Investment Contrarians

Blue Chips

A company that is well-known and that has been established over a number of years is considered a blue-chip stock. They have been through the boom times and recessions, giving investors confidence that they will remain a viable entity in the future. Blue-chips are usually less volatile than other stocks, as they have a steadier stream of predictable income and usually have extensive ownership by institutions, which can hold shares for a longer period of time than individual investors. Blue-chips are usually the market leader in their respective sectors.


How Investors Can Play the “Losers” in Blue Chips

By for Investment Contrarians | Oct 23, 2013

Blue ChipsThe key to buying stocks and stock market success is to always be on top of your outstanding positions, especially with any major changes in the underlying fundamentals.

If you ignore the warning signs, you may as well go to Las Vegas and gamble away your capital. Buying stocks is not like going to the grocer’s and looking for the cheapest deals. If stocks are getting thrown around and are steadily moving lower on the chart on higher volume, clearly, something is wrong or the company has experienced some dramatic change. This is what you want to avoid.

When I trade, I don’t care about the company’s fundamentals. I simply look out for reversals, whether I’m buying stocks or shorting them. The key is to be on top of things.

For the majority of investors, you don’t need to be constantly staring at the chart on the screen. What you need to do is be on the lookout for any major changes in the sector, a company rival, or the company itself. Failure to recognize changes and heed red flags could result in major losses.

The risk of buying stocks is intensified even more when it comes to smaller companies. If you buy a blue chip stock, one bad quarter or weakness in just one area is no big deal, since the company is usually big enough to absorb any short-term shocks and bounce back. This principle doesn’t apply to small-caps.

For instance, buying the “dog of the Dow” is a strategy often used by traders and institutions to invest in out-of-favor stocks that are paying the highest dividend yields … Read More


Why This September Could Be the Worst Ever for the Stock Market

By for Investment Contrarians | Sep 5, 2013

Stock MarketGet ready for some excitement as we move into September, which is historically known to be the worst month of the year for the stock market, according to the Stock Trader’s Almanac.

The numbers don’t lie. The Dow blue chips have declined 60% of the time since 1950. The month normally begins on a high note, but ends in chaos. This was the case on Tuesday.

Yet unlike 2012, this year poses numerous risks to traders.

We have the Federal Reserve and the question of whether it will begin to taper back its bond purchases at its September 17-18 meeting. The consensus is that the Federal Reserve will likely rein in a bit to start. Of course, if the jobs numbers for August (to be announced tomorrow) stink, the Federal Reserve may decide to hold back on tapering. Conversely, a strong jobs report could force the Federal Reserve to cut back on its bond buying. Briefing.com estimates the creation of 210,000 new jobs in August and for the unemployment rate to edge higher to 7.5%. Trust me: the Federal Reserve will be watching.

The reading of the second-quarter gross domestic product (GDP) growth of 2.5% was strong and points to tapering by the Federal Reserve if it holds.

My feeling is that so what if the bond purchases are reduced by the Federal Reserve? If the economy and jobs market are improving, then we are all good. Stocks will then edge higher, not because of low bond yields and bond buying, but due to an economic recovery that drives corporate America.

And with the end of September comes the third-quarter … Read More


Technology Sector at the Bottom of the Pack: Time to Give Up on These Stocks?

By for Investment Contrarians | Apr 17, 2013

Technology Sector at the Bottom of the PackWith capital shifting into the perceived safety of blue chips and large-cap stocks, small-caps and technology stocks have been declining on the charts.

Given the advance so far this year in the equities market, it’s understandable to expect some hesitancy.

The Dow is up 13.4% as of April 12, and it’s on pace for a gain of 47% on an annualized basis.

I doubt this will happen and expect market adjustments in the equities market along the way. The same goes for the S&P 500 and the other key market indices.

Small-caps in the equities market have also fallen off since the end of the first quarter.

At the back of the pack is the technology sector; but there has been a lack of strong leadership from any sector, including the semiconductor, Internet, and technology sectors, in general.

The following chart shows the recent movement of the three sectors (semiconductor, Internet, and technology) since March and their sideways direction.

Internet Index-Interactive Week Chart

Chart courtesy of www.StockCharts.com

Without any leadership in the equities market, the NASDAQ and technology stocks will continue to drift. However, there are some opportunities for speculators searching for contrarian situations.

The Internet sector is flat and lacking a clear direction.

In the stock chart below, the First Trust Dow Jones Internet Index (NYSEArca/FDN) fund shows the sideways channel that has been in place since late January.

Extrapolating on this data, I don’t see any strong and clear signs of a breakout at the top channel line, but if you think longer-term, there are opportunities in the equities market.

First Trust Dow Jones Internet Chart

Chart courtesy of www.StockCharts.com

The “Best of Breed” in the Internet sector … Read More


Fed’s Actions Making Retirement a Nightmare for Seniors

By for Investment Contrarians | Mar 25, 2013

Retirement a Nightmare for SeniorsOn the surface, the Federal Reserve’s objective is to make sure America doesn’t fall into ruins. Following an aggressive strategy of monetary easing, the end result is interest rates at nearly zero percent and an endless flow of easy money. As I have already stated many times in these pages, the Federal Reserve has created an artificial economy.

Yet, if you think about it, the Federal Reserve’s push for low interest rates has helped the economic recovery—but it has also made life difficult for many Americans. The Federal Reserve’s low finance rates tend to make consumers buy more, enticed by the low carrying charges. This means more buying in homes, furniture, cars, clothes, or whatever goods and services that can be financed at cheap rates. But therein lies the problem. What happens when the Federal Reserve begins to raise interest rates? It’s going to get ugly.

There will be massive debt loads that will be subject to higher carrying charges and greater hardships for many consumers as wages for many continue to be flat.

And with the low interest rates due to the Federal Reserve, people are reluctant to save. Making less than one percent at the bank is not exactly an incentive to deposit money. In my last article, I discussed this issue of low savings. According to the Employee Benefit Research Institute (EBRI), a staggering 57% of workers surveyed said they had less than $25,000 in combined household savings and investments, excluding their homes. (Source: Greene, K. and Monga, V., “Workers Saving Too Little To Retire,” Wall Street Journal, March 19, 2013.) The problem is that the low … Read More


Be Careful of the Three-Headed Dragon on the S&P 500

By for Investment Contrarians | Jan 28, 2013

Three-Headed Dragon on the S&P 500The S&P 500 is at a crux, following its recent move to 1,502 on Thursday, the first time it was above 1,500 since December 2007. The index is up nearly 12% since July 24, 2012. The fear is that the index may be testing its third top at 1,500 since 2000, something I have discussed in the past.

The overall U.S. stock market is trending higher. About 75.2% of U.S. stocks are above their respective 200-day moving averages (MAs), versus 59.3% a month earlier. On a short-term basis, 86.2% of U.S. stocks are above their respective 50-day MAs, versus 63.6% a month earlier.

Take a look at the upward move of the S&P 500 stocks to above the 200-day MA; the move represents an 86% increase as of January 24, versus the 47% level in mid-November.

S&P 500 Percent of Stocks Chart

Chart courtesy of www.StockCharts.com

And there could be more to come, based on the seasonal trends. The November–April period has resulted in the biggest gain for the S&P 500, according to the Stock Trader’s Almanac. In the near term, watch to see if the S&P 500 can hold at 1,500 and move toward its record of 1,565 on October 9, 2007.

The chart indicates some concerns, in my opinion. Since its first top at 1,500 in 2000, the S&P 500 made another top in 2007; now we are precariously at a possible third top. The moving average convergence/divergence (MACD), as shown on the chart, shows a downward trend. Volume has also been declining, so we are seeing a bearish divergence between a higher S&P 500 and declining volume.

S&P 500 Large Cap Chart

Chart courtesy of www.StockCharts.com

Technology has … Read More