Approach This Market With a Rifle, Not a Shotgun

English: source: my own photo. (Photo credit: Wikipedia)

In a highly charged, low-volume environment, it's better to take aim at specific stocks

By Sam Collins, InvestorPlace Chief Technical Analyst

New York, Aug.27, stock investment .- The stock market was slammed in the final hour of trading on Monday following a statement from Secretary of State John Kerry that President Obama may be considering military action against Syria for the recent use of chemical weapons on civilians.

Low volume contributed to the volatility, and the late selling was attributed to short sales and protective strategies in advance of the possibility of an even broader sell-off.

At Monday’s close, the Dow Jones Industrial Average was off 64 points to 14,946, the S&P 500 fell 7 points to 1,657, and the Nasdaq broke even at 3,658. The NYSE traded 546 million shares and the Nasdaq crossed just 336 million. Decliners led advancers on both exchanges by about 1.3-to-1.

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The S&P 500 was holding its own, above its 50-day moving average, until the last hour when the sell-off hit almost all sectors. The selling also sent MACD slightly lower, cancelling the small upturn in its fast line noted last week.

The index now has clearly defined resistance lines that must be overcome if it is to move ahead in October. First, it must decisively overcome its 50-day moving average, now at 1,660, and then the resistance line at 1,676, which was its breakdown point on Aug. 15.

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Small caps advanced slightly Monday but were victims of the volatility associated with the collision of low volume and negative headline news.

The current resistance for the Russell 2000 is at the confluence of its breakdown line and 20-day moving average at 1,042. Like the S&P 500, the Russell’s MACD has turned flat — not a bullish indication.

Conclusion: This week, the major indices may be just too difficult to trade since the low volume associated with the “dog days of summer” at the top of a major market advance can lead to extremely high volatility.

But that doesn’t mean that tradable opportunities don’t exist. Rather than swinging at the difficult-to-predict indices, it might be more profitable to concentrate on specific stocks like our Trade of the Day, 3D Systems (DDD), or Microsoft (MSFT). If you are bearish, short stocks in the homebuilding sector like Lennar (LEN).

Using a “rifle approach” to trading can be more profitable than the “shotgun approach” in a highly charged, low-volume environment.

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How to Spark a Fear Rally

Bull and bear in front of the Frankfurt Stock Exchange (Photo credit: Wikipedia)

By Rude Awakening

Baltimore, Aug.27, stock investing .- The sky is falling. Investors are panicking. But the market? The S&P is down about 2.5% from its August 2nd peak. What you're witnessing right now is the perfect recipe for a fear rally. I briefly mentioned Friday morning that investors pulled a net $9.4 billion out of U.S. stock funds last week. It's obvious the herd is terrified. Even the sentiment polls have sharply reversed from bullish to downright bearish… "Turning to what caught my eye this week, sentiment polls showed some amazing spikes in fear on a less-than-5% pullback. As contrarians, this is exactly what you want to see," opines Ryan Detrick, Schaeffer's senior technical analyst. "It doesn't mean the market has to bottom here and now, but it increases the odds of a lasting rally once we get moving again." Case in point: the American Association of Individual Investors poll. Detrick notes the bears (the poll now has them at 52%) have advanced for six consecutive weeks. That hasn't happened since the AAII poll first started 26 years ago... Adding to the slipping sentiment numbers is hard evidence proving many investors want nothing more to do with this market. Turning back to fund outflows, you can clearly see investors have abruptly turned on this year's bull market. That's no mistake. We really did just witness the largest outflows from equity funds in more than five years. This fact is even more incredible when you realize that just two summers ago, eurozone fears helped crater the markets nearly 20%-- yet this month's small dip has triggered far more selling… Fund outflows and newly bearish sentiment are setting us up for a bounce. While I still don't like the weakness we're seeing in the Dow, popular momentum stocks have held up well during this market pause. If these names continue to move toward new breakouts, you can expect the overall market's performance to improve as well over the next couple of weeks. Fight any urge to "trade scared" this week. Set your brain to buy-the-dip mode while most investors are running from the market…

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Get Ready for the Annual Retail Rebound

English: simulated Wal-Mart logo (Photo credit: Wikipedia)

By Wealthy Retirement

New York, Aug.27, stock advice .- You may have come across this headline from a mainstream media outlet last Wednesday:

"Staples Plunges in One of Its Worst Sessions Ever"

The article pointed out how Wednesday's single-day plunge of 15% was one of the worst single-day losses Staples (Nasdaq: SPLS) has ever suffered... Second only to... drumroll, please... Aug. 15, 2012, when it fell 14.6%.

What struck me as odd (and bordering on lazy) was that the writer of this article - as well as the doomsaying commenters on the same article - failed to connect the dots. Think about it. The same company suffered near-15% one-day drops a year apart, almost to the day.

Instead, the writer wasted readers' time lamenting that retailers are reporting lackluster second quarter results as the consumer remains cautious. Yawn...

What I'm about to show you is that these two significant one-day drops (which both just so happened to occur on the day of the company's second quarter earnings release) are no coincidence. And once you understand what's happening, you can greatly improve your investing results - while substantially cutting your risk.

Here's what I mean...

Do You See a Pattern?

I'm just tossing this out there: Maybe Staples' second quarter results are consistently terrible. Maybe, you shouldn't buy Staples shares before its second quarter earnings release...

Let's take a look at Staples' quarterly revenue results:

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What should be jumping out at you is that the second quarter for Staples is consistently its worst quarter... The only year it wasn't was in 2009, when the first quarter was the bottom.

We also see that the third and fourth quarters are consistently its strongest of the year.

That means the guy who wrote "Staples Plunges in One of Its Worst Sessions Ever" had the opportunity to tell investors that this is a frequent occurrence for the quarter... But he didn't.

Who's Buying in Summer? No One...

Now, let's look at the entire retail sector as a whole. There are plenty of headlines speculating on doom-and-gloom for the industry as second quarter results were largely lackluster.

In the following chart you'll see my Prime System Retail Index, which I use in Emerging Trends Trader. This index is made up of 21 companies. These include teen apparel retailers, big-box discount stores - such as Target (NYSE: TGT), Wal-Mart (NYSE: WMT) and Costco (Nasdaq: COST) - as well as mall-based chains and retail advertisers.

Here is how the Prime System Retail Index has performed from May to October since 2000 to today:

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That's a lot of red isn't it?

In 14 years, there have been only five years of gains from May to October - during which the retail industry reports second quarter results. And 2003 and 2009 - the best years during this mid-year stretch - were both rebound years after market collapses.

So, you have to ask yourself: Is this year any different? Are shares of retailers acting outside of this normal seasonal pattern?

Currently, the Prime System Retail Index is down 3.99% since the start of May. The average return for this index from May to October over the last 14 years is -3.73%.

On average, eight companies in the Prime System Index will see a positive gain during the stretch from May to October...

And right now, there are exactly eight companies in the green.

Both figures are in line with the long-term average of the Prime System Retail Index.

That means what's unfolding right now is nothing that's out of character for the sector... In fact, this is exactly what we want.

Hello Holidays!

Obviously, the stock market is about buying low and selling high.

There's a pretty good chance if you're buying retail stocks in late spring, or before the second quarter earnings season, you're buying at a high point and are going to have to suffer through the seasonal low points we see for shares.

Now let's take a look at that same index and how the companies perform from October to May - the Prime Period for retail stocks (going from their low point to a high point)...

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It's a totally different picture, isn't it?

Lots of green... And lots of solid returns year after year.

There were only two years of losses... The rest were all double-digit gains, with six years of gains of 20% or more.

The average return of the Prime System Retail Index from October to May since 2000 has been 20.63%.

On top of that, the average number of companies that have a positive gain during this Prime Period for retailers is 15 - almost double the number of those that see positive gains on average from May to October.

That's a pretty significant trend.

So, now you have to ask yourself: Is this year any different?

Are you going to let the mainstream media fear over retailers make you afraid? Or are you going to start creating a shopping list right now for retail stocks while there is blood in the streets and you know that the best time for the shares are ahead?

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Picking the Right Online Stock Broker

English: The image is 50, Broad Street, New York. (Photo credit: Wikipedia)

By Dividend Growth Investor

Palm Beach, Aug.15, stock investment .- When I first started dividend investing, I was looking for the lowest commission possible. I ignored any other features of a stock brokerage, since I viewed the brokerage industry as one that provides a commoditized service. Back in 2008 – 2010 I was a big fan of Zecco, mostly for their free trades. Since then I have branched out to other brokers. Before I was a dividend investor, my investing was concentrated on buying mutual funds in a 401 (k).

The chart above summarizes brokers I have personally invested through since I started my site to document my dividend investing journey. In addition, the information above is not intended to be complete in any means. I have rated the brokers above based on my experience with them, with Schwab being the best, while Sogotrade having room for improvement. Sogotrade charges $5 for trades, but $3/trade if you prepay. The chart shows the commissions for each broker for stock trades, and assumes an individual investor does less than 10 trades/month. It also lists the minimum amounts an investor needs to deposit, in order to open a cash account. The next column shows whether the broker offers dividend reinvestment of partial shares. TradeKing does allow dividend reinvestment per my experience, but not for partial shares. The next to last column shows the length of time that trade history and trade statements are available to the customer. In some cases, the trade history is limited to my own experience with the broker. In other cases, this is based on information available on the broker website. The last column shows that none of the brokers had any inactivity fees at the time I wrote this article.

The story below discusses my experiences with brokers, which could be different than your experience.

I believe that brokers should offer a commission that provides value to customers and also a decent rate of return to the brokerage company itself. A low commission is typically associated with rudimentary platforms which could be very confusing to the investor. Of course, if you are an experienced investor who knows what they need and doesn’t need much hand holding, then you should do fine with simply the lowest cost broker. However, when something goes wrong, and it usually will, you will start regretting your decision.

My experience with Zecco was positive for a few years, while they were offering 10 free trades for accounts whose balance exceeded $2,500. Initially, back in 2006, Zecco offered 40 commission free trades to all customers. In 2009 Zecco changed its rules once again and only provided ten free trades to customers with account balances that exceed $25,000. In 2010, Zecco eliminated commission free trades for everyone except traders who made 25 trades/month. In the meantime, I had a few other brokerage accounts, but was considering Zecco to be my primary individual brokerage account. Then Zecco started going through platform upgrades and changed their clearing firm. In addition, Zecco never offered automatic dividend reinvestment that allowed your investments to compound. This was never an issue for me, since I like to accumulate my dividends and new funds, before I buy a security. The only problems that I had were with companies that were paying 5% stock dividends or companies like Kinder Morgan LLC ( KMR) which paid distributions in fractional shares. Zecco used to provide these distributions in cash, thus creating a taxable event and negating any long-term compounding of my investments.

In the meantime, a lot of Zecco investors were unhappy with their platform, because it often crashed during periods of extreme market volatility . Back in late 2008, there were several times when I was unable to log into my Zecco account to place a trade. I was also unable to log into my Zecco account during the May 6, 2010 flash crash. I was able to log into my Schwab account however on both occasions. When Zecco upgraded platforms and changed clearing firms, this created some issues for me. Actually, this created a lot of headaches for me, because some of the shares I owned like Royal Dutch Shell (RDS.B), Brown-Forman ( BF.B) and Nestle (NSRGY) were either not showing in my account, or had an incorrect symbol and the position amount was zero. It is a scary feeling to wake up and see that your equity holdings are not correct or simply not there.

A few months ago, Zecco merged with Tradeking. I was afraid that I would still have issues, but luckily this never materialized. The main issue with the merger was that I lost the ability to pull from the broker website all my historical account statements and all historical activity going back to when I first opened the account. Luckily, I keep good records, and have all of this information at my fingertips. However, it is important for long-term investors to choose a brokerage that provides you with all your account activity detail going as far back as possible. Otherwise, when you sell a stock that you have held for 20 or 30 years, figuring out your tax basis would be a nightmare. Tradeking does offer dividend reinvestment, but as I mentioned earlier, I typically reinvest dividends selectively .

As a result, I started adding all new funds to SogoTrade. I kept adding funds, until they made another change in their platform when they were purchased by Wang Investments in 2011. This change did not allow me to log in to my account for a day or two. After that, I was unable to withdraw funds easily. The process is still very cumbersome and one has to enter their account number twice, after they have logged on to the platform, in order to request an ACH transfer. In addition, changing your address is a very difficult thing to accomplish with Sogotrade. It requires you to download a form, fill it out, and then fax or email it to them. If you fax it to them, you run the risk of Sogotrade losing it, which is why it is best to email it. At $3/trade however up until early 2013, you could hardly beat them. Sogotrade does not offer fractional dividend reinvestment, but keeps all monthly statements going as far back as possible. A few weeks ago however, they raised their prices to $5/trade, although investors who pre-pay for trades could still end up paying as little as $3/trade.

For a new investor, I would consider Sharebuilder. They offer $4 trades if it is scheduled on a Tuesday. Sharebuilder provides free dividend reinvestment, fractional shares and offers historical records. Real-time trades used to cost $9.99, although this amount has decreased recently to $6.95/trade. My main problem with Sharebuilder was the fact that commissions were too high for real-time trades, and I didn’t want to be restricted to only trading on Tuesdays in order to get the low commission. Going forward however, I don’t see myself using this broker more actively, since I have invested the maximum I have set out to invest per brokerage. Sharebuilder is ideal for someone who is just starting out dividend investing however.

Since my falling out with Zecco and Sogotrade, I have been adding new funds to Schwab. I still kept the old investments in the old brokerage accounts, but since I have new money coming it, that needs to be invested every month, I had to find a reputable broker. I like Schwab because they offer everything an investor can want, including research, a wealth of information, account records, dividend reinvestment and their customer service is very good. However, you do pay a high commission for this privilege. I do like the fact that Schwab is a publicly traded company, and that I can analyze its financials and monitor it closely. With Tradeking, Zecco and Sogotrade, I have no idea whether the companies are on the verge of bankruptcy. I also have an E*TRADE account, which provides a similar level of service as Schwab, but at slightly higher commission prices. I have mitigated the high commissions at Schwab by increasing my purchase or lot size per investment. If I bought shares in $1000 increments at Tradeking or Sogotrade, I now buy stocks in $2000 increments at Schwab.

As I discussed in an earlier article , I try not to invest more than $100,000 per brokerage, in order to add an extra layer of diversification to protect me against broker failures. While brokerage accounts are insured by SIPC up to $500,000, and most brokers also carry additional umbrella insurance, I find having multiple accounts helpful in case assets are frozen due to broker collapsing. Even if your money is SIPC insured, it could still take months before the money is recovered or available. If all of your funds are concentrated in one broker, you might be in a situation where you have a sufficient dividend income to pay your expenses, but you are unable to tap it because your broker failed.

Having many brokerage accounts is not too cumbersome. As a buy and hold dividend investor, I simply add up the total dividend income at tax time. I also try to keep certain securities such as MLPs and REITs in one specific account, in order to make it easier at tax time.

To summarize, while low commissions are important, they should not be the only factor in determining which brokerage to choose. Important factors include providing sufficient data support that would be beneficial during tax time, historical records, as well as a platform that is intuitive and easy to use. Automatic dividend reinvestment is an important feature as well, as is the ability to monitor your broker financial performance. As a result, I believe that Sharebuilder and Schwab are be the best brokers for dividend investors.
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Follow the Smart Money’s Lead on Any Correction

Image via CrunchBase

Large institutions have indicated that they are ready to pounce on weakness

By Sam Collins, InvestorPlace Chief Technical Analyst

New York, Aug.13, stock investing .- On Monday, technology stocks and some small caps bounced, but overall trading was mixed. And precious metals rallied following rumblings of lower reserve requirements to small- and mid-sized banks.

With about 90% of the S&P 500′s companies reporting earnings, the group is on track for a gain of 2.1% for Q2. FactSet estimates that this is a slowdown from the 3.4% reported in Q1.

Gains by BlackBerry (BBRY) and Apple (AAPL) helped the technology sector lead and also boosted the Nasdaq 0.27% for the day.

At Monday’s close, the Dow Jones Industrial Average was off 6 points at 15,420, the S&P 500 fell 2 points to 1,689, and the Nasdaq was up 10 points at 3,670. On the NYSE, advancers slightly outpaced decliners, but on the Nasdaq, advancers were ahead by 1.3-to-1.

Click to Enlarge

The small- and mid-cap stocks have been leading a lethargic move higher. Despite marginal advances, the Nasdaq received a MACD sell signal Monday.

Support is initially at the index’s 20-day moving average at 3,630, and then there is a band of support at 3,575 to 3,630. Major support is at its 50-day moving average at 3,520 and the May closing high at 3,523.

Click to Enlarge

The Russell 2000 small-cap index closed above its 20-day moving average Monday, but is still under pressure from a weak sell signal from MACD. MACD is turning up and could cause an attack on the high at 1,063. Support is first at 1,042, then the 50-day moving average at 1,014, and finally at 1,000.

Conclusion: With over 90% of the S&P stocks reporting, the flow of news moves back to the Fed and comments from its regional presidents. With that in mind, I suggest a cautious approach. But any correction should be used as a buying opportunity, since recent comments from the large institutional houses indicate that they are ready to pounce on weakness.

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3 Gold Facts You Can't Ignore

Gold Key, weighing one kilogram is used to access a ten digit account number which is known only to the bearer of the Gold Key. (Photo credit: Wikipedia)

By Rude Awakening

Baltimore, Aug.13, stock advice .- There are three facts about gold you need to know right now… Fact No. 1: Since dipping below $1,200 six weeks ago, gold futures have jumped higher by nearly $130. Fact No. 2: Beaten down mining stocks have actually outperformed gold over the past six weeks. The widely followed Market Vectors Gold Miners ETF has jumped more than 8% since the end of June. You might find these first two facts exciting. A potential gold comeback could mean a new trade—or even new life for an old position you had left for dead. But before you clear out a spot in your portfolio for a brand new gold position, there's one last fact you must know. Out of everything I've already told you today, this piece of information is far and away the most important truth about gold today. Fact No. 3 is simple. It's true. And it trumps every other analysis or assumption about gold. The third fact is this: Even as futures perk up this morning, gold remains stuck in a painful downtrend. I told you a couple of weeks ago that you should expect choppy action from gold futures as traders try to sort out the possibility of a late summer rebound. That's exactly what we've seen. Gold futures are up another $13 this morning to $1,325 after dropping as low as $1,275 late last week. Of course, the big downtrend doesn't mean higher prices aren't possible. All trends eventually reverse. But if you're thinking about playing gold, its larger downtrend must remain the first and last piece of information you consider before pulling the trigger. Ignore it and you could get badly burned. Keep a close eye on $1,350. A break above this price is a fairly good indication we could see higher prices soon. But failure at $1,350 could cut gold's late summer comeback short. You know the drill. Check your emotions at the door before backing up the truck. If you do jump into a new gold position, it's critical that you keep it on a tight leash. Risk remains elevated. Consider yourself warned…

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A “More Excellent” Choice for the Next Fed Chairman

English: Janet Yellen being sworn in by Fed Chair Ben Bernanke (Photo credit: Wikipedia)

By The Daily Reckoning

New York, Aug.7, stock investment .- Markets continued their summer trading behavior last week. Up a little, down a little... meandering... strolling... not in a hurry to get anywhere. The end of the week found the Dow about where it began... and gold a bit lower. But here, we make tracks. We are using these lazy, hazy days of summer to steal a march on our fellow investors. And our fellow humans! Why be falsely modest about it? This is something that justifies immodesty. As others lie around at the beach, we race to figure things out... things that Aristotle missed... things that flummoxed Nietzsche. What, really, is the nature of civilization and why does it "break down" from time to time? What is the role of money in relationships between people... and between a person and his government? Why do smart people do dumb things when any fool could tell them they are making a mistake? Do these questions seem too abstract for you, dear reader? Did you just want to know if stocks are going up... or down? Bear with us. We'll get to that... and a very important announcement. Ben Bernanke is leaving the Fed at the end of the year. The leading candidates to replace him are committed to continuing his policies, which consist of providing as much credit rope as you need to hang yourself. People come to think what they need to think when they need to think it. When they approach the "end of their rope" phase of a financial catastrophe, they need to believe that they have no choice but to play out a little more line. Doubts give way to desperate faith. Reflection is abandoned for action. All of the announced candidates for Bernanke's job -- Yellen, Summers and Kohn -- are believers. Of course, they couldn't have gotten anywhere near the top job if they doubted that central planning and price controls can work. After all, they're jockeying for the job of planning the entire U.S. economy by controlling its most important price: the price of credit. The worst of these candidates is Larry Summers. That is why he is most likely to get the post. Summers is so often described as "brilliant" that we are beginning to wonder about the word itself. Perhaps it's coming to mean something else. Maybe "brilliant" is coming to mean "not quite bright," which would better describe Larry Summers. He is the Tom Friedman of the financial world -- always sure of himself, always with an answer to every problem... and always dim-witted. The real problem with Summers is that he lacks modesty. He is so sure he knows what is going on he leaves no margin for error. Every problem has a solution, he thinks. And he has it! Brad DeLong, writing in the Financial Times, judges all the leading candidates to replace Bernanke as "excellent." But he describes Summers (also a Financial Times columnist) as "slightly more excellent." DeLong's criteria for "more excellent" seem to be based on the idea that Summers is "the most creative thinker around." Which just goes to show how far central banking has come.

Throughout most of history, what people wanted in a central banker was lack of imagination. Central bankers were supposed to keep a lid on money creation. In the time of Edward II, for example, if the warden of the mint got creative with the realm's money, they cut his private parts off. But now DeLong maintains that "these times are not normal" and that the new person at the Fed must "feel the pain of the unemployed in their viscera." Perhaps English is not DeLong's native tongue. Or perhaps he really thinks unemployed people have some kind of pain in their viscera. And perhaps he thinks America's banker-in-chief should feel it. Why? DeLong doesn't explain. We are left to use our imaginations. Presumably, he thinks Summers is the man for the job because: (1) He feels the pain of the nonworking man and (2) he has the creative imagination to help the poor man find a job. Ben Bernanke had little success at this. Even after disappearing 9 million people from the workforce, the official number of unemployed has barely budged. Then again, maybe a more "brilliant" Fed chief will be able to do something extra. But what can he do? More credit? Cheaper lending rates... perhaps below zero? More creativity in central banking? Wasn't Bernanke creative enough? In his enthusiasm for ZIRP, QE, Operation Twist and other monetary innovations, he forgot the basics. Maybe if he'd just stuck to the essentials, more people would have jobs. The dollar of 2006, when he took over at the Fed, is now worth only about 88 cents in today's money (depending on whose numbers you believe). Which leads to our suggestion... First, let us learn from the 14th century. When Ben Bernanke leaves his post, cut his privates off. That will be his going-away present. After all, he failed at his most important job: to protect the value of the nation's money. This will also serve as a reminder to his successors: Don't use your imagination. Stick with policies that work. Second, when it comes to public service, your editor is against it. But perhaps once in a lifetime, he hears the keening lament of the motherland: "Help me, please." So he offers his service... Yes, dear reader, if we were asked politely, we would serve as the next chairman of Federal Reserve. We alone among the candidates have the qualities needed to avoid the financial disaster coming our way. We alone understand the proper and modest role of central banking. And we have our plan of action already worked out. Immediately renounce President Nixon's currency system. Put in place in 1971, it is now living on borrowed time and borrowed money. Fix the dollar to gold at the present gold price. Stop QE, ZIRP and all other attempts to manipulate prices, interest rates and markets. We will not be swayed from our course by political pressure. (Not that we are high-minded in any way. We just don't give a damn.) That is, we wouldn't wait for Humpty Dumpty to get higher up on the wall. We'd give him a push. Get it over with. Yes, dear reader, write to your congressman, your senator, your president... and to Santa Claus. Ask them to support our candidacy for Fed chairman. We don't guarantee better results. But we guarantee that we will be more fun to watch.

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Related articles

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Profit From a Massive “Secret Shale” Formation

By Investment U

Austin, Aug.7, stock investment .- Most investors know about the huge and lucrative Marcellus and Utica shale formations. But recently, drillers have targeted another, little-known shale formation sitting above the other two. Few investors have ever heard of this third reservoir. And fewer than two dozen wells have been drilled into it.

But initial measurements suggest it just might be the largest gas producer of them all.

It's one of the industry's best-kept secrets. Let's go exploring.


You can see in the map below the three shale gas plays stacked on top of one another in the Pennsylvania-West Virginia area. The well-known Marcellus and Utica formations are two of them. The third is called the Devonian.

Only a few drillers are targeting it.

Click here for a larger image.

Who's Drilling the "Secret Shale"?

Range Resources Corporation (NYSE: RRC) arrived in 2009. If its initial test pans out, Range may be able to drill at some sites into the Marcellus, Utica and the Upper Devonian from a single drill pad. The economics of this are clearly compelling.

Energy in Depth, an industry group, interviewed Range Resources' Matt Pitzarella. "It's still very early," explained Pitzarella, "but we're very excited about the potential [of the Upper Devonian drilling], especially in southwestern Pennsylvania."

Consol Energy Inc. (NYSE: CNX) is better known as a coal producer. But as coal loses favor as a fuel source for power plants, Consol is targeting the Upper Devonian while it focuses more on its natural gas business.

The company has already drilled its first successful Upper Devonian natural gas well in Pennsylvania. The well produces about 3 million cubic feet of natural gas per day. Consol says that about 300,000 acres of land under its control have commercial potential for Upper Devonian shale drilling.

Rex Energy Corporation (Nasdaq: REXX) has so far drilled a single well into the shale in Pennsylvania. The well tested at 3.1 million cubic feet of natural gas per day.

Chesapeake Energy Corporation (NYSE: CHK) has to date drilled a single Upper Devonian well in West Virginia. It has several permits to drill into the formation in western Pennsylvania. Chesapeake remains tight-lipped about its drilling results so far, as well as its plans for the Upper Devonian.

How to Play It

What's the best way to invest in this promising shale formation? All four of the above companies are already major players in the Marcellus. The fact that any or all of them could hit pay dirt in the Upper Devonian just adds to potential shareholder value.

But one driller has a big jump on all of them. Pittsburgh-based EQT Corporation (NYSE: EQT) recently announced it has drilled eight wells in the Upper Devonian.

EQT's strategy is to drill into the Marcellus and the Upper Devonian from the same well pad, saving time and money. Its development drilling success rate over the past three years is an impressive 99.6%. Its production growth for 2012 was 70% over that of 2011.

EQT has drilling rights on nearly 3.5 million acres spread across the Appalachian Basin. It estimates its Upper Devonian proven and probable reserves at 2.4 trillion cubic feet. It expects to drill 22 additional wells in the formation before the end of this year.

Why invest in EQT? It's the earliest-in player in the Upper Devonian and has one of the lowest cost structures in the natural gas sector. Besides drilling for natural gas and natural gas liquids, EQT has both gathering and transmission pipeline systems.

The company boasts an 84% institutional ownership and has received numerous price target upgrades. Its stockholders have been richly rewarded over the past year as EQT's shares have jumped over 60%. There's every reason to expect similar results moving forward.

We'll keep an eye on these five companies for additional updates on their progress drilling into America's "Secret Shale."

...

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Housing’s Stealth Recovery is Finished

English: Flag of San Francisco Español: Bandera de San Francisco (Photo credit: Wikipedia)

By The Rude Awakening

Baltimore, Aug.7, stock advice .- The much-heralded housing recovery is over. No, you won't see a bunch of new foreclosures in your neighborhood. And I doubt the value of your home will plummet. But the big, first phase of the housing market's under-the-radar rise is finally cooked. That means no more easy gains from homebuilding stocks. These names were great buys in 2011 and 2012. But right now, they just aren't performing. The simple fact is that expectations have run wild. The rebound in the real estate market isn't a secret anymore. People all over the country can see the pickup in sales and construction in their respective towns. They've bet big on the homebuilding stocks. Now, it's a crowded trade. "While they have made great strides in the past year, home-builder stocks have become volatile recently as investors deal with mixed economic housing data, rising mortgage rates, and, in the cases of a few overheated markets such as San Francisco, worries that the market is setting up for another painful collapse," reports MarketWatch. While I think concerns of another collapse are overblown at this juncture, it's not a stretch to say that homebuilder names could keep falling for some time. In fact, the broad market is absolutely trouncing the housing sector stocks right now. The iShares Dow Jones U.S. Home Construction ETF has dropped 10% over the past three months. It's up less than 6% on the year, compared to a 20% gain in the S&P 500. Again, I don't think we're headed toward another blow-off top in the real estate market. Remember, homebuilders have been sitting on their hands for years. The number of completed new homes for sale remains at the lowest level ever recorded in 40 years of National Association of Home Builders data. You'll have a chance to find value in homebuilder names somewhere down the line. But right now, investors are looking elsewhere for gains. And unless you're extremely patient and willing to sit through another leg lower, you should ditch these stocks until they begin to show signs of life once again…

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A Western Alternative to the West

Dubai, UAE | Dubai Creek ¦ #2 (Photo credit: Åndrey)

By Daily Reckoning

Los Angeles, Jul.30, stock investment .- I must thank Agora Financial for inviting me to the Investment Symposium for the fifth time in a row. I am very sorry to see it come to the end of the road. But do trust it will make a comeback someday... like an old rock star whose retirement is announced but never happens. [ahem] However, today there’s another spectacular comeback story I’d like to share with you: the recovery of Dubai. It was only three years ago, in 2010, that I stood at the Investment Symposium with the Dubai economy in tatters and investors’ dreams in shreds. I showed cartoons of heavily indebted Arabs begging for money. It was not so far from the truth. Dubai real estate prices had fallen 60% from the peak. The stock market was a disaster area. Government debts had ballooned to $115 billion, according to the IMF. Then Abu Dhabi stepped in with $20 billion to stop Dubai from going bust. It was the start of a spectacular recovery. Without being too modest, this is exactly what I told Symposium attendees would happen in my first speech in Vancouver. I don’t think anybody believed me then, nor when I repeated the tale a year later! Now, I admit that investors in Dubai needed patience. Even in 2011, stocks dropped another 20% before hitting rock bottom. The recovery started only last year, with shares up 20%. But the rally this year has been truly spectacular at 63% on the Dubai Financial Market. That’s against a falling trend in other emerging markets. The market has also massively outperformed the S&P 500. Indeed, it ranks among the best stock market performances in the world this year. It’s trounced the S&P 500. But it is still 75% off its re-based 2006 all-time high. House prices have also recovered very strongly, though we are still a little shy of the peak valuations of 2008. The villa units tipped by the ArabianMoney newsletter in April last year have gained 50% in value. For rental increases, Dubai is ranked No. 1 in the world this year. Total real estate transactions in the first half were up 60% on H1 last year. How has this happened? Essentially, the high-growth economy of the UAE has recovered from double-whammy recession of a credit bust and real estate crash by getting back to basics, hugely assisted by a boom in oil revenues and an influx of cash as a safe haven in the Arab Spring. It has been a combination of all three, so let’s examine them in turn. First, the UAE economy has unique systemic strengths that have long given it way above-average GDP growth. The population is 80% expatriate. There is zero taxation: none whatsoever at the personal level and no IRS. The quid pro quo is that the government has no health, education or social costs for all these residents, though it has to fund infrastructure development out of its own pocket. Foreign companies operate in a zero tax environment from free zones and many choose Dubai as a friendly city in an unfriendly region. The wise and visionary rulers of the UAE are 100% responsible for this economic model and stand out as a success story in a region with many more failures. In truth, the government is very dominant in the local economy behind its many trading names, although thousands of multinationals also choose to make Dubai their home. This is the region’s most open, liberal and efficient city. The Dubai government has made massive investments in its airline and airports, hotels and tourism and, of course, the free zones themselves like Jebel Ali.

Dubai’s Emirates airline is a world-beater, with a fleet of 35 A380 superjumbos and another 55 on order. Three years ago, there were only 16 in service. Dubai airport is one of the fastest growing in the world, and will overtake London Heathrow as the busiest in the world next year. Dubai’s luxury hotels are the envy of the travel industry. The new Marriott Marquis is the tallest free-standing hotel in the world. Then there is Dubai’s dominance as a trading hub for the region and its growing services and financial sectors. Thus, as the global economy picked up after the 2008-09 crisis, Dubai was well positioned to profit from the rise in trade and the return of high oil prices. Dubai is not a big oil exporter, but neighboring Abu Dhabi, the capital of the UAE, certainly is, and the past couple of years have been the best ever for total oil revenues because high oil prices have persisted and not peaked out, as so often happened in the past. When you have a country with an oil surplus of $50 billion a year, debts of $115 billion or $142 billion, according to the latest IMF estimate for Dubai, pale into insignificance. Of course, it is actually much better than that in the UAE. With, say, $4 trillion of oil in the ground and as much as $1 trillion estimated to be held in bonds and stocks by the Abu Dhabi Investment Authority, the UAE is a net creditor nation. That is to say the UAE is owed far more money than it has in total debts. If you contrast that with the heavy net debts of the USA, EU, U.K. and Japan, then you can understand my conviction about the strength of the local economy going forward. The Dubai debt crisis of late 2009 was not an illusion, but a bit of a large red herring, nonetheless. It would not be allowed to happen again. Finally, even the protests, revolutions and civil wars of the Arab Spring over the past two years have actually benefited the UAE very significantly. We have had no social unrest, apart from a plot by the Muslim Brotherhood that was foiled at an early stage, and everybody involved was arrested, tried and convicted by the due process of law. For this reason, the UAE has become a safe haven from the Arab Spring for rich Arabs and their families. Nobody with the means is going to leave their loved ones in an unstable and dangerous place, even if they continue doing business there. The super-rich might go to London or Paris, but Dubai is a cheaper home and the business opportunities are better. The culture is also closer, and often shockingly Western for these newer expatriates. Still, they have been very good for house prices. Dubai was left with a very large inventory after its real estate crash in 2009 -- estimates ranged from 50,000-100,000 units, and the takeup has been astonishing over the past couple of years. Not even the most optimistic estate agent would have predicted what has happened. But then how could you possibly have predicted the Arab Spring and the exodus of residents from Libya, Egypt, Syria and Bahrain and their demand for homes in Dubai? There was also a spillover effect on tourism, particularly in Dubai. Even Turkey has become unsafe this summer, adding to the long list of countries now not suitable for tourists and carrying official travel warnings. Dubai has been the major beneficiary, with its expanding inventory of hotels kept close to the bursting point. Perhaps the Arab Spring was perversely the ‘bit of luck factor’ that turned a modest recovery in the UAE into a kind of new boom. We are still not back to the heady days of the mid-2000s, however. Construction activity is back, but not at those levels. Real estate companies are selling off-plan apartments again, but the numbers of units are much lower. Still, important road improvements and the new Dubai tram system are being completed now. And it is amazing how many of the towers left half-built in the crash have now been finished off. So what next? Will this recovery continue, and how can foreign investors sitting here today profit from this revival? Hopefully, it’s clear that this recovery is way ahead of anything seen so far in the USA and that a simple projection forward of current trends established a much better outlook. The UAE is, after all, a much smaller economy with very particular strengths. I have never found another place like it in my long career, and have been fortunate enough to find it profitable for my own business activities. Modest talent can bring great reward in the UAE. You’re not always up against the best in the world as in the USA. High oil revenues and prices should continue into the future, although some sort of short-term blip downward is always possible in a future global economic crisis. However, the UAE is possibly the lowest-cost oil producer in the world, so it has the best competitive position and the highest profits from oil. ArabianMoney thinks money printing by global central banks will continue to support higher energy prices for many years to come. Hence, it is perfectly possible that the UAE could be in an economic boom when the rest of the world is languishing in a depression. At the same time, the Dubai government’s investment in its airline and airports (and the second is up and running) is very timely. The legacy carriers of the world pay their staff way too much and have massive pension liabilities. Without this hole in their bottom line, Gulf airlines are able to afford new planes and routes, and are going to drive more and more of the old carriers out of business. The business model is correct, and economics will do the rest. In addition, the Abu Dhabi government is following a very similar investment-led development plan, further boosting GDP growth prospects. Its Etihad Airways is growing rapidly; luxury hotels are popping up like rabbits; and key infrastructure is being built, like the $20 billion that is being spent on four nuclear power stations. However, it has overbuilt new real estate that was sold at Dubai peak prices, so the upside for property is more limited. Rising real estate prices are both a benefit and a tax on an economy. As in the mid-2000s, surging accommodation rental costs are inflationary. Then again, rising house prices attract external investment and fuel up local consumption. Besides, Dubai real estate is still very cheap by comparison with most international hub cities. There is a pricing gap to close, and in the meantime, there is considerable wealth and prosperity to be created. Yes, there will be a bubble again, but how long will it take to get there and how much higher will prices go in the interim? UAE stock markets are being driven higher by retail, rather than institutional, investors, and this is both a weakness and an opportunity. This summer, the Dubai and Abu Dhabi bourses finally won an upgrade from frontier to emerging market status in the MSCI index. That’s important because some emerging-market funds will now have to invest in the UAE. Institutional investors have yet to discover the market. Look at the valuation metrics for the Dubai Financial Market courtesy of my old friends at Daman Investments, an excellent local broker if you need one. We also recommend the National Bank of Abu Dhabi’s brokerage arm NBAD Securities, which will establish offshore accounts for U.S. citizens without them visiting the UAE. UAE stocks look cheap on price-earnings, price-to-book and return on equity. There is still value there. The market’s come up like a rocket this year, but is still 70% short of its all-time peak in 2006. It is only 18 months since it hit rock bottom. It runs on a seven-year cycle. Ergo, we have 5.5 more years to go in this bull market. Most people are mature enough investors to know nothing goes up in a straight line. You would have had to be patient from 2010, when I first spoke of a recovery at the Vancouver Investment Symposium, but the recovery has gone better than I predicted then, and when nobody thought it possibly could. So why not anticipate outperformance now? ...

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