Tuesday, February 14, 2012

The Next 121% Rally in Gold Stocks Starts Today

You should consider buying gold stocks right now...
The opportunity is just too good to pass up. The last time these particular conditions came together, gold stocks rallied 121% in 12 months.
Let me explain the opportunity...
Typically, if gold goes up, gold stocks move even higher. And if gold goes down, gold stocks fall even more.
But during 2011, that relationship broke down. Take a look...
The chart shows the price of gold in black and gold stocks in blue. You can see that in 2009 and 2010, gold stocks performed as expected... They tracked the price of gold, but with more volatility.
But as you can see, that relationship fell apart in 2011... Last year, gold moved higher for the 11th straight year, gaining 10%. But gold stocks actually fell 16%.
Part of the reason was that gold stock investors were skeptical of the "good times." They didn't figure gold's price gains were sustainable. The other problem for gold stocks was that they're stocks. In a volatile market [2], when stocks in general are falling, gold stocks will fall, too... even if the gold price is rising.
Because gold stocks fell and gold rose last year, they are seriously cheap today...
We have two simple ways to track "value" in gold stocks. The first comes from legendary resource investor John Doody.
John's track record speaks for itself. From 2001 to 2010, a portfolio of his picks gained 1,360%. The stock market returned just 15% during the same period.
In his Gold Stock Analyst newsletter, John tracks a simple "overvalued/undervalued" metric for gold stocks. As of the latest issue of his letter, John's measure shows gold stocks are 17% undervalued. We saw a similar reading in September. Back then, gold stocks jumped 20% in a few weeks.
Another simple way to size up gold stocks is through the ratio of gold to gold stocks. Take a look...
When the ratio of gold/gold stocks is low, gold stocks are cheap compared to the price of gold.
Right now, gold stocks are bouncing off one of their lowest valuation levels ever. The only time gold stocks have been cheaper based on this ratio was late 2008. Back then, shares [3] of GDX (the big gold-stock fund) jumped 121% in 12 months.
Right now, gold stocks are near-record cheap. And it looks like they're starting to once again keep pace with the price of gold. So far this year, gold is up 11.4% and gold stocks are up 9.8%.
This is just the beginning. I expect there's much more to come.

Biderman’s Daily Edge 2/13/2012: Public Buybacks Down, Insider Selling Up

Two High Probability Trades in ROC System

A high probability trade, to me, is one that is correct at least 70% of the time. The truth is you can make money in trading if you’re right at least 40% of the time if you strictly limit the size of the losses. When a trader is right on 70% of their trades, they can make a lot of money... this week my system signaled two high probability trades.

#-ad_banner-#I use a 26-week rate of change (ROC [2]) strategy to find trades. ROC measures how fast a stock is moving up. I've developed a portfolio for TradingAuthority.com that holds the top three rated ETFs -- the strategy has averaged gains of 15% a year since 2007.

In any strategy, some trades work better than others. Because each trade is strictly defined by rules, I can back test to see exactly how each buy signal has worked in the past.

The first ETF I’m buying, Vanguard REIT ETF (VNQ), has been a winner 65% of the time after one month, 70% of the time after two, and 100% of the time after three months.

The buy signal is triggered when the ROC (shown in the chart below as the black line) crosses above its upper Bollinger Band (shown as the blue dashed lines). Most of the time, an indicator will stay within the Bollinger Bands [3] which means breakouts offer [4] important clues about what the price is doing. An upside breakout when the price is above its moving average [5] is bullish [6], as the back tested results show.

There are other reasons to be bullish on VNQ. The chart shows that the price of VNQ is breaking above resistance that dates back to April of last year. The ETF is at a new 52-week high [7], another sign of strength. Traditional momentum indicators like MACD [8] are also bullish.

The second ETF I’m adding to the portfolio is the SPDR [9] S&P 500 ETF (SPY). In many ways, the chart is similar to VNQ's chart. Stocks have started 2012 very strongly, and the ROC system says that we should expect even more gains over the next three months.

Testing shows that buying SPY when the ROC crosses above the upper Bollinger Band has a winning percentage of 71% in one month, 80% after two months and “only” 83% after 3 months.

Charting The Federal Reserve’s Assets – 1915-2012

Submitted by Thomas Gresham of Gresham’s Law,

Here we present a history of the Fed in charts. As you’ll surely glean from the below — the Fed has degenerated from a by and large passive institution (dealing only in high-quality self-liquidating commercial paper and gold) to an active pursuant of junk, an enabler of wars, a ‘benevolent’ combatant of the depressions of its own creation, a central planner of employment & prices and of course a forgiving friend to inconvenient market follies.

The Fed’s Assets from 1915 to 2012:

Two Short-Term Scenarios for the S&P 500 Index

For the first time since the last week of December of 2011, the S&P 500 Index closed lower on the weekly chart. Recently I have been discussing the overbought nature of stocks based on a variety of indicators. However, the real question that should be asked is whether last week was just a short term event or if we see sustained selling in coming weeks.

The issues occurring in Greece spooked the markets somewhat on Friday as Eurozone fears continue to permeate in the mindset of traders. The U.S. Dollar Index is the real driver regarding risk in the near and intermediate term future. If the Dollar is strong, market participants will likely reduce risk. However a weakening Dollar will be a risk-on type of trading event which could lead to an extended rally in equities, precious metals, and oil.

Friday marked an important day for the U.S. Dollar Index futures as for the first time in several weeks the Dollar held higher prices into a daily close. The U.S. Dollar appears to have carved out a daily swing low on the daily chart from Friday. Furthermore, the potential for a weekly swing low at the end of this week remains quite possible. The chart below illustrates how the 100 period simple moving average has offered short term support for the past few weeks.

U.S. Dollar Index Futures Daily Chart

I would also point out that the MACD is starting to converge which is a bullish signal and the full stochastics are also demonstrating a cross on the daily time frame. As long as the 100 period moving average holds price, a rally is likely in the U.S. Dollar Index in coming weeks.

Should that rally play out, it will likely push risk assets lower. My primary target for the S&P 500 would be around the 1,300 – 1,310 price range if the selloff transpires. It is important to note that headlines coming out of Europe could derail this analysis in short order.

Assuming that a selloff in the S&P 500 occurs it will present a difficult trading environment for market participants. Market participants are going to be in a tough position around the 1,300 price level. A rally from 1,300 could serve to test the 2011 highs. In contrast, a confirmed breakdown of the 1,300 price level could initiate a more significant selloff towards the 1,250 area.

Should price move towards the 1,300 price level the bulls and bears will be battling it out for intermediate control of price action. This is my preferred scenario for the short-term time frame, but I would only give it about a 60% chance of success at this point in time. We simply need more time to see how price action behaves the first few session of the forthcoming week.

S&P 500 Index Bearish Scenario

The alternate scenario which has about a 40% chance of success would be a sharp rally higher which likely would be produced by news coming out of Greece and/or the Eurozone that pushes the Euro higher. Right now risk is high due to the sensitivity of price to headline risk. With that said, the bullish alternative scenario is shown below.

S&P 500 Index Bullish Scenario

At this point we just do not have enough price information to give us clarity regarding the most probable outcome. The price action in the Euro is going to drive price action for the S&P 500 and other risk assets in weeks ahead.

Anything is possible in the short-term, but I have to give a slight edge to the bears simply based on the price action Friday and the fact that almost every indicator I follow is screaming that the equities market is severely overbought. The price action this week should be telling. Headline risk is excruciatingly high, trade safely in the coming week!

Bob Chapman - Financial Survival - 13 February 2012

Bob Chapman - Discount Gold & Silver Trading - 13 February 2012 : The Greeks are burning all the banks these people were listening says Bob Chapman , Greece cannot compete and cannot pay its debt , the problems in Greece will make the dollar stronger but not very much so says Bob Chapman because America has the same problems as Greece , but with the euro problems more capital is expected to flock into the dollar , gold and Silver will also go up says Bob Chapman , no more prices projections it is going higher and you should buy as much as you can afford cause sooner or later the prices of gold and silver will explode says Bob Chapman.....

Chart of the Day - Dick's Sporting Goods (DKS)

The "Chart of the Day" is Dick's Sporting Goods (DKS), which showed up on Friday's Barchart "All Time High" list. Dick's Sporting on Friday posted a new all-time high of $44.23 and closed up 0.68%. TrendSpotter has been Long since Jan 13 at $40.18. In recent news on the stock, JP Morgan on Jan 31 added Dick's Sporting to its Focus List, reiterating its Buy rating and raising its price target to $50 from $45. Dick's Sporting Goods (DKS), with a market cap of $5.3 billion, is a leading full-line sporting goods retailer in the United States.


Another Low-Risk/High-Reward Idea in Natural Resources: CCJ

Last month, I told you that China went on a resource-buying spree of massive proportions...
In an effort to stave off a severe shortage of electrical power, two Chinese national companies went after giant uranium deposits in Africa... helping to kick off a stealth bull market [2] in one of the world's most hated resources: uranium.
As long time Growth Stock Wire readers know, I followed the uranium boom in 2010 and the bust in 2011, which took out the share prices of uranium miners... But after nearly a year in bust mode, the "smart" money is flooding back to the sector. That is lighting a fire under the share prices of leading producers. Let me explain...
The earthquake and tsunami that struck Japan in March 2011 destroyed several nuclear reactors at the Fukushima Daiichi power plant. As I described last month, this caused countries all over the world to halt nuclear power production. Germany's Chancellor Angela Merkel ordered eight of the country's 17 nuclear reactors closed by the end of 2011, with all 17 shut down by 2022.
#-ad_banner-#As a result, uranium prices fell about 45% from peak to trough... causing uranium miners' shares [3] to collapse.
However, it appears that the "ExxonMobil" of uranium is leading the way back...
Cameco (CCJ) produces about 16% of the world's mined uranium. It's by far the largest "pure play" uranium stock in the market [4]. Its price action [5] is an excellent proxy [6] for the sector as a whole. As you can see from this chart, the Fukushima disaster destroyed its share price. It fell 63% from its high of $44.81 last February to its low of $16.59 10 months later...
But note the price action of the past three months or so. You'll see that Cameco's giant downtrend has hit a bottom in the high teens. And in the past month or so, the stock has rallied along with the rest of the mining sector. Most other uranium stocks sport very similar charts.
Today, the realities of the world's electricity demands are overcoming the fear we felt after the Fukushima disaster. While the U.S. used 20% of the electricity produced globally in 2008, China consumed 17%... and its consumption is increasing along with its economy [7], which is growing at 8%-10% per year.
As longtime Growth Stock Wire readers know, China is one of the world's most important resource consumers. It already consumes a huge amount of coal and natural gas to generate electric power. But it needs fuel from every source it can get, including uranium. That's a big tailwind for uranium producers, who are trying to keep up with demand.
Prior to the Fukushima disaster last March, China's government outlined an increase from 10 gigawatts (GW) of nuclear power capacity to 120 GW by 2020. Those plants use roughly 210 tons of uranium per GW per year. In other words, all 120 GW will require about 26,280 tons of uranium per year. That represents 42% of all the mined uranium in 2010.
Demand will come from other places as well. According to the Nuclear Energy Institute, there are currently 63 nuclear power plants under construction. Those plants will need over 13,100 tons of uranium per year. That means we'll need to grow our uranium production by at least 20% to meet the new demand.
As you can see, despite all the negative headlines surrounding uranium and nuclear electricity, developing nations like China are still going "great guns" with their nuclear plans. The stocks have bottomed... which makes the uranium stock a low-risk/high-reward trade right now.

Peter Grandich Says Be Happy-But Don’t Be Stupid With Your Investments-Gold

Peter Grandich was still in a mild state of euphoria over the victory of his New York Giants. Peter works closely with a number of team members in a Bible Study Class. And just like there’s some good pro ball players out there, there’s some good solid investments, even in an environment like this one. Peter urges you not to be fooled by the so-called investment pros who are always trying to make things look much better than they really are. He calls them the, “Don’t Worry, Be Happy,” crowd, because they’re always playing up the positive and dismissing the negative. Not a good plan for long term financial success.

Peter says everyone should have a written financial plan. This will help you avoid the emotional traps that await every successful investor at one time or another. There are sectors of the market that have great upside potential. Peter thinks this may finally be the year the juniors start to catch up with the ever escalating metals prices their value should be related to. While he is not yet ready to bet the farm on this hunch, he sees many signs that are making him more and more optimistic. But, Peter says you always need to invest with caution and a real certainty in your own fallibility. It’s this attitude that has made Peter’s career the success that it is.

Pic of the Day: Gold vs Gold Stocks