Two weeks ago, I told you I was buying stocks.
The market was selling off hard. The S&P 500 fell 4% in seven
trading days. Financial network talking heads were warning that the
long-awaited correction had begun. Most traders were looking to short
the market.
But the NYSE McClellan Oscillator (NYMO) – a measure of overbought and
oversold conditions in the market – was saying stocks were primed for a
bounce. I said it was a good time to make quick profits from the upside.
Today, the stock market has recovered. On Tuesday, the S&P 500
closed at 1,982 – an outstanding 4% gain in just two weeks – and is
within spitting distance of a new all-time high. Television talking
heads are bullish again. Traders are rushing to get exposure on the long
side of the market.
But now, the NYMO is saying stocks are ripe for a pullback. And that's why I'm selling…
Take a look at this updated chart of the NYMO…
As I said earlier, the NYMO is a measure of overbought and oversold
conditions in the stock market. Readings above 60 signal overbought
conditions and warn of an impending decline in the market. Readings
below -60 point to oversold conditions and signal the potential for
stocks to move higher.
With a reading around 60 today, the NYMO is telling us stocks are overbought. And that's why I'm selling.
You see, the NYMO has a terrific track record of signaling short-term
reversals in stocks. You can see this in the chart below. It shows how
previous "buy" and "sell" signals have lined up with the S&P 500…
The blue arrows show the NYMO buy signals. The red arrows point to the sell signals.
As you can see, the "buy" signals didn't always mark the absolute bottom
of the market. But in every case, the S&P 500 was higher a few
weeks later. Traders who bought stocks on the NYMO "buy" signals did
well. Traders who were aggressively shorting stocks got crushed.
Likewise, the NYMO "sell" signals didn't always mark an absolute
short-term top in the stock market. But they always marked a good time
to sell. Stocks were usually lower a few weeks later.
As I told you last week, I'm not interested in aggressively short selling the stock market just yet. But I am taking profits on the stocks I bought two weeks ago. I suggest traders who took my advice to buy do the same.
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Friday, August 22, 2014
Whole Foods Market (NASDAQ: WFM) Stock May be About to Stage a Rally
Shares of natural foods supermarket operator extraordinaire Whole Foods Market (NASDAQ: WFM)
have been in near free fall since topping out in October. Yet, the
price action since May looks much more constructive, and the stock has
built an important base to push higher.
At the same time, the chart is flashing a positive divergence between momentum and price. In other words, the bullish signs for a rally are there.
On July 30 after the close of trading, Whole Foods reported quarterly earnings that beat analysts' expectations, yet missed top-line estimates by a smidge. Third-quarter earnings per share (EPS) rose 8% year over year to $0.41 versus an expected $0.39. Revenue of $3.38 billion just missed estimates of $3.4 billion, but was up 10% from the year-ago quarter. Same-store sales were up 3.9%. (more)
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At the same time, the chart is flashing a positive divergence between momentum and price. In other words, the bullish signs for a rally are there.
On July 30 after the close of trading, Whole Foods reported quarterly earnings that beat analysts' expectations, yet missed top-line estimates by a smidge. Third-quarter earnings per share (EPS) rose 8% year over year to $0.41 versus an expected $0.39. Revenue of $3.38 billion just missed estimates of $3.4 billion, but was up 10% from the year-ago quarter. Same-store sales were up 3.9%. (more)
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Gerdau SA (NYSE: GGB)
Gerdau S.A. produces and commercializes steel products worldwide. The
company provides crude steel products, which include billets that are
used to manufacture wire rods, rebars, and merchant bars; blooms for use
in the manufacture of springs, forged parts, heavy structural shapes,
and seamless tubes; and slabs, which are used in the steel industry for
the rolling of various flat rolled products, as well as to produce hot
and cold rolled coils, heavy slabs, and profiles. Its long rolled
products comprise rebars, merchant bars, and profiles, which are
primarily used in the construction and manufacturing industries; and
drawn products, such as barbed and barbless fence wires, galvanized
wires, fences, concrete reinforcing wire mesh, nails, and clamps for
manufacturing, construction, and agricultural industries.
Take a look at the 1-year chart of Gerdau (NYSE: GGB) with the added notations:
This one’s pretty simply. After finally breaking $7.50 in January, GGB couldn’t get out of its own way for the next 2+ months. Starting in March the stock found a repeated area of support at $5.75 (green). GGB finally broke that support about a week ago and is now trying to hold $5.50. The stock should be moving overall lower from here even if a brief rally ensues first.
The Tale of the Tape: GGB had a key level of support at $5.75. Now that the stock has broken support, a trader might want to enter a short trade at or near the $5.75, or on a break below $5.50, with a stop placed above the level of entry. A break back above $5.75 could negate the forecast for a move lower.
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Take a look at the 1-year chart of Gerdau (NYSE: GGB) with the added notations:
This one’s pretty simply. After finally breaking $7.50 in January, GGB couldn’t get out of its own way for the next 2+ months. Starting in March the stock found a repeated area of support at $5.75 (green). GGB finally broke that support about a week ago and is now trying to hold $5.50. The stock should be moving overall lower from here even if a brief rally ensues first.
The Tale of the Tape: GGB had a key level of support at $5.75. Now that the stock has broken support, a trader might want to enter a short trade at or near the $5.75, or on a break below $5.50, with a stop placed above the level of entry. A break back above $5.75 could negate the forecast for a move lower.
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8 Mind-Blowing Numbers From Toronto’s Real Estate Market
Is Canada’s real estate market a bubble? A number of groups are
sounding the alarm. Over the past few months, several research
organizations, including Fitch, Morningstar, Inc., and the International Monetary Fund have published reports warning about skyrocketing property valuations across the country.
Nowhere is a possible bubble more apparent than in Toronto, the hottest real estate market in Canada. After posting some huge price gains over the past few years, the city’s housing industry has produced some truly eye-popping statistics. Here are eight mind-blowing numbers from Hogtown.
1. $880,433
Toronto is on the verge of becoming the second Canadian city where the average price of a detached home exceeds $1 million. July data from the Toronto Real Estate Board, or TREB, revealed that the average selling price of a detached house downtown was $880,433, up 11% from the same period a year earlier.
2. 130 properties under construction
Toronto has more skyscrapers under construction than any other city in North America. According to Emporis, a website that compiles building data, there are 130 high-rise projects underway in Toronto. In comparison, New York City has only 91 high-rise buildings under construction.
3. 39,000 realtors
The housing boom has not only caused real estate prices to skyrocket, but it has also resulted in an unprecedented number of realtors. According to the TREB, the number of realtors in the city has reached more than 39,000 — up from about 20,000 a decade ago. That’s one realtor for every 140 people in the Greater Toronto Area.
4. 7.9 times income
Housing prices have surged ahead of income. Over the past 17 years, incomes have risen at a 2.8% compounded annual rate, while house prices have gone up 5.8%. Put another way, house prices have more than doubled over that period, while incomes are up by just a bit more than half.
Back in 1997, the average house price in Toronto of $211,307 was about 4.9 times the median gross household income of $43,560. Today, the average price of $550,725 puts houses at about 7.9 times the average household income, which is $69,934.
5. 43% of income
To buy a house today, a Toronto resident would have spend about 43% of their gross income on housing assuming current average real estate prices, a five-year term, mortgage rates amortized over 25 years, and a 5% down payment. That’s well within historical averages and below the 50% figure breached during Toronto’s 1989 real estate bubble.
However, even a small rise in interest rates could push leveraged buyers over the edge. If mortgage rates were to rise just 2%, the typical new home buyer would have to dedicate 53% of their gross income to housing. That could push thousands of borrowers into default.
6. 37 times rental income
The cost of owning a house in Toronto is also looking stretched relative to renting. According to the most recent numbers from the International Monetary Fund, Toronto real estate prices are valued at 37 times annual rental revenue. Historically, Toronto’s housing market has traded between 15 and 20 times rental income.
These valuations are raising alarm bells amongst institutional investors. Thomas Schwartz, President and CEO of Canadian Apartment Properties REIT (TSX: CAR.UN) told investors earlier this month, “I think it’s driven primarily by the fact there’s a lot of capital chasing apartments, a lot of it is private capital. People are using shorter term funding. I’m not sure they’re looking at the CapEx in quite the same way we do. And again, at this point, I’m just not comfortable making the deals that are being made out there.”
7. 3.7% cap rate
In late 2013, the Financial Post reported Toronto’s upscale Bayview Village shopping mall fetched $500 million and sold for a capitalization rate said to be in the 3.6% to 3.7% range. The cap rate — the rate of return based on what a property is expected to generate in rental income — is considered to be near a record low. According to Colliers International, cap rates in the Greater Toronto Area are approaching record lows across all property types.
These valuations are encouraging smart-money investors to search elsewhere for deals. H&R Real Estate Investment Trust (TSX: HR.UN), one of Canada’s largest REITs, has been snapping up U.S. properties where cap rates are less rich. In June, the firm announced one of its largest deals yet agreeing to participate as a 50% joint venture in developing a landmark luxury residential rental development in Long Island City, New York.
8. 17% investor owned
Earlier this month, the Canada Mortgage and Housing Corporation released a snapshot of the condo markets in Toronto and Vancouver and found that only 17% of units are investor-owned. However, the survey drew criticism for leaving out any measure of foreign investors living abroad. According to The Globe and Mail, 40% of Toronto condos are owned by investors. Other private sector estimates put this figure even higher.
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Nowhere is a possible bubble more apparent than in Toronto, the hottest real estate market in Canada. After posting some huge price gains over the past few years, the city’s housing industry has produced some truly eye-popping statistics. Here are eight mind-blowing numbers from Hogtown.
1. $880,433
Toronto is on the verge of becoming the second Canadian city where the average price of a detached home exceeds $1 million. July data from the Toronto Real Estate Board, or TREB, revealed that the average selling price of a detached house downtown was $880,433, up 11% from the same period a year earlier.
2. 130 properties under construction
Toronto has more skyscrapers under construction than any other city in North America. According to Emporis, a website that compiles building data, there are 130 high-rise projects underway in Toronto. In comparison, New York City has only 91 high-rise buildings under construction.
3. 39,000 realtors
The housing boom has not only caused real estate prices to skyrocket, but it has also resulted in an unprecedented number of realtors. According to the TREB, the number of realtors in the city has reached more than 39,000 — up from about 20,000 a decade ago. That’s one realtor for every 140 people in the Greater Toronto Area.
4. 7.9 times income
Housing prices have surged ahead of income. Over the past 17 years, incomes have risen at a 2.8% compounded annual rate, while house prices have gone up 5.8%. Put another way, house prices have more than doubled over that period, while incomes are up by just a bit more than half.
Back in 1997, the average house price in Toronto of $211,307 was about 4.9 times the median gross household income of $43,560. Today, the average price of $550,725 puts houses at about 7.9 times the average household income, which is $69,934.
5. 43% of income
To buy a house today, a Toronto resident would have spend about 43% of their gross income on housing assuming current average real estate prices, a five-year term, mortgage rates amortized over 25 years, and a 5% down payment. That’s well within historical averages and below the 50% figure breached during Toronto’s 1989 real estate bubble.
However, even a small rise in interest rates could push leveraged buyers over the edge. If mortgage rates were to rise just 2%, the typical new home buyer would have to dedicate 53% of their gross income to housing. That could push thousands of borrowers into default.
6. 37 times rental income
The cost of owning a house in Toronto is also looking stretched relative to renting. According to the most recent numbers from the International Monetary Fund, Toronto real estate prices are valued at 37 times annual rental revenue. Historically, Toronto’s housing market has traded between 15 and 20 times rental income.
These valuations are raising alarm bells amongst institutional investors. Thomas Schwartz, President and CEO of Canadian Apartment Properties REIT (TSX: CAR.UN) told investors earlier this month, “I think it’s driven primarily by the fact there’s a lot of capital chasing apartments, a lot of it is private capital. People are using shorter term funding. I’m not sure they’re looking at the CapEx in quite the same way we do. And again, at this point, I’m just not comfortable making the deals that are being made out there.”
7. 3.7% cap rate
In late 2013, the Financial Post reported Toronto’s upscale Bayview Village shopping mall fetched $500 million and sold for a capitalization rate said to be in the 3.6% to 3.7% range. The cap rate — the rate of return based on what a property is expected to generate in rental income — is considered to be near a record low. According to Colliers International, cap rates in the Greater Toronto Area are approaching record lows across all property types.
These valuations are encouraging smart-money investors to search elsewhere for deals. H&R Real Estate Investment Trust (TSX: HR.UN), one of Canada’s largest REITs, has been snapping up U.S. properties where cap rates are less rich. In June, the firm announced one of its largest deals yet agreeing to participate as a 50% joint venture in developing a landmark luxury residential rental development in Long Island City, New York.
8. 17% investor owned
Earlier this month, the Canada Mortgage and Housing Corporation released a snapshot of the condo markets in Toronto and Vancouver and found that only 17% of units are investor-owned. However, the survey drew criticism for leaving out any measure of foreign investors living abroad. According to The Globe and Mail, 40% of Toronto condos are owned by investors. Other private sector estimates put this figure even higher.
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