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Seasonality & The Stock Market Outlook PDF Print E-mail
Written by Jon Vailoux - EquityClock.com   
Thursday, 17 April 2014 09:11

The two charts below illustrate that we are on the brink of moving into a historically weaker period for Stock Markets. Well worth taking a look at this great report - Editor Money Talks

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....read the entire report HERE

 

 

 
5 Wall Street Insider Tips To Multiply Your Dividends PDF Print E-mail
Written by Michael Vodicka - Dividend Opportunities   
Thursday, 17 April 2014 07:04

imagesIn all my years in the market, I've never heard of such an incredible track record.

The IPO prospectus from high-frequency trading firm Virtu Financial reveals that in the past four years, the company has lost money in exactly one of 1,238 trading sessions.

J.P. Morgan didn't have a single losing day in 2013. Bank of America notched a perfect performance of its own in the first quarter of 2013.

Clearly, Wall Street trades and invests its own money a lot differently than the "buy and hold" strategy it preaches to its clients.

One of the best-kept secrets they use is selling options.

Does that sound scary? Intimidating?

If it does, there's a very good reason for that: That's exactly how Wall Street wants it.

Wall Street works very hard to keep one of its most powerful income strategies out of the hands of regular investors.

Because what most investors don't realize is that selling puts isn't just one of the most conservative options strategies... it's one of the lowest-risk investment strategies in the entire market -- more conservative than owning individual stocks and bonds or even mutual funds and ETFs.

The conservative strategy of selling options is driven by a fact you might find shocking: About 80% of options expire worthless. That means whoever sold those options gets to keep the full premium collected as income from their sale 4 out of 5 times.

And these aren't small premiums. They're annualized yields of 36%... 47%.... even 87% from well-known, trusted companies like Microsoft (Nasdaq: MSFT) and Verizon (NYSE: VZ).

Despite Wall Street's best efforts, well-informed investors are embracing selling options as an important source of portfolio income. In fact, this is what we do every week in my premium newsletter service, Income Multiplier.

But deciding to sell options is only half the battle. Learning how insiders increase their returns and win ratios is the other. That's why I'm sharing these 5 insider tips that provide a basic framework for understanding how Wall Street insiders increase the probability of winning trades.

1. Only sell options on stocks you want to own.
Selling a put offers two potential outcomes.

The first is that the options expire worthless and the put seller keeps the entire premium generated from the sale. This is a powerful income strategy and the most desirable outcome when selling an option because we keep this premium as pure profit.

The second potential outcome is that shares of the underlying stock fall below the strike price on the date the option expires. This obligates the put seller to take ownership of the shares.

Although that's a low-probability outcome, it's the reason why it's so important to sell options only on stocks you actually want to own. In the event that the put seller is put shares, you want to own a great company with plenty of long-term potential that will quickly rebound from a temporary pullback.

2. Avoid long-dated expirations.
All options contracts have an expiration date. Some options expire every week; other options expire after several years. Options that are dated far into the future have a higher premium value because a longer time allows significant price swings or unexpected events to occur. That could be a macroeconomic event (like a recession) or a company-specific event, such as earnings falling short of expectations.

Conversely, options that expire in just a few weeks or a month are much less susceptible to price fluctuations. Think of this like a baseball player hitting a bunch of singles and doubles as opposed to an occasional home run with lots of strikeouts.

3. Sell puts more than 5% out of the money.
Every options contract carries a probability of expiring worthless. Some options contracts have a 90% probability of expiring worthless; others have a 50% probability. It all depends on the variables of each individual contract.

One of the biggest factors impacting the probability of a worthless expiration is an option's strike price. Options with strike prices that are far away from the underlying stock's current share price have a lower probability of assignment than those with strike prices that are close to current prices.

Selling puts with strike prices more than 5% away from the current share price greatly increases the chances that the puts you sell will expire worthless.

4. Diversify.
Regular stock investors should always diversify their portfolios. Holding stocks from different sectors and regions of the world is a great way to reduce volatility and short-term price risk. Stocks from different sectors and industries tend to have a lower correlation with each other.

That same concept of diversification holds true for selling options. As an options seller, it's important to avoid highly concentrated positions in sectors, stocks or themes with a high correlation. This reduces the probability of one single event triggering assignments on multiple open put positions.

5. Don't increase the size of positions too quickly.
This is the No. 1 mistake made by new options traders. It's also a familiar theme across any asset class. A novice investor experiences great results early in the game with a new investment strategy. Gaining confidence, the investor begins to quickly ramp up the size of their position, increasing risk significantly. When the size of the investor's trades has grown out of proportion to the value of the account, one small miscue can have serious implications.

This is a recipe for disaster. The value of any individual put-selling position should be calculated as a percentage of overall account value. That makes actual results and the growth of an account the primary drivers of position size as opposed to a bout of short-term confidence driven by a bull market.

The unprecedented track records that Wall Street trading firms are racking up are due in large part to successful strategies like these.

But I think it's time that regular investors got in on the wealth-building opportunities that these traders are so set on hiding from the public.

In my premium newsletter Income Multiplier, I'm showing readers my research each and every time I sell a put option, and we're seeing annual yields on our trades that make regular dividends look meager by comparison. As I mentioned earlier, we're talking 36%... 47%... even 87%. To learn more about how easy it can be to multiply your income, I'd like to invite you to watch a special presentation I've prepared. Simply follow this link to learn more.

Good investing,

Michael Vodicka
Chief Investment Strategist
Income Multiplier

 
When Earnings Disappoint In A Market Priced For Perfection PDF Print E-mail
Written by John Rubino - DollarCollapse.com   
Thursday, 17 April 2014 06:49

logo dollarcollapse smAfter today’s market (april 1th) close there was a flurry of earnings announcements, some of which were way low. Not bad, mind you. In fact they were pretty good. But because Wall Street analysts were expecting more in order to justify current stock prices, the disappointments led to big price declines in the aftermarket:

....read more HERE

 
Gold Forecast & Major Currency Is Collapsing PDF Print E-mail
Written by Chris Vermulen via Gold Eagle   
Thursday, 17 April 2014 06:44

I want to make you aware of a possible major breakdown in the US dollar index and provide you with my gold forecast. If this scenario plays out then we will see the Euro explode to the upside and also see commodity based currencies like the Canadian dollar, and Aussie dollar rally. This would also be bullish for commodities in general like gold, silver, precious metals mining stocks etc…

The US dollar index chart below clearly shows a three year topping pattern with multiple price levels which when broken will trigger farther selling. These red horizontal lines on the chart show these price levels.

Critical support is around the 79.50 area which if breached should start a major wave of selling in the next few months. The initial wave of selling should take price all the way down to the 78.00 level before taking its first breather/pause.

*Trade Tip*
Most technical analysis books and traders think that the more times a support trend line has been touched the strong it becomes. That actually could not be any further from the truth.

Let me tell you how to trade trendlines.

1. You must have at least two pivot points (highs or lows) to be able to draw a trendline.

2. The 3rd and 4th touch of this line can be traded for a bounce.

3. Any touch of the trendline after the 4th is actually doing damage as it eats up the support volume.

4. A rising trendline like the one below clearly shows multiple pivot lows that when breached will trigger stops and flood the market with supply/sellers. It’s the perfect storm for a downward move.

gold-market-traders

Gold Forecast

My gold forecast has not changed in nearly a year as we wait for the gold market to bottom, then prove it’s self by breaking out of its basing pattern.

The bullish gold forecast is of the bigger picture. Most gold market traders and investors are caught up with the day to day price action and are growing tired of the range bound trading which gold has been doing for some time now.

In 2011 I pointed out the possible major topping pattern in gold, and that if price broke to new lows, then it would be lights out for at least a year if not two before the chart would build a new bullish base. And that leads us to my current gold forecast.

gold-forecast

Gold Forecast & Gold Market Traders Conclusion:

In short, my gold forecast should be looked at from the big picture perspective. Getting involved in any gold stock, commodity or investment that is stuck in a range does carry more risk. It is easy to get shaken out of these positions a few times before the new bull market emerges.

The lowest risk position is to wait for the breakout of the basing pattern (yellow rectangle), only then can gold market traders get heavily involved to the long side.

Get My Weekly Gold Forecast FREE – www.GoldAndOilGuy.com

Chris Vermeulen

*******

 
Where - & When - the 'Smart Money' Is Placing Its Bets PDF Print E-mail
Written by Mike Burnick - Money & Markets   
Thursday, 17 April 2014 06:30

Stocks remain under selling pressure this week as they have been since the start of the second-quarter of 2014. The Dow Jones Industrial Average reached a peak of 16,574 on April 4, and for the most part, it's been downhill since then.

The selling appears to be mainly driven by institutions, the so-called "smart money" crowd persistently unloading shares in the late afternoon.

Interestingly, some of the stocks and sectors hit hardest with selling in recent weeks were among last year's best performers. Meanwhile, last year's laggards are performing well in April, despite the increased volatility.

For example, the hardest hit sectors this month include last year's two top-performers: Biotechnology and Internet.

Just a year ago investors couldn't own enough of the high-beta momentum stocks. Biotech shares surged 74.3 percent in 2013, the top-performing sector, while Internet retailers ranked a close second with a 73.5 percent gain. Internet software and services cracked the top 10 with a 48.8 percent gain.

Alas, momentum can cut both ways ...

Since late February the Nasdaq Biotech Index has tumbled 21 percent, while the Dow Internet ETF (FDN) is down 13.9 percent.

And yet the selling hasn't exactly been indiscriminant either. In fact, while many high-flying tech stocks have been hammered, other, more reasonably valued tech sectors are performing well.

chart1

 click for larger version

The same pattern plays out among healthcare stocks. Sure, biotech shares have dragged the entire sector down, but health care equipment stocks and managed care providers are two sub-sectors that have been largely immune to the sharp selloff.

That tells me the recent correction in stocks is more about sector rotation within the stock market rather than broad-based selling of all stocks. The big money appears to be cashing in some of last year's big winners, and moving money into more undervalued sectors within the market.

And who can blame them after 70 percent-plus gains in biotech and Internet stocks last year?

Now, the smart money is finally piling into some of the out-of-favor sectors from last year ... stocks and sectors that I have favored since late 2013, expecting just such a reversal of fortune. Or as the astute Michael Santoli recently wrote: "The dominant themes of the sharp pullback have been a reversal of the winning investment trades of 2013 (which got very crowded and expensive)."

Case in point: Mining stocks. You can't find a more maligned group during 2013 than precious metal stocks. The Philadelphia Gold and Silver Sector Index (XAU) of mining shares plunged 48 percent in 2013, but what a difference a few months can make. Mining stocks are up 7 percent year-to-date, even after the recent pullback in the gold price, and at the peak in mid-March XAU was up 20 percent.

In fact, commodities in general have provided positive performance for investors so far this year. In a big trend reversal from recent years, the Continuous Commodity Futures Price Index (CCI), an equal-weighted average of commodity prices, has gained 11 percent year to date. Beneath the surface, several markets are performing even better.

Besides an 8.3 percent gain in gold ... natural gas is up 9 percent, corn has popped 18 percent, palladium is up 10.8 percent ... and coffee is up a stunning 82.6 percent!

This rotation out of last year's best-performing stocks and sectors has been swift, and it's clear that hair-trigger institutional investors are behind the move. I have noticed a consistent pattern in recent weeks for stocks to trade higher in the morning only to fall victim to an afternoon swoon.

That's a sure sign of "smart money" selling at work just prior to the close. The Smart Money Flow Index (SMFI) (see graph below) subtracts the first half-hour of emotionally driven buying and selling from the Dow and places more focus on the last hour of trading.

chart2

 

click for larger version

This is based on the theory that the first 30 minutes of trading is dominated by market orders from retail investors or index-tracking funds. Meanwhile, the "smart money" waits until the end of the day to make their move into, or out of, stocks in a big way.

According to Bloomberg data, the Smart Money Flow Index has plunged 8.8 percent since the beginning of March, while the Dow itself has declined just 2 percent. This means the stock market's heavy-hitters have been eager sellers into the close.

A negative divergence like this, when the SMFI is falling faster than the Dow, is generally a sign of selling ahead and lackluster returns for stocks. That is, until the "smart money" starts buying again.

The good news is that most stocks and sectors are already approaching oversold levels now, and the recent correction is creating more attractive prices for long-term investors, especially in select biotech and internet stocks.

So keep a watchful eye on the market's direction during the all-important last hour of trading. Look for more buying on strength into the close, rather than selling into market weakness, as a first sign that stocks are stabilizing and the correction may be ending.

Good investing,

Mike Burnick

 

 

 

 

 
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Greg Weldon
17 April 2014 ~ Michael Campbell's Commentary Service

We are pleased to introduce a new feature to the Inside Edge with the first of a regular contribution from Greg Weldon. Greg's video and...   Read more...

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