Monday, October 1, 2012

Weighing the Week Ahead: The Debate about Jobs

Click to view Sometimes the political and economic streams converge to determine the agenda.

Prepare for a non-stop debate about jobs.

This week the major data all relate to employment. We also have the first of the Presidential debates, Wednesday night at 9:00 PM EDT.

These Small-Caps Could Ride the iPhone 5 to 100%-Plus Gains

Apple changed the size and shape of the iPhone compared to previous models. This means old cases won't fit the new phone. They also changed the power plug so old docking devices no longer work with this phone. So traders should focus on the fact that there are now 5 million new customers for iPhone accessories.

One of the biggest upgrades for the new iPhone is the retina display, a screen that displays images with a high level of detail. Users of any smartphone know that dropping their phone, something that happens to everyone, often damages the screen. For typical cell phone displays, this might not matter much, but new iPhone users seem very likely to apply an inexpensive screen protector to their very expensive phone.

One of the leading screen protector providers is Zagg (NASDAQ: ZAGG), which makes other smartphone and tablet PC accessories as well. ZAGG's management reports that they are the biggest player in this sector with a market share of about 18%, which is nearly twice as large as their nearest competitor. Sales are expected to grow about 38% a year for the next three years, and analysts expect earnings growth of more than 26% a year.

ZAGG is trading at about 11 times current earnings and 8 times next year's estimated earnings. The low price-to-earnings (P/E) ratio may be related to a class action lawsuit the company is facing. The former CEO pledged a large number of shares as collateral for personal loans and the Board of Directors moved to replace him because of it. The details will come out in the eventual settlement, but class actions are generally resolved without serious harm to a company. ZAGG should rebound when this is settled or even before then.
ZAGG Chart
The chart shows the impact of the bad news and allows for easy identification of a resistance level near $11. Earnings are slated to be announced on Nov. 12, and that news could push the stock price up.  (more)

The Student Loan Bubble In 19 Simple Charts

A picture paints a thousand words but in the case of the world of college education (and its surrounding income, unemployment, debt burden, and pricing implications), we decided 19 charts was the simplest way to explain the path to debt servitude that an increasing share of the US population is taking - despite record delinquencies, falling real incomes for graduates, stagnant graduate employment, and rising college costs. As BofAML notes, the cost of higher education has continued to climb, fueled by debt and government aid. Over the past twenty years, tuition growth exceeded the average rate of inflation by nearly 3% annually, while both grant aid and Federal loans per full-time undergraduate exceeded by about 5% annually. This trend is not sustainable, in our view. The challenging labor market, which has left the youth population underemployed and underpaid, has put the spotlight on the burden of student debt. We expect a correction in the price of tuition and reduction in debt. There will likely be lasting effects on the economy from the high cost of education and large debt burden. Graduating during a recession leads to permanently lower earnings growth, making it that much harder to service the debt burden.

Enrollment in college has never been higher...

Which appears to have spurred a post-Lehman jump in Federal Aid and Loans...(more)

Abbott Laboratories (NYSE: ABT)

Abbott Laboratories engages in the discovery, development, manufacture, and sale of health care products worldwide. The company offers adult and pediatric pharmaceuticals for rheumatoid and psoriatic arthritis, ankylosing spondylitis, psoriasis, juvenile idiopathic arthritis, and Crohns disease; dyslipidemia; HIV infection; prostate cancer, endometriosis and central precocious puberty, and anemia caused by uterine fibroids. It also offers diagnostic systems and tests, such as immunoassay and clinical chemistry systems; assays for screening and/or diagnosis for drugs of abuse, cancer, therapeutic drug monitoring, fertility, and physiological and infectious diseases; instruments that automate the extraction, purification, and preparation of DNA and RNA from patient samples, and detects and measures infectious agents; genomic-based tests; hematology systems and reagents; and diagnostic systems and tests for blood analysis. In addition, the company provides coronary, endovascular, vessel closure, and structural heart devices, such as drug-eluting stent systems, coronary metallic stents, balloon dilatation products, coronary guidewires, carotid stent systems, valve repair systems, and drug-eluting bioresorbable vascular products.

Please take a look at the 1 yr. chart of ABT (Abbott Laboratories) that I have shown below with my added notations:

1 yr. chart of ABT (Abbott Laboratories)

ABT has formed a nice up-trending channel over the last (9) months. A channel is simply formed through the combination of a trend line support that runs parallel to a trend line resistance. When it comes to a channel, I always tell my students that any (3) points can start the channel, but it's the 4th test and beyond that confirm it. You can see that ABT has multiple test points between the channel resistance (red) and channel support (blue). Following the ABT Channel can provide you with both long and short trading opportunities.

An Update on the Collapse of the Dollar

Technician Ron Griess: U.S. Not Deleveraging – Debt Is Still Growing

Also, Ryan Puplava with this week’s Market Wrap-up and Rob Bernard with the Fixed Income Report
from Financial Sense
Jim welcomes back technician Ron Griess, founder of The Chart Store. Ron and Jim discuss some of Ron’s charts that illustrate that US debt is not contracting, but in fact total credit market debt in the US is still growing, reaching a new record high of $55 trillion in the second quarter of 2012. Conversely, household net worth peaked in 2007 and household real estate values are down 25.8% since the peak in Q4 of 2006. Also in this segment, Ryan Puplava has this week’s Market Wrap-up and Rob Bernard looks at the credit markets in the Fixed Income Report.
Click Here to Listen to the Audio
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US Weekly Economic Calendar

time (et) report period Actual forecast previous
MONDAY, Oct. 1
10 a.m. ISM manufacturing Sept. 49.6%
10 a.m. Construction spending Aug. -0.9%
Motor vehicle sales Sept. -- 14.5 mln
10 am ISM non-manufacturing Sept. 53.7%
8:30 am Weekly jobless claims 9-27
10 a.m. Factory orders Aug. 2.8%
FRIDAY, Oct. 5
8:30 am Nonfarm payrolls Sept.
8:30 am Unemployment rate Sept. 8.1%