Tuesday, January 15, 2013

The Most Important Investment Chart of the Past Decade

The biggest investment story of the past decade is that stocks went nowhere. The S&P 500  (SNPINDEX: ^GSPC  )  is lower today than it was in 2000. Dividends provided some return, but inflation eroded it out. It has been a dreadful decade for stocks.

But this chart might be the best rebuttal to the "lost decade" argument, and perhaps the most important chart of the past decade:
Source: S&P Capital IQ.
What we're looking at here is:
  • The traditional S&P 500 (blue line).
  • The S&P 500 Equal Weight Index, which owns the same 500 companies as the traditional S&P, but holds them in equal amounts. That's different from the traditional index, which weights companies by market cap, owning more of the largest companies and less of smaller ones.
Unlike the traditional S&P 500, the Equal Weight Index is at an all-time high. It's more than doubled since 2000, providing investors with a solid return.  (more)

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Cramer's Six in 60: 'Don't Underestimate Big Pharma'


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The Best Countries to Retire to in 2013

Planning to retire abroad? Ecuador is the top spot for North American retirees, according to InternationalLiving.com’s newly-released Annual Global Retirement Index 2013.
This is Ecuador's fifth consecutive year at the top of the heap.
This annual Index—now in its 22nd year--ranks the best international retirement destinations. To compile the ranking, InternationalLiving.com editors collated data from its team of experts on the ground in the most popular countries among U.S. and Canadian expat retirees. Editors assessed factors ranging from the price of groceries and average temperature, to utility costs and the friendliness of locals.
The information was then used to score each of the top countries out of 100 in categories such as “Real Estate,” “Climate,” “Special Benefits for Retirees” and “Health Care.

“It’s designed to help readers compare and contrast what we believe are the best options for retirement abroad in 2013,” says Jennifer Stevens, Executive Editor of International Living magazine.
“Ecuador is such an overwhelmingly attractive choice for retirees overseas today in part because your dollars really stretch there,” Stevens says. “You could live comfortably for $1,600 a month, rent included. The values extend to real estate, as well. A condo right on the coast that might cost you $1 million or more in California, you could have for less than $150,000 along Ecuador’s northern Pacific. We have readers who bought a little mountain place as well as an apartment overlooking the water and split their time between the two. They could never have afforded to do something like that in the States.”  (more)

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Snap-on Incorporated (NYSE: SNA)

Snap-on Incorporated provides tools, equipment, diagnostics, repair information, and systems solutions for professional users. Its products include hand tools, such as wrenches, screwdrivers, sockets, pliers, ratchets, saws and cutting tools, pruning tools, and torque measuring instruments. The company's diagnostics and repair information products include handheld and PC-based diagnostics products, service and repair information products, diagnostic software solutions, electronic parts catalogs, business management systems, business services, point-of-sale systems, integrated systems for vehicle service shops, original equipment manufacturer purchasing facilitation services, and warranty management systems and analytics to manage and track performance. Snap-on Incorporated's equipment products comprise solutions for the diagnosis and service of automotive and industrial equipment, such as wheel alignment equipment, wheel balancers, tire changers, vehicle lifts, test lane systems, collision repair equipment, air conditioning service equipment, brake service equipment, fluid exchange equipment, transmission troubleshooting equipment, safety testing equipment, battery chargers, and hoists..

To review Snap-on's stock, please take a look at the 1-year chart of SNA (Snap-on Incorporated) below with my added notations:
1-year chart of SNA (Snap-on Incorporated)
SNA broke out of its trading range back in July and has been moving higher since. Along the way, SNA has formed a nice trendline of support (blue) and a resistance of $80 (red). One of these two levels will eventually have to break and the stock as already tried to breakout above $80 earlier in January (maroon).

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Bond Fears Sparking Equity Inflows

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Chart of the Day - Travelers (TRV)

The "Chart of the Day" is Travelers (TRV), which showed up on Friday's "All-Time High" list. Travelers on Friday posted a new all-time high of $74.87 and closed +0.54%. TrendSpotter has been long since Jan 3 at $73.42. In recent news on the stock, RBC Capital on Dec 17 upgraded Travelers to Top Pick from Outperform and raised the target to $87 from $85. The Travelers Companies, with a market cap of $28 billion, is a leading provider of commercial property-liability insurance and asset management services. Under the Travelers brand, the company is also a leading underwriter of homeowners and auto insurance through independent agents.


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Signs Point to an Overextended Bull Market That Could Sell-Off

The stock market consolidated its gains last week while waiting for news. Earnings announcements this week could push prices out of their two-week trading range.

Stocks spent last week consolidating the large gains from the first trading day of the year. SPDR S&P 500 (NYSE: SPY) gained 0.48% and PowerShares QQQ (NASDAQ: QQQ), an ETF that tracks the 100 largest Nasdaq stocks, added 0.95%. The iShares Russell 2000 Index (NYSE: IWM), an ETF that tracks small-cap stocks, was the biggest gainer among major stock market indexes two weeks ago, but added only 0.11% last week.

Odds favor a pullback, as I wrote last week. In the futures markets, smart money continues to sell while small speculators are excessively bullish.

A popular sentiment index, the AAII Investor Sentiment Survey, also shows that individual investors are growing increasingly optimistic. The percentage of bulls jumped 7.7% last week and is now at 46.4%, significantly above the long-term average of 39% bulls.

Individual investors are also putting real money behind their opinions and equity mutual funds reported their largest inflow since May 2001. These numbers indicate that optimism is becoming excessive in the stock markets, a condition more often seen at tops than bottoms.

In addition to sentiment, earnings estimates continue to drop. S&P began their weekly analysis by noting, "Currently 18 of 28 issues that reported earnings beat their expectations. However, the narratives have been negative."

This indicates company management expects to see the slow growth in the economy continue and the economic news is still bad. Global economic weakness shows no signs of turning around. In fact, real GDP in the euro zone probably contracted for the fifth consecutive quarter in the fourth quarter of 2012. The euro zone is a large trading partner of the United States with annual trade topping $1 trillion. It seems unlikely the U.S. recovery can accelerate until Europe is growing.

Despite all the negatives, major stock market averages are up 5%-7% in the first eight trading days of 2013. A pullback seems likely and chasing stocks at this point is a high-risk strategy. This bull market is nearly four years old and is overextended. Stocks are at the upper end of a 15-year trading range.
SPY Chart
Long-term and short-term charts are overbought and this current bull market has delivered bigger gains than the previous bull, a sign that it could be near an end. With earnings season picking up this week, the best trading strategy is probably to sit on the sidelines and wait to see how markets react to the upcoming news. (more)

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The Next Oil?: Rare Earth Metals

Rare earth metals (REM) are increasingly becoming a critical strategic resource. The 17 elements can be found in most high-tech gadgets, from advanced military technology to mobile phones. China currently holds claim to over 90 percent of the world’s production. As global demand increases, Beijing’s export reductions in recent years have forced high-tech firms to relocate to China and forced other governments to pour money into their exploration and production. An emergent India is among those concerned about China’s control of rare earths. In the past 12 months, the geopolitics of rare earths has become evident. REMs are becoming a strategic resource over which the two emerging giants are competing in Asia. Indeed, one might say rare earths are fast becoming “the next oil.”
The name, rare earth metal, is a misnomer. The metals are, in fact, far more abundant than many precious minerals. Yet their dispersion means they are rarely found in economically viable quantities. The similarity of chemical properties of the 17 REMs, demonstrated by their close proximity on the periodic table, makes them very difficult to separate. Their extraction is capital- and skill- intensive. End uses for REMs are varied but recent figures cited by the U.S. Geological Survey noted that in the U.S. the end use was predominantly for battery alloys, ceramics and magnets, sectors that are continuing to grow to cater for high-tech industry. The extent to which REM’s are used in defense technology is such that without their production modern warfare—fighter jets, drones, and most computer-controlled equipment—would have to undertake a lengthy process of redevelopment. A sovereign monopoly of such a resource is therefore a serious concern for any nation. (more)

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