Stocks & Equities

The US Economy Is Sitting On The Threshold Of A New Golden Age

Unfortunately, optimistic views on our economy and/or our markets are generally met with resistance and even criticism. One of the most common arguments to counter my optimism is the statement by my antagonists that they are realists. Thereby they are implying that my optimism is unrealistic, and moreover, that a pessimistic outlook is more realistic than an optimistic one. Yet, there is a preponderance of supporting evidence for optimism that many ignore or refuse to even consider.

In an attempt to clarify my point, I presented the following F.A.S.T. Graphs™ (actually one very close to this one, but with slightly different dates) in my most recent article illustrating that the S&P 500 is modestly undervalued at this time. The orange line on the graph represents a P/E ratio of 15 applied to an earnings growth rate (slope of the line) of 7.7% since the beginning of calendar year 1993. All of the data is historically actual, with the exception of an estimate for 2012 earnings currently at $104.70 per share.

Now, what this graph clearly shows is that the actual blended P/E ratio of the S&P 500 of 13.1 based on actual earnings since 1993, is one of the lowest it has been (remember the orange line is a P/E of 15). This is not a statistical reference, but a picture of what has actually occurred and how the market has actually valued the S&P 500 since 1993. Clearly, the market has overvalued the S&P 500 (the black price line above the orange line) for most of this almost 20-year period, until and since March of 2011.

….read more HERE

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A Global Bear Market

Marc Faber: “I’m convinced that Europe is actually in recession today … There is a meaningful and more substantial slowdown in China than the official statistics would suggest. At the present time there probably is hardly any growth at all, so that slows down the demand for industrial commodities. That then slows down the production in countries that produce industrial commodities. So you have essentially a chain, a vicious spiral going through the global economy, which means that corporate profits in the U.S. … will disappoint” – in Fox Business News

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Richard Russell: That bear market signal in early May — did it work or was something else going on? From its April low, the Dow has rallied back strongly, and I’ve been wondering, “Is something else going on, something more ominous than simply a bear signal for the economy and stocks in the United States?

Then I read a paragraph in the latest issue of The Week, and that paragraph got me thinking. Here, I’ll reproduce that paragraph below, just as it appeared in the magazine, The Week.

ECONOMY — New Fears of a Global Slowdown.
The US, Europe and China all appear to be slipping into an economic slowdown together, said Hilsenrath and Mitchell in The Wall Street Journal. Last week, new data showed that American businesses are scaling back planned orders for durable goods like computers, aircraft, and machinery, while in Europe, concerns about the Continent’s ongoing fiscal problems are sapping business confidence. China’s factories registered their seventh straight month of declining activity, and emerging economies like India, South Africa and Brazil are reporting new signs of weakness. Economic activity appears to be slowing around the globe. Europe’s troubles remain the biggest single threat in the global economy, said Don Lee and Henry Chu in the LA Times, but lackluster US growth and inflation concerns in developing economies also pose serious risks. As a result, economists expect global growth to slow sharply this year, with world trade rising at just half of last year’s pace. Countries like Brazil and India won’t be able to pick up the slack, since their economies are smarting from Europe’s dwindling demand for goods. And analysts worry that China, now growing at its slowest rate in 13 years, could be heading for a hard landing “that would ricochet around the world.”

Richard Russell: I read the above paragraph three or four times, and I wondered, “Could the May bear signal have even more significance than I imagined at the time? Was it a signal for a global contraction or depression?

 

 

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Russell began publishing Dow Theory Letters in 1958, and he has been writing the Letters ever since (never once having skipped a Letter). Dow Theory Letters is the oldest service continuously written by one person in the business.

Russell gained wide recognition via a series of over 30 Dow Theory and technical articles that he wrote for Barron’s during the late-’50s through the ’90s. Through Barron’s and via word of mouth, he gained a wide following. Russell was the first (in 1960) to recommend gold stocks. He called the top of the 1949-’66 bull market. And almost to the day he called the bottom of the great 1972-’74 bear market, and the beginning of the great bull market which started in December 1974.

The Letters, published every three weeks, cover the US stock market, foreign markets, bonds, precious metals, commodities, economics –plus Russell’s widely-followed comments and observations and stock market philosophy.

In 1989 Russell took over Julian Snyder’s well-known advisory service, “International Moneyline”, a service which Mr. Synder ran from Switzerland. Then, in 1998 Russell took over the Zweig Forecast from famed market analyst, Martin Zweig. Russell has written articles and been quoted in such publications as Bloomberg magazine, Barron’s, Time, Newsweek, Money Magazine, the Wall Street Journal, the New York Times, Reuters, and others. Subscribers to Dow Theory Letters number over 12,000, hailing from all 50 states and dozens of overseas counties.

A native New Yorker (born in 1924) Russell has lived through depressions and booms, through good times and bad, through war and peace. He was educated at Rutgers and received his BA at NYU. Russell flew as a combat bombardier on B-25 Mitchell Bombers with the 12th Air Force during World War II.

One of the favorite features of the Letter is Russell’s daily Primary Trend Index (PTI), which is a proprietary index which has been included in the Letters since 1971. The PTI has been an amazingly accurate and useful guide to the trend of the market, and it often actually differs with Russell’s opinions. But Russell always defers to his PTI. Says Russell, “The PTI is a lot smarter than I am. It’s a great ego-deflator, as far as I’m concerned, and I’ve learned never to fight it.”

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Rich Man, Poor Man (The Power of Compounding)

The Perfect Business

Market Update: S&P 500 Technical Status

Market Update
Europe is back in the news with Spanish banks in trouble. Interestingly, until very recently Spanish Prime Minister Mariano Rajoy denied that Spanish banks needed assistanceat all. It is always the same, deny, deny, deny….until you have to admit the truth. At the current time it appears that Europe is trying to put together a rescue package to help the Spanish banks. In all likelihood a package will materialize. It is diffi cult to say where the funding will be sourced: ideally it would be sourced from the EFSF, but its statutes only allow bank recapitalization through a sovereign government. Europe has proven itself to be a master of developing methods and special funds to break its own rules.
 
Rajoy is insistent that the recapitalization should not go through the Spanish government and should be direct to the banks. Basically, he wants to avoid the stigma of a bailed-out nation and any austerity measures that may be
 
Cont….page 3 (full Market Letter)

 
S&P 500 Technical Status
I was almost premature last month on calling a target of 1250 for the S&P 500. On June 1st the S&P 500 almost reached the target and closed at 1278, just below its 200 day moving average. The market has since bounced strongly and is just short of its resistance level of 1350. Ceteris paribus, everything else being held constant except normal market action, the market is going to have diffi culty getting through the 1350 level. If it does, look for a challenge up to the April high just above 1400. I say this knowing full well that in current times there is no such thing as normal market action. If Europe comes up with an aggressive solution to solve their on-going crisis, the market will respond positively. If Greece elects a government that is anti-austerity, the market will respond negatively. It is very difficult to predict these exogenous varaibles that can move the market strongly one way or the other.
 
On the downside I still expect the S&P 500 to reach at least 1250. If Europe, in typical European fashion, continues to muddle through their problems and present iterative solutions that are barely enough to solve the immediate crisis, then it is very conceivable that the market will challenge the 1150 level. The S&P 500 is currently in the 1250-1350 channel that was established over a number of months last year which is a signifiant channel and if it is broken to the downside on strong volume, a challenge at 1150 is very conceivable.
 
Given that we are still in the six month unfavourable season it is best for investors to remain conservative. Despite a conservative stance, a possibe tradeable rally may exist from late June until mid-July, as the market typically anticipates positive earnings from U.S. companies. Overall investors should remain cautious in their positions.
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 Europe’s dominating the news. But the question is: Will it solve its problems? Based on what the markets are telling me, I don’t think so.

Be sure to check out my latest market update by clicking here now.

Best wishes,

Larry

P.S. Right now, the U.S. is looking relatively good compared to Europe. However, the markets are still in a disinflationary mode, which I’ve been forecasting for you. 

Gold: Here’s a new weekly chart of gold. As you can see, gold has broken its major uptrend from the low in 2008 and it’s so far been unable to penetrate back above this uptrend line. We could see a brief rally up to about the $1,700 level, but even that would not turn around gold’s immediate downtrend. It’s far more likely that we’ll continue to see lower lows in gold until there is a coordinated central bank intervention in the sovereign debt crisis. And I don’t see that occurring immediately. Therefore, the bias remains to the downside in gold.

….read more &view all charts at  http://www.uncommonwisdomdaily.com/will-europe-solve-its-problems-14408?FIELD9=2

 

Silver: Here’s my latest updated weekly chart of silver. Here you can see that silver is making lower highs and lower lows. Basically it’s tested the $26 level no less than five times counting the last couple of weeks. That’s usually a sign that it’s breaking down that support floor here and the next test will likely penetrate right through that floorboard and see silver drop substantially lower to at least $23 where I have some system support and probably even lower to $20, perhaps even just below $20, depending on how long it takes for silver’s next leg down to unfold?

 

The Bottom Line

Look for lots of volatility during a base building period for equity markets lasting until mid-July when difficult second quarter earnings reports are released. Thereafter, intermediate prospects are expected to improve.



Equity Trends

The S&P 500 Index gained 47.52 points (3.73%) last week on lower than recent volume. Intermediate trend is down. Support is forming at 1,266.74 and resistance is forming at 1,334.93. The Index recovered above its 20 and 200 day moving averages, but remains below its 50 day moving average. Short term momentum indicators are trending higher. Stochastics already are overbought, but have yet to show signs of peaking.

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Percent of S&P 500 stocks trading above their 50 day moving average increased last week from 12.80% to 30.20%. Percent is trying to recover from a deeply oversold level.

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Percent of S&P 500 stocks trading above their 200 day moving average increased last week from 45.60% to 56.80%. Percent has returned to a slightly overbought level.

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The ratio of S&P 500 stocks in an uptrend to a downtrend (i.e. the Up/Down ratio) improved last week from 0.40 to (123/292=) 0.42. Thirty S&P 500 stocks broke resistance (notably utility stocks) and 19 stocks broke support.

Bullish Percent Index for S&P 500 stocks increased last week from 47.60% to 48.20% and remained below its 15 day moving average. The Index remains in an intermediate trend down despite strength in the S&P 500 Index last week.

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The Up/Down ratio for TSX Composite stocks slipped last week from 0.43 to (66/156=) 0.42. Eleven stocks broke resistance and 12 stocks broke support.

Bullish Percent Index for TSX Composite stocks slipped last week from 46.03% to 45.82%, but managed to move above its 15 day moving average. The Index remains in an intermediate downtrend.

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The TSX Composite Index gained 139.43 points (1.23%) last week on lower than recent volume. Intermediate trend is down. Support is forming at 11,209.55 and resistance is forming at 11,727.58. The Index moved above its 20 day moving average, but remains below its 50 and 200 day moving averages. Short term momentum indicators are trending higher. Stochastics already are approaching overbought levels. Strength relative to the S&P 500 Index recently changed from negative.

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Percent of TSX stocks trading above their 50 day moving average increased last week from 24.21% to 29.48%. Percent is intermediate oversold and showing early signs of recovery.

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Percent of TSX stocks trading above their 200 day moving average increased last week from 28.97% to 33.47%. Percent is intermediate oversold and showing early signs of recovery.

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The Dow Jones Industrial Average gained 435.63 points (3.59%) last week. Intermediate trend is down. Support is forming at 12,035.09 and resistance is forming at 12,555.26. The Average recovered to above its 20 and 200 day moving averages, but remains below its 50 day moving average. Short term momentum indicators are trending higher. Stochastics already are overbought, but has yet to show signs of peaking. Strength relative to the S&P 500 Index remains positive.

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Bullish Percent Index for Dow Jones Industrial Average stocks increased last week from 63.33% to 66.67% and moved above its 15 day moving average. The Index remains intermediate overbought.

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Bullish Percent Index for NASDAQ Composite stocks increased last week from 46.42% to 46.77% and remained below its 15 day moving average. The Index continues to trend down.

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The NASDAQ Composite Index gained 110.82 points (4.04%) last week on lower than recent volume. Intermediate trend is down. Support is forming at 2,726.68 and resistance is forming at 2,873.59. The Index recovered above its 20 and 200 day moving average, but remained below its 50 day moving average. Short term momentum indicators are trending up. Stochastics already are approaching overbought levels, but have yet to show signs of peaking. Strength relative to the S&P 500 Index remains negative.

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The Russell 2000 Index gained 31.77 points (4.31%) last week. Support is forming at 729.75 and resistance is at 775.65. The Index moved above its 20 and 200 day moving averages, but remained below its 50 day moving average. Short term momentum indicators are trending higher. Strength relative to the S&P 500 Index is neutral/negative.

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The Dow Jones Transportation Average gained 150.81 points (3.06%) last week on lower than recent volume. Intermediate trend is down. Support is forming at 4,795.28 and resistance is forming at 5,159.84. The Average recovered to above its 20 and 200 day moving averages, but remains below its 50 day moving average. Short term momentum indicators are trending up. Strength relative to the S&P 500 Index remains positive.

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The Australia All Ordinaries Composite Index slipped 4.75 points (0.11%) last week. Intermediate trend is down. The Index remains below its 20, 50 and 200 day moving averages. Short term momentum indicators are trending up. Strength relative to the S&P 500 Index remains neutral.

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The Nikkei Average added 19.01 points (0.23%) last week. Intermediate trend is down. Short term momentum indicators are trending higher. The Average remains below its 20, 50 and 200 day moving averages. Strength relative to the S&P 500 Index remains negative.

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The Shanghai Composite Index fell 91.99 points (3.88%) last week despite news that the Bank of China reduced its lending rate by 0.25% to 3.25%. Intermediate trend is down. Support is at 2,242.34 and resistance is at 2,478.38. The Index remains below its 20, 50 and 200 day moving averages. Short term momentum indicators are oversold, but have yet to show signs of bottoming. Strength relative to the S&P 500 Index has been positive, but is showing signs of change.

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The London FT Index gained 114.22 points (2.15%), the Frankfurt DAX Index fell 133.56 points (2.13%) and the Paris CAC Index added 34.68 points (1.15%) last week.

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The Athens Index fell another 9.21 points (1.84%) last week. Intermediate trend is down. The Index remains below its 20, 50 and 200 day moving averages. Short term momentum indicators are oversold, but have yet to show signs of bottoming. Strength relative to the S&P 500 Index remains negative.

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…. More on Currencies,Gold, Commodities http://www.timingthemarket.ca/techtalk/2012/06/11/tech-talk-for-monday-june-11th-2012/

8 Strategies to Avoid Stock Trading Failure

perspectives commentary

Here is a video link to an interview that I did at the World Resource Investment Conference last week, click here to watch on YouTube.

Trading is simple, but not easy. Despite its simplicity, most people who try to trade have a hard time finding consistent profitability. Trading well is as much about doing certain things right as it is about avoiding the common mistakes. Here is a list of the common causes of trader failure.

1. Lack of Knowledge
Trading does not have to be complex or involve a sophisticated understanding of capital markets. In one day, I can teach a person the skills that I use as a trader. However, like riding a bicycle, being good at applying those skills takes practice and usually involves some painful mistakes through the learning process. You probably were pretty wobbly the first time you pedaled a bicycle but, with time, you found your balance and got good at it. Trading is no different.

However, unlike riding a bike, there are thousands of ways to trade. You have a choice in what you trade, the hold period for your trades and the strategies you apply.

There are many options for people looking to learn trading. You can take classes, study online, read books or try to figure it out on your own. Each approach to learning has a cost; don’t underestimate the price for how you intend to learn.

With so many approaches to acquiring the knowledge you need to trade, there is not necessarily just right and wrong ways to learn. It becomes a question of what is right for you, what best fits your learning style. What is most important is that you get educated before you risk a penny of your money in the market. Most people can’t beat the market because they don’t know what they are doing. Don’t let a lack of knowledge ensure your failure.

2. Poor Risk Management
The focuses for most aspiring traders are the decisions to enter and exit the trade. They spend a lot of time trying to find the right stock to buy and then try to make a good decision on when to enter. They miss out on the most important component of the trading process.

Risk management is that often forgotten piece of the trading puzzle. Without capital to trade with, you have nothing to do. Protect your capital first and never try to get rich overnight. Some might get lucky in the short term but those who fail to manage risk over the longer term will go broke. That is guaranteed.

For every trade, you need to know your downside. Being wrong is part of trading so you must have a plan for what to do when you are wrong.

3. Insufficient Capital
Since being wrong is part of a profitable trading strategy, you need to allow for drawdowns of your capital base. There will be times when market conditions will not be great for the strategies you are applying. 
When planning your trading business, you must allow for this potential deterioration of capital. You may make five steps backward before you start to go forward, make sure you have the capital to ride out these losing periods.

4. Trading Without Proven Strategies
I have seen a lot of people trade without a strategy that they have tested. They think that they can beat the market by doing things that make sense. This is often the biggest problem with people who are successful in other areas of life.

It is a bad idea to think that you can beat the market by being smart. The markets rarely do what makes sense, at least in the context of the information that we have. This is because the market often moves on information that most of us just don’t have.

For that reason, it is smart to have a set of trading rules that you first test exhaustively before you trade. Your testing must determine whether the rules yield a positive expected value. Over a large number of trades, your rules should make a profit. What happens on any individual trade really does not matter.

5. Failure to Follow Rules
The rules you define and test are only effective if you follow them. While this is easy for all of us to understand, it is a very hard thing to actually do. We break rules because we are afraid of losing money. Emotion is a hard thing to overcome.

To minimize the impact of emotion requires a comfort with the risk you are taking. Most traders find that paper trading, simulated trading without using real money, is not too hard. It is only when they have their capital at risk that they start to make mistakes.

The solution to this problem is to not take more risk than you are comfortable with. The best traders are those who don’t care about the money. The more you can do to take out emotion, the better your chances will be to follow the trading rules.

6. Lack of Determination
Doing anything well requires the determination to learn and gain expertise. This is very much the case for trading because it is such an emotional pursuit. There will be times when the novice trader will feel overwhelmed with emotion and ready to give up. 

I don’t think trading is something that can be done well by someone who does not like it. Having a passion for trading is what will get you through the hard times and ensure that you stick with it when your heart may tell you otherwise.

7. Poor Focus
The shorter the time frame you trade, the more focused you need to be. Position trading (hold period measured in weeks or months) is not that demanding mentally because you have a lot of time to make your trading decisions. Swing trading (hold period measured in days) requires you make quicker decisions but is not as demanding as day trading. The day trader (hold periods measured in hours or minutes) has to make decisions in only seconds and work hard to not miss out on good trading opportunities.

It is hard to trade if you have a lot of distractions while you are trading. You have to do what is necessary to avoid letting outside factors have an effect on your trading decisions.

8. Inability to Adapt
The market is constantly changing and you need to be able to adapt with it. That means applying trading strategies that are appropriate for the present conditions; you may not want to apply a buying strategy in a market with strong downward momentum.

Avoiding chasing the market with your rules is a challenge that many traders have trouble with. You should have a set of trading principles that do not change over time, these based on source of opportunity that you are pursuing. Do not constantly change the rules of your tested and proven strategies.

However, how and when you apply your strategies will change as the market evolves. I keep a stable of trading strategies that I apply as conditions warrant.

perspectives strategy

Markets took a step in the right direction this week with the bounce back that I was expecting. The indexes have not overcome the pessimism yet but could do so soon, watch for a break of the downward trend line on the major stock market indexes. In the mean time, there are a few stocks able to do well despite the market weakness. This week, I ran the Stockscores Simple strategy Market Scan and found a few stocks with decent charts. Here they are with my comments:

perspectives stocksthatmeet

1. DRAD
DRAD made an abnormal up break with abnormal volume on Friday, taking it through resistance from a rising bottom. Good potential provided it does not pull back to close below support at $2.16.

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2. UNIS
A good ascending triangle break on UNIS Friday with abnormal volume supporting the break. The reward for risk will improve with a pull back. The stock is breaking its long term downward trend, a good sign for a turnaround. Support at $3.95.

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3. TCAP
A nice weekly chart breakout from a cup and handle pattern on TCAP as the stock moves to five year highs after sitting under $20 resistance for over a year. Support at $19.75.

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References

 

  • Get the Stockscore on any of over 20,000 North American stocks.
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  • 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.