Monday, November 5, 2012

Collect a 5% Instant 'Dividend' on a Trade That Could Make You 40%

Guess which commodity has performed the best during the past 10 years. Is it corn, its price spiked by ethanol production and the drought? Copper needed by China for its infrastructure build-out? Cattle, with overseas markets demanding higher quality protein?

The answer may surprise you

It's silver.

According to the U.K. bank Lloyds TSB, silver has risen 572% since 2002. In comparison, the next largest commodity increase is gold, which is up 428% during the same period.
Silver's appeal is two-fold. First, it's seen as an investment safe-haven. Second, the precious metal is an excellent electrical conductor. As a result, silver is increasingly being used in industrial applications, such as electrical components for circuit parts and medical devices.

In the recently completed third-quarter, silver rose 25% an ounce. European and U.S. stimulus measures helped boost the precious metal and traders fled to it for safety from potentially vulnerable currencies.

One particularly attractive looking silver company is a Canadian midcap silver miner, Endeavour Silver (NYSE: EXK). Since it began publicly trading in 2004, the company has increased its silver reserves and production every year. It also mines a small but growing amount of gold.

Currently, EXK has three producing silver mines in Mexico -- one of the more politically stable countries for silver mining in the world. It purchased its third mine in April, a move that doubled the company's proven and probable silver reserves. It also caused its gold reserves to rocket 477%, to 390,000 ounces.

Moving forward, management plans to enhance mining operations, expand exploration and reduce costs. With strong potential for increased production, Endeavour's fundamental and technical outlook is bullish.

As the chart shows, the stock was in a major uptrend from August 2010 until September 2011.

In late September 2011, shares retreated from a multi-year high of $13.10, to a low of $7.55 in late spring. The break of the major uptrend line also saw the beginning formation of a major downtrend line, which lasted almost a year. On the positive side, shares established a solid wall of support in the low-to-mid-$7 range.

 In late August 2012, the stock bullishly broke the major downtrend line. Shares continued to climb, reaching a peak of $10.73, before retreating.

The stock is currently trading around $8.85, presenting a potential buying opportunity. Shares have, so far, managed to stay above the broken downtrend line, forming a minor uptrend. At current levels, the stock has plenty of room to run before hitting resistance, around the $12.75 range, representing almost 45% potential gains from current levels.

The bullish technical outlook is supported by strong fundamentals. Third-quarter revenue jumped 34% from the comparable year-ago period, to $51.9 million. Higher metal production and the sale of some of the company's bullion inventory contributed to the gain. For the full 2012 year, analysts' project increased silver production will push revenue up 82.4% to $230.9 million, from $126.6 million in the year-ago period.

For the third quarter, silver production increased 33% from the year-ago period, to 1.1 million ounces, and gold production increased 139% to 11,700 ounces.

With greater production, full-year earnings projections are strong. Analysts expect full-year 2012 earnings to surge 209% to $0.68 per share, from $0.22 per share last year.

The company also has a strong balance sheet, with $131.6 million in cash and no long-term debt. This cash gives Endeavour the financial freedom to continue exploring and to acquire new properties.

In addition to purchasing the stock, you can earn extra income by writing covered calls. The May 2013 $12.50 strike price options are currently trading around $0.45. By writing the options, you reduce the cost basis of the trade to the mid-$8 range, as well as increase the profit potential by essentially getting paid an instant 5% "dividend."

Risks to consider: Silver is volatile and correlates with the overall "risk on" trade. An implosion in Europe, which would turn investors cautious, could mean a retreat in silver demand and silver stocks. However, Endeavour is increasing reserves and production and should be able to weather the storm.

4 undervalued Canadian stocks

by J. Royden Ward, editor Cabot Benjamin Graham Value Letter

J. Royden WardI believe many outstanding buying opportunities exist among undervalued Canadian stocks. Canada's banks were not allowed to sell risky loans, its housing market remains solid, its economic growth continues to climb, and its debt remains low.

I screened my Ben Graham Database to find Canadian companies with rapidly growing earnings and strong balance sheets. The 4 stocks below offer excellent appreciation potential during the next six to 12 months.

Based in Calgary, Agrium (AGU) is a leading producer, wholesaler and retailer of agricultural nutrients and industrial products in North and South America. Products include nitrogen, phosphate and potash fertilizers; herbicides, insecticides and fungicides; and seeds.

Nitrogen fertilizers account for 37% of Agrium’s wholesale business and are enjoying increased profi ts because of the low price of natural gas, which is used as an ingredient in the manufacturing process.  (more)


The GOLD/CRUDE OIL ratio is looking somewhat extended in the short term and may need to drop back...after all it has risen by almost 20 per cent over the past two months. The daily chart above shows that the ratio would need to drop through 19.40 to violate its uptrend and if it takes out 18.85 it should go lower still...on the other hand if instead it should beat 20.18 it could keep rising. The ratio is somewaht overbought short term being at 99.7 ...the forecast is for a high November 9 and then a decline until January 10. Just a point of interest...right now gold buys 19.65 barrels of oil and the 10 year average is a llittle above 12 barrels.
I decided to look at this ratio because on the Global Seven model GOLD is +1 and OIL is 0 (the two weakest) and one or other is probably going to stage a short term rally before too long.

Financial Astrology: Ford Motor Co

The following is from a trade alert issued by Karen Starish to Astrology Trader subscribers on October 2nd recommending Ford for a long position. Ford released earnings this week and has rocketed higher.  I’ve updated the chart to reflect this weeks trading. 
The Pluto retrograde from April 9, 2012 proved to be a drag on Ford as well as the auto sector.  As I have suggested with the direct motion of Pluto and Saturn moving into mutual reception there could be a shift in production/sales for the 4th quarter.  The Sun will activate a grand trine for both the IPO chart and incorporation chart beginning October 4th and there could be a reversal of the current pullback.  Venus trine Mars (the auto manufacturer) on October 6th is also positive for the stock.  There could be a further bullish move for the Ford stock  near November 8th when Saturn will sextile Mars in mutual reception to Pluto.  The Saturn/Mars aspect shows potential for solid business growth and a new cycle that could carry far into the future.  Saturn with Mars = steel, and the combination could also support the steel industry.
I like Ford (F) for a long position at current levels.

Yale's Shiller to CNBC: Housing Recovery Could Take 50 Years

The housing market has begun to rebound, but it remains to be seen whether the recovery is sustainable, Yale University economist Robert Shiller said. He warned CNBC that it could take 50 years to return to its previous levels.

The Commerce Department reported last week that new-home sales jumped 5.7 percent in September from August to their highest level in more than two years. Meanwhile, housing starts ascended to their highest seasonally adjusted annual rate in the past four years.

Then came news this week that the S&P/Case-Shiller index of home values in 20 cities rose 2 percent in August from a year earlier, the biggest year-to-year gain since July 2010.

"This may well be the bottom for housing for some years," Shiller told Yahoo. But next week’s election, the Dec. 31 fiscal cliff and Europe’s debt crisis could throw housing for a loop.

In coming years, home prices will be depressed by sales from retiring baby boomers moving to urban areas from the suburbs, he says.

"It can get big as it was again maybe in 50 years. This housing bubble was a once-in-a-lifetime thing, I imagine," Shiller told CNBC. "Although, you know, the market might be more volatile, so the future is always unknown."

"My general idea is that we're not going into a nationwide boom and not many places will show booms in the next few years," he told CNBC.

Some analysts are more bullish than Shiller. “All the things that were really holding back housing are finally starting to lift,” Guy Berger, an economist at RBS Securities, told Bloomberg.

“It really is tough to find any bad signs here. Inventories are very, very lean. Assuming the economy remains on track, housing should continue to improve for the rest of the year and into 2013.”

Russell Price, senior economist at Ameriprise Financial, told Reuters, "The improvements we've seen are very sustainable and very solid."

Coeur d'Alene Mines Corporation (NYSE: CDE)

Coeur d'Alene Mines Corporation, together with its subsidiaries, engages in the ownership, operation, exploration, and development of silver and gold mining properties primarily located in the United States, Mexico, Bolivia, Argentina, and Australia. Its properties include the San Bartolome silver mine in Bolivia; the Palmarejo silver-gold mine in Mexico; the Kensington gold mine in Alaska; and the Rochester silver-gold mine in Nevada. The company owns and operates the Martha silver-gold mine in Argentina, as well as owns a non-operating interest in a silver-base metal mine in Australia. Coeur d'Alene Mines Corporation was founded in 1928 and is based in Coeur d’Alene, Idaho.

To review Coeur d’Alene’s stock, please take a look at the 1-year chart of CDE (Coeur d’Alene Mines Corporation) below with my added notations:

1-year chart of CDE (Coeur d’Alene Mines Corporation)

After bumping up against the $30 resistance (blue) from November through February, CDE sold off into July. The stock rallied strongly from there and ran into resistance again at $30. So, CDE has created a consistent 52-week high resistance at the $30 level. The stock moved above that level this week and should be continuing higher overall from here.

US Weekly Economic Calendar

time (et) report period Actual forecast previous
10 am ISM nonmanufacturing Oct. 54.5 55.1
10 am Job openings Sept. -- 3.6 mln
3 pm Consumer credit Sept.
-- $18.1 bln
8:30 am Weekly jobless claims 11-3
373,000 363,000
8:30 am Trade deficit Sept. -$45.0 bln -$44.2 bln
8:30 am Import price index Oct.
-- 1.1%
9:55 am UMich consumer sentiment Nov. 81.5 82.6
10 am Wholesale inventories Sept. -- 0.5%