Daily Gains Letter

Dow Jones Industrial Average


Weak Oil Prices a Boon to Airline Stocks

By for Daily Gains Letter | Nov 17, 2014

Weak Oil Prices a Boon to Airline StocksOil prices are heading lower, folks. The benchmark West Texas Intermediate (WTI) broke down to the $75.00 level last Thursday, as shown on the chart below, and could be threatening to take a run towards $70.00. Even the thicker Brent Crude oil prices (shown by the dark green line in the below chart) are not that much higher. And that’s worrisome if you are an oil producer.

The reality is that the supply-demand equation is currently out of whack, with muted demand and excess supply, which in the most basic terms, translates into lower oil prices.

Light Crude Oil - Spot Price Chart

Chart courtesy of www.StockCharts.com

Even the oil cartel, the Organization of Petroleum Exporting Countries (OPEC), doesn’t seem that concerned at this moment, despite the fact that the breakeven oil prices for oil production are much higher for many nations. Saudi Arabia just agreed to sell oil at a discounted price to the United States. Perhaps this is a token of appreciation, given the U.S. help against ISIS. OPEC members were not involved in this move.

When oil prices broke below $80.00, I thought OPEC would cut some production. Now, as oil prices fall towards the $70.00 level, you have to believe the oil cartel will intervene and cut some production.

Domestically, there is simply too much on the supply side. We have the abundant fracking oil from North Dakota and Montana. Plus, the Republican-led Congress is set to vote on whether to build the controversial Keystone pipeline and allow oil from Canada’s tar sands to flow into the United States. My thinking is that unless we see disruption to the production side in the … Read More


What It Means: Dow Fails to Hold Above 17,000 for Sixth Time

By for Daily Gains Letter | Sep 29, 2014

Sound Defense Can Increase Your Investing SuccessLast week was not a great week for chart watchers. The DOW lost 223 points on Monday and Tuesday and was down another 225 points to below 17,000 on Thursday morning.

What concerns me is that this is the sixth time the DOW has failed to hold above 17,000, which is a red flag that suggests vulnerability is on the horizon. There clearly appears to be a multiple top formation in place that could be difficult to break in the short-term, based on my technical analysis.

The small-cap Russell 2000 is also in trouble after the emergence of a bearish death cross on the chart last week when the 50-day moving average (MA) fell below the 200-day MA. Small-cap stocks tend to have a higher beta and generally are the first to be dumped as overall stock market risk rises.

Russell 2000 Small Cap Index Chart

Chart courtesy of www.StockCharts.com

At this point, you will need to be careful, especially when looking at higher-risk stocks.

Just like in sports, you will need a sound defense as part of your overall portfolio strategy. In sports, a strong defense is what leads to a win. The same can be said for the stock market.

The stock market is in its fifth year of growth. The S&P 500 is up 200% in that time. Given this and the fact that the economy and corporate profits are not growing rapidly, it would not be a surprise to see a stock market correction in the works.

The chart of the S&P 500 shows we have not had a stock market adjustment for quite some time and are due for one.

S&P 500 Large Cap Index Chart

Chart … Read More


Market Risk Rising; Where to Invest for the Best Potential Return

By for Daily Gains Letter | Sep 24, 2014

Market Risk RisingDon’t let the new records by the Dow Jones Industrial Average and S&P 500 trick you into thinking everything is fine in the stock market.

Just take a look…

We have the rising military actions against ISIS in Syria and Iraq that involve five Arab countries, which could really increase the geopolitical risk worldwide.

China is continuing to deliver muted economic results and suggested there would be no additional monetary stimulus at this time. Meanwhile, the slowing in the eurozone and Europe, given the economic sanctions on Russia, will impact the demand for Chinese-made goods.

And while the domestic economy is holding, the Organisation for Economic Co-operation and Development (OECD) recently cut its gross domestic product (GDP) growth estimates for the United States to below two percent this year.

The Federal Reserve is helping to support the stock market via the likely extension of its near-zero interest rate policy into mid- or late 2016, but this will help only so much.

The stock market risk is evident on the charts.

Technology and small-cap stocks are attracting the most selling, with investors dumping high-beta stocks as overall stock market risk rises.

The small-cap Russell 2000 lost 1.6%, moving back below its 50-day and 200-day moving averages (MAs) on Monday. The index is now down nearly four percent in September. Considering the risk, I would be careful when looking at small-cap stocks in the stock market at this time.

Technology is also at risk in the stock market despite the NASDAQ continuing to lead the major indices this year with an advance of close to nine percent. Higher-beta stocks are generally the … Read More


This Foreign Market a Hidden Treasure for Growth Investors

By for Daily Gains Letter | Sep 19, 2014

Foreign Market Hidden Treasure for Growth InvestorsWhile the S&P 500 and Dow Jones Industrial Average race to new record-highs, there’s still a sense of caution and vulnerability on the side of investors towards the stock markets here in the U.S.

In fact, a study I read in Bloomberg estimated that around 47% of stocks listed on the NASDAQ stock market are currently in a technical bear stock market, down 20% or more from the highs. On the small-cap Russell 2000, the story is even worse with more than 40% in a bear stock market. And the study shows that the S&P 500 had a mere eight percent of stocks in a technical bear stock market.

There’s even talk of the S&P 500 reaching 2,300 by the year’s end, according to some of the optimistic bulls on Wall Street. I feel it’s pure fantasy that the index will rise by another 15% by year-end.

The reality is that the stock market is stalling. Without any fresh and inviting reasons to buy, I sense the stock market risk is quite high.

An alternative would be to invest in a foreign market, and while I like China, Israel is fast becoming the favorite for growth investors. Israel has produced some top companies in the past, especially in the technology and medical devices sectors.

Israeli stocks are the third most listed stocks on the U.S. stock markets. (China is second.) As a country, Israel may be small, but an excellent investment opportunity can usually be found there. Moreover, the risk for fraud is much lower than with U.S.-listed Chinese stocks. I can’t say that I have ever heard of fraudulent … Read More


How to Hedge Against a Stalling Global Economy

By for Daily Gains Letter | Sep 17, 2014

Stalling Global EconomyThe stock market charts are showing some hesitation once again following the recent technical breaks to new record-highs for the S&P 500 and Dow Jones Industrial Average.

On the charts, the blue chip DOW is back below 17,000. Its continued failure to hold after breaking above 17,000 for the fifth time is a red flag that suggests more weakness and vulnerability could be in the works for the stock market on the horizon.

Small-cap stocks are also subject to some selling again with the Russell 2000 declining to below both its 50-day and 200-day moving averages on Monday morning. The breach of the moving average is worrisome. The index will need to find support at current levels or risk a fall to the 1,140 level.

Here are the issues I see for the stock market at this time. While I still see potential higher gains ahead for the stock market, there are also some indications of a possible stock market correction around the corner.

You may be seeing targets for the S&P 500 rise, but I feel there could likely be some pausing and weakness ahead of this.

The surfacing of soft economic news for the global economy is a concern for economies worldwide, including the U.S. economy, and overall economic growth.

The European Central Bank (ECB) recently launched fresh stimulus for the eurozone. Clearly, this is needed. The Organisation for Economic Co-operation and Development (OECD) just cut its outlook for the eurozone’s gross domestic product (GDP) growth, revising it to a paltry 0.8% this year and 1.1% for 2015. Folks, this is weak and in my view, it indicates … Read More


How to Position Yourself as China Becomes World’s Biggest Economy

By for Daily Gains Letter | Sep 10, 2014

How to Play the Rally in Chinese StocksI’m not sure how many of my Daily Gains Letter readers realize that Chinese stocks, as reflected by the Shanghai Composite Index (SCI), have outperformed the S&P 500 so far this year. After offering up underwhelming performances since 2009, the SCI has rallied 9.98% this year, compared to 8.44% for the S&P 500 and 3.23% for the Dow Jones Industrial Average as of Monday.

We’re not talking about resurgence in Chinese stocks and a return to the glory days more than five years ago; instead, I’m simply saying there’s finally some buying in an oversold Chinese stock market.

Shangai Stock Exchange Composite Index Chart

Chart courtesy of www.StockCharts.com

Of course, there’s the high anticipation of China-based Alibaba (NYSE/BABA) joining the U.S. capital markets on September 19; this move will likely stroke the enthusiasm of investors here. The Internet services company is massive and will give U.S. companies a run for their money, further opening the U.S. market to consumers and businesses worldwide. You can wait and pick up shares of Alibaba or you can play the company via Yahoo! Inc. (NASDAQ/YHOO), which holds a 23% stake in Alibaba.

Now, if you’re a regular reader, you may know that I have been, and continue to be, bullish on the Chinese economy and China. Yes, the economy is stalling, but we are still talking about growth of around 7.5% this year, which is far greater than the rest of the G7 countries.

Just like Facebook, Inc. (NASDAQ/FB) in the social media market with its more than one billion users and enormous potential, I feel the same towards China and its 1.3 billion people. When you have a market … Read More


This Sector Will Drive the Market for the Next Decade

By for Daily Gains Letter | Aug 20, 2014

This Sector Will Drive the Market for the Next DecadeIt was just a few months ago that the technology sector stocks, specifically the momentum stocks, were getting bashed around and sold off by the stock market.

Since then, the selling has subsided and we have seen a nice rebound in technology stocks to the point where the NASDAQ is the top gainer in the stock market with a 6.88% advance as of Monday. By contrast, blue chips are hurting, with the Dow Jones Industrial Average down 0.55%.

What the stock market is suggesting to us is that the appetite for risk and higher-beta stocks continues to be prevalent as investors seek the potential for higher gains.

During the past five years of the stock market advance, technology has been one of my top areas for finding a growth investment opportunity. (Health care is another.) This remains my view.

The caveat I’d add, however, is that I would continue to be very careful when buying or trading social media stocks, as the inherent risk continues to be quite high.

I suggest continuing to focus on the Internet sector, as this will remain the dominant area going forward over the next decade as technology advances. Here I’m talking about online retail along with the developers of software and solutions for companies.

The benchmark NASDAQ stock market index is at its highest point in more than 13 years and is within 13.4% of its all-time high at just over 5,100. In hindsight, it’s amazing that it took this long to retrace the steps, but then the technology stock market was extremely overvalued and trading at insidious valuation levels back then.

The chart … Read More


Stock Market: Institutions Moving in Opposite Direction of Investors

By for Daily Gains Letter | Jul 30, 2014

Institutions Telling Investors to Ease OffAs we move towards the end of July, trading in the stock market continues to be murky and filled with obstacles and uncertainties. The S&P 500 is holding on to a small gain this year, but there’s still a sense of nervousness among investors in the stock market.

While the small-cap stocks segment of the stock market continues to be apprehensive, and with a slightly bearish bias with the Russell 2000 being negative on the year so far, I’m also seeing some warning signs emerging from the broader stock market and blue chip stocks.

The S&P 500 continues to fall short on numerous occasions as it approaches 2,000. The Dow Jones Industrial Average has failed to hold above 17,000 on four occasions. The failure in both of these situations is a red flag, in my view, which could be foreshadowing a potential stock market adjustment. Look, we may only see a correction of five percent or so, but it’s coming.

This is a time to be prudent and take some money off the table, just as institutional investors have been. In an article I read on Yahoo!, institutions divested $7.97 billion in exchange-traded funds (ETFs) in the last week, while retail investors rushed in, buying up about $379 million of equity mutual funds. (Source: Lewitinn, L., “Why is the big money dumping stocks?” Yahoo! Finance web site, July 27, 2014.) This move indicates that the professional money is taking some cash off the table, given the five-year bull market run and current hesitancy in the stock market.

In fact, over the past year, retail investors have been rushing into the … Read More


Why You Don’t Need Bonds for Income Right Now

By for Daily Gains Letter | May 21, 2014

Why you don't Need Bonds for IncomeThe flow of capital into the stock market continues to be directed toward lower-beta large-cap stocks and blue chips, and far less into growth and technology stocks.

The comparative performance of the large-cap versus smaller-cap stocks also exhibits a movement of capital into bigger companies as the stock market adopts a more defensive structure. The risk in growth stocks is continuing to grip the overall stock market.

With the move to safety, we are also seeing some capital flow into the bond market as the yield on the 10-year bond approaches the critical three-percent threshold. The higher the yield, the more enticing it is for investors to move some capital out of the stock market.

Yet while bonds are gaining some traction, I still prefer the capital appreciation component associated with the stock market versus that of bonds.

The demand for yield is even more prevalent if you are a senior seeking income or a conservative stock market investor who doesn’t like the current higher risk.

Instead of bonds, I’d prefer to take a look at some dividend paying stocks.

Consider that only the S&P 500 is in the plus this year. The Dow Jones Industrial Average entered into positive territory a few sessions earlier but has since fallen back.

The attraction of the DOW stocks is not only the capital appreciation potential, but also the dividend income stream, with the average dividend yield on the 30 DOW blue chips currently sitting near 2.72%. (Source: “Dividend Yield for Stocks in the Dow Jones Industrial Average,” indexArb web site, last updated May 19, 2014.)

The move into dividend paying stocks is … Read More


How Last Week’s Mini Rally Is Reshaping My Investment Strategy

By for Daily Gains Letter | Apr 21, 2014

Mini Rally Means for Your Investment StrategyThe stock market staged a minor rally last week, but don’t get too excited yet; the buying support was largely triggered by a technically oversold market, rather than solid fundamentals or a fresh catalyst.

What I can say is that investors need to be careful with the high-beta stocks that are extremely volatile at this time and vulnerable to downside selling.

Just because momentum surfaces, it doesn’t mean the risk is dissipating. It’s simply an oversold bounce that could continue or falter again.

The fact that the Dow Jones Industrial Average and S&P 500 recovered their 50-day moving averages (MAs) last Tuesday is positive, but it doesn’t mean the worst is over.

I see the NASDAQ and Russell 2000 were still down more than seven percent as of last Wednesday and below their respective 50-day MAs. In fact, the Russell 2000 is within reach of testing support at its 200-day MA. This time around, we could see a bigger stock market correction, based on my technical analysis.

Until we see some sustained calm return, there could be continued selling pressure in the stock market, especially with the smaller high-beta stocks and large-cap momentum plays.

The most critical point to understand is that you need to preserve your capital base. The reality is that avoiding a loss is just as good as making profits. Imagine letting a losing trade run and before you realize it, the position is down 20%, 30%, or more.

This is especially true with the small-cap stocks. Making up ground following a major downside move is not easy. For instance, say you have a $10.00 stock and … Read More


Why a Soft First Quarter Offers Hope

By for Daily Gains Letter | Apr 3, 2014

Silver LiningThe first quarter, by all accounts, was a dud, especially if you were invested in blue chip stocks as the Dow Jones Industrial Average retracted 0.74% in the quarter.

Yet March also saw some shifting of capital from higher-risk assets into blue chips and large-cap stocks, as the NASDAQ and Russell 2000 underperformed with declines of 2.53% and 0.83%, respectively.

But the muted gains in the first quarter do offer some hope heading forward, especially if the stock market can attract some leadership and if the economic outlook and jobs numbers can improve. For instance, the S&P 500 led the way in the first quarter with a 1.32% advance (or a 5.28% advance on an annualized basis). By comparison, in 2013, the index had already surpassed this level of advance by March.

Given the muted results to date, we could see much better gains in the quarters ahead, but much will depend on several variables that currently cast a cloud over the stock market.

First, the Fed is continuing to cut its quantitative easing and the consensus is that the bond purchases will dwindle to zero by year-end. While this is discounted by the stock market, traders are more concerned about when the Federal Reserve will begin to increase interest rates. The early thoughts are for rates to rise sometime in the first half of 2015.

Yet Fed chairwoman Janet Yellen gave the stock market a lift on Monday after suggesting the central bank would do whatever is necessary to make sure the economic renewal and jobs growth continue unabated. Now, this could imply that the bond buying could continue … Read More


Three Ways to Combat a “Recovery” That Even the Fed Says

By for Daily Gains Letter | Apr 2, 2014

Federal ReserveFederal Reserve Chair Janet Yellen confirmed what we’ve been espousing in these pages for the last couple of years—that the so-called recovery feels an awful lot like a recession for most Americans.

Addressing a crowd in Chicago, the head of the Federal Reserve said the U.S. jobs market is still underperforming and will continue to need the help of an artificially low interest rate environment “for some time.”

Investors were, as you can imagine, afraid the Federal Reserve was going to raise short-term rates. A rate hike would elevate borrowing costs and pull the rug out from under stock prices.

But instead, the Federal Reserve said it was committed to keeping interest rates low in an effort to stimulate borrowing, spending, and economic growth. The artificially low interest rate environment is a welcome sign for Wall Street—which essentially ended the first quarter of the year where it began.

By committing to keeping interest rates low, the Federal Reserve is ensuring a steady flow of money into the stock market…which cannot help but raise the already-bloated indices higher. The S&P 500 continues to trade near record-highs, as does the Dow Jones Industrial Average. Even the NASDAQ’s all-time high is, all things considered, within striking distance.

With the current bull market now in its fifth year—all is well in the U.S.A.! That is, if you’re one of the fortunate few to even realize we’re in a bull market. There are far too many weak underlying indicators to suggest we’re on a stable—let alone sustainable—economic footing.

For instance, the U.S. unemployment rate has improved from 10% in 2009 to 6.7% today. On the … Read More


How to Generate Premium Income in a Stalling Stock Market

By for Daily Gains Letter | Mar 6, 2014

Premium Income in a Stalling Stock MarketThe S&P 500 recently traded at a record-high, just before tensions in the Ukraine erupted and the global stock market declined as fear of an escalation and war intensified.

While the charts continue to show the stock market wanting to move higher after excellent gains in February, I still sense the upside moves will be more difficult to come by compared to what we saw in 2013. Even at this point, the Dow Jones Industrial Average and the S&P 500 are still negative this year.

If the stand-off between the Ukraine and Russia doesn’t escalate, I would expect the stock market to advance higher by year-end. If tensions erupt in the Eastern European region, we would likely see major selling across stocks worldwide; commodities such as gold, oil, and grains would edge higher.

If the stock market fails to find its footing—and especially a fresh catalyst—we could see mixed and volatile trading in the months ahead as the market looks for direction.

And if the stock market fails to get any positive leverage heading into the summer months, we could see some stalling in the stock market.

If the stock market does stall, an investment strategy to consider would be to write and sell some covered call options on your stocks in order to generate some premium income. This would also help to lower the average cost base of your positions, while also setting a selling price you would be willing to sell your stocks at. Of course, your goal would be to generate premium income and not look to sell stock, as I believe the stock market will head … Read More


How to Invest in a Stock Market Correction

By for Daily Gains Letter | Feb 12, 2014

Stock Market CorrectionHas the stock market rebounded? Some seem to think so. After recording the worst month in more than a year and the first monthly loss since August, some analysts think the worst is behind us and February will be a winner.

What further evidence do the bulls need than to point to the numbers! After falling more than three percent in January, the S&P 500 is up 0.75%; the NYSE is up a little more than 0.50%; the NASDAQ is up roughly 0.75%; and the Dow Jones Industrial Average is up around 0.50%. Not a spectacular display of strength—but enough to buoy up some investors.

But the euphoria may be short-lived. While stocks are holding up right now, there are more than enough warning signs (technical, economic, and statistical) that are pointing to a correction.

For starters, February is the second-worst-performing month for the S&P 500 and Dow Jones Industrial Average so far, and it’s the fourth-weakest month for the NASDAQ. Plus, according to historical data, February tends to perform even worse when January is negative. Since 1971, when January ended on a negative, the S&P 500 extended its losses into February 72% of the time—falling an average 2.4%. For the Dow Jones Industrial Average it ends down 65% of the time and 57% of the time the NASDAQ ends down, too.

But the stock markets are only as strong as the stocks that make them—so statistics on their own are a little short-sighted. Every quarter since the beginning of 2013, more and more S&P 500-listed companies are revising their quarterly earnings lower. During the first quarter of 2013, 78% … Read More


Why January Auto Sales Point to Bleak Future for U.S. Economy

By for Daily Gains Letter | Feb 5, 2014

U.S. EconomyDespite assurances from analysts, economists, and central bankers, the U.S. economy isn’t faring so well—and the markets are finally beginning to see what we’ve been warning about in these pages all last year.

For sustainable growth, the U.S. economy needs to be reporting consistently strong fiscals. But it isn’t. For starters, the key stock indices, a reflection of the U.S. economy, have extended their sharp January losses. The S&P 500 is down 5.6% year-to-date, the Dow Jones Industrial Average has lost more than seven percent of its value so far this year, the NYSE is down roughly six percent, and the NASDAQ is in the red by four percent.

Every quarter since the beginning of 2013, an increasingly larger number of S&P 500-listed companies have revised their quarterly earnings lower. During the first quarter of 2013, the number stood at 78%. This time around, 81% of S&P 500 companies have revised their first-quarter earnings lower.

Why the big losses? That depends on whom you talk to. The Bank of America, without even a hint of a smirk, blames the much colder-than-expected weather for the weak U.S. economy, meaning the U.S. economy and global markets are performing poorly because of a snow storm…

I suggest the U.S. economy is doing poorly and the U.S. markets are tanking for entirely different reasons. For starters, the U.S. economy needs steady jobs and earnings growth. Instead, the U.S. economy is facing high unemployment and stagnant wages. For the week ended January 25, jobless claims jumped more than forecast to a seasonally adjusted 348,000.

And a record number of Americans rely on food stamps. Interestingly, … Read More


The Super Bowl Indicator; Did the Right Team Win?

By for Daily Gains Letter | Feb 5, 2014

Super Bowl IndicatorThis past Sunday, the Seattle Seahawks won their first Super Bowl with a final score of 43 to 8 against the Denver Broncos. My favorite team, the Dallas Cowboys, wasn’t playing, but I still watched the game, because the ads and half-time show are always fun—plus, it can predict where the stock market is going to go for the year.

Yes, you read that correctly; the Super Bowl is supposedly an indicator of the stock market. The indicator is very simple: whenever a team from the NFC division wins, the stock market increases. If the team from the AFC division wins, then key stock indices decline.

With the NFC-division Seahawks winning the Super Bowl, will the stock market increase in 2014?

Before going into further detail, you have to keep one important factor in mind: the Super Bowl indicator has failed at times.

One example of this indicator failing was in 2008. If you recall, the New York Giants—the team from the NFC—won the Super Bowl game after beating the New England Patriots, but the stock market that year had a complete fallout. Key stock indices like the S&P 500 collapsed more than 35% in 2008.

The indicator failed last year, as well, when the team from the AFC—the Baltimore Ravens—won, but the stock market had a stellar performance. The S&P 500 was up almost 30% for the year.

Having said that, here’s my take on following indicators like this one: the indicator could always fail again this year.

As we have just entered into the second month of trading, we see investors are nervous. In January, key stock indices … Read More


Three Stocks to Profit While Market Struggles with Positive Return

By for Daily Gains Letter | Feb 4, 2014

Three Stocks to ProfitIf January is any indication of the stock market action in 2014, we’re in for a long year. After a scorching year, the key stock indices are ending the first month of 2014 in the red. As we say goodbye to January, it’s worth noting that the S&P 500, after notching up five-percent in the first month of 2013, gave up three percent of its value during the first month of 2014.

The other indices aren’t faring any better. The NYSE posted a 3.8% gain in January 2013, but lost 3.2% of its value in January 2014. The Dow Jones Industrial Average gained six percent in January 2013, but at the close of January 2014, it’s down almost five percent.

But, if you listen to the overly optimistic statisticians, a bad January does not necessarily portend a bad year. Since 1962, in January, the S&P 500 has fallen by more than four percent nine times. But, when that occurs, the S&P 500 is actually up between February and the end of the year—though barely. During those nine years with losing Januarys, the average February–year-end returns tallied 1.08%. (Source: Ratner, J., “A weak January for stocks isn’t as bad as you think,” Financial Post, January 31, 2014.)

Though, there are some statistical anomalies in there that might just be helping the so-called as-goes-January seasonal anomaly, in two of the nine years (1968 and 2009), the S&P 500 reported double-digit gains over the final 11 months of the year. In 1968, the S&P 500 was up 12.1%; in 2009, it was up 35.3%.

In the same time, the S&P 500 saw a … Read More


The One Chart Stock Market Bulls Can’t Ignore

By for Daily Gains Letter | Feb 3, 2014

Stock Market BullsThere are many indicators that can give us an idea about where key stock indices may be headed. It may seem obvious, but always remember that nothing is certain until it happens. As I say quite often in these pages, trying to predict the exact top and bottom on key stock indices can significantly damage your portfolio in the case that the markets move in the opposite direction.

When I am trying to figure out what the next move will be by the key stock indices, I look at investor sentiment; I look at where investors are placing their money and what kind of assets they are buying. For example, when investors think the risks on key stock indices are increasing, they go towards safer stocks—big-cap companies may be one example. On the other hand, if investors think the key stock indices are moving to the up side, they move into stocks that provide better-than-market returns.

One indicator of investor sentiment that I look at is the relationship between the Utilities Select Sector SPDR (NYSEArca/XLU) exchange-traded fund (ETF) and the Morgan Stanley Cyclical Index. The XLU tracks utilities companies that are considered safer by investors because their products or services are needed regardless of economic conditions, like electricity providers, for example. On the flipside, the Morgan Stanley Cyclical Index tracks cyclical stocks, which are the stocks that move with the markets and are considered riskier assets, like furniture retailers, for example—they are dependent on how the economy is doing overall.

With this in mind, please take a look at the chart below. It shows the movement in the XLU and … Read More


Another Five Percent Down for the S&P 500, at Minimum?

By for Daily Gains Letter | Feb 3, 2014

S&P 500Though making money is important, that’s not the be-all and end-all behind smart investment strategies. Just think about the common phrase “a dollar saved is a dollar earned.”

Success in trading and investing means you need to be aware of both the upside and downside risks, such as we are seeing now as the stock market moves lower.

In general, investors should hold off on buying for now until we see some solid opportunities. Trading volume is rising on the down days, which confirms the selling pressure. As well, the Dow Jones Industrial Average has declined for five straight sessions, losing nearly four percent in that time.

A look at the chart of the S&P 500 makes me nervous. The index is searching hard for technical support on the chart after dropping below both its 50-day and 200-day moving averages (MAs), as shown on the chart below. The break, while worrisome and bearish, is not a big deal unless we fail to see the emergence of any strong oversold technical buying support.

You want to see high volume on the buy side, as it shows mass market participation and a willingness to buy. Light volume would not be conducive to a sustainable buying support.

Now, as a chartist, one needs to watch several key technical support levels where there has been some buying in the past. The first is around 1,770. Failure to attract sufficient buying support here could see the S&P 500 run downward toward the key 1,700 level, last encountered on October 15, 2013.

$SPX S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

Should the S&P 500 decline to 1,700, it would translate … Read More


How to Profit from the Collapse in Emerging Markets

By for Daily Gains Letter | Jan 30, 2014

Emerging MarketsAfter years of easy money and a failure to secure a well-executed exit plan, it looks as though the emerging markets are getting a taste of the Federal Reserve’s economic tapering. Over the last five years, the emerging markets have benefited from low interest rates and listless growth in developed countries.

But, with the U.S., Japan, and Europe—the three biggest economies globally—all expanding for the first time in four years, the tables are turning and the sheen is beginning to wear on the emerging markets.

In an effort to help kick start the U.S. economy after the financial crisis in 2008, the Federal Reserve enacted it’s overly generous bond buying program (quantitative easing). All told, the Federal Reserve dumped more than $3.0 trillion (and counting) into the markets and has kept interest rates artificially low.

The ultra-low interest rates might have been great for home buyers, but income-starved investors had to look elsewhere to pad their retirement portfolio. Many retail and institutional investors went to the emerging markets, where the interest rates were higher and there was a real opportunity for growth.

In December, the Federal Reserve said it was going to begin tapering its $85.0-billion-per-month quantitative easing strategy to $75.0 billion a month in January. Just yesterday, the Fed announced it will be reducing that number to $65.0 billion a month in February. While the amount is negligible, it signals the eventual end of artificially low interest rates. The cheap money that propped up asset prices in emerging markets, like India, China, and Indonesia, is beginning to crumble.

The Argentinean peso, Indian rupee, South African rand, and Turkish lira … Read More


Have These Stocks Already Been Through a Correction?

By for Daily Gains Letter | Jan 28, 2014

Correction Already Under WayIt’s incredible, really, that some investors are surprised that the Dow Jones Industrial Average, NYSE, and S&P 500 are in the red for the year, spooked apparently by weak corporate earnings.

How can this be a surprise? Is it fair to say that 2013 was an irrational momentum play? Has that logic finally caught up to investors? Once again, I enter as evidence 2013’s fourth-quarter earnings—which should not have caught anyone off guard.

The ball got rolling in late 2012, when 78% of S&P 500 companies issued negative earnings-per-share (EPS) guidance for the first quarter of 2013. The negative earnings momentum continued into the second quarter, when 81% of companies on the S&P 500 lowered their earnings guidance.

Against the backdrop of rising key stock indices, a record 83% of all S&P 500 companies waved the white flag, revising their third-quarter earnings guidance.

Still, the S&P 500 climbed higher. And in a desperate bid to help investors avoid the economic iceberg and take profits, a record 88% of reporting S&P 500 companies issued negative fourth-quarter earnings guidance. (Source: “Record high number and percentage of S&P 500 companies issuing negative EPS guidance for Q4,” FactSet, January 2, 2014.)

And here we are in the midst of fourth-quarter earnings season and investors are sending the key stock indices into the red, disappointed, it would seem, with what they were warned was coming.

As we enter the last week of January, the S&P 500 is down 2.5% so far this year. At this same time last year, the S&P 500 was up roughly 2.2%. The Dow Jones Industrial Average is down 3.5% in … Read More


Want to Give Up on Picking Stocks and Just Play the Market? Here’s How

By for Daily Gains Letter | Jan 13, 2014

Just Play the MarketThe year 2013 was a stellar year for stocks. The key stock indices have seen record increases: the S&P 500, which showed its best performance since 1997, increased by almost 30%; the Dow Jones Industrial Average saw a similar increase; and the NASDAQ Composite Index performed even better, ending the year with a return of more than 35%.

Looking at these numbers, one must really ask how their portfolio has done. If your portfolio had similar returns—well done! If it lagged, here’s something to note: hedge funds returned only 7.4% for the year. They lagged by almost 23% compared to the broader market return—the most since 2005. (Source: Bit, K., “Hedge Funds Trail Stocks for Fifth Year With 7.4% Return,” Bloomberg, January 8, 2014.)

Two key stocks that beat the returns of key stock indices and the returns given by the hedge funds many times over this past year were Gray Television, Inc. (NYSE/GTN) and Tesla Motors, Inc. (NASDAQ/TSLA).

Gray Television, Inc.

In 2013, this stock opened at $2.28. On the last trading day of the year, it closed at $14.88. If you held Gray Television stock in your portfolio for the entire year, your profits per share would have been $12.60, or just over 552%. (Source: StockCharts.com, last accessed January 9, 2014.) This return is similar to beating the hedge funds return by almost 75 times and beating the returns posted by the S&P 500 by 18 times. Below is the chart that shows this stock’s precise move.

Gray Television Chart

Chart courtesy of www.StockCharts.com

Tesla Motors, Inc.

Tesla Motors opened at $35.00 in 2013. On the last trading day of the … Read More


A New Year’s Resolution in Gold Bullion?

By for Daily Gains Letter | Jan 7, 2014

Gold BullionDid gold make a New Year’s resolution? If it happened to set its sights on 2014 being better than 2013, then that might not be too hard to accomplish. For gold bugs, 2013 was abysmal. Gold bullion prices ended the year down about 28%—the biggest annual drop in more than 30 years.

Gold bullion prices experienced an unprecedented run-up after the tragic events of September 11, 2001 and soared higher in 2008 as the global economy teetered on the brink of a recession. Investors’ justifiable fears of economic turmoil and inflation sent them running to gold bullion and gold mining stocks to hedge against this economic uncertainty. Between September 2001 and September 2011, gold prices soared more than 560%.

But since then, gold prices have lost their lustre. And in June of this year, the precious metal hit a three-year low of $1,179 an ounce after the Federal Reserve hinted it would begin to taper its generous $85.0-billion-per-month quantitative easing policy. Investors took this as a sign that the U.S. economy was on solid footing.

Gold bullion prices remained weak near the end of the year after the Federal Reserve announced on December 18 that it would begin to reduce its monthly bond buying program to $75.0 billion a month starting in January. Gold bullion ended the year at $1,202.

2013 will be remembered as the year when (misguided) economic optimism helped lift the Dow Jones Industrial Average by 26%, the S&P 500 by almost 30%, and the NASDAQ by 34%. In 2013, that same optimism also shaved off half of the value of gold mining stocks.

But it could … Read More


Time to Go Against the Key Stock Indices?

By for Daily Gains Letter | Jan 6, 2014

Key Stock IndicesTrading for 2014 has begun. In 2013, we saw massive moves on the key stock indices—something we have only seen a few times. For example, the S&P 500 moved up by almost 30%, and the NASDAQ Composite increased by more than 35%. Those who were long saw their portfolio grow, and those who went against the key stock indices probably had to question their strategy and re-allocate the capital.

You can see for yourself in the chart below: key stock indices such as the S&P 500 maintained an upward trajectory throughout the year—and without any major hiccups.

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

The average return on the S&P 500 between 1970 and 2012 was 8.2%; on the Dow Jones Industrial Average, it was 7.9%; and on the NASDAQ Composite, it was just slightly more than 13%. (Source: “Historical Price Data,” StockCharts.com, last accessed January 2, 2013.)

Sadly, these numbers only indicate past performance. With the beginning of the new year, investors have one main question in mind: where are the key stock indices going to go in 2014? Will we see a decline or are we in for another stellar year?

The year 2014, I believe, is going to be an interesting year for stock investors. The rally in the key stock indices that started in 2009 continues to march forward. As this is happening, the fundamentals that act as fuel for the stock market rally are becoming anemic. This should be noted, because without fundamentals becoming stronger, key stock indices can only go so far.

For instance, on the surface, the U.S. gross domestic product (GDP) looks better than before, … Read More


Economic Indicators Pointing to Weaker Growth in 2014

By for Daily Gains Letter | Jan 6, 2014

Economic IndicatorsIf the stock market is an indicator of U.S. economic health, then 2013 was a stellar year. The Dow Jones Industrial Average closed out 2013 with a 26% gain. The S&P 500 was up 29%, while the NASDAQ Composite was up 34%.

Despite a stellar 2013, the crystal ball for the U.S. economy and Wall Street in 2014 remains murky. That’s because investors might have to actually consider the health of the U.S. economy this year. Now granted, the U.S. economy kicked into high gear last January after the federal government avoided the dreaded fiscal cliff. Thanks to some recent economic indicators, the start of 2014 has been more subdued.

Factory activity in China hit a three-month low in December. While Germany and Italy reported healthy manufacturing numbers, British manufacturing growth eased and France hit a seven-month low of 47.0 (scores below 50 indicate contraction). Here at home, the U.S. economy got a boost after it was announced that manufacturing hit an 11-month high in December of 55.0, up from 54.4 in November. (Source: Weisenthal, J., “This Manufacturing Report From France Is Just Plain Ugly,” Business Insider, January 2, 2014.)

To show it believes the U.S. economy is improving, the Federal Reserve recently announced that it will begin to taper its quantitative easing efforts this month. Instead of pumping $85.0 billion per month into the U.S. economy, it is going to purchase just $75.0 billion in bonds.

And to quell investors’ fears, the Federal Reserve said it will continue to keep interest rates artificially low until the unemployment rate hits 6.5% or lower—a target that probably won’t be reached until … Read More


The Contrarian: Why I Think Stocks Will Rise in 2014

By for Daily Gains Letter | Jan 6, 2014

Stocks Will Rise in 2014Now that New Year’s has come and gone, as we look forward into 2014, the big question will be how the stock market performs this year, especially following an impressive advance in 2013 that was beyond my estimates.

The past year was seen as the year of the Fed-induced market rally that resulted in some strong gains across the board from blue chips to technology and growth stocks. It was one of the best years to make money on the stock market in recent history.

At this stage, the economy is looking better and will need to strengthen in order for the stock market to advance higher toward more record gains. A strong January would be positive and would suggest an up year for the stock market.

My early view is that the stock market will head higher in 2014, but not at the same rate as we saw in 2013, which was out of whack.

The key will be how fast the Federal Reserve, under Janet Yellen, decides to taper its bond buying. A slower taper is supportive for the stock market. However, the flow of money will depend on the rate of economic renewal and, more specifically, the jobs market and whether job creation continues to move along at a steady pace. If we see growth and more jobs created, the Fed will continue to cut its bond buying, though it has said that it will keep interest rates near record lows until the unemployment rate falls to 6.5% or lower, which could happen sometime in mid- to late 2014.

I see another up year for the stock … Read More


How to Profit from the Market’s Change of Heart Toward Tapering

By for Daily Gains Letter | Dec 23, 2013

Market’s Change of Heart Toward TaperingInvestors are a surprising lot. Since May, any suggestions about tapering by the current Federal Reserve chairman, Ben Bernanke, or even one of the dozen district Federal Reserve economists, sent the markets reeling.

Back in May, just the whisper of a hint from the Fed that it might consider tapering its $85.0-billion-per-month bond buying program was enough to stop the bull market in its tracks. It recovered, of course, but only after Bernanke soothed the markets by saying he had no intention of pulling back on the Fed’s quantitative easing (QE) policy anytime soon.

The general fear, of course, was that any reduction in QE would translate into an immediate rise in interest rates. Having kept interest rates artificially low (near zero), the Fed made it cheaper for people to borrow. As a result, these artificially low interest rates are generally recognized as being the fuel that’s been propelling the stock market increasingly higher.

The Federal Reserve quashed those fears last week after announcing a $10.0-billion monthly cut in its QE strategy by telling investors it wouldn’t raise interest rates until unemployment hits 6.5%. By the Fed’s own estimates, the country will not hit this target until late 2014 to mid-2015. So, artificially low interest rates live on.

The assurance of cheap money kept the markets upbeat; so much so that the following day, the Dow Jones Industrial Average and S&P 500 opened at record highs, and the NASDAQ opened at a 13-year high.

News on a few key economic indicators released last Thursday, the day after the Federal Reserve’s announcement, probably didn’t hurt either, as these indicators suggested the … Read More


In Review: 2013 and the Game Plan for Investors in 2014

By for Daily Gains Letter | Dec 23, 2013

Investors in 2014We are reaching the end of the year, and it has really been one stellar year for the key stock indices. The S&P 500 is up roughly 25%. Other key stock indices, like the Dow Jones Industrial Average and the NASDAQ Composite index, have shown very similar returns.

Just look at the chart of the S&P 500 below:

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

The chart shows nothing but a solid uptrend—the S&P 500 continues to make higher lows and higher highs. It seems the momentum is towards buying.

But looking at how 2013 progressed, as the key stock indices continued to march higher, a few disturbing phenomena took place.

First, sales of companies on key stock indices aren’t really meeting expectations. For example, in the third quarter, only 52% of the S&P 500 companies were able to beat their revenue expectation, while 73% of them were able to beat their corporate earnings estimates. (Source: “Earnings Insight,” FactSet, December 6, 2013.)

Second, companies on key stock indices have logged a record high for share buyback activity. In fact, in 2013 so far, share buybacks have amounted to $460 billion—this is the highest amount since 2007. (Source: Jaisinghani, S. and Raghavan, M., “3M sets year’s biggest U.S. buyback plan, raises dividend,” Reuters, December 17, 2013.) At the very core, share buybacks are a kind of “financial engineering.” Through buybacks, companies on the key stock indices can make their corporate earnings per share look better without having to increase their overall earnings.

Last but not least, 2013 wasn’t all that great when it comes to economic growth in the U.S. economy. The unemployment rate … Read More


Why Fed’s Change of Plans Doesn’t Mean a Change in the Stock Market

By for Daily Gains Letter | Dec 20, 2013

Change in the Stock MarketIs it an early Christmas present or a really early April Fools’ Day trick?

In a somewhat surprise move, the Federal Reserve decided the U.S. economy was doing well enough that it could start to cut back on its generous $85.0-billion-per-month quantitative easing (QE) strategy.

I say “surprise” because the Federal Reserve initially said it wouldn’t consider tapering until the U.S. economy was on solid, sustainable economic ground, which meant an unemployment rate of 6.5% and inflation of 2.5%. Today, unemployment sits at seven percent and inflation is near historic lows at below one percent.

Against a weak economic backdrop, the Federal Reserve made a brave and daring decision to slash its monthly QE policy by a paltry $10.0 billion. That means that instead of pumping more than $1.0 trillion into the U.S. economy next year, it is only going to inject $900 billion. In other words, the U.S. national debt is going to increase by $900 billion. (Source: Press release, Board of Governors of the Federal Reserve System web site, December 18, 2013.)

If the U.S. economy really was on solid footing, Fed Chairman Ben Bernanke would have made a bigger dent in his monthly bond-buying program. Instead, he made a token gesture as he gets ready to hand the baton to Janet Yellen early next year.

Yup, after injecting $4.0 trillion into the U.S. economy, the country is little (or no) better off than it was before the Fed initiated quantitative easing. U.S. unemployment is down from its Great Recession high of 10% in October 2009, but it has yet to break the seven-percent level. Meanwhile, the underemployment … Read More


U.S. Misery Index Falls to Four-Year Low

By for Daily Gains Letter | Dec 16, 2013

U.S. Misery Index 2If you think you can judge a book by its cover, then you must believe the U.S. economy is doing really, really well. After all, consumer confidence is up and misery is down. However, looking past the cover, the pages of underlying economic indicators suggest the average American investor should be a little concerned.

But first, the good news! The U.S. Misery Index has fallen to a four-year low. The Misery Index is calculated by adding a country’s unemployment rate to the inflation rate, the logic being that we understand what stubbornly high unemployment mixed with the soaring price of goods translates into—misery.

The higher the score, the more miserable we are. For example, in August 2008, when the U.S. stock markets started to tank, the Misery Index stood at 11.47; when President Obama came to office in January 2009, it registered at 7.83; during the debt ceiling crisis in the summer of 2011, the index topped 12.87. Over the last three consecutive months, it’s been on the decline. In July, it came in at 9.36 and in October, it was 8.3. (Source: “Misery Index by Month,” United States Misery Index web site, last accessed December 13, 2013.)

According to the widely followed Thomas Reuters/University of Michigan preliminary December consumer confidence index, consumer confidence rose to 82.5—the strongest reading since July. In November, consumer confidence was 75.1, according to the index; economists were predicting a reading of 76.0.

Why the increased optimism? American consumer confidence levels are improving thanks to the better-than-expected drop in November unemployment, improved non-farm employment numbers, and strong preliminary gross domestic product (GDP) results. Stronger-than-expected consumer … Read More


These Value and Growth Stocks Could Outperform the Bull Market

By for Daily Gains Letter | Dec 13, 2013

Outperform the Bull MarketWhen it comes to building a balanced portfolio, investors like to find stocks that provide both value and growth. If you’re a value investor, you’re always on the lookout for companies that are cheap relative to their earnings, assets, or price-to-book value; in other words, they look for what’s undervalued.

A growth investor, on the other hand, likes to look at publicly traded companies that are in a position to rapidly increase their revenues and profits; they want stocks with excellent long-term growth potential. This could include those stocks that have provided revenue and earnings guidance that is expected to outperform the market or industry.

While sticking with one strategy over the other can work, it can also lead to lurching gains when your investment strategy hits economic headwinds. However, combining both strategies can produce more consistent returns.

But if profitable investing really was that easy, everyone would be following this investment strategy, which means no one would be making money.

The fact of the matter is that in this economic environment, it’s pretty tough to find unloved, overlooked value and growth stocks. That’s because virtually everything is going up.

The S&P 500 is up 26% year-to-date and 15% since its pre-Great Recession high. Not to be outdone, the Dow Jones Industrial Average is up more than 21% since the beginning of the year and up roughly 13% from its pre-recession high. The NASDAQ is hands down the top performer so far this year, up 30% since January 2 and more than 40% since peaking in 2007.

In a bull market where it seems like everything is going up, it’s … Read More


Better Economic Numbers Don’t Matter; Stock Market Only Obsessed with This One Thing

By for Daily Gains Letter | Dec 10, 2013

Better Economic Numbers Don’t MatterA raft of positive economic news came in last week, suggesting that the U.S. economy may actually be getting stronger. On Friday, the Bureau of Labor Statistics reported that the unemployment rate fell from 7.3% to seven percent in November, the non-farm employment numbers improved by 203,000, and unemployment claims fell to 298,000. In addition, preliminary gross domestic product (GDP) growth climbed from 2.8% in October to 3.6%, soaring past the three percent forecast.

Normally, this kind of news would help shore up the stock market and send it rallying higher. But that’s not what happens in a Federal Reserve-fuelled market; in fact, the Dow Jones Industrial Average, S&P 500, and NASDAQ all responded with a losing streak.

Why the fear? Two words: quantitative easing. Since implementing the first round of quantitative easing in 2009, the Federal Reserve has flooded the market with over $3.0 trillion. Quantitative easing has translated into artificially low interest rates. The low-interest-rate environment has also been the primary fuel behind the stock markets’ unprecedented rally.

The Federal Reserve has said it will begin to taper (not discontinue) its quantitative easing strategy when the markets improve, which many believe means an unemployment rate of 6.5% and inflation at 2.5%.

Not surprisingly, the sharp decrease in unemployment has made the markets jittery. Tapering quantitative easing bond purchases means interest rates will increase, which could put a wet blanket on the U.S. economy. Back in May, the Federal Reserve hinted it was thinking about tapering quantitative easing; Wall Street responded by sending the markets lower, and banks responded by sending mortgage rates higher.

So you can see why … Read More


How Long Will the “Miracle on Wall Street” Continue?

By for Daily Gains Letter | Dec 2, 2013

Miracle on Wall StreetAs the key stock indices are going higher, there’s a growing concern among investors that we are reaching a top. There’s a significant amount of noise that says the key stock indices are running on nothing but free money and the fundamentals that drive them higher are dead. We’re hearing that it’s all going to fall soon.

To some degree, I agree that easy money has a hand in the rise of key stock indices, and that current corporate earnings aren’t all that impressive. However, while observing the markets over time, I have learned that tops and bottoms are not easy to predict; in fact, it’s impossible. That’s because it isn’t clear when they happen and they can only be identified once they have been made.

Going back to 2009—when the key stock indices weren’t in such good graces—there was a significant amount of noise saying they were going much lower. At that time, the bottom was placed in, but it didn’t become clear until later. In 2007, the key stock indices made a top, but it wasn’t apparent until they started to slide lower.

Investors who think the key stock indices are about to form a top, or have already formed one, have to be really careful in their predictions. If they believe their convictions are going to be correct, then they should go in with stops, in case the trade works against them.

Going forward in December, here’s what else investors need to know.

December is generally a quiet month on the key stock indices. For example, the average return on the S&P 500 in December from 1970 … Read More


Wal-Mart Asking Employees to Donate Food to Fellow Employees in Need?

By for Daily Gains Letter | Nov 21, 2013

Wal-Mart Asking Employees to Donate FoodThe recent rise on the key stock indices might just be masking a fundamentally flawed economic recovery. Since the beginning of the year, the S&P 500 has gained 25%, the Dow Jones Industrial Average is up 21%, and the NASDAQ is 27% higher. At the same time, unemployment remains high, wages are stagnant, and our day-to-day life costs more.

With the S&P 500 on pace for the best yearly gain in a decade, well-heeled shareholders are rejoicing—at the other end of the scale, many employees aren’t.

You know it’s a touchy economic climate when Wal-Mart Stores, Inc. (NYSE/WMT), the world’s biggest retailer, which reported third-quarter profits of $3.7 billion, is asking employees to donate food to fellow associates in need, so they can enjoy Thanksgiving this year.

A weak economy and stiff competition is taking a toll on Wal-Mart. While Wal-Mart reported third-quarter earnings that beat Wall Street estimates by a mere penny, revenues of $114.9 billion were shy of the $116.8-billion mark Wall Street was hoping for. Not surprisingly, perhaps, Wal-Mart said holiday sales would be flat. (Source: “Walmart reports Q3 EPS of $1.14, updates full year guidance; Aggressive holiday plans to drive sales,” Wal-Mart Stores, Inc. web site, last accessed November 14, 2013.)

In light of Wal-Mart’s recent employee Thanksgiving food drive, it’s interesting to note that third-quarter sales from Neighborhood Market, Wal-Mart’s chain of grocery stores, rose a solid 3.4%.

Where other grocery store chains have reported underwhelming third-quarter results, Wal-Mart’s grocery chain actually bucked the trend. Fourth-quarter results may be muted. Thanks to a U.S. economy that continues to look fragile, grocery store stocks are competing … Read More


If It Looks Like a Bubble and Acts Like a Bubble…

By for Daily Gains Letter | Nov 19, 2013

Looks Like a BubbleMaybe I’m reading into the economy too much, but the current state of the U.S. economy and Wall Street isn’t adding up. The vast majority of people don’t think we’re in a bubble, including Federal Reserve chair nominee Janet Yellen. Granted, you can only really point to a bubble in retrospect, but still, it certainly looks and feels like we are in one.

Talking before the Senate Banking Committee during her first public appearance as Federal Reserve chair nominee, Janet Yellen said she plans to keep printing $85.0 billion a month and set no timetable for when the Fed will begin to taper.

Truth be told, the Federal Reserve has been, for the most part, pretty straightforward about when it will taper its quantitative easing policy: when the U.S. economy improves. For most, that means an unemployment rate of 6.5% and inflation at 2.5%.

At the same time, other scenarios have been floated about, including no tapering until the unemployment rate hits 5.5%, or better yet, the Federal Reserve begins to taper in early 2014, but continues to keep interest rates artificially low until, by some estimates, 2020. Really, what’s the rush?

And why should they? Since early 2009, the S&P 500 has climbed more than 160% and is up more than 25% year-to-date. The Dow Jones Industrial Average, on the other hand, is up 132% since early 2009 and is up 21.5% year-to-date. And it looks like the good times are going to continue to roll, because, in the words of Janet Yellen, “It could be costly to fail to provide accommodation [to the market].”

Take a few steps … Read More


Top Four Overlooked Stocks for Income-Seeking Investors

By for Daily Gains Letter | Nov 15, 2013

Income-Seeking InvestorsThe 2014 Winter Olympics in Sochi, Russia may be just around the corner, but when it comes to breaking records—for better or worse—Wall Street remains the gold-medal champion.

Thanks to the Federal Reserve, interest rates are at record lows, and will stay there for the foreseeable future. The U.S. national debt is at a record $17.1 trillion, while at the other end of the scale, the S&P 500 and Dow Jones Industrial Average recently posted record highs.

This is in spite of economic indicators that suggest the markets should be moving in the opposite direction: high unemployment, high debt, weak consumer confidence, a record 47.6 million Americans—one-sixth of the population—receiving food stamps, etc.

Under this umbrella, the markets have been going higher, in spite of an increasingly large number of companies warning investors they are not going to meet projections—and, in fact, have been revising earnings-per-share (EPS) guidance lower all year.

In the third quarter, a record 83% of S&P 500 companies revised their EPS guidance lower. How about the fourth quarter? So far, 83.5% of reporting companies on the S&P 500 have issued negative EPS guidance. In October, analysts lowered earnings estimates by 1.5%, below the one-, five-, and 10-year averages for the first month of a quarter.

Again, in spite of the record number of S&P 500 companies revising their EPS guidance lower and weak October analyst expectations, the S&P 500 continues to notch up fabulous gains—roughly 25% year-to-date and 4.5% in October alone.

Interestingly, this marks the seventh time in the last nine quarters that earnings estimates fell while the value of the underlying index increased during … Read More


Four Ways to Profit from America’s Wealthiest Citizens

By for Daily Gains Letter | Nov 7, 2013

Wealthiest CitizensHalf of the U.S. workforce is partying like its 1998—and not in a good way. According to the Social Security Administration, the median wage in the U.S. in 2012 was $27,519.10, marginally better than 2011’s median wage of $26,965.43.

That said, the median wage remains virtually unchanged since 1998, when the median wage was $27,519.55 when adjusted for inflation. So actually, you made $0.40 less in 2012 than you did in 1998. But I digress.

The report shows that more than half of Americans earned less than $30,000 in 2012. Incredibly, 15% of working Americans took home less than $5,000, with an average amount of just $2,024.79. During 2012, the S&P 500 climbed 13%, illustrating that the majority of Americans are not benefiting from the so-called recovery we call the U.S. economy.

Fear not, for there is hope. Stagnant wages are not hindering everyone: the number of Americans pulling in more than $5.0 million a year in 2012 increased by 26.8% year-over-year to 8,982. In 2011, just 7,082 Americans earned more than $5.0 million.

These stratospheric numbers only take net earnings into consideration; they do not account for capital gains made on the stock market, dividend growth, etc. Whereas America’s wealthiest citizens turn to the stock market to pad their retirement savings, the majority of Americans rely on increasing property values, income vehicles, and pension funds to pave their way to retirement.

Thanks to a record run on the S&P 500 and Dow Jones Industrial Average, America’s wealthiest have been seeing their holdings increase significantly since the Great Recession ended in 2007. On the other hand, thanks to the artificially … Read More


Why November May Not Be So Safe for Investors

By for Daily Gains Letter | Nov 5, 2013

November May Not Be So Safe for InvestorsSince the beginning of the year, key stock indices have provided investors with hefty gains; with the S&P 500 having increased more than 23% from January to October. Other key stock indices, like the Dow Jones Industrial Average and the NASDAQ composite index, have provided similar returns.

Where are they heading next?

Looking from a historical point of view, from 1970 to 2012, key stock indices aren’t as volatile for November when compared to September and October. For example, the average return on the S&P 500 for the month has been 0.95%; the highest return achieved in the time period examined was 8.9% and the lowest return was -11.38%. If we take out the highest and lowest returns, the average return on the S&P 500 for November increases to 1.06%. (Source: “Historical Price Data,” StockCharts.com, last accessed November 1, 2013.)

Looking at the data from the last 43 years, the probability of the S&P 500 providing a positive return in November is 65.11% (increased in 28 years), and the probability of the month providing a negative return is 34.88% (decreased in 15 years).

Investors have to keep in mind that the above statistics are just that: statistics. They should provide only a general idea about what to expect from a historic point of view. They need to be informed about the fundamentals of key stock indices as well. The stock markets are forward-looking animals, and past information actually may not matter.

Here’s what investors also need to know on the fundamental side.

Companies on the key stock indices have developed a dangerous trend; their corporate earnings are coming in line … Read More


How Low Interest Rates Are Holding 144 Million U.S. Workers Hostage

By for Daily Gains Letter | Oct 28, 2013

144 Million U.S. Workers HostageAre the long-term retirement plans of working Americans being held hostage by the Federal Reserve?

If the point of quantitative easing was to stave off a recession and spur jobs growth, I think it’s fair to say the Federal Reserve’s $85.0-billion-per-month money-printing scheme has been a failure. At the very least, I’m not so sure the money was well spent, and that the end does not justify the means.

I enter as evidence almost $4.0 trillion that the Federal Reserve has dumped into the U.S. economy since 2009. To put that into perspective, the average unemployment rate that same year was around 8.5%; that translates into roughly 13.1 million Americans being out of work in 2009. Fast-forward to today, and the unemployment rate stands at an unacceptable 7.2%, or 11.3 million Americans. (Sources: “Civilian Labor Force (CLF16OV),” Federal Reserve Bank of St. Louis Economic Research web site, last accessed October 24, 2013; “The Employment Situation – September 2013,” U.S. Bureau of Labor Statistics web site, October 22, 2013.)

It could be argued that over the last four years, the Federal Reserve has printed off $4.0 trillion to create 1.8 million jobs.

But at what expense? Since the stock market crash in 2008, the Federal Reserve, through its use of quantitative easing, has sent U.S. interest rates towards near-record lows. In fact, the Federal Reserve has kept the federal funds rate target between zero and 0.25% for almost five years.

That’s terrible news for anyone looking to save money, and near-record-low interest rates make it virtually impossible for people to save money to meet their retirement needs. Sadly, for those nearing … Read More


Wall Street Cheers 13.6% Unemployment Rate; S&P 500 Soars!

By for Daily Gains Letter | Oct 24, 2013

Unemployment RateBad news on Main Street is good news for Wall Street. Illogical heads prevailed on Tuesday after the U.S. government announced that the unemployment rate dipped to an ever-so-modest 7.2% in September, from 7.3% in August. The U.S. added just 148,000 new jobs in September—far short of the forecasted gain of 180,000 jobs for the month. (Source: “The Employment Situation – September 2013,” Bureau of Labor Statistics web site, October 22, 2013.)

The number of long-term unemployed (those without a job for at least 27 weeks) remains stubbornly high at 4.1 million, and the underemployment rate is at an eye-watering 13.6%, up a sliver from 13.4% in August.

Weak jobs numbers means the Federal Reserve will continue its $85.0-billion-per-month quantitative easing policy into 2014. Those who do not read these pages were apparently surprised last month when the Federal Reserve did what it said it was going to do—namely, keep its stimulus package intact until the economy improves to a 6.5% unemployment rate and a 2.5% inflation rate.

It clearly hasn’t, isn’t, and won’t for the foreseeable future.

Those bad jobs numbers sent the S&P 500 into record intra-day territory. In the week since Congress ended the U.S. government shutdown, raised the debt ceiling, and reported stubbornly high unemployment, the S&P 500 climbed more than three percent. Year-to-date, the S&P 500 is up more than 22%.

That increase is in sharp contrast to anything approaching reality on Wall Street. During the first quarter of 2013, 78% of S&P 500 companies issued negative earnings-per-share (EPS) guidance, 81% during the second quarter, and a record 83% for the third quarter. (Source: “Earnings … Read More


Best Way to Hedge Against Political and Economic Uncertainty

By for Daily Gains Letter | Oct 11, 2013

Hedge Against PoliticalWe’re less than a week away from the perfect economic storm in the U.S., and, based on what others are predicting, just a few short months away from a major 15% stock market correction.

At the beginning of October, almost a million federal employees were furloughed after the U.S. government shut down because it failed to ratify its annual budget. Should the government fail to raise the debt ceiling and therefore default on its loans, that issue will be exacerbated when the debt ceiling deadline arrives.

Failing to raise the debt ceiling will just add to America’s economic woes and put a major dent in the global economy while also undermining America’s credibility on the world stage. While some think a short-term default on the debt ceiling will not cause a major ripple, history is not on their side.

In 1979, the U.S. breached the debt ceiling on about $122 million in bills, but that was blamed on a technical issue related to a new-fangled word processing failure. The glitch caused yields to increase by half a percentage point, where they stayed elevated for months. A default on the debt ceiling this time around couldn’t be blamed on a technical difficulty due to new technology (having a disproportionate ego, however, could be a valid excuse).

Even after the U.S. government shutdown is resolved and the debt ceiling is raised, the U.S. will have suffered a major blow to its credibility. After that, it could go from bad to worse.

According to French banking giant Societe Generale, the S&P 500 will go through a tumultuous correction, even after the debt ceiling … Read More


How to Prepare for the “October Effect” in Key Stock Indices

By for Daily Gains Letter | Oct 4, 2013

Key Stock IndicesOctober has just begun, and it’s one of the most interesting months for key stock indices. In the past, some of the major crashes occurred during this month. For example, on October 19, 1987, key stock indices, like the Dow Jones Industrial Average and the S&P 500, witnessed one of the biggest daily declines. But that’s not all: we also saw a pullback in October of 1989, followed by another glitch in October 2002. And who could forget October 2008? As you can see, October isn’t only scary for those who go out trick-or-treating; investors are fearful as well.

Looking at historical data, here’s how the key stock indices have performed in October.

The average return in October on the S&P 500 from 1970 to 2012 has been 0.54%. The highest return on the S&P in the month was in 1974, increasing more than 16%; the lowest return was in October of 1987, when the index dropped more than 23%. If we take out the two extremes, then the average return in the month of October on the S&P 500 since 1970 is 0.73%. (Source: “Historical Price Data,” StockCharts.com, last accessed October 2, 2013.)

For the Dow Jones Industrial Average, the average return in the month of October from 1970 to 2012 is 0.4%. The highest return achieved was in 1982, when the index increased 10.65%, and the lowest was in October 1987, when the index declined more than 23%. If we take out both extremes, the average on the Dow Jones Industrial Average since 1970 is 0.72%. (Source: Ibid.)

Dear reader, what I have mentioned are a few of … Read More


Managing Your Portfolio During the Bull Run of a Lifetime

By for Daily Gains Letter | Oct 1, 2013

Bull Run of a LifetimeSince 2009, we have seen a significant number of improvements on the key stock indices. The returns are nothing but exuberant, and some have called this the bull run of a lifetime. The S&P 500 has increased 150%, and the Dow Jones Industrial Average and the NASDAQ Composite Index have shown similar returns as well. But best of all, some companies on those key stock indices have shown even better returns—the 150% gain appears to be very miniscule when compared to their returns.

For example, consider priceline.com Incorporated (NASDAQ/PCLN), a well-known online travel company. In March of 2009, when the key stock indices made their bottom, it traded close to $72.00. Now, the company’s stock trades above $1,000; this is an increase of more than 1,288% in a little more than four years. It is outperforming the performance of key stock indices by more than eight times.

This is just one example; there are many more companies on key stock indices that have shown great returns. Look at Sotheby’s (NYSE/BID), an auction company, which traded at close to $6.00 in 2009; the same shares now trade for more than $48.00.

What’s the point of all this?

When it comes to investing for the long term, investors need to know how their portfolio is performing compared to the overall market. The reason for this is that it gives them an idea about what they need to do to their portfolio: should they readjust? Drop the losers? Or maybe go look for the new stars?

If we assume that what we have seen since 2009 is one of the best bull runs … Read More


Why I’m Not Buying the Market’s Blind Optimism

By for Daily Gains Letter | Sep 23, 2013

Buying the Market’sKey stock indices are showing robust performance—especially following the Federal Reserve’s announcement that it will not be tapering its bond buying program at this time. The S&P 500 and Dow Jones Industrial Average reached new record highs last Wednesday; that means the U.S. economy is doing great, right? I mean, just look at the chart below; everything seems to be heading smoothly upward in what is supposed to be the most volatile month of the year, according to The Stock Trader’s Almanac. It’s a fact: the key stock indices like the S&P 500 continue to make successive highs!

Sadly, this seems to be the only notion going around these days, and I completely disagree with this blind optimism and faulty logic. You can’t look at the key stock indices and conclude that there’s economic growth in the U.S. economy; you need to look at other indicators as well.

Large Cap Index Chart

Chart courtesy of www.StockCharts.com

As it stands, there seems to be a significant amount of disparity.

Looking at the unemployment rate, the situation is dismal. In the August jobs report of the U.S. economy, we found that there were jobs created and that the unemployment rate actually declined slightly. That’s great, but these jobs were created in the low-wage-paying sectors. On top of that, the jobs added in June and July were revised significantly lower; mind you, the unemployment rate remains very high in the U.S. economy compared to the pre-financial crisis period.

In the U.S. economy, the gap between the rich and the poor continues to increase in the war on the middle class. The income gap among the rich and … Read More


The Fed’s Change of Heart: What It Means for Investors

By for Daily Gains Letter | Sep 20, 2013

Fed’s Change of HeartAt 2:00 p.m. on Wednesday, Federal Reserve chairman Ben Bernanke said the central bank would, in the eternal quest for job creation and economic growth, continue to buy $85.0 billion a month in bonds. In other words, its third round of quantitative easing (QE III) is charging ahead unabated.

A few minutes later, The New York Times declared, “In Surprise, Fed Decides Not to Curtail Stimulus Effort.” USA Today proclaimed, “Fed delays taper, surprising markets,” while The Guardian said, “Federal Reserve maintains bond-buying stimulus in surprise move.”

Are economic analysts looking at different data than the rest of us? Back on August 29, I predicted the Federal Reserve wouldn’t begin to taper its quantitative easing until early 2014 at the earliest. That was because all of the economic indicators steering the data dependent on quantitative easing policies were nowhere close to being achieved.

For starters, the Federal Reserve said the unemployment rate “remains elevated.” For the Federal Reserve to begin tapering its QE policy, unemployment would have to fall to 6.5%. In August, the unemployment rate held stubbornly high at 7.3%.

The Federal Reserve also wants the U.S. rate of inflation to rise to two percent; after eight months, it’s stuck at one percent. For the Fed to consider tapering, the rate needs to at least double in just a few months—which isn’t going to happen, especially when you look at stagnant wages. Lastly, a new Federal Reserve chairman will be taking the helm in early 2014; Bernanke isn’t going to want to tarnish his reputation or disrupt the U.S. economy before then.

If the Federal Reserve is as good … Read More


Your 401(k): How It Can Really Profit from Patience and Conservative Plays

By for Daily Gains Letter | Sep 13, 2013

How It Can Really Profit from Patience and Conservative PlaysYour 401(k) is supposed to be a retirement account with a long investing horizon—not a day trading platform. Unfortunately, there are a growing number of investors doing just that, throwing not just caution to the wind, but also their long-term financial stability.

Way, way back in 1978, Congress enacted the Revenue Act to help encourage Americans to save more for retirement. The Act allows Americans to save for retirement while, at the same time, lowering their state and federal taxes. The term “401(k)” refers to the section number and paragraph in the Internal Revenue Code: section 401, paragraph (k).

The most widely used investment vehicle, your 401(k) is a long-term diversified investment strategy designed to (ideally) minimize risk while helping you realize your retirement goals. With a 401(k), you make money on long-term investing in a diversified portfolio that takes advantage of capital gains growth and compound interest.

As an added incentive, many employers will match your contribution. In 2013, employees can tuck $17,500 away in their account, and those over 50 years old can put away an additional $5,500.

While plunking down a solid portion of every paycheck into your 401(k) may take discipline, you do so because you want to have some sort of safety net when you retire, which is a long-term strategy. Too many investors, however, are tired of the returns they’re seeing with their 401(k)s, especially in light of the major strides the S&P 500 and Dow Jones Industrial Average are making.

In an effort to chase higher returns on their 401(k)s, many investors are now tapping into it for day trading purposes. This is … Read More


What You Really Need to Know About September’s Market Volatility

By for Daily Gains Letter | Sep 10, 2013

Market VolatilityWe have now entered into September, one of the most volatile weeks for the key stock indices in the U.S. economy. With this, there are questions as to where these key stock indices are going next. The bulls and the bears are at it again, adding to the noise already present.

In the first eight months of the year, key stock indices like the S&P 500 have gone up by 14.49%. (Source: Stockcharts.com, “Historical Price Data,” StockCharts.com last accessed September 5, 2013.) Other key stock indices like the Dow Jones Industrial Average and the NASDAQ Composite are in a very similar situation. Looking at all these gains, one must ask: will this trend on key stock indices continue?

Looking at some historical returns of the S&P 500, since 1970, the index has provided investors an average return of 8.2% per year.

Now, if we take the yearly return of the S&P 500 as a benchmark and consider it an indicator of relative value, then the index is overvalued by roughly 76.7%.

Just looking at this value alone, investors shouldn’t just jump to conclusions and start positioning their portfolio for a sell-off ahead while waiting for key stock indices to “come back to their average.” As a matter of fact, in 24 out of 43 years, from 1970 to 2012, the S&P 500 yearly return has been above average, sitting above the threshold of 8.2%

Here’s what investors really need.

There seems to be fear kicking in. Please look at the chart below of the Chicago Board Options Exchange Market Volatility Index (VIX), also referred to as the “fear index,” and … Read More


Weak Earnings No Threat to Bull Market Thanks to Fed

By for Daily Gains Letter | Aug 29, 2013

How the Fed Is Protecting the Bull Market from Weak EarningsWith the S&P 500 and Dow Jones Industrial Average continuing to trend steadily higher, many investors are wondering if, after four and a half years, the bull market can continue. After all, the S&P 500 is outpacing profits at the fastest rate in 14 years, starting in 1999—the heart of the “dot-com” era.

How long can the S&P 500 party rage on for?

In a rational world, companies that deliver weaker earnings are punished with a lower share price, not rewarded. But that’s not what is happening: investors are willing, it seems, to pay more for a company whose earnings are flat, marginally higher, or, in some cases, lower.

The S&P 500 has climbed almost 150% since 2009 and is up 17% year-to-date. While many think the bull market is getting long in the tooth, that 17% gain represents the best year-to-date performance in 16 years.

That’s pretty impressive when you consider that 78% of the companies in the S&P 500 issued negative earnings guidance in the first quarter. Yet during the first quarter, the S&P 500 climbed more than 10%.

Ahead of the second quarter, 80% of all companies on the S&P 500 issued negative guidance. During the second quarter, the index advanced around two percent, but that had less to do with earnings and more to do with the fact the Federal Reserve said it might begin to taper its quantitative easing (QE) policy. Before America’s favorite sugar daddy threatened to hold back Wall Street’s $85.0-billion-per-month allowance, the index was actually up more than five percent.

So, during the first six months of 2013, under an umbrella of … Read More


If History Repeats Itself, It’s Time to Bet Against the Markets

By for Daily Gains Letter | Aug 22, 2013

Time to Bet Against the MarketsAfter a strong July, the S&P 500 is looking like it is in correction mode, trading down more than three percent since the beginning of the month and effectively erasing the last two months’ gains. It’s quite possible that the corrective phase could last until early October—that is, if history, looming economic news, and geopolitical issues have anything to say about it.

And that could present a number of interesting opportunities for investors who like to bet against the stock market.

Since 1940, the stock markets have generally performed the worst in September; that doesn’t just include the U.S., but also Germany, Japan, and the U.K. In fact, for the S&P 500, September has posted the worst monthly returns going all the way back to the 1920s. September is even crueler on the Dow Jones Industrial Average, showing a negative bias going back to 1896.

Historical metrics aside, there is a lot of economic news coming out, and a number of looming global events that could add insult to injury. The Federal Reserve could begin tapering its $85.0-billion-a-month quantitative easing policy sooner than later, especially in light of last Thursday’s encouraging economic news that saw U.S. jobless claims drop to their lowest level in six years.

Negative overarching economic news continues to plague the U.S., but chances are that the Federal Reserve will focus on the positive to justify the pullback—it’s what they do. Since many believe the quantitative easing has been fuelling the U.S. bull market, too much good economic news could put a damper on things. That could translate into a further correction on the S&P 500 and … Read More


If Your Nest Egg is “Broken,” Here’s How to Repair It

By for Daily Gains Letter | Aug 15, 2013

DL_Aug_15_2013_JohnA growing number of American retirement nest eggs are cracked, and the fault lines are getting bigger.

While the S&P 500 and Dow Jones Industrial Average are enjoying record highs, the same cannot be said for the employment rate. In fact, stubbornly high unemployment and underemployment mean a growing number of Americans have had to dip into their retirement funds—and sacrifice their future stability—just to get by.

While the official U.S. unemployment rate sits at 7.4%, the U.S. Bureau of Labor Statistics reports that the underemployment rate—those who are unemployed, want work but have stopped searching, or are working part time because they can’t find full-time work—remains stubbornly high at an eye-watering 14.2%.

If history is any indicator, it looks as though the underemployment rate will remain sky high for the near future. That’s because more Americans are being forced into part-time jobs to pay the bills. In fact, almost four times as many Americans are taking on part-time work as opposed to full-time jobs—the complete opposite of last year. (Source: Luhby, T., “Want a job? Good luck finding full-time work,” CNN.com, August 12, 2013.)

Why are American companies hiring more temps and part-time workers? It depends on who you ask. Economic uncertainty, weaker consumer confidence, and a lack of consumer demand are certainly major reasons why employers are holding back on hiring full-time workers, but when it comes to the economy, it’s open for debate.

What isn’t open for debate is that more than one-third (36%) of unemployed or underemployed American workers have been forced to tap into their retirement accounts just to get by. On top of that, … Read More