Wednesday, November 28, 2012

A New Twist on an Old Theory is Signaling a 'Buy'

The Dow Theory is probably the first trading strategy ever described in detail. Charles Dow developed the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) to track economic trends and he soon realized these averages could be useful for timing stock market moves.

When both averages are moving up, the market is a buy, and sells are signaled when both averages are moving lower. Unfortunately, there are also times, like now, when no clear signal is being offered.
Up moves under Dow Theory are defined as new highs, and when an average reaches a new high, it is a buy. The chart below shows the DJIA signaled a new buy as it reached new highs in August. The DJTA failed to confirm that signal, and pure Dow Theory practitioners remain bearish based on a sell signal given in May when both averages fell to new lows. More recent market action has failed to deliver a strong buy signal and a divergence has formed where one indicator is bullish and the other is bearish.
Dow Theory Chart
While the Dow Theory looks solely at prices, the idea of using the industrials and transports can be applied in a number of different ways. Rather than waiting for Dow Theory signals, traders can apply indicators and develop trading strategies that take advantage of the trend with clear signals from indicators.

The chart below looks at the two indexes with a stochastics indicator. Here the trade signals are less ambiguous and, for now, a long trade in the transport sector seems like the best potential trading option.

The weekly chart shows that the DJTA signaled a buy in the stochastics indicator at the close of trading last week, while the industrials remain on a buy signaled a week earlier.
DJIA vs DJTA Chart
Among transportation stocks, railroads are the strongest sector and Genesee & Wyoming (NYSE: GWR) is the railroad company with the fastest growing long-term earnings. GWR operates railroads in the United States, Australia, Canada, the Netherlands, and Belgium. This geographic diversification is rare in the railroad industry and should help GWR maintain steady profits in a regional economic slowdown. The company has averaged earnings growth of about 17% a year in the past five years and is expected to continue growing earnings at that rate for the next five years.
GWR is among the biggest winners in the stock market during the past six months with a gain of more than 50% in that time. This has pushed the stock toward the initial price target projected from a cup-and-handle pattern. The next target from that pattern, a Fibonacci extension of the depth of the pattern, is at $86, offering a potential gain of 17% from current levels.
GWR Chart
Initially, a stop-loss below last week's low at $67.50 should allow traders to benefit from an up move without accepting too much risk. Longer term, it could pay to remember that GWR has been a big winner in the past. Rather than taking short-term profits in the stock, it could be best to use a trailing stop in order to benefit from the trend as long as it lasts. The 26-week moving average (MA) offers a way to do this. If GWR moves above the initial target of $77, traders should use the 26-week MA as a trailing stop and exit when GWR closes below that average.

This trading strategy uses the idea behind the Dow Theory that the industrials and transports should confirm each other. But it adds indicators to offer timelier trade signals, which could improve on the profitability of the basic strategy.

Recommended Trade Setup:
-- Buy GWR at the market price.
-- Set initial stop-loss at $67.50
-- Set initial price target at $77 for a potential 5% gain
-- If target is hit, then raise stop-loss to the 26-week MA to participate in the uptrend as long as possible

Agnico-Eagle Mines broke a triple-top as it made a new 52-week high

Agnico-Eagle Mines Ltd. (NYSE:AEM) — This Canada-based international gold producer has operations in most gold-producing countries.
The company reported Q3 earnings of $0.77, soundly beating estimates of $0.40. Production guidance for the year has been raised, and costs have fallen to the lower end of management’s estimates.
Technically, the stock has been in a four-month bull market, interrupted only by a round of profit-taking two weeks ago that ended with a buy signal from our proprietary Collins-Bollinger Reversal (CBR) indicator.
On Monday, AEM broke a triple-top as it made a new 52-week high. Near term, expect AEM to add another upward leg with a target of $65. Longer-term buyers could expect the stock to climb to $80 within 12 months.
AEM Chart
Click to Enlarge

A Biotech Stock Up 78% This Month; Will It Soar Come January?

With the weak third-quarter earnings season pretty much behind us, it’s time for penny stock investors to look for areas of growth. One sector that has been outpacing the overall markets has been the biotechnology sector, up 60.6% for the year and 46.0% year-to-date.

One penny stock biotech company that has been performing well since June and generating buzz is Celsion Corporation (NASDAQ/CLSN). Celsion is a development-stage penny stock whose lead product is “ThermoDox,” a heat-activated cancer therapy that combines a common oncology drug, doxorubicin, with a heat-activated liposome, which may help deliver and release the drug more accurately. The drug is being studied as a treatment for liver cancer and breast cancer.

The penny stock’s pivotal phase III trial (the “HEAT Study”) was designated as a priority trial for liver cancer by the National Institutes of Health and received fast track designation from the U.S. Food and Drug Administration (FDA) and orphan drug designation in both the U.S. and Europe. Results from this trial are expected in January 2013.

Primary liver cancer, also known as hepatocellular carcinoma, or HCC, is one of the most common and deadly forms of cancer. It is estimated that up to 90% of liver cancer patients will die within five years of diagnosis. Although the most effective treatment for liver cancer is surgical resection of the tumor, 80% to 90% of patients are ineligible for surgery due to the progression of their tumors. (Source: “Celsion’s lead indication is in Primary Liver Cancer,” Celsion Corporation web site, last accessed November 26, 2012.)

ThermoDox is also under phase II clinical trial for colorectal liver metastasis, and phase II clinical trial for treatment of recurrent chest wall breast cancer.

On November 12, Celsion announced its third-quarter results and a business update. The penny stock’s third-quarter loss improved to $6.0 million, or $0.18 per share, from a loss of $6.4 million, or $0.25 per share, in the same period last year. The penny stock’s year-to-date net loss came in at $18.3 million, or $0.55 per share, compared to $17.1 million, or $0.72 per share, in the same period of 2011. (Source: “Celsion Corporation Reports Third Quarter 2012 Financial Results and Business Update,” Celsion Corporation press release, November 12, 2012.)
Celsion Corp Chart
Chart courtesy of
Celsion’s share price has been bullish since late June, on the heels of encouraging ThermoDox updates and speculation. In September, the penny stock broke through a three-year resistance level near $5.50, and currently remains bullish, trading above $7.50.

Since Celsion is in the development stage, it is not generating any revenues and won’t unless its flagship product gets FDA approval. That said, Celsion has $22.0 million in cash, which is more than enough to take it to January 2013, when data from the penny stock’s ThermoDox phase III study is released.

If the data are positive, Celsion should have no issues getting further financing. On the other hand, if the data are less than positive, the penny stock has enough resources to continue operations and look for additional funding.

In a November 9, 2012 update, company President and CEO Michael H. Tardugno said, “We enter this transformative period from a position of financial strength, having taken ThermoDox through to pivotal data while maintaining full worldwide rights outside of Japan, a minimal number of shares outstanding and a strong balance sheet.” (Source: “Celsion Announces Phase III HEAT Study of Thermodox,” Celsion Corporation press release, November 9, 2012.)

Tardugno added, “Consistent with our previous guidance, we have no plans to raise additional capital before disclosing top line data from the HEAT Study which, if positive, will vastly expand the company’s strategic and financing options.”

In conjunction with the penny stock’s third-quarter results, Tardugno noted, “With a positive outcome, ThermoDox will become the most important 1st line therapy for patients with non-resectable disease. The positive implications of this study, for patients and their families, the healthcare community, our investors and employees, cannot be overestimated.” (Source: “Celsion Corporation Reports Third Quarter 2012 Financial Results and Business Update,” Celsion Corporation press release, November 12, 2012.)

While the company says it cannot comment on its phase III HEAT Study data, Celsion President and CEO Tardungo seems quite optimistic. Investors appear equally as hopeful—sending the stock to a three-year high. The next 60 to 90 days will be a very important period for Celsion. Newcomers can either take a wait-and-see approach or follow closely.

Leeb – Gold, Silver & Natural Gas Are Going To Soar

from KingWorldNews:
Today acclaimed money manager Stephen Leeb spoke with King World News about gold, silver and natural gas. Here is what Leeb had to say: “I noticed that natural gas is trading somewhere around $3.75. What’s significant is that the price of natural gas today is about what it has averaged over the past four years. The reason four years is important is because it marks the time when unconventional or fracking gas came into its own.
That’s when we started seeing this huge pickup in natural gas. We have had all of this talk about all of these additional gas supplies, and yet you still have natural gas sitting at $3.75. We also still have every dedicated fracker, whether you are talking oil or natural gas, basically losing money once you subtract out capital expenditures.”
James Turk continues @

Rare Trade Setup Could Deliver Blockbuster Returns From This Tiny Biotech

Wall Street legend, Peter Lynch, once said, "During the Gold Rush, most would-be miners lost money, but people who sold them picks, shovels, tents and blue-jeans (Levi Strauss) made a nice profit."

Today, I want to review a microcap company that could be a modern-day investment in this business model with a chart that presents a solid trading opportunity.

Companies that sell consumables, products that are completely used up and then need to be repurchased, can enjoy steady sales and earnings, even if some of their buyers go bust. Finding undervalued companies that supply critical inputs to an industry can be a way to identify trading candidates.

In the drug industry, biologics are among the best-selling drugs in the world. These drugs are made from living organisms and are more complex than chemically synthesized drugs, the more common type of pharmaceutical drugs. Biologics are used in the treatment of rheumatoid arthritis and several types of cancer. Research and development is under way to find other blockbuster biological drugs, but that process is expensive. According to one research report, it can cost $1.2 billion and take 10 to 15 years to get a drug through the regulatory process.  (more)

It’s the Season to Own Utility Stocks

Over the past week I have been keeping my eye on several key sectors and stocks for potentially large end of year rallies to lock in more gains before 2013.
My recent calls have been RIMM (up 54%), AAPL (up 5%), FB (up 8%) so it’s been a great month thus far. That being said there are three other plays that look amazing and one of them is the utilities sector.
Looking back 30 years clearly utilities have a tendency to rally going into year end. What makes this setup so exciting is that the Obama tax for 2013 has caused many investors to lock in capital gains along with dividend gains so the utility sector has recently been beaten.
I always like to cheer for the underdogs because they can make large moves quickly and this season its utility stocks.

30 Year Seasonality – Utilities Stocks

Utility Stocks Seasonality

Utility Sector ETFs:

In the graph below I show the main utility ETFs for trading. Simple analysis clearly shows the selling momentum is slowing and where price should go if it can breakout above the red dotted resistance line. Exchange traded funds XLU, FXU, IDU, and DBU are the funds I found to be setting up.
Utility Sector ETFs

Utilities Sector Trading Conclusion:

While I feel utilities are about start moving higher it is important to mention that the broad market is setting up for a 1-3 day pullback. If the stock market does pullback this week then we should see utilities pullback also. What I am looking for is a minor pullback in XLU with price holding up above $34 while the stock market pulls back.

Macy’s, Inc. (NYSE: M)

Macy's, Inc., together with its subsidiaries, operates stores and Internet Websites in the United States. Its retail stores and Internet Web sites sell a range of merchandise, including apparel and accessories for men, women, and children; cosmetics; home furnishings; and other consumer goods. The company also operates Bloomingdale's Outlet stores that offer a range of apparel and accessories, including ready-to-wear, shoes, fashion accessories, jewelry, handbags, and intimate apparel products. As of January 28, 2012, it operated approximately 840 stores under the names of Macy's and Bloomingdale's; and 7 Bloomingdale's Outlet stores, as well as and The company was formerly known as Federated Department Stores, Inc. and changed its name to Macy's, Inc. in June 2007. Macy's, Inc. was founded in 1820 and is based in Cincinnati, Ohio.

To review Macy's stock, please take a look at the 1-year chart of M (Macy's, Inc.) below with my added notations:
1-year chart of M (Macy’s, Inc.)
M has created a couple of important price levels to watch. First, M has formed a clear resistance at $42 (navy), which would also be a 52-week high breakout if M could manage to break above it. In addition, the stock is climbing a short term, up-trending support level (red) over the last (2) months. Eventually, M will have to either break the support or the resistance.

Chart of the Day - Expedia (EXPE)

The "Chart of the Day" is Expedia (EXPE), which showed up on Monday's Barchart "All-Time High" list. Expedia on Monday posted a new all-time high of $61.48 and closed +0.58%. TrendSpotter has been long since last Tuesday at $59.29. In recent news on the stock, Barclays on Nov 20 upgraded Expedia to Equal Weight from Underweight and raised its target to $60 from $52 due to improving business fundamentals and strategy. Susquehanna on Oct 26 reiterated its Positive rating on Expedia and raised its target to $69 from $60 due to positive Q3 results and higher bookings. Cowen on Oct 26 reiterated its Outperform rating on Expedia. Lazard Capital on Oct 26 raised its rating to Buy from Neutral on Expedia and raised its target to $70. RBC Capital on Oct 26 reiterated its Outperform rating and raised its target to $70 from $59. Expedia (EXPE), with a market cap of $8 billion, is one of the world's leading travel services companies.