The US stock market rallied sharply during the month of February with the Nasdaq trading up over 4% month to date. For some perspective, today’s chart illustrates the overall trend of the stock market (as measured by the Nasdaq Composite) since 2000. As today’s chart illustrates, the post-financial crisis rally (which began in early 2009) has been significant enough to have the Nasdaq surpass its credit bubble highs of late 2007. In addition, the latest leg of the post-financial crisis rally has the Nasdaq at levels not seen in nearly 14 years. As today’s chart illustrates, the Nasdaq continues to trade within its tightly confined yet steep 15-month uptrend channel.

Notes:
Where should you invest? The answer may surprise you. Find out right now with the exclusive & Barron’s recommended charts of Chart of the Day Plus.

Quote of the Day
“I can’t change the direction of the wind, but I can adjust my sails to always reach my destination.” – Jimmy Dean

Events of the Day
March 01, 2014 – Iditarod begins
March 02, 2014 – Academy Awards
March 04, 2014 – Mardi Gras
March 05, 2014 – Ash Wednesday
March 08, 2014 – Daylight Saving Time begins (US)

Stocks of the Day
— Find out which stocks investors are focused on with the most active stocks today.
— Which stocks are making big money? Find out with the biggest stock gainers today.
— What are the largest companies? Find out with the largest companies by market cap.
— Which stocks are the biggest dividend payers? Find out with the highest dividend paying stocks.
— You can also quickly review the performance, dividend yield and market capitalization for each of the Dow Jones Industrial Average Companies as well as for each of the S&P 500 Companies.

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Lelde Smits: Hello, I’m Lelde Smits for Australia’s Finance News Network and joining me today is Marc Faber, author of ‘The Gloom, Boom & Doom Report’. Marc, thank you for joining us from Thailand.

Marc Faber: It’s my pleasure. 

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.Dr. Doom also trades currencies and commodity futures like Gold and Oil.

WEEKLY COMMENTARY

Stick With Your Winners

Picking the right stocks to own is what most people focus in on but the entry is actually not the most important component of the trade. Without good risk management and a sound exit strategy, even the best stock pickers will fail.

I manage risk by limiting the size of the losses I take. If a stock that I buy breaks down through support, I sell it and take the small loss. I recognize that I am not going to be right all of the time and trading success requires that I take small, manageable losses when I am wrong.

Judging the success of a trade should be in consideration of the risk taken. If you risk $1000 to make $500, you have earned a reward for risk ratio of 0.5. If you make $5000 by risking $1000 then you have earned a reward for risk of 5. Obviously the latter is better but many traders never realize big gains because they sell their winners early. This is motivated by a fear of a winner turning in to a loser but it can really hurt performance if you don’t let your profits run.

Normal people will actually do the opposite of what they should by being patient with their losers. It is painful to take a loss so any normal, pain avoiding person will avoid taking that small loss when the market proves them wrong and instead hold on, hoping for the stock to turn around. The small loss often grows to be a big one.

Let’s review the stocks featured in this newsletter two weeks ago and go through the concept of reward for risk and what these stocks have done since their feature on Feb 10 2014. Here are the original comments:

T.BLD
T.BLD is breaking from a pull back after a strong run higher to start 2014. This is a good continuation pattern which should allow the stock to move up to new 52 week highs in the near term. Support at $2.20.

T.KGI
T.KGI is one of many gold mining stocks that are showing good signs of a turnaround after a lengthy bear market. The stock is breaking higher from a rising bottom and appears to be reversing the downward trend. Support at $3.20.

T.AUQ
T.AUQ is breaking the two year downward trend on the long term chart and through resistance from a cup and handle pattern on the daily chart. Support at $4.95.

Notice in my features I mention support; that is the loss limit point. So, T.BLD was at $2.47 when I featured it with support at $2.20. That means the risk was $0.27 a share. As I write this the stock is at $3.30 which is up $1.10 and a reward for risk of 4.07.

T.KGI was featured at $3.74 with a support at $3.20 so risk is $0.54. Today the stock is at $4.02, up a reward for risk of 0.52.

Finally, T.AUQ was featured at $5.47 with support at $4.95. Today it is at $5.65 with a reward for risk of 0.35.

So, of these three stocks, all three are winners but only one is a strong winner with a reward for risk of 4.07. If you risked $500 on each trade, you would up a total of $2470.00 but most of that profit comes from the strongest stock, T.BLD.

T.BLD showed some minor weakness on Feb 20th, not enough to give an exit signal but enough to make a nervous shareholder look for the exit door. What if the trader lacks patience and jumps out because of one down day? They leave a lot of money on the table!

The point of these examples are to show the importance of letting your winners run. As traders, we are playing a numbers game. Out of 10 trades, some will be small winners, some will be small losers and perhaps two will be big winners. It is the big winners that give us market beating profits but if you don’t have the patience to stick with them, you really hurt overall performance.

STRATEGY OF THE WEEK

I am constantly doing Market Scans on Stockscores, looking for stocks showing abnormal market activity, the signal that investors have become excited about a company’s prospects and are likely to send the stock higher. Abnormal activity out of predictive chart patterns can be applied on an intraday chart for day traders, a daily chart for swing traders or a weekly chart for position traders. This week, I highlight a couple of Canadian stocks that I have featured recently to readers of my daily newsletter (www.tradescores.com) which are showing good long term weekly charts.

STOCKS THAT MEET THE FEATURED STRATEGY

1. T.CQE

T.CQE broke out last week and has pulled back a little bit to start this week. The long term outlook is excellent for the stock as it has broken from a lengthy ascending triangle pattern on the 3 year weekly chart. Support at $1.68.

2. T.T
T.T broke out of a cup and handle pattern and up to new highs a couple of weeks ago. After a short pull back, the buyers have come back to the stock again and look to be willing to continue its upward trend. Support at $35.95.

Stockscores Market Minutes Video
Having a solid process for finding trades is only effective if you also have the patience and discipline to carry out the plan effectively. This week’s Market Minutes video demonstrates the use of the Market Scan for one strategy and then provides the regular weekly market analysis.View the video by clicking here.

References

• Get the Stockscore on any of over 20,000 North American stocks.
• Background on the theories used by Stockscores.
• Strategies that can help you find new opportunities.
• Scan the market using extensive filter criteria.
• Build a portfolio of stocks and view a slide show of their charts.
• See which sectors are leading the market, and their components.

  Disclaimer
  This is not an investment advisory, and should not be used to make investment decisions. Information in Stockscores Perspectives is often opinionated and should be considered for information purposes only. No stock exchange anywhere has approved or disapproved of the information contained herein. There is no express or implied solicitation to buy or sell securities. The writers and editors of Perspectives may have positions in the stocks discussed above and may trade in the stocks mentioned. Don’t consider buying or selling any stock without conducting your own due diligence.

Also: Crash Complacency at Highest Level Since 2007 by Chris Hunter

Debt + Demography = Destiny

The Dow rose 103 points yesterday… into record territory again. 

Gold rose $14 an ounce – still recovering last year’s losses. 

Tomorrow, we will outline our big picture view. But today, we’re going to reply to colleagues with caveats, quibbles and corrections. 

First, our colleague and editor of the British magazine MoneyWeek Merryn Somerset-Webb, who lives in Edinburgh, Scotland, took issue with our suggestion that small governments are, ceteris paribus, better than big ones: 

If Scotland votes for independence it will be as a socialist nation, not a wealthy capitalist one. The result will be profound misery. I really don’t think it is something to wish for. Already a disaster in the making. What small countries actually do these days if they aren’t tax havens full of educated people (Switzerland) is indulge in one variety or the other of nepotism/theft/corruption/public sector crowding out and then collapse.

Merryn is probably right. Big or small, the ruling elite always wants as much misgovernment as the country can afford – and often more! 

The idea of modern government, we remind dear readers, is to pretend that the feds work for the citizen. The little guy is led to believe that his enemies will be smitten, that the rich will be robbed so that the stolen loot will be given to him, and that all he holds dear will be protected, enhanced and made obligatory. 

That’s why it’s so hard to feel sorry for the guy… even when the feds clean him out. 

Meanwhile, our colleague here at the Diary, Chris Hunter, tells us that the US consumer is no longer deleveraging. Now, he’s borrowing again. Reuters has the story: 

US household debt rose in the latest quarter by the most since before the recession, a sign that Americans may be nearing the end of a multi-year belt-tightening trend, data from the Federal Reserve Bank of New York showed on Tuesday. 

Total consumer debt rose 2.1% to $11.52 trillion in the fourth quarter of 2013 from $11.28 trillion in the third quarter, the New York Fed said in its quarterly household debt and credit report. The increase, $241 billion, marked the biggest quarterly jump since the third quarter of 2007.

This is either: (1) mistaken, (2) flukey or (3) an important new trend. For the moment, we’re going with option #2. 

But we give the American consumer his due: If there is any way for him to get himself into a deeper hole, he’ll get out the spade. The Fed’s low-interest rates are waiting for him. And now that he has a little more equity in his house, he may be inclined to start digging. 

But he’s getting older. He tires faster. And he’s seen what happens when he gets himself in over his head. He remembers how uncomfortable it made him feel. 

Besides, demography is starting to turn against the “borrow and spend” economy. So, it is not clear that he will continue to borrow at last quarter’s rate. 

Age and population – along with debt – have big consequences for stock prices. Yesterday, included a wild figure for the effect of demography on stock prices. Even before we were challenged, we had our doubts. So we wrote to the analyst responsible for it to ask for clarification. 

It turns out that the NEGATIVE 15% figure was a composite. Much of that number is based on the market value of stocks compared to GDP. At today’s levels – based on historical patterns since 1871 – the model predicts that stocks are going down… for a long, long time. 

Demography is just one component. Our analyst tells us that demography alone would account for a negative pull equal to about 5% per year – the largest negative number ever recorded. Which makes sense; never have so many people in the US approached retirement at the same time. 

But wait. Does an aging population in the US really matter? 

This is a question we have been asking recently at our small family wealth advisory service,Bonner & Partners Family Office. 

“Nearly half of S&P 500 profits come from overseas,” Chris, who also serves as our family office project’s Investment Director, points out. “US demographics shouldn’t have so much effect.” 

“But most of those overseas profits come from Europe and Japan,” counters Rob Marstrand, our Chief Investment Strategist. “And their demographics are worse than our own.” 

Finally, we decided that the source of S&P 500 profits didn’t matter. The model looks at the effect of demographics on stock prices, not on earnings. Prices today are built upon today’s earnings – which include overseas sales and profits. 

The study merely predicts that old people will sell stocks – no matter what their profits – reducing the P/E… and, of course, the prices. 

For a nation, as for its capital structure, debt and demography are destiny. 

Of course, any model based on history assumes that the future will be more or less like the past. It anticipates that extraordinary things that are happening today will be “normalized” tomorrow. 

In the past, when stock prices, GDP, debt and demographics have been similar to today’s, the process of normalization brought stocks down – a lot… and over a long time. 

But never in the past did a nation have QE and Janet Yellen. 

Stay tuned… 

Regards,

Bill

Editor’s Note: If Scotland does gain independence, the British Empire loses another “colony.” ALL empires die eventually, and so too will the US Empire. In fact, here’s a FREE book explaining exactly how the US Empire will crumble…

Market Insight:
Crash Complacency at 
Highest Level Since 2007

From the desk of Chris Hunter, Editor-in-Chief, Bonner & Partners

Today, fewer investors see a stock market crash coming within the next months than was the case before the 2008 stock market crash. 

This is the upshot of Yale professor Robert Shiller’s Crash Confidence Index. 

It measures, through the use of surveys, confidence among individual (red line) and professional (blue line) investors that there will be no stock market crash in the succeeding six months.

As this chart shows, investor conviction that there will be no crash in the next six months is at its highest level since early 2007. 

If Warren Buffett is right, and you want to buy when others are fearful and sell when others are greedy, this is a very interesting chart. 

It shows that great buying opportunities – such as in 2003 and 2009 – are when the majority of investors feared a crash in the coming six months. Stock market peaks tend to come when investors become complacent again. 

Long-term investors should wait until investor confidence collapses again. This is when the really big money will be made.

STOCKS: The Dow was up almost 200 at one point and gave almost half back. But, why was it up in the first place? One report had the G-20 backing a plan for $2 trillion in growth over the next 4 years. I find that hard to believe as a catalyst, but it was getting a lot of attention on the floor of the NYSE.

The Ukrainian situation appears to be stabilizing. That could be taking some of the geo political tension away.

The economic data has been poor, but many investors seem to be saying that it’s weather related and that a rebound is on the horizon.

GOLD:  Gold was up another $13.    

CHART: The S&P has still not bettered its closing high from 2 months ago, but it has made a high above a recent high and that puts us back in the bullish camp, short term.

…related HERE