small-cap stocks
Small-Cap Stocks Outshining NASDAQ, S&P 500; Top Investment in 2015?
By George Leong for Daily Gains Letter | Mar 9, 2015
If 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.
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
Early Preview: My Stock Market Outlook for 2015
By George Leong for Daily Gains Letter | Dec 17, 2014
I will be formulating my complete stock market outlook for 2015 in a couple weeks, but at this time, I’m feeling somewhat uneasy. This year has turned out to be what I was expecting back in January 2014, with stock market trading being characterized by uncertainty and hurdles.
Small-cap stocks are heading for their worst performance since 2011, when the Russell 2000 fell just below six percent. The index is languishing, with a loss of one percent after the nasty down week we just experienced.
The selling was, in my view, somewhat driven by panic selling and capitulation. It gave stock market investors reasons to dump positions and take profits prior to year-end. The selling last week managed to wipe out five weeks of stock market gains for the DOW and the S&P 500.
The price charts are currently displaying an uneasy picture of the stock market. The DOW and S&P 500 have almost declined to their 50-day moving averages (MAs), which will each be a key technical point to watch. The Russell 2000 could take out its 200-day MA, based on my technical analysis.
Chart courtesy of www.StockCharts.com
The big risk is the failure to hold at the key moving averages, which, as I mentioned, could result in additional downside moves due to the lack of strong technical support until we hit the 200-day MA.
What the stock market needs is for the slide in oil prices to halt at the current $57.00 for West Texas Intermediate (WTI) oil as of Monday. The historically higher-priced Brent oil from the North Sea managed to recover to $60.00 after declining below … Read More
Six Dividend-Paying Blue Chips Selling at a Discount
By George Leong for Daily Gains Letter | Nov 3, 2014
One 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 George Leong for Daily Gains Letter | Oct 20, 2014
The 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
Why You Need to Stick with the Big Guys Right Now
By George Leong for Daily Gains Letter | Oct 17, 2014
For investors in small-cap stocks, this year has been quite a different experience from 2013, when the sector was raging and sizzling on the price charts.
Small-cap stocks are the laggards this year, with the benchmark Russell 2000 down nearly 14% from its peak and established in a bear market. The selling may be somewhat extreme at first glance but consider that the Russell 2000 surged an excessive 33% in 2013.
The reality is that gains like what we witnessed in 2013 were unwarranted; they were driven solely by the easy monetary policy put forth by the Federal Reserve and excessive froth in the stock market. We are now paying for the euphoria small-cap stocks encountered in 2013.
Now, while I continue to feel small-cap stocks are excellent longer-term plays, the short-term looks weary, given the technical breakdown on the chart of the Russell 2000.
Dumping higher-risk small-cap stocks is clearly the line of attack this year. But if the economic renewal holds into 2015 and the global economy doesn’t tank, we could see small-cap stocks rally next year. Keep this thought in mind, but know that at this time, it’s safer to shift your money to the large-cap or blue-chip stocks that have been battered this year.
Buying mature, consistent large-cap stocks on weakness makes sense as these companies have proven themselves to be steady players over time.
Think about it this way: Small companies will tend to struggle if the economy declines. Compared to the larger companies that can deal with several quarters or even years of underperformance, small-cap stocks would have a much more difficult time.
For … Read More
Is This the Discount Sale Investors Have Been Waiting For?
By George Leong for Daily Gains Letter | Oct 15, 2014
October 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.
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 George Leong for Daily Gains Letter | Oct 10, 2014
If 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.
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.
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 George Leong for Daily Gains Letter | Oct 3, 2014
Today, 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.
Chart 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 George Leong for Daily Gains Letter | Sep 29, 2014
Last 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.
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.
Chart … Read More
Market Risk Rising; Where to Invest for the Best Potential Return
By George Leong for Daily Gains Letter | Sep 24, 2014
Don’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
How to Hedge Against a Stalling Global Economy
By George Leong for Daily Gains Letter | Sep 17, 2014
The stock market charts are showing some hesitation once again following the recent technical breaks to new record-highs for the S&P 500 and Dow Jones Industrial Average.
On the charts, the blue chip DOW is back below 17,000. Its continued failure to hold after breaking above 17,000 for the fifth time is a red flag that suggests more weakness and vulnerability could be in the works for the stock market on the horizon.
Small-cap stocks are also subject to some selling again with the Russell 2000 declining to below both its 50-day and 200-day moving averages on Monday morning. The breach of the moving average is worrisome. The index will need to find support at current levels or risk a fall to the 1,140 level.
Here are the issues I see for the stock market at this time. While I still see potential higher gains ahead for the stock market, there are also some indications of a possible stock market correction around the corner.
You may be seeing targets for the S&P 500 rise, but I feel there could likely be some pausing and weakness ahead of this.
The surfacing of soft economic news for the global economy is a concern for economies worldwide, including the U.S. economy, and overall economic growth.
The European Central Bank (ECB) recently launched fresh stimulus for the eurozone. Clearly, this is needed. The Organisation for Economic Co-operation and Development (OECD) just cut its outlook for the eurozone’s gross domestic product (GDP) growth, revising it to a paltry 0.8% this year and 1.1% for 2015. Folks, this is weak and in my view, it indicates … Read More
How Good News from Belarus Could Mean Gains for U.S. Investors
By George Leong for Daily Gains Letter | Aug 25, 2014
It began with the battle for Crimea, followed by the shooting down of Malaysian flight ML17 in eastern Ukraine, but for Russia, which was blamed for both, there has been a battle over the strength of its economy, triggered by a multitude of economic sanctions by Europe and the United States.
Russia, under President Vladimir Putin, has been in strong denial to all the blame it has received; but clearly, the world sees a different story, which is the reason for the economic sanctions. Now, these economic sanctions have begun to wreak havoc in the region, based on my economic analysis.
The reality is that Russia, based on my economic analysis, is not strong enough economically to survive on its own domestic consumption and ignore the global economy. Yes, Russia has its alliances with China, but it’s not enough, especially since the Chinese economy is also struggling to avoid a hard crash, as my economic analysis indicates.
Putin has had time to rethink his strategy and I’m sure he has had many phone calls from Russia’s business elite regarding the sanctions and their impact on their wallets. Heck, even Putin, who has major economic interests in Russia, is hurting at the bank.
Now there’s hope with a meeting between Putin and Ukrainian President Petro Poroshenko scheduled to take place in Belarus this week. Russian stocks have closed higher in 10 straight sessions as optimism rises and an end to the conflict could emerge following the meeting.
While the benchmark MICEX Index, which comprises the 50 most liquid Russian stocks that represent the Russian economy, is down 2.59% year-to-date as of … Read More
How to Survive This Stock Market
By George Leong for Daily Gains Letter | Aug 22, 2014
The 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
The Next Best Move for Investors
By George Leong for Daily Gains Letter | Aug 8, 2014
It’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
Stock Market: Institutions Moving in Opposite Direction of Investors
By George Leong for Daily Gains Letter | Jul 30, 2014
As we move towards the end of July, trading in the stock market continues to be murky and filled with obstacles and uncertainties. The S&P 500 is holding on to a small gain this year, but there’s still a sense of nervousness among investors in the stock market.
While the small-cap stocks segment of the stock market continues to be apprehensive, and with a slightly bearish bias with the Russell 2000 being negative on the year so far, I’m also seeing some warning signs emerging from the broader stock market and blue chip stocks.
The S&P 500 continues to fall short on numerous occasions as it approaches 2,000. The Dow Jones Industrial Average has failed to hold above 17,000 on four occasions. The failure in both of these situations is a red flag, in my view, which could be foreshadowing a potential stock market adjustment. Look, we may only see a correction of five percent or so, but it’s coming.
This is a time to be prudent and take some money off the table, just as institutional investors have been. In an article I read on Yahoo!, institutions divested $7.97 billion in exchange-traded funds (ETFs) in the last week, while retail investors rushed in, buying up about $379 million of equity mutual funds. (Source: Lewitinn, L., “Why is the big money dumping stocks?” Yahoo! Finance web site, July 27, 2014.) This move indicates that the professional money is taking some cash off the table, given the five-year bull market run and current hesitancy in the stock market.
In fact, over the past year, retail investors have been rushing into the … Read More
Why I Like This Food Company the Best Right Now
By George Leong for Daily Gains Letter | Jul 17, 2014
The market for natural foods is getting tighter as major supermarket and big-box chains, such as Wal-Mart Stores Inc. (NYSE/WMT), The Kroger Co. (NYSE/KR), and Costco Wholesale Corporation (NASDAQ/COST) invade the territory that had been dominated for years by market leader Whole Foods Market, Inc. (NASDAQ/WFM).
While you cannot ignore the moves by Wal-Mart and Costco, let me be clear: shoppers who generally buy their goods at Whole Foods or some of the smaller chains will not necessarily shift their shopping preference and suddenly go to Wal-Mart. What will happen is that pricing will likely become more competitive with the added rivals entering into the mix.
On the small-cap end, you may want to take a look at a company like The Fresh Market, Inc. (NASDAQ/TFM, $31.74, Market Cap: $1.54 billion), which is looking attractive after declining to a 52-week low of $28.60 on May 22. The stock could decline further, but I like the risk-to-reward investment opportunity in the stock market.
The Fresh Market isn’t new; it’s been around since 1982. The specialty food grocery chain operates a network of approximately 157 stores in 26 states as of May 22, 2014. There are also plans to open another 23 to 24 new stores.
As I said, the stock is an investment opportunity following the recent selling, down 41.65% over the past 52 weeks versus a 17.95% advance by the S&P 500.
The company is growing its sales. Estimates are calling for sales to expand 15.2% year-over-year to $1.7 billion in FY15, followed by 14.8% to $2.0 billion in FY16, according to Thomson Financial. Earnings are predicted to come in … Read More
Why This Beaten-Down Stock Is Worth a Closer Look
By George Leong for Daily Gains Letter | Jul 11, 2014
Small-cap stocks made a sweet rebound in June after the Russell 2000 previously declined below both its 50-day and 200-day moving averages. The index actually had been down 10% earlier in the year, prior to staging a nice rally, based on my technical analysis.
While the risk with the higher-beta growth and technology stocks continues to be higher than the S&P 500, the weakness has provided a decent trading investment opportunity for the more aggressive speculators looking for above-average risk-to-reward trades.
In my view, there is no better area as an investment opportunity for speculative trades than technology due to the immense upside; but at the same time, the associated risk is also higher due to the downside.
If you are searching for a beaten-down small-cap technology investment opportunity that could return some quick money, take a look at a stock like Extreme Networks, Inc. (NASDAQ/EXTR), which currently sits at a stock price around $4.27 and a market cap of $412 million. The stock traded as high as $8.14 in January, but it has lost nearly half of its value since then, so I see an investment opportunity here.
Chart courtesy of www.StockCharts.com
Some see Extreme Networks as a stay-away stock, but I view it as a contrarian investment opportunity at a time when the stock has been beaten up and tossed around by the stock market. Now, I’m not saying it’s easy money, but I like the trade risk to reward here; there’s more upside potential than downside risk, which makes it a good investment opportunity.
Extreme Networks develops network infrastructure equipment and services that cater to enterprises, data … Read More
How This Small-Cap Stock Beat Even Google to the Punch
By George Leong for Daily Gains Letter | Jul 10, 2014
The U.S. military extensively uses unmanned drones to spy on foreign countries (and maybe its own citizens). In some cases, the military uses drones to take out the enemy, which is what recently happened when drones killed terrorists at a meeting in a remote region.
Interestingly, Amazon.com, Inc. (NASDAQ/AMZN) wants to use drones for an entirely different reason: to deliver your books and other merchandise.
Likewise, Google Inc. (NASDAQ/GOOG) wants to deliver groceries to your home in real time via its solar-powered drones that came into the company’s hands after Google acquired Titan Aerospace. Leave it to Google—self-driven cars and drones delivering goods.
The employment of drones is extensive if it receives clearance from the Federal Aviation Administration (FAA), which is likely still a long shot, especially in the more populated areas of the country, based on my stock analysis.
If the FAA approves it, the use of drones in commercial applications will likely rise, but it could take some time before they are used for broader applications, as my stock analysis suggests.
The market for U.S. drones is estimated at $82.0 billion by 2022, based on information from IHS Jane’s. (Source: Medina, D.A., “Drone markets open in Russia, China and rogue states as America’s wars wane,” The Guardian, June 22, 2014.)
The major players are the big aerospace companies, such as The Boeing Company (NYSE/BA). On the small-cap stocks side, my stock analysis indicates that an interesting company to watch is AeroVironment, Inc. (NASDAQ/AVAV). As my stock analysis notes, the company is best known for its efficient energy systems (EES) division, which makes electric vehicle (EV) charging solutions.
Yet … Read More
Stocks vs. Bonds: Finding the Best Investment Opportunity Right Now
By George Leong for Daily Gains Letter | Jul 9, 2014
The 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.
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.
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 George Leong for Daily Gains Letter | Jul 7, 2014
The 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
If I Had to Pick One Stock Outside of the United States…
By George Leong for Daily Gains Letter | Jun 25, 2014
The 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
The Only Sector I Believe Will Deliver as Corporate America Struggles
By George Leong for Daily Gains Letter | Jun 16, 2014
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 George Leong for Daily Gains Letter | Jun 11, 2014
This 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 George Leong for Daily Gains Letter | May 29, 2014
My 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.
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
Investor Beware: More Selling Coming to Tech Stocks
By George Leong for Daily Gains Letter | May 12, 2014
If 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 George Leong for Daily Gains Letter | May 1, 2014
When 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).
Chart 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
My Top “Made in America” Stock Pick Selling Under a Dollar
By George Leong for Daily Gains Letter | Apr 30, 2014
The current stock market risk continues to be high for technology and small-cap stocks. Yet with the selling, we are beginning to see some decent opportunities coming to the surface.
The small-cap Russell 2000 is down just over seven percent after previously being down by more than 10% in the stock market. And while we are seeing heated stock market selling in higher-beta technology small-cap stocks, there are also opportunities emerging. Think of it as a current sale in the stock market that could inevitably see bigger discounts to buy equities in the stock market on the horizon.
But a small retail stock that I feel could reward speculators if it can strengthen its balance sheet is American Apparel, Inc. (NYSE/APP), which is based out of Los Angeles. What makes the company interesting is that the maker of fashion apparel for women, men, children, and babies manufactures its products within the United States borders, instead of places like China and Asia, which offer cheaper labor.
You could say that American Apparel truly is a “made in America” company producing its fashionable garments from an 800,000-square-foot facility in downtown Los Angeles. There are also other facilities in California.
American Apparel is a vertically integrated manufacturer, distributor, and retailer. The retail stores are located in major U.S. cities, along with outlets in Latin America, Europe, and Asia.
Considering what many of the major retailers and apparel makers in the stock market are doing with their manufacturing in cheap labor markets, American Apparel is quite astonishing—but the problem that arises is the lack of profits.
The financial risk has been hurting the stock. … Read More
How Last Week’s Mini Rally Is Reshaping My Investment Strategy
By George Leong for Daily Gains Letter | Apr 21, 2014
The 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
This Top Stock a Poster Child for Consistency
By George Leong for Daily Gains Letter | Apr 17, 2014
The chase for high-beta stocks appears to be fading at this juncture, as we are seeing a shift in the risk profile to lower-beta and more conservative large-cap stocks in the stock market.
After the staggering gains made by technology and small-cap stocks in 2013, it’s time to take a prudent approach to the stock market and refrain from chasing risk at this time.
We are seeing a move to consumer staples stocks that tend to fare reasonably well in both up and down stock markets.
While I favor small-cap stocks in an up stock market, the current tension in the stock market makes it dangerous to pursue risk. This is a time you need to be in defensive stocks.
The big banks, consumer staples, and industrial sectors look decent for those wanting to continue to invest at this time. Momentum and growth should be avoided for now.
If you are looking for a singular stock market play that offers diversity and a defensive approach, take a look at time-tested General Electric Company (NYSE/GE), which has offered investors steady returns in the majority of periods since its beginnings in 1892.
General Electric (GE) is precisely what you want in this type of market. It’s extremely well diversified across many industries and geographical areas around the world.
The company prides itself on producing steady results to shareholders. Its management strategy is to hire CEOs for 20-year time spans that allow for stability.
GE is the poster child for consistency in corporate America.
The company isn’t going to make you rich in a short period of time in the stock market, but … Read More
How to Navigate the Ridiculous World of Social Media Stocks
By George Leong for Daily Gains Letter | Apr 10, 2014
The 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
Considering Dumping Stocks? Why You Should Reconsider
By George Leong for Daily Gains Letter | Apr 9, 2014
I’m starting to receive more questions regarding the state of the stock market and whether it’s simply a bout of profit-taking or the set-up of a deeper stock market correction.
First of all, panicking is not what you want to do. Yes, we are seeing some selling surfacing, but that doesn’t necessarily mean you should go and dump stocks.
After the year we had in 2013 and the fact that the bull stock market is in its fifth year and devoid of a major question despite the advance, it would not be a surprise to see some selling.
Also, with bond yields beginning to rise, we will see a reduction in the assumed risk and will likely see a shift of capital into bonds and away from the stock market as yields rise.
The reality is that the stock market is already seeing a decline in the assumed risk in 2014. Technology stocks and small-cap stocks are no longer the stars of Wall Street this year.
We are seeing a lack of market leadership and extreme selling on the momentum stocks, which clearly is a red flag. The concern is that the drop-off in the momentum stocks is significant and could likely extend lower since the rise was euphoric.
Instead of seeking added returns, we are seeing a move towards safety as traders are shifting capital to blue chips and large-cap stocks that are better equipped to withstand a stock market sell-off and have largely proven themselves over decades.
On the charts, the NADSAQ and Russell 2000 are down more than two percent in April versus a less than one-percent … Read More
Time to Ditch Swinging Cyclicals?
By George Leong for Daily Gains Letter | Apr 4, 2014
The stock market appears to be getting somewhat top-heavy. Scanning through my screens, I am quite amazed to find that the majority of S&P 500 stocks are well above their respective 200-day moving averages, which makes opportunities much more difficult to come by for the average investor who might look at their portfolio once a week or month.
But the buying in the stock market has still largely been with the technology, growth, and small-cap stocks, due to the higher potential to make quick money versus investing in blue chips or industrial companies.
In 2013, we saw staggering upside moves in some of the momentum stocks, such as Google Inc. (NASDAQ/GOOG), priceline.com Incorporated (NASDAQ/PCLN), Netflix, Inc. (NASDAQ/NFLX), and Chipotle Mexican Grill, Inc. (NYSE/CMG). These are the top players in their respective areas.
But that was then. Now, we are seeing a renewed interest in some of the safer names in the stock market, which is why the Dow Jones and S&P 500 outperformed in March.
My view is that while there will still be money to be made in some of the more speculative and momentum plays in the stock market, we could also see a pause for investors to digest the gains made.
Cyclical stocks, or those companies that swing with the economy, are still worth a look, but should the economic renewal stall and jobs creation dry up, it might be time to look elsewhere. Here I’m talking about those sectors such as auto, furniture, retail, travel, and restaurants.
Everyone is spending when all is good and people are making money on the stock market, but spending will … Read More
Where to Find the Best Buying Opportunity in Stocks Right Now
By George Leong for Daily Gains Letter | Mar 20, 2014
If 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.
Chart 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
Small-Caps with the Biggest Dividends
By George Leong for Daily Gains Letter | Feb 13, 2014
At the beginning of January, I was optimistic that 2014 would deliver some good results to the stock market. I suggested that small-cap stocks would also continue to return profits to investors after a wonderful 2013 as the economy continued to show progress.
But after a disastrous January, in which the small-cap Russell 2000 attracted the most selling and was down more than nine percent from its 2013 record-high, concerns surfaced.
At this stage last year, small-cap stocks were blossoming with the Russell 2000 up more than eight percent by February.
Now there are concerns that small-cap stocks will face a rough ride this year. My view is that I would be inclined to buy this group on market weakness, as I still sense some of the top gains are yet to emerge from small-cap stocks; albeit, you need to be more selective when investing than you may have been in 2013.
In my view, continued economic renewal will drive small-cap stocks higher, as these companies tend to be able to react quicker to a changing economy.
We are already seeing some downside buying in small-cap stocks, as the Russell 2000 has narrowed its loss to one percent in February and is hoping for a return to positive territory.
The thing to remember is that while small-cap stocks tend to decline at a faster rate than the broader market, they also tend to rise faster when the market rallies.
The chart of the Russell 2000 below shows the downside break below the upward trendline that has been in place for some time. We saw some support and a subsequent rally. … Read More
How to Profit from the Dow’s “Dogs”
By George Leong for Daily Gains Letter | Feb 10, 2014
Small-cap stocks are faring the worst this year and are down nearly 10% from their record-high in late 2013; many would deem this to be an official stock market correction.
Given that small-cap stocks surged upward by more than 33% in 2013, it shouldn’t be a surprise to see this group get the brunt of the selling this year.
Higher-beta stocks, such as small-cap stocks or growth stocks, tend to outperform when the stock market is moving higher, but they are more vulnerable to downside weakness. This is the risk you assume when investing in small-cap stocks.
The reality is that the associated risk of buying stocks is intensified with small-cap stocks, which is why you also need to make sure you have some proven large-cap stocks in your portfolio to help alleviate some of your overall portfolio risk.
I’m not saying that you should avoid small-cap stocks in their entirety, but I do think you should look at adding some large-cap or blue chip stocks if you are devoid in this area.
The advantage of larger companies is that we know these businesses have a proven long-term track record and will likely be around decades from now, whereas small-cap stocks are more vulnerable and may not recover during an economic and market relapse.
A large company can easily absorb several quarters or even years of underperformance but small-cap stocks would have a much more difficult time doing this because they have fewer financial resources.
A classic example of a large company struggling but managing to pull out was McDonalds Corporation (NYSE/MCD). The company faced issues in the 1970s and … Read More
Why I Wouldn’t Give Up on This Stock Market Yet
By George Leong for Daily Gains Letter | Feb 6, 2014
Another day and another 300-point decline in the Dow Jones Industrial Average—that seems to be the norm right now. But despite my assurances that things will inevitably get better, I continue to see extreme nervousness out there.
Now it’s probably time for more hand-holding as we move along during this mini crisis in the markets.
Look, the world isn’t going to blow apart. We are simply hoping through a stock market correction that should have occurred in 2013 but didn’t, largely due to the Federal Reserve’s easy money policy. That’s coming to an end as the tapering continues, but so what?
Based on the morning trading activity on Tuesday, the stock market, while edging higher, wasn’t exactly showing that it was firmly behind the buying; hence, it will likely be prone to more downside moves. My thinking is that we could receive another five-percent hit and then slowly rally.
The concern is that we could see more selling capitulation emerging on higher volume, so investors should be very careful.
The failure of the Dow to hold at its 200-day moving average (MA) is concerning.
Small-cap stocks were down nearly 10% at the close of Monday, nearing what would be an official stock market correction. Just watch how the Russell 2000 behaves going forward, focusing on whether it can hold and rally from here.
My assessment is that the stock market could likely move lower prior to staging a rally.
Of course, the release of a softer-than-expected ISM Index hurt and suggested the economy may not be as strong as the gross domestic product (GDP) growth would indicate.
The thing is … Read More
How to Play Seasonal Anomalies for Profit
By John Whitefoot for Daily Gains Letter | Jan 13, 2014
As all investors know, no two equities march to the same drum. This would then mean that, technically, it should be impossible to predict future returns based on readily available information. However, this might not be entirely true, as it turns out there may be something to be said for some seasonal investing patterns after all.
First off, when it comes to gathering statistics, there’s no better place to look than the stock markets. Monthly price data for equities on the New York Stock Exchange (NYSE) goes back to the early 1900s and data from the other indices goes back to their infancy. So it’s possible to gather objective data and weed out irregularities.
One of the most popular investing seasonal anomalies is the “January effect,” which really runs from late December to at least the end of February. The January effect theorizes that small-cap U.S. stocks have a history of outperforming the S&P 500.
The January effect was first observed by investment banker Sidney B. Wachtel and published in his paper “Certain Observations on Seasonal Movements in Stock Prices,” which appeared in The Journal of Business of the University of Chicago in 1942. In his paper, Wachtel shows that since 1925, small-cap stocks have outperformed the broader market in the month of January. (Source: Wachtel, S.B., “Certain Observations on Seasonal Movements in Stock Prices,” The Journal of Business of the University of Chicago April 1942: 15 (2); 184–193.)
Why is this? Most analysts theorize that tax-loss selling ramps up near the end of the year, when investors sell losing positions. Larger stocks can absorb the hit—but smaller stocks, not … Read More
The Contrarian: Why I Think Stocks Will Rise in 2014
By George Leong for Daily Gains Letter | Jan 6, 2014
Now that New Year’s has come and gone, as we look forward into 2014, the big question will be how the stock market performs this year, especially following an impressive advance in 2013 that was beyond my estimates.
The past year was seen as the year of the Fed-induced market rally that resulted in some strong gains across the board from blue chips to technology and growth stocks. It was one of the best years to make money on the stock market in recent history.
At this stage, the economy is looking better and will need to strengthen in order for the stock market to advance higher toward more record gains. A strong January would be positive and would suggest an up year for the stock market.
My early view is that the stock market will head higher in 2014, but not at the same rate as we saw in 2013, which was out of whack.
The key will be how fast the Federal Reserve, under Janet Yellen, decides to taper its bond buying. A slower taper is supportive for the stock market. However, the flow of money will depend on the rate of economic renewal and, more specifically, the jobs market and whether job creation continues to move along at a steady pace. If we see growth and more jobs created, the Fed will continue to cut its bond buying, though it has said that it will keep interest rates near record lows until the unemployment rate falls to 6.5% or lower, which could happen sometime in mid- to late 2014.
I see another up year for the stock … Read More
How to Build a Successful Investment Strategy for the New Year
By George Leong for Daily Gains Letter | Dec 23, 2013
Another year is soon to draw to an end. In my final commentary prior to the holiday break, I’m going to talk about something that is often not considered by investors when formulating their investment strategy.
But first, let me talk about my dad. He’s in his early 80s and is the most risk-averse investor I have met. He will invest in bonds, regardless of how they are doing. In high-yielding or low-yielding periods (which we are currently in), he will invest in the safety of bonds and squeeze out any last drop of interest. Yet while his investment strategy has always been status quo, this is not the way it should be. Let me explain.
Your asset portfolio should combine the right blend of equities and bonds as an investment strategy. But you need to be careful in your allocation. Too much in equities, and you’re vulnerable to downside risk; albeit, stacking your capital in stocks over the past four years would’ve paid off. Concurrently, if you’re like my dad and hold too much in bonds, then you miss out on some strong gains.
What you need to do for a well-planned investment strategy is consider the key variables, such as asset allocation, diversification, and small-cap stocks, to add potential return.
In my view, you need to be aware of exactly how much you have slotted in equities and bonds. This is also known as asset allocation, which is key to any prudent investment strategy.
By asset allocation, I am referring to how your investable assets are divided up amongst the three major asset classes: cash, bonds, and equities…. Read More
