Thursday, December 29, 2011

Got Gold Report – COMEX Futures for Silver Near Extreme Bullish Levels

  • Largest combined commercial traders least net short silver since 2001, when silver traded for $4.20 the ounce.
  • Traders classed as Swap Dealers report record net long futures position.
  • Just since November 15, as silver fell $4.98 or 14.4%, combined commercial traders reduce their collective net short positioning by stunning 43.6%.

Please note: This article originally appeared in our Got Gold Report subscriber pages on Monday, December 26. It is being reprinted here in full for our entire readership as a holiday courtesy.

HOUSTON -- Just below is a holiday look at the COMEX silver futures positioning as of the December 23 Commodity Futures Trading Commission (CFTC) commitments of traders (COT) report, for data as of Tuesday, December 20. We are at a remarkable and very unusual condition that can only occur after a very large change the price structure with one-sided sentiment and with unenthusiastic Spec trader expectations. Very short term, expect anything, but longer term this COT setup is about as bullish as they come. A tremendous amount of bull-side “horsepower” is resting on the sidelines of the New York futures bourse.

We See the COT as Supportive of Our Planned Position Taking Just Ahead

The closest we have seen to the large trader positioning we see now occurred during the heat of the 2008 panic, back when the world thought there was a good chance of a full blown banking collapse. That is to say that this current positioning is extraordinary and likely very meaningful. We are not convinced it is very, very short term bullish (because momentum strongly favors the bears), but we are convinced it is extremely medium to long term bullish. We believe the positioning we see below gives us cover to begin adding in our green target box for silver with reasonable confidence, for the first time in over a year, if only the Trading Gods will allow it. (Vultures refer to our linked silver charts for that box placement.)

Absent a full-blown global meltdown ahead we believe that silver has used up a good deal of its inherent volatility to the downside, and we also believe that trader exhaustion has already begun. Thus the potential for a wild, backbreaker event and potential capitulation and then a major reversal has become much more likely. One can sense traders watching computer screens worldwide looking for it and ready to pounce.

Momentum certainly favors the bears very short term, but the largest of the largest traders of silver futures are definitely not positioning as if they see a great deal more downside for silver. That doesn’t mean they are “right” but we think it does indeed mean the large commercial traders are not piling on the short side of silver following its roughly 47% correction. To the contrary. See if you agree with that assessment given the large trader positioning, charts and a very few comments by us for context just below.

Continued… ***

Lowest LCNS in a Decade, We Kid You Not

As usual we look first at the legacy COT report, which traders have followed for decades. The report combines traders into just three categories, commercial, non-commercial and non-reportable traders.

For the COT week, as silver fell $1.21 or 3.9% Tues/Tues, from $30.74 to $29.53 (the first sub-$30 close in silver on a COT reporting date since February 1, 2011, almost 11 months), the combined COMEX large commercial traders, as a group, strongly reduced their combined collective large commercial net short positioning (LCNS) by 4,940 contracts or a big 25% from an already very low 19,765 to a stunning 14,825 contracts net short.

Just below is the nominal LCNS graph for silver futures.


Source for all charts CFTC for COT data, Cash Market for silver.

The open interest for silver rose 2,854 lots to 101,165 contracts open. (more)

Jim Rogers: “100% Chance” of Another Financial Crisis That Will Be Worse Than 2008

Four S&P Stocks With A 10 P/E Ratio : AAPL, AMZN, BBY, CHK, LLY, WDC

Having a low price-to-earnings ratio is no guarantee of investment success. Nevertheless, all else equal, companies trading at lower multiples to earnings tend to do well over the longer term. During such periods, however, investors should be comfortable with periods of underperformance.

Safety Margin
You won't find sizzling growth and profit numbers from these names like you will from names like Apple (Nasdaq:AAPL) and Amazon (Nasdaq:AMZN). At the same time, you won't find yourself paying P/E multiples of 15 or 91, either. Investors paying such lofty multiples are making extremely confident bets that growth rates of 30-50% can be sustained for a prolonged time. While Apple's innovative products continue to defy the most bullish expectations, as those expectations rise, even great numbers can be disappointing. Nothing is more frustrating to an investor than when a company reports profit growth of 20%, but the stock declines because analysts were expecting 30% instead.

So, with a quality stock trading at a low multiple, many of those hurdles are overcome. The key, of course, is to not get sucked in by a P/E that looks low and only gets lower. Growth is a component of value, and if a company cannot grow its business successfully, the valuation might not matter.

Part Of The Pack
Being members of the S&P 500 index adds credibility that these are no fly-by-night companies. Western Digital (NYSE:WDC) is a $7 billion business with a forward P/E of 5.7. Even better, the company has over $2.5 billion in net cash on the balance sheet. The one question mark for investors is that WDC designs and builds hard drives - products that are always in need of upgrades and innovation. Translated: WDC operates in a very competitive industry. Yet so do many other competitors that trade at greater valuations. (For related reading, check out Cheap Stocks Or Value Traps?)

Eli Lilly (NYSE:LLY) may be one of the cheapest names in the S&P 500. Aside from a 10 P/E, shares currently yield 4.7 percent. Few, if any, companies have both an attractive valuation and an enormous payout. The company is one of the most significant drug manufacturers in the world with a bond-like yield and equity upside at a decent multiple to future earnings.

As the price of natural gas has recently declined, so have shares of Chesapeake Energy (NYSE:CHK), a $15 billion natural gas giant. Natural gas is an extremely abundant resource in the U.S. and has significant environmental benefits over oil and coal. Trading at around 9.5 times forward earnings, Chesapeake's natural gas assets are worth far more than today's price in a normal environment. Indeed, prolonged periods of low natural gas prices will not bode well for the stock, but value is not a short-term game.

Electronics retailing giant Best Buy (NYSE:BBY) continues to face sales headwinds at its U.S. store base. This $8 billion company is currently trading at 6 times forward earnings. The most recent quarterly earnings report indicated a slight sales declines but if they recover the shares are worth a closer look.

Bottom Line
There are still some quality blue chip-like names that offer decent valuations and, in some cases, excellent yields. That's a recipe for quality returns in exchange.

McAlvany Weekly Commentary

Reminiscences of 2011 – Recap of the Years Amazing Sub Structural Changes

-Substructure change in 2011 will lead to major regime change in 2012-15
-Complexity of current events equals simplicity of investment strategy
-Gold and cash are key to surviving the next wave

Another Top Banking Buy for 2012 PNC just drove above the upper end of its bull channel

PNC Financial Services (NYSE:PNC) – This retail, institutional and corporate banker provides many of its services nationally but is still considered a member of the regional banking group.

Like BB&T (NYSE:BBT), which we highlighted in yesterday’s Trade of the Day, PNC has maintained profitability throughout the recent financial crisis. Earnings fell to $2.46 in 2008 from $4.35 in 2007, but it earned $4.36 in 2009, $5.02 in 2010, and is estimated to earn $6.33 this year. Earnings for 2012 are estimated to be $6.53.

With a dividend of $1.40 per share (2.39% yield) and a history of regular dividend increases, PNC is targeted by analysts at $65.

Technically the stock is entering a zone of resistance, but yesterday drove above the upper channel of its bull channel and appears capable of going to $65 to $70 sometime in 2012.

Trade of the Day – PNC Financial Services (NYSE:PNC)

Bonds About To Plunge? Implications For Stocks and PM’s

Are Bonds about to plunge? And if so (or if not), what are the implications for stocks and precious metals?

Let’s have a look at TLT, which is the iShares Barclays 20+ Year Treasury Bond Fund.

Back in 2008, at the climax of the financial crisis, TLT was very stretched above the 200MA, and the RSI was very oversold on a weekly basis.
Recently, we had a similar situation, although right now, RSI is not oversold anymore but instead is forming negative divergence, as it sets lower highs and lower lows on the weekly chart, while price recently set a potential double top.

Chart courtesy

When we look at TLT until 2010, we can see that price retraced exactly back to the 50% Fibonacci Level, where it found strong support.
This level also happend to be a level where the long term trend line came in…

Chart courtesy

If bonds would top here, that would likely be caused by investors rushing out of this (perceived) risk-free asset class, and into more risky assets like stocks.

That would probably involve a more sustainable (or at least more sustainable as perceived by the market participants) way out of this Euro Crisis, which has been making headlines in recent months, causing investors to rush out of risky assets and into bonds.

We can see from the Commitment Of Traders (COT) reports that Commercials (usually seen as the “Smart Money”) have taken on HUGE long positions in the EURO, while Speculators (usually seen as the “Dumb Money”) have taken on HUGE Short positions:

However, Commercials have deep pockets and can stand the dips (which they usually keep buying)…

If bonds haven’t topped yet, we can expect a potential top around 132 for TLT, based on Fibonacci Retracement levels.
If it would top there, and retrace 50% of its move, it should drop towards 92.5, where once again, the long term uptrend support line comes in…

Chart courtesy

A continued rise of Bonds would probably mean more worries about the Euro Crisis.
In the EURO chart, we can notice a potential Head & Shoulders pattern, which could send the EURO as low as 1.15 if the pattern holds…

Chart courtesy

However, on a short term daily basis, the Euro shows (weak) signs of Positive Divergence.
On the other hand, it also seems to be stuck in a bear flag (very short term).

If the MACD would fall below the low of last week, this would probably lead to a further decline in the EURO, meaning we should keep an eye on the Head & Shoulders pattern…

Chart courtesy

I keep finding it fascinating to look at the similarities between now and 2008, as the SP500 still hasn’t broken that 200MA and heavy resistance at 1265-1280… Once it does, I think we would see new highs pretty soon.

If it doesn’t, look out below…

Chart courtesy

Last but not least, let’s think about what will happen to Precious Metals if Bonds top here.

We can look at it in 2 ways:

* A top in bonds probably means investors become less risk-averse, meaning Gold could also sell-off (as it is often perceived as a hedge against turmoil)
* However, gold has rather acted as a risky asset lately and has already sold-off quite a lot, meaning investors could start to load up the truck as they see the recent dip as an opportunity to buy…

Let’s have a look at the TLT:GLD chart, which divides the price of TLT by the price of GLD.
We can see that during the last 7 years, TLT has severely underperformed Gold, as the ratio has declined substantially.

When we have a closer look, we can notice 5 times where the ratio showed signs of Negative Divergence.
Everytime this happened, it marked a top in the TLT:GLD ratio, meaning TLT started to underperform GLD soon thereafter (or equivalently, Gold started to outperform TLT). Will this time be any different?

Chart courtesy

Based on Sentiment in Gold (but especially Silver) and the recent decline, I would assume this time Gold is seen as a “risky” asset, and should thus profit from a top in TLT/Bonds, although the risk of further declines still exists.

Presenting Anonymous' "Survival Guide For Citizens In A Revolution"

Following the fireworks from this weekend in which Anonymous hacked and exposed thousands of Stratfor clients and millions of confidential emails, it may be time to pay some more attention to the hacker collective, and specifically a document that was released a few weeks ago titled "Survival Guide for Citizens in a Revolution." As Anonymous itself says, "This is a snapshot of what Anonymous thinks will be useful for your survival in case of a violent revolution in your country. As most of Anonymous works, it will be constantly changed, reused, improved etc. So watch for newer releases." Because all it takes for complete chaos to erupt in addition to the unwind in the financial system, is for one or two major hacks at system critical institutions to precipitate all out social panic. And who knows - while the financial system will self destruct on is own, perhaps Anonymous itself will do this or that vis-a-vis the latter.

Complete guide (source):

Anonymous Survival Guide for Citizens in a Revolution

Parker Drilling Company: PKD

It's not too late to find value in the energy services sector. Parker Drilling Company (PKD) continues to be a value stock even as shares hit new multi-year highs. This Zacks #1 Rank (strong buy) is now trading with a forward P/E of 14.2, up from 11.9 in mid-November.

Parker Drilling provides contract drilling solutions, rental tools and project management to the energy industry. It has 25 land rigs and 2 offshore barge rigs in its international fleet. Its U.S. fleet consists of 13 barge rigs in the Gulf of Mexico.

The company's rental tool segment supplies equipment to operators on land and offshore in the U.S. and some international markets.

Parker Surprised in Q3 by 38%

On Nov 3, Parker reported its third quarter results and surprised on the Zacks Consensus Estimate by 5 cents. Earnings per share were 18 cents compared with the consensus of just 13 cents. The company only broke even in the year ago quarter.

Revenue rose to $176.6 million from $172 million a year ago. The quarter was boosted, again, by big growth in the Rental Tools segment. Sales rose 30% to $62.4 million from $48.1 million a year ago.

Demand for drill pipe and related products, especially from operators drilling in the shale plays, continued to expand.

The level of international and deepwater Gulf of Mexico placements also increased in the quarter. U.S. Drilling revenue rose 94% to $28.9 million from $14.9 million a year ago.

For the quarter, Parker had an average of 10.7 barge rigs employed compared to about 7.6 barge rigs which were employed in the third quarter of 2010.

Zacks Consensus Estimates Rise

The estimate picture for Parker looks good. As you can see from the price and consensus chart below, estimates fell off a cliff, along with the stock price, during the Great Recession in 2008/2009.

But the earnings have turned it around and now the chart is very bullish, showing the 2012 consensus estimate again rising another 45% after an expected 550% earnings growth in 2011.

That is a huge turnaround from 2010 when the company made just 8 cents for the entire year.

The 2011 Zacks Consensus Estimate has risen to 52 cents from 46 cents in the last 60 days. Whereas the 2012 Zacks Consensus Estimate has also jumped to 75 cents from 69 cents.

Shares at 3-Year Highs

Since the summer sell-off shares have spiked to new 3-year highs which is why the stock is now more expensive, on a P/E basis, than it was just a few months ago when I last covered it.

But even with a P/E of 14.2, it is still considered a "value" stock as my cut-off is at 15x.

The company also has a price-to-book ratio of only 1.4. A P/B ratio under 3.0 is considered a value.

Parker Drilling is a way for investors to get into the hot energy play, especially in the shale, without actually owning one of the explorers themselves. Parker is scheduled to report fourth quarter results on Feb 22.

David Morgan: There Are More Reasons To Be In Gold Than Ever

2012, challenging times ahead: BNP Paribas

  • Fukushima, the Arab spring, the EMU crisis… 2011 marked a turning point

  • Challenges are numerous for 2012

Challenges are numerous for 2012. It will probably be a turning point in the European history, as we move closer to the make or brake moment. Growth prospects in the euro zone are bleak, as austerity is implemented rather universally, with fresh new measures announced this week in Spain. Germany could however surprise on the upside, as spelled out by recent surveys (manufacturing PMI, IFO Index) that could follow the US path (bottoming out before being translated into hard data). We tend to be more optimistic about US prospects as the Fed would launch QE3 were the Congress fail to extend the lowered rate of payroll tax. Growth in emerging countries will also be crucial, especially in Brazil and China. The former came to a stall in end-2011 and the latter face a great challenge in its housing sector. In this highly unsettled context, elections will be held in major countries, starting with Finland in January, followed by Russia in March, France (the President in April-May, the Parliament in June), Mexico (July), China (the National Congress of the Communist Party of China will be held in October), and the US in November. 2012 will definitely be about politics. Still, try and have fun and do not fear the end of the world. At least, there is one thing we can be sure about: it will not happen on December the 20th…

More Recession-Proof Stocks : CA, CERN, CL, KO, ORCL, QSII

Think we're headed back into a recession? A lot of investors do. They are buying the most defensive, recession-proof names they can get their hands on. That means consumer staples names Colgate Palmolive (NYSE:CL) and Coca-Cola (NYSE:KO) are quickly coming back into favor; both are knocking on the door of new highs. Makes sense, as it's unlikely consumers will give up the most basic daily things - no matter how deep the economy sinks.

There's another group of stocks that do just as well in a recessionary period though, and these corporations don't make anything you can eat or clean yourself with. In fact, these companies don't even target consumers at all - at least not individual consumers.

Corporate Staples
In the same sense that the average consumer just isn't going to give up food or hygiene no matter how tough times get, some corporations can't give up something they've grown quite accustomed to as well - their technology. Specifically, a whole host of enterprises are quite married to their software-as-a-service and database management service, so much so that they couldn't get rid of it if they wanted to.

This is a unique business. Unlike auto manufacturing or retailing, technology service providers are built from the ground up not to generate one-time sales, but rather generate recurring revenue on a monthly and quarterly basis.

Oracle Sees Solid Growth
It's a model that's worked well for the likes of Oracle (Nasdaq:ORCL). While the company has seen its ups and downs on the personnel front (the Mark Hurd, HP saga), Oracle made more for shareholders in 2008 than it did in 2007, and made more in 2009 than it did in 2008. In fact, Oracle's earnings have increased solidly every year since 2005.

How does that happen when every other industry is still struggling to push itself up off the mat? It's the recurring-revenue nature of the database and software management business. Once Oracle integrates itself into the daily routine of its customers, it's entrenched.

The Niche Player
Where Oracle paints a broad brush stroke in the industry, some of the more focused names perform even better within a particular niche.

Take Cerner Corporation (Nasdaq:CERN) for instance. This supplier of healthcare information technology solutions has also grown its top and bottom line every year since 2006, sailing right through the 2008 recession as if it wasn't happening. Lasts year's revenue of $1.8 billion led to a bottom line of $237 million. Both were records. Although shares are priced at a hefty 37.4 times trailing earnings, the consistent fiscal progress is undeniable.

Right Idea, Wrong Stocks
While Oracle and Cerner are fine stocks in their own way, as is so often the case, the highest-profile name in the group isn't necessarily the best stock in that group.

Among the healthcare technology names, Quality Systems (Nasdaq:QSII) may be the better choice. With shares priced at 28.11 times trailing earnings, it may not going to win any value awards. After four straight quarters of earnings increases though - not to mention five consecutive years of higher per-share profits (through 2010) - it's tough to deny it is a growth juggernaut.

In the same broad vein as Oracle, smaller New York-based CA Inc. (NYSE:CA) may be a wiser choice. Like Quality Systems as well as Oracle, CA has created stunningly reliable growth regardless of the environment. For every quarter over the past two years now, the company has posted high year over year quarterly profits. And, it also boasts five straight years of improved profits, as if the recession wasn't even happening.