Stocks were mostly lower last week but rose Friday, Nov. 16, when U.S. political leaders expressed optimism that a deal to avert the fiscal cliff is possible. Trend may be determined by answer to ‘What If…?’ What if the tax increases and spending cuts associated with the fiscal cliff are allowed to take place? Stocks fell last week as traders pondered this possibility. What if Congress and the president can reach a deal and avoid the cliff? We saw stock prices move higher when this scenario became a possibility in the minds of traders. The long-term trend in stocks may… Read More

Stocks were mostly lower last week but rose Friday, Nov. 16, when U.S. political leaders expressed optimism that a deal to avert the fiscal cliff is possible. Trend may be determined by answer to ‘What If…?’ What if the tax increases and spending cuts associated with the fiscal cliff are allowed to take place? Stocks fell last week as traders pondered this possibility. What if Congress and the president can reach a deal and avoid the cliff? We saw stock prices move higher when this scenario became a possibility in the minds of traders. The long-term trend in stocks may be revealed when one of these two questions is answered definitively.   Despite a 0.49% gain on Nov. 16, SPDR S&P 500 (NYSE: SPY) was down 1.3% for the week. PowerShares QQQ (NASDAQ: QQQ), an exchange-traded fund (ETF) that tracks the 100 largest Nasdaq stocks, fell 1.78% last week and is now down more than 5% in the past four weeks.   ProShares UltraShort QQQ (NYSE: QID), an ETF that goes up when the Nasdaq 100 goes down, was up 3.5% last week and is up 13.52%… Read More

Stock market volatility has fallen to a six-month low, and an increase in volatility should be expected. As volatility expands, we should learn the direction of the next major trend. Volatility Contraction Points to a Big Move Prices ended last week with only a small change. SPDR S&P 500 (NYSE: SPY) lost 0.21% and PowerShares QQQ (Nasdaq: QQQ), an ETF that tracks the 100 largest Nasdaq stocks, fell 0.37%. Volatility declined throughout the week, and… Read More

Stock market volatility has fallen to a six-month low, and an increase in volatility should be expected. As volatility expands, we should learn the direction of the next major trend. Volatility Contraction Points to a Big Move Prices ended last week with only a small change. SPDR S&P 500 (NYSE: SPY) lost 0.21% and PowerShares QQQ (Nasdaq: QQQ), an ETF that tracks the 100 largest Nasdaq stocks, fell 0.37%. Volatility declined throughout the week, and now volatility in SPY may be pointing to bigger price moves ahead.  Market volatility tends to move in cycles from low to high values. Volatility has now fallen to a new six-month low. In the chart above, volatility is shown in the center with the Bollinger Bandwidth. This indicator measures the distance between the Bollinger Bands. Previous six-month lows in this indicator are highlighted by vertical lines. A price move of at least 6% within the next two months followed each of those signals.#-ad_banner-# Volatility indicators tell us only that… Read More

Occasionally, I sort stocks by price-to-earnings (P/E) ratios looking for trading opportunities. This idea is well-known to value investors who often start their investment selection process with low P/E stocks.#-ad_banner-# I think it can be useful to flip that idea around and look at the stocks with the highest P/E ratios. Sometimes that list will include rapidly growing companies that are shaping consumer and industrial markets. Lists of high P/E stocks will also almost always include… Read More

Occasionally, I sort stocks by price-to-earnings (P/E) ratios looking for trading opportunities. This idea is well-known to value investors who often start their investment selection process with low P/E stocks.#-ad_banner-# I think it can be useful to flip that idea around and look at the stocks with the highest P/E ratios. Sometimes that list will include rapidly growing companies that are shaping consumer and industrial markets. Lists of high P/E stocks will also almost always include stocks that make great short candidates or offer trading ideas based on put options. There are at least 10 stocks with a market cap of more than $400 million and a triple-digit P/E ratio based on earnings from the past 12 months and forecasted earnings for the next 12 months. One of these seems to be an especially appealing trading candidate, Wright Medical Group (Nasdaq: WMGI). Wright makes medical devices used in ankle, knee… Read More

While there are hundreds of technical indicators available, many of them give the same signals, and using several that are similar adds little value to your analysis process. The wide variety of indicators may disguise the reality that most indicators simply apply different mathematical techniques to closing prices in their calculation. For example, the relative strength index (RSI) and stochastics will usually give buy and sell signals at about the same time. To avoid the… Read More

While there are hundreds of technical indicators available, many of them give the same signals, and using several that are similar adds little value to your analysis process. The wide variety of indicators may disguise the reality that most indicators simply apply different mathematical techniques to closing prices in their calculation. For example, the relative strength index (RSI) and stochastics will usually give buy and sell signals at about the same time. To avoid the problem of duplicating signals, traders should know exactly want they want to learn from each indicator on a chart. Below is a daily chart of PowerShares QQQ ETF (Nasdaq: QQQ). The prices are shown with Bollinger Bands. Stochastics and RSI are shown in the lower part of the chart. Prices seem to have turned down after nearing the upper Bollinger Band. This could indicate that the next move in QQQ will be… Read More

Oil and gas has always been a high-stakes game. But recent circumstances have created a wonderfully simple and promising backdoor investment into the infamously fickle industry — without all that extra risk. Thanks to multiple factors, including newer technologies in crude oil extraction, the United States is on the track to independence in the energy market, expected to continue drastically decreasing imports in the sector in the near future.  The obvious implication of this news is that stock in American oil producers has serious upside. But history screams at us that oil is far from a sure thing, and it’s… Read More

Oil and gas has always been a high-stakes game. But recent circumstances have created a wonderfully simple and promising backdoor investment into the infamously fickle industry — without all that extra risk. Thanks to multiple factors, including newer technologies in crude oil extraction, the United States is on the track to independence in the energy market, expected to continue drastically decreasing imports in the sector in the near future.  The obvious implication of this news is that stock in American oil producers has serious upside. But history screams at us that oil is far from a sure thing, and it’s hard to trust such an inconsistent sector.  This brings us to the stealthy, more stable play on the situation. This increasing domestic crude oil supply in the U.S. is bound to put stress on a system that has been merely a supplement to Middle Eastern imports for years. The capacity of the pipelines in place to transport all this crude oil is far too small to handle distribution alone during this rise in stateside production, and the federal government has decided not to build any more of them. This presents one particular avenue with a chance to bust into America’s… Read More

Large investors — the 3,600-plus people managing more than $100 million — are required to report their holdings to the Securities and Exchange Commission (SEC) every quarter. These investors have to submit a Form 13F within 45 days of the end of the quarter. In a market where information is literally swapped at the speed of light and news becomes stale after an hour, a 45-day-old snapshot of what an investor was holding may seem downright ancient. But the information can still provide plenty of value, if you know what to look for. As with any data related to the… Read More

Large investors — the 3,600-plus people managing more than $100 million — are required to report their holdings to the Securities and Exchange Commission (SEC) every quarter. These investors have to submit a Form 13F within 45 days of the end of the quarter. In a market where information is literally swapped at the speed of light and news becomes stale after an hour, a 45-day-old snapshot of what an investor was holding may seem downright ancient. But the information can still provide plenty of value, if you know what to look for. As with any data related to the stock market, it is important to isolate the information that is valuable and ignore the rest. In the 13F reports, the most important information will be found in the filings of long-term investors. Filings from short-term traders should be ignored. #-ad_banner-#This is because some high-frequency trading (HFT) firms could be required to report their holdings if they manage money for others, but their filings would simply be a snapshot of what the firm held at the close on the day the quarter ended. Odds are high that the firm had completely different holdings an hour after the open the next… Read More

I haven’t been this excited about a “guru” trade in a while… Last week, my system identified an opportunity I’ve only seen a handful of times since I designed it. Specifically, it found a stock with a perfect 10 “guru score.” Achieving a perfect score under my system isn’t easy. In fact, I can probably count the number of times I’ve actually seen it done. Micron Technology (Nasdaq: MU), a current “Guru Trader Portfolio” holding, is an example of a stock that had a perfect rating when we added it, and it’s up 45% in the… Read More

I haven’t been this excited about a “guru” trade in a while… Last week, my system identified an opportunity I’ve only seen a handful of times since I designed it. Specifically, it found a stock with a perfect 10 “guru score.” Achieving a perfect score under my system isn’t easy. In fact, I can probably count the number of times I’ve actually seen it done. Micron Technology (Nasdaq: MU), a current “Guru Trader Portfolio” holding, is an example of a stock that had a perfect rating when we added it, and it’s up 45% in the past four months. Let me explain why it’s so difficult to have a perfect 10 rating… #-ad_banner-#My system relies on two specific indicators to identify a potential stock pick: relative strength and cash flow growth. Relative strength shows how a stock is performing “relative” to the market. The higher the relative strength, the more a company’s stock price is rising in relation to its peers. This indicator is important because it identifies stocks that are outperforming today. After all, if you want to make money the fastest way possible, you want to buy stocks that are already on… Read More

Once again, U.S. stocks ended the week with only a small change after high daily volatility. But after two days of large gains to end the week, bear market fears seem to have subsided. Two-Day Rebound Eases Concerns of Market Drop SPDR S&P 500 (NYSE: SPY) gained 0.84% last week. The small gain masks the size of the moves seen during the week. SPY traded as low as $173.71 on Wednesday and as high as $179.87 on Friday, a jump of 3.55% from low to high in only two days. That two-day gain retraced about half of… Read More

Once again, U.S. stocks ended the week with only a small change after high daily volatility. But after two days of large gains to end the week, bear market fears seem to have subsided. Two-Day Rebound Eases Concerns of Market Drop SPDR S&P 500 (NYSE: SPY) gained 0.84% last week. The small gain masks the size of the moves seen during the week. SPY traded as low as $173.71 on Wednesday and as high as $179.87 on Friday, a jump of 3.55% from low to high in only two days. That two-day gain retraced about half of the market’s January decline.#-ad_banner-#​ Friday’s gains came after the unemployment report delivered data consistent with slow but steady economic growth. The unemployment rate fell to 6.6%, just above the Federal Reserve’s target of 6.5%. The recently popular workforce participation rate increased slightly, and the number of long-term unemployed and discouraged workers fell slightly. While employment gains are slow, the most recent report was consistent with economic expansion. In the past, recessions have started when the unemployment rate drops below the level the Fed considers to be the natural level of unemployment. Right now, the Fed believes full employment would be… Read More

The past few years have been a great time to be an investor. Federal Reserve Chairman Ben Bernanke’s zero interest rate policy has fueled large gains in just about every market sector since 2009. There’s little question that his policies are bullish in the short term, but what happens when the Fed’s easy money stops? #-ad_banner-#For an answer to this, we can take a page out of baseball history.  In 1998, Mark McGwire set a record by hitting 70 home runs during the season, while Sammy Sosa hit 66. The previous record of 61 home runs had been set in… Read More

The past few years have been a great time to be an investor. Federal Reserve Chairman Ben Bernanke’s zero interest rate policy has fueled large gains in just about every market sector since 2009. There’s little question that his policies are bullish in the short term, but what happens when the Fed’s easy money stops? #-ad_banner-#For an answer to this, we can take a page out of baseball history.  In 1998, Mark McGwire set a record by hitting 70 home runs during the season, while Sammy Sosa hit 66. The previous record of 61 home runs had been set in 1961 by Roger Maris. In 2001, Barry Bonds broke McGwire’s record by hitting 73 home runs.  At the time, baseball was an exciting sport to watch as home run records captured headlines. Later, fans learned that the hitters were abusing steroids. Home run outputs returned to normal after league-wide steroid testing became the norm in 2003.  Fed policy is acting like a performance-enhancing drug for the market. When it stops easing, I believe the markets will be unable to continue climbing at the frantic pace seen during the past year. Returns will be below average for some time, and stock… Read More

U.S. stocks were little changed after a volatile week. ‘January Indicator’ Signals 50/50 Chance of Gains in 2014 SPDR S&P 500 (NYSE: SPY) fell 0.4% last week and was down 3.52% for the month. SPDR Dow Jones Industrial Average (NYSE: DIA) was down 5.2% for the month.#-ad_banner-# According to a popular interpretation of the “January Indicator,” this makes the widely followed market forecasting tool bearish for 2014. But history doesn’t support this interpretation of the indicator. In the past, a negative performance for the Dow in… Read More

U.S. stocks were little changed after a volatile week. ‘January Indicator’ Signals 50/50 Chance of Gains in 2014 SPDR S&P 500 (NYSE: SPY) fell 0.4% last week and was down 3.52% for the month. SPDR Dow Jones Industrial Average (NYSE: DIA) was down 5.2% for the month.#-ad_banner-# According to a popular interpretation of the “January Indicator,” this makes the widely followed market forecasting tool bearish for 2014. But history doesn’t support this interpretation of the indicator. In the past, a negative performance for the Dow in January has occurred 22 times since 1950, and a down month had been followed by declines in the rest of the year 50% of the time. Big losses in January are less common. This is the eighth time the Dow has fallen more than 5% in the first month of the year, and the market showed a gain in the rest of the year five of the previous seven times. The average of a small sample is not statistically significant, but the average gain in the seven years has been 6.5%. Based on the size of January’s loss, we can… Read More