Tuesday, March 29, 2011

Currency Speculators add to US Dollar Shorts. British Pound, Euro Positions rise

The most recent Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that futures speculators added to their short positions of the US dollar against the other major currencies. Non-commercial futures positions, those taken by hedge funds and large speculators, were overall net short the US dollar by $29.82 billion against other major currencies as of the March 22nd data release. This is an increase from the total short position of $27.07 billion on March 15th, according to the CFTC data and calculations by Reuters which calculates the dollar positions against the euro, British pound, Japanese yen, Australian dollar, Canadian dollar and the Swiss franc.

This week’s notable changes included British pound sterling positions returning to the long side after a week with net short positions and the Canadian dollar positions falling for a second straight week.

EuroFx: Currency speculators increased their net long positions for the euro against the U.S. dollar after a decrease the previous week. Futures positions in the euro rose to a total of 48,353 long positions as of March 22nd following a total of 46,316 long positions on March 15th.

euro cot data sentiment traders

The COT report is published every Friday by the Commodity Futures Trading Commission (CFTC) and shows futures positions as of the previous Tuesday. It can be a useful tool for traders to gauge investor sentiment and to look for potential changes in the direction of a currency or commodity. Each currency contract is a quote for that currency directly against the U.S. dollar, where as a net short amount of contracts means that more speculators are betting that currency to fall against the dollar and net long position expect that currency to rise versus the dollar. The graphs overlay the forex spot closing price of each Tuesday when COT trader positions are reported for each corresponding spot currency pair.

GBP: British pound sterling bets rebounded last week after dropping over to the short side on March 15th. GBP rose to a total of 29,724 long contracts as of March 22nd after registering 225 short contracts on March 15th.

JPY: The Japanese yen net contracts advanced for a second straight week as of March 22nd to a total of 34,525 long contracts following a total of 30,230 net long contracts reported on March 15th.

CHF: Swiss franc long positions dipped as of March 22nd after increasing for five consecutive weeks. Franc positions level at a total of 21,301 net long contracts as of March 22nd following a net of 27,640 long contracts on March 15th. The March 15th positions represented the highest level for franc positions since late 2009.

CAD: The Canadian dollar positions continued to fall lower for a second consecutive week to a total position of 45,977 contracts as of March 22nd. CAD net contracts had declined to a total of 56,991 net long contracts as of March 15th.

AUD: The Australian dollar long positions rose last week after decline on March 15th. AUD contracts totaled a net amount of 51,734 long contracts as of March 22nd after AUD positions had totaled 47,951 net long contracts on March 15th.

NZD: New Zealand dollar futures positions stayed on the short side for a second consecutive week. NZD contracts increased to a total of 1,482 short positions as of March 22nd from a total of short 2,809 long contracts on March 15th. NZD contracts had fallen for five consecutive weeks through March 15th.

MXN: Mexican peso long contracts fell sharply from a total of 121,575 net long contracts on March 15th to a total of 87,548 long contracts as of March 22nd. The MXN positions on March 15th represented the highest level in over a year.

COT Data Summary as of March 22, 2011
Large Speculators Net Positions vs. the US Dollar

EUR: +48,353
GBP: +29,724
JPY: +34,525
CHF: +21,301
CAD: +45,977
AUD: +51,734
NZD: -1,482
MXN: +87,548

Buffett: Avoid Long-Term Bonds Tied to Dollar

Warren Buffett, the billionaire who urged Congress in 2009 to guard against inflation, said investors should avoid long-term fixed-income bets in U.S. dollars because the currency’s purchasing power will decline.

“I would recommend against buying long-term fixed-dollar investments,” Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., said in New Delhi. “If you ask me if the U.S. dollar is going to hold its purchasing power fully at the level of 2011, 5 years, 10 years or 20 years from now, I would tell you it will not.”

Buffett, 80, has shortened the duration of Omaha, Nebraska- based Berkshire’s bond holdings since 2009 as the U.S. Federal Reserve eased monetary policy to stimulate the economy. Over the same period, he has added to cash holdings and committed more than $35 billion to company takeovers.

“I would much rather own businesses,” he said. “It’s very easy to take away the value of fixed-dollar investments.”

The Fed and U.S. Treasury Department have pumped money into the economy since the financial crisis through bank bailouts, government stimulus and near-zero interest rates. Buffett said in an August 2009 op-ed in the New York Times that the government must address this “monetary medicine.”

Outlook for Inflation

Inflation expectations among consumers rose in March to the highest level since August 2008, according to the Thomson Reuters/University of Michigan final index of consumer sentiment. Consumers said they expect inflation at 3.2 percent over the next five years, compared with 2.9 percent last month.

Buffett, traveling in India to review Berkshire’s operations and scout opportunities, took questions at a meeting with insurance customers and spoke on topics from the economy to investments. Buffett, who built Berkshire through stock picks and takeovers, advised investors to be wary of valuations for social-networking websites as some of the industry’s biggest companies prepare to sell shares.

“Most of them will be overpriced,” Buffett said. “It’s extremely difficult to value social-networking-site companies,” he said, without naming firms. “Some will be huge winners, which will make up for the rest.”

Buffett has shunned technology investments in favor of industrial, financial and consumer-goods holdings in his four decades at Berkshire. As of Dec. 31, the company owned about $61.5 billion of stocks, $34.9 billion of fixed-maturity securities and $23 billion of “other investments.”

Berkshire’s securities maturing in more than 10 years fell 31 percent to $2.72 billion in the 18 months ended Dec. 31, according to regulatory filings. In that span, the company’s cash holdings surged 56 percent to $38.2 billion.

Buffett completed his biggest takeover, the $26.5 billion acquisition of railroad Burlington Northern Santa Fe Corp., last year. On March 14, he agreed to buy Lubrizol Corp., the world’s largest producer of lubricant additives, for about $9 billion.


I got a pre-declined credit card in the mail.

CEO's are now playing miniature golf.

Exxon-Mobil laid off 25 Congressmen.

A stripper was killed when her audience showered her with rolls of pennies while she danced.

I saw a Mormon polygamist with only one wife.

If the bank returns your check marked "Insufficient Funds," you call them and ask if they meant you or them.

McDonald's is selling the 1/4 ouncer.

Angelina Jolie adopted a child from America .

Parents in Beverly Hills fired their nannies and learned their children's names.

My cousin had an exorcism but couldn't afford to pay for it, and they re-possessed her!

A truckload of Americans was caught sneaking into Mexico .

A picture is now only worth 200 words.

When Bill and Hillary travel together, they now have to share a room.

The Treasure Island casino in Las Vegas is now managed by Somali pirates.

Congress says they are looking into this Bernard Madoff scandal. Oh Great! The guy who made $50 Billion disappear is being investigated by the people who made $1.5 Trillion disappear!

And, finally...

I was so depressed last night thinking about the economy, wars, jobs, my savings, Social Security, retirement funds, etc., I called the Suicide Hotline. I got a call center in Pakistan , and when I told them I was suicidal, they got all excited, and asked if I could drive a truck.

Jason Hamlin: Paradigm Shift (The Gold Report)

The Gold Report: Jason, the gold price fell dramatically after the Japanese earthquake and subsequent tsunami. Were you buying in the dip, and if so, what were you buying?

Jason Hamlin: I wasn't buying or selling mining shares on the news out of Japan, but did add to my physical stockpile on the dip. Not a really exciting strategy, but I already had a decent amount of exposure to equities. There was a lot of risk and uncertainty in the market after the news out of Japan, so I decided to wait and watch how things progressed. Equities have rallied pretty well, but I am not convinced that we're out of the woods yet.

TGR: Did you panic at all when gold went down to $1,380/oz.?

JH: No, especially with the amount of physical buying in recent months. It seems like every dip has been met by an overwhelming demand for physical gold and silver. I feel that we have entered a new paradigm in which there will be shorter and shallower corrections than witnessed during the past decade.

TGR: There is definitely a lot of international upheaval. What impact do you think the enforcement of a no-fly zone over Libya will have on the gold price in the near term?

JH: I'd like to point out that the no-fly zone was used as a justification for missile strikes; it was a much more aggressive policy than the simple no-fly zone that was originally proposed. It was also done without congressional approval, which I view as a continued violation of the Constitution, which states that only Congress can declare war. I question the political and moral authority of the West to be doing this, especially considering that the U.S. is broke and must borrow $1.6 trillion per year to cover its budget shortfall.

Economically, the ease and swiftness with which the U.S. decided to do this, and with little debate, translates into more fear and uncertainty in the markets. It will prove bullish for precious metals and oil, both in terms of the fear trade and the inflationary impact. Investors are increasingly viewing gold and silver as a better safe-haven investment than dollars or bonds, which have served this function for mainstream investors in the past. I see this trend accelerating in the coming months and years as more investors lose faith in the U.S. dollar and the U.S. government's ability to repay its exploding debt, which has topped 100% of the gross domestic product by some estimates.

TGR: We're not at 200% yet!

JH: Not quite as bad as Japan, but the 90% to 100% range is typically where most economists say interest payments become such a burden that it becomes hard to get the fiscal house in order.

TGR: On Friday, Goldman Sachs set a three-month target price for gold of $1,480/oz. Are you comfortable with that number?

JH: I quit paying attention to anything Goldman Sachs had to say a long time ago, particularly when it comes to forecasting the gold price. They have consistently under-forecasted and underestimated the precious metals market by a wide margin. I essentially view Goldman Sachs and the big investment banks as financial terrorists who should be jailed, not respected institutions deserving of the slightest iota of creditability. The Securities and Exchange Commission and the Justice Department might not want to go after them, but it's pretty clear to me that they disregarded their fiduciary duty and don't have their clients' best interests in mind. Taking their forecasts or analysis to be factual or relevant seems foolhardy.

Also, three months is really too short term to predict the price of gold with any degree of accuracy. However, I believe gold has a good chance of hitting $1,800/oz. by year-end. That's been my target. Gold could then easily pass its official inflationary adjusted high of $2,300/oz. next year. The true inflation-adjusted high for gold is somewhat closer to $5,000/oz. if we're not using the suppressed government statistics. I think there's a good chance that gold will surpass that figure before the bull market is over.

TGR: You mean the consumer price index?

JH: Right. The CPI is pretty well understood to be fudged in order to show inflation as lower than it actually is. Anyone who does the grocery shopping for a household knows that inflation is running more than a couple percent annually.

TGR: Let's talk about silver. Silver has closed the silver:gold ratio, or the number of silver ounces it takes to buy an ounce of gold, to 40:1. Historically, it's been much closer than that, but this is as close as we have seen in recent memory. That raises the question: is silver closing the gap a little too quickly—and overheating?

JH: I believe silver is likely to continue outperforming gold for the remainder of this bull market. I think the ratio will most likely revert back to 15:1 at some point in the next few years. Supply and demand fundamentals dictate such a revision.

For example, 95% of the gold ever mined is still in existence, whereas about 95% of the silver ever mined has been destroyed or used in such small quantities that it can't be economically recovered. The industrial uses of silver continue to increase, including high-tech electronics, solar and wind energy systems, batteries, medical and military applications, and even water purification. Silver truly is irreplaceable in many of today's critical applications.

In the past several months, there have been signs of shortages. Overall, the physical demand is overwhelming the supply. Even absent a short squeeze, the fundamentals dictate a much higher price for silver both in absolute terms and in relation to the gold price.

There is also another perspective on that ratio. If it's based on production of silver versus gold, the ratio would be closer to 10:1. Comparing overall demand to overall mine production, there is a shortfall of 100 to 200 Moz. of silver every year. There's actually less silver bullion aboveground available for investment than there is gold bullion. As the hedge fund manager Eric Sprott said, "There is 75 times more dollars worth of gold to buy than silver."

Despite these statistics, there is an increasing percentage of investor dollars flowing into silver, which is still 30% below its all-time nominal high, even though gold is about 70% above its 1980 price. The numbers just don't add up.

I don't think silver is closing the gap too quickly, but rather that the gold:silver ratio is likely to fall even lower over the next few years.

TGR: Okay. How far off is $40/oz. silver?

JH: Silver is approaching $40 rather quickly, but I prefer to steer clear of short-term predictions. That's just a guessing game. However, I do think silver will likely pass $50 by year end.

TGR: That would be truly remarkable. Given the current market conditions, what sort of junior mining plays are you seeking these days?

JH: My focus is on junior miners that appear undervalued relative to their peers and under-appreciated by the market. I do a good deal of fundamental research and cross-analysis. I look for miners that are well financed, with high-grade drill results, open strike zones, and management that has a track record of moving projects from exploration into production. I like companies that have a clear plan, either for moving into production, entering into a joint venture or being acquired by a surrounding major within a few years.

TGR: Which companies fit that bill?

JH: The Yukon gold rush is on, and one of my favorite plays in that region is Golden Predator Corp. (TSX:GPD). The company has 3,000 square km under claim and three advanced projects moving toward an NI 43-101 resource estimate this year. Its Grew Creek and Clear Creek properties will have their resource estimates by year-end. Grew Creek drilled around 150 meters, just under 2 grams per ton (g/t) gold, and Crew Creek hit around 25 meters of 2–3 g/t gold. Brewery Creek will get an updated estimate with a target of 600,000 oz., which is twice its previous estimate. They just announced the expansion of the Bohemian Discovery with 33 meters of 3 g/t gold. If these initial drill results are any indication, the resource estimates are going to surprise even the most bullish investors of Golden Predator.

TGR: The company recently raised $22.7 million in a bought-deal private placement, so it has the cash to see those projects through going forward.

JH: Drillings and discoveries in the Yukon are still very early on the bell curve. Golden Predator is well financed and drilling aggressively as we speak. It has a great pipeline of future projects and a growing revenue stream from projects in Nevada, which is a bonus. Bill Sherriff is the chief executive, and Mike Burke recently joined as chief geologist (from the Yukon Geological Survey). I have confidence in the leadership at Golden Predator, and I am not alone. Sprott Asset Management decided to get a piece of the action and invested in the company last year.

I also like that Golden Predator has exposure to silver via 5 million shares of its spinout, Silver Predator Corp. (CNSX:SPD), and its ability to acquire another 11 million shares in that company.

I believe the stock is cheap at anything less than $1. It's more of a speculative play than some of the other investments that I look at, but the stock could easily double by year end and has the potential to repeat the success that ATAC Resources Ltd. (TSX.V:ATC) has experienced in the area during the last year.

TGR: Golden Predator could hit the $5 mark?

JH: It's at about 90 cents right now. If its drill results continue at this pace , it has the potential to reach $5 in the next few years. It could certainly mirror the performance of ATAC, which was trading at $6.80 recently. It is up about 400% during the past year on discoveries. Golden Predator has property all around where ATAC's discoveries were made. I really think there's blue sky potential with this company.

TGR: What are some other plays that you have positions in?

JH: I am interested in the junior silver miner Argentex Mining Corporation (TSX.V:ATX; OTCBB:AGXM), which is one of the most undervalued junior silver plays in the market. Its flagship 100%-owned property Pinguino in southern Argentina has a bonanza-grade discovery. It completed a resource estimate that is expected to be updated in the next few months with new drill results. There's also a preliminary economic assessment coming down the line. The company is currently in the midst of a 17,000 meter drill program. It just added another drill rig last week and is expected to release drill results in the next few weeks.

TGR: What are you expecting from the preliminary economic assessment (PEA)?

JH: Based on the drill results we've seen already, I expect some pretty robust economics to encourage the company to move forward on this project. It has 50 veins identified to date, and the mineralization is open along strike and depth that they have tested. I would be surprised if the company didn't continue to hit high-grade intersections and come up with a very strong PEA.

TGR: You provide your subscribers to Gold Stock Bull with a list of the top 10 most undervalued companies in a variety of sectors. Are there any junior mining stocks on your list right now?

JH: There is one that I am happy to talk about: South American Silver Corp. (TSX:SAC; OTCBB:SOHAF), which has the Malku Khota silver-indium project in Bolivia—it's one of the largest undeveloped silver and indium resources in the world.

South American Silver has an experienced management team and is well funded. Similar to Argentex, it's scheduled to release a PEA and resource update this month, with a pre-feasibility study later this year. As those studies and estimates come out, there's a potential for the share price to move significantly higher.

TGR: I have talked to a number of people on Bay Street about South American. They seem to think this is one of the most highly undervalued companies there.

JH: Yes—particularly with the scale of this project. It could be a huge win if all the pieces fall into place. Given the incredible leverage that it has to the silver price, and the lower enterprise value per ounce, it's very undervalued at the current price.

TGR: There is one note of caution, however, because it is in Bolivia. Compared to other companies operating in Bolivia, though, South American Silver seems to have come closer to solving the puzzle.

JH: That's due to their management team and how well they're working with the local government and the local people. They have a track record of successful project development in South American and Bolivia is an emerging resource-based economy demonstrating strong growth. I don't think it's a sure bet; there are certainly some geopolitical risks. However, South American certainly has shown an ability to mitigate that risk better than other companies.

TGR: There's a lot going on politically and financially around the globe right now. There is unrest in the Middle East, and Japan is grappling with the aftermath of natural disasters, as well as staggering national debt. What advice do you give investors in light of those macro conditions?

JH: I believe that investors should have a good hedge against inflation, and that their portfolios should be diversified across various commodities. Investors should also have some of their assets out of dollars and out of the banking system entirely. I am growing increasingly concerned that another currency or financial crisis is coming down the line. It's critical to balance where assets are placed and to have physical gold and silver in your possession. The financial landscape is deteriorating in the U.S., as well as many other countries.

TGR: Jason, thanks for the insights.

Technically Precious With Merv

For week ending 25 March 2011

The precious metals had a great week, so why is the momentum of these moves so lacking in strength? Speculators who can move prices seem not yet to be convinced that gold stocks will continue zooming into ever higher ground. Is there peace in the oil fields or something?



Nothing lately has affected the long term indicators or ratings for gold. Before checking out the indicators what’s the latest with the long term P&F chart? Well, from the previous analysis from the 05 Nov 2010 Commentary we have our next projection level at $1600 (actually at $1575 but what the heck, so many are saying $1600 I might as well also). After that we have the next one at $2050 and then on to $2600. Should things not turn out as projected on the up side, well the P&F support is now above the $1300 mark so a move to $1300 would be a bear. The present projection on the down side would then be $1025 but that would most likely change by time a break might come.

Gold continues to trade above its positive sloping long term moving average line. The long term momentum indicator remains in its positive zone but showing weakness in its strength versus that shown for the price action itself. This suggests, to me, that the internal strength is getting weaker and speculators are not as enthusiastic about the up side as they were earlier. The momentum indicator has just dropped below its trigger line and the trigger has turned downward. The volume indicator is still showing strength and is in new high levels above its positive trigger line. Now, volume is always a good indicator of speculative interest BUT I always remember that too often volume is the last indicator to go negative AFTER a top had been formed and prices are falling. Bullish investors are not looking at the technical charts and continue buying even after the top has occurred. For now everything is still BULLISH on the long term.


Everything still looks great on the intermediate term but there are signs that a change may not be far away. Yes, I know. Everyone is saying that gold is going through the roof and you should jump on the bandwagon. I wish it was so. What I am suggesting here is that the momentum of the price move is not all that great and although the price could continue to go higher, much higher, with lower momentum it is something to keep in mind and be prepared, JUST IN CASE. For now gold is still above its positive sloping moving average line and the momentum indicator is still in its positive zone above its positive sloping trigger line. The two, momentum and trigger, are very close and one more negative day would see the momentum drop below its trigger. For now it’s still positive. The volume indicator continues strong and is above its positive trigger line. The positive volume indicator may be a little misleading as you’ll see in the short term comments below. Putting all these intermediate term indicators together the intermediate term rating remains BULLISH.


The chart shown here is more of an intermediate term chart and includes my intermediate term momentum indicator (the 50 day RSI). As one can easily see, as the price of gold made increasingly higher prices the momentum indicator continually peaked at a lower and lower level. Something’s gotta give. Either the price of gold turns lower and goes into some kind of reversal mode pulling the momentum into its negative zone OR the price does in fact take off and the momentum then strengthens and starts to make higher peaks again. Which will it be is anyone’s guess. I hope for the up side but in the end I let the market tell me what it is doing, I’m not about to tell the market what it should do.

So, what IS the market for gold bullion doing at this time as far as the short term perspective is concerned. Well, we had a short term rally in progress during the week but by the end of the week things started to deteriorate. The gold price is still above its positive sloping moving average line but the two are closing their gap with the price starting to head lower. The short term momentum indicator is giving us a slightly different message than the intermediate term momentum did. During the price peak in early March the short term momentum indicator (13 day RSI) did exceed the previous peaks (except for the highest peak in early Oct) but the slightly higher price this past week had seen a severely diminished momentum. The short term momentum is once more suggesting weakness although it did strengthen there for a few weeks. The daily volume action is giving us a different story from that given by the volume indicator. On a daily basis the volume seems to be weak during the rally period and increase as the price turns around and moves lower. Not an encouraging scenario. Still, when putting all the indicators together we get a short term BULLISH rating. The very short term moving average line has moved above the short term line for a confirmation of this bull.


We have here a direct comparison between the price and intermediate term momentum action for silver versus gold. One can quickly see the better performance that silver has been giving versus gold. The momentum indicator, although also showing some weakness, is not as weak as that of gold. We had the negative divergences leading up to the 03 Jan 2011 price high but the recent early March action once more put life into the price move. Unfortunately, the move to new highs this past week has once more shown a momentum weakness. I guess we’ll just have to wait and see how this plays itself out. For now the rating for silver remains BULLISH for all three time periods.


Despite the fact that gold moved very slightly into new all time high territory this past week NONE of the major Gold Indices, North American or Merv’s, made it into new high levels. Speculators, especially those who have the resources to move prices, seem not to be that gung-ho yet despite all the commentators and analysts screaming that gold is ready to zoom into the stratosphere. Maybe they are just holding back for another week or so to see what really will develop in the Middle East and elsewhere. For now they do not seem convinced that the new continuing highs in gold will have longevity.

Most of the Gold Indices made their highs during the first days of the new year. This included new highs in the long term momentum indicators. The rally of a couple of weeks ago did not reach new highs and was accompanied by a serious weakness in the long term momentum. Only the Silver Indices and the Penny Arcade had reached new peaks recently. In these cases the long term momentum indicators had shown negative divergence versus the Indices highs. So, even here where we still see strength, we also see weakness in the background.

Looking through my universe of 160 gold and silver stocks we had 138 (86%) advancing this past week and only 20 (13%) declining. With a ratio like that, one would be very brave to say that things are looking bad. I’m not all that brave but will only caution that things may not be all that good. The Penny Arcade, which is still in a bullish mode, is showing weakness not only in its momentum but also weakness versus the other Indices. This just may be the start of an early warning process but has not yet gone to the point of an actual warning, just an initial caution. Something to keep a watch on.

Well, that’s it for this week. Comments are always welcome and should be addressed to mervburak@gmail.com.

Merv Burak, CMT

March Market Madness: Merck (MRK)

As we mentioned earlier, this month we are going to be looking at the stocks that make up the DJIA. . Next up – Merrk (MRK).

Over the last few weeks we4 have started with a discussion of some of the more important features of our “OneSheet” stock overviews. Now we are going to present the next few and allow you to make your own judgments about the merits of the fundamental and technical points.

MRK 20110324

On track with Canadian Pacific & CN Railway

Once written off as a "sunset" industry, North American railroads are making money hand over fist. In short, the railways are benefiting from a rising tide and the companies have a lot going for them.

Here's a look at my newest recommendation, Canadian Pacific (CP), as well as my long-time favorite, CN Railway (CNI).

Last year the six major carriers posted a 45% average growth in earnings as they booked increased volumes and increased rates.

Admittedly we were coming off a weak 2009 but even so it was a remarkable performance. And everything points to the rails having another banner year.

Now I am not suggesting for a moment that we are going to have another 45% leap in profits. We could, however, see 20% average earnings growth, perhaps even a little more.

There is still slack in the system. For instance, coal volumes, accounting for almost 50% of all U.S. rail traffic, remain 9% below 2008 levels because utilities have been drawing down their inventories.

The railways are also going to keep raising freight rates in order to pass along higher energy costs and boost their bottom lines.

Most importantly, the railroads are poised to take advantage of skyrocketing oil prices and grab more market share in 2011.

So we are facing a prolonged period of uncertainty with high and perhaps rising fuel costs for the foreseeable future. That gives the railways a big advantage over the truckers. In fact, when it comes to fuel efficiency there is no contest.

To put it simply, a train can ship one ton of cargo 400 miles on one gallon of diesel. A truck can ship one ton of cargo 125 miles on that same gallon. End of story!

We are also going to see more productivity. The railroads are already lean and mean because they moved quickly during the downturn to trim overheads.

The shares have already had a good run. That having been said, some of the stocks still offer good value and have a lot of upside potential.

The newest addition to my list of railway buys is Canadian Pacific. The company is finally getting a handle on its costs and was number one amongst the major rails in unit cost and labour productivity gains last year.

Its operating ratio has fallen 360 basis points to 77.6% and this, coupled with a 13% increase in revenues, resulted in fourth-quarter earnings of $1.12 a share compared to $0.76 in 2009.

Analysts had been expecting $1.08. It was a good performance although I should point out that a 77.6% operating ratio is still nothing to write home about. (CN is at 63.4%.)

The most encouraging thing about CP Rail right now is that 43% of its revenues came from bulk commodities such as grains, fertilizers, and coal. With the economy gaining strength, this is where we are going to see rapid volume growth.

At the same time, the company's new ten-year agreement with Teck Resources is going to put a floor under its coal shipment rates.

The contract, which accounts for as much as 12% of the company's revenues, should stabilize earnings. I am adding Canadian Pacific Railway to my Buy list with an initial target of $75.

My long time favourite, CN Railway, continues to impress. Fourth-quarter earnings came in at $1.08 a share, up 20% year-over-year and in line with expectations.

As a result, the company made $4.20 a share in 2010 compared to $3.24 in 2009 and management celebrated by raising the dividend by 20% to $1.30 per share annually and announcing a 16.5 million share repurchase program.

Once again, CN demonstrated its tight management in a highly cyclical industry. There were no unpleasant surprises, earnings remain on track, and the 63.4% operating ratio is by far the best amongst the major rails.

Looking ahead, however, management will have to drive top-line growth in order to meet its guidance and I expect to see an increase of 3% or more in rates along with a 5% to 7% jump in intermodal and coal volumes.

This should generate earnings of almost $5 a share in 2011 and at least $5.50 next year. The only blemish is that the stock already reflects a lot of this progress.

Nevertheless CN remains my number one choice in the sector. CN Railway is a Buy with a new target of $76.

19 Stocks Gaining Momentum

It's just another day where the market appears impervious to weakness, and with that said, the market seems to have all but forgotten what is going on in Libya as well as Japan and looks ready to challenge recent highs the market put in back in February.

This is similar to its sister-screen that I call "Stocks That Are Breaking Down" (but just the exact opposite). A lot of these stocks are positioned for breakouts in the near future. If you are a momentum trader, you have to take a look at the charts of each of these stocks listed below. Each of the stocks below were hand-picked from a list of screen returns of more than 100 stocks/ETF's. These are the ones that I would consider the best of the best from those returns.

Here are the 19 Stocks That Are Gaining Momentum.

Is Copper Topping Out?

If the dollar begins to start a move higher, we know that it will eat away at the prices of many commodities, especially metals. The risk on, risk off trade has been highly correlated with copper prices and as such, copper could be due for a correction for many reasons. Some commentary seen recently.

From CNBC:
Copper is up 33% over the past year. Insight on whether now is now the time to buy, with Michael Widmer, Bank of America Merrill Lynch Global Research.