Daily Gains Letter

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The Next Best Move for Investors

By for Daily Gains Letter | Aug 8, 2014

What Investors Need to Do NextIt’s time for some more handholding as we watch the stock market come under some selling pressure. But we’re not surprised, are we? The reality is that the advance of the stock market into its fifth year looks somewhat weary, given that interest rates will be rising in 2015.

Higher interest rates translate into higher bond yields, and that’s not conducive to a higher stock market. The current 10-year bond yield is a mere 2.45%, so it’s not an immediate concern. Yet looking ahead, interest rates will be heading higher, and this could come as soon as the first quarter of 2015, rather than the previous estimate of mid-2015.

The strength of the advance reading of the second-quarter gross domestic product (GDP) growth at an annualized four percent was clearly enough to send some investors to the exits. The fear is that if the upcoming readings are strong, it could signal higher interest rates sooner. Of course, we still have to wait for the third and fourth quarters of 2014 before making a snap judgment on when rates will head higher.

The Federal Reserve has already reduced its monthly bond buying to $25.0 billion, and it’s likely to be eliminated altogether by the Fed’s October meeting. This is a given. Higher interest rates are the issue for the stock market.

In addition, there’s some nervousness towards China and Europe. The reporting of a weaker-than-expected HSBC Services China PMI of 50.0 in July is scaring the stock market. A weaker China is not good for the global economy.

In addition, we also have a potential recession in Russia, which could have … Read More


Stocks vs. Bonds: Finding the Best Investment Opportunity Right Now

By for Daily Gains Letter | Jul 9, 2014

Why You May Be Stuck with Stocks for NowThe bulls are continuing to ride the stock market higher with minimal resistance from the bears. After some weakness earlier in the year, stocks continue to want to edge higher.

We are not seeing the mass market participation we want to see in a rallying stock market, but this divergence is clearly not a big deal for traders.

The first half of 2014 saw mixed trading, but the stock market managed to edge higher. We saw multiple records set by the DOW and S&P 500, with both indices closing higher for the fifth straight month in June. Not bad given that historical records suggest muted action.

On the charts, the sense is that the stock market is aiming higher. The DOW broke 17,000 last week, while the S&P 500 is eyeing 2,000 and looking higher on the charts, based on my technical analysis. The DOW is riding consistently above its 50-day and 200-day moving averages.

Dow Jones Industrial Average Chart

Chart courtesy of www.StockCharts.com

On the plus, small-cap stocks made a strong rally in June as we saw some money flow back into the higher-risk assets, which technically bodes well for the broader stock market. We are also seeing buying return to the technology sector and the high-momentum plays.

But as is always the case after a rally to new heights, many are calling for a stock market correction.

The chart of the S&P 500 shows the potential of a small correction of approximately five percent. I would view this as an investment opportunity to buy on weakness.

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

The reality is that the stock market is heading higher, but we could … Read More


How to Profit from the Improved Jobs Numbers

By for Daily Gains Letter | Jul 7, 2014

How Investors Can Benefit from the Jobs RecoveryThe stock market is looking higher. The DOW and the S&P 500 closed up for the fifth straight month as we enter into the second half of what has largely been a mixed and cautious year.

For growth investors, the good news is that small-cap stocks came back in June with a 5.15% advance and are easily leading the broader market. Technology also fared well with the NASDAQ up 3.9% in June. Blue chips and large-caps trailed the growth side. In the first half, the S&P 500 leads with a 6.07% gain followed by the 5.54% advance in the NASDAQ.

And while stocks are edging higher towards new records, we are also seeing positive gains in the critical jobs numbers. This is essential for the economy and consumer confidence.

We saw strong non-farm payroll jobs numbers for June last Thursday with the creation of 288,000 new jobs, which easily beat the consensus 215,000 estimate and the 244,000 jobs in May. Better yet, the unemployment rate also fell to 6.1%, the lowest level in nearly six years.

The growth in the jobs numbers will gain more traction in the stock market when the reading can surpass the 300,000 level, which could trigger heightened optimism.

What the higher jobs numbers mean is more business for the jobs placement firms, from the everyday jobs to management and executive positions.

A contrarian and speculative play on the jobs numbers recovery is Monster Worldwide, Inc. (NYSE/MWW), which currently sits around $6.85 per share with a market cap of $623 million.

Monster Worldwide runs the widely known job search web site Monster.com and was the first … Read More


The Only Sector I Believe Will Deliver as Corporate America Struggles

By for Daily Gains Letter | Jun 16, 2014

The One Sector That Could Fare Well Despite Sluggish Economic Growth We are a few weeks away from the second-quarter earnings season and again, there’s a lot of hope and optimism that corporate America will be able to deliver the goods. But we also said that for the first-quarter earnings season—and prior to that, we said the same for the fourth-quarter earnings season.

Before, what we saw instead was sluggish revenue growth along with companies having an easier time on the earnings front, as Wall Street does what it usually does—lowering earnings estimates to meet the changing situation, making it easier for companies to meet expectations. In the first-quarter earnings season, it was about the strain placed on companies by the bitter winter. That’s fair, but there really are no more excuses for this quarter.

The nation’s jobs numbers are looking better after the country managed to recover all of the 8.7 million or so jobs lost since the start of the Great Recession. If the economy can continue to generate jobs growth at more than 200,000 new jobs monthly, then we would expect consumer spending and confidence levels to improve. Yet having said this, there’s clearly still some trepidation out there, especially with the decline in wealth levels of the middle class and below.

The rich are getting richer, but even as a group, they cannot spend the economy to stronger growth without the help of the middle class. We need to see income levels expand across middle-class America in order for companies to have any hope of expanding their revenues better than what we are seeing now. This makes sense to me: spread the wealth and the economic renewal … Read More


Why I Believe This Market Is Heading Higher—For Now

By for Daily Gains Letter | Jun 11, 2014

Why Stocks Are Heading HigherThis is a stock market that continues to want to move higher despite the lack of any major catalyst.

Sure, the economy is “recovering,” but there are still issues with consumer spending, especially on non-essential durable goods. The headline durable orders reading came in at 0.8% growth in April, above the consensus 1.3% decline but below the revised 3.6% growth in March. For the economy to really confirm the stock market, we need to see growth here. This will also help to drive buying in small-cap stocks that trade with the economy.

The jobs scene is finally beginning to look better since the Great Recession in 2008. Jobs creation came in above 200,000 for the fourth straight month. The unemployment rate held at 6.3%. With the latest batch of jobs numbers, the economy has now recovered all of the 8.7 million jobs lost during the recession. The Federal Reserve will likely refrain from raising interest rates until sometime in mid-2015, but continue to cut its bond buying to zero by year-end.

The fact there’s really a lack of investment alternatives to the stock market is helping. With the yield on the 10-year bond at around 2.5%, I doubt investors or institutions are rushing to buy. Why would you when you can buy higher-yielding dividend paying stocks with capital upside?

The renewal in the global economy is also helping. China hasn’t sunk into the economic abyss as some pundits have been predicting. Its neighbor Japan is finally showing signs of economic growth following decades of doing little. Like the United States, Japan is spending its way to recovery. The country’s first-quarter … Read More


Where to Find the Best Buying Opportunity in Stocks Right Now

By for Daily Gains Letter | Mar 20, 2014

Why You Should Favor These Stocks Over Others This YearIf you own some of the large-cap blue chip stocks on the Dow, it has not been a great year so far. Now, some of you may have thought that after the strong year for technology and small-cap stocks in 2013, the stock market may have been ready to pause in the pursuit of higher-risk assets this year. So far, that has not been the case.

Technology and small-cap stocks are again leading the broader stock market this year.

The small-cap Russell 2000 is up 1.18% in March and 2.87% this year as of Tuesday, easily outperforming both the S&P 500 and Dow. Blue chips are taking it on the chin with a 1.39% decline to date this year and only a 0.15% rise in March. Only the 3.31% advance by the tech-laden NASDAQ is beating the Russell 2000.

Russell 2000 Small Cap Index ChartChart courtesy of www.StockCharts.com

What the results in the first quarter suggest is that the appetite for risk that was prevalent in 2013 is continuing to hold as stock market participants seek out the potential for higher returns.

At this point, I continue to favor small-cap stocks and technology growth plays, as long as the economic renewal remains in play and the broader stock market advances higher.

There’s also a sense that we are seeing some new money coming into the stock market this year that may have been on the sidelines in 2013 and missing out on great returns. The trading volume is higher, which suggests more money is coming into the stock market and much of that is chasing the potential of higher returns with growth stocks.

Now while … 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