3 Trends to Watch in 2014

Last December, few people would have expected market returns of 30% in 2013.

I entered 2013 modestly bullish and have consistently recommended staying invested throughout the year.

But this time last year, I was steadfast in my belief that dividend-paying stocks would outperform in 2013 and that “the best values in the world” were in Europe.

Well, so much for that. U.S. stocks have trounced all their peers, and non-dividend-paying stocks have beaten the pants off of their dividend-paying brethren.

As they say, “It’s hard to make predictions, especially about the future.”  (more)

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Home Builders Poised to Ride Jobs Wave

Mortgage rates have been the crucial variable for home builders this year. Next year it may be jobs instead.

This has, on balance, been a good year for home builders. But rising interest rates in the summer put a dent in sales that spooked investors, sending the S&P home-building index down 29% from its peak this year in May to its September trough.

Business bounced back in October, with new homes selling at an annual rate of 444,000, up from September's 354,000. Economists expect the November figures, due Tuesday, will show the recovery remained intact, with an annualized 450,000 homes sold. But investors remain warier than they were in the spring: The home-building index is still 15% below its May high.  (more)

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Chicago Bridge & Iron Company N.V. (NYSE: CBI)

Chicago Bridge & Iron Company N.V. provides conceptual design, technology, engineering, procurement, fabrication, construction, and commissioning services to customers in the energy, petrochemical, and natural resource industries worldwide. The Steel Plate Structures segment offers engineering, procurement, fabrication, and construction services, including mechanical erection services for the hydrocarbon, water, and nuclear industries. The Project Engineering and Construction segment provides engineering, procurement, fabrication, and construction services for upstream and downstream energy infrastructure facilities. The Lummus Technology segment offers licenses, services, catalysts, and proprietary equipment for the hydrocarbon refining, petrochemical, and gas processing industries.
To review Chicago’s stock, please take a look at the 9-month chart of CBI (Chicago Bridge & Iron Company N.V.) below with my added notations:

CBI has been trading sideways for the last month or so. Over that period of time, the stock has formed a clear resistance level at $80 (blue). In addition, the stock has also created a strong level of support at $75 (green) that has held since the 2nd week of November. At some point the stock will have to break one of those two levels.

The Tale of the Tape: CBI has clear levels of support ($75) and resistance ($80). The possible long positions on the stock would be either on a pullback to $75, or on a breakout above $80. The ideal short opportunity would be on a break below $75.
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Will USA Default Or Inflate? Mike Maloney

In the short video below, Mike Maloney from Hidden Secrets of Money explains the two options, Default or Inflate and he gives a very educated guess as to which the US government will decide on and hint, it isn’t the right answer and will only drag the US economy further down the debt hole.

Maloney makes another very good point about freedom being more important than wealth because if you do not have the freedom to keep your wealth from the governments grubby paws, then wealth means nothing.

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This Chart Shows Where the Bull Market Will End

While prices are rising, investors need to maximize their gains. When prices turn down, investors need to minimize their losses. The problem many investors face is worrying about a bear market during the bull market. Worries can be stopped by switching to cash, but then investors miss gains, and failing to take advantage of market gains destroys potential wealth.

We do believe that it is OK to worry about the state of the market. However, we don't believe it is OK to act on those worries without a plan. Investment actions should be based on plans that react to the market, and the 10-month moving average (MA) is the simplest way we know to do this.

Before we explain why, this chart of SPDR S&P 500 (NYSE: SPY) can help highlight the importance of this indicator.  (more)

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JPMorgan: Time Is Ripe For Bottom-Feeding on Gold, Silver Miners

Just when gold and silver miners look the bleakest is when they are the most attractive, according to metals analysts at JPMorgan.

24/7 Wall Street said that while 2014 may appear to be shaping up as a rotten year for miners, JPMorgan believes there is some overlooked value to be found among the waste.

“Central banks around the world are printing money at a furious pace, debasing the value of their local currency,” 24/7 Wall Street reported. “So whether it is a question of gold and silver as a hedge, an industrial commodity or simply a straight contrarian stock trade, the JPMorgan team thinks now is the time to look hard at the top names.”

All of the miner names recommended by JPMorgan trade on the New York Stock Exchange.  (more)

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Triple-Digit Profits Possible With This Dogs of the Dow Strategy

The Dogs of the Dow is a well-known trading strategy. There are a number of variations, but last year I explained how to use call options to capture triple-digit gains from the Dogs. The results are now in for 2013, and a $1,089 investment grew to over $3,000 with my approach. Before looking at what to do now, let's review how I recommend trading the Dogs of the Dow and what happened in 2013.
The basic idea behind the Dogs of the Dow is to buy the 10 highest yielding stocks in the Dow Jones Industrial Average and rebalance the portfolio once a year. The Dow Jones Industrial Average contains 30 of the biggest companies in the world. There is little risk that a company can go into bankruptcy while it is a member of the Dow, and that reduces the risk of buying the stocks. The Dogs are the stocks that offer the best value, using the dividend yield as a measure of value. Over time, the strategy is expected to outperform the index.
Most studies agree that the Dogs of the Dow is an effective stock-picking strategy with the results at least matching the buy-and-hold returns available from the index over the long term.
One of the variations of the strategy is to buy only the five lowest priced stocks from the list of the 10 highest yielding stocks. Most studies find this approach does better than a buy-and-hold strategy.
My recommended variation is to buy long-term call options on the five lowest priced, high-yielding stocks. Last year, I recommended calls expiring in January 2014 that would give us exposure to the stocks for one year. To minimize trading costs, I recommended calls with strike prices as close as possible to the stock's price at the time. The exact options are shown in the table below.

*As of Dec. 19 open

This strategy significantly outperformed buying these five stocks. The gain in the stocks would have been 22.5%. Dividends could have added another 4% or so to the strategy. The Dogs of the Dow had a great year, but my call option strategy did more than six times better.
This year, the five lowest priced, high-yielding stocks and my recommended January 2015 call options are:

Buying these five call options would cost about $1,306. Because these five options would cost much less than 100 shares of each stock, traders are committing a smaller amount of funds to this strategy than they would if they bought each stock. The trading capital saved by using call options could be invested in another strategy, providing diversification and the opportunity for additional gains.
The risk is limited to the price paid for the options. In the unlikely event that all five stocks fall to zero, the trader would lose less than $1,306. If we see a new bear market in 2014, or a significant sell-off in stocks, investors following a buy-and-hold strategy with the Dogs of the Dow stocks could lose much more than that in dollar terms.
Recommended Trade Setup:
-- Buy the five call options identified above to duplicate the Dogs of the Dow strategy
-- Do not use stop-losses
-- Close all trades at the end of 2014
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