Monday, January 23, 2012

Silver Set To Soar Against Everything?

Morris Hubbartt
Weekly Market Update Excerpt
posted Jan 20, 2012

  • Sentiment analysis is the art of gauging the herd mentality. When an investment becomes overcrowded, it’s an area to avoid.

  • The dollar continues to be over-bought and over-loved by a herd of investors who seek a safe haven from the financial crisis. From a technical standpoint, the currency itself is due for a major sell-off this year, and that is likely to launch gold and silver dramatically higher.

  • The numbers from the COT report continue to be astonishing. The smart money commercials are holding fewer dollars than at any time in the last 14 years, while the speculative herd continues to buy it at a near record pace.

  • Over time the commercials usually win these battles. Keep in mind that just because the commercials are placing large bets against the dollar does not mean the dollar must start falling right away. In currency markets you need to have strong convictions and patience.

  • There have been three rallies on the dollar and each rally has been accompanied by weaker action in the RSI indicator. In baseball it is “three strikes and you are out”. For the dollar, it is the 3rd time up to the “rally” bat, and the technical indicators suggest that the outcome for the dollar will be similar to baseball.

  • I am projecting that the deteriorating technical condition of the dollar will cause a steadily rising gold price into the third quarter of this year, and that will be followed by an even stronger fourth quarter, but a lot depends on how strongly and how soon the dollar begins to decline. A $2300 gold price is highly likely in 2012.

UUP (US Dollar Proxy) Warning Chart

  • I have included a second chart this week. Here I examine the dollar via the UUP ETF. Technical indicators are warning that the time is near for the end of the current rally in the dollar.

  • Note the divergences that have occurred at each of the three tops I have highlighted, and note the overall weakening of the RSI over the life of this chart.

  • Time is running out to secure physical metal for yourself before the next leg down in the dollar commences. Note the black horizontal line on the chart near 83.56. I expect the primary bear trend to resume by that point or even earlier than that.

Gold Double Bottom Chart

  • The bearish US dollar set-up above has helped create a number of bullish set-ups for gold. Huge positions of dollars are being held by speculators while the commercials continue to flow their money into gold and silver.

  • I recommended traders take a little off the table in the $1650 area. Re-buy near $1625. I am operating with a larger focus on long-term positions than short-term swing trades, because the weight of the technical evidence suggests a large move higher is coming.

  • The $1680 price point likely corresponds roughly with the downtrend line I have highlighted on this chart, and I expect a reaction to around $1625 from there.

Gold Bulldozer Chart

  • The current down wedge on gold is very similar to the one I have highlighted on the chart in 2006. Note that when the price broke upside in 2006 there was more of a sideways chop with a strong upwards bias than a “surge” higher.

  • I think this is how we experience the beginnings of what I’ve termed the gold superhighway; the gold price acts more like a bulldozer as it enters the highway. Notice that by the summer of 2007, gold began a violent and powerful move higher. The same type of action seems very likely now as gold moves out of the wedge formation; first some “bulldozing”, then the autobahn!

  • Trying to outsmart this bull is really a fool’s game. Please don’t let fear-mongering by anyone convince you to sell your positions.

GDX Sentiment Chart

  • I think this chart is one of the most important ones for gold stock investors. Note the strong contrarian buy signals highlighted in green. These buy signals have provided gains, ranging from 32% to well over 100% over periods of just several months.

  • On Balance Volume (OBV) is at a record low for the life of this chart, and has started to creep higher.

GDXJ Weekly Set-Up Chart

  • GDXJ remains one of my favorite assets to hold for the next several months. By many metrics, these stocks are as cheap as they’ve been since the beginning of the bull market. Buy only on severe weakness, as this has proven to be a very volatile sector.

  • The technical situation of GDXJ improved again this week, with the price rising above the blue downtrend line I’ve highlighted on the chart. That’s arguably a breakout from a falling wedge technical pattern.

  • Note the action of the MACD indicator. The lines seem ready to cross into a classic buy signal, and that should bring some speculators back into this sector. GDXJ has also been outperforming GDX, which is another positive sign.

Silver Wedge Chart

  • The fundamentals for silver are solid. Physical silver inventories are being tapped and it is questionable as to how fast they are being replaced. My dealer reports a very tight physical market.

  • Some analysts claim that the ratio of silver being consumed vs. mined is greater than 10 to 1. I don’t know about the validity of that statement, but certainly the enormous growth in the Asian middle class and the Asian economies is a reason to hold some silver.

  • The CCI indicator has started to rise, MACD is hooking up, and the volume pattern is very bullish, with volume dropping in sync with the price all through this correction.

Silver Versus GDX Ratio Chart

  • I’m very bullish on gold and gold stocks but the above chart demonstrates why my current asset of choice is silver. Look at the bull flag pattern on this ratio chart of silver versus GDX.

  • This flag pattern projects that silver in the $60 price range is likely within 12 months. Note the strong rising action of the MACD histograms that has occurred.

  • When a crossover buy signal occurs, the action of the histograms can indicate the relative power of that signal, and in this case the histogram action suggests a bull move could be very powerful!

Chart of the Day - Chubb (CB)

The "Chart of the Day" is Chubb (CB), which showed up on Friday's Barchart "All Time High" list. Chubb on Friday rallied to a new all-time high of $70.99 and closed up 0.95%. TrendSpotter has been Long since Nov 30 at $67.44. In recent news on the stock, Barron's on Jan 4 ran a favorable article saying that an expected improvement in Chubb's commercial-underwriting business should allow Chubb to continue to outperform its peers. Credit Suisse on Dec 7 initiated research coverage on Chubb with an Outperform and a target of $75. Chubb Corp, with a market cap of $19 billion, is principally engaged in the property and casualty insurance business.


Gonzalo Lira : Time to leave America it has become a dictatorship worse than Chile under Pinochet

Gonzalo Lira told Max Keiser that he is now recommending to just leave the United States of America , America has become a dictatorship he says worse than that of chile under Pinochet under which he lived himself , now the American government thanks to NDAA can detain any US citizen indefinitely without charge no jury no nothing , the American government can detain or even kill anyone he likes ...we're in a downward pile because of the big government bureaucracy and bills like Dodd-Frank for the regulation of banks which collapsed the housing market, starting with normal - sub prime loans. Which also puts more regulation on business which outsources jobs to China. And Classick I'm afraid that this bill is complete crap. What they are proposing is Martial Law and Martial Law is only in a set area which you are warned. And the bill of rights accounts for everything and anything

IMAX shares poised for a breakout

Get in on shares of IMAX before the Dark Knight Rises this summer.

In 2008 The Dark Knight grossed just over $1B. This summer, The Dark Knight Rises should shatter that record, and help IMAX's bottom line.

In fact, there are quite a few decent movies coming out in 2012 that should help IMAX's earnings out in 2012. Check out this list:

Dark Knight Rises
Underworld: Awakening
The Hobbit
Skyfall (The first 007 film to come out in years)
The Bourne Legacy
Total Recall
World War Z

Now compare that to movies in 2011:

Green Hornet
I am Number 4
Cowboys & Aliens
Sucker Punch
Pirates of the Caribbean
Battle of Los Angeles
Cars 2
Harry Potter

Not all of these were duds, but a lot were. Just check out this list of most anticipated movies from 2011 and look how their ratings turned out. That's not to say that there won't be any duds in 2012, but I for one am much more excited about some of these upcoming releases.

Fundamentally, IMAX is looking pretty sound these days compared to recent years. The company has finally started making a profit and its paid off the bulk of its debt, while continuing expansion into international markets (such as China).

The IMAX chart is looking great, with price action in a nice rising channel. Look for a breakout to above $25 in the coming months.

18 Stocks that Could Have BIG Upside -- and Limited Downside

Investors have sought out "GARP" stocks for decades. These investments, which represent Growth at a Reasonable Price, typically sport reasonable P/E ratios and possess superior growth prospects.

There are a variety of ways to find such a combination of value and growth, but my preferred metric is the "PEG ratio." Companies with a PEG ratio below 1.0 means the forward price-to-earnings (P/E) ratio is less than the forward earnings growth rates. (PEG is formally defined as the P/E divided by the earnings growth rate.)

So I'm going hunting for extreme PEGs -- stocks with P/E ratios less than one-fifth of the earnings growth rate, or a PEG below 0.2. The reason that number is so low: Every stock in this group has a forward P/E ratio of less than 10 and is expected to post earnings per share gains of at least 40% from the current fiscal year into the next fiscal year.

On my first pass through this screen, I found many energy drillers and financial services stocks. I've culled them from the herd, as they're subject to energy prices, interest rates and other exogenous factors that may render profit forecasts moot. What's left? We have 19 companies that sport rock-bottom valuations AND are expected to generate robust profits in the next fiscal year.

Near the bottom of the list, you'll find a grouping of airline stocks. Delta Airlines (NYSE: DAL), United Continental (NYSE: UAL), Spirit Airlines (Nasdaq: SAVE) and U.S. Airways (NYSE: LCC) all appear quite inexpensive. It's worth noting that the earnings forecasts assume current oil prices of around $100 a barrel. It appears as if these carriers could handle even somewhat higher oil prices and still remain nicely profitable. Looked at another way, any pullback in oil prices could lead to even higher profits -- and lower P/E ratios for these stocks.

Investors may be warming up to airline stocks, despite the fact that oil prices are near a 52-week high. The AMEX Airline index, which had fallen from around 45 in early 2011 to just 27 in late September, is already back up to 35. This chart is an important snapshot of what's happened with airline stocks. The downturn of 2008 forced many carriers to become very lean, and they may now be in the strongest financial shape they've been in a very long time..

A few other stocks look like solid profit rebounders in the coming fiscal year. Take Sanderson Farms (Nasdaq: SAFM) as an example. The company is one of the nation's largest chicken producers and is quickly seeing its stars align. Feed costs have begun dropping and poultry prices have been firming. That won't be much in evidence in fiscal first quarter results (which ends in a few weeks) as Sanderson is still working off its chicken feed bought in 2011 at much higher prices. Yet after that, profits may soar. Analyst think per share profits can rise more than 1,000% sequentially to around $0.95 a share in the quarter ended April. That should set the stage for more than $3.50 in EPS in fiscal (October) 2012, and perhaps as high as $6 a share in fiscal 2013. Not bad for a company that lost $4 a share in the fiscal year ended last October.

Goldman Sachs considers Sanderson Farms to be one of its top ideas (a member of what the firm calls its "Conviction Buy List") and they "encourage investors to see the forest through the trees: the wheels are in motion for a robust earnings recovery as supply cuts drive sharply higher EPS through 2013." Depending on the direction of feed prices and poultry prices, they see shares moving up from a current $52 toward a range of $60 to $75.

The set-up for mining firm Couer D'Alene (NYSE: CDE) is pretty intriguing. The company has some mines coming online this year that should help boost output of silver and other metals. That's why per share profits are expected to double to around $3 this year. Silver trades for about $30 an ounce right now, well below the high of $48 seen last spring. If silver simply made a move halfway to that former peak, to $39, then Couer D'Alenes' per share profits could move closer to the $4 mark in a year or two.

Meanwhile, shares have traded down from $36 last spring to a recent $27. Also, shares likely have solid downside support in the event that silver prices fall. The company's assets (primarily its mines) are worth roughly $2.1 billion, not far below the stock's current $2.4 billion market value.

Risks to Consider: These lofty growth forecasts are based on assumptions that the U.S. economy will stay afloat in 2012. Any shockwaves emanating out of Europe could lead analysts to lower their profit forecasts for many of these stocks.

Action to Take --> The market appears to be hitting its stride, and investors are back in a buying mood. Still, it pays to be somewhat defensive in case the mini-rally peters out. These low PEG stocks should thrive in a rising market (thanks to their high earnings growth rates) but should also hold their own in a down market (thanks to those low P/E ratios).

-- David Sterman

How You Can Avoid The Greater Depression–Episode 154

I’m up in Vancouver British Columbia for the Vancouver Resource Show. There will be nearly 600 mining companies telling their stories. Please forgive the less than stellar audio quality, I’m away from the studio. This is more of a personal Triple Lutz Report. I wanted you to know about my family and how they weathered the Great Depression.

If Doug Casey is correct and this is the Greater Depression, then this story may have value for you. While both sides of my family suffered during the depression, my mother’s side prospered and my father’s side became impoverished. This is the tale of two families living just three miles apart and how they were affected by the Crash of 1929 and the economic collapse that lasted for over 15 years. No World War II did not end the depression, it simply changed the terms.

Whether you survive and thrive of go off the cliff is really up to you in final analysis. I hope this helps.

Please send your questions/comments to KL@KerryLutz.comor call us at 347-460-LUTZ.

This Emerging Market Could Deliver a +28% Gain

If global stock markets are turning bullish after last year's lackluster performance, emerging markets could be the biggest gainers. In the most recent bull market, emerging markets gained an average of 176%, outperforming developed economies by almost double.

If history repeats itself, this could be the best way to profit...

My 26-week ROC strategy is signaling MSCI South Africa (NYSE: EZA) could be the top performing emerging market ETF in the coming months.

Right now, EZA is trading near its long-term support level. But I think that's about to change...

The weekly chart of EZA below includes the 26-week ROC at the bottom. The indicator became oversold in September and has since been in an uptrend. In the last week, the ROC broke above its 20-week moving average. This confirms that ROC is in an uptrend and is a bullish indicator pointing towards higher prices.

The price pattern is also bullish. Recent price action created a triangle pattern which allows us to calculate a price target. When the difference between the downward sloping line ($77.58) and the support line ($56.80) is added to where EZA broke out, we get a price target of $83.68 ($20.78 + $62.90 = $83.68).

That represents +28% upside potential from recent prices.

The chart also shows how to limit risk in this trade. Once broken, resistance generally becomes support and will often limit the down side in a trade. Resistance near $57 on EZA halted price advances in 2009. Once the price broke above that level, $57 became support. Prices have bounced off that price four times in the last 18 months. A close under $57 would show that support has failed and it's time to exit the trade.

EZA is a great way to add international exposure to your portfolio. Emerging markets tend to move the fastest in bull markets. The chart shows a bullish pattern and the potential reward is more than twice as high as the risk.

US Weekly Economic Calendar

time (et) report period Actual forecast previous
None scheduled
Tuesday, JAN. 24
10 am Richmond Fed index Jan. -- 3
Wednesday, JAN. 25
10 am FHFA home prices Nov. -- -0.2%
10 am Pending home sales Dec. -- 7.3%
12:30 pm FOMC announcement
2:15 pm Bernanke press conference
Thursday, Jan. 26
8:30 a.m. Jobless claims 1-21
375,000 352,000
8:30 am Durable goods orders Dec. 2.5% 3.7%
8:30 am Chicago Fed national activity index Dec. -- -0.37
8:30 am Leading indicators Dec. 0.9% 0.5%
10 am New home sales Dec. 325,000 315,000
11 am Kansas City Fed index Jan. -- -4.0
8:30 am GDP 4Q 3.0% 1.8%
9:55 am Consumer sentiment Jan. 74.0 74.0