Monday, August 26, 2013

What I Plan to Do When the Market Crashes

One of the most common questions financial TV hosts ask their guests is whether they expect a pullback or a crash to hit the market. It's an odd question, akin to asking whether they expect summer to occur. Of course summer will occur, and of course stocks will pull back. Since 1928, the S&P 500 (SNPINDEX: ^GSPC  ) has declined 10% or more from a recent high 89 times, or about once every 11 months, with just a handful of years escaping a 10% dip. Ten-percent pullbacks are almost as common as summers. Twenty-percent market drops have occurred 21 times since 1928, or about as often as presidential elections.

But investing is emotional and the allure of money makes us delusional, so we train ourselves to both think the market doesn't (or shouldn't) crash from time to time, and panic when it does. Few of us are immune to this, as the number of investors who claiming to be contrarians outnumber actual contrarians by orders of magnitude.

When you become resigned to the frequency of market crashes (and our tendency to panic when they hit), having an investment plan based on strict rules makes way more sense than flying by the seat of your pants and hoping you act rationally when everyone else doesn't.

So I put together a plan to guide how I invest when the market crashes next.

Say I have $1,000 cash set aside to invest (in addition to an emergency fund). It's opportunistic money. Here's my roadmap for deploying it:

These rules apply to the portion of my portfolio that invests in broad-based stock index funds, since opportunities in specific companies and sectors vary in unpredictable ways during each crash. (more)
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This IPO is Expected to Soar

We’ve all seen the red, white, and blue hot air balloons, the readily recognizable logo of real estate brokerage giant Re/Max.

Now that the U.S. real estate market has been ballooning itself, Re/Max has decided it’s time to launch an IPO for a listing on the NYSE.

But after 40 years of running a very successful realty agency as a private company, why go public now?

What is behind Re/Max’s decision? Might our portfolios get a lift from its expanding business?
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Cheap emerging markets: Bargain basement or falling knife?

Emerging markets are looking very cheap and the beaten-down prices could be a solid base for future returns, but funds should be prepared for more short-term losses if they take the plunge.

Stocks, bonds and currencies across the developing world are suffering a rout on a scale not seen for years. Asset price valuations look dirt cheap - versus emerging markets' own history and also possibly against their future prospects.

But on the downside, the impending rollback in Fed money printing will almost certainly drive up U.S. bond yields, the higher global borrowing costs seeping through to hit economic growth across the developing world.

And falls in currencies such as Indian rupee and Brazilian real are a worry, eroding foreign investors' returns from local stocks and bonds.

Yet, even as such fears feed the selling momentum, cheap valuations are starting to catch the eye of some investors who are looking at the sector from the perspective of a few months or even a few years down the road. (more)

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Skyworks Solutions (NASDAQ: SWKS) Poised for a Double-Digit Rally

The semiconductor industry has been around since the 1960s and has grown to be a nearly $300 billion global business. Basically, semiconductors control the flow of electricity by forming the basis of integrated circuits, transistors, solid state electronics and solar cells, among many other functions. In other words, semiconductors form the base of our modern electronic-driven society.

Over the years, investors have made trillions of dollars investing in this sector. Most everyone is familiar with the major semiconductor companies like Intel (NASDAQ: INTC), Micron Technology (NASDAQ: MU) and Texas Instruments (NYSE: TXN).

However, there are dozens of smaller companies that don't have the market share of the top names, but are masters of their particular niches. My stock scanning recently discovered one of these under-the-radar semiconductor companies that is setting up to be a great investment.

The company is Skyworks Solutions (NASDAQ: SWKS). This Massachusetts-based semiconductor company was founded in 1962. It provides products for the GPS, broadband, cellular infrastructure, smartphone and tablet markets, among other applications. 

Skyworks has a $4.65 billion market cap, an EPS growth rate of 15% over the past three years, and a forward price-to-earnings (P/E) under 10. The company sells primarily to the Asia-Pacific region, with only 6% of sales in the United States.  It beat estimates for its fiscal third quarter, ended June 28, with $436 million in revenue, up 12% from the same quarter last year. Gross margins came in at 43% with expectations of 44%-44.5% for the next quarter. Net income was just under $66 million, which is more than 33% over the same period last year. The company also ramped up its R&D spending, which is key for the future of any tech company.

What I like best about this company is its key relationships with both Samsung and Apple (NASDAQ: AAPL). Skyworks supplies chips for the iPad, iPhone and iPad mini, as well as for Samsung's Galaxy S4 handset.  

In addition, the company is innovative and seeking to benefit from the future "Internet of Things." This next wave in technology is projected to create 50 billion connected devices by 2020. Skyworks is correctly positioned to capitalize on this next revolution. 

Taking a look at the technical picture, SWKS is setting up to be an ideal breakout buy candidate. There is strong triple-bottom support at the $21 level, and resistance exists at $25. Buying on a daily close above $25 makes ideal technical sense.

SWKS Chart
The combination of fundamental growth and breakout potential makes a powerful case for this stock. The diversification and positioning of this company to profit from future trends, as well as its current business, make SWKS a compelling investment.

Recommended Trade Setup:
-- Buy SWKS on a daily close above $25
-- Set stop-loss at $23
-- Set initial price target at $33 for a potential 32% gain in six months
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Chevron Corp. (NYSE: CVX) Stock is Ready to Climb

Technical analysis of stocks depends on interpreting patterns in price charts in order to decide how to play a stock.
One pattern, in particular, is pretty common and profitable.
It’s called an “upward channel.”
An upward channel basically means that the price of a stock is bouncing back and forth between resistance and support levels, while generally trending upwards. Prices don’t always stay exactly within the lines, but they’re still great indicators of when to either go long or short with your investment.
Here’s an example using Chevron Corp. (NYSE: CVX), which demonstrates this pattern beautifully.
A Clear-Cut Case
By following the upward channel trend shown on the chart below, you can get a better idea of when to buy and sell.
The red line represents the resistance level – the price at which the stock finds more selling pressure than buying pressure. When CVX hits that line, it’s probably a good time to short the stock. (more)
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US Weekly Economic Calendar

time (et) report period Actual CONSENSUS
8:30 am Durable goods orders July   -4.9% 3.9%
9 am Case-Shiller home price index June   -- 12.2% y-o-y
10 am Consumer confidence index Aug.   78.1 80.3
10 am Pending home sales July   -- -0.4%
8:30 am Weekly jobless claims 8/24
330,000 336,000
8:30 am GDP revision 2Q   2.3% 1.7%
8:30 am Personal income July   0.1% 0.3%
8:30 am Consumer spending July   0.3% 0.5%
8:30 am Core PCE price index July   0.2% 0.2%
9:45 am Chicago PMI Aug.   53.5 52.3
9:55 am UMich consumer sentiment index Aug.   80.3 80.0
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