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Thursday, February 10, 2011
The Violent Declines the Follow Overbought Rallies
I am as skeptical as the next guy about technical analysis, maybe more so, so I was kind of intrigued when Robert McHugh of Main Line Investors wrote an essay titled “Time Analysis of the Coming Market Top.”
He writes, “We have identified when an extended overbought rally has likely reached its expiration date.” And what is this time frame? “Two and a half months,” he says.
This “two and half months” time frame is particularly intriguing to me, as this is the approximate time it took for my wife to realize that marrying me was the worst mistake of her Whole Freaking Life (WFL).
Without showing the usual sympathy that my wife gets from her friends and family, the parallels are eerily obvious when he goes on that “once this condition reaches the 2.5 month age, the rally not only ends, but a sharp, sometimes violent decline begins.”
Violent declines! That’s it! Of course, there are those who say that since she did not actually hit me with anything that she threw at me, it cannot be termed “violent,” although nobody is contending that it wasn’t a “decline” in our relationship. (more)
5 Reasons to Buy Real Estate or a New Home Now
The term “housing bull” hasn’t been heard much since the Great Recession was burned into the American consumer’s psyche. In fact, bearishness in the housing space has become the new normal, with many potential buyers just deciding that they will wait on that new home until conditions in the market begin to improve — if they ever do. Similarly, many investors won’t touch housing stocks with a 10-foot poll — from the obvious laggards like PulteGroup (NYSE: PHM), which is off -30% in the last year, to builders bouncing back like Toll Brothers (NYSE: TOL) which is up double-digits so far this year.
Well, those conditions are indeed beginning to improve, and that means right now could be the best opportunity to get in on a home at a very attractive price. Let’s take a look at five reasons why pulling the trigger on a new home purchase now could be the right financial move.
Home prices are starting to climb
According to a report from the National Association of Realtors (NAR), sales of existing U.S. homes jumped 12.3% in December. The upbeat month for home sales data comes at the tail end of what was a weak 2010. Annual home sales saw a 4.8% drop in the metric from 2009 levels, but the final month rise in sales could be the beginning of more upside in the sector. The NAR report also shows that although there is still a lot of inventory in the property market, those inventories have been gradually going down. Inventories in December of 3.56 million homes represented 8.1 months of supply, compared with 9.5 months in November. (more)McAlvany Weekly Commentary
INFLATION: No Surprise to Anyone Except Americans
Posted on 09 February 2011.
A Look At This Week’s Show:
-Manufacturers are stocking up early to save on future higher priced supplies
-Unemployment rising, not falling as reported
-China seems to be booming but their household consumption is shrinking
An Oil Options Trade with High Precision This USO spread can be rolled for a continued payoff
Commodities markets recently have been manic with gyrations of the price of materials, metals, and energy. Given these wild fluctuations, let’s consider options trading in the United States Oil Fund (NYSE: USO) that indicates a solid probability of success.
I look at some trades this way: The development of precision high altitude bombing during World War II resulted in a dramatic reduction in casualties while inflicting devastating consequences on enemy forces. I view the sort of option strategy described below as the equivalent of high altitude precision bombing.
As is shown on the daily price chart below, there is substantial support in the region of $35.60 — $36 provided by a recent swing low and the 200-day moving average.
US Oil Fund 200-Day Moving Average
In selecting the structure of option trades, I usually like to consider the volatility environment in which we currently operate. This is important because of the tendency of implied volatility (IV) to revert to its mean. The knowledgeable trader factors this into his trades in order to put the wind at his back. Trades can be selected and constructed to benefit (positive vega trades) or suffer (negative vega trades) from increases in implied volatility. As you can see in the chart below, IV is currently in the lower quartile of its historic value for this specific underlying: (more)
Wednesday, February 9, 2011
Israeli Army Chief Ashkenazi: Prepare for all-out war
In his final days on the job, Chief of Staff Ashkenazi warns about growing radicalization in region; given recent changes across Middle East, Israel must prepare for a battle in several theaters, he says
Boaz Fyler
Boaz Fyler
Given recent changes in the Middle East, Israel must prepare for a battle in several theaters, outgoing IDF Chief of Staff Gabi Ashkenazi said Monday at the Herzliya Conference.
"The connection between the different players requires us to contend with more than one theater," he said.
The radical camp in the Middle East is gaining strength, Ashkenazi warned, adding that "the moderate camp among the traditional Arab leadership is weakening." He also made note of what he characterized as the "fascinating phenomenon" whereby power is shifting to the people of the region thanks to online social networks.
The army chief said that in the wake of the growing threat of radical Islam among Israel's neighbors, the defense budget would have to be boosted in the coming years. The main change faced by the army is the widening spectrum of threats, he said.
"Because of this spectrum, we must prepare for a conventional war…it would be a mistake to prepare for non-conventional war or limited conflicts and then expect that overnight the forces will operate in an all-out-war," he said. (more)
3 Coal Stocks: Buy, Sell or Hold?: PCX, ACI, JRCC
One of my top-performing picks from last year was Patriot Coal(PCX_). This mid-size U.S.-based coal operation gained 25% in 2010. Impressive as that may be, the stock did not really gain any steam until the last three months or so of trading. In fact, shares had been in negative territory when that explosive rally began in September.The gains for Patriot in recent months mirror the gains for the sector. From September to the end of 2010, Patriot shares approximately doubled in value and kept on going right through the first month of 2011. After peaking at $29 per share, Patriot took a step back on Feb. 3 after it was announced that its largest stakeholder, Arclight Capital, had liquidated its 12% position in the company.
In addition to the action in Patriot Coal, the sector received another piece of news with the announcement that Alpha Natural Resources(ANR_) was buying troubled mining operator Massey Energy(MEE_). The $7 billion deal allowed Alpha Natural to surpass bidding from other players, possibly including Arch Coal (ACI_) and Arcelor Mittal(MT_), and represented a 21% premium over current market prices. (more)
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