Month: January 2014

By CentralBankNews.info

by Mitchell Clark, B. Comm.

The Dow Jones Transportation Average is still very close to its all-time high, and so are countless component companies. The airlines, in particular, have been very strong in a classic bull market breakout performance. Many of these stocks have roughly doubled over the last 12 months.

Commensurate with continued strength in the Russell 2000 index of small-cap stocks and year-to-date outperformance of the NASDAQ Composite, this is still a very positive environment for equities. The NASDAQ Biotechnology Index continues to soar.

While strength in transportation stocks is a leading indicator for the U.S. economy, so is price strength in small-caps. Smaller companies are more exposed to the domestic economy, and while it’s too early for many of these companies to report fourth-quarter earnings, the Russell 2000 has outperformed the Dow Jones industrials and the S&P 500 over the last five years, confirming the primary upward trend.

Instead of an actual correction in stocks, we’ve only experienced price consolidation; the latest being in blue chips since December.

This is very much a market in need of a pronounced price correction, if only to realign expectations with current earnings outlooks. Fourth-quarter numbers, so far, are mostly showing limited outperformance, and those companies that have beat consensus are still, for the most part, just confirming existing guidance, not raising it. If this is a secular bull market, it’s time for a break.

A meaningful price correction in stocks would be a very healthy development for the longer-term trend. Corporations are in excellent financial shape, and the short-term cost of money is cheap and certain.

In order for this market to turn in a meaningful way, a major catalyst must occur to change investor sentiment. There is mostly certainty from the Federal Reserve this year regarding short-term interest rates and quantitative easing (QE) tapering. The absence of the recent budget deal could have been a major catalyst, but policymakers chose to avoid another showdown.

The sovereign debt crisis in Europe is not over, but it is being dealt with and for the time being, capital markets aren’t worried. There’s always the potential for a major derivative trend going bad or a negative geopolitical event cropping up, but these can’t be predicted.

What’s left in terms of a market-changing catalyst is the performance of corporations themselves and the valuation the market is willing to attribute to earnings. Stocks were overbought in the fourth quarter of 2013, and the trading action is looking tired.

In this market, there is not a lot of new action to take. Countless stocks including those with the best prospects for growth this year are fully—if not expensively—valued.

The best action to take now is to reevaluate your portfolio risk and make a wish list of those stocks you’d like to own if they were more attractively priced. (See “Stock Market Focus to Shift in 2014.”)

Current fundamentals still favor equities, and the market will bid outperformance, but I wouldn’t chase anything in this market. Any extra cash would be worth sitting on in anticipation of a well-deserved stock market correction, so keep that wish list handy.

This article Stock Market: Where the Real Risk Is in 2014… was originally posted at Profit Confidential.

by Michael Lombardi, MBA

I have said it many times: central banks will be the major drivers of gold bullion prices going forward. Countries like China and Russia will need more of the yellow metal, because they simply don’t have enough in their reserves compared to the United States, France, Germany, or Italy (the four central banks with the biggest gold bullion reserves).

A news story that ran last week in the Shanghai Daily said the People’s Bank of China is expected to announce it has more than doubled its gold bullion reserves—from 1,054 tons to 2,710 tons. The article explained that China’s central bank bought about the same amount of gold in 2013 that it did during the years from 2009 through to 2011 combined! (Source: Shanghai Daily, January 17, 2014.)

Yes, I hear the stories of how gold prices are being manipulated. But how long can the manipulation—if it really does exist—go on in light of such aggressive gold buying from central banks like China’s?

In 2013, the Bundesbank, the central bank of Germany, said it would like to bring half of its gold bullion stored at the central bank of France and the U.S. Federal Reserve back to Germany. This amounts to 674 tons. But Germany was told it would take seven years to get the gold back to Germany!

In 2013, only 37 tons of the gold bullion came back to the Bundesbank: five tons came from the Federal Reserve and the rest came from France. (Source: Kitco News, January 20, 2014.) So where’s the gold? If the Bundesbank is bringing back only five percent of its gold each year, it’s going to take 20 years for the country to get back its 674 tons of gold bullion…forget the seven years promised!

Why can’t Germany get its gold back? Do Western central banks really have any gold left in their reserves or have they sold it all? And why is China, now the world’s second-largest economy, buying so much gold? These are questions that lead me to one conclusion: gold prices should be a lot higher than they are today.

Dear reader, the majority of “stuff” I read from analysts and economists these days says the 12-year run in gold bullion is over…the U.S. economy is getting better and gold has no reason to go back up. Hogwash, I say.

After a 12-year bull market in gold prices, the correction came in 2013. The depth of the correction caught many gold investors by surprise. And many investors have given up on gold’s future. It’s at that point, when the speculators have left the market, that a correction in an upward-moving market completes itself and the bull resumes. I’ve seen it happen countless times…it’s exactly what’s happening with the 12-year-old bull market in gold bullion.

A massive price shock is coming to the gold market…and it will be on the upside.

This article Massive Shock Coming to the Gold Market Soon? Was originally posted at Profit Confidential.

By George Leong, B. Comm.

The more this stock market rises, the more we are seeing the bears emerging from the woods, talking about how a nasty stock market correction is on the horizon.

In my opinion, based on the last few years, we could see the stock market correct about five percent or so. A sell-off could also be much more if triggered by a major event, such as really bad earnings or an increase in the rate of tapering by the Federal Reserve.

But while I do feel the stock market is vulnerable, I also believe stocks will advance higher this year, as long as the economy and jobs market continue to improve. (Read “Could This Bull Market Last a Decade—Or Longer?”)

Of course, there are also the bears out there who are becoming increasingly agitated with every passing day and every new record set by the S&P 500 and Dow Jones Industrial Average.

It’s not that these short-sellers are wrong. In fact, many of the companies these bearish investors decide to short are indeed bad companies that don’t deserve to partake in the overall bullish bias in the stock market. The problem faced by these short-sellers, which I have also faced in my trading, is their inability to fight the upside momentum that has encased this bullish stock market.

Look at the horrible downward move by the ProShares Short S&P500 (NYSEArca/SH) exchange-traded fund (ETF) in the chart below.

            Chart courtesy of www.StockCharts.com

Just when you think the stock market should be headed downward, nothing happens or we see a rally following a small down day. That’s the way it was in 2013.

I was listening to an interview by Brad Lamensdorf, co-manager of AdvisorShares Ranger Equity Bear ETF (NYSEArca/HDGE), and what I heard was much of the same that I’ve been saying about the stock market for some time. Regardless of some poor underlying metrics, stocks have headed higher. (Source: Lewitinn, L., “Here are four reasons to be short the market: Portfolio manager,” Talking Numbers, Yahoo! Finance web site, January 21, 2014.)

You can kind of hear the frustration in Lamensdorf’s voice as he discusses the reasons why he is bearish on the stock market and expects a nasty correction this year. Essentially, Lamensdorf is suggesting a stock market correction is on the horizon due to four negative metrics—bullish sentiment polls, aggressive insider selling, high margin debt, and low credit spreads.

Now, I agree these are valid reasons why the stock market should be set for a major adjustment, but the same variables were present in 2013. If you shorted last year, the result would’ve been horrible, as you would’ve not only missed out on the gains, but you would’ve also suffered major losses when you had to scramble to short cover.

So while I do feel a correction is due, I don’t believe you should be shorting due to the high risk of losses. Rather, I would suggest playing a downside correction via more manageable risk-oriented put options on ETFs, stocks, key stock indices, or sectors.

This article 2014: The Year of the Short Seller? Was originally posted at Profit Confidential.

by George Leong, B. Comm.

When it comes to love, we often hear the phrase, “Beauty is in the eye of the beholder.” Well, the same could be said for the stock market.

Many investors look for the companies that deliver consistent results and satisfy the number-crunchers on Wall Street. While I belong to that group, I also take alternative views and search for companies that are the so-called dogs of the stock market. However, as our theme suggests, choosing in the stock market based only on a company’s outer appearance doesn’t always produce the best outcome.

Think about it this way: Why always select the stocks that are in favor by the stock market? Often, you may be the last to the dance, so you end up chasing stocks that have already made major stock market moves—the upside is limited.

I like looking at distressed companies that are facing some hurdles but have enough upside potential to make these stocks a worthwhile trade in the stock market. These plays are often referred to as contrarian investments—companies that are out of favor but have enough potential to demand a closer look in the stock market. In this case, you are often buying a company at a low valuation and price, as the stock market has turned against them.

I like these contrarian situations, as the potential upside is significant if these companies can turn around their operations.

In the past, I have highlighted opportunities such as Groupon, Inc. (NASDAQ/GRPN) and Facebook, Inc. (NASDAQ/FB)—both of which made spectacular gains thereafter. (Read “Why Macy’s Is Such a ‘Good’ Retail Play.”)

Nokia Corporation (NYSE/NOK) was another contrarian pick that I thought had excellent upside potential in the stock market after declining to the $3.00-per-share level. Since then, the stock has more than doubled.

The key to contrarian investing is to look for companies that have solid businesses or are in the midst of a strategic change that could turn the company’s fortune around. Of course, you need to be aware of the associated risk, as many of these companies may fail to reverse course. J. C. Penney Company, Inc. (NYSE/JCP), for example, is facing debt and growth issues in the retail sector. This company was an icon in American retail for more than 100 years, but now, it could be headed for bankruptcy. I’m not a buyer here, as the risk far outweighs the reward in my assessment.

In the auto segment, two contrarian picks investors may consider include General Motors Company (NYSE/GM) and Ford Motor Company (NYSE/F).

Back in 2008, following the subprime credit crisis, I also liked the big banks after they plummeted to as low as $1.00 a share for Citigroup Inc. (NYSE/C).

A small restaurant stock that is currently out of favor with the stock market but may be worth a look for the contrarian investor looking for a big upside trade may be Ruby Tuesday, Inc. (NYSE/RT). Hovering around $6.00, the company is working hard to turn things around and if it’s successful, Ruby Tuesday could regain its luster in the stock market.

This article The Company I Like Among the “Out-of-Favor” Stocks was originally posted at Profit Confidential.

Article by Investazor.com

Thursday is a busy day at the office with one of the most iconic three brands on earth reporting their financial earnings: Microsoft, McDonald’s and Starbucks.

I will start with McDonald’s, its logo being probably the most recognizable on the globe and happens to be the largest global chain of fast food restaurants. Based on the company’s recent evolution, McDonald’s remains a safe instrument for investing in the long term, presenting some stagnancy over the last year, up only 5% in the last twelve months. The same picture we find if we look at the quarterly earnings history for the most recent four quarters, which is consistency. Whether the EPS was better or worse than the consensus forecast, the surprise was too small to make a difference in the shares price.

McDonald’s is expected to report EPS of $1.39 on revenues of $7.11 billion for the last quarter of 2013 and in my opinion we don’t have big chances to see anything special from McDonald’s this quarter either. Let’s now take a look at the technical analysis.

Since March, McDonald’s shares were in a descending channel, being traded for the moment at $95. A negative surprise would easily take the price around the support zone at $94, which if it will be broken, could send the price even lower at $91.11, the corresponding quotation for the 61.8 Fibonacci level. A better than forecast EPS would be such a big surprise for the markets that the upward movement generated by it could drive the price towards the resistance level at $99.

The next big brand in line is Microsoft that was going through a corporate reorganization last year and now is looking for the next CEO, expected to be announced within the next few months. Looking back a year ago, earnings are expected to decline, with the average analyst estimate of $0.68 per share down from $0.75 per share in the same period last year. Last quarter, Microsoft beat earnings estimates by nearly 15%, and another beat could be in the cards if analysts are being too pessimistic.

But, analysts are quite optimistic on Microsoft and they are expecting revenue for the quarter to grow with an average of $23.68 billion, up 10.4% from the same quarter last year. The release and the success of the Xbox One is one of the key drivers that analysts think it will help to grow the revenues.

The bullish sentiment is backed up by the technical analysis with an Inverted Head&Shoulders looming on the horizon. But, this kind of H&S is a rare one because is a continuation pattern, the textbook definition for H&S being a reversal one. So, some strong revenue numbers and an EPS slightly above the consensus could put the price in the position of challenging the resistance line at $37.60. Then, a close above this area can give the shares the boost needed to retest the high from $39.

The last, but not the least is Starbucks, one of the biggest and well known coffee retailers on the planet with over 20,000 stores in 62 countries worldwide.  Over the past year, its stock soared to all-time highs and has made it one of the most talked about businesses on Wall Street.

In a turn of events, Starbucks has started 2014 on the wrong foot, being down 6% for the year. Goldman Sachs wrote that it was concerned about slowing same-store sales in the U.S. and downgraded the coffee company from “strong buy” to “buy”. Goldman’s price target dropped to $86 from $91. The coffee company is expected to report EPS of $0.69 on revenues of $4.30 billion, which is in line the management view that said it expects first-quarter earnings to be in the range of $0.67 to $0.69.

The chart doesn’t look too good, with a Head & Shoulders already confirmed and going towards the pattern price target. So, any number which will be in disagreement with the market consensus can be the right pretext to easily drive the price on the recent descending trend to the $69 level or even lower, hitting $65 per share.

The post Busy Day At The Office With Microsoft, McDonald’s And Starbucks Reporting appeared first on investazor.com.

Robert Prechter: “Charts tell the truth. Let’s look at some charts.”

By Elliott Wave International

During QE3, the latest round of the Fed’s quantitative easing, the stock market rose. We all know that.

But did you also know that commodities fell?

That’s right: QE3 had zero effect on commodities — or maybe even a negative effect. In fact, an unbiased observer of the trend might conclude that the Fed drove commodity prices down.

That, of course, would be heresy to investors who believe that the Fed’s actions have been inflating all financial markets.

What should you make of the fact that commodities have failed to respond to the massive, historic, unprecedented central-bank stimulus? We see it as a red flag.

What’s more, you may be surprised to know that not one of the Fed’s stimulus programs — QE1, QE2 and QE3 — pushed up commodity prices.

As Robert Prechter, the president of Elliott Wave International, wrote in his November 2013 Elliott Wave Theorist, “Charts tell the truth. Let’s look at some charts.” These four charts and analysis that he published in May, July, and November 2013 tell the story:

(Robert Prechter, July 2013 Elliott Wave Theorist)

The CRB index of commodities has been losing ground for more than two years, as shown in Figure 3. Notice the four short arrows on the chart. Based on their positions, you might think they would mark the timing of accurate sell signals generated by a secret indicator. But there’s no secret indicator. These happen to be the times at which the Fed launched its inflationary QE programs!

Investors almost universally take news at face value rather than paradoxically as they should. So they believed the Fed’s QE actions would be bullish for commodities. But — ironically yet naturally — every launch of a new QE program provided an opportunity to sell commodities near a high.

The first time the Fed bought a slew of new assets (QE0) was in 2008, and commodities went straight down during the entire buying spree.

QE1 (see below) was just a swapping of assets, not new buying, so it wasn’t inflationary; ironically, commodities rose during this time.

Commodities rose a little bit after the inflationary QE2 started but ultimately went lower. Since QE3 and QE4 — the two most aggressive programs of inflating the Fed has ever initiated — commodity prices have been trending lower as well.

Are commodities just late and poised to soar? I don’t think so. Figure 4 shows a chart of the CRB index published in The Elliott Wave Theorist back in May 2011.

It shows a three-step, countertrend rally … inside of a parallel trend channel … at a [Fibonacci] 62% retracement … thus giving three reasons to expect a peak at that time. [Indeed] the CRB index has trended moderately but persistently lower since then.

Prechter gave another update in his November 2013 Elliott Wave Theorist:

Commodities are in a bear market. Figure 1 proves that the Fed’s feverish quantitative easing (QE) — i.e. record fiat-money inflating — is not driving overall prices of goods higher.

The bear market in commodities began two months before the Fed’s massive asset-buying program began. Despite the Fed’s inflating at a 33% rate annually for five straight years, commodities are still slipping lower.

Prechter’s final point from the November 2013 Elliott Wave Theorist summarizes it best:

None of the believers in omnipotent monetary authorities and their pledges to inflate saw any of those changes coming. Meanwhile, we couldn’t see how it could turn out any other way.

The largest inverted debt pyramid in the history of the world is the reason that QE won’t work. The future is already fully mortgaged.

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by Mitchell Clark, B. Comm.

With U.S. oil and gas production surging, you’d expect a company like Halliburton Company (HAL) to be doing well. The company is a major provider of hydraulic fracturing services, otherwise known as “fracking.”

However, the surprise in the company’s latest results wasn’t financial strength in domestic operations, but in business conditions in the Middle East and Asian markets. The company’s 2013 fourth-quarter revenues grew to a record $7.6 billion, up two percent sequentially.

For the year, the company noted that Eastern hemisphere operations provided 17% year-over-year growth, while also contributing a 23% gain to adjusted operating income.

In comparison, North American fourth-quarter sales fell one percent and adjusted operating income dropped six percent due to weather-related disruptions and holidays.

The company just slightly beat consensus and the stock sold off on the news.

We’ve been getting quite a few stocks selling off after reporting, which is more normal trading action.

Johnson & Johnson (JNJ), a benchmark stock, also sold off after reporting fourth-quarter revenue and earnings that beat consensus, conservatively guiding 2014 earnings per share to the low end of the forecast.

Delta Air Lines, Inc. (DAL) moved a point higher after the company announced a strong fourth quarter on lower fuel costs. Management expects meaningful margin expansion this quarter. This stock has doubled since last April and is a bullish indicator for the U.S. economy.

On balance, the numbers, so far, are decent, but they aren’t really strong enough to warrant new bidding action, largely because stocks are already fully valued.

If anything, fourth-quarter earnings results should be justifying current share prices. A company’s latest financial results are like confirmation of last year’s share price appreciation. Strong share price action should really only occur if corporate outlooks exceed previous forecasts.

With this in mind, this stock market is very much a hold. As companies often do, dividend increases were announced in the fourth quarter, so there shouldn’t be a lot of big dividend news this earnings season. I find company dividend increases are often more prevalent in the bottom half of the year. For now, we’ll probably get more share buyback announcements and more stock splits.

Stocks selling off after meeting fourth-quarter guidance is perfectly healthy. (See “Top Market Sectors for 2014.”) If there isn’t going to be a correction, then prolonged consolidation is useful in terms of allowing earnings to catch up with share prices.

Dividend-paying blue chips are still a favorite place to be, and I see no reason why they can’t tick higher over the next several years, given current information. Large corporations have the economies of scale, the pricing power, and the best potential for margin expansion.

But generally speaking, a fully invested, balanced portfolio of stocks doesn’t require much in the way of new positions after 2013’s incredible performance. Valuations among more speculative issues are extreme and while the market’s top growth stories can always tick higher if the broader market is strong, current trading is pretty subdued.

The adage “sell in May, and go away” is a real possibility again this year in terms of price consolidation. There’s no need to sell blue chips; there’s not much reason for big new positions either.

This article Earnings Finally Catching Up to Stocks This Reporting Season? Was originally posted at Profit Confidential.

By HY Markets Forex Blog

Crude prices fell during Asian trading hours on Thursday, dropping for the first time in four days amid speculation fuel demand from China will slowdown, following the release of the downbeat manufacturing data from China.

The North American West Texas Intermediate for March delivery lost 0.04% to $96.70 per barrel on the New York Mercantile Exchange at the time of writing. While Brent for March settlement slid 0.24% low, trading at $108.02 per barrel on the ICE Futures Europe exchange at the same time. The European Benchmark crude stood at $11.36 premium to WTI.

Crude – China

China’s PMI for January came in lower than expected, standing at 49.6, data from HSBC Holding PLC and Markit Economics confirmed. Dropping below the previous month’s flash reading of 50.5 and down from analysts forecast of 50.3; a reading below the 50-mark indicates contraction.

The downbeat manufacturing data reveals demand for crude from the world’s second biggest economy will slow.

“Weaker PMI will translate to slowing China oil demand,” said Gordon Kwan , the regional head of oil and gas research at Nomura Holdings Inc. in Hong Kong “Expect oil prices to drift much lower after the ‘U.S. Arctic Express’ cold weather departure.”

Crude – US Stockpiles

In the US, crude stockpiles rose by 4.86 million barrels in the week ended January 17, according to the report released by the American Petroleum Institute (API). The report was delayed due to the Martin Luther King Jr. Day holiday in the US.

Distillate stockpiles, including heating oil and diesel declined by 2.29 million barrels last week, reports from API confirmed.

Stockpiles report from the Energy Information Administration (EIA) is expected to be released later in the day.

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By HY Markets Forex Blog

Stocks in Europe opened lower on Thursday as market participants focus on the release of Purchasing Managers’ Index (PMI) deliveries from Germany and the eurozone as a whole.

The European Euro Stoxx 50 slid 0.22% lower at 3,145.50, while the French CAC 40 opened 0.05% lower at 4,322.80. At the same time the German DAX edged 0.29% lower to 9,691.50 and the UK FTSE 100 declined 0.12%, standing at 6,817.80.

On Wednesday, major stocks in Europe closed in negative territory following the release of the earnings deliveries from three major companies.

Meanwhile in Spain, the Labour Ministry for the country posted the unemployment rate which rose 26.03% higher in the fourth quarter of last year.

Stocks – Europe PMIs

The flash Manufacturing Purchasing Managers’ Index (PMI) for France advanced to 48.8 points in January, rising from the previous month’s final reading of 47.0 and beating analysts forecast of 47.5 points; reports from Markit Economic confirmed.

In Germany, the manufacturing sector and services PMI are expected to show an improvement this month.

The manufacturing sector for the eurozone is expected to show a slight improvement while services PMI for the eurozone is forecasted to show a rise to 51.2 in January, slightly higher from the reading of 51 seen in the previous month.

Flash PMIs for will be released later during the day.

Stocks – China

China’s PMI for January came in lower than expected, standing at 49.6, data from HSBC Holding PLC and Markit Economics confirmed. Dropping below the previous month’s flash reading of 50.5 and down from analysts forecast of 50.3; a reading below the 50-mark indicates contraction.

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