Daily Gains Letter

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Why Blue-Chip Dividend Stocks Always Make Sense

By for Daily Gains Letter | Apr 10, 2015

Blue Chip Dividend StocksIn the first quarter, we witnessed a market shift back to higher-beta technology, growth, and small-cap stocks as investors searched for higher potential profits. Yet while this investment strategy makes sense, you also need to make sure your portfolio is diversified across numerous sectors and stocks with varying market caps, including dividend-paying stocks.

Dividend stocks may not have the upward explosiveness of smaller technology stocks or the large-cap momentum stocks like FaceBook, Inc. (NASDAQ/FB), Twitter, Inc. (NYSE/TWTR), and Netflix, Inc. (NASDAQ/NFLX); but you know the large-cap blue-chip dividend stocks found on the Dow Jones Industrial Average and S&P 500 offer long-term confidence for investors.

Whether you are starting out on your investment plan or are a seasoned investor, you should always have some funds stashed away in these safer and proven dividend stocks. I would rather play my safe money in the blue-chip dividend stocks than bonds in the long-term.

Proven Dividend Stocks to Watch

When I talk about the proven long-term dividend winners, I’m talking about the likes of Wal-Mart Stores, Inc. (NYSE/WMT), The Procter & Gamble Company (NYSE/PG), and Colgate-Palmolive Company (NYSE/CL). Take a look at their long-term charts, and you’ll see what I mean. These companies sell goods that are always needed by consumers, whether in good times or bad. They also have the financial resources to withstand economic weakness.

In cases when there have been operational issues with these dividend stocks, they generally have been able to pull out of it and rally. Two such companies that faced major issues but managed to subsequently recover are McDonald’s Corporation (NYSE/MCD) and General Electric Company (NYSE/GE). If you … Read More


Investor Beware: NASDAQ Passes 5,000, but Market Correction Looms

By for Daily Gains Letter | Mar 11, 2015

Investor BewareThe NASDAQ may have passed 5,000, but investors shouldn’t get caught up in the excitement. A market correction may just be on the horizon, especially when you consider factors affecting the global economy.

NASDAQ, Stock Markets Near Highs, but Bull Market Slowing

After the NASDAQ’s recent breach of the psychological 5,000 level, there was talk about a move to another record at above 5,104, last encountered 15 years ago. At that time, in 2000, for the stock market, it was both a period of excessive greed and jubilation.

After the recent records by the DOW and S&P 500, I fully expect some pausing in the stock market. We are beginning to see that. Following a strong February, the major stock market indices are negative in March and are coming off their respective highs.

Now, I’m not saying the bull market is drawing to a close; rather, I’m saying that the gains we witnessed in February are not sustainable at the same rate. Prior to the stock market open on Monday, the DOW was up a mere 0.18% this year and the S&P 500 was up 0.59%.

The reality is that the bull market is now six years old after trading at a bottom in March 2009. I doubt the bull is dead yet, but I feel the beast may be slowing. I still believe the stock market will close up higher by year-end in just over nine months’ time, but the advance will be met with hurdles. We witnessed this in 2014, and it looks like we’re following a similar pattern this year…. Read More

Global Economic Factors Suggesting Coming Stock Market


Small-Cap Stocks Outshining NASDAQ, S&P 500; Top Investment in 2015?

By for Daily Gains Letter | Mar 9, 2015

Top InvestmentIf you haven’t already done so, you should start to take a closer look at small-cap stocks.

Small-Cap Stocks Outperforming in 2015

While small companies underperformed in 2014 with the Russell 2000 gaining a mere 3.53%, compared to the 13.40% and 11.41% advances by the NASDAQ and S&P 500, respectively, I believe that as the long as the economic renewal holds, small-cap stocks could turn things around this year.

So far in 2015, small-cap stocks are second only to the technology sector. The Russell 2000 is up 2.10% as of Thursday, versus a 4.88% move by the NASDAQ. At this time, small-cap stocks are beating the S&P 500 and DOW; it’s still early on, but it’s looking good coming off of a soft year in 2014.

The chart of the Russell 2000 shows a record-high and the presence of a bullish golden cross, with the 50-day moving average (MA) above the 200-day MA, based on my technical analysis.

Russell 2000 Small Cap Index Chart

Chart courtesy of www.StockCharts.com

Whether small-cap stocks can return the kind of performance we saw in 2013 is not certain, but I like the prospects for growth investors.

The reality is that small companies tend to fare better as an economy recovers due to the added flexibility to shift strategies on the run and adapt to changing situations. Imagine a large-cap like General Electric Company (NYSE/GE) trying to be nimble and change on a dime? It’s not so easily done.

Areas that I like amid the small-cap stocks are broad. I favor small companies that show strong growth metrics and have consistently managed to deliver strong results…. Read More

Top Small-Cap Stocks to Watch


Netflix Successful, but Expensive; How to Invest with Less Risk

By for Daily Gains Letter | Mar 4, 2015

Invest in Overvalued StockThe third season of House of Cards will likely once again see a massive influx of new subscribers flow to Netflix, Inc. (NASDAQ/NFLX). The company is sizzling on the chart and is the “Best of Breed” in the video streaming market at this time. Netflix currently has about 57 million subscribers.

Having said that, my stock analysis shows that the top-heavy valuation will need to be fuelled by better top-line growth, especially from the international markets where Netflix is dominant. The company already offers its streaming service in about 50 countries, but it is aggressively aiming to expand into hundreds of countries.

Netflix Plans for Expansion

Netflix just announced it would be entering into the Cuban market, which I believe is still very raw, given the lack of communications infrastructure there. The view may be that as the country opens up its relationship with the United States, there will be improvements in its communications technology. With about 90 million potential Netflix subscribers in Cuba, the market is significant.

Of course, Netflix is also trying to do something many other U.S. media companies have failed to do so far, and that is to expand into the massive and highly lucrative Chinese media market. The problem is that Netflix will do it alone. Based on the extremely tough and regulated nature of content in China, it will not be an easy chore for the company. Just ask Google Inc. (NASDAQ/GOOG) and Yahoo! Inc. (NASDAQ/YHOO). My stock analysis suggests that any success in the Chinese market would be a bonus that could drive the valuation much higher…. Read More

Video Streaming Competition Comes Down to


Silver Spring Smart Grid Stock an Investment Opportunity to Watch?

By for Daily Gains Letter | Mar 2, 2015

Silver Spring Smart Grid StockOver the past few years, we have witnessed fewer loss of power situations on the electricity power grid. A big reason is that hydro operators are working proactively in monitoring the use of electricity on the residential and commercial power grids.

The adoption of devices at residences have helped hydro companies deal with the demands of a power grid and, in the process, lessen the chances of a grid meltdown.

Silver Spring: Smart Grid Hydro Developments an Attractive Investment?

A small-cap contrarian stock that piques my interest as a potential investment opportunity is Silver Spring Networks, Inc. (NASDAQ/SSNI), which has a share price of $9.93 and a market cap of $485 million. The stock has been a major underachiever, but it does offer a good example of a potential aggressive investment opportunity. Silver Spring debuted at $17.00 in March 2013 and traded at $33.00 in August 2013, prior to sliding to the current levels. Well off of its 52-week high of $18.40, the stock suggests a potential investment opportunity on price weakness.

Silver Spring Networks Chart

Chart courtesy of www.StockCharts.com

At the heart of the company’s business is its Internet-based “IPv6” networking platform and solutions, which allow hydro companies to monitor energy use at homes and businesses, thereby creating a “smart grid.” The company has about 23 million installed devices operating in the United States, Canada, Australia, New Zealand, South America, Asia, and Europe.

An interesting project in the works by the company is its “Streetlight Vision” solution to network streetlights. The solution allows a hydro operator to regulate the brightness of streetlights, as well as when the lights come on. The company’s venture … Read More


EZCORP and Green Dot to Profit from America’s Coming Reckoning?

By for Daily Gains Letter | Feb 25, 2015

EZCORP There’s a financial reckoning coming, folks. The easy money pushed through the financial system and economy by the Federal Reserve over the past several years may have given us this six-year bull stock market, but it has also allowed personal debt loads to amass. Heck, even the government has accumulated in excess of $18.0 trillion in debt. But there’s an investment opportunity that could emerge from this.

Investment Opportunity Coming as Interest Rates Rise?

For now, with interest rates near zero, everything is fine. But rates will likely begin to move higher by as early as halfway through this year. With higher rates come a heavier debt burden and financing costs, which will eat the disposable income consumers would otherwise use for spending.

Bankrate.com released a survey that pointed to the growing build-up of debt by Americans. In a survey of 1,000 adults, it was found that 37% have credit card debt that is equal to or greater than their emergency savings. This doesn’t even include other debts, such as mortgages or loans.

What this means is that we could see a financial collapse as interest rates rise. There are already 48 million Americans using food stamps, and this may increase. But while the situation could surely worsen, there will be an investment opportunity. To play this scenario, look for companies that can benefit from a declining middle class and those struggling with their finances.

How to Profit from Rising Interest Rates and Debt: Two Stocks to Watch

A good example of the type of stock to watch during this potential investment opportunity is EZCORP, Inc. (NASDAQ/EZPW), which has a … Read More


How You Can Profit from Increased Travel in China for Lunar New Year

By for Daily Gains Letter | Feb 23, 2015

Travel Related StocksIf you have ever been on the New York City subway during the morning or after-work commutes, you’d understand how busy it gets. Surprisingly, it’s still pretty lax compared to rush hour in Hong Kong, Beijing, or Shanghai. And when it comes to Tokyo, well, that’s just a whole other level of busy.

Just a few days ago, we entered the busiest period of the year for travel in China, with the Lunar New Year that began last Thursday, marking the Year of the Goat (a sign of prosperity).

So while China is dealing with a stalling economy and disappointing consumer spending, the current travel period is characterized by the masses going home or visiting family and friends. And that means lots of travel via the roads, rails, and skies.

Chinese Lunar New Year Busy Time for Travel Stocks

This 40-day period in China, commonly referred to as “Chunyun,” will witness tens or even hundreds of millions of people seeking travel arrangements. In all, there will be billions of passenger trips taken.

Roads will be congested with millions of cars in an already-packed road system. Trains, the most popular of the travel options in China, will see millions of riders. And the skies will be filled with thousands of planes, or about 40 million flights, according to the Civil Aviation Administration of China.

Add to this the fact that the travel sector in China is massive and expected to continue to grow as the wealth levels rise, especially in the rural areas, and you’ve got an interesting sector for American investors to consider…. Read More

Transportation Stocks to Benefit from China’s Lunar


Three Restaurant Stocks Better Than McDonald’s?

By for Daily Gains Letter | Feb 20, 2015

Restaurant StocksThe restaurant sector, including the fast food outlets, continues to reward investors with a good investment opportunity over the past years. The advance in the eateries has been somewhat overdone, as the stock market appears to be willing to price much higher on these stocks.

McDonald’s No Longer the Top Investment?

McDonalds Corporation (NYSE/MCD) was previously the top investment opportunity in the restaurant sector. Over a decade ago, the company recognized the market trend to healthier meals. In response, McDonald’s undertook a major transformation to its menu offering by expanding its menu to healthier choices, such as wraps and salads, to complement its hamburger and fries beginnings.

McDonalds Corporation Chart

Chart courtesy of www.StockCharts.com

Yet McDonald’s is no longer the go-to restaurant stock, as the sector has seen a massive influx of new players offering a wide assortment of meals, from Mexican to Asian, to sandwiches and family sit-down meals. The market is extremely competitive. McDonald’s may still be an aggressive investment opportunity for some, but the company will need to turn things around in order to regain its previous glory.

The catalyst for the rise in restaurant stocks has been the economic renewal, jobs creation, and rising home prices. That means many more restaurants than just McDonald’s are seeing profits—and there are three that just might be a better investment opportunity than McDonald’s.

Chipotle Mexican Grill, Inc.

One of the hottest restaurant stocks at this time is Chipotle Mexican Grill, Inc. (NYSE/CMG), which has a market cap of $21.0 billion. In the past, I have written about how I have been bullish on a stock like this one as a potential investment … Read More


How Tech Growth in 2015 Is Different from 2000 (and Why It Will Last)

By for Daily Gains Letter | Feb 18, 2015

180215_DL_leongThe last time I saw 5,000 on the NASDAQ was way back in early 2000, prior to the collapse of the technology sector and all of the froth and euphoria on Wall Street. If you were trading back then, you would have recalled the staggering froth and frenzy that drove the technology sector to heights that were simply not sustainable and excessive.

Well, it took more than a decade, but it looks like the technology sector is on a roll again. I have been bullish on technology stocks as the top growth area in my outlook for this year and so far, this is panning out.

NASDAQ Push to 5,000 Much Different Now Than 15 Years Ago

The NASDAQ traded at its highest level since 2000 last Thursday, when the index came within 160 points, or 3.3%, of taking out the 5,000 level. A break above 5,000 would be a big deal for the technology sector.

COMPQ-Nasdaq-composite-INDX

Chart courtesy of www.StockCharts.com

Of course, the ascent of Apple Inc. (NASDAQ/AAPL) to nearly $130.00 a share and a staggering market cap of $741 billion is helping the index, providing stock market leadership.

As we near 5,000, there will be talk again of an exhausted and euphoric technology sector akin to 2000, but things are different this time around. The push to 5,000 has taken much longer and has been steadier versus 15 years ago, when everyone was buying without any thought to valuation or the underlying fundamentals.

I vividly remember seeing the big moves everyday and what I thought was the senseless buying of the technology sector. I recall friends taking out loans … Read More


January Volatile for Stocks, but Bull Market Not Over Yet

By for Daily Gains Letter | Feb 4, 2015

Bull Market to Continue This YearMany of you are probably happy to bid farewell to January. Not only was the weather nasty, but the stock market also traded in a volatile manner, with the bias to the downside.

The month ended in the red, with the major stock market indices trading below their respective 50-day moving averages and looking lower. The S&P 500 is below 2,000 once again and has been unable to get its footing above with any sustained momentum (as you can see in the chart below).

For traders who follow the historical cycles of the stock market, we know that the negative month suggests the stock market is in for some difficult times this year. But I’m not convinced the bull market is over quite yet.

Large Cap Chart

Chart courtesy of www.StockCharts.com

When the markets start January down, the tendency is for a down year for the stock market about 80% of the time, but that is not always the case. As we saw in 2014, January also produced a down month but recovered with an up year. That month, the decline in the Dow and S&P 500 was greater than this January’s, but the S&P 500 subsequently closed higher in eight of the next 11 months.

S&P 500 Large Cap Chart

Chart courtesy of www.StockCharts.com

Now, I’m not suggesting the same will materialize this year for the stock market, but it’s something to keep in mind as we move into February, which saw the markets bounce back in 2014.

The key for the main stock indices will be the 200-day moving average (MA), which is just below where the indices are sitting at now, with the exception of … Read More


JAKKS and LeapFrog: Two Contrarian Toy Plays for Your Watch List

By for Daily Gains Letter | Jan 23, 2015

JAKKS and LeapFrogWhat kid doesn’t love toys? But then again, what investor doesn’t love toys? They did, after all, gain traction in 2014, growing at four percent to $18.08 billion in U.S. sales. (Source: NPD Group, January 20, 2015.)

When we talk about the toy sector, companies such as Mattel, Inc. (NASDAQ/MAT) and Hasbro, Inc. (NASDAQ/HAS) usually come to mind as the top and biggest players. While Mattel and Hasbro may be a good investment opportunity, there are better risk-to-reward situations for more aggressive speculators who don’t mind taking on more risk to try to achieve higher gains. Here I’m referring to small-cap stocks in the toys sector.

Small-Cap Contrarian Toy Stock #1: JAKKS Pacific, Inc. (NASDAQ/JAKK)

The first of two stocks to watch in the small-cap toy area is JAKKS Pacific, Inc. (NASDAQ/JAKK; $5.92; Market Cap: $130 million), which is small compared to Mattel and Hasbro. JAKKS has lost 6.03% of its value over the past 52 weeks, underperforming the 9.63% advance of the S&P 500. At this time, JAKKS would be an aggressive investment.

The stock is down more than 30% from its 52-week high of $9.48 on July 17, 2014, which makes the stock an interesting one to watch as the company looks to deliver better results and profits. After a loss of $2.43 per diluted share in 2013, JAKKS is estimated to earn $0.66 per diluted share in 2015.

Jakks pacific Inc Nasdaq

Chart courtesy of www.StockCharts.com

To achieve better results, JAKKS is moving with the times and shifting its focus to technology-based toys and electronics.

Compared to the big boys, JAKKS has a better valuation, but investors truly interested in this … Read More


Healthcare Tops as 4Q14 Earnings Struggle

By for Daily Gains Letter | Jan 9, 2015

Healthcare Sector the Only Area of Attractive Growth Among Bleak 4Q14 EarningsIt’s that time again; another quarter has come to an end. The fourth-quarter earnings season numbers will officially start flooding in for the S&P 500 on Monday, with Alcoa Inc. (NYSE/AA) the first to report. However, the stock market is currently in a funk, beginning 2015 with weakening oil prices and continued concerns over the global economy. The problem: as the stock market searches for a reason to buy, several segments are suffering from the selling pressure. There is, however, one segment expected to look up heading into 1Q15 and that’s the healthcare sector. But more on that potential investment opportunity in a moment…

4Q14 Earnings Season Looks Bleak

A major reason for the selling pressure that’s affecting several stock market segments has been the downward push on oil prices, which continue to search for a floor. West Texas Intermediate (WTI) oil was around $48.00 a barrel at close yesterday and Brent crude was just below $51.00. The oil weakness is a major drag on the market and offers an excuse to sell.

On the charts, the major stock indices, including the DOW, NASDAQ, S&P 500, and Russell 2000, are all below their respective 50-day moving averages (MA) and down more than four percent from their highs.

On Monday, Alcoa will start off the reporting. The company is considered a decent barometer on the global economy, but my expectations are low that we will be able to give reasons for investors to buy.

Earnings growth in the fourth quarter is estimated at a muted 2.6%, well below the 8.4% estimate as of September 30, according to a report from FactSet. … Read More


Luxury Brand Retail Stocks: All You Need to Know

By for Daily Gains Letter | Dec 10, 2014

Luxury Brand Retail StocksStrangely, Americans are getting richer and poorer at the same time, and this is benefiting the luxury brand stocks. While the number of Americans requiring food stamps is at a staggering 48 million or so, at the other end of the spectrum, the rich are increasing their wealth to new record-highs at a rapid pace. This is what will help the luxury brand stocks—a widening income gap that’s seeing the rich rapidly becoming richer.

In 2013, there were about 9.63 million households with a net worth of at least $1.0 million, according to Spectrum Group. Given that the S&P 500 has gone up about 200% during this current bull market, it’s not surprising to see the rise of the wealthy. Add in the increase in home prices and real estate, and you have more wealth created since the economy tanked in 2008.

In reality, it has been one of the best five years for material wealth to rise due to the strong upward moves in both the stock market and the housing market, which were fueled by near-zero interest rates and the Federal Reserve’s aggressive and controversial quantitative easing strategy (which has been brought to a halt—at least for the time being).

So, here we are. Investors may not be rejoicing over the gains this year compared to some of the previous years, but the building up of capital continues, which is also a plus for the luxury brands.

The auto sector is sizzling again, but what’s interesting is the rise in the more expensive vehicle segment of the auto market. Classified as vehicles priced at more than $50,000, the … Read More


Six Dividend-Paying Blue Chips Selling at a Discount

By for Daily Gains Letter | Nov 3, 2014

Six Dividend-Paying Blue Chips Selling at a DiscountOne of the key tenets to success in the stock market, as I have learned from more than 20 years of trading, is the need to make sure you have a system in place to actively monitor your outstanding positions. Any major changes to the underlying fundamentals are critical.

Unless you invest in mutual funds or are happy with a buy-and-hold strategy, ignoring your positions is not prudent and will likely result in damage to your portfolio—and maybe even your quality of life.

In early October, when the Russell 2000 and the NASDAQ were down 14% and 100%, respectively, the thing to do was not to rush to the exits and liquidate everything. Making rash decisions at a time when stocks are selling off is dangerous. You could have sold some positions while waiting to see if the stock market could rally, which was the case.

For the majority of investors, you don’t need to be constantly staring at the screen, scanning every chart. What you need to do is be on the alert for any major changes in the sector, a company rival, or the company itself. Failure to recognize changes and red flags could result in major losses.

The risk for small-cap stocks is more intensified, as displayed by the Russell 2000 weeks earlier. Since then, the bounce has been good, with the index performing at its best in October. However, despite the rally in small-cap stocks, I would continue to be careful.

If you are in it for the longer-term, blue chips make the most sense, especially for the more conservative investors who look for steady long-term … Read More


One Stock You Can Shelve Away for a Century

By for Daily Gains Letter | Oct 20, 2014

My Solution to the Current Stock Market MalaiseThe world is not coming to an end—even if it does look that way as global stock markets plummet.

Make no mistake about it; we are clearly witnessing some selling capitulation in the stock market. The bottom may be near for the stock market, or we could be in for further downside moves given that the correction on the S&P 500 has been around six percent, so there’s some wiggle room to the downside.

After multiple records by the S&P 500 and DOW in September, the DOW is now in negative territory in 2014. Meanwhile, the S&P 500 was negative intraday on Wednesday prior to rallying.

If you are looking to buy on weakness, you want to understand the downside risk is still there in the stock market—especially for the higher-risk small-cap stocks and technology growth stocks. The NASDAQ fell on Wednesday, experiencing a 10% correction, but managed to bounce back.

Many small-cap stocks on the Russell 2000 are already entrenched in a bear stock market, down more than 20% from their highs. This is not the area for timid investors yet.

Perhaps it’s time to stop chasing risk and look at adding some lower-risk proven plays in the stock market instead.

I like the consumer staples stocks that tend to perform in both up and down stock markets.

Some may want to go defensive in the stock market. Look to the big banks, consumer staples, and industrial sectors if so.

One of the top stocks over time has been General Electric Company (NYSE/GE), which has been a favorite of widow portfolios in the stock market since the company first … Read More


Is This the Discount Sale Investors Have Been Waiting For?

By for Daily Gains Letter | Oct 15, 2014

Discount Sale Investors Have Been Waiting ForOctober has provided the usual bouts of anxiety that have characterized the month in past years. I warned that we could see volatility and so far, this has been the case.

From small-cap stocks to world-class blue-chip companies, we are seeing some selling capitulation emerge in the stock market.

All of the major key stock indices are below their respective 50-day and 200-day moving averages (MAs). As I said in a recent commentary, the chart risk is high.

Bearish investor sentiment continues to grip the stock market. We saw 354 new lows on the NYSE on Friday, followed by 308 new lows on Monday.

The DOW has reported four triple-digit-loss days over the past five sessions and in that period, it has declined nearly 600 points. The blue chip index is down 1.54% this year.

Technology has led the losers so far in October with the NASDAQ down 6.24% and off 6.08% from its peak.

The S&P 500 breached its 200-day MA for the first time since 2012. The index has corrected 5.89% from its record, so we could realistically see more selling in the weeks ahead; be careful. A decline to 1,792 would represent a 10% correction, based on my technical analysis.

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

A death cross remains intact on the Russell 2000’s chart, with the index down 13.56% from its peak as of Monday’s close.

Now, we could see further weakness should the earnings season disappoint. And Germany and Europe are already seeing contraction in their economies.

You should begin to look at investment opportunities to buy into weakness. Over the past two years, the S&P … Read More


How to Navigate Through This Chaotic Market

By for Daily Gains Letter | Oct 10, 2014

Some Strategy Suggestions for Market ChaosIf you are a bit anxious toward the stock market, I don’t blame you. In fact, I have been through this type of scenario on numerous occasions, including the meltdowns in 1987, 2000, and 2008. The key is to not panic and immediately run for the exits; emotion in trading never works. This is also not the time to get too comfortable in the stock market.

It’s clear the stock market risk has intensified across the board after the sell-off on Tuesday that saw the DOW close lower for the ninth time over the last 12 sessions and fall below its 50-day moving average (MA). The index is now only another triple-digit loss away from negative territory for the year.

All of the four key stock indices are currently below their 50-day MAs and edging lower towards their 200-day MAs, which will be a critical point for support, based on my technical analysis.

Small-cap stocks continue to pose the highest risk with the Russell 2000 engulfed in a death cross. The index is down 11.73% from its high and showing a bias to the downside.

Russell 2000 Small Cap Index Chart

Chart courtesy of www.StockCharts.com

Now the selling in the stock market may not be over yet as the S&P 500, DOW, and NASDAQ are only down less than three percent from their highs.

I still sense downside risk and feel a six-percent adjustment in the stock market is not out of the question. The S&P 500 could correct to below 1,900 if the selling continues.

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

The key now is to move to the defensive and make sure you have a sound … Read More


These Two Charts Suggesting Trouble Ahead?

By for Daily Gains Letter | Oct 3, 2014

Two Charts Suggesting Trouble AheadToday, I’m going to talk about the technical picture and what to expect going forward.

At the start of the year, I would have been somewhat surprised if you told me the small-cap sector would be in negative ground at the end of the third quarter.

Small-cap stocks and technology fared the worst in September. Small-caps continue to be vulnerable, with the Russell 2000 retrenching 6.19% in the month and down 9.22% from its high. The small-cap index is again nearing the official 10% correction and reversal point, based on my technical analysis, which it ran into earlier in the year but managed to recoup.

The Russell 2000 is showing a bearish death cross with its 50-day moving average (MA) crossing below its 200-day MA, based on my technical analysis. And unless we see a reversal in the fourth quarter, my technical analysis suggests small-caps are heading for a down year.

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

It has been an uneasy year for stocks, unlike what we have been seeing over the past four years of the bull market. I thought the S&P 500 could gain 10% and 15% in the best-case scenario. At the end of Tuesday, the index was up 6.73%, so I may be close.

In the final trading session of the third quarter, the S&P 500 and NASDAQ pushed back below their respective 50-day MAs.

The technology group has been the top performer in this mixed year with the NASDAQ up 7.59%. The leadership has helped to lift the broader market, but with the NASDAQ at its highest point in more than 14 years, it’s not a … 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 Survive This Stock Market

By for Daily Gains Letter | Aug 22, 2014

Survive a Stock Market with Little ChoiceThe bulls are out in full force again following a pause in the stock market. Investors were initially spooked by the fear of interest rates moving higher in the first quarter of 2015, but that appears to have been pushed to the backburner now as the stock market rally reignites.

The thing is there are few real alternatives to the stock market—unless you are happy with the 2.42% yield on the 10-year bond. Personally, I would rather invest in dividend paying stocks.

There’s nothing spectacular about the stock market and economy at this time. Things seem to be moving just enough to warrant buying and optimism in the stock market.

Jobs are being generated at an average 200,000 per month and the unemployment rate is at 6.2%. These are okay metrics, but we need to see higher jobs numbers going forward.

Housing market growth returned some strong readings in July, with both housing starts and building permits growing at an annualized one billion units, which is excellent.

Consumer sentiment is lagging somewhat, but the stock market is simply pleased that the reading has not plummeted.

This seems like a Goldilocks recovery—not too hot, not too cold, but just enough growth.

The stock market has edged higher in six of the past nine sessions with several key technical moves on the upside as of Tuesday.

Blue chips, which have been comatose, are showing some movement, with the DOW back above its 50-day moving average (MA) and returning to the positive side for this year. As we move ahead, the DOW will likely take another run at 17,000, which has been broken … 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


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


Getting Ready for the Stock Market’s Coming Bumpy Ride

By for Daily Gains Letter | Jun 27, 2014

Four Ways to Prepare for the Bumpy Ride Ahead in StocksThe S&P 500 traded at an intraday record on Tuesday, but it’s not time to relax and take it easy, as was the situation for the past few years since the Great Recession.

It’s time for some hand-holding again. While the broader market has edged higher, I continue to see some nervousness and selling pressure in the small-cap and growth elements of the stock market. The Russell 2000 is holding above its 200-day moving average (MA), but it’s tenuous.

As has been the case in the past years, the direction of the Federal Reserve is helping to support the stock market. Since taking over for the former Fed chairman Ben Bernanke, Janet Yellen appears to be just as, if not more, dovish than her predecessor, and this pleases the stock market.

The reality is that the Fed has said it will likely not begin to increase the historically low interest rates until sometime in 2015, and even then, it will likely only be a small increase. The central bank wants stronger jobs creation and economic growth.

The disastrous first-quarter gross domestic product (GDP) contraction of 2.9% was horrible despite blaming some of the poor results on the winter. A closer look shows declines on spending across the board that negatively impacted the GDP growth. The contraction in durable goods spending in May also supports the continued fragility in the economy and stock market.

The problem is that investors have minimal options for investing compared to the stock market. While the risk is prevalent, it’s clear investors are willing to assume some of the risk, but not to the same degree … Read More


If I Had to Pick One Stock Outside of the United States…

By for Daily Gains Letter | Jun 25, 2014

Top U.S.-Listed Foreign Company with Growth PotentialThe recent selling in small-cap stocks has provided numerous investment opportunities to accumulate on price weakness, albeit the stock market could see more weakness.

A high-potential region that I have discussed in the past is Israel, which has turned into the technology incubator of the Middle East and is an investment opportunity.

I have been following Israeli companies for years, and in that time, I have come across numerous high-growth and rewarding technology and healthcare companies that make the country an excellent investment opportunity.

Israel ranks third as far as foreign companies on the NASDAQ, trailing only China and Canada.

What makes Israeli companies intriguing as an investment opportunity is the strong trust from this region. You actually never hear about financial irregularities out of Israel, which makes the country a solid investment opportunity.

A small-cap technology Israeli company that I’d watch as an investment opportunity for the speculative investor is EZchip Semiconductor Ltd. (NASDAQ/EZCH), which has a share price of $25.44 and a market capitalization of $745 million.

The company is a fabless semiconductor company, meaning it doesn’t manufacture anything; rather, it simply develops the chip and produces it via a third party. EZchip designs ethernet network processors for networking equipment companies, such as carriers, along with cloud, data center, and enterprise network equipment. The company will soon be launching its newest and most powerful network processors that will drive revenues higher.

The risk with EZchip has been with the mounting concerns that some of its clients are developing their own in-house chips. So far, it has not been a factor, but it could be if EZchip began to … 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


Chasing Risk? This Market Won’t Be Kind to You

By for Daily Gains Letter | May 29, 2014

Why This Stock Market Calls for PrudenceMy stock screens have been displaying up signals over the past few days, but I’m still somewhat apprehensive about the most recent stock market rally—and you should be too.

The stock market appears to be edging higher again after the S&P 500 closed above 1,900 at another intraday high on May 23. And while there is some buying support on the stock market charts, I still question the sustainability of any strong upside moves at this time, given the lack of any new catalyst. The reality is that the absence of any leadership and continued concerns towards technology and growth stocks suggest the stock market remains vulnerable at this time.

Where I’m sensing the most risk continues to be the technology sector and small-cap stocks, despite some current relief buying.

Some technical analysts might argue that the move of the Russell 2000 back above its 200-day moving average (MA) is positive; however, I would question the lack of mass stock market participation, given the lighter volume and the questionable and flat investor sentiment, based on my technical analysis.

The chart of volume on the NASDAQ (below) shows how weak the trading volume has been since mid-March, when it was above the 50-day and 200-day MAs. Note the downside bearish crossover of the 50-day MA (blue line) below the 200-day MA (red line) as indicated by the blue oval.

NASDAQ Volume Summation Index Chart

Chart courtesy of www.StockCharts.com

The NASDAQ and Russell 2000 remain below their respective 50-day MAs. Their failure to recover this key technical level is a red flag.

Also what concerns me regarding the NASDAQ is not only the presence of a bearish … Read More


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


Investors Causing Massive Shifts in Growth Stocks

By for Daily Gains Letter | May 14, 2014

Key Stock Indices Soon DisappointYou can’t deny it: there are outright signs of stress on the key stock indices. We see investors are worried, and they just don’t like risk. We see huge selling in the growth stocks, with names like Amazon.com, Inc. (NASDAQ/AMZN) and Twitter, Inc. (NYSE/TWTR); they are witnessing a huge sell-off and are now in bear market territory. The biotechnology sector is getting slammed—investors are hitting the bid and running for the exit.

With all this happening, one question comes to mind: what happens next? Growth stocks can act as a leading indicator of what’s next for the markets. Are key stock indices setting up for a huge market sell-off ahead?

Sadly, as this happens, we are hearing a significant increase in the noise. The bulls say this pullback should be used to get into the sold-off companies again. The bears argue that key stock indices are going to shed more gains. Beware; your portfolio might get hurt.

When it comes to investing for the long run, it is critical that investors try to minimize the noise and look at the long term.

With this said, over the past few years, the key stock indices have increased significantly. 2013 was another stellar year. Key stock indices like the S&P 500 increased more than 30%. Companies that are getting sold off—for example, Amazon.com—increased roughly 50%. The NASDAQ biotechnology sector that’s plunging lower now had increased by more than 85% in 2013.

Going forward, it doesn’t look like the year 2014 will be anything like 2013. I expect the key stock indices to move sideways—trading in a range. These ranges may break to … Read More


Investor Beware: More Selling Coming to Tech Stocks

By for Daily Gains Letter | May 12, 2014

Beware of More Selling from TechnologyIf you’ve been keeping an eye on your screens and portfolio holdings (or if you’ve just taken a look), you are probably aware of the current selling capitulation towards small-cap stocks and the technology sector.

The bloodletting on Wall Street has been unabated and, in my view, it has been overdone. I’m not ready to jump in yet, but I would be on additional weakness in the stock market.

In a period of selling capitulation in the stock market, there is minimal regard for the quality of the stock. Sellers rush to the exits and dump everything along the way. I witnessed this on the stock markets in 2000 and again in 2008.

Yes, there is clearly a technical red flag on the growth stock market indices like the Russell 2000 and the NASDAQ. The Russell 2000 broke below its 200-day moving average (MA) last Tuesday, but managed to rally a bit on Thursday. If the buying support emerging continues, we could see the index rally back to its 50-day moving average; albeit, the risk is there in the stock market.

Just the fact that the technology group, which comprises many high-momentum Internet and social media stocks, is down more than 20% from its highs is worrisome. But at the same time, this isn’t really a surprise, given the advances made in 2013 and the previous years in the stock market.

Even with the stock market correction, we continue to see ridiculous valuations with the likes of such stocks as Yelp Inc. (NYSE/YELP), Groupon, Inc. (NASDAQ/GRPN), Facebook, Inc. (NASDAQ/FB), and Twitter, Inc. (NYSE/TWTR), meaning the bloodletting has not stopped, so … Read More


Three Ways to Profit from an Exhausted Stock Market

By for Daily Gains Letter | May 1, 2014

How Play Uneasy Market ProfitWhen I’m looking at the screens each day, I notice there’s some selling capitulation occurring that makes me think back to 2000, when the technology stocks imploded.

Now, while I doubt we are seeing a repeat of 14 years ago, you have to wonder about the mad dash to the exits for many of the high-momentum technology stocks along with small-cap stocks. The small-caps are under threat, with the Russell 2000 down nearly eight percent in 2014 so far and close to five percent in April alone. Watch as the index is just above its 200-day moving average (MA).

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

As I said last week, the fact that the NASDAQ and Russell 2000 have failed to recover their respective 50-day MAs is a red flag, based on my technical analysis. Moreover, the presence of a possible bearish head-and-shoulders formation on the NASDAQ chart is concerning for technology stocks.

The lack of any leadership from technology stocks now, which was so prevalent in 2013, has also hurt the broader stock market.

On the charts, only the S&P 500 is positive in 2014, with a slight advance. All of the key stock indices were negative in April—a month that has historically been positive.

To make matters worse, we are heading into traditionally the worst six-month period for the stock market, from May to October, so it’s not going to get easier anytime soon.

The fact that numerous technology stocks have produced some strong earnings results is encouraging, but the lack of strong follow-through buying is a concern and suggests some exhaustion towards technology stocks.

We also have the uncertainty … Read More


Déjà Vu of 2000?: Tech Sector Valuations Look Suspect

By for Daily Gains Letter | Apr 25, 2014

Why Believe Tech Sector Looks SuspectIn a recent editorial, I discussed the potential red flags surfacing on the chart of the technology-laden NASDAQ. While I’m cautious, especially after its multiple failures to hold at 4,000, my view is that the technology sector stocks are the most vulnerable at this time, given their recent advance.

In the months leading up to early 2000, I recall the explosive buying in the technology sector was based on assumptions and speculations, rather than concrete, solid analysis.

While the recent buying in the technology sector—especially high-momentum technology stocks—was overdone, it was really nowhere close to what we witnessed back in 1999–2000, prior to the stock market imploding. I recall the surge of technology penny stocks trading under $1.00 to over $10.00, and in some cases to over $25.00, which was absolutely ridiculous at the time.

For some of you who were trading during that time, there was a wireless play called United Broadband Systems that was promoted as the next generation of wireless technology. At that time, technology and wireless were extremely hot and speculative. For one of my speculative market letters at that time, I advised readers to buy United Broadband at $0.25 as a speculative gamble. Heck, there was minimal financial history, but what I liked was the company’s story and that was good enough for me! Remember: the company was based on speculation, not on fundamentals, but we were able to turn an impressive profit.

When I see what is happening in the technology sector today, I am reminded of 14 years ago, but today’s technology sector is in no way as euphoric or crazy as it … 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


How to Navigate the Ridiculous World of Social Media Stocks

By for Daily Gains Letter | Apr 10, 2014

investment strategyThe tension in the stock market is clearly evident, especially with the NASDAQ and Russell 2000 breaching their respective 50-day moving average (MA).

What we have seen in the stock market is a shift away from higher-beta growth and small-cap stocks to the perceived safety of blue chips and large-cap stocks, which I recently wrote about.

Driving much of the current malaise in the stock market has been the selling in the technology groups, specifically the high-momentum stocks that attracted major buying euphoria in 2013, in spite of what were high valuations and overdone optimism.

While I continue to like technology for growth investors in the stock market, I have also been quite vocal in not chasing some of the outrageous valuations that were assigned to these stocks by the stock market. With some of the brand-name momentum plays trading at more than 100 times (X) earnings, you have to step back, pause, and consider these metrics are ridiculous and undeserved.

There are some analysts in the stock market coming out and advising to buy on this dip, but I’m not as convinced, especially toward the high-beta and high-valuation momentum plays in the stock market.

The extreme valuation in the stock market is most evident in the social media space, which saw some impressive gains over the past few years even though many were not even making any money. These stocks are definitely not the kind that investment guru Warren Buffett would buy.

Take a look at Twitter, Inc. (NASDAQ/TWTR). This has to be one of the most overvalued stocks in the stock market at this time. The company has … 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


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


Top-Yielding Stocks to Combat Low Interest Rates

By for Daily Gains Letter | Feb 13, 2014

Low Interest RatesFederal Reserve Chair Janet Yellen has confirmed what most already knew. The recovery in the U.S. jobs market is far from complete. Yellen noted that the unemployment rate has improved since the Federal Reserve initiated its last round of quantitative easing in late 2012, falling from 8.1% to 6.6%. Curiously, in 2013, the U.S. economy grew just two percent.

That said, against the backdrop of a so-called improving U.S. economy, the numbers of the long-term unemployed and part-time workers are far too high. In fact, 3.6 million Americans, or 35.8% of the country’s unemployed, fall under the “long-term unemployed” umbrella—that is, those who have been out of work for more than 27 weeks. The underemployment rate (which includes those who have part-time jobs but want full-time jobs and those who have given up looking for work) remains stubbornly high at 12.7%.

The improving unemployment numbers come on the heels of two straight months of weak jobs numbers. In January, economists were expecting the U.S. to add 180,000 new jobs to the U.S. economy; instead, just 113,000 new jobs were added. In December, economists were projecting 200,000 new jobs would be added—instead, the number was an anemic 74,000.

For the head of the Federal Reserve, this translates into more money being dumped into the bond market ($65.0 billion per month) and a continuation of artificially low interest rates.

Once again, bad news for Main Street is good news for Wall Street. After Yellen’s speech, the S&P 500, NYSE, and NASDAQ responded by surging higher. Again, the Federal Reserve’s ongoing bond buying program and open-ended artificially low interest rate environment is great … 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


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


Why the Tech Sector’s at the Top of My 2014 Growth List

By for Daily Gains Letter | Jan 27, 2014

Stock MarketThe technology sector was my top growth area in 2013 and it has been since the reversal out of the recession. The euphoric buying in social media and Internet services stocks in 2013 obviously shows the immense upside price appreciation potential that lies in the technology sector.

The NASDAQ recently broke above 4,200 to a 13-year high and is within 20% of its all-time high of just over 5,100, which it achieved during those crazy and irrational times in late 1999 and early 2000. But we all know what happened thereafter, when the Internet bubble burst.

Now, while we have seen some big-league moves in some of the mobile and social media stocks, the gains are still nowhere near the ridiculous moves made some 14 years ago in the technology sector. I recall some speculators becoming millionaires via buying technology penny stocks that really had no financial history, but these companies were able to cater to the greed in investors to propel the stock market higher.

I doubt these times will surface again, but we will likely see glimpses when stocks rocket higher for no apparent reason except momentum.

Following the Internet bubble, I thought we may not see 5,000 on the NASDAQ for years. But that time has arrived, as the NASDAQ may be set to reach this former pinnacle sometime in early 2015, as long as the investment climate remains positive for stocks.

Take a look at the long-term chart of the NASDAQ below. Notice the record peak in March 2000, when stocks spiked higher.

Nasdaq Composite Chart

Chart courtesy of www.StockCharts.com

Since the technology sector imploded and the NASDAQ bottomed … 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


Boost Your Returns with These Small-Caps

By for Daily Gains Letter | Jan 9, 2014

Dividend-Paying StocksFor most investors, the past year was about the search for higher-risk assets with the potential for achieving higher returns. This desire helped to propel the NASDAQ and Russell 2000 to returns in excess of 30%, while dividend paying stocks lagged in performance.

Now as we move along in 2014, we could see buying shift to more conservative stocks that pay a dividend to investors. The shift to these stocks could accelerate as comparative bond yields rise, making income investors choose between bonds and dividend stocks.

As an investment strategy, you can consider buying the large-cap dividend plays, such as General Electric Company (NYSE/GE) or The Procter & Gamble Company (NYSE/PG).

But while buying large-cap blue chips always makes sense to your overall portfolio strategy, you can increase your portfolio’s overall potential returns by adding small-cap dividend stocks. By doing so, you can usually add in higher capital appreciation potential.

And while there are numerous small-cap dividend plays in the financial and industrial sectors from which to select, I’d like to highlight a couple above-average stocks that you may want to examine further. As I said, these smaller companies offer dividends and higher capital appreciation potential.

In the area of investment management, a mid-cap company that looks like it may make a good addition to your portfolio is Och-Ziff Capital Management Group LLC (NYSE/OZM), which has a strong dividend yield of 6.7%. The stock has also advanced 61% to shareholders over the past 52 weeks; the S&P 500 returned just 25%. In the third quarter, Och-Ziff managed to beat the Thomson Financial consensus estimate by $0.07, reporting $0.27 per diluted … 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


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


Two Key Steps to Stock Market Success in 2014

By for Daily Gains Letter | Dec 19, 2013

Stock Market Success in 2014This year, Christmas will bring joy to many investors with the stock market now nailing gains in excess of 30% for the NASDAQ and Russell 2000. Even if you are a more conservative investor buying DOW and S&P 500 stocks, your wallet still got bigger.

What has surprised me this year has not been the advance as much as the ability of the stock market to avoid a sizable stock market correction. The S&P 500 retrenched about 6.5% in May and June after the Federal Reserve first uttered the word “taper.” Yet the downcast mood didn’t last that long, as traders quickly entered the market and bought on the weakness. This has largely been the pattern this year, where any sign of weakness was followed by buying.

S&P Large Cap Index Chart

Chart courtesy of www.StockCharts.com

Now I’m not a pessimist, but I do believe in market adjustments along the way. At the beginning of the year, I predicted the stock market would move higher, but not at the rate and size we saw. Maybe a 15% upside, but definitely not 30% plus.

Record after record, the stock market appears to be looking to higher ground. I remain bullish at this time, especially if consumers decide to up their spending. Yet there’s still the lack of revenue growth in corporate America that hopefully could correct itself as we move into 2014.

At this point, you really should look to realize some profits, especially on your big winners, prior to the year-end tax season. To counter some of the gains, I suggest you also divest some of your dogs in your portfolio. Look, we all make … Read More