in order for the Dow Transports to confirm these new lows, it would have to drop another 700 points! Not impossible, but a very tall order.
So if that doesn’t confirm a low, does it mean a buy signal? Not quite…
Setting Up The Buy Signal
While that 700-point margin does not constitute a Dow Theory buy signal, it does tell us that the indexes are set up to trigger one. With that 700-point cushion, the Dow Transports could still fall quite a bit and still be set up for a Dow Theory buy signal.
In order to trigger a Dow Theory buy signal, the Dow Industrials would have to trigger a daily buy signal and although it’s set up for one since it reached its minimum downside target, it’s too early to tell where that would occur.
If these indexes rally from here, a Dow Theory buy signal is possible but at this point, the odds are against it. As I mentioned above, a sharp panic selloff would set up a much better situation for the indexes to make a meaningful low - especially if the Nasdaq, smaller-cap and, of course, the Dow Transports don’t make new lows for the year.
That’s all for this time.
Jim Stanton
Sphere: Related ContentCommodities Suffer A Monday Mauling…
July 7, 2008
Commodities Corner: Commodities Suffer A Monday Mauling… Here’s What’s On Tap For These Volatile Players
Monday, July 7, 2008
by Lee Lowell, Futures Options & Commodities Specialist, Smart Profits Report
Welcome to another installment of “Commodities Corner” - our bi-weekly roundup and analysis of the most influential commodities markets.
There aren’t many guarantees in life… but the commodities world always provides at least one: Action! And pretty wild action, too, so let’s get right to it…
Two Reasons For Oil’s Downturn (Yes, A Drop In Price!)
As always, we kick off with the biggest player: Oil - a market that continues to blow everyone away, including oil market veterans who thought they’d seen everything the market could toss their way.
When I last wrote you, I pointed out how the crude oil futures chart was making a bullish flagpole pattern - considered to be one of the most reliable bullish signals. True to form, the oil market blasted higher out of that pattern to set multiple new all-time highs.
Following last Thursday’s surge to a record $145.85 a barrel, oil prices have backed off a little, as the US dollar has gained strength from European Central Bank talk that suggests its interest rate hike last week will be the only one for a while. That’s because dollar strength reduces the need for investors to seek a hedge against inflation - a hedge that the oil market provides.
Oil is also benefiting from a perceived shift in Iran’s stance over its nuclear arms program. Iran, the world’s fourth-largest oil producer, has “shown signs of improved lines of communication,” according to Barclays Capital, with Iran pointing to a “new environment” for talks after its response to an incentive package from the West.
Iran has stated that it won’t be forced into abandoning its uranium enrichment program, but signs that it’s willing to be more flexible is a big reason for oil’s drop today.
As you can see from this chart, the front-month futures contract currently trades around $142.
But don’t be fooled… oil seems to have a mind of its own and keeps wanting to push towards the $150 mark. The Iran situation is still very fragile and dollar gains are likely to be short-term. Most economists are calling for that and it seems only a matter of time before it does. What odds on it happening before my next column here in two weeks?
How about oil’s gassy cousin?
Atlantic Winds Could Whip This Market Higher
Relentless.
That’s the only way to describe the natural gas market. Sure, the price declined a bit today, but even so, the fact remains that the market hasn’t seen a serious break in bullish action since mid March. Check out this chart for proof.
And with Bertha rumbling away in the Atlantic, it’s merely a reminder that hurricane season is gathering momentum. Weather factors could have a huge impact on the natural gas market at any time this summer, so it’s unlikely that we’ll see any sort of sustained pullback in price until the late fall.
That’s energy. Now onto the food markets…
Corn And Soybeans Surge On Midwest Flood Fallout
In my last update, I commented on the devastating effect that the Midwest flooding had inflicted on grain crops.
Given that it was such a monumental event, the government is still assessing the full extent of the damage and each week will bring a clearer picture of how much has truly been lost.
It’s no surprise to see that corn prices have remained high over the past two weeks, setting more record highs in the process. The soybean market has also taken its cue from corn, with futures prices recently eclipsing $16.50 per bushel level.
As for the wheat market, it trades on slightly different growing fundamentals than corn and soybeans, so it hasn’t joined the bullish party as much. However, it’s recently recovered from a steep drop that saw it lose about $5 a bushel from mid March to early June and seems to be attempting to consolidate around the $8.50 area.
Until we know more about the full damage from the floods, corn and soybeans should continue their bullish ways.
But beware of nasty pullbacks if any bearish news is released.
The Coffee Bull Gets A Beating
Americans are seeing higher prices at the grocery store these days - a fact reflected in the bullish trend among the “soft” commodities.
Coffee, sugar, cocoa, and orange juice have all seen bullish moves over the past two weeks. Let’s update all four markets and see if we can gauge the future price movement…
Coffee: When I last wrote to you, coffee had just blasted 700 points higher. This is the usual result of a market that’s been trapped in a trading range for a long time - and was a move I’d predicted in recent updates.
Up to today, the market had continued to tick higher. But in keeping with today’s general commodities theme, coffee futures got hammered today, as the stronger dollar led to lower oil and a broad-based commodities selloff.
And as stop-losses got hit, the decline continued.
In addition, growing conditions in Brazil are favorable at the moment, so the catalysts for the drop were evident.
Sugar Follows Coffee
Like coffee, the sugar market has also enjoyed a solid upside blastoff recently - a welcome break after a relentless price pounding.
But like coffee, it also suffered a drop today, as its month-long, 300-point upward crusade that culminated in a three-and-a-half month high late last week ended not so sweetly.
Having recaptured all the losses it incurred from mid of April to mid June, sugar gave up some ground today, along with the other commodities. Again, there were no fundamental changes in the market, merely a pullback after the long upward run. But it just goes to show how things can really turn on a dime in these markets.
From 28-Year Highs To A 3-Week Low Amid A Furious Selloff
Just a few days ago, the cocoa market looked super, continuing its record-breaking pace by once again setting newer 28-year high marks.
But last Thursday, it succumbed to a furious, 10-minute bout of profit-taking towards the end of the day. The price fell a whopping 140 points during that short span and traded in that lower range for the rest of the session.
I’ve included the 5-minute bar chart here so you can see the manic action.
This was likely just traders locking in profits before the holiday, but the market hit a three-week low today, as it also felt the wrath of the commodities market selloff.
While it’s still too early to tell whether this market has put in a top, some analysts believe that the market is overbought and due for more downside.
Now, from a huge loss to a huge gain…
A 2,000-Point Surge For OJ
You see that remarkable rally in orange juice? In case you didn’t, check out this chart, showing a massive 2,000-point move.
That’s a very large move in such a short period of time. Watch out for this market as the players might be gearing up for an active hurricane season.
One market that remains solidly in the doldrums is cotton - as you can see here. Until the price really breaks out one way or the other, it’s business as usual - with the path of least resistance pointed lower for now.
That’s all for this edition. I’ll catch you back here in a couple of weeks.
Lee Lowell
P.S. Almost forgot about the metals! With crude oil’s fall back today, both gold and silver took their cues by dropping, too.
As you can see, gold clearly broke out of its consolidating pattern a few days ago and despite falling today, its next target is the $960 an ounce level.
Silver is also set to blast higher, too, and needs to bust through the $18.50 an ounce level. Today’s drop has set it back a bit, but it should reach that mark shortly.
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