Tuesday, March 6, 2012

Triple-Digit Returns are Still Possible in this High-Yield Sector

Today, we have a real shot at doubling our money in one of the market [2]'s highest-yielding sectors.
In the past, this high-yield sector has soared triple digits over roughly three years every time this setup has occurred. It happened in 1956 (and led to 120% returns). It happened in late 1974 (119%). And it happened in 2003 (184%).
It's happening again now... And if you invest right away, you could reap triple-digit gains in the next two to three years. Let me show you why...
The high-yield sector I'm talking about is utilities.
Utility companies provide the necessities in life... electricity, gas, and water, to name a few. Many investors love these traditional income stocks for their big dividends.
Because utilities provide the "basics," the government heavily regulates how they do business. These regulations lead to steady, slowly increasing profits... most of which go directly to shareholders as dividends.
Utilities have always been a safe way to collect income in the stock market. Today, this sector pays around 4%. That might not sound like much. But in our near-zero percent world, it's a solid payout.
The thing is, right now, these stocks offer [3] more than just a 4% dividend [4].
What excites me is an opportunity my colleague Steve Sjuggerud introduced to DailyWealth readers late last year. It relates to the "spread" between utilities and U.S. Treasurys.
The "spread" is simply the utility sector's dividend yield [5] minus the 10-year Treasury yield [6]. As Steve explained, it's smart to pay attention to utility stocks when their dividend yield rises far above the yield on Treasurys – when the "spread" is wide. Take a look...
Since 1960, the average spread has been -1%. Currently, the spread is 2.2%. This is only the fourth time in the last 60 years that utilities have yielded that much more than 10-year Treasurys.
The first time we saw a "spread" over 2% was in 1957. Within the next three years, utility stocks soared 120%. The spread peaked again during the 1974-1975 and 2000-2002 stock market crashes... triggering three-year, triple-digit rallies both times.
The spread topped 2% most recently in 2009. Utilities are up 58% since then. But the spread is STILL over 2% today.
Utility stocks would need to double from here to return the spread to its historical average. If utilities double, their yield would fall in half, to around 2%. With Treasurys also near 2%, our spread would be zero. And that's still above the long-term average of nearly -1%.
What if Treasury yields rise to 3%? Utilities would have to double for the spread to reach its long-term average. So in addition to a solid dividend yield, at current prices, we could see triple-digit gains from these high-yield stocks.
And these stocks will likely get a boost as anything with a decent yield attracts new money. As DailyWealth editor in chief Brian Hunt explained, "Our guess is that, in 2012, more and more people recognize the safety and income-producing power of basic dividend payers." This will create a tailwind behind utility stocks...
Of course, we can't know if today is the start of a major bull market [7] for utility stocks. But based on history, we have an excellent opportunity to buy this high-yield sector right now.
The easiest way to invest is through the Utilities Select Sector SPDR [8] Fund (XLU). This fund holds a basket of 34 utility companies. It pays a current yield [9] of 4%.
Buying today gets you a safe 4% dividend. And thanks to a rare extreme in the "spread," your capital gains upside is enormous.

The Market is Flashing Another Warning Sign

One by one, the stock market [2]'s most important sectors are showing signs of breaking down.
Two weeks ago, we highlighted the bearish [3] development in transportation stocks. Now, it looks like the financial stocks are in trouble...
It has been a good year so far for the bank stocks. The banking index [4] ($BKX) is already up 13% in 2012. But the sector is overbought and we're starting to see the same sort of warning signs that led transportation stocks to a 4% decline in February.
Take a look at this chart of the financial sector bullish [5] percent index ($BPFINA)...
A bullish percent index (BPI) measures the percentage of stocks in a sector that are trading with bullish chart formation. It's a way of measuring overbought and oversold conditions. A sector is considered "overbought" when its BPI stretches above 80. Since it's a percentage, the maximum reading for any BPI is 100.
The bullish percent index for the financial sector closed yesterday above 87. That's the highest reading in the past two years... And it's a good indication of just how overextended things have become.
Here's a chart of the banking index ($BKX)...
The banking index is on the verge of breaking to the downside of a bearish rising-wedge pattern. You can also see the negative divergence in the MACD [6] momentum indicator. This indicates the recent move higher occurred on falling momentum. That's a negative sign and usually increases the odds of a breakdown.
If BKX breaks down, a reasonable downside target is around $40 per share. That's a drop of about 14% from yesterday's closing price... and it wipes out all of 2012's gains.
We've been on alert for a possible broad stock market correction [7]. If the financial sector breaks down along with the transportation average, the rest of the stock market won't be far behind.

Bob Chapman - Financial Survival - 05 March 2012

Bob Chapman - Discount Gold & Silver Trading - 05 March 2012 : the only solution for Europe is for Greece to default go back to the drachma and straighten up their house , french presidential candidate and the probably next french president Francois Holland is a communist and so is Angela Merkel of Germany an ex communist from eastern Germany , in America we may end up with yet another Bush Jeff Bush

Martin Armstrong: Flash Crash Gold Silver and Bonds

Flash Crash
Gold Silver and Bonds

click here to read in pdf

Bill Fleckenstein: Fears of a Banking Collapse, Dow 13,000 & Gold

Today Bill Fleckenstein, President of Fleckenstein Capital, told King World News the Federal Reserve is totally out of control and thinks nothing of turning the US dollar into confetti. But first, when asked what his biggest concern was going forward, Fleckenstein responded, “The fact that the Europeans have gotten themselves in this mess, where they pretend like they are not going to print money and then they do print money. But they don’t ever print enough to get past this point.”

Bill Fleckenstein continues: Read More @ KingWorldNews.com

A Huge "RIP" for Big Cheap Tech

It's been a heck of a 2012 for our "Big Cheap Tech" idea. The "QQQ" has soared 16% since the year began.
Back in September 2010, Steve pointed out how many of America's elite tech companies, like Apple, Microsoft, Intel, and Cisco, were trading for extremely low valuations. You just had to account for their giant cash hoards to realize it. Despite the reliable cash flows and dividends these companies boast, investors simply weren't interested in owning them.#-ad_banner-#
As you can see from today's chart, the market [2] is going wild for "Big Cheap Tech." Below is a chart of the "QQQ" fund. It's one of the market's most popular ways to take a diversified position in tech stocks... And it's heavily weighted toward the cash-rich giants we cited above.
Like most every asset [3], the QQQ fund suffered a sharp selloff during last summer's panic. It spent the next four months "collecting" itself and forming a price base. It used this price base to "rip" 16% since the year began. From a very short-term viewpoint, the QQQ is due for a "breather." But the long-term trend is UP for Big Cheap Tech.


In this exclusive interview, Bob Chambers from "Trading Talk", speaks candidly with John Embry from Sprott Asset Management, about 2012 fundamentals and the gold Market.

15 Potentially Massive Threats To The U.S. Economy Over The Next 12 Months

We live in a world that is becoming increasingly unstable, and the potential for an event that could cause “sudden change” to the U.S. economy is greater than ever. There are dozens of potentially massive threats that could easily push the U.S. economy over the edge during the next 12 months. A war in the Middle East, a financial collapse in Europe, a major derivatives crisis or a horrific natural disaster could all change our economic situation very rapidly. Most of the time I write about the long-term economic trends that are slowly but surely ripping the U.S. economy to pieces, but the truth is that just a single really bad “black swan event” over the next 12 months could accelerate our economic problems dramatically. If oil was cut off from the Middle East or a really bad natural disaster suddenly destroyed a major U.S. city, the U.S. economy would be thrown into a state of chaos. Considering how bad the U.S. economy is currently performing, it would be easy to see how a major “shock to the system” could push us into the “next Great Depression” very easily. Let us hope that none of these things actually happen over the next 12 months, but let us also understand that we live in a world that has become extremely chaotic and extremely unstable.

Read More @ TheEconomicCollapseBlog.com

Chart of the Day - Sonic Automotive (SAH)

The "Chart of the Day" is Sonic Automotive (SAH), which showed up on Friday's Barchart "52-Week High" list. Sonic on Friday posted a new 3-1/2 year high of $18.64 and closed +5.10%. TrendSpotter issued a new Buy signal last Tuesday at $17.92. In recent news on the stock, Sonic on Feb 28 reported Q4 EPS of 43 cents, above the consensus of 38 cents. Sonic Automotive, with a market cap of $900 million, is one of the largest automotive retailers in the United States.