stock market
Why This Old Tech Stock Is Relevant Again
By George Leong for Daily Gains Letter | Jul 25, 2014
The other day I talked about my growing optimism toward Apple Inc. (NASDAQ/AAPL) under the stewardship of CEO Tim Cook.
Now, I’ve noticed that a similar situation appears to be unfolding at Microsoft Corporation (NASDAQ/MSFT), which is currently under the leadership of CEO Satya Nadella. Nadella is transforming the former Wall Street darling into an enterprise-driven company that’s focused on capitalizing on new technologies, rather than simply on operating systems, as my stock analysis indicates. Former CEO Steve Ballmer failed to grasp the shift away from PCs and into the mobile sphere; something that Nadella is fully aware of and it’s paying off for shareholders, as the stock is up nearly 50% from its 52-week low, according to my stock analysis.
Chart courtesy of www.StockCharts.com
In the past, I have criticized the inability of Microsoft to adapt to the changes that were occurring in technology, as the company instead focused on its operating systems. The company’s strategic shift to the Internet and mobile spaces makes a whole lot of sense and will make Microsoft relevant to investors again, as my stock analysis suggests.
However, my stock analysis also indicates that there are still some operating issues for Microsoft. The company is struggling with its acquisition of the cell phone business formerly owned by Nokia Corporation (NYSE/NOK). When you have to compete against the likes of the “iPhone” and Samsung Electronics Co., Ltd.’s phones running on Google Inc.’s (NASDAQ/GOOG) “Android” operating system, it will not be an easy undertaking, as my stock analysis suggests.
The same goes for the “Surface” tablet. This is a great piece of technology, but it simply … Read More
How Apple Has Launched Itself to the Top of My Favorite Stocks
By George Leong for Daily Gains Letter | Jul 21, 2014
Apple (NASDAQ/AAPL) may have finally come up with the killer apps that could vault the company ahead in the global race against Google Inc.’s (NASDAQ/GOOG) “Android” phones. Now, Apple could gain mobile supremacy, based on my stock analysis.
In an unexpected move, Apple’s CEO, Tim Cook, inked a valuable partnership with International Business Machines Corporation (NYSE/IBM) to co-develop apps that will focus on the lucrative enterprise segment.
Based on my stock analysis, the deal is gigantic for Apple, as the company has had issues breaking into and advancing in the enterprise market, where BlackBerry Limited (NASDAQ/BBRY) continues to dominate.
As my stock analysis indicates, the venture with IBM makes a whole lot of sense, as IBM is a trusted leader in developing enterprise solutions, and in addition, IBM has extremely strong alliances around the world with top global companies. This means that Apple, with its new enterprise solutions, could accelerate in this space, especially with corporate clients making Apple their mobile and applications provider. Of course, the need to provide a more secure platform, such as BlackBerry’s, is likely the focus of the venture with IBM, as my stock analysis suggests.
Now, that’s not to say that Apple will eventually beat BlackBerry in yet another segment, but it will open up opportunities. My stock analysis is that it could take years for the venture to deliver tangible enterprise solutions, so BlackBerry does have some time to counter and try to strengthen its position under CEO John Chen, who is offering some hope for suffering BlackBerry investors.
For Apple, the enterprise apps will increase the revenue stream from this segment, which … Read More
How to Profit from This Housing Market Oversight
By George Leong for Daily Gains Letter | Jul 18, 2014
The housing market continues to show growth and offer a good buying opportunity. While the major upward push in the housing market may be behind us, I still see opportunities.
As long as interest rates and mortgage rates remain relatively low, you can expect the support for the housing market to hold for the next few years.
While housing starts and building permits numbers continue to be fairly strong, the National Association of Homebuilders (NAHB)/Wells Fargo Housing Market Index (HMI), which reflects the confidence of the homebuilders, increased to a healthy reading of 53 in July, up from 49 in June. A reading above 50 indicates positive sentiment in the housing market. It was the first move above 50 since January.
And the key components of the HMI point to optimism. The reading that reflects expectation for future sales jumped to 64. (Source: “NAHB, Builder Confidence Surpasses Key Benchmark in July,” National Association of Homebuilders web site, July 16, 2014.)
The HMI suggests the housing market will continue to show steady growth. As an investor, you may consider buying the homebuilder stocks or the suppliers of building materials to the industry.
A small-cap housing market play on the residential and commercial building markets that I like is Installed Building Products, Inc. (NYSE/IBP), which has a share price of $12.22, a post–initial public offering (IPO) range of $11.75–$15.47, and a market cap of $373 million. The company was recently listed in February at $12.30; so the stock has done little, which in my view, represents a buying opportunity for investors.
Chart courtesy of www.StockCharts.com
While the company is new on 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
The Red Flag I’m Seeing in Stocks Right Now
By George Leong for Daily Gains Letter | Jul 16, 2014
In my previous article, I talked about the vulnerability of stocks at this time, a disappointing economy, and what will likely be disappointing earnings.
On the weekend, I was thinking back to 2000, when the stock market came crashing down after a sizzling but unwarranted run-up in technology stocks and initial public offerings (IPOs). It wasn’t pretty, and while I don’t believe the stock market is priming for another major sell-off right now, I’m still nervous.
The DOW recovered to 17,000 on Monday, but if it fails to hold again, I would be wary. The failure of the S&P 500 to test 2,000 despite coming so close is also a red flag, based on my technical analysis.
Yet unlike 14 years ago, the current bull stock market, which is in its fifth year and looking weary, has largely been driven by the easy money the Federal Reserve has been pumping into the economy. The reality is that this third round of quantitative easing (QE3) will likely be dissolved by October and interest rates will be heading higher by mid-2015. As I said the other day, this will have a negative impact on the stock market.
In addition, the rising flow of capital into the stock market by retail investors is also a red flag that has generally been followed by selling in the past.
What you have are investors who have sat on the sidelines, waiting for a major stock market correction that really hasn’t materialized in five years. This group sees people making money in the stock market and decides they need to jump in with little regard as … Read More
What the World Cup and the Stock Market Have in Common This Year
By George Leong for Daily Gains Letter | Jul 14, 2014
Last Wednesday, I had fun watching the World Cup game between Argentina and the Netherlands. As strange as it may sound, I actually found that the tension and apprehension throughout the match reminded me of the stock market.
Despite the Dow Jones Industrial Average recently trading above 17,000 and the S&P 500 at another record-high, I still sense the stock market is vulnerable to selling. I think this will be especially true if the second-quarter earnings season pans out as expected, devoid of any major growth in earnings or revenues.
Alcoa Inc. (NYSE/AA) offered up a nice report, but I’m not sure how much it counts, as the company really is not a major bellwether as to the health of the global economy.
The reality is that consumer spending drives the economy and the stock market. I would rather look at what’s happening at bellwether global retailer Wal-Mart Stores Inc. (NYSE/WMT) than Alcoa. The “Death Star” of the retail sector is struggling for growth around the world—and that cannot be good news. Even discount stores, which tend to be more immune to slowing, are showing signs of weakness.
In other words, while the stock market has edged higher, I still wouldn’t get too comfortable at this time. I think we could see another minor stock market correction should earnings tank. Of course, this would provide us with an investment opportunity to buy shares on weakness in the stock market.
Now there’s some optimism following the Federal Reserve’s dovish remarks from its June meeting, as there’s a sense that interest rates will not ratchet higher until after mid-2015, depending on the … 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
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
Getting Ready for the Stock Market’s Coming Bumpy Ride
By George Leong for Daily Gains Letter | Jun 27, 2014
The S&P 500 traded at an intraday record on Tuesday, but it’s not time to relax and take it easy, as was the situation for the past few years since the Great Recession.
It’s time for some hand-holding again. While the broader market has edged higher, I continue to see some nervousness and selling pressure in the small-cap and growth elements of the stock market. The Russell 2000 is holding above its 200-day moving average (MA), but it’s tenuous.
As has been the case in the past years, the direction of the Federal Reserve is helping to support the stock market. Since taking over for the former Fed chairman Ben Bernanke, Janet Yellen appears to be just as, if not more, dovish than her predecessor, and this pleases the stock market.
The reality is that the Fed has said it will likely not begin to increase the historically low interest rates until sometime in 2015, and even then, it will likely only be a small increase. The central bank wants stronger jobs creation and economic growth.
The disastrous first-quarter gross domestic product (GDP) contraction of 2.9% was horrible despite blaming some of the poor results on the winter. A closer look shows declines on spending across the board that negatively impacted the GDP growth. The contraction in durable goods spending in May also supports the continued fragility in the economy and stock market.
The problem is that investors have minimal options for investing compared to the stock market. While the risk is prevalent, it’s clear investors are willing to assume some of the risk, but not to the same degree … Read More
How to Play the Hot IPO Market for Profit This Year
By George Leong for Daily Gains Letter | Jun 26, 2014
In the late 1990s, the demand and market for initial public offerings (IPOs) was sizzling with the promise of staggering one-day gains for those lucky enough to get in on the ground floor with share subscriptions. We saw millions made in one day for the chosen ones—the rich.
But that was then. The IPO market, while still quite popular, is nowhere near where it was back then. Investors are now pickier on the issue.
Recall King Digital Entertainment plc (NYSE/KING), the maker of Candy Crush Saga. In my view, this has to be one of the most hyped-up IPOs in recent times. Debuting at $20.50 on March 26, the stock is currently trading at $17.00, but even at this price, I think the valuation is crazy, with a market cap of $5.42 billion. This company doesn’t even make money and it’s vulnerable to weakness for those looking for an aggressive short selling opportunity.
In the social media space, the biggest and most highly anticipated IPO following the debut of Facebook, Inc. (NASDAQ/FB) was social media play Twitter, Inc. (NYSE//TWTR). Yet unlike Facebook, Twitter doesn’t currently have any major revenue streams and is still looking for ways to make money. While Twitter is way down from its high of $74.00, I still wouldn’t be a buyer at the current $39.00. The company doesn’t deserve its market cap of $23.0 billion. Until Twitter can provide a valid revenue model instead of its annoying ads placed in the middle of tweets, I would not buy. A decline to below $30.00, however, could provide an aggressive trade.
What’s going to be hot this year … 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
My Top Four Internet Stocks for Years to Come
By George Leong for Daily Gains Letter | Jun 23, 2014
Since its debut in the early 90s, the Internet sector has become probably the top discovery and investment opportunity since the computer and microchip.
My four stock pillars of the Internet sector, which I feel will be the top stocks going forward for years to come, include The Priceline Group Inc. (NASDAQ/PCLN), Facebook, Inc. (NASDAQ/FB), Google Inc. (NASDAQ/GOOG), and Amazon.com, Inc. (NASDAQ/AMZN). All four stocks are tops in their respective areas and offer an investment opportunity at this time.
I have talked about Google, Facebook, and Priceline as an investment opportunity in the past, so today I’m going to talk about the investment opportunity that Amazon.com has to offer. This stock has made millionaires out of many investors in the stock market. Think back to May 16, 1997, when Amazon.com closed at $20.75. I kind of wish I had taken the investment opportunity then and put my $40,000 in Amazon.com stock instead of my SUV. That money would now be worth around $600,000, with the stock now trading above $330.00 a share.
Chart courtesy of www.StockCharts.com
But there is always an investment opportunity surfacing in the stock market. You just need to be able to recognize it. This is what makes investing and trading such a dynamic and intriguing process.
As far as Amazon.com, despite the superlative rise in the price, I still feel the stock has plenty of upside potential going forward as an investment opportunity; albeit, as in the case of my other three top Internet stocks, the easy money has already been made.
Now, while Amazon.com looks expensive, trading at 103 times (X) its estimated 2015 earnings … Read More
Why I Don’t Believe This Struggling Film Stock Is Dead Yet
By George Leong for Daily Gains Letter | Jun 19, 2014
Generally speaking, my go-to trading strategy involves looking for a contrarian investment opportunity, a stock that is out of favor with the stock market but may be deserving of a chance.
I mean, why always buy a stock when everyone else wants to? It’s akin to buying something that is priced higher because it’s popular, but the market demand is greater than the supply.
In contrarian investing, you wait for the supply to exceed demand to take advantage of the investment opportunity.
The company should have a solid foundation, business strategy, and competent leadership. This is why I generally only buy blue chip stocks when they plummet, because I realize it’s only an aberration and the stock will bounce back as an investment opportunity.
Now having said that, the associated risk of contrarian investments is also higher than average, as the company may fail to turn things around or the turnaround could take years to pan out, which would mean your capital is not being effectively used.
If you are mindful of the risk, then contrarian stocks could return some tidy profits as an investment opportunity.
One such company that I have been following ever since its initial debut years ago is DreamWorks Animation SKG, Inc. (NASDAQ/DWA), the maker of such animated film classics as Shrek, Madagascar, and Kung Fu Panda.
The 3D (three-dimensional) rage helped to drive DreamWorks to stardom and become a Wall Street sensation in early 2010, when the stock was trading hands for more than $42.00 a share. That was then, but the stock has since been trading erratically and is at the mid-$20.00 level, trying … 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
This Single Stock as Lucrative as a Tech ETF?
By George Leong for Daily Gains Letter | May 23, 2014
If you hold Google Inc. (NASDAQ/GOOG) in your portfolio, you own one of the best companies in the world and a top investment opportunity.
The company just surpassed Apple Inc. (NASDAQ/AAPL) to become the most valuable brand worldwide with an overall value of $158.84 billion, compared to the $147.9 billion assigned to Apple in the Millward Brown’s 2014 BrandZ rankings. (Source: “BrandZ Top 100 Most Valuable Global Brands,” Millward Brown web site, last accessed May 22, 2014.)
Apple’s decline in brand perception was attributed to the lack of new products by the “iPhone” and “iPad” maker, something that has previously hurt Microsoft Corporation (NASDAQ/MSFT) over the past decade. Apple has been modifying its products, but there has not been an earth-shattering new product for quite some time. If Apple wants to avoid the same fate that trumped Microsoft when it only had its MS operating system, then it needs to act.
Meanwhile, Google continues to show investors and Wall Street why it deserves to be the top technology play and investment opportunity in the stock market, bar none.
Google recently split its shares on a two-for-one basis to make the stock more available as a mass market investment opportunity. The stock still trades for more than $530.00 a share, but trust me when I say that Google has excellent long-term potential as an above-average investment opportunity.
Unlike Apple at this time, Google is highly innovative and is thinking outside the box. No longer simply looking at itself as a search engine, Google has been working on numerous advanced technologies in both hardware and software, which makes it a better investment … Read More
Why You Don’t Need Bonds for Income Right Now
By George Leong for Daily Gains Letter | May 21, 2014
The flow of capital into the stock market continues to be directed toward lower-beta large-cap stocks and blue chips, and far less into growth and technology stocks.
The comparative performance of the large-cap versus smaller-cap stocks also exhibits a movement of capital into bigger companies as the stock market adopts a more defensive structure. The risk in growth stocks is continuing to grip the overall stock market.
With the move to safety, we are also seeing some capital flow into the bond market as the yield on the 10-year bond approaches the critical three-percent threshold. The higher the yield, the more enticing it is for investors to move some capital out of the stock market.
Yet while bonds are gaining some traction, I still prefer the capital appreciation component associated with the stock market versus that of bonds.
The demand for yield is even more prevalent if you are a senior seeking income or a conservative stock market investor who doesn’t like the current higher risk.
Instead of bonds, I’d prefer to take a look at some dividend paying stocks.
Consider that only the S&P 500 is in the plus this year. The Dow Jones Industrial Average entered into positive territory a few sessions earlier but has since fallen back.
The attraction of the DOW stocks is not only the capital appreciation potential, but also the dividend income stream, with the average dividend yield on the 30 DOW blue chips currently sitting near 2.72%. (Source: “Dividend Yield for Stocks in the Dow Jones Industrial Average,” indexArb web site, last updated May 19, 2014.)
The move into dividend paying stocks is … Read More
Conservative Investor? Why Now Is Your Time
By George Leong for Daily Gains Letter | May 19, 2014
The best way to make money in the stock market at this time is to avoid growth and technology stocks while you take some profits off the table.
The reality is that, despite the failure of the Dow Jones and S&P 500 to hold after establishing new record-highs last Tuesday, the stock market wants more reasons to bid stocks higher. The first-quarter earnings season saw about 70% of the S&P 500 companies beat earnings-per-share (EPS) estimates, but the results were largely based on lowered estimates by Wall Street.
Investors took the opportunity to take some profits following the rally last week. This indicates to me that there’s definitely still some vulnerability in the stock market.
Bellwether retailer Wal-Mart Stores Inc. (NYSE/WMT) reported soft results that suggest the global economy is still hesitant to spend after the company fell short on revenues and EPS. And to make matters worse, the company also revised its second-quarter estimates to below consensus. Clearly, the retail sector is struggling, and this will impact gross domestic product (GDP) growth.
On the charts, technology and growth stocks are risky. The Russell 2000 fell back below its 200-day moving average (MA) after failing to hold for the second time in just over a week.
We are seeing some selling capitulation in the small-cap area of the stock market and it could grow deeper.
Companies in the technology sector, specifically the high-momentum stocks, also remain under pressure, helping to drag the broader stock market lower. I don’t expect this to change anytime soon, so this is an area that you need to avoid, liquidate, or protect with put options…. Read More
Time to Shift Some Capital into China’s Stalling Economy?
By George Leong for Daily Gains Letter | May 15, 2014
While the stock market is running higher and we have seen some outlandish valuations with many of the high-momentum technology stocks, Chinese stocks continue to wallow.
There are critics saying China is primed for a stock market meltdown, but we have yet to witness this despite the stalled growth in the country. And while some argue the country is stalling, you also have to keep in mind that gross domestic product (GDP) growth in the seven-percent range is not that bad.
Many pundits estimate China will expand at around 7.5% this year. Even if the growth was a tad short, it’s still much higher than the rest of the industrial world. Look at the United States; it’s growing at less than three percent, yet the stock market appears to be fine with that.
Famed investor Jim Rogers, who has been a perennial bull on Chinese stocks, continues to believe China is ripe for strong investment growth. I’m also in that camp.
The Chinese government is looking at liberalizing foreign investments and stock ownership in the country, which should help to add buying interest to the country.
China’s stock market indices have vastly underperformed U.S. indices since late 2008, and this continues to be the pattern. The price chart shows the downward trend in the Shanghai Composite Index from 2008 (shown by the red candlesticks) compared to the upward move in the S&P 500 (shown by the dark green line) on the chart below.
My thinking is that it may be time to look at China if you are not already invested there. You just need to be careful and pick … 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 to Profit 10X the Rise in Bond Yields
By George Leong for Daily Gains Letter | Apr 28, 2014
While I continue to favor the stock market as the top investment vehicle long-term, I am concerned about the pending rise in interest rates and bond yields; of course, higher bond yields translate into a viable option for investors to stash their capital aside from the stock market.
The Federal Reserve has begun the process that will reduce the easy money it has been injecting into the stock market and economy. So far, $30.0 billion in bond purchases each month has been cut, and I expect the remaining $55.0 billion to be eliminated by the year-end.
The end result will be a steady rise in bond yields along the way, which will cause some rotation of capital from the equities market to bonds. We have already seen a big jump in the 10-year bond yield, from about 1.7% in May 2013 to 2.8% as of April 2014. The yields will continue to rise as the Fed reduces its quantitative easing over the year. A move to above the three-percent threshold level will clearly trigger some anxiety among stock investors
The consensus on the Street is for bond yields to rise. The recent auction of $29.0 billion of seven-year notes by the U.S. Department of the Treasury last Thursday yielded 7.317%.
Simply look at the chart below of the 10-Year US Treasury Yield Index from 1990 to 2014.
Chart courtesy of www.StockCharts.com
The first thing you should notice is the rising yields. The chart from 2012 onward reflects the rise in interest rates measured by the bellwether 10-year U.S. Treasury that is surging higher. The yields on U.S. Treasuries have almost … Read More
Déjà Vu of 2000?: Tech Sector Valuations Look Suspect
By George Leong for Daily Gains Letter | Apr 25, 2014
In a recent editorial, I discussed the potential red flags surfacing on the chart of the technology-laden NASDAQ. While I’m cautious, especially after its multiple failures to hold at 4,000, my view is that the technology sector stocks are the most vulnerable at this time, given their recent advance.
In the months leading up to early 2000, I recall the explosive buying in the technology sector was based on assumptions and speculations, rather than concrete, solid analysis.
While the recent buying in the technology sector—especially high-momentum technology stocks—was overdone, it was really nowhere close to what we witnessed back in 1999–2000, prior to the stock market imploding. I recall the surge of technology penny stocks trading under $1.00 to over $10.00, and in some cases to over $25.00, which was absolutely ridiculous at the time.
For some of you who were trading during that time, there was a wireless play called United Broadband Systems that was promoted as the next generation of wireless technology. At that time, technology and wireless were extremely hot and speculative. For one of my speculative market letters at that time, I advised readers to buy United Broadband at $0.25 as a speculative gamble. Heck, there was minimal financial history, but what I liked was the company’s story and that was good enough for me! Remember: the company was based on speculation, not on fundamentals, but we were able to turn an impressive profit.
When I see what is happening in the technology sector today, I am reminded of 14 years ago, but today’s technology sector is in no way as euphoric or crazy as it … Read More
NASDAQ Foreshadowing a Bearish Event?
By George Leong for Daily Gains Letter | Apr 23, 2014
The three-day buying streak last week offered some optimism that maybe the worst was over for the stock market, but my technical analysis of the charts indicates otherwise.
While blue chip and large-cap stocks are holding up fairly well, this cannot be said of the technology, growth, and small-cap segments of the stock market.
I previously discussed the stock market risk with high-beta stocks, but there are some warning signs on the charts that foreshadow a potential sell-off in the NASDAQ in the weeks ahead.
This stock market index had been down nearly 10%, which is the technical reversal point, but the NASDAQ managed to rally and is currently down only about seven percent.
The index is back above 4,000, but failure to hold would be the third time the NASDAQ failed to do so above this level, which would be a red flag for pending weakness in the stock market.
Take a look at the stock market chart of the NASDAQ Composite below.
As I indicate on the chart, there could be a bearish “head-and-shoulders” formation in development. Note the right shoulder (as indicated by the short blue horizontal line) followed by the head (as shown by the second short horizontal line).
The way this could play out is if the NASDAQ can hold near the current level of around 4,000, it could subsequently rally back to around 4,250.
At this point, if the index fails to extend higher towards 4,350 and falters, then we could see another downside move back towards 4,000 (as shown by the long blue horizontal line in the chart below). Failure to hold here … 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
Why a Soft First Quarter Offers Hope
By George Leong for Daily Gains Letter | Apr 3, 2014
The first quarter, by all accounts, was a dud, especially if you were invested in blue chip stocks as the Dow Jones Industrial Average retracted 0.74% in the quarter.
Yet March also saw some shifting of capital from higher-risk assets into blue chips and large-cap stocks, as the NASDAQ and Russell 2000 underperformed with declines of 2.53% and 0.83%, respectively.
But the muted gains in the first quarter do offer some hope heading forward, especially if the stock market can attract some leadership and if the economic outlook and jobs numbers can improve. For instance, the S&P 500 led the way in the first quarter with a 1.32% advance (or a 5.28% advance on an annualized basis). By comparison, in 2013, the index had already surpassed this level of advance by March.
Given the muted results to date, we could see much better gains in the quarters ahead, but much will depend on several variables that currently cast a cloud over the stock market.
First, the Fed is continuing to cut its quantitative easing and the consensus is that the bond purchases will dwindle to zero by year-end. While this is discounted by the stock market, traders are more concerned about when the Federal Reserve will begin to increase interest rates. The early thoughts are for rates to rise sometime in the first half of 2015.
Yet Fed chairwoman Janet Yellen gave the stock market a lift on Monday after suggesting the central bank would do whatever is necessary to make sure the economic renewal and jobs growth continue unabated. Now, this could imply that the bond buying could continue … Read More
Three Ways to Combat a “Recovery” That Even the Fed Says
By John Whitefoot for Daily Gains Letter | Apr 2, 2014
Federal Reserve Chair Janet Yellen confirmed what we’ve been espousing in these pages for the last couple of years—that the so-called recovery feels an awful lot like a recession for most Americans.
Addressing a crowd in Chicago, the head of the Federal Reserve said the U.S. jobs market is still underperforming and will continue to need the help of an artificially low interest rate environment “for some time.”
Investors were, as you can imagine, afraid the Federal Reserve was going to raise short-term rates. A rate hike would elevate borrowing costs and pull the rug out from under stock prices.
But instead, the Federal Reserve said it was committed to keeping interest rates low in an effort to stimulate borrowing, spending, and economic growth. The artificially low interest rate environment is a welcome sign for Wall Street—which essentially ended the first quarter of the year where it began.
By committing to keeping interest rates low, the Federal Reserve is ensuring a steady flow of money into the stock market…which cannot help but raise the already-bloated indices higher. The S&P 500 continues to trade near record-highs, as does the Dow Jones Industrial Average. Even the NASDAQ’s all-time high is, all things considered, within striking distance.
With the current bull market now in its fifth year—all is well in the U.S.A.! That is, if you’re one of the fortunate few to even realize we’re in a bull market. There are far too many weak underlying indicators to suggest we’re on a stable—let alone sustainable—economic footing.
For instance, the U.S. unemployment rate has improved from 10% in 2009 to 6.7% today. On the … Read More
Do Fundamentals and Technical Analysis Still Matter?
By Moe Zulfiqar for Daily Gains Letter | Apr 2, 2014
Over the weekend, I met with a friend of mine. He’s been a stock market investor for some time now, and over the last few years—especially since 2012 and 2013—he has done phenomenally well when it comes to his portfolio performance.
While talking to him about markets, he said something very interesting. His exact words were, “If you are investing in the stock market using fundamental or technical analysis these days, you are most likely going to lose money—or your returns will be dismal. The basic principles of investing hardly apply these days.”
“Hold on; what?” I said.
He explained: “Between 2009 and 2011, you could have found some opportunities in the stock market, and there was still value available. After the summer of 2012, it all changed. The stock market is now dictated by financial engineering.”
He went on to say, “Don’t just take what I say; see for yourself as well. Look at the stock performance of the companies that are buying back their shares. Look at the companies that are increasing their dividends. You will see their stock value has risen significantly despite very minute changes in their fundamentals in the last couple of years. If their chart was forming a bearish pattern and you traded accordingly, you probably incurred a loss.”
He is right!
Since the summer of 2012, the stock market has risen significantly. If you look at key stock indices like the S&P 500, its return since June 2012 to the end of 2013 was almost 36%. This means that if you invested $1,000 in the stock market on June 1, 2012 and closed … Read More
Global Risks Creating Opportunities in This Precious Metal
By George Leong for Daily Gains Letter | Mar 27, 2014
While the stock market has been struggling this year, under the radar, gold has been moving higher.
The tense stand-off in Crimea is clearly adding some support to gold, as an outbreak there could drive the precious metal much higher in the short term.
The geopolitical risk also includes the tensions between Israel and Iran in the Middle East.
On the fundamental side, we have China continuing to amass significant positions in physical gold, as the country looks to diversify its massive $3.0 trillion in reserves away from U.S. bonds. Buying in India has stalled, but the country continues to be the world’s largest market for the precious metal.
The one major supportive variable that’s missing is inflation, which is a proven driver of gold prices. The reality is that inflation is benign in the United States, along with much of Europe and Asia.
With gold currently holding just above $1,300 an ounce, the precious metal is at a crux. Stabilization in Crimea would remove some of the risk discounted into the price, but I doubt this will happen in the immediate future, as Russia has set the process to annex Crimea from Ukraine.
We know that the contested move by Russia doesn’t sit well with the United States or the United Nations, yet I really do not see Russia backing away for now. That is unless the economic sanctions put forth on Russia intensify and begin to send the Russian economy into a downward spiral.
But until we see a resolution in the stand-off, I expect gold prices will continue to incorporate some risk discounted into the price.
In … Read More
Three Tips for Investing in the Emerging Markets
By Moe Zulfiqar for Daily Gains Letter | Mar 20, 2014
Investors are asking one question these days: should you be buying emerging market stocks or will they decline further?
In the long run, I am bullish on the emerging markets. The reason for this is very simple: the emerging market economies have a significant amount of room to grow. For example, in some emerging countries, a massive portion of the population still lives without electricity; there are not enough homes; roads aren’t there to sustain the population; industries aren’t developed; and the list goes on…
Understanding what’s happening in emerging market stocks now is very important for those who are looking to invest. When the Federal Reserve started to implement its easy monetary policies, investors rushed to the emerging markets; they could get better returns there. Now that the Federal Reserve is threatening the prospects of easy money, investors are worried and selling.
Since we started to hear speculations that the Federal Reserve would taper its quantitative easing, investors have been rushing out of the emerging markets. No matter where you look in the emerging markets, you will see key stock indices facing a sell-off.
Look at the chart of Turkey’s stock market below. It’s down more than 30% since June of 2013.
Chart courtesy of www.StockCharts.com
Turkey’s stock market is just one example; other emerging markets stocks are sliding lower as well. For example, China’s stock market is down more than 12% since June of last year. The Brazilian stock market is down about 20% for the same period.
According to my analysis, it shouldn’t be a surprise to see the stocks in emerging markets slide even lower. You … 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
Three Airline Stocks I Think Are Ready to Rebound
By John Whitefoot for Daily Gains Letter | Mar 17, 2014
Thanks to a number of different factors, airline sector stocks have been on a tear. And thanks to an inverse relationship with the price of oil, strengthening consumer sentiment, the expected increase in business travel, and the (eventual) arrival of spring and summer, the airline sector looks poised for further gains.
Oil prices experienced sharp gains between 2007 and mid-2008, subsequently tanking in step with the stock market and bottoming in early 2009. Since 2010, oil prices have risen in the shadows of the sputtering U.S. economy—neither soaring nor really pulling back.
That said, oil futures slid last week immediately after weekly data came out that showed U.S. crude oil supplies were up more than forecast. Analysts had expected crude oil inventories to climb from 1.4 million barrels in the last week of February to 2.1 million barrels for the week ended March 7. Instead, oil inventories surged to 6.2 million barrels. (Source: “Summary of Weekly Petroleum Data for the Week Ending March 7, 2014,” U.S. Energy Information Administration web site, March 12, 2014.)
Oil prices are also down after the U.S. said it would hold its first test sale of crude oil from its emergency stockpile since 1990. While the government insists its modest offering of 5.0 million barrels of crude is a result of the dramatic increase in domestic crude oil production…others think it might be a subtle nod to Russia. The markets don’t seem to care either way. Oil prices are down 6.5% since the beginning of March, trading near $98.00 per barrel.
Now granted, the price of crude oil will rebound. That said, the airline sector … Read More
When Cash Is King for Stock Market Investors
By Moe Zulfiqar for Daily Gains Letter | Mar 11, 2014
The optimism on the key stock indices is increasing as the fundamentals that suggest the rally will go on continue to deteriorate. Investors beware; this disparity doesn’t end well. The possible upside gains look to be very small, and the downside risks are increasing.
To me, it feels like we are back in 2007 all over again—when key stock indices were making fresh highs and fundamentals across the board were tormented. Stock advisors were telling their clients to buy more. Irrationality was exuberant. I remember one celebrity stock advisor saying something along the lines of, “I know it doesn’t make sense buying overvalued stocks, but don’t worry; they are going to go higher.”
We see something similar now.
Investors are buying stocks. According to the data from Investment Company Institute, in January, investors purchased $23.9 billion worth of long-term stock mutual funds. This was the highest amount since January of 2013. (Source: “Historical Flow Data,” Investment Company Institute web site, last accessed March 7, 2014.)
As key stock indices are hitting their all-time highs, investor sentiment is turning bullish. According to the American Association of Individual Investors’ (AAII) Investor Sentiment Survey—which measures investors’ sentiment, be it bullish, bearish, or neutral—in the latest survey, which was on March 5, more than 40% of investors were bullish on the key stock indices. Bears were only 26.6%. (Source: “AAII Investor Sentiment Survey,” American Association of Individual Investors web site, last accessed March 7, 2014.)
This isn’t the only reason why 2014 looks like 2007.
Consider this: more and more companies are being listed on the key stock indices. According to Dealogic—a platform for … Read More
How to Boost Your Profits in This Exhausted Market
By Moe Zulfiqar for Daily Gains Letter | Mar 10, 2014
Since 2009, the U.S. stock market has become one of the hottest plays. Investors have poured in money and have reaped the rewards. In the last five years, many stocks have doubled or more. Looking at all this, one must really question if the stock market can go at this pace for a long period of time.
If you look back, you will notice that whenever there has been too much bullish sentiment, the stock market usually comes down. As it stands, we see stock advisors calling for 2014 to be a year similar to 2013 when the stock market increased significantly.
I don’t agree with the mainstream opinion. I have said this before in these pages: the stock market will most likely not show as robust a performance this year as it did last year—and it may even fall as we head further into the year.
Here’s why…
For the stock market to continue to increase, you want to see momentum on the side of the buyers. When I look at the charts, I see nothing but indecision and exhaustion. It appears investors are struggling to take the prices higher. Look at the chart below. I will use the sell-off we saw in January and early February as an example.
Chart courtesy of www.StockCharts.com
One of the indicators of a healthy stock market that I look at is how many days it takes to get back to or break above the market’s previous highs after a sell-off. If the market moves slowly, then you can judge it as not as strong. If it goes back up quickly, then the … Read More
Are ETFs Really the Best Investment for You?
By Moe Zulfiqar for Daily Gains Letter | Mar 7, 2014
One of the investment strategies discussed in the mainstream these days is to add exchange-traded funds (ETFs) to your portfolio. It is said that when you do just that, your portfolio has lower risks and you are well diversified.
For investors who are not as advanced, when it comes to investing; this investment strategy makes sense. For those who are advanced, they shouldn’t fall for this investment strategy; they may be better off going the other way—buying individual stocks instead.
Let me explain…
Between March of 2009—when the bull market run started—until February of this year, if you bought the most famous ETF for your portfolio—that is SPDR S&P 500 (NYSEArca/SPY), which tracks the S&P 500—your returns would be more than 185%. Plus, there would be dividends. Including dividends, your returns would be just over 200%.
But, saying the very least, you could have done better.
If instead of buying the SPY at the time when markets were presenting investors with an opportunity of a lifetime you bought a company from the S&P 500 like General Electric Company (NYSE/GE), your profits would be upwards of 300%. This is including the dividends you would have received.
With all this said, let me make one thing very clear; I am not opposed to adding ETFs to a portfolio. Rather, I believe investors can get better portfolio returns if they are confident enough in making their investment decisions and buying individual companies instead of sticking to indexed investing.
In 2009, stock markets were very uncertain. With companies like GE, there were fears that it may go bankrupt. Buying at that time wouldn’t have … Read More
How to Generate Premium Income in a Stalling Stock Market
By George Leong for Daily Gains Letter | Mar 6, 2014
The S&P 500 recently traded at a record-high, just before tensions in the Ukraine erupted and the global stock market declined as fear of an escalation and war intensified.
While the charts continue to show the stock market wanting to move higher after excellent gains in February, I still sense the upside moves will be more difficult to come by compared to what we saw in 2013. Even at this point, the Dow Jones Industrial Average and the S&P 500 are still negative this year.
If the stand-off between the Ukraine and Russia doesn’t escalate, I would expect the stock market to advance higher by year-end. If tensions erupt in the Eastern European region, we would likely see major selling across stocks worldwide; commodities such as gold, oil, and grains would edge higher.
If the stock market fails to find its footing—and especially a fresh catalyst—we could see mixed and volatile trading in the months ahead as the market looks for direction.
And if the stock market fails to get any positive leverage heading into the summer months, we could see some stalling in the stock market.
If the stock market does stall, an investment strategy to consider would be to write and sell some covered call options on your stocks in order to generate some premium income. This would also help to lower the average cost base of your positions, while also setting a selling price you would be willing to sell your stocks at. Of course, your goal would be to generate premium income and not look to sell stock, as I believe the stock market will head … Read More
Three Ways to Protect Your Wealth from Global Uncertainty
By John Whitefoot for Daily Gains Letter | Mar 5, 2014
Nothing helps create volatility on the stock market like the threat of war. And just a few short days after the close of the bloated $52.0-billion behemoth in Sochi, Russia has embraced its ne’er-do-well Olympic spirit and invaded the Ukraine. Or, according to Putin, “pro-Russian soldiers” have simply moved into the Ukraine to defend Russian interests.
With a growing threat of war/retaliation on the horizon, investors have been pulling their money from riskier assets, like stocks—sending global financial markets reeling. Crude oil and gold prices, on the other hand, have been on the rebound.
While it seems utterly crass to deconstruct the potential for war down to economics, the fact remains—a stand-off or sanctions could both disrupt gas supplies to the European Union and send U.S. crude oil prices higher.
For starters, any issues in the Ukraine could disrupt the flow of natural gas supplies from Russia to the European Union. That’s because the European Union gets about a third of its crude oil and natural gas supply (and a quarter of its coal) from Russia, mostly piped through the Ukraine. Russia, the world’s biggest crude oil producer, generated 10.9 million barrels a day in 2013 and currently exports close to 5.5 million barrels of crude oil per day.
Since the end of the Cold War, no one really worried about relying on Russia for crude oil and coal. All of that has changed. While the notion of war is remote, it’s still on the table. Nations far removed from Russia and Ukraine might push for economic sanctions, just as the U.S. has done, threatening visa bans, asset freezes, and … Read More
Three Basic Rules for Easier Options Trading
By Moe Zulfiqar for Daily Gains Letter | Mar 4, 2014
Trading options isn’t easy. It is important that investors understand them clearly; if they don’t, they could lose their entire investment, be faced with heavy losses, or end up with a position they never really wanted in the first place if the trade doesn’t work in their favor.
Knowing what kind of options to buy is just the first step. There are many other factors investors have to consider before entering the trade, including the following three considerations:
Keep the Bid and Ask Spread Small
When it comes to stocks, thanks to liquidity in the stock market, the bid and ask spread—the difference between the price buyers are willing to pay (bid) and sellers are willing to sell for (ask)—is usually within $0.01. When it comes to options, this range can be very wide; at times, this range can be more than $0.25.
The bid and ask spread matters because it affects the money you are putting into options. At the very core, a big bid and ask spread can result in losses. For instance, if the bid for an option is at $0.10 and the ask price is at $0.20, an investor will pay $20.00 to buy on contract. If they go right away to sell, they will have to sell for $0.10, or $10.00 per contract—this results in a loss of 50% per option.
Choose Limit Orders Over Market Orders
When an investor places a market order, it essentially means they are buying at the available price—which generally means they receive the ask price. This can have two consequences: first, if the spread is big, they will see … Read More
Following the Weak Durable Goods Data, These Three Plays Look Good
By John Whitefoot for Daily Gains Letter | Mar 3, 2014
If the stock market is only as strong as the companies that go into making up the index and their earnings are contingent upon consumer spending, then the durable goods numbers don’t really look all that great.
New orders for manufactured durable goods slipped by one percent, or $2.2 billion, to $225.0 billion—the third decrease in the last four months. Analysts had forecasted a January drop of 0.7%. The one-percent drop in January comes on the heels of a 5.3% decrease in December. (Source: “Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders January 2014,” United States Census Bureau web site, February 27, 2014.)
In January, shipments of manufactured durable goods, which have been down for two consecutive months, decreased $0.9 billion, or 0.4%, to $232.3 billion. This followed a 1.8% decrease in December.
Inventories—the number of products sitting on a shelf—increased by 0.3% ($1.0 billion) in January to $389.1 billion. This represents the highest level ever recorded and follows a 0.9% increase in December.
Non-defense orders for capital goods in January slipped by 3.9% ($3.2 billion) to $78.3 billion. Shipments decreased by one percent, or $0.8 billion, to $75.1 billion, while unfilled orders increased by 0.5%, or $3.2 billion, to $644.7 billion. Inventories increased $0.5 billion, or 0.3%, to $177.5 billion.
Even the less volatile core durable goods numbers fail to really impress. Orders for long-lasting U.S. durable manufactured goods, minus the more volatile transportation industry, climbed 1.1% in January, the biggest jump since May. This sort of balances out the higher-than-expected 1.9% drop in December. Analysts had forecasted a 0.1% decline in January core durable goods.
Still, … Read More
Why These Two China-Based Internet Stocks Are Worth a Closer Look
By George Leong for Daily Gains Letter | Mar 3, 2014
We all know how hot the social media space is with some sizzling returns shown by such stock market heavyweights as Facebook, Inc. (NASDAQ/FB), Twitter, Inc. (NYSE/TWTR), Yelp, Inc. (NYSE/YELP), and LinkedIn Corporation (NYSE/LNKD) to name a handful.
The valuation of these momentum stocks is especially high, but as long as there are buyers, these stocks will continue to attract major market surges.
Much of the easy money may be gone for now, but there are still some Internet stocks trading here that offer excellent potential for some staggering gains for aggressive traders.
Yet the stocks I’m referring to are based out of China, where the added risk is high due to the questionable reliability of the auditors and subsequent results.
If you are confident on the numbers of these Chinese stocks, it may be worth a speculative trade, but be warned that the risk is high, so don’t go and bet your 401(k) on these speculative Chinese stocks. Use only risk capital and make sure you are diversified; this will take some of the edge off the trade in case the stock goes against you.
If you like Amazon.com, Inc. (NASDAQ/AMZN) but aren’t willing to chase the high stock price and valuation, you may want to take a look at China-based E-Commerce China Dangdang Inc. (NYSE/DANG), which has been referred to as the Amazon of China. The online seller of books, home products, footwear, electronic and personal products, and related accessories has about 8.9 million active users as of its fourth quarter (ended December 31, 2013). The company also said it added about 3.1 million new users in that … Read More
Five Ways to Preserve Your Wealth as Key Stock Indices Decline
By Moe Zulfiqar for Daily Gains Letter | Feb 28, 2014
The key stock indices continue to make new highs. Each day, there’s someone on the TV saying how we are going higher. Some are estimating key stock indices will do much better this year than last. No matter where you look, the opinion seems to be the same: buy stocks and your portfolio will do great. With all this happening, investors must remember one very important lesson that the stock market has taught us over and over again: a rising tide lifts all boats, but tides come and go.
Let me explain…
As key stock indices are going higher, investors’ portfolios may look great. Their return may be exuberant, but they shouldn’t forget that markets tend to move in waves. The conditions may look rosy now, but eventually, it all turns. Key stock indices are known to have corrections—minor or steep.
When the times are good on the key stock indices, such as now, long-term investors have to keep market corrections and sell-offs in mind.
Generally, when the key stock indices turn, investors turn towards government bonds. This is mainly because they move in the opposite direction of the stock market. Investors can protect their assets when key stock indices decline by going heavyweight on exchange-traded funds (ETFs), like PIMCO Total Return ETF (NYSEArca/BOND)—this ETF, like many others, invests in bonds with different maturities. Investors may even consider ETFs like iShares TIPS Bond (NYSEArca/TIP), which invests in the inflation-protected bonds issued by the U.S. Treasury.
Another way investors can protect their portfolio in the case that key stock indices sell off is through gold bullion. The yellow shiny metal has … Read More
Four Top High-Momentum Stocks to Watch
By George Leong for Daily Gains Letter | Feb 27, 2014
There is a lot of money trading the stock market each day, and this is especially true with the momentum stocks that are making many traders rich.
While anyone can trade momentum stocks, to make the real big money, you need to be trading big positions on these momentum stocks and be willing to assume the risk that the trade could go the other way. The key to trading momentum stocks is to make sure you are closely monitoring the price action and the volume on the bid side, especially. A major upward push in bids could foreshadow a pending upward move in the stock. The same can be said for rising volume on the ask side that could suggest traders are exiting the stock.
While there are numerous momentum stocks, the following are examples of momentum stocks that I believe offer the best opportunities as these companies are also leaders in their areas.
Facebook, Inc. (NASDAQ/FB) has been one of the top performers and momentum stocks since bottoming out in 2013. The social media company, with more than one billion subscribers, is managing to drive up its mobile advertising business and monetize its enormous user base. Facebook also made waves last week after the company announced it would be paying a whopping $19.0 billion in stock for four-year-old mobile messaging company WhatsApp. The company was clearly overpriced, but given that the stock price of Facebook has also risen extraordinarily, the $19.0-billion price tag doesn’t seem so bad.
At the low end of Facebook’s stock price at around $17.00 a share, the deal would have been valued at around $4.75 … Read More
Why I’m Even More Bullish on Gold Bullion Now
By Moe Zulfiqar for Daily Gains Letter | Feb 26, 2014
Since the beginning of the year, one asset class has shone when compared to the stock market. I am talking about gold bullion. The yellow shiny metal’s prices are up more than 10%. The stock market, on the other hand, hasn’t performed as well. For example, year-to-date, the S&P 500 is only up by little more than one percent. With this said, I believe gold bullion can surprise investors even more this year.
Let me explain why…
Looking from a technical analysis point of view, there are a few interesting developments that suggest gold bullion prices are heading higher. Remember the first rule of technical analysis: the trend is your friend, until it’s broken. With this in mind, please look at the chart below.
Chart courtesy of www.StockCharts.com
The downtrend that gold bullion prices were following since late 2012 has now been broken (black line). At the same time, we see prices breaking above the 200-day moving average for the first time since early 2013 and sustaining above the 50-day moving average. This suggests sentiment is turning bullish. In addition to this, we see indicators of momentum, like the moving average convergence/divergence (MACD), suggest bulls are in control (as indicated by the black line below the chart).
The fundamentals of gold bullion prices are suggesting investors are going to reap rewards as well. The demand continues to increase and the supply remains subdued. This is the perfect recipe for higher prices.
In 2013, we saw central banks buy gold bullion; they have been net buyers of gold bullion since 2009. It will not be a surprise to see them buy … Read More
