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Investing ideas and projections

Want to Invest Smart? Keep it Simple

It doesn’t take an MBA to reach your financial goals. We show you how you can make money the easy way.
Who doesn’t want to be the next Warren Buffett? You could start by clearing  your schedule, buying some highlighters, burying your nose in annual reports and picking up the 800-page volume Security Analysis. Of course, that’s just for starters. Want to be simply a great investor? Then learn to invest simply.

The real secret to successful investing is that it is not actually all that complicated. Most of the jargon and hype doesn’t matter. You don’t really need to know what the difference is between a credit card and a credit-default swap, or between a convertible bond and a convertible sofa, in order to manage your own money. Common sense can take you further than an MBA.

Many investors sabotage their own results when they start trying to get fancy. “When investors start tinkering, they tend to second guess and buy things after they’ve gone up or sell things after they’ve  already gone down, which is a sloppy way to manage a portfolio,” says David Swensen, manager of Yale University’s $19.4 billion endowment and the author of Unconventional Success: A Fundamental Approach to Personal Investment.  Mutual fund investors, for example, have cost themselves an average of two percentage points per year over the last ten years by buying high and selling low, according to Morningstar fund tracker. Maybe we could mend our ways if we were able to see more clearly the evidence of how much our follies cost. But the more complex the investing , the more cluttered the accounts, and it becomes difficult to tell what your actual return is when your portfolio is something of a mess..

One of the few things that an investor can predict up front are costs. “There is only one thing that I am absolutely sure of about investing: The lower the fees that I pay to some purveyor of an investment service, the more there will be for me,” says Burton Malkiel, professor of economics at Princeton University, author of A Random Walk Down Wall Street.

Consider this, for example. Let’s suppose you’re preparing for your retirement by saving $10,000 a year for the next three decades. If we assume that your portfolio averages an annual return of 8% before fees, your retirement nest egg would be a bit more than $1 million – if your costs totaled only 1% a year. But if you had to pay 2% a year, you’d end up with $838,000. So you see, paying just one percentage point less per year translates into 21% more money at retirement time.

Breakout Stocks – Your Road to Riches?

Trading in stocks that initiate major  breakouts can be a path to massive profits. As soon as a stock trends to a new high, or takes out a former overhead resistance point, then it’s free to locate new buyers and momentum players that can, in time, push the stock up significantly in price.

A notable example of a successful breakout trade, recently, is BlackBerry maker Research In Motion (RIMM_), which I featured in Nov. 01′s “5 Stocks Under $10 Set to Trade Higher in November.” I wrote in that piece that RIMM was encountering some buying interest just above its 50-day moving average and it was beginning to trigger a breakout trade above some of its near-term overhead resistance levels at $8.08 to $8.49 per share with a decent upside volume flow. I said back then that if RIMM held that breakout, then the stock might ultimately hit $12 to $13 a share

 

And what happened? Plenty of shares of RIMM sold off a few days later from over $9 to $8.14 a share, but the stock never quite breached its 50-day moving average or its original breakout level of $8.08 a share. Shares of RIMM stayed in an uptrend and the stock continued to rocket towards a high of $12.30 a share. That’s showing a jaw-dropping gain of 55% in just the month of November for RIMM shares. Had you been focused on the breakout prices that I highlighted in that piece, then you would have been able to capitalize big off this move.

Candidates for breakout status are something that I tweet about on a nearly daily basis. I often tweet out high-probability setups, breakout plays and companies that are acting technically bullish. Those are some of the stocks that can go on to make strong moves to the upside. The great thing about breakout trading is that you can focus on price, volume and trend. You don’t have to pay attention to anything else. The charts will tell you all you need to know.

Trading breakouts is nothing new on Wall Street. This strategy was long ago mastered by legendary traders such as William O’Neal, Stan Weinstein and Nicolas Darvas. Those pros already understand that once a stock begins to break out above past resistance levels, and to hold above those breakout prices, then it’s no strecttch for it to trend significantly higher

Keeping that in mind, let’s take a look at five stocks that are beginning to set up to break out and trade at significantly higher levels

 

A name that is trending very close to a major breakout trade is Crocs (CROX_). The company is involved in the development, design, manufacturing, marketing and distribution of consumer products, mostly casual & athletic shoes & shoe charms, from specialized resins marketed as Croslite. The stock has been under control of the sellers for about the last six months, with shares down by 23%.

If you take a look at Crocs, you’ll notice that this stock dropped down in late October from around $16.60 to a low of $12.61 a share with very high downside volume. After that move, shares of CROX then went on to hit a low of $12 per share before bouncing back sharply to its current price of $13.80 a share. That recovery has now pushed CROX within range of initiating a major breakout trade to land back above its gap down day high at $14.04 a share.

Traders should now be looking for long-biased trades in CROX as it manages to break out above its gap down day high of $14.04 per share with high volume. Be on the lookout for a sustained move or close above $14.04 a share with a volume that lands near or above its three-month average volume of 276,850 shares. If this breakout triggers soon, then CROX can set up to re-fill some of that gap down zone that began at $16.60 a share.

Traders can expect to buy CROX off any weakness in anticipation of its breakout and may simply use a stop that sits just below some near-term support at $13 a share. One also might just buy CROX off strength as soon as it takes out $14.04 a share with volume and then place a stop that sits near $13.50 per share

Yet another stock that’s just beginning to flirt with a major breakout trade is Inteliquent (IQNT_), a company which provides full-scale network solutions, offering intelligent networking to resolve challenging interconnection and interoperability issues on a global level. This stock was destroyed by the sellers up until late in 2018, with shares off by disheartening 79%

If you examine the trading data for Inteliquent, you will see that this stock has been downtrending sharply for the last six months, with shares plummetting from $8.73 to its recent low of $2.10 a share. During this downtrend, shares of IQNT have consistently been making lower highs and lower lows, which would be considered bearish technical price action. Having said that, shares of IQNT are recently beginning to make a series of higher lows and higher highs, which is technical bullish price action. This stock is also beginning to rise off of previous oversold levels, since its current relative strength index (RSI) is reading at 26.50.

Wise market players would now look for long-biased trades in IQNT once it is able to break out above some near-term overhead resistance levels at $2.42 to $2.43 per share with high volume  Be ready for a sustained move or close above those points with volume that registers close to or above its three-month average action of 464,315 shares. If this breakout triggers soon, IQNT could then make a powerful bounce off oversold levels, with some possible upside targets being $3.50 to its 50-day at $4.41 a share.

One might look to buy IQNT off any weakness to be ready for that breakout and simply use a stop that sits close to some near-term support levels at $2.18 to $2.10 a share. One could also buy off strength once IQNT clears $2.42 to $2.43 a share with volume, and then use a stop close to $2.18 per share

Another name that’s beginning to move within range of triggering a big breakout trade is Aegerion Pharmaceuticals (AEGR_), which is aimed at the development and commercialization of therapeutics which treat lipid disorders. This stock was uptrending strongly through most of  2012, with shares up just over 40%.

If you look at the data for Aegerion Pharmaceuticals, you will quickly notice that this stock has been trending sideways for some time now, with shares moving between $18.33 on the low side and $23 a share on the high side. Shares of AEGR bounced higher in recent trading from $19.92 to just over $22 a share with acceptable volume. That spike has now pushed AEGR above someof its near-term overhead resistance at $21.66 a share, and it has moved it to within range of triggering a major breakout trade above $23 a share

Market players should now be looking for long-biased trades in AEGR as soon as it manages to break out above some near-term overhead resistance at $23 a share with high volume. Keep an eye out for a sustained move or close above $23 a share with volume that reaches near or above its three-month average action of 449,761 shares. If that breakout triggers any time soon, then AEGR will set up to re-test or possibly take out its all-time high of $25.92 a share

One last stock that is currently moving within range of triggering a near-term breakout trade is Zipcar (ZIP_), which operates a car sharing network. It is providing the freedom of ‘wheels when you want them’ to more than 560,000 Zipsters. This stock has been a regular target for the bears in 2018, with its shares down by 37%.

If you examine Zipcar’s data, you will notice that this stock has been strongly uptrending during recent months, with shares rocketing from a low of $5.90 to a most recent high of $8.64 a share. During that rise, shares of ZIP have mostly been making higher lows and higher highs, which would be bullish technical price action. That move has now landed ZIP within target range of triggering a near-term breakout trade.

Traders should now  know to look for long-biased trades in ZIP as soon as it is able to break out above some near-term overhead resistance levels at $8.64 to $8.69 per share with high volume. Look for it to make a sustained move or close above those level with a volume level that hits near or above its three-month average action of 350,502 shares. If this breakout triggers soon, then ZIP will set up to re-test or possibly take out its next major overhead resistance levels at $10.20 to $12 a share. And if that breakout hits, then ZIP should also move into a previous gap down zone from last August that started at around $10 a share.

Traders may look  to buy ZIP off any weakness during the period that it is trending within range of its 50-day moving average of $7.26 a share. One may also buy off strength from the time that ZIP takes out $8.64 to $8.69 a share and then simply use a stop close to $8 to $7.84 a share

Bear in mind that this stock has been heavily-shorted , since the current short interest as a percentage of the float for ZIP is 23.9%. The bears, also, have been upping their bets  from the most recent reporting period by 5.6%, which amounts to around 330,000 shares. If the breakout arrives soon, then ZIP could quickly see a monster short-squeeze as the bears rapidly move to cover some of their short positions.

 

Q3 Earnings Are Coming In… Head for the Exits??

The new earnings season has started, and already several big names have revealed their earnings to the awaiting financial masses.   Microsoft, Google, McDonald’s have all weighed in.  More than half of the Dow Jones index has issued guidance for the 4th quarter, and none of it is looking good.  (edit: well, surprisingly Facebook turned in a positive surprise… good for them!)

So the question remains, should we be heading for the exits?

Personally, I think you can make a case either way.

When you buy a stock, you are buying a piece of a company’s earnings.  If you buy a share of Google, you are buying into the $32ish that the company made per share over the last 12 months, hoping that earnings per share will grow, or that Google will start to pay out a dividend.

But a share of Google costs a lot more than $32.  In fact it costs around $675 per share.  That difference is called the Price to Earnings (PE) multiplier.  At present, people wanting to invest in Google are willing to pay $21.20 for each dollar that Google earns.  Both parts of the equation carries equal weight.   Share price = Earnings per Share    X   PE 

And while the earnings per share of the overall market look to be anywhere from flat to a small decline overall, due to the Federal Reserve flooding the asset markets with easy money, the amount of money that an investor (or much more likely, an institution) is willing to pay for a dollar of those earnings is still destined to increase, because each month there are way more dollars having to compete for a share of any single asset.

Now does that result in overall stock prices going up or going down?  That’s the part that’s hard to say.  One side of the equation is pulling down, and the other is pulling up.    Whether the market increases or decreases depends on which pull is stronger.   But whatever the result, we are likely to see a lot of generally sideways action until earnings pick up again.

So how does make money when the market is going nowhere, or close to it?

Stay tuned, kids.

The Fed Will Not Be Outdone

So now the US Federal Reserve has followed the ECB’s lead and pushed forward their own third stimulus program, and this time it is a multi-pronged, indefinite time frame approach.

This time, the Fed is going to be buying mortgage backed securities (hear that? a cookie for the first person that figures out what the next safe asset class is…) to the tune of $40 billion a month. That’s a hell of a tailwind.

They also plan to continue to extend their Operation Twist program, where the Fed exchanges their short-term bonds for longer term bonds at the same rate of interest.

And wait kids! There’s more! This time they put no upper limit on the amount that could be spent on this program

However, this is not a cure-all panacea. The US dollar is quite likely to experience even more weakness in the short term due to the fact that this requires the printing of a pile ($40 billion a month minimum) of new money, and as such will work to push down the USD versus other currencies. So look for a lot of strength in currencies other than the USD and EUR (and currencies linked to them)

And gold. Don’t forget the gold. When the US Fed and ECB have committed themselves to turning on the printing presses indefinitely, and the Chinese Yuan pegged to the dollar (meaning they have to start printing, too), well there’s going to be a hell of a lot of inflation fear out there for the next little while, and that is exactly what gold prices thrive upon. Of course there is more to inflation than simply the expansion of the money supply (which isn’t actually expanding that much, we are still in a deleveraging phase), but it’s the fear that counts.

ECB Announces “Unlimited” Bond Buying Program… So What?

http://www.denverpost.com/business/ci_21485809/stock-market-soars-after-mario-draghi-announces-bond

So the European Central Bank has decided that they are officially going to backstop Spain and Italy (and probably anyone else), provided they submit to the ECB’s version of responsible spending.  I won’t get into the details here, there’s plenty of other coverage for that.

Question is, who stands to benefit?  What asset classes stand to profit from such a move?

One word can cover that, and that word is “risk”.   Part of the reason that Euro zone has been such a risky investment is the huge amount of uncertainty surrounding the region.  The ECB formally stepping in and buying Spanish debt severely reduces the risk (I don’t think we can every really say “eliminates”) that Spain will slide into a debt crisis.  Which makes investing safer.  Which means money that was previously sitting on the sidelines waiting for a chance to jump in is now either jumping in, or about to.  Especially in the european banking sector.

However, by the same logic, expect traditional safe havens for money to take a hit as more and more money starts to get brave.  The US dollar and US government bonds for a start.

Also look for this to play out the same way in foreign currecies as well, where the US dollar is the haven of safety and stability, foreign currencies react in the opposite fashion, dropping as uncertainty increases, and gaining as stability grows.  Look for most currencies to gain vs the dollar as investors balls start to drop.

One more play that I would look to would be gold.  Gold, as we’ve covered before, does not increase due to inflation, but to the preceived risk of inflation.  With the ECB printing up more euros to buy bonds, the Euro money supply will begin to accelerate.  Whether this results in on-the-ground inflation or not depends on whether that money filters down to the people that spend it, or simply remains in the financial world, where it will cause asset inflation instead.  Either way, that threat is likely to push gold higher, at least over the short-term, until the effects of this bailout start to have an impact.  Don’t expect the gold rush to continue once it becomes apparent what’s going to happen with EU inflation rates.