Daily Gains Letter

stock market

Next Stock Market Crash Coming Soon?

By for Daily Gains Letter | May 11, 2015

Stock Market CrashA look at the charts makes me a bit nervous that the next stock market crash could be on the horizon. The fact is that the market has not witnessed a correction of any major proportions in excess of 10% since the stock market began to turn up in March 2009.

Sure, we have had the occasional five-percent adjustments in stocks, but these periods of selling were short-lived, always followed by periods of buying support. I suspect we could be on the verge of another correction that could drive the major stock indices down to test their respective 200-day moving averages (MAs) after already breaching the key short-term 50-day MA.

While we would all love to see stocks continue to creep to new record highs, this is not healthy for the overall bull market, which may or may not be sustainable.

Let’s be clear; I think a stock market crash like we witnessed in 1987 and 2000 is unlikely. The current valuations may be somewhat stretched but not enough, in my view, to cause a chaotic episode in stocks.

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

It’s true that corporate America is struggling to generate any revenue growth. And earnings continue to be driven by cost cuts. But we’re still seeing some bright spots like jobs and confidence.

What Could Drive the Next Stock Market Crash?

The current selling spree could pick up some steam and drive selling capitulation.

There’s anxiety regarding the current selling in global bonds that is triggering a rise in bond yields, which we all know is negative for the stock market.

The recent rally in oil prices to … Read More

Apple: Still a Stock Market All-Star?

By for Daily Gains Letter | May 4, 2015

Apple a Stock Market All StarI no longer own an “iPhone” and I don’t have plans anytime soon to order the “Watch,” a smartwatch from Apple Inc. (NASDAQ/AAPL). Yet despite my personal needs, I do think Apple is the king of the mountain in the stock market’s technology space.

Some are suggesting the iPhone will eventually meet its match, but I have yet to see this. Apple sold something like 74.5 million iPhones in its first quarter. This a huge number, and it could get even better if existing users of older iPhones decide to stay. I didn’t; I switched to the “Samsung Galaxy,” which I feel is a comparable alternative to the iPhone. But this is not about my personal taste.

The reality is that Apple has quickly become the Darth Vader of the stock market’s mobile space, ruling over the galaxy of smartphones. There will be challengers like Samsung and China upstart Xiaomi, which makes a similar phone that’s cheaper than the iPhone. Yet, in Xiaomi’s own backyard of China, it’s the iPhone that is running rampant and quickly becoming the mobile phone of choice within this massive market with over one billion users.

In the first quarter, Apple saw its revenues from greater China surge 71% year-over-year; this includes Hong Kong, Macau, and Taiwan. Clearly, the company’s alliance with China Mobile Limited (NYSE/CHL) was a key factor in driving up iPhone sales. The region generated about 30% of Apple’s first-quarter revenues second to the United States.

It’s impressive that Apple has been able to maintain its gross margin at 40.8% in the first quarter; obviously buyers are still willing to pay the … Read More

How to Limit Risk and Profit from Momentum Stocks Like Netflix

By for Daily Gains Letter | Apr 20, 2015

Momentum Stocks Like NetflixIn the past, I have often talked about the quick money that can be generated trading big-volume momentum stocks in the Internet and social media spaces. Take a look at the biggest companies by market-cap on the NASDAQ and S&P 500, and you’ll find numerous highflying, valuation-defying stock market trades.

Of course, I’m talking about the likes of Facebook, Inc. (NASDAQ/FB), The Priceline Group Inc. (NASDAQ/PCLN), Twitter, Inc. (NYSE/TWTR), LinkedIn Corporation (NYSE/LNKD), Tesla Motors, Inc. (NASDAQ/TSLA), and Netflix, Inc. (NASDAQ/NFLX). Apple Inc. (NASDAQ/AAPL) is not in this group because the stock’s gains tend to be steadier, rather than in spikes on the stock market.

Just look at Netflix last week. The provider of video streaming to the global market has been delivering massive results. There was no reason to believe that this would not be the case for its first quarter. If you played the stock prior to the earnings release on Wednesday after close, you could have made tons of money via the stock or call options.

Buying Netflix at the $475.00 level on Wednesday during the normal session would have seen the price surge by $67.00, or 14%, to $542.00 by the morning on Thursday. That’s a $6,700 profit on 1,000 shares and $67,000 in easy money for an overnight trade of 10,000 shares. Even a small player buying 100 shares could have made $670.00 in quick cash. And more could have been made if you had played Netflix via the April 18 call.

Netflix Inc Chart

‘Netflix, Inc. short-term chart,’
Chart courtesy of StockCharts.com

The point I’m making here is that momentum plays like Netflix provide exceptional risk-to-reward trading opportunities … Read More

Restaurant Stocks: McDonald’s No Longer King in Stock Market Sector

By for Daily Gains Letter | Apr 17, 2015

restaurant stocksAdmittedly, McDonalds Corporation (NYSE/MCD) was somewhat of a staple in my diet growing up as a teenager. I couldn’t get enough of those golden fries and loved the taste of the “Big Mac.” But that was then; today, I’m no longer drawn in by the “golden arches.” And the stock market appears to be feeling the same way, as the fast food operator looks to turn things around.

My approach to McDonald’s, so far, has been one of patience, but until the company can figure out what to do with its sliding revenues, I see better opportunities in the restaurant sector.

McDonald’s Struggling to Stay on Trend and Its Numbers Show It

While the share price is only slightly off from its 52-week high, I feel it has more to do with hope than the underlying metrics. The revenue picture is flat. McDonald’s reported a slight increase in 2013, but returned to negative growth in 2014. If you are waiting for a miraculous turnaround as it did years ago, I’d stop waiting. Revenues are estimated to contract 7.8% this year, prior to minuscule growth of 0.5% in 2016, according to Thomson Financial.

The stock market is losing hope of a near-term turnaround. McDonald’s has come up short in four straight quarters. The fourth quarter witnessed a 0.9% decline in global comparable sales. The weakness continued into February, as the metric fell 1.7%.

The problem with McDonald’s is the massive infusion of competition from both fast food and sit-down venues. While the company looks to alter its menu, I think it will take some time to correct, which will likely see … Read More

Near-Term Oil Prices a Trader’s Market: How to Play the Uncertainty

By for Daily Gains Letter | Apr 15, 2015

Oil PricesUncertainty appears to be influencing oil prices near-term, and the long-term outlook doesn’t look to be showing much strength. For the time being, oil prices are stuck in a trader’s market.

Current and Near-Term Action in Oil Prices

Oil prices are currently at a crossroads with the longs and shorts battling it out. On one hand, there appears to be some decent support at the $40.00 level for the West Texas Intermediate (WTI), as prices for the May futures contract has been bid up to the $52.00 level.

Conversely, I expect to see some resistance selling, as oil prices edge higher due to the record oil storage and the fact that the global demand side continues to be a major overhang. China is importing less oil than the previous year, as the country battles economic stalling.

The wildcard situation with ISIS and the oil-producing country of Iraq appears to have stabilized for the time being. Moreover, a highly tentative nuclear technology framework with major oil producer Iran may not pan out if the religious fanatics in the country can stop it. However, if a deal is eventually struck, we could see a gush of oil flowing out from the country and pressuring oil prices.

While I cannot say with conviction where oil prices will be a year from now, the commodity will likely continue to be a quick trade (not a buy-and-hold situation).

Where’s the Price of Oil Headed Next?

WTI futures point to oil prices rising to the $60.00 level by June 2016 and $64.00 by December 2017. The direction is clearly higher. We are also seeing a spike … Read More

How to Profit from Chaos When It Soon Hits the Stock Market

By for Daily Gains Letter | Apr 13, 2015

Stock market CrashLooking at the stock market, I can’t say I would’ve done that much last week, as the current action is somewhat dull for my liking. The way I see it, as a trader, I need a major unexpected event.

Why Stock Market Chaos Can Be a Good Thing

I need another currency collapse like what we witnessed with the ruble in Russia that ultimately led to a broad sell-off in Russia’s stock market, from oil to technology to steel. This selling wasn’t a surprise, given the massive collapse in the ruble means imports become much more expensive. But with the chaos in Russian stocks, I saw aggressive trading opportunities to make some quick money, primarily via the use of near-term call options that give me added leverage.

Of course, the most recent chaotic event for the stock market was the plummet in oil prices. First, we saw prices break below the $80.00 level, followed by $70.00, $60.00, and $50.00. The near-term futures contract fell below $44.00 at one point, prior to edging higher. Now there appears to be some base buying established at around $43.00. I would be looking for trading opportunities to buy call options on an oil-related exchange-traded fund (ETF) or some of the numerous battered oil companies in the stock market. If you are unsure on the timing, you could always look at LEAPS (longer-term options) as a calculated trade. The good news is that you have time for your strategy to play out; in fact, investors may be able to go out as far as two years.

First-Quarter Earnings Season to Deliver Trading Opportunities?

At this … Read More

Should Stock Market Investors Avoid IPOs?

By for Daily Gains Letter | Apr 8, 2015

IPOThere’s an ongoing debate over whether the stock market is overvalued and vulnerable to a bigger correction than we have seen in the recent year. Based on the earnings growth, the valuation of the stock market may be somewhat high, but pricing is more based on the prospects going forward. One area in which investors need to beware of valuations, though, are in the newest IPO debuts.

Pre-IPO Valuations Utterly Ridiculous

What really concerns me is the insane valuation given to many of the venture capital–backed pre-initial public offering (IPO) companies. In my view, the valuations are not sustainable and deserving; albeit, there is so much froth swirling around here.

Take the case of Uber, the provider of private car services that is trying to take the world by storm and push out the traditional taxi and car service companies. It’s a good idea, but the service is not always the cheapest and could rise in cases when demand is high. Based on the venture capital market, Uber is worth upward of $25.0 billion, which is utterly ridiculous.

I just read about a similar car service app in Hong Kong that is valued at around $8.0 billion. Again, insidious valuations.

The stock market climate for hyped-up pre-IPOs is extremely frothy. Last week, cloud-based service provider GoDaddy Inc. (NYSE/GDDY) debuted at $20.00 and surged more than 30% on its first day. While the company has a great advertising team, I really question the valuation. The company is a money loser, yet it’s now assigned $4.02 billion in market cap by the stock market. I wouldn’t be jumping in.

Then there’s gourmet … Read More

Historical Trends, Global Economic Factors Say Stock Market at Risk

By for Daily Gains Letter | Apr 6, 2015

Stock Market RiskWhat if I told you the best six months for investing in the stock market are drawing to an end? Not good news, is it?

As we enter the second quarter, there is optimism based on the price action of the stock market in 2014. Yet as I mentioned, what is historically recognized as the best six-month period during the year for investing in the stock market, particularly the S&P 500 and Dow Jones Industrial Average, according to the Stock Trader’s Almanac, is coming to a close at the end of April. With the S&P 500 having returned only 0.44% in 2015 (better than the 0.26% decline in the Dow Jones Industrial Average), can we really expect much for the stock market following what was supposedly the historically high period for stock market investing this year?

Stock Market Exceptions

The stars in the stock market so far this year have been the higher-beta stocks, as traders and investors search for potential higher gains. The NASDAQ and Russell 2000 advanced 3.48% and 3.99%, respectively, in the first quarter.

Small-caps were tops in March with the only positive move. The Russell 2000 edged up 1.57% versus a 1.74% decline for the S&P 500.

But while the historical pattern for the stock market doesn’t always play out, as was the case in 2013, the odds are in its favor.

Retracing back to April 2014, the DOW and S&P 500 pushed upward, while the higher-beta NASDAQ and Russell 2000 fell 2.01% and 3.94%, respectively. Yet there was negative sentiment towards higher-beta stocks in the stock market that, so far, hasn’t been the case this … Read More

Tesla: Car Company or a Tech Company?

By for Daily Gains Letter | Apr 1, 2015

Tesla ValuationIt has been a while since I talked about the prospects for Tesla Motors, Inc. (NASDAQ/TSLA), which continues to be one of the more actively traded momentum plays in the stock market.

In the past, I was encouraged by Tesla and felt a downside move to $185.00, based on my technical analysis, could be an aggressive investment opportunity. I no longer feel that way.

How Tesla Reached Its $24-Billion Valuation

While other momentum plays in the stock market are easier to evaluate, that has never been the case with Tesla. If you solely look at the number of units sold, it would make no sense why the stock market places such a high valuation on Tesla.

Many Tesla bulls talk about the great advanced electric-powered car produced by the company. They are correct. The company’s cars are a fantastic example of American ingenuity. That I can say. But for me, the story is becoming somewhat redundant and disappointing.

Tesla’s stock currently sits precariously at around $185.00. On the chart, one of two things will happen: 1) the momentum buyers in the stock market could bid the stock back to above $200.00; 2) there could be continued minimal support for the stock at below $180.00. Tesla is well down from its high of $291.42 in September 2014, but I wouldn’t be too anxious to enter on the long side of the stock market.

Tesla Motors Inc

Chart courtesy of www.StockCharts.com

The breakdown of Tesla was highlighted by the 50-day moving average (MA) pushing below the 200-day MA, signaling a bearish death cross on the chart.

Now, I’m not saying whether to buy or short … Read More

Top Stocks to Consider Right Now: Defensive and Dividend-Paying Stocks

By for Daily Gains Letter | Mar 27, 2015

Dividend paying stocksSuccess in the stock market is all about balancing risk and reward. Too much risk and you leave yourself vulnerable to added downside when the stock market turns, as may be the case at this time. However, too little risk and you don’t fully partake in the upside moves of the stock market, though your downside risk is lessened. The key is to understand the stock market we are in and alter your investment strategy accordingly.

Prior to the flush in the stock market on Wednesday, technology growth and small-cap stocks were leading the broader market higher this year. Yet as we also witnessed, the higher-beta stocks were also vulnerable to added selling on Wednesday.

What happened on Wednesday (and what happens on other down days, too) indicates what could happen to higher-beta stocks during a stock market sell-off.

While the stock market seems to want to go higher, there’s also a sense of hesitancy surfacing that will likely make gains much more difficult to come by this year. This is the time when you want to review your portfolio and determine the associated risk. If you have made some pretty good profits with higher-beta stocks, you may want to shift some capital from these higher-risk momentum stocks to lower-risk, low-beta stocks.

This is probably not the time to pick up stocks like Google Inc. (NASDAQ/GOOG), The Priceline Group Inc. (NASDAQ/PCLN), Netflix, Inc. (NASDAQ/NFLX), and Twitter, Inc. (NASDAQ/TWTR).

What you should be looking at are some of the large-cap cyclical stocks that trade with the economy and jobs. Instead of technology, here we have sectors such as automotives, furniture, retail, … Read More

How to Profit from the Major Stock Market Correction Coming Your Way

By for Daily Gains Letter | Mar 20, 2015

Trading Opportunities for InvestorsThe stock market continues to want to edge higher, but beware. I still sense there will be more downside moves that will provide a trading opportunity. At this juncture, I would be looking for sell-offs in the stock market and chaos.

Just like what we saw in 2008 when the stock market and big banks crashed, when a stock market correction comes, there will be aggressive trading opportunities for more active traders.

Stock Markets Down, but Bigger Adjustments Ahead

The strengthening dollar will make American goods and services more expensive for exports, which will likely result in a squeeze on the profit margins of multinational companies that do much of their business in the eurozone. The dollar would likely test parity with the euro, which in itself is a trading opportunity to play the European companies that benefit from the weak euro.

On the energy front, the basis West Texas Intermediate (WTI) oil declined to the $44.00 level after news of a record surplus in U.S. crude inventories and the fear that there will not be enough storage to hold the oil. Again, we could see oil move towards the $40.00 level. Take a look at strong energy companies that are currently under distress, but may be worth a look longer-term. If you think oil will rally over the next two years, you could look at call options expiring in January 2017 that will give you ample time for oil to rebound.

On the stock market charts, the S&P 500 and DOW remain below their respective 50-day moving averages (MAs). Small-cap stocks continue to attract new buying, as the Russell … Read More

How the 2008 Stock Market Crash Made These American Banks Safest Investments Now

By for Daily Gains Letter | Mar 13, 2015

Bank StocksWhen Lehman Brothers Holdings Inc. crashed after the impact of the sub-prime financial crisis in 2008, the financial sector was turned upside down. Regulators made a bold and smart decision to clean up the banking sector and its somewhat secretive high-risk activities.

Fast-forward nearly seven years, and the banking sector is clearly stronger and more trustworthy than it has ever been. Investors can thank the annual Federal Reserve bank stress test for this.

Fed’s Stress Test Making Banks the Safest Investment for Long-Term Investors?

The Fed’s financial crisis stress test aims to analyze the stability of the country’s largest banks with assets of more than $50.0 billion. It includes both a round one quantitative test and a round two qualitative portion.

After the rigorous testing based on the assumptions of a severe financial crisis, all but three banks passed. While all of them made it through the first round, only the U.S. units of Santander and Deutsche failed on a qualitative basis. The Bank of America Corporation (NYSE/BAC) was approved based on the acceptance of a new capital strategy by the end of September.

The financial crisis stress test is critical, as it gives investors and consumers confidence in the country’s banking system and pushes the banks to put measures in place to help avoid the mess we witnessed in 2008. The promise of the financial crisis testing is to put the various banks under the worst economic situations and see how they would fare. The assumptions under a financial crisis include severe recessions, high unemployment above 11%, plummeting home prices, and a crash in the stock market by 50%…. 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

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

Top Stocks to Watch for Steady Dividends and Capital Gains

By for Daily Gains Letter | Feb 9, 2015

Top StocksThe stock market may be blooming again with the major key stock indices rallying back above their 50-day moving average (MA), but there is still ample downside vulnerability.

We have the mess in the eurozone with Greece threatening to leave the euro and not honor its massive debt obligations. There’s also the China risk. Then there are the oil prices. Oil rallied to $53.00 last week, prior to retrenching and then rallying again. It’s going to be nerve-racking.

The problem investors continue to face is the lack of alternatives to the stock market. The 10-year bond yields 1.82%, which is not great unless you have tons of cash. Of course, you could buy distressed high-yielding Greek or Russian debt, but why would you, given the default risk?

So that leaves us with stocks.

Stocks to Watch While Bonds and Global Economy Stagnate

For those of you looking for and requiring dividends, it’s not easy at this time. There are the big banks and higher-risk regional banks to consider. For this reason, I would be sticking with the more stable dividend-paying stocks that not only pay dividends, but also offer the opportunity for capital gains.

The most obvious target for dividends is the blue-chip area. These are great companies with proven long-term sustainability for investors seeking dividends and growth. We are talking about world-class multinational companies, such as The Boeing Company (NYSE/BA), General Electric Company (NYSE/GE), Johnson & Johnson (NYSE/JNJ), The Coca-Cola Company (NYSE/KO), McDonalds Corporation (NYSE/MCD), The Procter & Gamble Company (NYSE/PG), and Wal-Mart Stores Inc. (NYSE/WMT). For the most part, you cannot go wrong with blue-chip dividend stocks…. 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

Alibaba: How a Small Idea Is Becoming a Major World-Class Company

By for Daily Gains Letter | Jan 28, 2015

Alibaba Reporting TomorrowWhile China has been struggling to regain its former luster as the top growth region in the world, we are seeing some dynamic growth in the technology space, namely the Internet and mobile areas, where the country is tops.

While still somewhat early in its infancy as a technology basin, China does offer the single largest market in the world, with more than one billion either surfing the Internet or tapping away on their mobile phones. The potential is enormous for the technology sector companies in China—and one major highlight American investors should add to their watch list (if they haven’t already) is Alibaba Group Holding Limited (NYSE/BABA).

Alibaba to Report Tomorrow

Tomorrow morning, prior to the market’s open, all eyes will be on Chinese Internet powerhouse Alibaba, which debuted in the U.S. in October and has become a major trading vehicle for technology and momentum traders. Under its somewhat underwhelming founder Jack Ma, Alibaba has become a dominant player in China and is aiming to become a thorn in the side of major U.S. Internet companies.

The stock has traded as high as $120.00, but it fell to $82.81 on October 15, which provided traders an opportunity to buy. Alibaba has since recovered to $100.00 and could launch higher, depending on its earnings news tomorrow morning.

In my view, it’s a win-win situation. If the results disappoint, we could see an investment opportunity to buy on weakness. A strong quarter, however, could see the stock vault out of the gate for current shareholders. In this case, some investors interested in the company will have to wait and buy on … 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

Three Investment Strategies for a Volatile 2015 Stock Market

By for Daily Gains Letter | Jan 14, 2015

Investment Strategies for a Volatile Stock MarketThe start to the New Year is probably not great if you are sensitive to stock market volatility. The past week was relatively what you can expect for this year—a weak and volatile stock market. (Fortunately, there are three investment strategies investors can consider to profit this year; you’ll find them below.)

The DOW had three triple-digit losses, cumulating in a decline of 661 points that was partially offset by two triple-digit gains of 525 points last Wednesday and Thursday. When the markets opened this week on Monday morning, the DOW was down 150 points.

If you don’t like stock market volatility, then the current trading action is not for you.

With the decline, the major stock market indices are holding precariously near their 50-day moving averages (MAs), which will likely be tested again, based on my technical analysis.

The problem we have is the failure of oil prices to hold after the break below $50.00 a barrel. West Texas Intermediate (WTI) crude oil is below $46.00; by all accounts, on the chart, prices could be heading towards $40.00. As long as oil is weak, the stock market will be volatile going forward.

And as I discussed last week, the stock market is looking for some support from the fourth-quarter earnings season reports. Based on what FactSet has to say, the reporting season doesn’t hold much promise. I’m already seeing some cracks emerging for the stock market that make me nervous.

For example, high-end jeweler Tiffany & Co. (NYSE/TIF) is down after cutting its FY15 earnings-per-share (EPS) outlook and reporting flat same-store sales during the holiday season.

In the chip … Read More

How to Play Weakness in Oil and Russian Stocks into 2015

By for Daily Gains Letter | Dec 22, 2014

Trading on Weak Oil and Russian Stocks for a Holiday ProfitWe are three days away from Christmas and just over a week from the New Year. This is the perfect time to look over your portfolio and holdings in the stock market.

To get set for trading in the stock market in 2015, take some winners if you haven’t already done so and dump some losers. Then consider what is occurring in the stock market and global economy (especially oil and Russian stocks) in relation to your economic outlook for the New Year.

Stocks were trading weak last Tuesday, with both the S&P 500 and DOW below their respective 50-day moving averages (MAs). We got an early Christmas present after the stock market surged on Wednesday and Thursday.

Now is a good time to consider taking this opportunity to realize some profits, as there are still uncertainties regarding oil prices and the tense economic and political situation in Russia that will surely affect stocks in the new year. On the plus side for aggressive traders, there’s actually a lot of money to be made in the stock market from the oil meltdown and the turmoil in Russia.

Russian President Vladimir Putin appears to be messing with the global economy after raising Russia’s interest rates to 17.0%, apparently in an attempt to combat the plummeting value of the ruble against the greenback and avert a mass exodus out of the German currency.

The end result has been a massive sell-off in Russian stocks listed on the MICEX and American depositary receipts (ADRs) on U.S. stock exchanges. The majority of Russian stocks are now trading as much as 70% lower from a … Read More

Oil Price Drop Signals the End for Tesla Motors?

By for Daily Gains Letter | Dec 15, 2014

Price Oil Drop Signal the End for Tesla MotorsTesla Motors, Inc. (NASDAQ/TSLA) is currently running into a traffic jam on the chart, having declined 27% since trading at $291.42 on September 4. But I see this kind of move in a stock like this as a possible investment opportunity.

Now we are hearing market watchers saying Tesla is dead money as long as oil and gasoline prices stay low. The problem I see with this argument is that it ties the value of Tesla to the direction of oil. While the lower oil prices may hurt Tesla as an investment opportunity, I’m not convinced.

My view is that investors are scrambling out of Tesla prematurely. I look at the situation as more of a valuation issue, given that the stock continues to trade at a high multiple of 73X its estimated 2015 earnings-per-share (EPS) and has a price-to-earnings growth (PEG) ratio of 4.25. The metrics are high, based on the old-school thinking towards valuation, but these are different times, when excess is acceptable.

In my view, Tesla has become more of an icon rather than a play on expensive gasoline. The cars are fantastic and look great. They are not clunkers, but battery-powered vehicles that can bolt out of the gate in 3.2 seconds to 60 miles per hour for the all-wheel drive model in testing. This vehicle also has an incorporated self-driving feature.

The reality is that those who are buying Tesla’s vehicles are not really trying to save a buck or two. The cars go for around $40,000 and up. It’s not really about cutting back on fuel costs; albeit, it does help that the cars … Read More

Five Dividend-Paying Stocks That Are Better Than Bonds

By for Daily Gains Letter | Dec 8, 2014

Dividend-Paying StocksThe DOW may very well soon break 18,000 and the S&P 500 continues to edge to new record-highs. But the bullish bias towards the stock market is clear when you consider the alternatives.

The 10-year bond has a yield of around 2.3%, which is pitiful at best, considering the gains we have seen in the stock market over the past five years of this bull market.

Now, while the upside moves will likely become more difficult, stocks are still really the only good option for investors at this time. You may want to take some profits, especially on your big winners or the higher-beta holdings, such as small-cap stocks.

I would be looking at the dividend-paying stocks that offer a combination of dividend income and capital appreciation potential.

Of course, the blue chip dividend stocks on the Dow Jones Industrial Average (DJIA) immediately come to mind. These companies tend to be the best of the best and may be a perfect complement to your overall investment portfolio. Here, I am talking about stocks like The Boeing Company (NYSE/BA), General Electric Company (NYSE/GE), Johnson & Johnson (NYSE/JNJ), The Coca-Cola Company (NYSE/KO), McDonalds Corporation (NYSE/MCD), The Procter & Gamble Company (NYSE/PG), and Wal-Mart Stores Inc. (NYSE/WMT).

iShares DJ Select Dividend Index Fund Chart

Chart courtesy of www.StockCharts.com

You cannot go wrong with stocks like these, as their size allows them the ability to weather both up and down economies. General Electric, for example, could have been bought at $5.00 during the Great Recession; it now trades at $26.00, up fourfold.

General Electric Company Chart

Chart courtesy of www.StockCharts.com

Yet if you are looking for more upside potential as far as price appreciation, you … Read More

My Early Black Friday Retail Sector Outlook

By for Daily Gains Letter | Nov 24, 2014

Early Black Friday Retail Sector OutlookRetailers will be getting the aisles set to go when the big—and at-times legendary—Black Friday begins in four days’ time. This is the most important day of the year for the retail sector: it could be the difference between having a good year or a marginal one.

I have heard some retail pundits say this Friday could generate as much as 30% of the total year’s sales—on just this one day.

Why “Black” Friday? The “black” refers to the fact that it could potentially turn a year of losses into a year of profits based on this day’s sales. This is why the retail sector is pumped to go. We have already heard about an early start to Black Friday with some retailers opening prior to the traditional midnight, which of course entails shopping on Thanksgiving Day.

The battle for your dollars is competitive. Merchants need to try to get a leg up on their rivals in the retail sector in whatever way they can, whether it means earlier and longer hours or heavy discounting. Retailers will likely have to initiate deep discounting to win your wallet.

And the trip to the mall or stores will be made easier this year, given the major decline in gasoline prices at the pumps. Money saved here could help drive consumer sentiment.

If you want evidence of how important Black Friday is to retailers, take a look at the facts:… Read More

About 92.1 million shoppers were out at the stores on Black Friday in 2013
On the weekend, a whopping 248.7 million shoppers were at the stores and online
Cyber Monday is becoming an

Investors Beware: U.S. Not Immune to Stalling in Global Economy

By for Daily Gains Letter | Nov 19, 2014

U.S. Not Immune to Stalling in Global EconomyThe U.S. economy has been showing some positive growth that has helped to propel the stock market higher, but be careful: there appears to be some cracks forming in the global economy to which the U.S. economy will not be immune.

Japan reported that its economy fell back into a recession after contracting an annualized 1.6% in the third quarter, representing the second straight quarter of contraction. Part of the blame will squarely lie with Prime Minister Abe and his controversial decision to raise the country’s sales tax from five percent to eight percent in April.

I consider the decision to raise the sales tax wrong, as it largely impacts the middle class and lower income brackets in Japan. The rich don’t care. (Sound familiar?) Worst of all, Abe cut taxes on big business instead. Currently, the sales tax is planned to rise to 10% in October 2015, but there’s speculation Abe will put a hold on this move.

The softness in Japan and the global economy makes it even more critical that Abe work toward a better relationship with Japan’s historical and current rival China. Japan already calls China a major trading partner in the global economy, but the numbers have been declining over the past few years, due to tensions between the two Asian powerhouses.

The problem is that China is also facing its own internal growth issues with the stalling in the global economy, along with concerns in the real estate and debt markets that could impact the country.

The reality is that slowing in China and Japan also impacts the rest of Asia and the global … Read More

How China’s Alibaba Stacks Up on U.S. Markets and How to Profit

By for Daily Gains Letter | Nov 7, 2014

China’s Alibaba Stacks Up on U.S. MarketsThe much-anticipated debut of Chinese Internet powerhouse Alibaba Group Holding Limited (NYSE/BABA) has arrived and gone.

Even if you missed out on getting your hands on China-based Alibaba at its pre-initial public offering (IPO) price, you could still have purchased the stock at $82.81 on October 15 and made more than a 30% gain in two weeks. The stock traded at a record on Wednesday, as excitement continues to hold and gain traction in the U.S. stock market.

With the gain and a market cap in excess of $265 billion, Alibaba is now bigger than Facebook, Inc. (NASDAQ/FB), but about $100 billion short of Internet king Google Inc. (NASDAQ/GOOG).

The valuation of Alibaba is in line with the 39-times (X) earnings-per-share (EPS) valuation of Facebook, but more expensive than the quite attractive 18X EPS belonging to Google, which continues to be my top pick in the Internet space.

While Alibaba does look somewhat top-heavy, don’t forget that we are talking about the Internet space, which tends to demand higher multiples than the technology sector. And in China, the Internet is huge.

Alibaba may be new to investors and Internet users in the U.S., but the company has a significant following in China—the biggest Internet market in the world with about 632 million users, according to the China Internet Network Information Center. Plus, mobile usage of the Internet is at a staggering 527 million users in China.

As far as Alibaba’s users, the company had about 217 million active mobile users in September, which is huge. The growth of 139% year-over-year is massive.

In the third quarter, Alibaba’s first as a … Read More

Gold Prices: Where They’re Headed and How to Profit

By for Daily Gains Letter | Nov 5, 2014

Gold PricesAs far as investment and trading opportunities go, gold is currently the stock market’s poor cousin. No one really craves the yellow ore at this time. The reality is that unless you are looking for jewelry, there’s really no reason to buy the metal right now.

Back in September, when I last discussed the prospects for this precious metal, I wrote that “in the absence of further turmoil in Ukraine, gold prices could deteriorate to below $1,200, possibly even $1,180.”

The precious metal did bounce to the $1,225 level recently on concerns surrounding ISIS and the economic situations in both Europe and China. Since then, it has also collapsed to below $1,200 to $1,170 for the December contract.

Following the Federal Reserve’s recent elimination of its third round of quantitative easing (QE3) and its hinting at higher interest rates coming sometime in 2015, the metal is now at its lowest level since April 2010. The strong advance reading of the third-quarter gross domestic product (GDP) growth at 4.5% and the strong earnings growth in S&P 500 companies are also making us lean towards higher rates. With this, the greenback has been moving higher, which is hurting the demand for gold due to its denomination in U.S. dollars.

In addition, inflation, a supporter of gold, continues to look benign both at this time and as we move forward. The metal is used as a hedge against inflation and risk, so in the absence of these two key variables, I’m not surprised to see prices move lower on the charts. And it could worsen.

Moreover, the so-called positive impact of buying from … 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

Investing in a Post-QE3 Market

By for Daily Gains Letter | Oct 31, 2014

Investing in a Post-QE3 MarketThe Federal Reserve made it official on Wednesday, announcing it would be cutting the remaining $15.0 billion from its monthly bond-buying program, also known as QE3.

So with that, the period of easy money flowing into the pockets of investors is over. Remember, it was the Federal Reserve’s relaxed easy monetary policy that helped to drive the S&P 500 up nearly 200% since 2009—and now it’s over, folks.

The stock market reacted with stocks heading lower, as there was a slight sliver of hope the Federal Reserve would decide to hold back on eliminating QE3. Investors will now have to deal with bond yields that could begin to move higher on the Federal Reserve’s move.

The Federal Reserve didn’t give a timeframe for when interest rates will begin to move higher from their near-zero levels, but the consensus is calling for the rate increase to begin sometime in mid- to late 2015. As you know, higher rates by the Federal Reserve will drive up yields and carrying costs for both companies and personal debt. Just think about the more than $17.7 trillion in national debt and how the higher interest rates will impact the government’s out-of-control carrying costs.

We are at what I would call a crux.

Stocks want to go higher but need a fresh catalyst to do so. The advance reading of the third-quarter gross domestic product (GDP) growth came in at a healthy annualized growth rate of 3.5%, which while down from the booming 4.6% in the second quarter, is nonetheless indicative that the economy is expanding.

At the end of the day, a strong economy, continued … 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

Why You Need to Stick with the Big Guys Right Now

By for Daily Gains Letter | Oct 17, 2014

Proven Companies the Place to Be at This TimeFor 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 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 Play the Coming Eurozone Depression

By for Daily Gains Letter | Oct 13, 2014

Russia Sending Eurozone Back into a Depression How to ProfitIn 2013, when it was announced that the eurozone had emerged from its double-dip recession, the European stock market was optimistic and drove stocks higher.

Yet there was a sense the route to higher gross domestic product (GDP) growth was not clear due to the massive debt still on the books of many of the eurozone’s weakest members, widely known as the PIIGS nations (Portugal, Ireland, Italy, Greece, and Spain). Yes, the countries have shown some recovery, but they continue to be plagued by massive debt and abnormally high unemployment.

Unemployment across the region continues to run in the low double-digits, around 12%. For the youth under the age of 25, it’s much worse, with the unemployment rate around 40% in some of the PIIGS countries.

The problem is that a weak jobs market in the eurozone doesn’t reflect positively for the economies.

We are now seeing growth issues with the two pillars of the Eurozone, Germany and France, which are widely credited with helping to save the eurozone from a financial Armageddon.

The effects of the economic sanctions placed on Russia for its involvement in the Ukraine crisis appear to finally be filtering their way through to the eurozone and Europe, specifically Germany. One of Russia’s biggest trading partners, Germany saw a 5.8% decline in its exports in September alone.

The reality is that a weaker Germany doesn’t bode well for the eurozone.

In addition, with more than 800 million inhabitants in Europe, the market is significant. Slowing in this market will surely have an impact on growth in China and the United States, as well as the global … 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

The Stocks to Watch This Earnings Season

By for Daily Gains Letter | Oct 8, 2014

Earnings SeasonThe country’s gross domestic product (GDP) growth and jobs creation has been edging higher and providing some optimism for the stock market as we head into the third-quarter earnings season that begins officially with Alcoa Inc. (NYSE/AA) today.

A strong earnings season could likely be enough to drive stocks upward towards new highs. But as long as the outlooks from companies look good, the stock market will be heading northward.

The results from Alcoa will be closely watched, as the company is considered a barometer of the global economy due to the use of aluminum in many applications and across many sectors.

I want to see some leadership from the financials and technology sectors in the earnings season to help drive the broader market.

Over the past several earnings season quarters, the revenue side has been muted and earnings have been driven by cost-cutting rather than strong revenue growth. Based on the current estimates for the third-quarter earnings season, it looks like much of the same this time around as revenue growth is predicted at 3.7% for the S&P 500 companies versus 3.5% as of June 30, according to research from FactSet. (Source: “Earnings Insight,” FactSet web site, September 26, 2014.) The growth in this earnings season, while not earth-shattering, does show some promise, as it’s slowly rising, which is what we want to see.

Earnings are estimated to advance 4.7% in the third-quarter earnings season, which is well below the 8.9% estimate provided as of June 30. Again, this isn’t great, but it would be higher on a sequential basis.

The reduction in earnings isn’t impacting any of the … 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

Banks a Better Play Than Market-Leading Tech Picks?

By for Daily Gains Letter | Sep 26, 2014

Bank Stocks Are Now Looking Good for InvestorsWhile it’s well known that technology has led the broader stock market higher, there is a safer and more conservative play for investors at this time, according to my stock analysis. Where? Investors may want to take a glance at the banking sector.

Banks have dug themselves out of the financial crater that was imposed on the group by the sub-prime debt crisis back in 2007, which sent the global economy and banks into a massive tailspin, as is well represented in my stock analysis.

But that was then. As my stock analysis indicates, the banking sector has been rallying over the past seven years, beefing up their balance sheets, cutting risk, and creating a much stronger overall structure.

The chart of the Philadelphia Bank Index below shows the upward move of bank stocks from their 2009 and 2011 bottoms. Bank stocks staged a nice rally, but retrenched from March to May 2012 on the European bank concerns and Moody’s downgrade of the sector. However, the group has since staged a rally back to above the index’s 50- and 200-day moving averages (MAs), as my technical stock analysis indicates.

Bank Index Chart

Chart courtesy of www.StockCharts.com

What has helped to drive the banks upward on the charts, based on my stock analysis, has been the recovering global economy and the rules set in place to help prevent excessive risk among bank stocks. At the core of the changes was the establishment of the “Volcker Rule,” which was economist and ex-Fed chairman Paul Volcker’s move to cap the speculative trades and risk banks are allowed to assume. Since these changes were put in place, … 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

Interest Rates: Why They’re Not Headed Up Anytime Soon

By for Daily Gains Letter | Sep 22, 2014

Fed’s Plans for Interest Rates Could Be Investing AdviceThe Federal Reserve has spoken and to no one’s surprise, there was really nothing new from Fed Chair Janet Yellen, who did as was expected after shaving off another $10.0 billion in monthly bond purchases. The Federal Reserve will cut the remaining $15.0 billion in October, bringing its third round of quantitative easing (QE3) to an end.

What the stock market here and around the world also heard was that the Federal Reserve will likely maintain its near-zero interest rate policy for a “considerable time” after the QE3 cuts.

The problem is that the stock market is focusing so much on when interest rates may begin to ratchet higher.

The consensus is calling for rates to move higher by mid-2015, but some feel it will not happen until 2016 if the economic growth stalls. The downward revisions in gross domestic product (GDP) growth around the world could extend the time before the Federal Reserve will raise interest rates.

In the eurozone, the European Central Bank (ECB) is adding more monetary stimulus to jump-start the economy that is faltering due, in part, to the mess in Ukraine.

The news release from the Federal Reserve says the economic growth is moderate but also warns the labor market still has work ahead of it, which appears to be the main focal point.

“To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate,” read the press release by the Federal Reserve. “In determining how long to maintain the current 0 to 1/4 percent target range for the federal … Read More

This Foreign Market a Hidden Treasure for Growth Investors

By for Daily Gains Letter | Sep 19, 2014

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

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

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

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

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

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

How to Hedge Against a Stalling Global Economy

By for Daily Gains Letter | Sep 17, 2014

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

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

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

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

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

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

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

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

By for Daily Gains Letter | Sep 10, 2014

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

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

Shangai Stock Exchange Composite Index Chart

Chart courtesy of www.StockCharts.com

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

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

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

Why It’s Not Too Late to Get in on Burger King’s Game-Changing Deal

By for Daily Gains Letter | Aug 29, 2014

Why I Believe Tim Hortons Is a Game-Changer for Burger KingThe move by Burger King Worldwide, Inc. (BKW) to acquire Canada-based Tim Hortons Inc. (NYSE/THI) was a genius move and buying opportunity that surprised many in the stock market. Just look at the reaction of the traders after the news surfaced that Burger King was indeed buying Tim Hortons; Burger King stock surged on the news, which I also believe was a very strategic move by the company and a possible buying opportunity for investors.

The initial speculation was valid as an $11.0-billion deal was announced. Tim Hortons stock closed up more than 31% after the announcement and the initial buying opportunity. For the acquisition, Warren Buffett will provide $3.0 billion in financing, so we know the move makes sense if Buffett is supporting it.

Burger King worldwide Inc Chart

Chart courtesy of www.StockCharts.com

Here’s my thinking: Burger King, like many companies in the fast-food sector, is struggling to find growth around the world. Perennial fast-food leader McDonalds Corporation (NYSE/MCD) is no exception, as the seller of the “Big Mac” faces muted growth in the global economy.

Burger King, with its global exposure encompassing more than 12,000 franchise restaurants in North America, Europe, the Middle East, Africa, Latin America, the Caribbean, and the Asia Pacific, also needed a spark to drive its revenue and earnings growth.

The addition of Tim Hortons makes sense due to the cross-marketing opportunities and the ability to cut overlaying expenses, which makes Burger King a possible buying opportunity for investors. There are approximately 4,500 Tim Hortons stores with about 860 outlets in the United States.

While the two companies will be separate, the buying opportunity potential I see is the … Read More

What I’d Consider Buying as the Market Moves Higher Again

By for Daily Gains Letter | Aug 27, 2014

Consider Buying as the Market Moves HigherThe stock market appears anxious to move higher to new record highs.

In the past week, the Federal Reserve released its Federal Open Market Committee (FOMC) meeting minutes that suggested it wanted to see stronger, sustained growth before deciding on when to raise interest rates. This includes both economic growth and jobs creation.

On Thursday, the Bureau of Economic Analysis (BEA) will report the second reading of the second-quarter gross domestic product (GDP), which came in at a surprising annualized four percent for the advance reading.

The consensus is that the second reading will show the GDP growth holding at the same four-percent level. If it does, it would be excellent for the economy but at the same time, ironically, it would make investors and the stock market nervous about the status of interest rates.

The issue is that the Fed wants to see controlled and steady economic growth and a four-percent reading could raise red flags, pointing to inflation—which means higher interest rates. The inflation rate is benign at this time as consumers continue to hold back on spending.

The stock market will get anxious if the reading remains the same, but we would want to wait to see how the economy fares in the third and fourth quarters of the year before making any drastic moves.

Of course, the stock market is all about expectations going forward and clearly, a strong second reading of the 2Q14 GDP will send some to the exits.

The Fed also wants to see the jobs market continue to expand at its previous trend of generating an average of more than 200,000 monthly … 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

Alternative Energy the Next Big Play?

By for Daily Gains Letter | Aug 18, 2014

My Top Stocks in the Alternative Energy SectorAlternative energy plays have been around for decades, including Ballard Power Systems Inc. (NASDAQ/BLDP), a maker of hydrogen fuel cells that went public in 1993. The stock traded as high as $100.00 as a speculative investment opportunity in early 2000 but was unable to break into the automotive market. It is currently drifting at the $4.00 level.

However, what Ballard was hoping for is now materializing for battery-powered automaker Tesla Motors, Inc. (NASDAQ/TSLA), which has built a superhighway of charging stations across the U.S. and is expanding into Europe and China. Tesla is a great story and a decent possible investment opportunity.

Yet it’s not only vehicles that demand alternative sources of energy; we also see demand coming from numerous applications and, in some cases, manufacturing facilities.

The demand for alternative energy can be based on wind, solar, or water and has led to the development of a strong solar industry as an investment opportunity.

A small-cap that has been exciting the stock market while producing sizzling gains for speculators has been Plug Power Inc. (NASDAQ/PLUG), a developer of hydrogen fuel cells that power forklifts and other devices. The stock traded as low as $0.32 over the past 52 weeks, surging to $6.37 on Thursday morning after reporting strong results. Plug Power has been on my technical analysis screens for some time, as the stock consistently breaks higher. If interested, I would suggest investors look to this stock on weakness for a volatile speculative investment opportunity.

Plug Power Inc Chart Chart courtesy of www.StockCharts.com

Another possible investment opportunity that may interest investors in the alternative energy space is FuelCell Energy, Inc. (NASDAQ/FCEL), which has … 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

Stock Market: Institutions Moving in Opposite Direction of Investors

By for Daily Gains Letter | Jul 30, 2014

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

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

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

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

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

Why This Company Will Fare Well as the Economy Stutters

By for Daily Gains Letter | Jul 28, 2014

My Investment Solution for Tight TimesIf you think Americans are firmly comfortable in the economy and jobs, think again. Yes, the stock market has returned strong gains and has been an investment opportunity over the past five years (since the end of the Great Recession in 2008), but much of it was artificially driven by the lax monetary policy put forth by the Federal Reserve. Now that the quantitative easing is dissipating and interest rates are set to edge higher sometime in mid-2015, I’m not all that comfortable.

The jobs numbers are improving, but they are still well below the 500,000 per month that some pundits deemed to be a sign of a healthy jobs market. We are generating about 200,000 jobs each month, which is well below what we want to see. In fact, we have only recovered the jobs lost during the recession—and we still need to build on that.

Given that there are still approximately 46 million Americans collecting food stamps, you’d understand why I still feel uneasy about the so-called economic growth in progress.

Consumers are still not spending at a rate many are hoping for. This is especially true in durable goods, which are not required for everyday living, so their buying can be bypassed.

As far as I’m concerned, the retail numbers still stink and don’t point to an investment opportunity in retail. Just take a look at the metrics at the big multinationals, such as Wal-Mart Stores Inc. (NYSE/WMT) and other retailers. While retail sales grow at a muted pace here, the growth is around 12% in China, where there is an investment opportunity in retailers.

Dick’s Sporting … Read More