Tuesday, January 14, 2014

SPDR S&P Metals & Mining ETF (NYSE: XME): This Unloved Sector is a 'Buy'

Investors are often told that the best time to buy is when everyone seems to be excessively negative on a sector or a country. That was certainly true in 2013 for investors who were able to trade in the sovereign debt of Greece. Investors enjoyed a gain of 47% on Greek government debt last year even as fears of Greek default lingered throughout the year and the economic news remained mostly negative.

Of course, most individual investors couldn't actually invest directly in Greek bonds, and returns from investments that were available to individual investors were significantly lower. Global X FTSE Greece 20 ETF (NYSE: GREK), for example, gained 25% in 2013, less than U.S. stocks even though Greek stocks should have benefited from the same factors that drove Greek bonds higher. Given the higher risk Greek stocks provided, buying when the news was negative in early 2013 doesn't seem to have been a wise investment for most individuals.

The example of Greece illustrates some problems with the idea of buying bad news -- there is no way to know when the news is bad enough to drive big gains, and there is no way to be sure the market will respond in a positive way.  (more)

Please share this article

Investors Should Bank on Balance Sheets While Waiting for the Next Wave in Gold and Gold Miners

For over a decade, mining companies have relied on a rising gold price to reward their decisions, regardless of whether they were good decisions. Those days are over, and Chen Lin, author of the What is Chen Buying? What is Chen Selling? newsletter, says that investors must embrace companies that can grow their balance sheets even with gold as low as $1,000/ounce. Companies that can generate cash flow and acquire assets at fire sale prices today will likely be the winners in the next wave. In this interview with The Gold Report, Lin identifies a handful of producers that meet this threshold and one explorer well positioned to join their ranks.

The Gold Report: You told The Gold Report in June that you were still bullish on gold "in the long run." Are you still bullish? And how soon is the long run?

Chen Lin: Gold may continue to correct in 2014 and maybe even longer. There is a chance it will hit $1,000/ounce ($1,000/oz). However, inflation will pick up as the result of all the money printing by the central banks. That's when gold's run will really begin.

TGR: You've said that the price of gold is being controlled by the "paper market on Wall Street." Could you elaborate on that?

CL: You can use very little money down to buy gold using the future markets. This leverage is guaranteed by the biggest financial institutions in the United States and the world. In turn, those financial institutions are guaranteed by taxpayers. So the gold price has really been controlled by the paper-market traders. But this could change.(more)

Please share this article

2014 Outlook: Emerging Markets vs USA

You guys know I really take my ratios seriously. Whether we’re looking at Stocks vs Bonds, Consumer Discretionaries vs Staples, or any number of comparisons, I think it really helps to know where money is flowing relative to other assets or stock markets. One of the most important ratios that I follow is the Emerging Markets vs S&P500. This one got destroyed last year after falling behind early and never really catching up to the US, Japan, or even Europe. The sellers definitely showed up last year, and so far this trend has continued in 2014.
So the question becomes, Would we rather be in US Stocks? or in Emerging Markets? Here is a weekly chart of this ratio currently hitting lows not seen since 2005. You want to talk about downtrends? This is one of the most powerful ones out there. I see no reason to be long this chart unless we can miraculously get back above those 8 years of broken support:
1-13-14 eem vs spy weeklyThe next chart is a daily line chart of the same ratio ($EEM vs $SPY) but with RSI plotted below to get a better idea of how short-term momentum might affect price:
1-13-14 eem vs spy dailyIn the very short-term, we do see a possibility of a squeeze based on this potential bullish divergence in momentum. Notice the higher lows RSI is trying to put in as price continues to fall. The last couple of times we’ve see this has led to a nice little rally in the ratio (note: all just temporary). But truthfully, this isn’t anything I’d be interested in on the long side unless we can break back above that shaded area.
This downtrend is in full force. It’s not something I want to fight. So at least for now, we want to continue to look at US Stocks as the leaders over emerging markets. And let’s remember that Emerging markets consist of a wide range of countries and they’re not all created equally. But this is a very diversified ETF with its largest component (Samsung) representing less than 4% of the fund and most of the others are less than 1-2%.
We’ll be watching this one throughout the year. But coming into 2014, the US is still in control.
Please share this article

UnitedHealth Group Inc. (NYSE: UNH)

UnitedHealth Group Incorporated operates as a diversified health and well-being company in the United States. The company’s UnitedHealthcare segment offers consumer-oriented health benefit plans and services for large national employers, public sector employers, mid-sized employers, small businesses, and individuals; health care coverage, and health and well-being services to individuals aged 50 and older addressing their needs for preventive and acute health care services, as well as services dealing with chronic disease and other specialized issues for older individuals. Its OptumHealth segment provides health management services, integrated care delivery services, consumer relationship management, sales distribution platform services, and financial services. Its OptumRx segment provides pharmacy benefit management services and programs, including claims processing, retail network contracting, rebate contracting, and management; and clinical programs, such as step therapy, formulary management, and disease/drug therapy management programs.
Please take a look at the 1-year chart of UNH (Unitedhealth Group, Inc.) below with my added notations:
1-year chart of UNH (Unitedhealth Group, Inc.)
UNH trended consistently higher from the beginning of the year until September. Since then, the stock seems to have formed an inverse head and shoulders pattern (blue). I have noted the head (H) and the shoulders (s) to make the pattern more visible. UNH’s neckline resistance is at the $75 level (red). The stock would confirm the pattern by breaking up through the $75 neckline and should move higher overall from there.
Lastly, keep in mind that simple is usually better. Had I never pointed out this inverse H&S pattern, one would still think this stock is moving higher simply if it broke through the $75 resistance level. In short, whether you noticed the pattern or not, the trade would still be the same: On the break above the key $75 level.

The Tale of the Tape: UNH has formed an inverse head & shoulders pattern. A long trade could be entered on a break above the $75 level with a stop placed under that level.
Please share this article

These key industries are hiding true earnings story

On the surface, fourth quarter earnings season looks set to deliver another stream of modest profit growth, poor sales growth, and an abundance of companies that beat analyst expectations that have been sharply reduced.
And yet beneath the surface of this all-too-familiar charade lies a different story, says John Butters, senior earnings analyst at FactSet. A story where hidden pockets of excellence have a way of distorting the big picture.
“The overall growth rate for the quarter (for the S&P 500) is six percent, but really it’s a story of the financial sector,” Butters says in the attached video.   (more)

Please share this article