Tuesday, November 26, 2013

Why the Nasdaq Is Nowhere Near a Bubble

At the risk of sounding cliché, bubble worries are bubbling up all over the place these days.
Not only has a string of record-high closes fueled the talk, but meteoric moves by a handful of hot stocks have drawn many observers to conclude that the end is near for a bull market that will turn five years old this March.
old bull
Wall Street veteran Jeff Saut disagrees. The chief investment strategist at Raymond James Financial has seen his share of bubbles over a long illustrious career and says, contrary to all the hype, the label just doesn't fit this time, especially for the Nasdaq (^IXIC) which today blasted through 4,000 for the first time in 13 years.
“I don’t think you’re in a bubble,” Saut says in the attached video. “The equity markets care only if things are getting better or getting worse” he adds, “and I think things, especially in technology, are getting better.”  (more)

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The January Effect Gets Going Soon

We haven’t even had Thanksgiving yet and we’re already talking about the January Effect? Are you kidding me? I know, I get annoyed when I see Christmas decorations in November too. But there’s a reason that I’m bringing this up today. As time has gone on, the so-called “January Effect” has begun sooner and sooner. And the statistics have such a high batting average that we simply can’t ignore it.

First of all, let’s define what the January Effect is: This is the tendency for Small-Cap stocks to outperform Large-Caps in the month of January. There are plenty of theories out there as to why this is the case, but the one that makes the most sense to me is simply risk and position sizing. You see, if it’s your job to allocate billions of dollars, you are more likely to buy smaller-cap companies, that are theoretically more risky stocks, early in the year because if you’re wrong, you have the rest of the year to make up for it. As far as position sizing goes, the massive portfolio managers can start buying smaller, less liquid companies early, giving themselves plenty of time to accumulate shares. But either way, the reason is irrelevant, we’ll just go with the math.

According to the Stock Trader’s Almanac, from 1953 to 1995 small-caps outperformed large-caps in January 40 out of 43 years. But after the crash of 1987, this out-performance from the small-caps started to get going in mid-December. Perhaps it was no longer a secret? Who knows. But now this market is taking it step further. Last year in 2012, the small-cap out-performance began in mid-November. The ratio bottomed out on November 15th and rallied all the way into mid-March. So with all that in mind, is it so ridiculous to start talking about it this early?

Here is a chart I posted a year ago showing the seasonal trends of small-caps vs large caps. It shows the Russell2000 divided by the Russell1000 based on daily data from July 1, 1979 through November 30, 2012:
11-25-13 r2 vs r1
Just something to keep in mind while we plan what we’re going to do heading into the end of the year.
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A Great Chance to Double Your Money in 24 Months

It's a "near certainty" that you'll make 100% gains with the idea we'll show you today...
Over the last few months, we've shared several "bad to less bad" trading ideas that have jumped double-digits in just a month or two...
Remember, "bad to less bad" situations are an incredible source of low-risk profits...
"Bad to less bad" is a phrase coined by True Wealth editor Steve Sjuggerud. It involves buying assets that have suffered through horrible times...
In this kind of "bad" condition, you can often buy an asset for well below "normal" levels. If you step in and buy amid the pessimism, you can double your money if a bit of optimism returns to the market.
That's the situation right now in uranium...
Uranium fuels nuclear power stations... And like most commodities, it enjoys huge "boom and bust" cycles.
From 2003 to 2007, uranium saw a huge boom. It ran from $10 per pound to $130 per pound. And the share prices of uranium producers skyrocketed. Canada-based producer Cameco, for example, returned more than 1,200%.
But in March 2011, the disaster at Japan's Fukushima power plant helped turn the boom to bust. Japan was one of the world's biggest consumers of nuclear power, and it shut down more than half of its reactors. Several other countries also scaled back their nuclear programs.
While global sentiment has since improved, the damage was done. Uranium prices now sit at about $36 per pound... their lowest levels in more than seven years.
Right now, uranium producers need to sell their product for about $75 a pound to break even... That's more than twice the spot-market price. In other words, most producers are losing money on every pound of uranium they sell. Eventually, some of them will be forced to shut down.
In short, it's "bad" for uranium right now. Take it from Rick Rule...
Rick is the founder of Sprott Global Companies and chairman of Sprott U.S. Holdings. He has spent decades in the resource markets, making himself and his clients many millions of dollars in the process. He has also financed several of the most important resource companies in the world.
He's a brilliant trader, a genius investor, and a walking encyclopedia of business knowledge.
Here's what Rick told our colleague Frank Curzio in a recent episode of Frank's excellent S&A Investor Radio podcast:
The industry is in fact in liquidation. It sounds like it couldn't possibly get any worse, so sentiment with regards to uranium is really, really bad.
It might be hard to stomach the thought of buying uranium here. But as we've noted in these pages before, when things can't get any worse, they can only get better.
And Rick believes a double in uranium prices is a "near certainty."
Uranium Participation Corp. tracks the spot price of uranium (like GLD does for gold). In the chart below, you can see the big 2011-2012 bust. But you can also see that it has "ground out" a bottom at around C$4.80. Over the last year, it has refused to fall below that level.
You can also see that in the last three weeks, it has gained 12%. On Friday, it hit a new four-month high.
There's no guarantee this is the start of uranium's recovery. But the upside potential is enormous. And it's inevitable. It might take a year... or two... or three to play out. But uranium prices will head higher.
Keep in mind, it doesn't take great news to double the price of a cheap, hated asset... things just need to go from "bad to less bad." And it looks like that's starting to happen in uranium.
– Amber Lee Mason and Brian Hunt

P.S. The "bad to less bad" strategy is so lucrative, we produced a brief (three-minute) video about it. It goes into more detail about how to use the strategy... And it walks you through a few more examples. Watch it here.
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WellPoint, Inc. (NYSE: WLP)

WellPoint, Inc., a health benefits company, through its subsidiaries, offers network-based managed care plans to large and small employer, individual, Medicaid, and senior markets in the United States. The company operates through three segments: Commercial, Consumer, and Other. Its managed care plans include preferred provider organizations, health maintenance organizations, point-of-service plans, traditional indemnity plans, and other hybrid plans, including consumer-driven health plans, and hospital only and limited benefit products. The company also provides various managed care services comprising claims processing, underwriting, stop loss insurance, actuarial services, provider network access, medical cost management, disease management, wellness programs, and other administrative services to self-funded customers. In addition, it offers specialty and other insurance products and services, including behavioral health benefit services; dental, vision, life, and disability insurance benefits; radiology benefit management; analytics-driven personal health care guidance; and long-term care insurance.
To review WellPoint's stock, please take a look at the 1-year chart of WLP (WellPoint, Inc.) below with my added notations:
1-year chart of WLP (WellPoint, Inc.) WLP has formed a solid resistance at $90 (navy), which would also be a 52-week high breakout if the stock could manage to break above it. In addition, the stock has been climbing a trendline of support (blue). These two levels combined have WLP sandwiched within a common chart pattern known as an ascending triangle. At some point, the stock will eventually have to break one of those two levels.

The Tale of the Tape: WLP has an up trending support and a 52-week resistance level to watch. A long trade could be made on a breakout above the $90 resistance or on a pullback to the support, which is approaching $85. A break below the up trending support could be an opportunity to enter a short trade.
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PNC Financial Services Group (NYSE: PNC): Lagging Bank Stock Just Triggered a 'Buy' Signal

One of my favorite strategies is to find a strong group and look for lagging stocks within it that are just starting to play catch-up. It is a variation on the "strongest stocks in the strongest groups" mantra espoused by Wall Street strategists, but I think my modification offers a little more bang for your buck.

Currently, the banks, and especially regional banks, are breaking out to the upside.

Leaders in the group, such as U.S. Bancorp (NYSE: USB), have already made some nice gains this month, and even more since their respective October lows. One of my favorites right now is PNC Financial Services Group (NYSE: PNC), which is based in Pittsburgh.
To be sure, the rising tide of a strong sector does not float all boats, especially those with holes in their hulls. Some stocks are down for reasons besides simply being off investors' radar. Therefore, just because a stock is low in price relative to its recent past does not necessarily mean it will rally to catch up with its sector. Indeed, weak stocks tend to stay that way.  (more)

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Home Construction: Soon Again - Not a Good Investment!

Click to view Forecasting Industry Groups and their ETFs is very similar to any Sector or ETF. It requires much more time and grinding analytics than for a single Company but it is also a very profitable task. Without my Forecasting Methodology, making timely and "Wise" investment decisions my work / analytics just leaves those (would-be profitable) Companies and ETFs on a long list somewhere and not in your portfolio where they should be.

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Is this a secret indicator for bonds?

With last week’s spike in bond yields, investors are left somewhat dumbfounded. On the one hand, higher interest rates are supposed to be bad for stocks. On the other hand, stocks had their highest-ever close. However, the stocks where US interest rates matter most aren't in the most obvious places.

Rates went up last week after the Federal Reserve's Open Market Committee's October meeting notes were released hinting that maybe – just maybe – they would consider tapering it $85 billion monthly bond-buying operations at some point in the near future. The markets are now anticipating higher rates down the road.

"Longer-term, they're going over 3% for 2014," predicts John Stephenson, portfolio manager at First Asset Investment Management. "In the short run, they're coming down."

While many in the market look at interest rate levels to determine what's next for the S&P 500 index, Steven Pytlar, Chief Equity Strategist at Prime Executions, says there's a bit more nuance to it.

"We have seen as it relates to the S&P and 10-Year yields, it’s the rate of change that matters, and not necessarily the trend in yields," says Pytlar.

"Since October, we've seen a steady rise in yields and the S&P has moved higher along with it," says Pytlar. "So, higher yields aren't necessarily a reason to jump out of the market. Where higher yields are a major headwind and are very closely correlated to lower prices is in emerging markets."

“There is a much closer [negative] correlation between US yields and the emerging markets than there really is between US yields and the S&P 500,” says Pytlar.

So, now the big question: Since emerging markets stocks and US interest rates have a very negative relationship these days, can emerging markets stocks be used as a secret indicator for where bonds are going next?  (more)
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