Daily Gains Letter

technical analysis


Darker Clouds Ahead for Retail Space…But Not for Retail Investors

By for Daily Gains Letter | Aug 15, 2014

Muted Retail SectorThis past week, as many of my readers may recall, I discussed the slowing that’s occurring in the global economy as demonstrated by consumer spending at both McDonalds Corporation (NYSE/MCD) and Wal-Mart Stores Inc. (NYSE/WMT).

Now, my concerns have just picked up following Wednesday’s retail sales reading. The core reading excluding automotive and food sales grew a mere 0.1% in July, according to the U.S. Department of Commerce, which was below the 0.3% estimate and the weakest reading since way back in January, when Old Man Winter was blamed for everything.

But with the winter excuses over, it still appears consumers are hesitant on wanting to spend. Not only is consumer spending on everyday items drying up, but spending on durable goods, such as furniture, appliances, and electronics, is curtailing.

Department store operator Macy’s, Inc. (NYSE/M) reported a mere 3.3% year-over-year increase in its second-quarter sales. The company’s key comparable store sales managed to rise 3.4% in the second quarter, but things are looking somewhat soft for the whole of 2014, with Macy’s estimating growth in comparable store sales of only 1.5%–2.0%, versus its previous 2.5%–3.0% estimate.

These numbers, along with those from the discounters and big-box stores, show some darker clouds on the horizon for the retail sector, as retailers across the board try to keep afloat.

I don’t expect a sell-off in retail, but the upside looks to be limited for the foreseeable future, as the economy and jobs look to sort things out.

Take a look at the SPDR S&P Retail ETF (NYSEArca/XRT), which reflects the current sideways moves in the retail sector, with this exchange-traded fund … 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


The Red Flag I’m Seeing in Stocks Right Now

By for Daily Gains Letter | Jul 16, 2014

Why Massive Capital Infusion from Retail Investors Is a Red FlagIn 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


Why This Beaten-Down Stock Is Worth a Closer Look

By for Daily Gains Letter | Jul 11, 2014

This Beaten-Down Stock Deserves a Closer LookSmall-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.

Extreme Networks Inc Chart

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 for Daily Gains Letter | Jul 9, 2014

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

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

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

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

Dow Jones Industrial Average Chart

Chart courtesy of www.StockCharts.com

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

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

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

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

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


How to Make Quick Profits in Gold at This Time

By for Daily Gains Letter | Jun 30, 2014

Where the Investment Opportunity Lies in Gold Right NowA few weeks ago, I suggested that gold prices could likely head higher should the situation in Iraq escalate into a bigger conflict that brings in Iran and the United States.

In my view, gold is simply a geopolitical trade at this time, contingent upon what happens in Iraq. There’s also the situation in Ukraine. At this time, though, it appears as though President Putin has no interest in escalating the conflict and making the country vulnerable to more economic sanctions.

When I last wrote on the precious metal, spot gold was trading at $1,276 an ounce. The yellow metal managed to edge higher to $1,324, prior to the current stalling on the chart. If you bought any of the SPDR Gold Shares (NYSEArca/GLD) exchange-traded fund (ETF), I would suggest you take the money at this time.

Gold-Spot Price Chart

Chart courtesy of www.StockCharts.com

Now, gold could easily surge if Iraq loses control of the country, but I truly don’t believe this will be allowed to happen by the United States and Iran. After spending more than a decade in Iraq and a trillion dollars trying to reform the country, there’s simply too much at stake to lose.

Assuming the advancement by ISIS is eventually eliminated, gold would surely lose its safe haven premium that is priced into the current value. We could, in this case, see prices fall back down below $1,300 an ounce, based on my technical analysis.

I also keep hearing about the massive buying of gold from India and China, yet I truly feel this is overblown at this time. The two countries are the biggest purchasers of the … Read More


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

By for Daily Gains Letter | Jun 25, 2014

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

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

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

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

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

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

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

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


Why Now Is the Opportune Time to Invest in Gold

By for Daily Gains Letter | Jun 18, 2014

Two Investments Benefiting from the Geopolitical Tensions in Iraq & UkrainecGold and oil are finally seeing some upward lift, but it has more to do with the geopolitical landscape than inflation and economic growth.

As I said in recent weeks, the price of gold could be headed higher, but only if we see a rise in geopolitical tensions. That’s what we are witnessing at this time, so there could be quick money to be made.

While the Ukraine situation appeared to be settling down, the destruction of a Ukrainian aircraft with soldiers on board will not help the already tense situation. Russia has also halted the flow of oil into Ukraine after failing to reach a compromise on only owing for past oil and the price for future oil. This failure could cause a bottleneck not only in Ukraine, but also in Poland and other European countries that depend on Russian oil. Of course, in the worst-case situation, this could impact growth in the eurozone at this critical time when the region is still fragile, with high unemployment and mixed economic renewal.

We also have the massive uprising in volatile Iraq, where the brutal ISIS (the Islamic State in Iraq and al-Sham) rebel militia is spreading its control in the country, now marching on Baghdad. The negative implications of ISIS increasing its control over the country could wreak havoc not only on the oil production out of Iraq, but it could also create geopolitical instability in this already volatile region that also includes tensions on Syria and Iran.

The two events will likely drive safe haven buying in gold, which has been moving higher after bouncing off some support around … Read More


Why I Believe This Market Is Heading Higher—For Now

By for Daily Gains Letter | Jun 11, 2014

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

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

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

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

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


“Discount Aisle” Retailer the Best Investment Opportunity?

By for Daily Gains Letter | Jun 6, 2014

Underpriced Retailer for the Contrarian Investor's RadarThe retail sector is hurting at this time from the discounters to the luxury brands, with just a few exceptions. Even the dollar stores are facing slower growth.

Yet with the sector down, it’s time to look at picking up some of the damaged retail stocks as an investment opportunity.

A retailer that I feel has declined to an attractive level as an investment opportunity is small-cap Texas-based Stage Stores, Inc. (NYSE/SSI). A seller of reasonably priced brand and private-label apparel, accessories, cosmetics, and footwear to women, men, and kids, Stage Stores is languishing just above its 52-week low, where I see an investment opportunity.

Stage Stores runs approximately 883 stores that are situated mainly in small and mid-sized towns in 40 states. The stores’ sizes vary, from as small as 5,000 square feet to as large as 54,000 square feet. Small towns comprising fewer than 50,000 people account for 65% of the company’s store locations; mid-sized towns with between 50,000 and 150,000 people account for 18%; and the remaining 17% are found in large cities.

I view Stage Stores as a contrarian investment opportunity, given the stock is down 21.4% over the last 52 weeks versus a 16.26% advance by the S&P 500. The stock price should rally if the company can deliver better, consistent results.

Stage Stores reported higher sequential fiscal sales growth from FY05 to FY08 and FY11 to FY13. Sales growth is estimated to continue into FY14 and FY15.

The company does make money, with profits in nine of the last 10 fiscal years. The growth is estimated to continue into FY14 and FY15.

The stock … Read More


How You Could Still Profit from Gold Despite Weakness

By for Daily Gains Letter | Jun 4, 2014

Why You Still Stand to Gain from GoldWith money continuing to flow into the equities market and stocks, the gold market has seen an outflow of capital. The Ukraine situation appears to be under control, and with minimal geopolitical influences, the yellow metal has failed to gain any catalyst to move higher.

The prices paid for goods and services, as measured by the Consumer Price Index, are under wraps, despite rising food and energy prices. The headline reading, including these two volatile items, jumped two percent in April in urban areas, which was the highest reading in 2014, matching the highest readings in 2013. Right now, inflation is not a major issue, but it could become more of a factor as we move forward.

Moreover, we all know that the Federal Reserve is expected to eliminate its entire bond purchases by the year’s end, which will likely drive bond yields, interest rates, and the U.S. dollar higher. The result would be a stronger U.S. dollar and pressure on gold prices.

And as I previously mentioned, there’s still broad interest in the stock market, which will impact the buying in the yellow metal. Investors are continuing to look for returns, and at this time, that isn’t gold.

The gold story is a non-factor at this moment, and I think the best gains are behind us for the time being, as the precious metal traded at around $300.00 in 2002 and reached its highs in 2011. The long-term chart below shows the yellow metal in a decline.

Gold - Spot Price (EOD) Chart Chart courtesy of www.StockCharts.com

The reality is that there’s simply no attraction in buying the yellow metal at this point, in spite … Read More


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

By for Daily Gains Letter | May 29, 2014

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

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

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

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

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

NASDAQ Volume Summation Index Chart

Chart courtesy of www.StockCharts.com

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

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


How Godzilla’s Box Office Success Could Offer Your Portfolio the Same

By for Daily Gains Letter | May 28, 2014

Portfolio Popping Capital Gains It Could Be with This StockGodzilla (2014) is running wild at the box office, as this classic B-movie remake has delivered a record opening weekend for specialized movie theater operator IMAX Corporation (NYSE/IMAX).

If you have ever had the IMAX experience, you likely agree that Godzilla was probably as life-like as possible through the big-screen format of an IMAX theater, surrounded by about 12,000 watts of mind-blowing sound via a network of more than 40 speakers.

The screening of major Hollywood blockbusters on IMAX screens has been a big winner for the company and an excellent investment opportunity. IMAX has shown such major movies as The Hunger Games series, The Avengers, the newest Batman series, and The Hobbit: An Unexpected Journey.

Yet the appeal of IMAX has not only been its expansion in North America, but its ability to grow rapidly worldwide in places such as Western Europe, Japan, China, and Russia, which makes the stock a good investment opportunity. As of March 31, 2014, there were 840 IMAX theater systems installed in 57 countries worldwide.

The expansion into China is especially intriguing as an investment opportunity. With more than 1.3 billion people and the ongoing debut of Hollywood films in China, the investment opportunity is tremendous. At this time, there are about 150 IMAX theater systems in the country with contracts to open another 400 or so. In fact, if IMAX catches on, we could easily see hundreds more theater systems installed.

Fundamentally, the company reported higher annual revenue growth in 2009, 2010, 2012, and 2013. Revenues are estimated to grow 5.7% to $304.46 million in 2014, followed by 15.2% to $350.64 million in … Read More


My Top Stock for the Coming Healthcare Boom

By for Daily Gains Letter | May 14, 2014

Top Stock for Playing Obama's Healthcare BoomAs the country moves forward in providing medical coverage for all Americans, the healthcare sector will be one of the top growth areas for investment opportunity going forward.

As I recently discussed in these pages, there are ways investors can benefit from Obamacare, whether you believe in the new healthcare strategy or not. The reality is that there will be tens of millions of Americans added to the list of those needing healthcare solutions, and that will definitely provide an investment opportunity and a catalyst for growth in the sector.

What I believe is that there will be a tremendous investment opportunity for investors over the next few decades, as the Baby Boomers, Generation Jonesers, and early Generation Xers move into retirement and the demand for healthcare solutions accelerates across the country.

We will see an investment opportunity among the providers of health plans, along with the pharmaceutical and medical device makers that will market to a much larger user base.

Besides the rising demand for drugs as America increases its health coverage and its citizens age, I also expect a significant increase in the demand for medical devices. Today, you can already get replacements for hips and knees, along with other extremities. I expect the range of products and demand to continue to rise as American seniors grow older and research and technology advance.

There are numerous medical device companies that could benefit from the shifting healthcare space. An interesting contrarian investment opportunity on medical devices may be SurModics, Inc. (NASDAQ/SRDX), which has a share price of $21.25 and a market cap of $287 million.

SurModics develops a technology … Read More


How to Profit from the Greedy Oil Companies

By for Daily Gains Letter | May 5, 2014

Profit Rise Domestic Oil Production  Gas PricesI just went to fill up my gas-guzzling SUV, and what I paid was one of the highest bills ever. With oil prices managing to hold around $100.00 a barrel for West Texas Intermediate (WTI), the price of gasoline at the pumps continues to be absolutely insane—not as expensive as Europe and parts of Asia, but nonetheless a major hit to your wallet.

Yet while consumers and companies pay the brunt of the high oil prices, the fat cats at the oil companies are quickly adding to their coffers and making tons of oil profits.

The only positive news here is that the country has reduced its dependence on Middle East oil and that, folks, really is a good thing. We don’t want to be held hostage by OPEC oil.

Of course, as many of my astute readers know, the major reason why we are becoming less dependent on foreign oil (excluding oil from the Canadian tar sands), is the rapidly growing extraction of domestic shale oil from the hotbeds in North Dakota and Montana.

In 2012, shale gas represented 39% of total natural gas production in the United States, according to the U.S. Energy Information Administration (EIA). Canada was second at 15%. These numbers are estimated to grow even bigger. The U.S. has the best technology for squeezing oil out from between rocks in the shale deposits, and it will only improve as we move forward.

The rising production of shale oil has made the price lower in comparison to the more expensive and heavier Brent Crude oil at around $109.00 per barrel.

Take a look at the chart … Read More


The Investment Story of the Next Decade?

By for Daily Gains Letter | May 2, 2014

Pros Obamacare InvestorsIn spite of the debate over whether Obamacare, also known as the Affordable Care Act, is good or bad for the nation’s healthcare sector, what I do know is that the additional policies will likely drive up the demand for healthcare services and products as an investment opportunity.

Now I’m not here to debate or discuss the merits of the healthcare plan. All I can say is that if we can get people enrolled in some sort of healthcare plan, then as far as I’m concerned, that’s great for the country and its citizens. Studies have shown that in the countries where healthcare is available to everyone, there tends to be a higher happiness factor and people live longer.

But back to the investment opportunity: Obamacare will add tens of millions of Americans to the healthcare system, Americans who previously had little or no coverage but will now have access to basic healthcare. The result is a significant increase in demand across the board—and as I said earlier, this will translate into a rise in healthcare stocks as an investment opportunity.

At first glance, the big pharmaceutical companies, such as Merck & Co., Inc. (NYSE/MRK), Pfizer Inc. (NYSE/PFE), Johnson & Johnson (NYSE/JNJ), and UnitedHealth Group Incorporated (NYSE/UNH), are an investment opportunity directly benefiting from the move. These are excellent long-term healthcare stocks that have proven themselves over the long haul and could offer a good investment opportunity.

If you would rather play the healthcare boom via a fund, take a look at an exchange-traded fund (ETF) that comprises of numerous key healthcare companies that could rally from Obamacare and provide … Read More


NASDAQ Foreshadowing a Bearish Event?

By for Daily Gains Letter | Apr 23, 2014

NASDAQ Signaling Bear Stock Market AheadThe 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 for Daily Gains Letter | Apr 21, 2014

Mini Rally Means for Your Investment StrategyThe stock market staged a minor rally last week, but don’t get too excited yet; the buying support was largely triggered by a technically oversold market, rather than solid fundamentals or a fresh catalyst.

What I can say is that investors need to be careful with the high-beta stocks that are extremely volatile at this time and vulnerable to downside selling.

Just because momentum surfaces, it doesn’t mean the risk is dissipating. It’s simply an oversold bounce that could continue or falter again.

The fact that the Dow Jones Industrial Average and S&P 500 recovered their 50-day moving averages (MAs) last Tuesday is positive, but it doesn’t mean the worst is over.

I see the NASDAQ and Russell 2000 were still down more than seven percent as of last Wednesday and below their respective 50-day MAs. In fact, the Russell 2000 is within reach of testing support at its 200-day MA. This time around, we could see a bigger stock market correction, based on my technical analysis.

Until we see some sustained calm return, there could be continued selling pressure in the stock market, especially with the smaller high-beta stocks and large-cap momentum plays.

The most critical point to understand is that you need to preserve your capital base. The reality is that avoiding a loss is just as good as making profits. Imagine letting a losing trade run and before you realize it, the position is down 20%, 30%, or more.

This is especially true with the small-cap stocks. Making up ground following a major downside move is not easy. For instance, say you have a $10.00 stock and … Read More


Three Variables to Consider Before Investing in Gold

By for Daily Gains Letter | Apr 16, 2014

Three Reasons I Believe Gold Is Only for Traders Right NowWhile there continue to be many gold bugs out there, I’m not one of them—but I do see gold as a trading opportunity.

Given what we have seen so far and looking ahead, I just don’t see gold as a buy-and-hold strategy at this time. Yes, there’s money to be made, but it’s going to be for traders only.

The recent break below $1,300 an ounce and the subsequent rally to the current $1,325 level is an example of such a trade, not a new trend that’s developing on the charts, based on my technical analysis. The chart below shows the potential declines in the metal towards $1,200 and $1,100 an ounce.

Gold Spot Price ChartChart courtesy of www.StockCharts.com

Many gold supporters will counter that China is hoarding gold and India will soon pick up its buying. While I don’t argue against this, I just don’t see the yellow metal retaining its luster at this point unless a war breaks out in Ukraine and Russia intensifies its threat. If this should happen, it would drive Russia’s gross domestic product (GDP) growth lower and could result in the fragile eurozone and European economies retrenching back into a recession that just ended.

I wrote about gold several weeks back as a trading opportunity on dips below $1,300. I continue to hold on to that belief, but longer-term, the yellow metal could fade and fall back towards $1,200 or less.

My thinking is that inflation is nowhere to be seen in the United States, China, or Europe. (In fact, deflation may be more of a concern here.) And unless inflation picks up, the yellow metal isn’t … Read More


Considering Dumping Stocks? Why You Should Reconsider

By for Daily Gains Letter | Apr 9, 2014

Investment StrategyI’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


Do Fundamentals and Technical Analysis Still Matter?

By for Daily Gains Letter | Apr 2, 2014

Stock MarketOver 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 for Daily Gains Letter | Mar 27, 2014

Precious MetalWhile 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


Global Middle-Class Growth Boosting These Stocks Worldwide

By for Daily Gains Letter | Mar 24, 2014

Growing Global IncomeThe current drama surrounding Malaysia Airlines Flight 370 has been riveting and indicative of how the superlative growth in travel in the airline sector has encompassed Asia along with the world.

For years now, since the recession hit in 2008, I have been increasingly bullish on the airline sector across the globe, but especially in the emerging markets like China, India, Eastern Europe, and Asia. Helping to drive up the demand for travel in the airline sector has been the upward push in wealth creation in many of these regions, which has given more people the ability to afford air travel.

The industry stats don’t lie. The airline sector is on target for its second straight year of higher profits, according to research by the International Air Transport Association (IATA).

According to the research, North America continues to be the biggest airline sector market with profits estimated at around $8.6 billion in 2014. Asia-Pacific airlines are entrenched in second place with an estimated $3.7 billion in profits, more than the $3.1 billion predicted for Europe. (Source: “Industry on Track for Second Year of Improving Profits – Rising Fuel Costs Largely Offset by Increased Demand,” International Air Transport Association web site, March 12, 2014.)

Take a look at the Dow Jones U.S. Airlines Index in the chart below. Notice the beautiful uptrend since November 2012 and the bullish golden cross on the chart, based on my technical analysis.

Dow Jones US Airlines Index Chart

Chart courtesy of www.StockCharts.com

To play the airline sector in the United States, I like discount carrier JetBlue Airways Corporation (NASDAQ/JBLU). The company was formed in 1998 and currently serves markets in the … Read More


Why I’m Even More Bullish on Gold Bullion Now

By for Daily Gains Letter | Feb 26, 2014

Gold Bullion NowSince 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.

Gold - Spot Price Chart

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


Where to Invest When Key Stock Indices Struggle to Climb Higher

By for Daily Gains Letter | Feb 25, 2014

Key Stock IndicesKey stock indices were going through a rough patch from the beginning of the year until early February. Now, they seem to have some momentum to the upside. With this, investors are asking what kind of upside potential is possible. Will the key stock indices continue to increase and break above their previous highs, or are we due for another sell-off like the one we saw earlier, and only then will we see some good buying points?

Let me begin by saying what I have said many times in these pages before: 2013 was a stellar year for key stock indices, but now they need to breathe a little. The key stock indices may go above their all-time highs made at the end of last year, but the move isn’t going to be as robust. You might see a slow, dreadful move to the upside.

If this scenario does play out—key stock indices moving slowly and breaking above their all-time highs—the fundamentals are suggesting it won’t be a significant move.

Companies on the key stock indices are warning about their corporate earnings. For example, 66 companies on the S&P 500 have issued negative guidance about their corporate earnings in the first quarter of this year. (Source: “Slightly larger cuts to earnings estimates than average at mid-point of Q1 2014,” FactSet, February 14, 2014.) Corporate earnings estimates by analysts are also being slashed. Mind you, we are just in the second month of the quarter.

Major names on the key stock indices are reporting horrible sales. Consider Caterpillar Inc. (NYSE/CAT), a major industrial goods manufacturer, for example. The company reported its … Read More


What to Consider Before Investing in These Two Lesser-Known Precious Metals

By for Daily Gains Letter | Feb 19, 2014

Precious MetalsI have been in this business a long time, and I believe that the best tactic is to combine as many positive factors as possible in order to have the highest probability of success.

There are essentially three main methods to look at; this includes fundamental analysis, technical analysis, and quantitative models. You don’t need every single category of analysis to be completed; you just need enough evidence from all to indicate whether or not a stock or index will move up or down. Obviously, there is no 100% guarantee, only a level of probability.

Taking a look at the precious metals market, over the past couple of months, there has been an increasing number of signals leading me to conclude that there is a good probability that precious metals will move up in price in 2014.

Two of these precious metals that have gotten me interested are platinum and palladium. The fundamental analysis in these precious metals includes determining the level of demand and supply globally.

The fundamental analysis of supply for these precious metals is quite interesting and sad, as protests and violence are escalating in South Africa. For those unaware, platinum and palladium are primarily extracted from South Africa and Russia. Any disruption in the supply from these regions will cause an adverse price reaction.

So far this year, there are more than 70,000 South African miners on strike who are looking for higher wages. There have been 10 deaths this year by protests demanding better living conditions. With the South African currency continuing to drop, inflation is rising, causing instability in their economy and the political … Read More


What I Told The Speculator About the Stock Market Now

By for Daily Gains Letter | Jan 30, 2014

Stock Market NowJust a few days ago, I received another call from my good old friend Mr. Speculator. He was worried. He has been long on the stock market since the beginning of the year, but sadly, stocks have come down a bit. He asked, “Do you think there’s more downside on the stock market? Or is this the correction everyone was talking about?” Mr. Speculator bought exchange-traded funds (ETFs) that provide him leverage; he added, “My losses are adding up. Should I sell or wait?”

Mr. Speculator isn’t the only one who is asking this question since the key stock indices started to come down. I hear this question being asked all around. January is supposedly a good month for stocks, but so far, this is simply not the case. The S&P 500 is down roughly three percent. Investors are asking whether or not the returns on stocks are going to be horrible this year.

Looking at the charts and assessing the sentiment, it appears reality is slowly coming back to the stock market. Take a look at the following chart of the S&P 500.

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

Looking from a technical analysis point of view and taking the S&P 500 as an indicator of the entire stock market, there are a few developments that investors need to know.

First of all, since the beginning of the year, the volume on the S&P 500 has been increasing. This is interesting to note, because it suggests investors are selling into weakness. In addition to this, we see that the S&P 500 has broken below the 1,800 level and has moved below … Read More


What to Really Look for in This Overvalued Market

By for Daily Gains Letter | Jan 27, 2014

Overvalued MarketWhen it comes to investing, I think it’s important to have a balanced investment portfolio made up of value and growth stocks. I also think it’s important to be balanced in the way you look at or research stocks through both fundamental analysis and technical analysis. Being too extreme or having too much allegiance to one investing methodology means excluding a rich pool of information.

I have an acquaintance who’s an investor. He swears by day-trading, even though he’s lousy at it. Here, I’d like to employ Dr. Phil’s mind-numbing, near-sighted phrase, “How’s that workin’ for ya?” but to be fair, I don’t really know too many successful day-traders anymore.

Anyway, my friend, whom I call “the investing dandy,” is a pure technical analysis trader, meaning he doesn’t even care what stock he’s trading and most times, he doesn’t even know what the company does.

Technical analysis attempts to forecast future price movements based on past price and volume movements. The idea is to find patterns within the past movements, and use those chart patterns and past price performance to predict what will happen to the stock in the future.

Fundamental analysis, on the other hand, looks at a company’s financial statement in an effort to predict a trend. Unlike technical analysis, which considers the past direction of a chart to predict a stock’s future movements, fundamental analysis focuses on the forward-looking picture.

My friend contends that because the markets have been performing so well over the last few years in spite of lukewarm earnings, there’s no reason to consider a fundamental analysis.

Therein lies his folly. While he’s right … Read More


Fundamentals & Technicals Pointing to Silver as the Next Big Trade

By for Daily Gains Letter | Oct 10, 2013

Silver as the Next Big TradeI have been a very big advocate of using both fundamental analysis and technical analysis together to get a better idea of what to expect next when it comes to prices, be it for stocks, precious metals, currencies, or other investment instruments. But when I use this strategy to look at silver, I can’t help but be bullish.

First, let’s look at the technical side:

As you can see in the chart below, silver hasn’t performed well since the beginning of the year—it’s down roughly 30% from its peaks in February—but few things have changed since it had sell-offs in April and June. The prices found support at the $19.00 level, and have not seen those levels again; as a matter of fact, the precious metal’s prices have been trending higher since then.

In addition to this, the moving average convergence/divergence (MACD), a momentum indicator, is suggesting that bulls are coming in slowly. Furthermore, silver prices recently crossed above their 50-day moving average, a move considered to be significant and in favor of the bulls.

Silver Spot Price(EOD) Chart

Chart courtesy of www.StockCharts.com

On the fundamental side, there’s a significant amount of information that suggests the price of the white precious metal may increase going forward.

First and foremost is the relationship between gold and silver. I have mentioned in these pages before that we are seeing the fundamentals of gold prices getting better. The central banks are continuously printing, keeping easy monetary policies low, and those in the emerging markets are buying the precious metal. As the gold prices go up, silver prices will follow the same direction.

Secondly, the demand for the … Read More


Fundamental Analysis or Technical Analysis? How to Pick the “Right” Investment

By for Daily Gains Letter | Apr 25, 2013

Fundamental Analysis or Technical Analysis? How to Pick the “Right” Investment

There is a long-lasting debate among investors about how to pick the “right” investment. Should they completely rely on fundamental analysis or technical analysis? Or do these methods of analysis really matter?

While there are many theories on how exactly to select a stock, the group of stock advisors who believe in fundamental analysis and the group of advisors who follow technical analysis will both argue that their method is the only method that works.

Sadly, with this debate comes great confusion and a significant amount of questions.

The solution: instead of just getting fixated on just one school of thought, either technical analysis or fundamental analysis, investors should use both to make decisions about their investments.

In the long term, the fundamentals of the company are what drive the stock prices higher or lower. In the short term, stock prices are dictated by the overall market sentiment, as well as other factors.

Investors can use fundamental analysis to assess the company’s financial position. There are many ways investors can do this, but some key fundamental measures they should look at, including the company’s revenues and profit growth rate over the years, are the company’s cash flows, its ability to bring new products to the market, and its market share.

In addition to all this, investors must also take into consideration the survivability of a business. For example, when it comes to penny stocks, investors need to look at if the business is sustainable. If the company is burning cash and not really making any progress, it might run into troubles ahead.

Similar to fundamental analysis, there are many ways … Read More