Month: March 2011

By Zachary Scheidt, Editor, Taipan’s New Growth Investor and Velocity Trader, taipanpublishinggroup.com

Note from Editor Sara Nunnally: Yesterday, Jared gave you some indicators to watch out for if the market’s about to drop. Today, I want to share with you an article from Zachary Scheidt that talks about what to do if a position or market does happen to turn against you, with a real-life example from Taipan’s New Growth Investor.

In short, there’s always a growth story out there somewhere…

Here’s Zach’s article.

Cutting Risk and Sticking With Our Bullish Growth Trends

Earnings season is always an interesting time for us as New Growth Investors. Each quarter we get the chance to review the growth prospects for each of our companies, and determine whether holding the position still makes sense.

At times, these earnings reports can be very exciting… I always like to hear about my companies growing revenue, introducing new products, entering new markets and basically expanding their business. That’s what New Growth is all about, and it’s very rewarding (both intellectually and financially) when our ideas pan out.

Other times, earnings season can give us reason to pause and reconsider our positions. Every time I recommend a new position, I expect to be able to generate a 100% return or more — within the next six to 18 months. But markets continually shift and sometimes growth stories run into new challenges.

When this happens, it’s best to cut our position and look for new ideas. After all, there are so many great growth stories in play, it doesn’t make sense to tie up our capital in a situation that isn’t working out well — when we could be invested in a much more dynamic opportunity.

The very best investors in the world (both professional as well as individual) almost always have one character trait in common: They let their winners continue to run, while they cut their losers out with minimal damage.

Today, we’re going to look at two of our positions — one that is continuing to exhibit New Growth characteristics, and one that has run into some challenges. Cutting our losing or breakeven trades, while letting the strong positions continue to trend higher, will keep us compounding our profits, with risk firmly in check.

(By the way, investing doesn’t have to be complicated. Sign up for Smart Investing Daily and let editors Jared Levy and Sara Nunnally simplify the stock market for you with their easy-to-understand investment articles.)

AIG Casts a Shadow on Municipal Bonds

This week the mega-insurer AIG announced “true” earnings for the first time in about two years. You’ll recall the complete mess when the insurance company got in over its head, guaranteeing “safe” mortgage securities on an incredibly leveraged basis.

AIG had to be bailed out by Uncle Sam (more accurately by you and me — the taxpayers) and has only recently begun to look like a real company instead of a propped-up government entity.

Our New Growth investment Assured Guaranty (AGO:NYSE) is in a similar business to AIG. AGO guarantees financial securities, with a focus on municipal bonds. In other words, if a municipality is unable to make payment on their bonds, AGO is contractually obligated to step in and make the investors whole. For this service, AGO receives a premium (or fee) and if the statisticians do their job right, the fees should outweigh the insurance payments over time.

Originally I liked AGO because it steered clear of the risky mortgage market and focused on more stable municipal bonds. But as you know, the municipal bond market has had its own set of challenges over the past several quarters. This week, AIG pointed to the municipal bond market as one of the major risks for the coming year — a statement that will likely cause investors to think twice about AGO.

Without going into too much detail, I’ll tell you that I don’t think the municipal market will capsize AGO. The management team has strong risk controls in place, and plenty of capital to absorb potential losses.

But sometimes the investment game is more about perception than reality. Think about it… If mutual fund managers and hedge fund traders view AGO as “very risky,” they won’t buy the stock based on this perception. Without these buyers supporting the stock, AGO could continue to trade at its current level for months — until something happens to make investors realize the risk is contained.

I don’t want to wait six months for this to happen…

We have too many great New Growth opportunities in the pipeline to keep our capital tied up in a stock that is range-bound. So today, we’re going to kick out AGO and focus on the growth opportunities that are more likely to show us profits over the next several months.

Editor’s Note: Zach’s advice about letting go of losing stocks may be emotionally hard to do, but it will make your portfolio stronger — and you a better investor. But this wasn’t all that Zach had to say in his article. He unveiled his latest research in a hot Latin American sector in his New Growth Investor article from Feb. 25, 2011.

New Growth Investor subscribers can access the full article online now, and those interested in learning more about Zach’s service in this investment report.

About the Author

Zach Scheidt is the Editor of Taipan’s New Growth Investor and Velocity Trader, two of Taipan Publishing Group’s financial research investment newsletters. Zach’s experience as a hedge fund manager has given him the skills to manage sizeable investments of a number of private investment partners and develop advanced investment strategies to make the highest returns possible.

For Taipan’s New Growth Investor, Zach researches and profiles innovative new companies capable of creating long-term wealth regardless of the state of the stock market. He focuses on high-yield dividend stocks and provides simple long-term investment strategies. For Velocity Trader, Zach carefully scans thousands of stocks, looking for companies that have the potential to make huge stock price moves. He then uses option trading strategies to identify short-term investment opportunities for significant gains.

Here’s what to be on the outlook for in earnings and economic reports for next week, the week of March 14th. On Monday, watch for ZAGG Inc.’s earnings after the closing bell. No economic reports of note are due out on the 14th. As for Tuesday, March 15th, there are no notable earnings reports, but expect economic data on Empire Manufacturing at 8:30AM ET and the FOMC Rate Decision at 2:15PM ET. Mid-week, we have earnings reports from General Maritime Corp (GMR) and Guess? Inc. (GES), both after the closing bell, as well as from Citadel Broadcasting Corp (CDELA). Look for Housing Starts, Building Permits and the Producer Price Index all at 8:30AM ET on Wednesday, March 16th. Thursday, March 17th sees only a couple earnings of note from FedEx Corp (FDX) before the bell and NIKE Inc. (NKE) after market close. However, it’s a big day for economic data with the release of the Consumer Price Index and Initial Jobless Claims at 8:30AM ET, Industrial Production at 9:15AM ET, and Leading Indicators and the Philadelphia Fed reports following at 10AM ET. Friday, March 18th will wrap up the week with earnings from Perry Ellis International (PERY) and ATP Oil & Gas Corp (ATPG). No economic or afternoon earnings reports are scheduled for release on Friday.

GBPUSD traded in a range between 1.5962 and 1.6343 for several weeks. The price action in the range is treated as consolidation of uptrend from 1.5344. As long as 1.5962 key support holds, uptrend could be expected to resumed, and another rise towards 1.7000 is still possible after consolidation. However, a breakdown below 1.5962 key support will indicate that the rise from 1.5344 had completed at 1.6343 already, then the following downward move could bring price back to 1.5500 area.

For long term analysis, GBPUSD is in uptrend from 1.4230, as long as 1.5296 key support holds, one more rise towards 1.8000 is still possible.

Weekly Forex Forecast

By Elliott Wave International

We can now add the recent uprisings in North Africa and the Middle East to the category of life imitating art — specifically, music lyrics. Those who lived through the 1980s might be forgiven for hearing an unbidden snatch of music run through their heads as they watched first Hosni Mubarak and now Moammar Gadhafi try to hold onto power — “Should I Stay or Should I Go” by The Clash. In Libya, where Gadhafi has used air strikes and ground forces against the rebels, The Clash’s other huge hit from 1981, “Rock the Casbah,” describes the current situation so well it’s almost eerie:

The king called up his jet fighters
He said you better earn your pay
Drop your bombs between the minarets
Down the Casbah way

Punk rock played by bands like The Clash, X, The Ramones, and the Sex Pistols had that in-your-face, defy-authority attitude that crashed onto the scene in Great Britain and the United States in the ’70s and ’80s. It’s interesting that the lyrics can still ring true 30 years later, but even more trenchant is how the prevailing mood is reflected by the music of the times, as seen in this chart that Robert Prechter included in a talk he gave last year.

Popular culture reflects social mood, and the stock market reflects that same social mood. That’s why we get loud, angry music when people are unhappy with their situation; they want to sell stocks. We get light, poppy, bubblegum music when they feel happy and content; they want to buy stocks. In a USA Today article about music and social moods in November 2009, reporter Matt Frantz made clear the connection that Elliott Wave International has been writing about for years:

The idea linking culture to stock prices is surprisingly simple: The population essentially goes through mass mood swings that determine not only the types of music we listen to and movies we watch, but also if we want to buy or sell stocks. These emotional booms and busts are followed by corresponding swings on Wall Street.

“The same social elements driving the stock market are driving the gyrations on the dance floor,” says Matt Lampert, research fellow at the Socionomics Institute, a think tank associated with well-known market researcher Robert Prechter, who first advanced the idea in the 1980s. [USA Today, 11/17/09]

In the talk he gave to a gathering of futurists in Boston, Prechter explained how the music people listen to relates to social mood and the stock market:

When the trend is up, they tend to listen to happier stuff (see chart). Back in the 1950s and ‘60s, you had doo-wop music, rockabilly, dance music, surf music, British invasion — mostly upbeat, happy material. As the value of stocks fell from the 1960s into the early 1980s, you had psychedelic music, hard rock, heavy metal, very slow ballads in the mid-1970s, and finally punk rock in the late ’70s. There was more negative-themed music. [excerpt from Robert Prechter’s speech to the World Future Society’s annual conference, 7/10/10]

Which brings us right back to punk rock. Although there’s lots of upbeat music in the air now, we can assume that after this current bear market rally, we will hear angrier music on the airwaves as the market turns down. It might be a good time, then, to pay attention to what the markets were doing the last time punk rock blasted the airwaves. Here’s an excerpt from “Popular Culture and the Stock Market,” which is the first chapter of Prechter’s Pioneering Studies in Socionomics.

The most extreme musical development of the mid-1970s was the emergence of punk rock. The lyrics of these bands’ compositions, as pointed out by Tom Landess, associate editor of The Southern Partisan, resemble T.S. Eliot’s classic poem “The Waste Land,” which was written during the ‘teens, when the last Cycle wave IV correction was in force (a time when the worldwide negative mood allowed the communists to take power in Russia). The attendant music was as anti-.musical. (i.e., non-melodic, relying on one or two chords and two or three melody notes, screaming vocals, no vocal harmony, dissonance and noise), as were Bartok’s compositions from the 1930s.

It wasn’t just that the performers of punk rock would suffer a heart attack if called upon to change chords or sing more than two notes on the musical scale, it was that they made it a point to be non-musical minimalists and to create ugliness, as artists. The early punk rockers from England and Canada conveyed an even more threatening image than did the heavy metal bands because they abandoned all the trappings of theatre and presented their message as reality, preaching violence and anarchy while brandishing swastikas.

Their names (Johnny Rotten, Sid Vicious, Nazi Dog, The Damned, The Viletones, etc.) and their song titles and lyrics (“Anarchy in the U.K.,” “Auschwitz Jerk,” “The Blitzkrieg Bop,” “You say you’ve solved all our problems? You’re the problem! You’re the problem!” and “There’s no future! no future! no future!”) were reactionary lashings out at the stultifying welfare statism of England and their doom to life on the dole, similar to the Nazis backlash answer to a situation of unrest in 1920s and 1930s Germany.

Actually, of course, it didn’t matter what conditions were attacked. The most negative mood since the 1930s (as implied by stock market action) required release, period. These bands took bad-natured sentiment to the same extreme that the pop groups of the mid-1960s had taken good-natured sentiment. The public at that time felt joy, benevolence, fearlessness and love, and they demanded it on the airwaves. The public in the late 1970s felt misery, anger, fear and hate, and they got exactly what they wanted to hear. (Luckily, the hate that punk rockers. reflected was not institutionalized, but then, this was only a Cycle wave low, not a Supercycle wave low as in 1932.)

In summary, an “I feel good and I love you” sentiment in music paralleled a bull market in stocks, while an amorphous, euphoric “Oh, wow, I feel great and I love everybody” sentiment (such as in the late ’60s) was a major sell signal for mood and therefore for stocks. Conversely, an “I’m depressed and I hate you” sentiment in music reflected a bear market, while an amorphous tortured “Aargh! I’m in agony and I hate everybody” sentiment (such as in the late ’70s) was a major buy signal.

Popular Culture and the Stock Market. Read more about musical relationships to social mood and the markets in this 40-page-plus free report from Elliott Wave International, called Popular Culture and the Stock Market. All you have to do to read it is sign up to become a member of Club EWI, no strings attached. Find out more about this free report here.

Internet video giant YouTube said late Thursday in a blog posting it is looking to grow its workforce by 30% in 2011. The company, owned by Google (GOOG) noted this would mark the largest surge in hiring in its six year history.

By Sara Nunnally, Editor, Smart Investing Daily, taipanpublishinggroup.com

We asked, and you’ve supplied. We love hearing from you, whether you have questions, comments or suggestions for Smart Investing Daily topics.

So keep them coming!

Today, I’d like to answer a question from Smart Investing Daily reader Y.M.:

What is your outlook for the U.S. dollar against the Swiss franc and the euro both near term (1 to 3) months and by year end?

This is a great topic… We’ve commented on the U.S. dollar in general in the past, but currencies are a two-way street, and value (since we’ve been off the gold standard) is relative to another currency.

When Y.M. asks about the U.S. dollar against the Swiss franc, we need to determine how the U.S. dollar is valued against the Swiss franc. In other words, how many Swiss francs does one U.S. dollar buy? As of midday yesterday, $1 bought just under 0.93 francs.

(We’ll get to euros in just a minute.)

A year ago, that same dollar bought 1.07 francs. Now, here’s where things get tricky. Because currencies are valued against each other, a couple things could have happened to cause this swing in value.

1. The Swiss franc could have appreciated (gained value).
2. The U.S. dollar could have depreciated (lost value).
3. A combination of 1 and 2.

There are a couple of ways we can look at this to find out which of these scenarios has occurred. We can look at each of these currencies against a third currency. By doing this, it’s like having an independent judge making the call.

We can also look at the U.S. Dollar Index, to see how the dollar has performed against a basket of major currencies.

Take a look at this chart:

View larger chart

This chart shows March futures traded on the U.S. Dollar Index over the past year. From this chart, we can tell that the U.S. dollar has most certainly depreciated.

Is it possible that all the other currencies in this basket just gained in value as to make the U.S. dollar appear to depreciate?

I’m sure a lot of folks wish that were the case, but it’s not. Here’s how we know.

View larger chart

This chart compares the euro to the Australian dollar over the past year. A year ago, one euro bought about AUD 1.48. Now, it buys AUD 1.37. The euro has dropped in value against the Australian dollar.

The Australian dollar is the independent judge that I talked about earlier, and I chose it also because it is not one of the currencies in the basket of currencies that makes up the U.S. Dollar Index… But the euro is.

So let’s sum up these two charts then. The euro has lost value over the past year, which means that the U.S. Dollar Index is showing a depreciating dollar, not just because of strength in other currencies, but because of stronger devaluation of the U.S. dollar itself.

And all of this relates back to our original question about the U.S. dollar against the Swiss franc.

The Swiss franc has not really appreciated in and of itself. Indeed, some analysts, like our own Michael Sankowski, editor of Currency Profits Trader, said back in February that the Swiss franc looked overbought.

Some investors had been using the Swiss franc as a bastion of safety.

Daily FX noted on March 2, 2011:

The US Dollar and Swiss Franc are poised to extend gains after outperforming in the overnight session as the surge in oil prices continues to stoke broad-based risk aversion.

To me, this means that the appeal of the Swiss franc is linked with increasing oil prices — and a depreciating dollar. June futures for this currency saw a huge spike in buying volume on Wednesday, which could mean investors are anticipating upside potential.

But be careful…

The Swiss franc — as compared to the U.S. dollar — has climbed past resistance, but only just barely.

View larger chart

If it finds support at this level, we can expect an extended move higher over the next three months… Perhaps something like the movement we saw back in mid-August 2010 after the consolidation in July 2010.

I wouldn’t expect as smooth a climb, though.

(Investing doesn’t have to be complicated. Sign up for Smart Investing Daily and let me and my fellow editor Jared Levy simplify the stock market for you with our easy-to-understand investment articles.)

As for a year out, I’ll be honest — I can’t say. It depends on a lot of things. First and foremost, the U.S. dollar and the flimsy recovery. If oil prices remain high, it could cripple the recovery, and for sure the Federal Reserve will churn out more dollars in order to try and keep our economy afloat. That could mean a higher Swiss franc /U.S. dollar relationship a year from now.

Remember that to value a currency, you must compare it to, or pair it with something to determine relative value. This is why all FX markets are quoted in pairs.

On the other hand, if the crisis in Libya resolves itself to the point where oil prices drop significantly (and we don’t see any other uprising that would endanger oil production), then we’ve got a whole other ball game, and any theory on where the Swiss franc will head would have to be re-evaluated.

But let’s get back to the euro.

This is a big mess that can’t fully be defined — partially because the U.S. dollar and the euro have been battling it out for “fastest depreciating currency.”

OK, that’s an exaggeration, but both currencies have been trending down against other major currencies because of economic concerns, none of which are easily or quickly resolved. Since the beginning of the year, however, the euro has been gaining ground against the U.S. dollar.

Now, analysts are worried about debt from certain countries like Portugal and Greece taking the wind out of the euro’s sails… And I would trust that for the near term.

Again, though, I won’t hazard a guess as to where the euro will be versus the dollar a year from now.

One thing’s for certain, though… the economic concerns affecting both currencies will more than likely still be in play. And that could mean that investments in the dollar/euro pairing should be shorter-term trades, playing the monthly or quarterly movements.

I hope this article begins to answer some of Y.M’s questions, and explains a couple ways to determine how a specific currency moves.

Editor’s Note: One powerful currency could show a 992% return on one trade… Currency Profits Trader editor Michael Sankowski can show you how you could make a fortune with one of the safest currencies on the planet. Follow this link to read his exclusive investment report.

About the Author

Sara is Managing Editor of Smart Investing Daily. As Senior Research Director and global correspondent, Sara Nunnally’s diverse resume includes studies in art history, computer science and financial research. She has appeared on news media such as Forbes on Fox, Fox News Live, and CNBC’s Squawk Box, as well as numerous radio shows around the country. Most recently, Sara co-authored a book with Sandy Franks called, Barbarians of Wealth.

As Senior Research Director, global correspondent and managing editor of Smart Investing Daily, Sara has traveled all over the world in search of the best investment opportunities to recommend to her readers, be they in developed economies like France and Italy, in emerging markets like the Czech Republic and Poland, or in frontier terrain like Vietnam and Morocco. Her unique “holistic” approach of boots-on-the-ground research has given her an edge in today’s financial marketplace as she searches for the next investment opportunities in hot sectors like alternative energy, currency markets and commodities.

The University of Michigan preliminary index of consumer sentiment in the U.S. fell to 68.2 in March from 77.5 in February, according to a Bloomberg report. Economists had expected the index to decline to 76.3. The survey’s barometer of current economic conditions was at 83.6, down from 86.9, missing the forecast of 86.0. Consumer expectations fell to 58.3 from 71.6, which is the lowest level since March of 2009.

Apples (AAPL) iPad 2 goes on sale today. The next generation of the tablet computer went on sale online overnight, for consumer who couldnt stand to wait until it officially hits store shelves this afternoon.

By Russell Glaser

Following a pullback in the trend, the EUR/CHF looks to continue its long term downtrend.

After touching a new year low at 1.2700, the EUR/CHF climbed to a high of 1.3040, a level just below the current trend line. This trend line for the long term downtrend falls off of the November high. After a quick reversal at this level, the pair looks set to resume the downtrend.

Technicals show further declines for the EUR/CHF are expected as the both weekly and daily stochastics are falling. Yesterday’s solid close below the 1.2920 support also points to an extension of the downtrend.

Support in the downtrend comes in at yesterday’s low of 1.2825, followed by 1.2720 and 1.2700. On an extension of the downtrend the December low at 1.2400 would come into play.

Should the pair move higher, resistance is found at 1.2920, and further gains would test 1.3040 and a resistance zone where the 200-day moving average and the February high are found between 1.3140 and 1.3200.

Forex Market Analysis provided by ForexYard.

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