Month: June 2011

By David Adams

I am especially fond of trading the YM e-mini contract which often entails trading with fewer professional traders and more low-volume retail traders, especially when compared with trading on the ES contract. This is not to say, of course, that there are no professional traders on the YM e-mini contract, because there are numerous professional traders on the YM. On the other hand, there are periods of time when trading is dominated by smaller retail traders who trade in contract lots of one or two contracts. Most traders who trade the YM on a consistent basis are aware of the tendency of smaller e-mini traders to take long positions during the lunch break. This time of day is often referred to as the “stand down” period.

I was recently at a seminar related to trading and listened to one professional trader who explained that she never took a short position between 11:30 AM CST and 12:30 PM CST. Why? During this period of time most of the professional traders are on the sidelines with lunch or other duties and the trading is dominated by retail traders. While the correlation is not 100%, it is usually the case that the market will rise as the smaller traders take over the trading action on the YM contract.

I tend to agree with the woman at the seminar, as I have watched time and again the market slowly rise over the lunch time. This can happen when the market has been moving downward throughout the course of the morning or if the market has been moving upward. For whatever reason, retail investors tend to take long positions at a surprising frequency. There must be some explanation for this phenomenon, and I have looked at this tendency for many years and have yet to understand exactly why it occurs. I have my theories on this topic, but they are little more than speculation and not worthy of mentioning without empirical evidence. On the other hand, I have had more occasions than I care to admit in my career where a short trade was initiated at 10:30 AM CST and the trade failed to move in the direction I intended and the trade lapsed into the lunchtime. To my dismay, I have generally watched my trade disintegrate as the market slowly drifted upwards during this period of time. I have come to refer to this market action is a “death by 1000 paper cuts”, as there is no dramatic movement during the lunch hour, just a slow drift to the upside that eventually hits your stop loss, if you allow it to.

I should point out that there must be a group of retail traders who are comfortable selling to the short side, as it is improbable that all small traders are of the same mindset. But I would advise most traders to heed my warning; and that is to avoid short trading when smaller retail traders are in control of the market.

I will point out that I have no widespread empirical evidence to support my claim (though there are some lesser studies supporting this observation), just years of observation and conversations with fellow traders who are of the same mindset. A casual review of trading chart groupings from the last 45 days brought a smile to my face though; on nearly 75% of those trading days the market drifted upwards over the lunchtime. On the other hand, I have seen very little written on this topic and the evidence must be anecdotal; but experienced traders, by and large, are in general agreement on this topic. Avoid short trading over the lunch hour.

In summary, I have described a tendency of the market to slowly rise over the lunch hour. I have also pointed out that it is not necessarily wise to initiate short positions during this period. Finally, I have pointed out that there has been little empirical evidence to substantiate this position, but I am well aware that my beliefs are a widely held maxim among professional traders. I recommend observing this phenomenon for yourself over a period of time. You will be surprised at the outcome of your observations, and quite possibly be bewildered. Nonetheless, it is no secret among professional traders that the lunch hour is a treacherous time to be on the short side of the YM contract.

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You know, gasoline prices are supposed to climb as we head into summer, but things are getting a bit ridiculous!

Gasoline prices are up nearly $1.06 a gallon from last year, and it’s not even summer yet.

Why is this happening? Well, the Arab nations of OPEC are fighting…

OPEC decided not to produce more crude oil. Or rather, Iran and its cohorts blocked Saudi Arabia’s efforts to try to boost production.

Aside from the crummy effect this had on crude oil prices just after the meeting last Wednesday, there are some bigger issues coming to the surface.

The Wall Street Journal reported:

An acrimonious OPEC meeting failed to produce an agreement to increase oil production despite tight supplies and rising prices, bringing to the fore long-simmering divisions between key cartel players Saudi Arabia and Iran and calling into question the group’s ability to influence oil prices.

And the Boston Herald said:

OPEC’s stunning admission of major dissent within its ranks has left it reeling and its status as the world’s oil power-broker weakened — perhaps beyond repair.

OPEC has already lost a lot of clout as crude oil production outside of its group has grown in the past decade or so. Places like Russia and Brazil have brought a lot of crude oil to the table. These countries aren’t under the thumb of OPEC’s production rules.

That said, OPEC’s influence with global powers, however, shouldn’t be forgotten.

I’m talking about the crude oil embargo in the mid-1970s that nearly brought the U.S. to its economic knees, and quadrupled the price of crude oil in less than half a year.

Saudi Arabia and other Arab OPEC members turned off the tap by 15% back in 1973, and markets went bananas… The “oil weapon” will always be a threat. But ill will between major OPEC producers has even bigger consequences.

That they are fighting now should be a warning to everyone. Saudi Arabia and Iran — who are ranked as the top two Arab countries in terms of oil reserves — are vying for power… and they have very different global views. Mainly, they deal differently with the West. Saudi Arabia works closely with the U.S., while the U.S. still has strict sanctions against Iran.

Now, these two countries are dealing with more than one crisis. Even though Saudi Arabia and its OPEC allies are calling for increased demand in the second half of this year, the world is using less crude oil because of the global financial crisis. Crude oil inventories in the U.S. are 7.5 million barrels higher than they were last year.

You could say the call to increase production would solely be a bid to lower prices. This rubbed some OPEC members the wrong way because some of them can’t produce more crude oil quickly or cheaply. Iran is one of those countries.

Indeed, only Saudi Arabia and three other Gulf countries that are more allied with the West than other Arab OPEC members favored an increase in production.

Most of these countries don’t want lower crude oil prices. This is because of the second crisis. The Middle East and North Africa are under siege from their angry citizens. When Tunisia and Egypt were successful in overthrowing their governments, other countries jumped on the uprising bandwagon. Yemen, Bahrain and Libya have all seen huge protests.

Of course, Libya is still in the midst of a global military intervention. Its oil production is still offline.

These countries need high crude oil prices if only to throw money at the masses, hoping they’ll stop their protests.

Because of these two crises, OPEC is on the edge of a cliff. Some analysts are even saying that OPEC is dead.

But what — if anything — will this do to crude oil markets?

Immediately after the announcement, crude oil prices climbed nearly 3%. This pressure means higher gasoline prices heading into summer. As I told you, gasoline prices are nearly $1.06 per gallon higher than last year… And unlike oil inventories, gasoline inventories are down 4.5 million barrels from last year.

Translate this pain at the gas pump to other market investments, and you’ve got possible bearish outlooks for retail companies.

(Sign up for Smart Investing Daily and let me and fellow editor Jared Levy simplify the market for you with our easy-to-understand articles.)

On the other hand, domestic energy could get a lot of attention. Even companies doing business in friendlier countries like Canada could benefit.

Check out Apache Corp. (APA:NYSE) and Suncor Energy Inc. (SU:NYSE), up about 26% and 19% in the past year. These guys are heavy hitters without being 800-pound gorillas. They are outperforming their competitors and are a much better value than their industries as a whole.

Of course, these aren’t the only opportunities to pop up in the wake of the nasty OPEC meeting. In fact, this first OPEC fracture could be the start of an even bigger crisis. Justice Litle, editor of Macro Trader just sent me a letter about the coming crisis saying:

I can tell you right now, we have never… EVER… seen this level of chaos on U.S. shores. This will put the financial crisis of 2008 to shame…

I don’t have room to tell you what the rest of his letter said, but we’re quickly working on a way to let you read it in its entirety. One thing I can tell you, though, is that Justice believes that the bigger the crisis, the bigger the opportunity.

As soon as this letter is available, I’ll be sending you a link to it, so keep an eye out in your inbox.

Editor’s Note: We could end up buying all of our oil from China in the next 5 years… The Chinese government just made a power move to undercut OPEC and the United States.

They’re building a new “oil colony,” with potentially more oil than Saudi Arabia. Over 100 billion barrels. For now, very few people know the location of this oil. If you invest right away, you could make a fortune as the world wakes up to China’s plot. Find out how.

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Article courtesy of DividendOpportunities.com

The Legal “Tax Loophole” for Income Investors

Did you know the United States withholds a portion of dividends paid to many foreign investors?

This amount comes right off the top, before the payment even hits an investor’s account. Even after this cut, the foreign investor will still have to pay taxes on what’s left.

But the United States isn’t just being greedy. Just about every nation does something similar.

Switzerland withholds up to 35% of dividends paid to foreign investors… Israel withholds up to 25%… Canada takes 15% off the top.

Typically the higher yields found abroad can make up the difference. For instance, the high yields on foreign utilities can still make them worthwhile to most investors, even with the withholding.

And truth be told, you can get this withheld money back. Investors filing for a foreign tax credit via IRS Form 1116 can reclaim foreign dividends withheld. But you won’t receive this cash until you file your tax return, sometimes up to a year after the actual dividend has been paid.

But there’s also a legal tax loophole you can use to your advantage. And it can mean more income in your pocket immediately, without the hassle of filing additional tax forms and waiting to get your money back.

A Select Cadre of ZERO-Tax Nations
For decades the United States has wanted to attract foreign investment. Likewise, many countries crave American capital.

To promote mutual investment, the United States has signed tax treaties with about 50 countries that reduce the taxes withheld on your dividend payments.

While the treaty terms vary from nation to nation — Switzerland, for example, withholds only 15% of dividends paid to American investors — there is a select cadre of nations where the dividend withholding tax is zero. Every cent paid by the foreign company makes it into your account.

In total, fewer than two dozen countries either have tax treaties with the United States that result in 0% withholding or simply don’t withhold dividends paid to foreign investors. Of those, many are smaller nations that aren’t exactly hotspots for income investing.

Now I’m not saying to ignore any country that withholds dividends — that would be like going to a restaurant and limiting yourself to only one side of the menu. There are simply too many high yields out there that are attractive, even if a little is taken off the top.

But if maximizing short-term income is your primary goal, then this “tax loophole” should be one of your favorite tools.

[Note: Right now 95 profitable companies yielding 13% or more are found abroad… versus 16 here in the U.S. That’s good news if you invest abroad. To help, I’ve put together a brief memo outlining some of the benefits of international high-yield investing. Be sure you don’t miss it.]

Good Investing!

Paul Tracy
Co-Founder — StreetAuthority
Chief Investment Strategist — High-Yield International

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Tech Bubble or Just Hot Air? You Be the Judge…

by Alexander Green, Investment U’s Chief Investment Strategist
Monday, June 13, 2011: Issue #1533

There’s a lot of talk on the Street right now about a new “bubble” in tech stocks.

If you’re talking about social network stocks, this may be true. Is there anyone out there who hasn’t heard how LinkedIn (NYSE: LNKD) doubled right out of the gate after its IPO last month?

But this euphoria has hardly spread to the rest of the sector. The Nasdaq is no higher than it was at the beginning of the year. And while many of our recommended tech stocks are soaring, there’s no tulip-bulb mania like the one that took place in late 1999 and early 2000. Solid fundamentals undergird the current tech rally.

That was not the case in the last real tech bubble – one we called “the greatest investment mania of our lifetimes and perhaps of all time.”

Eleven years ago, the Nasdaq hit an all-time high of 5,048. Valuations hit nosebleed levels. Many tech stocks sold for more than 100 times earnings. Others didn’t even have a multiple. After all, you can’t calculate a P/E if you don’t have an E (earnings)…

Things are different today. For starters, the Nasdaq Index, more than a decade on, trades at less than 60 percent of its March 2000 high.

• Sales and earnings are solid and rising.
• Valuations are reasonable.

Key Indicators That Tech Stocks Remain Promising

And the outlook for tech companies remains promising. Here are just a few key indicators:

• Profit margins at U.S. technology companies are near record highs.

• Chipmakers – who saw sales rise 28 percent in 2010 – are seeing stronger demand for consumer items and businesses are finally making purchases that were delayed in the recession.

• Respected research firm, Gartner, reports that sales of server systems are climbing, a sign that large technology firms are spending again on big tech projects. (Sales of server systems generally precede spending on other technology products, such as storage systems and software.)

• There’s plenty of fuel for merger and acquisition activity. U.S. corporations are currently sitting on nearly $2 trillion in cash.

• The Fed’s Beige Book reports that manufacturers of high-tech products are operating near maximum capacity of late.

• Due in part to record demand in Asia and Latin America, the market for mobile devices such as handsets and media players is expected to top two billion this year.

• International Data Corporation (IDC) estimates that worldwide IT spending will top $1.5 trillion in 2011, with spending on PCs, servers, and storage and networking gear expected to soar.

• Global capital spending on wireless infrastructure will rise dramatically as carriers in the developed world start deploying next-generation 4G networks.

• The Telecommunications Industry Association (TIA) reports that broadband stimulus funds will contribute to double-digit growth in backbone infrastructure spending this year and next.

Investing in Technology – A Smart Business Move

With the economic recovery weak and consumer spending soft, most businesses aren’t willing to hire in a big way right now or commit funds to major building projects. But they’re eager to cut costs in order to maintain or increase corporate profits.

That makes investing in technology a smart business move. And that, in turn, indicates that business for many tech firms will keep rising in the months ahead.

Right now we’re sitting on more than a dozen double- and triple-digit gains on the tech stocks in our paid advisory portfolios.

Outside of social networks, we see no tech bubble. Quite the opposite, in fact. Leading technology firms should see rising sales, earnings and share price appreciation in the months ahead. In our view, the best is yet to come.

Good investing,

Alexander Green

By Chris Vermeulen, thegoldandoilguy.com

Many investors are trying to gauge whether the US can gain ground this week after hints at an interest rate increase in Europe failed to spurn investors to go long on the EUR/USD. Analysts appear to be scanning the horizon for news which could support the view of a dollar uptick in the next week. Tomorrow’s retail sales data may be the info needed to fill a gap in the economic picture.

The retail sales and core retail sales figures are scheduled to be released side-by-side at 13:30 GMT tomorrow alongside this month’s PPI figure. The grim forecast for both retail sales report grants a cushion of low expectations. Even a mildly bullish figure above these weak forecasts could be enough to push the USD higher in this week’s trading.

Read more forex trading news on our forex blog.

Monetary data out of China this morning suggest an impending uptick for the yuan (renminbi). The M2 money supply grew this past month less than forecast, which could suggest that China is honoring its commitment to lower its currency’s value.

Forecasts had anticipated an increase of 15.5% growth for the month of May, but this morning’s release revealed a 15.1% increase, indicative of a slow down in domestic money printing. The concurrent decline in new domestic loans may also explain part of this sluggishness. The data so far appears to be granting a mild uptick for the CNY, but analysts are expecting heightened volatility tomorrow considering the heavy slew of news getting published out of China.

Read more forex trading news on our forex blog.

By Ulli G. Niemann

If you have been dealing with mutual funds for any length of time, you undoubtedly have faced the question of which is better: Load Funds or No Load Funds. If you are new to investing, “load” simply refers to the commission paid to the broker selling the fund. “No load” means there is no commission on the purchase or sale.

Most discussions in the past have centered exclusively on performance comparisons. Even rating services like Morningstar have occasionally chimed in with their opinion. However, rather than focusing only on performance, there are some other issues I consider far more important:

1. Who is selling load funds and why?

2. Who markets no load funds?

3. Which one is right for you?

Who is selling load funds and why? Most load funds are being sold through brokerage houses, financial planners and Registered Representatives. With few exceptions, most of those folks operate on the basis of selling as much product as possible. They collect their commissions up front, as a back end charge, or both (usually in the range of 5 – 6%). Whether you make money or not is not their primary concern. What matters most to those operating under this approach is how often you buy-and thereby generate new commissions for them.

Who markets no load funds? No Load funds are either marketed directly by the mutual fund companies or, more commonly these days, offered through discount houses like Schwab, Fidelity, and many others. The advantage to this is that you have an unlimited choice of funds in one place and don’t have to open separate accounts for each mutual fund family that you are considering.

Most fee based investment advisors, like myself, have independent relationships with such major discount firms and are able to offer clients just about any no load mutual fund available. They receive no compensation from the firm and only get paid by the client at a pre-determined fee arrangement. Under this arrangement, there is no hidden motivation to sell you a particular fund or to try and sell more in order to get a larger commission.

Which one is right for you? Whether you prefer dealing with someone selling load funds or an advisor getting you into no loads, let me make one thing very clear: You can make money or lose money either way! Why?

Let’s assume for the moment that there is no difference in performance between the types of funds-some of either kind will do well and some of either kind won’t. What then determines the successful outcome of you buying either a load or a no load fund?

The key is the advice you’re getting. And the fact is that many brokerage houses and Registered Representatives tend to be more interested in their profits than yours. Their investment advice is generally centered around Buy and Hold or dollar cost averaging and similar financially questionable recommendations. Hardly ever will you receive advice about when and why you should exit the market, either because of accumulated profits or to limit your losses. Getting out of the market is simply not in their best interest, though it may be in yours.

I must confess that, as a fee based advisor, I am somewhat biased and I prefer no load funds for my clients. I believe that this type of arrangement is best for all parties involved. It allows me to avoid any conflict of interest and to work exclusively for my clients’ financial benefit. And the better my clients do, the better I do.

I am able to choose no load funds and make buy decisions solely on the basis of my mutual fund trend tracking methodology. Following its signals, I can get clients into the market or out of it as often as is necessary to maximize profit or protect assets. And because I work with no load funds, other than a very occasional short term redemption fee, there are no transaction charges no matter how many times we move into or out of the market.

If market conditions dictate that we stand aside in a money market for an extended time in order to avoid a bear market (as was the case from 10/13/2000 to 4/28/2003), I can advise that because it is in the best interest of my client. I am always thinking about what will benefit my client, not worrying about lost commissions. (Please see my article “How we eluded the Bear in 2000.”

Bottom line: Load fund vs. No Load mutual fund shouldn’t be the issue. Having a methodical plan and reliable advice as to when to buy and when to sell is far more important and will help you to secure a prosperous financial future.

© Ulli G. Niemann

Commodities in general are beginning to feel the pinch as weak Chinese economic data combined with declines in equity markets and a strengthening dollar have begun to weigh on both spot gold silver prices.

Gold and silver prices continue their slump from last week as weaker than expected Chinese lending and a drop in the Chinese money supply weigh on commodity prices. On Friday spot gold prices dropped by $12 after a report showed increased selling of the yellow metal by the International Monetary Fund. In turn silver prices were also dragged lower by almost $1.50.

The latest CFTC Commitments of Traders Reports indicated that investors increased their long gold positions and may be encroaching on an overextended market positioning, thereby contributing to the sharp declines on Friday.

Equity markets continue to sell-off with the S&P 500 down for the sixth consecutive weak. The SPX has made a firm break of the 1290 and technicals indicate further downside potential. The decline in equity prices has not been supportive of gold prices despite the metal’s use as a safe-haven. One explanation for this may be the strengthening dollar versus the euro.

A strong greenback may have also contributed to the declines as this makes gold more expensive for investors who do not hold US dollars. The greenback could continue to come off its recent lows versus the euro should the EU/IMF/ECB fail to come to an agreement for a medium term financing program for Greece.

One potential catalyst for spot metal prices would be any additional steps taken by the Federal Reserve to support the struggling US economy. The enactment of QEIII would likely offer support to spot gold prices as this would require a readjustment of US inflation expectations. Thus spot gold prices may have scope to test the $1,552 resistance level with spot silver respectively at $37.80. In the near term support is found at $1,518 and $35.00.

Read more forex trading news on our forex blog.

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