Thursday, March 19, 2015

Whiting Petroleum Corp (NYSE: WLL)

Whiting Petroleum Corporation, an independent oil and gas company, acquires, explores, develops, and produces crude oil, natural gas liquids, and natural gas in the Rocky Mountains and Permian Basin regions of the United States. It sells oil and gas to end users, marketers, and other purchasers. As of December 31, 2014, the company’s estimated proved reserves totaled 780.3 million barrels of oil equivalent; and had interests in 4,471 net productive wells across approximately 886,700 net developed acres.
Take a look at the 1-year chart of Whiting (NYSE: WLL) below with my added notations:
1-year chart of Whiting (NYSE: WLL)
WLL has formed a clear resistance at $40 (red). In addition, the stock is climbing a short-term, uptrending support level (green) over the last couple of months. These two levels combined have WLL stuck within a common chart pattern known as an ascending triangle. Eventually, the stock will have to break one of those levels.

The Tale of the Tape: WLL has an uptrending support and a $40 resistance level to watch. A long trade could be made on a breakout above $40 or on a pullback to the trendline. A break below the trendline support would be an opportunity to enter a short trade.
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2 Biotech Stocks under $10 to Scoop up Now: Progenics Pharmaceuticals (NASDAQ: PGNX), IntelliPharmaCeutics International Inc. (NASDAQ: IPCI)

There is just something about an equity selling for under $10.00 a share that appeals to certain investors. Maybe it is the potential thrill of seeing a stock purchased at $8.00 a share soar to $25.00 a share in short order or just the fact that one can buy many more shares of a stock selling for $6.00 a share than one selling for $75.00 a share.
I like stocks under $10 simply because the vast majority come from the small cap arena which has been a focus area of my investing for over two decades and where most of my outsized gains have originated. It is this success and passion that led me to establish the Small Cap Gems portfolio last summer. I particularly like plumbing the small cap biotech and biopharma arenas to find these potential multi-baggers.
Some of the stocks that I originally profiled when they traded in the single digits over the last few months here at Investors Alley now comfortably trade in the mid-teens. These include ZIOPHARMA Oncology (NASDAQ: ZIOP) and Halozyme Therapeutics (NASDAQ: HALO). Hoping to find the same success here are two stocks selling for less than $10 a share that easily could be trading much higher in the foreseeable future. (more)

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Oil glut going from bad to worse, EIA says supplies hit 80-year high

WTI crude (CLJ15.NYM) prices are taking another leg down, hovering at the $42 a barrel level after the U.S. Energy Information Administration reported that "U.S. crude oil inventories are at the highest level for this time of year in at least the last 80 years."

Related: EIA data for the week ending March 15, 2015

EIA reported commercial crude inventories increased by 9.6 million barrels from the previous week. Now at 458.5 million barrels. This follows a huge inventory build of 10.5 million barrels, reported late Tuesday by the American Petroleum Institute. Analysts were expecting just 3.5 million.

Jeff Mower, a director, Americas Oil News, told Yahoo Finance rising supplies are not a surprise because production remains high and refiners are in a seasonal slowdown. "A lot of refiners are down for maintenance and the crude has no place to go." The stronger U.S. dollar has also been a drag on oil prices, however Mower says that is almost irrelevant. "You need to look at the bigger picture," which is ballooning supplies. "There is this connection but it's not really a one-to-one connection considering what's going on fundamentally."
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Beware the bear; it’s time to adjust your investment strategy

Limit the risk of your holdings. Adopt an investment strategy that will let you profit from—rather than be victimized by—bear market conditions.

In theory, January is supposed to indicate how the rest of the year will go. The Stock Trader’s Almanac notes that, as a barometer, January has been a pretty good one. Since 1950, it’s missed only eight times. The caveat here is that three of those misses have been in the past six years.

How have things played out in the two most recent Januarys? January of 2014 ended with a loss of 64 points on the S&P 500 composite index. And January of 2015 was essentially no different; the month came to a close with a loss of 66 points.

It’s worth noting that last year’s loss during January did not act as an accurate prediction regarding market losses for the year. Instead, the S&P 500 closed 11 per cent higher in 2014.
So says Keith Richards, portfolio manager at Barrie, Ontario-based ValueTrend Wealth Management, who reminds us that he noted in his last column here in The MoneyLetter that making predictions surrounding market movements becomes increasingly difficult the further out you project. The potential for longer-termed anomalies presenting themselves increases as you go forward in time. This can and will disrupt your analysis in setting your best long term investment strategy.

S&P 500: Signs of turbulence ahead
So it’s easier to predict markets over a shorter period of time. Having said that, I will stick my neck out a bit here and offer some thoughts as to why I believe the markets may experience a fairly significant correction in 2015.

One of the ways that we at ValueTrend have managed to provide our clients with above-average returns with below-average risk has been through selling when markets look overvalued. A “buy-and-hold” approach can often be a more risky long term investment strategy than a disciplined selling strategy. We believe that the stock markets are overdue for a correction, one that will likely occur in the second half of this year. Several pieces of evidence support this opinion:

■ The Shiller inflation-adjusted Price/Earnings ratio is over 26 times trailing earnings—a level that has preceded corrections in the past.

■ The U.S. dollar has become overbought in the face of that country’s role as the sole leader in global economic growth. The train has to stop at some point. The U.S. Federal Reserve has threatened to raise rates. However, we think it may not take such action as aggressively as some observers are suggesting. This may weaken the greenback, given the anticipation of a more aggressive rate policy than may be the reality.

■ Corrections of more than 20 per cent are normal for a healthy stock market. The U.S. markets have not had such a move since the summer of 2011. The five-year bull/bear cycle—and common sense—suggests we are due for a correction.

■ U.S. presidential electoral cycles suggest strength in the first half of a pre-election year (2015 is such a year), followed by a weaker second half.

■ Volatility has increased from the fourth quarter of 2014 into the current year. This can be a sign of a market transition from a trending market to corrective action.

■ Perhaps most importantly: sentiment indicators are SCREAMING: “overbought”. The so-called “dumb money” (the Street’s less-than-gracious term for retail and mutual fund investors) loves this market. Current levels of optimism have historically led into corrections.

■ Finally, although this is not related to the U.S.A., our economy is and will continue to falter in the face of weak oil prices (which will recover, but not to their old highs any time soon). Thus, the Canadian dollar will likely remain weak, and our bond yields will stay low.
How I will limit market risk
At this point, I remain “long” on the stock market—that’s the opposite of shorting the market—as stocks continue to move up. Bullish seasonality and presidential cycles prevail, along with the overall trend on the markets, which also remains bullish.
However, we at ValueTrend are preparing an investment strategy to limit the risk of the portfolios we manage in the event of a mid-year correction. Such hedging activity—going forward—may include the following:

■ Raising cash. We tend to sell out of seasonally unfavorable sectors and “higher beta” stocks by the spring. (Beta refers to a stock’s volatility compared to the index. A stock with a beta of 1.0 moves in perfect sync with the index. A beta above 1.0 indicates a stock is more volatile than the index.)
One specific sector that we are currently long on, but expect to reduce exposure to is consumer discretionary. We own, but expect to trim our holdings in, the SPDR Consumer Discretionary Exchange-Traded Fund, or “ETF”, (NYSE─XLY).
We also expect to reduce or eliminate our exposure to U.S. small-cap stock exposure, and our U.S. banks exposure. I’ve written about the BMO Equal Weight U.S. Bank ETF (TSX─ZUB) in The MoneyLetter before. We expect to hold this until early spring, and then sell it.

■ Reducing U.S. dollar exposure. We want to reduce the potential downside of a rally on the Canadian dollar as (if-and-when) oil bottoms and recovers. By focusing on selling some, although not all, of our U.S. stocks, we will reduce our exposure to the U.S. dollar, and capture profits made as that currency outperformed the loonie over the past year.

■ Increasing commodity exposure. Ironically, the worst place to be invested over the past few years has been in the commodities trade. However, in light of a potential flattening of the U.S. dollar’s strength, we are considering the entry into certain commodity positions that will benefit from a weaker greenback. Although not a perfect negative correlation, some commodities such as oil and gold can be played against the U.S. dollar.
To play oil, which is our preferred investment strategy as and when that market puts in a bottom, we will be examining commodity-based ETFs such as iPath’s exchange traded note, iPath GSCI Crude Oil (NYSE─OIL), or Horizons NYMEX Crude Oil ETF (TSX─HUC). To trade the energy equities, you can buy an ETF such as iShares S&P/TSX Capped Energy ETF (TSX─XEG) or an individual energy stock.

■ Using hedge-type ETFs. Not all ETFs are designed to benefit from a rising market. Some are designed to rise on a declining stock market.
One of my favorites in the latter category is the Ranger Equity Bear ETF (NYSE─HDGE). This ETF works precisely as it should in a bear market due to its almost perfect negative correlation to the S&P 500. In other words, the ETF tends to rise when markets fall, and vice versa.

The managers of the ETF accomplish this by short-selling stocks that their analysis suggests are overvalued. While not a security to own in a bull market (given the fact that all ships tend to rise with the tide, which will negatively affect this ETF), Ranger Equity Bear ETF can hedge your risk in a declining market.

By owning such an ETF, you are investing in a strategy that shorts the companies most likely to fall in a bear market. I favour this type of hedging strategy over buying inverse ETFs.

The limits of using hedge-type ETFs
Having said that, I recommend holding only enough of such an ETF to offset the volatility that you perceive your other portfolio holdings may experience during a declining stock market. I do not recommend “betting” on a bear market by holding bearish ETFs as your sole investment strategy.

Investors do not need to be the victims of a bear market. By considering the above strategies, you can limit the risk of your holdings, and profit by—rather than be victimized by—bear market conditions.
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Stryker Corporation (NYSE: SYK)

Stryker Corporation, together with its subsidiaries, operates as a medical technology company. The company operates through three segments: Orthopaedics, MedSurg, and Neurotechnology and Spine. The Orthopaedics segment offers implants used in hip and knee joint replacements, and trauma and extremities surgeries. The MedSurg segment provides surgical equipment and surgical navigation systems, endoscopic and communications systems, patient handling and emergency medical equipment, and reprocessed and remanufactured medical devices, as well as other medical device products for use in various medical specialties. The Neurotechnology and Spine segment offers neurosurgical and neurovascular devices that include products used for minimally invasive endovascular techniques; products for traditional brain and open skull base surgical procedures; orthobiologic and biosurgery products.
Take a look at the 1-year chart of Stryker (NYSE: SYK) below with added notations:
1-year chart of Stryker (NYSE: SYK)
After rallying nicely from mid-October until the end of December, SYK has been trading sideways over the last 3 months. During the sideways move the stock has formed a common pattern known as a rectangle. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern.
SYK’s rectangle pattern has formed a resistance at $96 (blue) and a $90 support (green). At some point the stock will have to break one of the two levels.

The Tale of the Tape: SYK is trading within a rectangle pattern. The possible long positions on the stock would be either on a pullback to $90 or on a breakout above $96. The ideal short opportunity would be on a break below $90.
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