Believe It or Not, the Bulls Still Have Plenty of Muscle

(Photo credit: Concentrated Passion)

Russell, NYSE Composite still pushing upward

By Sam Collins, InvestorPlace Chief Technical Analyst
New York, Sept.26, stocks to watch .- The S&P 500 closed lower for the fifth consecutive session Wednesday, marking the longest losing streak of the year for the broad-based index. Since it scored a new high last Thursday, the index has fallen 1.9%.

The Dow Jones Industrial Average also fell, suffering from the impact of a 1.45% decline in the shares of Walmart (WMT). Early yesterday the giant retailer was reported to have cut its orders from suppliers, but the report was labeled as “misleading” by a company representative.

A better-than-expected durable goods report for August and an increase in the sale of new homes in August helped to offset wrangling on Capitol Hill. No agreement over the debt ceiling appears near, and funding runs out at midnight on Sept. 30.

At the close, the Dow Jones Industrial Average was off 61 points at 15,273, the S&P 500 fell 5 points to 1,693, and the Nasdaqgave up 7 points to fall to 3,761. The NYSE traded 641 million shares and the Nasdaq crossed 428 million. On the Big Board, advancers and decliners were close to even, and decliners edged out advancers on the Nasdaq by 1.1-to-1.

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The Russell 2000 made a new all-time high yesterday with its intraday high of 1,082. The Russell 2000 — like its cousin, the Nasdaq (see Wednesday’s chart and comment) — is trading within a bull channel, but unlike the Nasdaq, it has no resistance above it to hamper further new highs. MACD is slightly overbought but could become more overbought as the index continues its dogged advance.

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The NYSE Composite is a broad-based index containing all stocks traded on the Big Board. Its chart pattern is much like that of the S&P 500 (see Monday’s chart), which recently made a new all-time high. But the NYSE’s new high at 9,906 — made last Wednesday — was unlike the S&P 500 in that it has not seen a new high since May, and its all-time high at 10,387 was made in October 2007.

Conclusion: Despite yet another down day, the short-, intermediate- and long-term trends still are bullish. The continuing power of the bull market is supported by both the broad-based indices as well as the small- and midcap stocks. The ability to keep trudging along despite the overwhelming negativity coming from Washington is a powerful argument in favor of the bulls. Bearish momentum is absent.

The strongest sectors continue to be industrials, tech & biotech, consumer discretionary, biotech, pharma, housing, materials and financials. Bonds and bond substitutes have been the weakest.

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Short the Market If This Happens

Spy vs. Spy (Photo credit: tr.robinson)

By StreetAuthority

New York, Aug.20, top stocks .- By some measures, stocks just suffered their worst week in 2013. Despite that setback, the S&P 500 is less than 3.2% from its all-time high. Until prices fall further, the weight of the evidence shows stocks are still in a long-term uptrend.

SPY Nears Support
SPDR S&P 500 (NYSE: SPY) fell for the second week in a row, losing 2.06% last week. Other majormarket indexes were also down as traders reacted to news that was generally considered to be negative. Among the most important news stories was that a number of companies, including Cisco (Nasdaq:CSCO) and Wal-Mart (NYSE: WMT), lowered their outlook for the rest of the year.

Even good news was bad news to traders last week. Retail sales exceeded expectations, and the number of initial unemployment claims fell to a six-year low.

The problem with good news is that the Federal Reserve has said they will taper their buying and eventually stop purchasing $85 billion worth of long-term bonds every month when unemployment declines sufficiently. Traders are concerned that the market could fall if the Fedstops buying long-term bonds.

Continued good news about the economy could be the cause of a stock market decline.

For now, SPY seems to be near a level where it should find support. The chart below shows a small head-and-shoulders pattern. The "S" on the left side is the first shoulder in the pattern. This forms when prices pull back after trending higher. The "H," or head, is the new high reached after the initial pullback. The "S" on the right is the second shoulder, which forms after a rally fails to reach a new high. The pattern could be labeled differently, but the general idea is the same for any type of topping pattern.

Almost all chart patterns use the idea of symmetry to find price targets. The eventual breakout is expected to be equal to the size of the pattern. In this case, the distance between the bottoms of the shoulders and the top of the head is equal to about $3.50. This value is subtracted from the breakout point and a target of $164 is drawn on the chart above.

The next chart shows that a similar target can be found with another technique.

After a price move, technical analysts look for a retracement. Markets never move straight up or down, and a retracement generally occurs after a significant increase or decrease in prices. At $163.35, SPY would retrace half of the move that pushed prices up from late June to early August.

A break below $163 would show that we exceeded a normal pullback and more downside should then be expected.

Good news for the economy will support growth in earnings, and that should push stock prices up in the longer term.

I still believe that the S&P 500 will reach 2,000 in the next 6-12 months. Long-term investors should not be concerned about the recent weakness in stock prices. Short-term traders should consider adding inverse ETFs like ProShares Short S&P 500 (NYSE: SH) to their portfolio if SPY falls below $163.

Gold Market Faces Less Selling Pressure
SPDR Gold Shares (NYSE: GLD) gained 4.51% last week. This gain came as SEC filings showed that large hedge funds reduced their positions in GLD during the second quarter.

John Paulson sold about 11.6 million shares, worth at least $1.3 billion. George Soros also sold his position in GLD, although it was much smaller than Paulson's at about 500,000 shares. These two investors were joined by a number of other investors who sold in the second quarter when the total outflow from GLD was $18.5 billion.

According to some reports, Paulson has not turned bearish on gold. He sold the ETF and boughtderivatives in gold.

The recent rally in GLD is in part due to the fact that so much selling has been completed. Selling pressure pushes prices down, and without that pressure, the price of gold seems to have stabilized.

GLD should continue to move higher over time. Large gains like we saw last week will probably alternate with large losses in the months ahead as gold tries to form a bottom that can provide support to long-term gains. Last week's move appears to be unsustainably rapid.

The chart above shows that the 26-week rate of change (ROC) of GLD is near its upper Bollinger Band. This is an indication that a short-term top is likely near.

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How to Defeat the Hindenburg Omen

The Zeppelin LZ 129 Hindenburg catching fire on May 6, 1937 at Lakehurst Naval Air Station in New Jersey. (Photo credit: Wikipedia)

By Rude Awakening

Baltimore, Aug.20, swing trading .- The stock market is a fiery zeppelin crash waiting to happen. Well, maybe not. But that's what the financial media coverage of a rather complicated technical indicator would like you to believe. Everywhere I look, I'm seeing breathless mentions of something called the Hindenburg Omen. Some sources are reporting as many as 11 Hindenburg Omens have materialized just over the past few weeks. "A Google News search for the term "Hindenburg Omen" returned 6,340 results this weekend, and more than a few dramatic photos of the ill-fated Zeppelin airship," writes my trading buddy Jonas Elmerraji. "Yup, fear is the predominant emotion in stock investors right now – why else would click-hungry media outlets push some obscure market indicator named after a gruesome disaster?" On top of the perfectly-named Hindenburg Omen, we experienced a 2% drop in the broad market last week. So conditions are ripe for some new worries. But aside from its catchy (and terrifying) name, what's the deal with the Hindenburg Omen? For starters, if you've bothered to read any of the articles that cite the indicator, you've probably noticed that none of them really explain what the hell the Hindenburg Omen measures. That's because it's incredibly complicated. Fully grasping the Hindenburg Omen requires more than a rudimentary understanding of simple technical analysis techniques. I'm not even going to bother wasting my time trying to lay it all out for you. I can't even come up with a simplified explanation beyond the fact that it's bearish and it involves tallying NYSE advances plus declines and new highs vs. new lows. And that doesn't even begin to get into the nuances of what's required to trigger the indicator… If the Hindenburg Omen had a mundane name, it never would have caught on. Its track record for calling major tops isn't consistent (Hindenburg Omens made similar headlines in 2010, for example). Most people don't even know how it works. It looks good in a bearish market story. But it's not something anyone should use as a trading signal. It's no secret that the short-term trend for stocks is lower. The S&P 500 has dropped five out of the last six trading days. So far, we've seen a retreat of 3% this month. But if you're prepared for a bigger correction, the big, scary headlines won't ruin what has been a solid year for stocks so far. Maintain appropriate stop losses and sell when they're triggered. Don't force any new trades while the market is falling. And don't blindly sell out of your positions based solely on fear. Keeping a clear mind during a correction (of any magnitude) will put you eight steps ahead of every other investor on the planet.

Related articles

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Gold Chart of The Week

By INO
Chicago, Aug.20, stocks to watch .- Each Week Longleaftrading.com will be providing us a chart of the week as analyzed by a member of their team. We hope that you enjoy and learn from this new feature.
Weekly Gold Report (August 19^th through August 23^rd)
Market bulls were dealt a blow last week as stock traders began booking profit on long positions in expectation of a FED taper in their bond purchase program. The selling pushed the stock indexes lower throughout the week until the Dow suffered its largest weekly drop in over a year. Similarly, the US Bond Markets fell under pressure as traders continued to try to anticipate the FED’s next decision regarding Quantitative Easing and Interest Rates.
While the upcoming week is short on economic data from the United States, traders will be looking forward to PMI figures from China and Germany. We will also have an opportunity to review the minutes from the last FOMC Meeting, which should provide decent market movement. Lastly, we will hear from a few FED Members later in the week as they convene for their annual Jackson Hole Symposium.
I anticipate the FED speak will be nothing short of confusing, which has been par for the course over the last several months. When one member is hawkish today, another member is dovish the following day. It makes sense to perpetuate this style of reporting because if every FED member agreed on the scale and timeline of QE, the major financial markets would experience massive directional moves, and a one sided trade. And until the FED actually feels comfortable enough to raise Interest Rates, we should expect this type of reporting and inconsistent FED speak.
The Precious Metals markets seemed to benefit the most from the profit taking selloff from last week. Gold was up 4.60% on the week and Silver was up significantly more. It was obvious that Hedge Funds added to their net long positions in both Precious Metals and speculators also seemed to be along for the rally. It will be interesting to see if the rally continues into this week’s Precious Metals trade. I will be watching the stock markets as my indicator for Metals. If stocks continue to feel pressure this week, I would have to assume that the profit from stocks will continue to spill over into the Metals. If the stocks begin to see some relief from last weeks drop, then I would assume Gold and Silver will consolidate and possibly retrace some of the rally from the prior week.

Gold Futures in the December contract are holding between the 20day and 100day simple moving averages (arrows #1 and #2). Until we hear from the FED members later in the week, I would not be surprised to see Gold Futures continue to consolidate between $1325 and $1375. With the light volume in markets across the board, it is easier for large funds to drive markets with large lot orders, so traders should always be prepared for volatility. But I doubt we will see much until the FED minutes are released later in the week.

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Don't Bet Against an Electric Market

Image via CrunchBase

By Rude Awakening

Baltimore, Aug.12, top stocks .- The stock market and electric cars have a lot in common these days. I'll explain what I mean in just a minute. But first, as I sift through the financial headlines this morning, I'm reminded of an old Wall Street adage… Bears make headlines. Bulls make money. In other words, I'd be more inclined to think this market is heading for a substantial crash if that wasn't the default opinion right now… Here's how they're playing the game: Financial pundits and gurus are screaming about an impending crash (as they've done all year, of course) while analysts are quietly raising their end-of-year forecasts. "At the beginning of 2013, when the S&P 500 was at 1426, none of Wall Street's leading prognosticators had 1700 on their radars," reports the Wall Street Journal. "Now, at least seven strategists expect the index will finish above 1700 by year's end." So the analysts and strategists play catch-up. And the fund managers once again find themselves well behind their benchmarks. Everyone is cautious. Not exactly the recipe for a catastrophic plunge… Of course, the bearish chatter will get louder if the market dips more than a few percentage points this month or the next (which is entirely possible). Your job is to keep a level head and search for opportunities while everyone else is loading supplies into their doomsday bunkers. Which brings me to Telsa— an apt metaphor for the broad market today. Toward the end of last year, Tesla shares were considered ridiculously overpriced by many analysts and investors. Short interest was close to 25% just as the company started ramping up production of its well-received Model S sedans. When the stock hit $40 back in April, no one expected it to see challenge $50. Yesterday, it closed above $150. [Ed. Note: My colleage Jonas Elmerraji had his readers in on Tesla from the very beginning. Click here now to see how you could start making these kinds of gains today.] Tesla marched higher—stomping out the shorts in the process. There's no shortage of bearish sentiment, fear, and caution bubbling under the surface of this market. Use it to your advantage as stocks consolidate this week…

…

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Mr. Market Needs a Crutch

Dow Jones 2006 (Photo credit: caseorganic)

Dow industrials, transports sit on perilous technical ground

By Sam Collins, InvestorPlace Chief Technical Analyst

New York, Aug.8, swing trading .- On Wednesday, the major U.S. averages fell for the third straight day following declines in both Europe and Asia. Stocks fell 4% in Japan, and stocks fell 1.4% in England following the biggest change in its central bank’s policy in four years.

Banks and other financial stocks took a hit as the impact of Department of Justice lawsuits against Bank of America (BAC) worried investors that the group could be under scrutiny. But in a low-volume session, the biggest surprise was a decline of 0.7% in the Dow Jones Transportation Average, which many consider a gauge of future manufacturing results.

At the close, the Dow Jones Industrial Average was off 48 points at 15471, the S&P 500 fell 6 points to 1691, and theNasdaq closed at 3654, off 12 points.

The NYSE traded just 657 million shares and Nasdaq crossed 398 million shares in one of the lightest trading days of the year. Decliners outpaced advancers on both the Big Board and Nasdaq by more than 2-to-1.

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Although the overall trend is bullish, the near-term is in doubt. Note two inflection points: the May closing high at 15409 and the July low of 15405. Just four sessions ago, the Dow industrials broke to new highs. However, the break was followed by three days down, and yesterday’s low came perilously close to the support line connecting the two highlighted points. A break of the line would likely result in a test of the 50-day moving average at 15,239 (blue line). Also, MACD has flashed a sell signal.

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Like the industrials, the Dow transports broke to a new high and then rolled over in an even deeper correction with four consecutive down days. By penetrating both its near-term bullish support line and 20-day moving average on an opening gap down, its near-term trend must be considered very weak.

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The more income-oriented Dow index — the Dow Jones Utility Average — rose yesterday and flashed a CBR buy signal (our proprietary indicator). And it closed slightly above its 20-day moving average at 504.17.

Conclusion: After six weeks of one of the most aggressive advances on record, the small- and midcap stocks are suffering an inevitable correction. But yesterday’s charts show that the more staid Dow series of indices also appear to be losing strength, and that could spell trouble for the entire market.

Jeff Saut notes that equities appear to be losing strength when gauged by the NYSE Advance/Decline Line, which measures the difference between the number of advancing and declining issues. When the market makes new highs, technicians like to see more stocks make new highs. But the recent A/D line did not show more new highs and instead showed fewer stocks making new highs — this is a non-confirmation of the recent breakout. And, along with our charts of the Dow indices, it makes me wonder whether the August breakout was “false.” If so, we could be in for a serious round of profit taking.

Tomorrow, I’ll provide downside targets for a possible market correction. ...

Related articles

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The Safety Net: Why You Shouldn’t Worry About Earnings

omega (Photo credit: davedehetre)

By Welthy Retirement

Palo Alto, Aug.8, stocks to watch .- In October 2011, I recommended Omega Healthcare Investors Inc (NYSE: OHI) in my former newsletter, The Ultimate Income Letter. The stock remains in The Oxford Club’s Perpetual Income Portfolio (which I am no longer personally tracking). Since it was first recommended, it has returned 86%. During the same period, the S&P 500 has returned 40%.
For the past few weeks, several readers of The Safety Net have requested I take a look at the dividend safety of Omega Healthcare, which operates as a landlord for nursing homes and long-term care facilities.
At the time, the sector was very beaten down due to worries about cuts to Medicare. That enabled us to snag an investment with an 8.9% dividend yield. Because the stock has appreciated so much, it currently offers a yield of 6.2%. But investors who got in on the original recommendation are enjoying a yield of 10.6% now that the dividend has increased from $0.40 per share in late 2011 to $0.47 now. A 17.5% increase in less than two years. That’s why I’m such an advocate of the dividend growth strategy. Most people would be thrilled with a 17.5% raise in less than two years. That doesn’t happen too often in the working world. But in the right dividend stocks, it can happen all the time.

But I digress. Back to whether Omega’s dividend is still safe.
As a real estate investment trust (REIT), Omega Healthcare must pay 90% of its earnings back to shareholders in the form of dividends. As a result, the company, and other REITs, do not pay corporate income tax on those earnings.
But anyone who has read my columns for even just a little while knows that I consider earnings to be just the beginning part of the cash flow equation. I don’t worry about earnings. I look at cash flow because cash flow tells the real story as to the health of the business.
A company could have great earnings, but if it has no cash left over at the end of the quarter or year to reinvest back into the business or pay shareholders their dividends, that’s a problem.
So let’s take a look at Omega’s numbers to determine if the dividend is indeed safe.
For the first half of 2013, Omega earned $0.76 per share but paid out $0.91 per share. Someone who looked at the company’s payout ratio would see an alarming 120%, meaning the company is paying out 120% of its earnings in the form of dividends.
That would scare off most investors because that is typically not sustainable. But this is a perfect example of why I don’t worry about earnings when it comes to dividend safety.
REITs often report cash flow as funds from operations, or FFO. For the first six months of the year, Omega’s FFO was $1.25 per share. That’s a big difference from $0.76 per share, especially when comparing it to $0.91 per share in dividends paid.
The reason for the big difference is non-cash items. When calculating net income, Omega expensed over $64 million in depreciation and amortization. Those are non-cash expenses. In other words, Omega did not actually pay out $64 million in cash for those expenses in the first half of the year. Yet those non-cash expenses lower net income.
Because a non-cash expense does not reflect the actual movement of cash, it is added back into cash flow calculations. A few other smaller adjustments and the company reported FFO of $144.5 million instead of $87 million in net income. That’s a big difference.

Now instead of a 120% payout ratio when using earnings as the basis, we have a payout ratio of 73% when using FFO. Also a big and meaningful difference.
Typically, I like to see a payout ratio of 75% or lower. That gives me the confidence that even if the company hits a rough patch, it will be able to continue to increase the dividend in the near future.
Omega Healthcare Investors has raised the dividend for 11 consecutive years. Last year, it raised the dividend twice during the year.
If Omega was able to increase the dividend even during very difficult periods of Medicare cuts and uncertainty, considering it has plenty of cash flow, I see no reason why it won’t be able to continue to raise the dividend for the foreseeable future.
Dividend Safety Rating: A


...

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The Best Thing to Do Today is Probably Nothing

Trading Room of the Freeman School of Business (Photo credit: Wikipedia)

By InvestorPlace

Considering what's at stake, I suggest remaining on the sidelines

New York, Jul.31, top stocks .- After another snoozer of a trading session Tuesday, today we enter the last day of the month and the first of three central bank rate decisions. The FOMC announcement isn’t scheduled to hit the wire until 2 p.m. EST, which means the snooze fest is likely to continue until then.

For those looking for a quick trade after the announcement, beware that the first move often is a fake-out, only to rip in the opposite direction. In other words, patience, more often than not, is rewarded on FOMC announcement days. Sometimes it even takes until the next morning for the tape to find its true direction.

The issue with the timing of this week’s FOMC announcement, however, is that it not only coincides with other central bank interest rate announcements, but also with the July jobs report. So, just as traders digest it, they need to prepare for Friday’s jobs report.

All of this sounds hectic, and to some, potentially exciting. But considering what’s at stake (hard-earned money), where we are in the broader market (a steep nine-month rally), and the time of year (summer choppiness), I would offer that the high road may just be the route to take this week.

The most difficult skill I had to teach myself as a trader was to remain patient. In principle, it’s a simple thing — just wait for a trading setup to arrive, then pounce. The markets being what they are, however, have their way of making all of this tricky.

Not a day goes by when I don’t miss a trading opportunity that I had on a watch list. In the past I used to fume over these “missed” opportunities, but now I know that there will always be another trade.

Additionally, oftentimes our losing trades are the ones we are chasing, well past when the original signal came. This could be just such a week, when jumping the gun, or chasing a missed trading opportunity could cost us much more, both financially and mentally, than we otherwise are willing to risk. Stay patient, my friends.

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The five-day chart of the S&P 500 looks just as boring as it felt sitting in front of the screens. The immediate-term range is capped by 1,690 on the upper end and supported around the 1,675-1,680 area.

I fully expect the index to break out of this range later this week; the question is whether we break above 1,700 before ultimately settling into a meaningful mean-reversion trade to the downside.

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Lastly, note that the Nasdaq 100 ETF, PowerShares QQQ (QQQ), is a tick away from breaking to new year-to-date highs, yet within the context of slumping momentum.

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