Daily Gains Letter

technology stocks


Conservative Investor? Why Now Is Your Time

By for Daily Gains Letter | May 19, 2014

Conservative InvestorThe best way to make money in the stock market at this time is to avoid growth and technology stocks while you take some profits off the table.

The reality is that, despite the failure of the Dow Jones and S&P 500 to hold after establishing new record-highs last Tuesday, the stock market wants more reasons to bid stocks higher. The first-quarter earnings season saw about 70% of the S&P 500 companies beat earnings-per-share (EPS) estimates, but the results were largely based on lowered estimates by Wall Street.

Investors took the opportunity to take some profits following the rally last week. This indicates to me that there’s definitely still some vulnerability in the stock market.

Bellwether retailer Wal-Mart Stores Inc. (NYSE/WMT) reported soft results that suggest the global economy is still hesitant to spend after the company fell short on revenues and EPS. And to make matters worse, the company also revised its second-quarter estimates to below consensus. Clearly, the retail sector is struggling, and this will impact gross domestic product (GDP) growth.

On the charts, technology and growth stocks are risky. The Russell 2000 fell back below its 200-day moving average (MA) after failing to hold for the second time in just over a week.

We are seeing some selling capitulation in the small-cap area of the stock market and it could grow deeper.

Companies in the technology sector, specifically the high-momentum stocks, also remain under pressure, helping to drag the broader stock market lower. I don’t expect this to change anytime soon, so this is an area that you need to avoid, liquidate, or protect with put options…. Read More


Time to Shift Some Capital into China’s Stalling Economy?

By for Daily Gains Letter | May 15, 2014

Why Should Consider Buying China NowWhile 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


Three Ways to Profit from an Exhausted Stock Market

By for Daily Gains Letter | May 1, 2014

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

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

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

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

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

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

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

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

We also have the uncertainty … Read More


Déjà Vu of 2000?: Tech Sector Valuations Look Suspect

By for Daily Gains Letter | Apr 25, 2014

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

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

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

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

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


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


How a Giant Chinese Tech IPO Will Benefit These Other Top Stocks

By for Daily Gains Letter | Mar 19, 2014

technology stocksAs many people know, one of the hottest areas in the market right now is technology stocks. Investor sentiment has continued piling into this sector—with good reason in some cases.

The danger for investors is when investor sentiment becomes too bullish—technology stocks might be entering this territory.

The latest of the technology stocks that has announced it is going public is the Chinese powerhouse Alibaba Group. Started in 1999 by a former English teacher, the company has now grown to be the largest e-commerce company in China and will soon be a public firm with a valuation of more than $140 billion.

While it can be said that investor sentiment has become too enamored by recent technology stocks such as SnapChat, which doesn’t generate any revenue or earnings, Alibaba is a real business producing billions of dollars in revenue.

For American investors, the biggest beneficiary of Alibaba has been Yahoo! Inc. (NASDAQ/YHOO). Over the past year, as rumors continued to circulate that Alibaba would go public, investor sentiment has become ever more bullish on Yahoo!, since the firm owns 24% of Alibaba.

This could be a “buy on rumor, sell on fact” event, as investor sentiment has pushed Yahoo! to multiyear highs amid a backdrop of both positive investor sentiment towards technology stocks and a buildup in anticipation for the initial public offering (IPO) of Alibaba.

If investor sentiment continues to be overly bullish for technology stocks in general and Alibaba specifically, what will happen is that the IPO price and the subsequent trading activity will capture a huge premium to the current business environment.

This is great for Yahoo! … Read More


Stock Market Flying High, but What About Risk?

By for Daily Gains Letter | Apr 4, 2013

040413_DL_clark

The performance of many blue chips—consumer staples stocks, in particular—is really stunning. And looking at the shares and how much they’ve moved on the stock market, even since the beginning of the year, you really have to wonder how sustainable this stock market rally is.

I am a big believer in blue chips and investing in stocks that pay growing dividends over time. But right now, we have so many companies trading right at their all-time record highs. I wouldn’t say that the stock market is expensively priced, but realistically, other than momentum players, would individual investors be buying these stocks at their all-time record highs? I find that unlikely.

The stock market breakout really is meaningful and pronounced. Consider The Procter & Gamble Company (NYSE/PG), which has been bid up approximately 16 points since last summer. Procter & Gamble’s stock chart is featured below:

dl_04042013_graph1
Chart courtesy of www.StockCharts.com

The stock market is most definitely due for a break. The leadership from blue chips has been significant, but it also reveals the fragility and uncertainty in the marketplace. Institutional investors want to buy stocks, and they are; but they are buying the safest names.

For the stock market’s current momentum to continue, technology stocks are going to have to show more leadership going forward. Investors are buying in anticipation of a decent first-quarter earnings season.

Among the many blue chips that are soaring in this stock market, consider Johnson & Johnson (NYSE/JNJ). This stock has been rising consistently and strongly since the beginning of the year. Its performance is so unusual. It really is a powerhouse breakout. Johnson & Johnson’s … Read More


Breakout in Transportation Stocks Gains Strength—How to Play the Disconnect

By for Daily Gains Letter | Mar 13, 2013

130313_DL_clarkThe Dow Jones Transportation Average experienced a powerful breakout this past December. And it’s been a stealth rally ever since, with an expansion in valuations, not earnings.

The stock market’s strongest sector over the past few months has been transportation stocks, which have been much stronger than technology stocks or the S&P 500 companies. Even though it doesn’t seem real, leadership in the Dow Jones Transportation Average is a classic stock market sign.

Helping the cause are lower oil prices. Countless names among large-cap transportation stocks are soaring. And at new 52-week highs, they still aren’t expensively priced on the stock market, which means they can go higher.

The stock market likes betting on the future. Institutional investors are not fighting the Federal Reserve; they are buying in anticipation of first-quarter earnings season. Fourth-quarter earnings season wasn’t that bad for corporations, but for individuals, it’s another story. This is why the stock market and the Dow Jones Transportation Average can still tick higher—valuations and oil prices. The stock chart for the index is featured below:

dl_031313-image001Chart courtesy of www.StockCharts.com

The stock market will use first-quarter earnings season as its new catalyst for action. My expectation is that we’re in for a meaningful correction, even if first-quarter numbers are decent.

There is a real disconnect in the U.S. economy between the stock market and the Main Street economy. Corporations have all the money, and any modest uptick in economic activity will amplify the bottom line. Corporations, being lean and mean with dividends and share buybacks, are way better than individual incomes.

This is a very difficult market to play. Risk for … Read More