Monday, November 12, 2012

5 Oversold Stocks Due for a Rebound Before Year-End

The post-election sell-off continued on Thursday as investors considered whether a change to their year-end outlook was warranted. While we believe that there have been some fundamental changes to the investing landscape, we remain confident that the short-term selling pressure is presenting a buying opportunity for those traders willing to hunt for "deals."

These situations in the market are exactly why investors and traders alike need to be able to focus on technical measures to identify opportunities. We like to refer to it as "trading by instrument." Much like a pilot flying through cloud cover finds the need to fly according to the gauges on their dashboard, investors need to use technicals to trade when the fundamentals get cloudy.

With that in mind, we're closely watching our gauges for trading opportunities. At this time, keeping an eye out for technically oversold stocks that are still trading above their respective 100-day moving averages is a great way to find potential trade opportunities.

To give you an idea of how much that filter cuts down the market right now, of the 2,300 or so optionable stocks trading in the market, only 104 of them meet this criteria. The top 20 of those stocks (and ETFs) ordered by average trading volume are listed below.

According to our seasonality work, energy stocks often outperform the market in November, which is a nice bonus for Exxon Mobil (NYSE: XOM). This relative strength leading stock has set the stage for a year-end rally as strong seasonality is combining with increasing demand. The pullback to XOM's $88 level offers an opportunity to buy this stock before it heads back to its highs near $94, and beyond.  (more)

Gold and Silver Prices Set to Explode
Now that the presidential election is over we can hopefully look forward to some respite from the perpetual bombardment dished out by both the Republican and the Democratic Party machines. President Obama has been re-elected so we can expect four more years of a Washington centric controlled economy with a rolling program of borrow, print, spend and pretend, similar to the last four years. The so called fiscal cliff will not be met head on, the approach will be one of extending some of the tax cuts now in place and a watered down strategy of fiscal prudence. Budget ceilings will come and go and the deficit will grow ever larger as the economic recovery will be considered far too fragile for any serious attempts at financial reform. All in all nothing has really changed, the slow motion train crash will continue and the fallout will affect everyone.
One of the casualties will be the dollar as quantitative easing will be applied in ever increasing doses, devaluing the dollars’ worth and its buying power. However the race to the bottom is alive and well as other nations will adopt similar strategies in an attempt to remain competitive and so Act Two reads like Act One.
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Hologic, Inc. (NASDAQ: HOLX)

A Head and Shoulders (H&S) pattern is a reversal pattern that forms after an uptrend. A textbook H&S pattern starts to form when a stock rallies to a point and then pulls back to a particular level (left shoulder). Next, the stock will rally again, but this time to a higher peak (head) than the previous one. After forming the head, the stock will pull back to the same support that the first shoulder did. Finally, the stock rallies a 3rd time, but not as high as the head (right shoulder). The level that has been created by all 3 of the pullbacks is simply a support level referred to as the "neckline". The formation of an H&S pattern warns of a potential reversal of the uptrend into a possible downtrend.

Hologic Inc. develops, manufactures, and supplies diagnostic, medical imaging systems, and surgical products for the healthcare needs of women. The company operates in four segments: Breast Health, Diagnostics, GYN Surgical, and Skeletal Health. The Breast Health segment offers breast imaging products, such as Selenia full field digital mammography system, breast tomosynthesis, healthcome mammography products, screen-film mammography systems, SecurView workstation, CAD systems, stereotactic breast biopsy systems, breast biopsy products, breast brachytherapy products, MammoPad breast cushions, and photoconductor coatings, as well as Sentinelle medical MRI breast coils and workstations. The Diagnostics segment provides ThinPrep system, a solution for cervical cancer screening; rapid fetal fibronectin test for pre-term birth risk assessment. The GYN Surgical segment offers NovaSure system, a minimally-invasive procedure that allows physicians to treat women suffering from excessive menstrual bleeding; MyoSure system for the hysteroscopic removal of fibroids. The Skeletal Health segment provides QDR X-Ray bone densitometers that assess the bone density of fracture sites.

To review the H&S pattern that has formed on Hologic's stock, please take a look at the 1-year chart of HOLX (Hologic, Inc.) below with my added notations:
1-year chart of HOLX (Hologic, Inc.)
HOLX has been trending higher since June. Over the last (2) months though, the stock has created a key price level at $20 (red), which would also be the "neckline" support for the H&S pattern. Above the neckline you will notice the H&S pattern itself (blue). Confirmation of the H&S would occur if HOLX broke its $20 "neckline" support. If that happens, the stock should be moving lower from there.

One needs to look no further than this past April to see what could result if HOLX breaks $20. The stock created an H&S pattern then too with the same $20 support.

4 Must-Own Funds for the Looming Recession

The election is in the books, and after all of the hoopla, debates, campaign ads, and overblown rhetoric, the government is basically the same today as it has been for the past two years. President Obama is at the helm of the executive branch, Democrats remain in charge of the Senate, and Republicans remain in control of the House of Representatives. This is basically the same group of politicians that last summer put in place a stop-gap measure on the debt ceiling that's led us up to the so-called "fiscal cliff."

Indeed, Wall Street (and the rest of the world) has started to fear the worst when it comes to the damage inflicted by a poisonous cocktail of automatic spending cuts to crucial sectors such as defense, and automatic tax increases. The combination of these two events could take a $600 billion-plus bite out of GDP, so it's no surprise that traders, investors and really anyone with skin in the economic game is so worried about a potentially disastrous outcome.

Resolving this issue will likely be a game of brinksmanship on both sides; however, time is of the essence. Some semblance of a solution to avoid the automatic cuts and tax increases must be worked out by Dec. 31, or the country could be staring down the barrel of a recession.

Now, as they so often due, commodities traders already have begun to foreshadow a coming recession. If we look at the action in Wednesday's trade, we see that gold and grains moved higher, and were basically the best performers in the commodity pits. Conversely, we saw a big sell-off in energy and base metals.

Traditionally, commodities such as gold and grains are not driven by economic growth. The flipside here is that commodities such as energy and base metals are very much fueled by economic growth. The thesis here is that if the fiscal cliff fails to get resolved in time, or even if there is some patchwork, kicking the can down the road like last year, then the economy is in for some very choppy waters.

For traders looking to profit from this thesis, you can do so with several exchange-traded funds (ETFs) poised to profit from the circumstances. You want to be long commodities that are economically insensitive and short commodities that are economically sensitive.

On the long side, there are funds such as the SPDR Gold Shares (NYSE: GLD), which is pegged to the spot price of gold, and the PowerShares DB Agriculture (NYSE: DBA), a basket of commodities such as cattle, coffee, corn, sugar, lean hogs and wheat.

On the short side, you have funds such as United States Short Oil (NYSE: DNO), an ETF pegged to deliver the inverse of West Texas Crude Oil prices, and the PowerShares DB Base Metals Short ETN (NYSE: BOS), a fund designed to deliver the inverse of a basket of base metals that include aluminum, copper and zinc.

Here's a breakdown of the trades as I see them:

SPDR Gold Shares
GLD Chart
Recommended Trade Setup:
-- Buy GLD at the market price
-- Set stop-loss at $153.17
-- Set initial price target at $183.14 for a potential 10% gain in three months
PowerShares DB Agriculture
DBA Chart
Recommended Trade Setup:
-- Buy DBA at the market price
-- Set stop-loss at $26.50
-- Set initial price target at $31.69 for a potential 10% gain in two months
United States Short Oil
DNO Chart
Recommended Trade Setup:
-- Buy DNO at the market price
-- Set stop-loss at $37.56
-- Set initial price target at $44.91 for a potential 10% gain in two months
PowerShares DB Base Metals Short ETN
BOS Chart
Recommended Trade Setup:
-- Buy BOS at the market price
-- Set stop-loss at $19.93
-- Set initial price target at $23.82 for a potential 10% gain in two months

According to my friend and colleague, Tom Essaye of The 7:00's Report, "The market is pricing in the expectation that fiscal cliff negotiations will drag on, and reduce economic activity, just the way the debt ceiling debate in the summer of 2011 did."
If Tom is right, and he almost always is, then these pair trades could make you a tidy recession/fiscal cliff profit in the weeks to come.

Fiscal Cliff Explained by Mike Maloney

Peter Schiff and Ron Paul have been calling this "fiscal cliff" for years and years. But general public are too oblivious to heed the advice. Mike gets lost in details that have nothing to do with the fundamentals of money. What is money & how money is created and traded. The trap was set in the wee hours of Dec night in 1913 with passage of the Federal Reserve Act. That trap was sprung when Nixon, w/o any Constitutionally granted authority, reneged on international trade agreements to tie US Dollars to gold reserves. The ability to create money from nothing was thus borne and the collapse of economies around the globe begun.

Chart of the Day - Yamaha Gold (AUY)

The "Chart of the Day" is Yamaha Gold (AUY), which showed up on Thursday's Barchart "All-Time High" list. Yamaha Gold on Thursday posted a new all-time high of $20.50 and closed up +1.29%. TrendSpotter just turned long again on Nov 1 at 20.08 after taking a profit on a long trade held from mid-August to mid-October. In recent news on the stock, RBC Capital on Nov 6 initiated coverage on Yamaha Gold with an Outperform and a target of $25. CIBC on Oct 31 upgraded Yamaha Gold to Sector Outperformer from Sector Performer. Scotia Capital on Oct 18 upgraded Yamaha Gold to Outperform from Sector Perform. Barclays on Oct 16 initiated coverage on Yamaha Gold with an Overweight and a target of $25. Morgan Stanley on Oct 10 initiated coverage on Yamaha Gold with an Overweight and a target of $25. Yamaha Gold, with a market cap of $14 billion, is a Canadian gold producer with significant gold production, gold and copper-gold development stage properties, exploration properties and land positions in all major mineral areas in Brazil.


US Weekly Economic Calendar

time (et) report period Actual forecast previous
  Veterans Day
None scheduled
7:30 am NFIB small business index Oct.   -- 92.8
2 pm Federal budget Oct.   -- -$98 bln
8:30 am Retail sales Oct.
-0.2% 1.1%
8:30 am Retail sales ex-autos Oct.   0.3% 1.1%
8:30 am Producer price index Oct.   0.2% 1.1%
8:30 am Core PPI Oct.   0.1% 0.0%
10 am Inventories Sept.   -- 0.6%
2 pm FOMC minutes Oct. 23      
8:30 am Weekly jobless claims 11-10
380,000 355,000
8:30 am Consumer price index Oct.   0.1% 0.6%
8:30 am Core CPI Oct.   0.1% 0.1%
8:30 am Empire state index Nov.   -7.2 -6.2
10 am Philly Fed Nov.   2.0 5.7
9:15 am Industrial production Oct.
0.2% 0.4%