Tuesday, August 24, 2010

Stock Market Outlook

North American Indices faltered yet again on Friday as the economic news released in the session previous had investors debating the growth prospects for the remainder of the year. A catalyst for the market to move higher continues to be sought, but unfortunately remains unavailable.

Seasonal patterns and market tendencies at this point in the economic recovery both reveal a weaker market for the remainder of the third quarter. The market is in a period of correction that typically initiates coming off the second quarter earnings season in mid-term election years. This weakness persists into October. In addition, coming off of periods of economic recovery with rapid market growth, a corrective period lasting at least 5-months subjects markets to a period of slow growth as prospects dry up from various economic stimuli. Presently we are in the 4th month of this stagnant growth period that initiated at the end of April. Based on past history, these corrections have lasted anywhere from five months to one year. However, this market weakness is not expected to lead to a double-dip recession.

The technical sell signal granted in the second week of August remains in place. Oversold indicators continue to plague key indices, which may result in a short-term bounce to clear this technical classification. Until technical indicators give reason to believe otherwise, the trend for the intermediate-term period remains down. (more)

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Housing Fades as a Means to Build Wealth, Analysts Say

Housing will eventually recover from its great swoon. But many real estate experts now believe that home ownership will never again yield rewards like those enjoyed in the second half of the 20th century, when houses not only provided shelter but also a plump nest egg.

The wealth generated by housing in those decades, particularly on the coasts, did more than assure the owners a comfortable retirement. It powered the economy, paying for the education of children and grandchildren, keeping the cruise ships and golf courses full and the restaurants humming.

More than likely, that era is gone for good.

“There is no iron law that real estate must appreciate,” said Stan Humphries, chief economist for the real estate site Zillow. “All those theories advanced during the boom about why housing is special — that more people are choosing to spend more on housing, that more people are moving to the coasts, that we were running out of usable land — didn’t hold up.” (more)

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BNN: The Best Agricultural ETFs

With two major Canadian agricultural companies involved in takeover deals, Michael Johnston, analyst with ETF Database, tells BNN what the best ways are to play the agricultural stocks and how to get exposure to the commodities themselves.

click here for video

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Yes Folks, Hindenburg Omen Tripped Again

The Hindenburg Omen reared its ugly head late last week, signaling more doom and gloom as stocks plod along amid the dog days of summer.

The Omen, a technical indicator which uses a plethora of data to foreshadow a stock-market crash, was tripped again on Friday, marking the second time since Aug. 12 it has occurred. (It also came close on Thursday, but one of its criteria fell short.)

The latest trigger has prompted the Omen’s creator, Jim Miekka, to exit the market. “I’m taking it seriously and I’m fully out of the market now,” Miekka, a blind mathematician, said in a telephone interview from his home in Surry, Maine. “I would’ve probably stayed in until the beginning of September,” depending on how the indicators varied. “That was my basic plan, until the Hindenburg came along.”

The Omen has been behind every market crash since 1987, but significant stock-market declines have followed only 25% of the time. So there’s a high likelihood that the Omen could be nothing more than a false signal. (more)

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How We Get Through This Mess by John Mauldin

This week I spoke to a small group of businessmen/entrepreneurs about the current economic environment, and after my presentation one asked me whether I didn't have any good news for them, with a kind of gallows humor laugh. And I tried. But upon reflection there is more I could have said, so this week's letter will be what I should have said to be a little more encouraging.

The group was a Vistage group in which my daughter Tiffani participates. This is an organization of 12 businesspeople (in this case all CEOs of small businesses) who meet once a month to share and learn about better business practices, accountability, planning, and all the aspects of running a business. Every person I have ever met who has been involved in Vistage has had good things to say about it. I have watched it help Tiffani a lot. She truly runs our business now, allowing me to read and write and travel and speak. I am a very lucky man and proud Dad.

I have particularly watched my partners at Altegris really truly transform their business model through their involvement with Vistage. First the CEO, Jon Sundt, joined, and now the partners have all joined Vistage groups focusing on their roles in the business. Sundt was always a good businessman, but the level of professionalism of his whole company has gone up a notch. It is a pleasure to watch them grow, and they give Vistage a large measure of the credit for their success. In fact, when I went to the Vistage web site to get the link, I saw a brief video of Sundt talking about his experience. ( http://www.vistage.com/) I am proud to be their partner. (more)

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Why The Saudis Hold the Cards Right Now

By Jim Williams, WTRG Economics (www.wtrg.com)

Current OPEC spare capacity would suggest a lower world oil price, but the distribution of this spare capacity could be one reason why oil prices are higher than many experts think it should be.

Usually the more spare capacity (supply) in a market there is the lower the price – simple economics. But the reality is that Saudi Arabia is the only country in the world with significant spare capacity to produce more oil in the world and influence prices. And they currently favour a $70-$80 barrel oil price.

In 2003, OPEC had 2 million barrels a day LESS spare capacity it has now, and oil was under $40/barrel – but spare capacity was more evenly spread out among the 11 member states.

If everybody has spare capacity, the potential for cheating on production quotas is greatly increased and that carries a higher downside risk for prices. Should the world economy grow more quickly, only the Saudis have the ability to increase production enough to meet demand and influence prices. (more)

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And Now We're Headed For The GREATEST Depression, Says Gerald Celente

The fake "recovery" was nice while it lasted, says famous apocalyptic forecaster Gerald Celente, founder of the Trends Research Institute. But now the fun's over, and we're headed for what Celente describes as the "Greatest Depression."

Specifically, the always startling Celente says the country is headed for rising unemployment, poverty, and violent class warfare as the government efforts to keep the economy going begin to fail.

The crux of the problem, Celente argues, is that the middle class has been wiped out. America used to be a land of opportunity for all, where hard-working people could build their own small businesses in their own communities and live prosperous and fulfilling lives. But now a collusion of state and corporate interests that Celente describes as "fascism" have conspired to help only the biggest companies and the richest Americans. This has put a shocking amount of the country's wealth in the hands of a privileged few and left the rest of the country to subsist on chicken-feed wages and low job satisfaction as Wal-Mart "associates" -- or worse. (more)

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Americans Using Their Rainy Day Savings to Live

Recently I commented on the outflow of money from mutual funds and the increase in 401K hardship withdraws.

Today the New York Times carries the story further by stating that investors have simply given up on the stock market. While this may indeed be true that investors simply don’t trust it anymore, and who could blame them, I contend that there is still a significant percentage of those pulling money from stocks who need the funds to live.

Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds.

If that pace continues, more money will be pulled out of these mutual funds in 2010 than in any year since the 1980s, with the exception of 2008, when the global financial crisis peaked. (more)

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15 Possible Takeover Candidates


Should you be getting ready for merger mania? Judging by the massive number of call options that were purchased in the days after the Intel-McAfee announcement, options traders seem to think so.

A Reuters article named Symantec (SYMC), Akamai Technologies (AKAM) and U.S. Steel (X) as possible targets, citing unusual volumes of call options being bought.

We decided to do our own screen on the options market, based on the following criteria:

  • Companies with large amounts of cash: When one company buys another, it can use the cash held by the acquired company to help offset the cost of buying that same company. Companies with significant cash positions are therefore far more attractive to the potential acquirer. In our screen, we only focus on companies with Price / Cash ratios below 4, and Price / Free Cash Flow ratios below 10.
  • Low Insider Ownership: Because it's common for the target company's management to lose their jobs during a takeover, management will often put up a fight. Companies with low insider ownership are therefore far less likely to resist a takeover. We've only selected companies with inside ownership below 5%. (more)

Potentially Cash in on Plummeting Oil Prices with this ETF

Oil looks to be on the way down and I have a way you can potentially take advantage of the opportunity with an inverse exchange-traded fund (ETF).

This also has an impact on our existing oil position in the open trades, which I will get to later.

First, I want you to take a look at the chart for the United States Oil Fund (NYSE: USO), below:

As you can see, the forecast trend is lower for the next several weeks. My other forecast charts show the entire U.S. market on a downward trend (more of this in my Mastering the Markets premium letter).

With my data showing a possible decline in the price of oil, I have selected an inverse ETF for this week's recommended trade. The fund is the UltraShort DJ-UBS Crude Oil ProShares (NYSE: SCO) ETF. This fund is designed to generate approximately twice the inverse daily performance of the Dow Jones AIG Crude Oil Sub-Index. Owning shares of this ETF, in theory, means that as the price of oil goes lower, the price of shares of this fund should move higher. (more)

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Silver Stock Report by Jason Hommel,

Please bear with me while I repeat myself about how tiny the silver market is. Let's start with the facts.

World annual silver mining adds about 600 million ounces of new silver, that includes all silver as byproduct supply from copper, gold, lead, zinc and other mines. Recycling contributes about 150 million oz. That's total supply.

That is balanced on the demand side by industrial demand, jewelry demand, photography demand, and investor demand.

Industrial demand is about 45%, jewelry is about 25%, photography is down to about 15%, and investors demand about 15%.

Investor demand is about 100 million oz. per year, which, at $18/oz., is about $1.8 billion dollars.

You can verify those stats at http://www.silverinstitute.org/ or several other outfits that send out silver surveys.


M3, a measure of money in US banks, is about $14 trillion, but several trillion is stored with the Fed, and not counted as M3, and the Federal Budget deficit exceeds $1.5 trillion of new money, so the total is now about $18,000 billion. (more)

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