Daily Gains Letter

Dow Jones


Conservative Investor? Why Now Is Your Time

By for Daily Gains Letter | May 19, 2014

Conservative InvestorThe best way to make money in the stock market at this time is to avoid growth and technology stocks while you take some profits off the table.

The reality is that, despite the failure of the Dow Jones and S&P 500 to hold after establishing new record-highs last Tuesday, the stock market wants more reasons to bid stocks higher. The first-quarter earnings season saw about 70% of the S&P 500 companies beat earnings-per-share (EPS) estimates, but the results were largely based on lowered estimates by Wall Street.

Investors took the opportunity to take some profits following the rally last week. This indicates to me that there’s definitely still some vulnerability in the stock market.

Bellwether retailer Wal-Mart Stores Inc. (NYSE/WMT) reported soft results that suggest the global economy is still hesitant to spend after the company fell short on revenues and EPS. And to make matters worse, the company also revised its second-quarter estimates to below consensus. Clearly, the retail sector is struggling, and this will impact gross domestic product (GDP) growth.

On the charts, technology and growth stocks are risky. The Russell 2000 fell back below its 200-day moving average (MA) after failing to hold for the second time in just over a week.

We are seeing some selling capitulation in the small-cap area of the stock market and it could grow deeper.

Companies in the technology sector, specifically the high-momentum stocks, also remain under pressure, helping to drag the broader stock market lower. I don’t expect this to change anytime soon, so this is an area that you need to avoid, liquidate, or protect with put options…. Read More


Three Stocks to Profit from New and Old Cars Alike

By for Daily Gains Letter | Mar 25, 2014

Stocks to Profit from New and Old CarsSpring is finally here, but that certainly doesn’t mean corporate America will cease to use the cold weather as an excuse for abysmal corporate earnings. Throw a dart at any sector, and you’ll find CEOs blaming the weather in some capacity—well, save for the utilities companies.

One sector that might be able to (on some level) justifiably blame the weather for a weak start to the year is the auto sector. Overall, U.S. auto sales were up eight percent year-over-year, while Canadian auto sales were up four percent. (Source: Isidore, C., “Car sales make a strong comeback in 2013,” CNN Money web site, January 3, 2014.)

In 2013, U.S. auto sales topped 15 million for the first time since 2007. While auto sales of 15.6 million were below the 16.0 million forecast by analysts, it was still an encouraging sign for the auto industry. Ford Motor Company’s U.S. sales were up 11%, while Chrysler Group LLC saw its sales climb by nine percent, and General Motors Company reported a 7.3% increase.

The 2013 auto sales data is encouraging in light of the disappointing December sales numbers; this also happened to coincide with the start of the dastardly winter of 2014. The weak end-of-the-year auto sales sentiment skidded over into 2014. Auto sales missed both their January and February expectations.

So far, 2014 has been good for global auto sales. Global sales hit record territory in February, climbing seven percent year-over-year. Auto sales in China climbed 22%, while car sales in Western Europe climbed year-over-year for the sixth consecutive month. Spain led the way with an 18% jump in auto sales. … Read More


Global Middle-Class Growth Boosting These Stocks Worldwide

By for Daily Gains Letter | Mar 24, 2014

Growing Global IncomeThe current drama surrounding Malaysia Airlines Flight 370 has been riveting and indicative of how the superlative growth in travel in the airline sector has encompassed Asia along with the world.

For years now, since the recession hit in 2008, I have been increasingly bullish on the airline sector across the globe, but especially in the emerging markets like China, India, Eastern Europe, and Asia. Helping to drive up the demand for travel in the airline sector has been the upward push in wealth creation in many of these regions, which has given more people the ability to afford air travel.

The industry stats don’t lie. The airline sector is on target for its second straight year of higher profits, according to research by the International Air Transport Association (IATA).

According to the research, North America continues to be the biggest airline sector market with profits estimated at around $8.6 billion in 2014. Asia-Pacific airlines are entrenched in second place with an estimated $3.7 billion in profits, more than the $3.1 billion predicted for Europe. (Source: “Industry on Track for Second Year of Improving Profits – Rising Fuel Costs Largely Offset by Increased Demand,” International Air Transport Association web site, March 12, 2014.)

Take a look at the Dow Jones U.S. Airlines Index in the chart below. Notice the beautiful uptrend since November 2012 and the bullish golden cross on the chart, based on my technical analysis.

Dow Jones US Airlines Index Chart

Chart courtesy of www.StockCharts.com

To play the airline sector in the United States, I like discount carrier JetBlue Airways Corporation (NASDAQ/JBLU). The company was formed in 1998 and currently serves markets in the … Read More


GDP Growth Up; Is the U.S. Really More Prosperous and Productive Than We Think?

By for Daily Gains Letter | Sep 3, 2013

GDP Growth UpI’m not sure if it’s indicative of something darker or symptomatic of what we think is important, but on a day when tensions in Syria are at a boiling point and the U.S. releases solid second-quarter gross domestic product (GDP) growth numbers, the most popular search on Google is Michael Jackson’s 55th birthday.

On Thursday, August 29, the Bureau of Economic Analysis announced it revised its second reading on U.S. GDP growth analysis up to 2.5% from an initial forecast of 1.7%. Exports in the second quarter grew faster than previously expected, increasing 8.6%, versus a 1.3% decrease in the first quarter. (Source: “National Income and Product Accounts,” Bureau of Economic Analysis web site, August 29, 2013.)

The data show that exports in the second quarter climbed at their fastest pace in more than two years. Going forward, economists expect growth in the second half of the year to be somewhat more robust.

On one hand, some maintain the strong GDP growth numbers suggest the U.S. is more prosperous and productive than previously thought. Maybe, but it’s going to be pretty tough for Americans to continue to drive 70% of all GDP growth when unemployment and personal consumer debt levels remain high, a record number of Americans are on food stamps, wages are stagnant, and more and more Americans are landing part-time jobs instead of full-time jobs.

On the other hand, I contend the strong GDP growth numbers mean we aren’t quite as healthy as we think. In fact, because of our weak economic footing, our rising GDP growth numbers are a result of U.S. firms selling their products to … Read More


How to Protect Your Assets While the Majority of Americans Aren’t

By for Daily Gains Letter | Jul 15, 2013

How to Preserve Your Wealth While 93% of Americans Lose TheirsYou can’t always believe the markets. Since 2009, the S&P 500 and Dow Jones have been on a tear and are, thanks to the Federal Reserve, making new record highs. Since the markets are considered an indicator of the health of the U.S. economy, one could be forgiven for thinking the economic recovery has been benefiting most Americans. It isn’t.

In fact, the economic recovery has left the majority of Americans in the dark. But there are a number of investment opportunities available to those who think they missed the so-called economic recovery—opportunities that can protect them from inflation.

During the first two years of the economic recovery (2009-2011), the wealth held by the richest seven percent of households rose 28%, while the net worth for the bottom 93% fell four percent. (Source: Fry, R. and Taylor, P., “A Rise in Wealth for the Wealthy; Declines for the Lower 93%,” Pew Research web site, April 23, 2013.)

Why the large discrepancy? During the start of the economic recovery, stocks and bonds rallied, but the housing market remained flat. Wealthier households park their assets in stocks and other financial products, while less affluent Americans have their wealth tied up in the value of their homes.

Between 2009 and 2011, the S&P 500 rose by 42%—and has since climbed another 30%—while the S&P/Case-Shiller Home Price Index fell by five percent. While housing prices have benefited from the economic recovery, they are still 25.5% below their 2006 highs.

And don’t forget about the millions of Americans not fortunate enough to own a home. After bottoming on March 6, 2009, the S&P 500 closed … Read More


Fed’s “Great Exit” a Sustainable Strategy?

By for Daily Gains Letter | Jun 18, 2013

Fed’s “Great Exit” a Sustainable StrategyFor much of last week, the global markets were taking a beating on growing concerns that the central banks will start easing their economic stimulus. Before the markets opened Friday morning, Reuters boldly announced that the rout was over, and U.S. markets opened trading up. (Source: Jones, M., “GLOBAL MARKETS-Shares pick up, dollar steady after bruising selloff,” Reuters, June 14 2013.)

Two hours later, though, Wall Street was singing a different tune. The U.S. markets slipped after the International Monetary Fund (IMF) announced it cut its 2014 growth outlook for the U.S to 2.7% from three percent. The unemployment rate for 2014 is projected to decrease slightly (on average) to 7.2 %. (Source: “Concluding Statement of the 2013 Article IV Mission to The United States of America,” International Monetary Fund web site, June 14 2013.)

Time will tell if these projections will come true. After initially predicting U.S. 2013 growth of 2.2%, the IMF revised it downward to 1.9%; the IMF continues to maintain that lowered projection. This tepid growth is expected to keep unemployment hovering around 7.5% for the remainder of 2013.

The IMF noted that the Federal Reserve needs to carefully plan its exit strategy to avoid hurting financial markets. The best way to do this, it maintains, is to continue its $85.0 billion a month bond-buying program until at least the end of 2013.

In addition to continued economic stimulus, the IMF also said Washington wasn’t doing enough to cut long-term budget deficits—though it would seem that higher deficits go hand-in-hand with money printing—and that Washington needs to cut entitlement spending and generate higher revenues.

What this … Read More


Why the Dow Theory Indicator Needs to Confirm This Stock Market

By for Daily Gains Letter | Apr 16, 2013

160413_DL_clark

The Dow Jones Transportation Average continues to be one of the most important stock market sub-indices to follow.

The Dow Jones Transportation Average is an old economy gauge, one that is part of Dow theory, and its movements are meaningful in that component companies are the backbone of the U.S. economy, just like the Dow Jones Industrials.

J.B. Hunt Transport Services, Inc. (NASDAQ/JBHT) is an important benchmark stock on the Dow Jones Transportation Average. The company just reported solid revenue growth, with good earnings that just missed consensus.

According to the company, its revenues for the first quarter of 2013 were $1.3 billion, a gain of about 10.7%. Earnings were $73.3 million, or $0.61 per diluted share, compared to $67.7 million, or $0.57 per diluted share, for the first quarter of 2012.

On the stock market, J.B. Hunt has been on a tear. The stock is up almost 50% since last September and is definitely due for a break.

Also needing a break on the stock market is Alaska Air Group, Inc. (NYSE/ALK). This position has been soaring and the kicker is that it’s not even expensively priced with a price-to-earnings (P/E) multiple of just under 14.

Union Pacific Corporation (NYSE/UNP) is a Dow Jones Transportation stock that is a very important benchmark stock for the U.S. economy and industry. Its earnings are due on Thursday. Union Pacific’s stock chart is featured below:

dl_04162013_graph3
Chart courtesy of www.StockCharts.com

A number of companies that are components of the Dow Jones Transportation Average are due for a major break in their share prices. Although it’s very early days, earnings results for the first … Read More


Dow Jones Industrials Still Hot; How to Play the Correction

By for Daily Gains Letter | Mar 18, 2013

180313_DL_clarkAction in the stock market is robust. Some economic news has shown improvement, but really, investors are just betting on first-quarter earnings.

The Dow Jones Industrials have been strong, outperforming the other indices and revealing how skittish investors are about the stock market’s advance. Investors are buying Johnson & Johnson (NYSE/JNJ) because it’s safe. When the party ends, Johnson & Johnson is less risky.

Institutional investors are betting on stocks because there really isn’t anywhere else to go. The bond play is over, currencies are too risky, and the commodity price cycle is taking a break. While it does seem unbelievable, the Dow Jones Industrials will likely keep ticking higher before the month is out.

While the action is hard to believe, considering the Main Street economy, the Dow Jones Transportation Average is still plowing ahead, leading the rest of the stock market. Regardless, this is the classic sign of further strength in share prices.

The stock market is not expensively priced, and it’s up to corporate earnings to tick higher, so they we don’t create a bubble. Practically, as a stock market investor, it doesn’t pay to fight the Federal Reserve or the tape. The action is the action; if you want to play the market, “why” doesn’t matter too much.

But if you’re an investor and you own, or would like to own, shares in blue chips like the Dow Jones Industrials, it’s tough to be a buyer when the stock market is at all-time highs.

I wouldn’t buy this market, but when there is a major correction, it will be an interesting opportunity to consider. Of course, … Read More


Breakout in Transportation Stocks Gains Strength—How to Play the Disconnect

By for Daily Gains Letter | Mar 13, 2013

130313_DL_clarkThe Dow Jones Transportation Average experienced a powerful breakout this past December. And it’s been a stealth rally ever since, with an expansion in valuations, not earnings.

The stock market’s strongest sector over the past few months has been transportation stocks, which have been much stronger than technology stocks or the S&P 500 companies. Even though it doesn’t seem real, leadership in the Dow Jones Transportation Average is a classic stock market sign.

Helping the cause are lower oil prices. Countless names among large-cap transportation stocks are soaring. And at new 52-week highs, they still aren’t expensively priced on the stock market, which means they can go higher.

The stock market likes betting on the future. Institutional investors are not fighting the Federal Reserve; they are buying in anticipation of first-quarter earnings season. Fourth-quarter earnings season wasn’t that bad for corporations, but for individuals, it’s another story. This is why the stock market and the Dow Jones Transportation Average can still tick higher—valuations and oil prices. The stock chart for the index is featured below:

dl_031313-image001Chart courtesy of www.StockCharts.com

The stock market will use first-quarter earnings season as its new catalyst for action. My expectation is that we’re in for a meaningful correction, even if first-quarter numbers are decent.

There is a real disconnect in the U.S. economy between the stock market and the Main Street economy. Corporations have all the money, and any modest uptick in economic activity will amplify the bottom line. Corporations, being lean and mean with dividends and share buybacks, are way better than individual incomes.

This is a very difficult market to play. Risk for … Read More