Tuesday, February 7, 2012

MRVL Chart Nothing Short of Extraordinary Marvell broke through solid resistance with golden cross

Marvell Technology Group (NASDAQ:MRVL) – This Bermuda-based company is a global provider of silicon solutions for data storage, communications and consumer markets. Storage requirements are increasing rapidly, and MRVL provides solutions primarily for hard-disk drives, tape, optical and solid-state drive markets. Its customers include Hitachi, Samsung, Seagate Technology (NASDAQ:STX), Toshiba and Western Digital (NYSE:WDC).

Several analysts have had a target of over $20 on the stock, but the recent breakout on heavy volume through a solid resistance line at $16 with a golden cross is extraordinary and could be telling us that something unusual is happening.

MRVL was recently started at a “buy” by Canaccord Genuity, and Credit Suisse has an “outperform” on the stock with a target of $22. The trading target could be $20-plus.

Trade of the Day – Marvell Technology Group (NASDAQ:MRVL

Strength In Steel : AKS, MORN, MT, MTL, NUE, PSTL, SID, SIM, SLX, TX

As the global economy began to slow at the end of 2011, a variety of natural resources have seen their prices fall. One of the worst hit was the steel market. As a main demand driver, China has begun to show some signs of lax economic growth, the steel industry has seen its fortunes wane. Add this to the debt/austerity situation in Europe and it's no wonder why steel prices have fallen from their peak of around $900 per metric ton.

However, despite the short-term problems facing the industry, the longer-term picture is still rosy for the producers. There are plenty of catalysts to propel higher prices in the future. For forward-thinking investors, the steel industry could offer some of the best current bargains in the natural resources sector.

Growing Infrastructure Demand
Despite its dismal performance in the previous year, stocks within the steel industry could be a great good buy throughout the upcoming quarters. Overall global demand continues to pick up, with nations like India and Brazil taking over for China's slacking needs. India's steel demand has actually grown in every year from 2007 to 2010, in spite of the global credit crisis.

The need for new infrastructure to support their burgeoning middle classes will continue this growing demand. In addition, the deteriorating state of infrastructure in the developed world will help buoy steel prices. A number of developed market nations have unveiled new building programs and infrastructure improvement seems to be the one thing the United States' leaders can agree on.
Steel prices have already begun to recover, with hot-rolled coil prices rising more than 20% since mid-November.

With growing long-term demand in tow, Morningstar (Nasdaq:MORN) predicts a bullish rebound for the steel producers. Iron ore prices have fallen by about 30% since October and the switch to spot pricing, rather than the previous quarterly lag, will immediately benefit the producers. In addition, scrap steel prices remain relatively low. These factors have created some of the best input costs for the steel producers in a long time. These falling costs will ultimately boost gross margins for the sector and should improve profitability.

A Solid Portfolio
Given the long-term picture for emerging market steel demand and expanding gross margins for many producers, current valuations for the sector seem cheap. Investors can use the short-term problems to add the sector to a portfolio. With nearly $220 million in assets, the Market Vectors Steel ETF (ARCA:SLX) is the biggest fund in the sector.

The ETF tracks 27 different holdings, including
Nucor (NYSE:NUE) and Ternium (NYSE:TX). The fund has rebounded from its lows, but still sits about $20 below its 52-week high. Tracking a wider swath of firms at 70, the PowerShares Global Steel (Nasdaq:PSTL) can also be used as a broad play.

As one of the largest players in the steel industry, ArcelorMittal (NYSE:MT) could be a great bet. The firm's size and regional scope gives it the ability to react to changes faster than many of its rivals. In addition, the company's mining investments give it access to better raw materials pricing as well as high profitably assets themselves. Shares of ArcelorMittal trade for a forward P/E of around 9.64 and yield roughly 3%.

As investors dumped risk assets over the few months, shares of emerging market steel producers suffered the hardest. With North America only producing around 14% of the world's steel, some of the best values could be had in these emerging producers. Brazil's Companhia Siderurgica Nacional (NYSE:SID), Mexico's Grupo Simec (AMEX:SIM) and Russia's Mechel OAO (NYSE:MTL) all trade for P/E's of around 10 and represent quality, low-priced international leaders in the sector.

The Bottom Line
Fears about the slowing global economy and lower Chinese demand made the steel sector one of the worst-performing commodities in 2011. However, many of the long-term catalysts for investment still remain in place. For investors, the recent decline in producers' shares prices represent a value. The previous ideas, along with AK Steel Holding (NYSE:AKS), make great ways to play.

Marc Faber on Stansberry Radio

Best Stock Market Indicator Ever: Weekly Update

The $OEXA200R (the percentage of S&P 100 stocks above their 200 DMA) is a technical indicator available on StockCharts.com that can be used to forecast conservative entry and exit points for the stock market.

The OEXA is used to find the "sweet spot" time period in the market when you have the best chance of making money. See Is This the Best Stock Market Indicator Ever? for a discussion of this technical tool.

The chart below is current through the February 3rd close.

Click to View

After a major S&P correction, the conditions for safe re-entry into the market are when:

a) $OEXA200R rises above 65%.
And two of the following three also occur:
b) RSI rises over 50.
c) MACD cross (black line rises above red line).
d) Slow STO (black line) rises over 50.


OEXA200R remained well above 65% all week and closed at 84%.

Of the three secondary indicators:

  • RSI is above 50 and positive.
  • MACD has crossed and is positive.
  • Slow STO is above 50 and is positive.


The market is very tradable. But this could be the last gasp before a serious correction beginning mid to late 2012. Look for a possible drop to coincide with any number of likely events: Greece, Iran, another U.S. credit down grade - take your pick.

In the meantime, OEXA200R at 84% gives investors plenty of slack. Enjoy it while it lasts!

The Stunning Collapse of Iran's Currency

In a recent two-part series on the tensions between the United States and Iran, my colleague David Lee Smith provided readers with a broad and insightful overview of the unfolding crisis. He discussed the European Union's newly implemented embargo against Iranian oil, the contentious relationship between Shiite Iran and its Sunni neighbors, and the growing divide between the leadership of Iran and that of Turkey, among other things.

Despite this comprehensiveness, aspects of the crisis remain muddled. And one of these aspects involves the recent and sudden collapse of Iran's currency, the rial. While David described the issue in the first article of his series, I've decided to expand on it here by discussing why it collapsed, and the implications of its doing so.

When currencies collapse
The collapse of a currency is typically a well-publicized event that reverberates throughout the world's equity markets. The domino-like capitulation of East Asian currencies in 1997, for example, sent equity markets hurtling downward, leading to one of the largest single-day drops in the Dow Jones Industrial Index in history. And the 1998 devaluation of the Russian ruble triggered the demise of hedge fund Long-Term Capital Management, immortalized by Roger Lowenstein in When Genius Failed.

Yet this didn't happen when the Iranian rial collapsed at the beginning of this year. And the question is: Why? National Security Advisor Thomas Donilon shed a slender ray of light on this in an interview with Charlie Rose last week. Donilon tacitly implied that the collapse was anything but a mistake. And this would make sense, of course, as the United States is currently using economic measures to pressure the Iranian regime to abandon its nuclear program.

So why should we, as investors, care?
The answer to this question is two-fold. In the first case, the collapse of the rial provides an insightful case study into the vulnerability of exchange rates. How is it possible, for instance, that the currency of a major economy could lose half its value in a matter of weeks? In the second case, investors should care because it portends that a resolution to the crisis will occur sooner rather than later -- whatever that resolution may or may not be -- as a country that relies on imports as Iran does simply cannot function without an internationally marketable currency.

To illustrate the magnitude of the rial's collapse, I created the following chart, drawn from both official and unofficial sources of the rial's value. The official rate is the rate at which Iran's central bank will exchange rial's for dollars. The unofficial or market rate is the rate rials change hands on the open market in Tehran.


Sources: Official rate data from OANDA.com. Market rate data from NPR's "Iran Currency Tumbles" and "Growing Pressures Prompt Plunge in Iranian Currency," and AFP.com's "Iran Currency Tumbles."

As you can see, the rial departed from its official exchange rate at the end of last year. The timing was associated with the European Union's announcement that it would ban imports of Iranian oil, and the United States' decision to prohibit companies from interacting with Iran's central bank. (more)

Chart of the Day - Pall Corp (PLL)

The "Chart of the Day" is Pall Corp (PLL), which showed up on Friday's Barchart "All Time High" list. Pall on Friday posted a new all-time high and closed up 1.88%. TrendSpotter has been Long since Nov 30 at $54.49. In recent news on the stock, Pall on Jan 19 announced a 20% dividend increase to 21 cents per share. William Blair on Jan 12 upgraded Pall to Outperform from Market Perform due to the company's earnings growth potential. Pall Corp, with a market cap of $7 billion, is a leading supplier of fine filters, principally made by the Company using its proprietary filter media, and other fluid clarification and separations equipment for the removal of solid, liquid and gaseous contaminants from a wide variety of liquids and gases.


Get Paid Double-Digit Yields to Trade these Stocks

Interest rates will stay low for at least the next three years if the Federal Reserve gets its way, and they usually do when it comes to interest rates. This policy will hurt savers but could generate big profits for companies that can borrow cheaply and lend the money out at high rates, profiting from the difference between the yields. Investors can share in those profits with two stocks that offer [2] yields of about 14%.
Normally, I look at ETFs but when looking for income, individual stocks can be the best options. Right now, mortgage [3] REITs look especially strong. A REIT is a real estate [4] investment trust, a special investment structure that requires the company to pay out at least 90% of its income to share holders. Mortgage REITs invest in mortgage-backed securities (MBS) [5], those toxic pieces of paper that were blamed for causing the financial crisis in 2008.
While some MBS [5] are toxic, other are safe and I found two companies that have a track record of finding the good ones. They borrow money at low rates, under 2%, and use leverage [6] to buy MBS that can pay 7% or more. The REITs can make returns of 15% on their investment and are required by law to distribute that income to their investors.
These stocks could even see extra upside if the Fed [7] decides that another round of quantitative easing is required. Some analysts think the Fed could buy up to $1 trillion worth of MBS if that happens. All that buying would increase the prices of MBS and could lead to capital gains in these stocks.
My 26-week ROC [8] strategy is saying mortgage REITs are a buy. Annaly Capital Management (NLY) just gave a buy signal in the past week when the ROC indicator turned positive. The stock has a yield [9] of more than 14% and is a favorite of fixed income market [10] experts like Jim Grant and Bill Gross. This stock could gain about 11% before hitting resistance near $18.75, offering [11] a total return of about 25%. A weekly close below $16.00 could be a signal that the stock is headed lower. NLY has held above this level for almost all of the last three years and has delivered a total return of 73% to investors over that time.
CYS Investments (CYS) has delivered a similar gain over the past three years and is among the best performers over the past six months. Just like NLY, this stock has a dividend yield [12] of about 14% and is trading near its book value [13]. This stock has strong support at $12.00 and that is a good stop level to use for this trade. If the Fed becomes a big buyer in the MBS market, this stock could also see double digit gains and a total return of 25% is very possible for share holders.
Income stocks usually offer limited upside. Potential returns of 25% a year are rare for conservative investors and those possible gains make these two stocks a good buy for investors tired of the 2% yields that Treasuries [14] offer.

Ellis Martin Report with Jim Sinclair "Consolidate Your Holdings and Save Your Money"

Corporate Profit Margins Eroding Significantly

There is an interesting chart from Brown Brothers Harriman posted on the Marketbeat blog at the WSJ. It shows quite a dramatic slowdown in corporate profit margins thus far this quarter; indeed the worst since Q1 2010 (by a hair). I am not sure exactly what the reason for this would be as commodity prices have dropped substantially from “QE2 highs” of about a year ago, and wage pressure is almost non existent. (perversely a stronger economy could at first hurt profit margins, especially if there is a resurgent labor market – however we are nowhere near that point)

That leaves pricing power which apparently must not be as strong as assumed. These type of things don’t really matter in the midst of a “rip off your face” rally but something to keep an eye on for the future. [Keep in mind this quarter has been unusually lackluster in earnings 'beats' as well]

  • S&P 500 profit margins enjoyed a strong rally from the first quarter of 2009 through mid 2011. But margins declined in the third quarter and the current reporting period is showing further erosion.
  • The firm said profit margins stand at 8.23% midway through earnings season, down from the previous two quarters. Ford, Exxon Mobil and GE have all registered disappointing margins this quarter. “It is becoming clear that the S&P 500 firms are failing to maintain the profit margins reported in the recent quarters,” Thaker said.
  • Unit labor costs rose by 1.2% in the final quarter of 2011 after dropping 2.1% a quarter earlier. Overall, labor costs grew in 2011 after falling during the previous two years, which could play an additional role in weighing on margins.
  • “As profit margins are a mean reverting statistic, this bears watching closely,” Boockvar says.

Is Ultra Petroleum Still Capable of Ultra Performance?

Ongoing U.S. oversupply combined with mild winter weather has weighed heavily on U.S. natural gas prices over the past few months. Nymex Henry Hub is currently at $2.50 per thousand cubic feet, 50% below this time last year, with gas prices down 30% since November alone. Not surprisingly, the stock prices of dry gas producers such as Ultra Petroleum(UPL), Range Resources(RRC), and Chesapeake Energy(CHK) are all down 20% or more in the past few months.

Uncertainty about the extent of oversupply over the next few years is adding to the current bearish sentiment on natural gas. Unknowns include exploration and production efficiency (getting more production from less investment), gas associated with liquids production, well inventory waiting on completion, weather (always a wild card), and the potential uptick in demand to absorb excess supply. Oversupply may end up being less bad than the futures market predicts over the next several quarters, thanks to marginal gas producers pulling back on drilling activity (in part because of hedge books that have rolled off) and E&Ps achieving held-by-production status in regions like the Haynesville.

While there's no question current natural gas prices are below most everyone's expectations, we think the market is assuming unreasonably low long-term gas prices. By our math, Ultra's current stock price assumes gas prices of $4.00-$4.25 per mcf in perpetuity. The Nymex Henry Hub futures curve hits $4.50 beginning in mid-2014 and only increases from there, however, which would imply much more bullish expectations about the long-term picture for natural gas.

We arrive at our $60 fair value estimate for Ultra primarily through a five-year discounted cash flow analysis, supplemented by an assessment of longer-term resource potential, trading multiples, and comparable transactions. Near-term gas price weakness represents a challenge, but Ultra's balance sheet, hedge book, and low maintenance capital expenditure requirements should help the company get through the next several quarters relatively unscathed. We think Ultra's current trading price represents a reasonable entry point for longer-term investors, with a handful of near-term catalysts that could lead the market to revalue the stock this year.

Ultra is a small, independent E&P that holds some of the best assets in North America in the Pinedale Field of Wyoming and Marcellus Shale of Pennsylvania. Almost all its production is dry natural gas. Ultra's acreage should support a decade or more of double-digit production growth, given the tight spacing required for full development in the Pinedale and the emerging nature of the Marcellus. Low development and production costs and improved pricing should support strong cash flows and outstanding returns over the full cycle. We estimate Ultra's fully loaded cash break-even point to be $2.70 per mcf, which compares favorably with average 2012 and 2013 Nymex Henry Hub strip prices of $3.28 and $3.97, respectively. (more)

Smart Ways to Manage Student Debt

Since graduating from pharmacy school last May, Caitlin has been attempting a balancing act familiar to many recent graduates. She is staring down $120,000 in student debt while also gearing up to buy a house and save for retirement. Fortunately, as a pharmacist for a major retail chain, she’s well compensated, with a salary of more than $100,000.

Caitlin knows this income gives her options most of her contemporaries don’t enjoy. But that doesn’t make managing life a breeze. “I just don’t know what to do with my paychecks,” Caitlin says. “Should I pay off all my loans right away? Or invest some of the money that I have?” Aside from student loans, Caitlin has no debt and has $20,000 in the bank. She’d like a new car, and hopes to move to Hawaii, where her mother lives, and buy a house there in five to ten years.

Those goals require cash. Caitlin’s first step should be to build up her savings and to set aside a rainy-day fund, just in case. Because she has a secure job in a growing field, a six-month reserve fund should be sufficient. Certificates of deposit are her best bet because CDs aren’t easy to spend on a whim. “Having an emergency fund locked up in a CD makes it harder to nibble away at it for items that aren’t really emergencies,” says Andy Tilp, of Trillium Valley Financial Planning, in Sherwood, Ore.

Caitlin would also do well to buy long-term disability insurance. “Right now, her ability to earn a living is her best asset, and it’s important to insure that asset,” says William Stewart, of Rehmann Financial, in Troy, Mich. The cost to guarantee 60% of her salary if she were permanently disabled should be in the range of $300 a month—or less, if she can get a discount through her employer.

About those loans. Because Caitlin has other financial goals, her student loans aren’t a priority. She’s currently paying $1,400 a month on a ten-year repayment plan. If she temporarily extends the term of the debt to 25 years, she’ll lower her monthly payment by as much as 50% and be able to put aside the difference for other purposes.

At her salary, Caitlin should aim to save as much as 25% to 30% of her take-home pay, advises Paul Baumbach, of Mallard Advisors, in Newark, Del. He also advises that she rejigger her student-debt repayment schedule while she saves for a down payment on a house in Hawaii, where real estate is expensive. In addition, Baumbach says, she should contribute the full $17,000 permitted in 2012 to her 401(k) once she is eligible for matching contributions. That will save about $6,300 in state and federal taxes.

Still, the longer the payment period on her student loans, the more interest Caitlin will pay overall. So if she can afford at some point to return to the ten-year schedule, she should try.

The principle remains the same even for young people who earn less than Caitlin: Set up a loan-repayment schedule you can live with so that you maximize your cash flow for living expenses and other purposes. Discipline works for everyone.