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Stocks & Equities

Gold Stocks: History Argues for More Upside

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Posted by Jordan Roy-Byrne, CMT

on Tuesday, 11 September 2012 08:23

Gold and silver stocks are not only the most volatile sector but the highest beta sector. Therefore the percentage moves can be quite exaggerated relative to the market. Currently, the shares have emerged from a W bottoming pattern. They have gained substantially (in percentage terms) in just the past month. I wanted to consult history and in particular the rebounds following the bottoms in 2000, 2005 and 2008 to get a sense of the reasonable upside potential over the coming months. Judging from history, one should not be alarmed about the recent gains because these rebounds tend to run much longer and higher.

Below we chart the HUI in weekly form dating back to 2000. We also plot the HUI’s rate of change for 18 weeks and 26 weeks (equivalent to four and six months) and we note the length of time it took the HUI to break to a new high following the start of the cyclical bears. The market typically rebounds 50%-70% four months following a bottom and roughly 75% six months after a bottom.

sep10huied

If the HUI rebounds 50% from the May 2012 low then we are looking at a target of 558 by or in October. That target is essentially on par with the Q1 2012 high of 555. Secondly, a six month rebound of 65% would take the HUI to 615 (exactly the level of the red line) by or in December. Even if these targets are hit a month or two later, we still would experience a bullish outcome. Keep these targets in mind as we move to short-term analysis.

Next we chart GDX, GDXJ and SIL. In recent days these markets achieved significant breakouts on ‘gap up’ moves. Monday’s action is a strong signal that these markets could fill their open gaps (see circles) and then retest previous resistance which is now support. GDX is very comparable to the HUI. The initial rebound target for the HUI (558) is equivalent to GDX $57. Furthermore, $57 is the 62% retracement (from the 2011 high to 2012 low) and the target from the length of the W bottoming pattern ($48-$39 = $9, $9+$48=$57).

sep10edall

While gold and silver equities have had a strong run, they have only broken out from their multi-month bottoming patterns. A retreat and fill of the gaps would alleviate the current overbought condition, temper sentiment a bit and facilitate another strong leg higher. Moreover, judging from history, this rebound still carries substantial upside potential in the coming months. Traders and investors should look to take advantage if the miners fill their gaps and retest the breakout. If you’d be interested in professional guidance in uncovering the producers and explorers poised to outperform then we invite you to learn more about our service.

Good Luck!

Jordan Roy-Byrne, CMT
Jordan@TheDailyGold.com

The Daily Gold

Twitter: TheDailyGold
Skype: Trendsman


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Stocks & Equities

The Bottom Line

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Posted by Don Valiloux - Timing the Market

on Monday, 10 September 2012 08:26

The Bottom Line

Downside risk exceeds upside potential in equity markets during the next six weeks. The breakout by the S&P 500 Index last week implies that depth of the downside risk is less than previous. Selected seasonal trades continue on the upside (gold, energy, software) and downside (transportation). However, many of these seasonal trades reach the end of their period of seasonal strength this month. September is a month of transition. Trade accordingly.

Equity Trends

The S&P 500 Index gained 26.79 points (1.90%) last week. Intermediate trend is up. The Index broke above resistance at 1,426.68 to reach a four year high. The Index remains above its 50 and 200 day moving averages and moved above its 20 day moving average. Short term momentum indicators have rebounded to overbought levels.

 clip image001_thumb4

The TSX Composite Index added 185.78 points (1.54%) last week. Intermediate trend is up. The Index broke above resistance at 12,196.77 on Friday. The Index remains above its 50 day moving average and moved above its 20 and 200 day moving averages last week. Short term momentum indicators have recovered to overbought levels. Strength relative to the S&P 500 Index has changed from negative to at least neutral.

 clip image006_thumb4

Seasonality refers to particular time frames when stocks/sectors/indices are subjected to and influenced by recurring tendencies that produce patterns that are apparent in the investment valuation.   Tendencies can range from weather events (temperature in winter vs. summer, probability of inclement conditions, etc.) to calendar events (quarterly reporting expectations, announcements, etc.).   The key is that the tendency is recurring and provides a sustainable probability of performing in a manner consistent to previous results.

Identified below are the periods of seasonal strength for each market segment, as identified by Brooke Thackray.   Each bar will indicate a buy and sell date based upon the optimal holding period for each market sector/index.

Picture 1

....go HERE to view Equity Clock's Seasonality Chart for 26 other individual sectors, Commodities, Bonds etc.

Other Issues

Two unexpected events last week triggered a surprising upside move in equity markets last week, China’s $150 billion fiscal stimulus package announced on Thursday night and the ADP report showing a gain in U.S. private employment in August instead of a loss. Gains were muted on Friday when the less than expected U.S. employment report was released.

The economic focus this week is on the FOMC meeting. The Fed widely is expected to announce an additional monetary stimulus program that probably will include the purchase of mortgage backed securities by the Fed that effectively will replace Operation Twist that is expected to expire at the end of the month. However, the effectiveness of a new program is somewhat suspect. At best, it may reduce mortgage rates slightly, but mortgage rates already are near all-time lows. Importance of an additional monetary stimulus program is psychological (Investors relate monetary stimulus to higher equity prices). If the Fed chooses not to introduce another stimulus program, equity markets are vulnerable to significant short term downside risk. If the Fed chooses to go beyond a token purchase (or promise to purchase) mortgage backed securities, equity markets will move higher. The Fed in order to show political neutrality is unlikely to act beyond the September FOMC meeting until after the election.

U.S. economic news other than the FOMC meeting is expected to be neutral to slightly bearish for equity markets this week (higher trade deficit, higher inflation, higher inventories, lower consumer sentiment, but continuing strength in retail sales).

Macro events outside of the U.S. once again focuses on China this weekend and Europe later this week. Negotiations between ECB President Draghi and Greece continue on Tuesday. The German constitutional court rules on the eligibility of ECB lending on Wednesday. The Netherlands holds parliamentary elections on Wednesday.

Short and intermediate technical indicators for most equity markets and sectors improved last week but have returned to overbought levels.

North American equity markets have a history of moving lower from September to mid-October during a U.S. Presidential election year(particularly when polls show a tight race as indicated this year). Thereafter, equity markets move higher.

Cash on the sidelines on both sides of the border is substantial and growing. However, political uncertainties (including the Fiscal Cliff) preclude major commitments by investors and corporations before the Presidential election.

....read more & view 50 charts on Commodities, Interest Rates, Currencies HERE


 




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Stocks & Equities

Juggling Dynamite - The Case For a 4000 Point TSX Drop

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Posted by Danielle Park - Juggling Dynamite

on Saturday, 08 September 2012 08:23

Big picture charts offer some helpful perspective on where we are at after the wild jolts of taxpayer-funded capital injections the past few years. Canada–hardware store to a world where 82% of manufacturing data is now contracting–continues to look weak and vulnerable. We can also look forward to a more normal cyclical recovery in stocks (note the slower, steady price action from the bottom in 2002-03 until the credit mess blew in 2006) one day once central banks stop flooding and let slow demand find its own organic level.

Click on chart or HERE for larger image. 

TSX-Sep-7-2012

Source: Cory Venable, CMT, Venable Park Investment Counsel Inc.

by Danielle Park of Juggling Dynamite

About Danielle

Portfolio Manager, attorney, finance author and a regular guest on North American media, Danielle Park is the author of the best selling myth-busting book “Juggling Dynamite: An insider’s wisdom on money management, markets and wealth that lasts,” as well as a popular daily financial blog:www.jugglingdynamite.com

Danielle worked as an attorney until 1997 when she was recruited to work for an international securities firm.  Becoming a Chartered Financial Analyst (CFA), she now helps to manage millions for some of North America’s wealthiest families as a Portfolio Manager and analyst at the independent investment counsel firm she co-founded Venable Park Investment Counsel Inc.www.venablepark.com.  In recent years Danielle has been writing, speaking  and educating industry professionals as well as investors on the risks and realities of investment behaviors.

A member of the internationally recognized CFA Institute, Toronto Society of Financial Analysts, and the Law Society of Upper Canada.  Danielle is also an avid health and fitness buff.



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The Key Stocks & 4 Reasons Why Buffett-Munger's Model Portfolio Gained 16.1% Year-To-Date

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Posted by Guru Focus

on Friday, 07 September 2012 00:00

The model portfolio of Buffett-Munger screener has gained 16.1% until September 4. Focusing on predictable, high-quality companies, GuruFocus Value Strategies continue to outperform. 

As the market approaches rich valuation, a lot of value investors and value strategies struggle. The portfolio that stands out is the Buffett-Munger model portfolio. Year to date the S&P 500 has gained 11.7%, Buffett-Munger model portfolio has gained 16.1%. The overall performance since inception in 2009 is 89.3%, outperforming the S&P 500 by 33.8%.

The strategy for the Buffett-Munger portfolio is what we used in our backtesting study. This strategy focuses on high-quality companies traded at reasonable prices. To learn more, please go to:

· What worked in the market? Part I 
· What worked in the market? Part II 
· What worked in the market? Part III 

Among the four value strategies, the Buffett-Munger top 25 idea portfolio has shown the lowest volatility and the most consistent performances. It has outperformed the S&P 500 every single year since inception in 2009. The other three portfolios underperformed slightly in 2011. They have more than made up their underperformances of 2011 this year.

All of these portfolios are rebalanced just once a year. During the January 2012 rebalance, 13 out of the 25 stocks in Buffett-Munger portfolio are replaced. So the annual turnover is slightly above 50%. Among the best performers this year BioReference Laboratories Inc. (BRLI) gained 68%, and Express Scripts Inc. (ESRX) gained 41%. The 36% gain of Walmart (WMT) stock has also contributed to the overall performance of the portfolio. 

The outperformance of these strategies is achieved by focusing on high-quality companies that are traded at fair or undervalued prices. Thus we believe that the portfolios carry smaller risk than the general market. This is clearly shown in the performance of the positions in the portfolio. It is almost always the case that the outperformance is driven by the universal outperformance of all the positions. Even for the positions that underperformed, the underperformances of these positions are usually small.

This is just what we expected when we developed the Concept of Business Predictability. By investing in the companies that have consistent and predictable revenue and earnings growth traded at fair prices, we will avoid the losers, and the winners will take care of themselves.

Of all these strategies, we like the Buffett-Munger portfolio the most. As mentioned above, this portfolio invests in the top 25 stocks in the Buffett-Munger screener and is rebalanced once a year. The reasons are:

1. These companies are of high quality. They can grow their revenues and profits consistently.
2. These companies can maintain and even grow their profit margins over time. They have the “moat” that prevents others from entering their market.
3. They incur little debt while growing business.
4. They are at the low end of their historical valuations.

They may not have the market momentum with them, and they may face headwinds which bring the valuations low. But if business continues to grow, we believe it is safer to invest in these companies. Indeed, these companies have outperformed the market every year since inception.

These companies also outperformed the market by wide margins over long period of time in our backtesting. For details, go to: What Worked In The Market From 1998-2008? Part II. Undervalued Predictable Companies And Buffett-Munger Screener.

GuruFocus premium membership is needed to access the details of the portfolios and screeners. We also publish a monthly Buffett-Munger newsletter which features the picks from the Buffett-Munger Screener. If you are a premium member, you can download this for free. If you are not a Premium Member, we invite you for a 7-day Free Trial.

stock-selection-the-importance-of-opportunity-cost



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Marc Faber: The Markets are no longer Oversold

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Posted by Marc Faber Blog

on Thursday, 06 September 2012 07:26

Well, we have to distinguish several factors. First of all, on QE1 the market in March 2009 was unbelievably oversold and so the market was ready for a rebound and as you know that if you print money, it goes somewhere and in the US it went principally into equity prices and into corporate profits. We have record corporate profits which is unusual because revenue growth is actually very disappointing, very little revenue growth. But there are record profits and I do not think these profits are sustainable.

Moreover, the markets are no longer oversold. We are above 1400 on the S&P and compared to other markets in the world, say if you compare the performance of the US stock markets to foreign markets, over the last 18 months in early 2011 the US market had outperformed just about anything else and therefore actually by international comparison the US market is quite high and my view would be every central bank will print money, including the ECB, directly or indirectly, whatever they may call it, but they will do it. The European markets, some of them like France, Italy, Spain, Greece and Portugal, two months ago were either below the 2009 low or close to the 2009 low on the S&P that would be the equivalent of 666. So relative to other markets, some European stocks are now very inexpensive.

Invest in Europe Now

Marc Faber: You talk about commodities having outperformed stocks? That is not quite correct. Agricultural commodities have done well recently, but say industrial commodities have underperformed equities over the last two years. I would say the opportunity in my opinion, and as I have written about this in my reports, is essentially to now pick up some European shares at very distressed valuations. Two years ago a book was published 'Invest in Europe Now'. Of course the timing was not particularly good and the markets since then in Europe have completely imploded. Now recently the markets have bounced off their lows in the case of Italy, Spain, Portugal and France by between 18% and 30% from the lows in June-July. The correction is now coming, but I do not think we will see new lows because whereas two years ago the sentiment was very optimistic about the Euro and about Europe, now it is at an extremely negative reading. There is nobody who has anything favorable to say about Europe, but stocks are at discounting mechanism and they have pretty much discounted all bad news. - in ET Now 

 




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