technical analysis
Housing Market’s On Fire; Why It’s Not Time to Buy
By George Leong for Investment Contrarians | May 22, 2013
The housing market continues to vault ahead. We are seeing strong housing starts and the flow of building permits in the pipeline. Home prices are also steadily moving higher.
The S&P/Case-Shiller Home Price Index, comprising the 20 largest U.S. metropolitan cities, increased a better-than-expected 9.3% in February, representing the 13th straight up month for prices.
Looking at the chart below, notice the S&P/Case-Shiller index is currently at its highest point since late 2008, when the subprime credit crisis was in full bloom. Home prices remain well below the levels we saw in 2006, prior to the housing market meltdown.
You can thank the Federal Reserve for creating the ideal environment for the hot housing market via its strategy of record-low, near-zero interest rates and the continued buying of $85.0 billion monthly in bonds to drive down the financing rates.
Chart courtesy of www.StockCharts.com
You can feel the housing market is ready for a bubble, but the trend continues to point higher, albeit at a slower rate and with interest rates inevitably going higher. You need to be careful; but for the time being, the housing market is where it’s at.
I would be hesitant to touch the homebuilder stocks, due to their already massive gains. The chart of the S&P Homebuilders Index below shows the steady upward trend since December 2012, as indicated by the parallel blue lines. Yet also notice that prices have been rising higher without any major adjustment back to the bottom support line since late April. Look at the area marked by the red oval: this is the downside risk to which you are exposed. As … Read More
Is It Time to Look Away from Gold?
By George Leong for Investment Contrarians | May 9, 2013
Lately, I’ve been reading about all of this buying of gold bullion by central banks around the world.
Some would say the move is bullish for the precious metal, but I’m not convinced. I was encouraged by the recent bounce after the price fell below $1,400 an ounce, but it has since stalled, based on my technical analysis.
To tell you honestly, I’m not sure in which direction the yellow metal will move. The recent rally was more technically driven than based on fundamentals.
There are many factors involved that could encourage the precious metal’s future direction.
If the Syria-Israel conflict intensifies into something more, we could see some traders and institutional money move into the yellow metal as a safe haven.
There is a direct relationship between the yellow metal and interest rates. In other words: follow the global central banks and you’ll get a sense of where the metal may be headed.
And as long as interest rates remain low, we could see some buying support for gold, but when rates begin to rise, prices will likely fall.
Currently, the central banks are printing money, which will keep interest rates low, and this should give the yellow metal some buying support.
Of course, for the yellow metal to move higher, we will need to see major risk surface, such as inflation, a major conflict, or a sell-off in the stock market.
As long as the stock market holds and moves higher to new records, the precious metal will be under some pressure. The fact is that as stocks move higher, investors will prefer to invest in stocks.
The … Read More
Forget What the Bulls Are Saying: Red Flags Are Surfacing
By George Leong for Investment Contrarians | May 8, 2013
The Ben Bernanke-driven stock market rally continues in full force and is unabated, but I really question the rate of the advance and believe stocks remain overextended at this juncture.
The S&P 500 made another record high above 1,600 last Friday, but making that move to above the magical level came slowly and cautiously, which makes me feel somewhat uneasy.
The breakout—above the multiyear top near 1,565—is positive, as shown on the chart below, but the move was associated with light volume, which suggests a bearish divergence, based on my technical analysis.
Taking a look at the blue ovals on the stock market chart below, you will notice the possible pullback that has occurred after every six-month rally from November to April over the past three years from 2010 to 2012.
Whether we will see another retrenchment in the stock market this year is unknown, but based on the rate of the gains so far, I feel there is an above-average likelihood of this happening.
Featured below is a stock chart of the S&P 500 Index:
Chart courtesy of www.StockCharts.com
While the stock market continues to show upside potential, I think you should continue to ride the wave upward; however, you also need to be aware of the risk and the reality that the stock market could plummet on bad news, considering how high the gains have been so early in 2013.
Moreover, the Dow Jones Transportation Average is also offering up a red flag on the upward move in the Dow Jones Industrial Average.
The chart below shows that the industrials (as indicated by the green line in the … Read More
Slow Global Demand and Higher Inventory Bearish for Oil
By George Leong for Investment Contrarians | Apr 22, 2013
Oil drives the world.
But the problem now is that the industry is building up an excess inventory in available oil while global demand is dwindling, as the global economy continues to struggle with the aftermath of the Great Recession in 2008. The result: lower oil prices.
Some argue oil prices will easily rally back, but I’m not convinced, based on both the fundamental and technical pictures.
On the chart, the near-term technical outlook for oil prices is bearish. Spot oil prices are below $90.00 a barrel for West Texas Intermediate (WTI) oil, and they’re edging lower to the mid-$80.00 range.
Spot oil prices have recorded 10 new lows and five new highs over the past three months, according to data from Barchart.com. Over the past year, spot oil made 21 new lows to go along with only eight new highs. It’s clear that the market bias is negative on oil prices.
Based on the spot high of $106.16, reached on May 1, 2012, the spot WTI oil price is down 18.3% as of Thursday, which is nearing the official definition of a bear market.
The chart of the WTI spot oil price below shows some indecision, according to my technical analysis.
Chart courtesy of www.StockCharts.com
The fundamental side is also helping to confirm a potential downward pressure on oil prices.
We all know that oil is one of the most volatile of the commodities, fluctuating with the prospects of the global economy and, of course, the happenings in the Middle East.
On the supply side, there is some calm in the Middle East, but the tensions in North Korea … Read More
Apple Has Not Lost Its Shine, Whisper Numbers Coming in Above Consensus
By George Leong for Investment Contrarians | Apr 15, 2013
Apple Inc. (NASDAQ/AAPL) has been punished in the financial media and on Wall Street, having lost its edge. Trading above $705.00 in September 2012, the stock has snapped back to reality, recently declining to a two-week low of $419.00 on March 4, 2013.
At the current price, there are arguments on both sides regarding whether Apple is worth a gamble or if it is the beginning of a new downtrend below $400.00.
In my view, the business landscape for Apple has become much more competitive. You have “Android”-powered devices accounting for a large portion of the smartphone market. This is mainly thanks to the overwhelming success of Samsung Electronics Co. Ltd.’s “Galaxy” series of smartphones and tablets. I have both an “iPad” and a Galaxy phablet (a large smartphone with the capabilities of a tablet). I must admit after using the iPad for a few years, I actually find it much better than the Galaxy.
Yet the market is still mixed.
While the iPad remains the dominant tablet, Apple’s reign in the tablet sector is clearly in jeopardy; but in my view, until a better tablet surfaces, the company will continue to produce the top tablet.
Investment manager Ken Fisher increased his holdings of Apple by 58.12% at prices ranging from $420.05 to $549.03, with an average price of $467.05. (Source: “Ken Fisher Buys Apple Inc, American Express Co, Coinstar, Sells America Movil, Petrobras, Visa,” Forbes April 11, 2013.)
The chart of Apple below shows a bearish descending triangle. The $400.00 level is a key support level. Yet a good quarter could easily turn the tide and drive the share … Read More
Why Gold’s a Trade, Not an Investment
By George Leong for Investment Contrarians | Apr 1, 2013
I’m beginning to change my tone towards gold. After being patient since October 2011, I’m inclined to feel the yellow metal is now more of a trade than an investment.
In a sign of optimism, gold recently broke above $1,600 an ounce on the banking concerns in Cyprus, as traders flocked to the metal as a perceived safe-haven pick. As an investment, gold has underperformed in recent years, while the equities market has surged higher. The reality is that there are far better places to stash your capital other than gold, and I expect this will continue.
Gold has long been perceived as a safe haven for capital in times of turmoil and inflation. Yet if you look at the current situation, gold is stuck. Global inflation is under control, and unless we see a major war break out in the Middle East or Italy collapses, I’m becoming less optimistic on the buying of the yellow metal as a place to invest.
Famed investor George Soros recently cut his gold holdings, but Paulson & Co. made no changes. (Source: Rooney, B., “ Soros dumps gold as prices sink,” CNN Money, February 16, 2013, last accessed March 28, 2013.)
With the stock market holding and returning big, gold investors have seen very little action, with the exception of the precious metal’s recent foray to above $1,600. I feel the move was more of a knee-jerk reaction to the Cyprus situation, rather than the start of a new upward leg on the chart. As I said, it will take a lot for the yellow metal to break back and hold above $1,600, … Read More
Why I Continue to Like Black Gold
By George Leong for Investment Contrarians | Mar 11, 2013
Oil is one of the most volatile of the commodities and fluctuates with the prospects of the global economy and of course the happenings in the Middle East.
Yet, if you really look forward, how can you not like oil given the growth in China and, more importantly, the emerging growth in India?
In June 2012, when oil prices fell below $80.00 and some were saying to sell, I was positive, as the chart suggested support would surface and the weakness was not a trend.
The U.S. Energy Department increased its projections for crude oil prices for this year, citing that global oil consumption would rise to a record in 2013. (Source: Shenk, M., “U.S. Energy Department Raises 2013 Oil Forecast,” Bloomberg News January 8, 2013.)
Take a look at the price chart for the spot West Texas Intermediate (WTI) futures contract. After trading at $115.00 in May 2011, oil prices slid despite multiple attempts at rallying back to the $100.00 level. The spot WTI is again back below its 50-day moving average (MA), but I expect there will be decent support at the lower trendline and the 200-day MA.
The chart is displaying what is looking like a bullish flag formation setting up, which means higher oil prices could be coming to back over $100.00 in the best-case scenario based on my technical analysis. You need to also be watchful of the $80.00 support level, which was breached on several occasions; but in each case, a rally followed.
Chart courtesy of www.StockCharts.com
I believe oil will continue to hold above at least $80.00 a barrel going forward and will … Read More
Why the Internet Space Has Lots of Upside Left
By George Leong for Investment Contrarians | Mar 6, 2013
Google Inc. (NASDAQ/GOOG) is up seven-fold from its initial price and could be well on its way to being the first $1,000 stock. Another heavy-hitter is priceline.com Incorporated (NASDAQ/PCLN), at over $700.00 a share and sizzling on the charts. At a new 52-week high, eBay Inc. (NASDAQ/EBAY) continues to dominate the Internet retail space. The commonality between all three of these companies is that they are all leaders in their respective Internet space, based on my stock analysis. There are pundits suggesting the best years for the Internet stocks are now behind us. I don’t believe that.
In just less than four months, Groupon, Inc. (NASDAQ/GRPN) has more than doubled in value from its 52-week low of $2.60 on November 12, 2012. The company’s business model of providing daily deals on goods and services is interesting, but it is not immune to the rising competition from rivals, since the barriers to entry into this space are relatively low, based on my stock analysis. Unfortunately, my stock analysis suggests that while Groupon was an early entrant in its business, numerous companies are surfacing and pushing Groupon to defend itself by trying to offer an advantage for the user. As shown in the chart below, Groupon broke out at $5.50 resistance, but recently, it sold off with a downside gap after disappointing results; yet the chart shows a possible rally, according to my technical analysis.
Chart courtesy of www.StockCharts.com
My stock analysis indicates that not only does Groupon face competition from the likes of Yelp, Inc. (NYSE/YELP), Google, and Amazon.com, Inc. (NASDAQ/AMZN), but it now faces competition from eBay, which launched a … Read More
Don’t Be Fooled by Multi-Year Stock Market Highs
By George Leong for Investment Contrarians | Feb 27, 2013
The equities market continues to hover near its multi-year highs. There are still many Wall Street analysts who suggest that the bulls are in full control and will drive stocks higher.
Investor sentiment had been extremely bullish in each session since the start of the year, but a neutral rating was reported on February 21–22.
We are still seeing optimism on Wall Street from the bulls, with some market watchers calling for the Dow to crack 15,000, and move upward toward 20,000. Even the small-cap Russell 2000, which recently traded at a record high, is up nearly 10% this year. Based on an annualized rate, the Russell 2000 would advance over 60% this year, considering what has happened so far. I actually think some of the euphoria in the equities market is overblown.
While Wall Street and the media may still feel the equities market will continue to move higher, I believe there’s some real risk in the equities market that you should be aware of as shown in the chart below.
Chart courtesy of www.StockCharts.com
While I’m not calling for a stock market correction, I do see red flags out there that suggest some selling pressure may be on the horizon for the equities market.
Take a look at the Dow. The blue-chip index has failed on two occasions to hold above 14,000, so there appears to be some topping action, based on my technical analysis. The reality is that selling in blue chips would be a red flag in the equities market.
In the broader market, while the S&P 500 initially held at 1,500, the index did see … Read More
Don’t Believe the Chart: Gold Still Looks Promising
By George Leong for Investment Contrarians | Feb 26, 2013
There’s talk of hedge funds dumping gold. Despite its attractiveness as a safe haven to stash your money, there is a lack of buying interest across the board, as the sentiment toward gold is declining fast. Some are even saying the bulls should pack it in. While I agree the short-term risk is high and prices could move down toward $1,500, I continue to like the longer-term outlook, as I believe that any major decline in gold should be viewed as an opportunity to accumulate the precious metal as a contrarian investment.
We are hearing more whispers predicting prices could spiral lower, but while I’m neutral at this point, I continue to be convinced that gold will rally higher in the long term.
The jury is still out on the potential of gold. The situation in the eurozone remains fragile, but there have been some signs of improving sentiment, which is what traders want to see.
In early January, Marc Faber, also known as “Dr. Doom,” in an interview with CNBC suggested gold could correct 10% or more to as low as $1,550–$1,600. (Source: Belvedere, M.J., “‘Dr. Doom’ Faber Sees Possible 10% Gold Correction,” CNBC, January 8, 2012, last accessed February 25, 2013.)
In my view, gold continues to be a place to park some capital; and for this reason, I feel the metal will continue to attract support above $1,500 after 11 straight up years.
The chart shows sideways trading with major support around $1,550 and upper resistance at $1,800, as indicated by the horizontal blue lines in the stock chart below. Within this trading band, there’s a downward … Read More
Read This to Avoid Major Losses
By George Leong for Investment Contrarians | Feb 8, 2013
It’s amazing how resilient the equities market has been in spite of the concerns regarding the budgetary cuts and debt ceiling, the eurozone’s economic stalling and debt, and the earnings risk.
The current equities market has some bull legs and could advance higher, driven by more encouraging earnings and economic news; but we are also at a crux, with the S&P 500 at 1,500 and the Dow recently breaking to 14,000. The reality is that the advance we saw in January is not sustainable at the same pace, based on my technical analysis. Just think back to last year. After an equally strong start and January, stocks began tapering off in February after the first quarter.
On the one hand, I can see this market moving higher to new multi-year highs; but on the other hand, I feel that there’s chart risk, as evidenced by the potential third top on the S&P 500, which I recently discussed in this newsletter. The early success of the earnings season is already discounted into the market. The nice economic recovery in the U.S. is also discounted. We need more positive readings out of the financially challenged eurozone, as well as China.
So while the bias remains positive, the biggest investor mistakes may be to get too comfortable and let down your guard.
Just take a look at the CBOE Volatility Index (VIX) based on the S&P 500, which is known as the “fear factor.” The VIX reading on February 6 was 14, which is well below some of the high readings since 2004, as shown on the chart below. The low VIX reading … Read More
Google Isn’t as Expensive as You May Believe
By George Leong for Investment Contrarians | Feb 7, 2013
For all of you who are attracted by the battered price of Facebook, Inc. (NASDAQ/FB), I suggest you keep on reading: Google Inc. (NASDAQ/GOOG) is the top player in the Internet space, in spite of it hitting an all-time record high of $776.60 last Friday, and here’s why.
My stock analysis indicates that some of you may feel that, at nearly $800.00 a share, Google is valued at way too lofty a price. Moreover, some may be spooked by the recent collapse of Apple Inc. (NASDAQ/AAPL) on the price chart after trading at over $705.00 a share in September 2012. What I would say to you is that Google is not Apple, and it’s definitely a much better company than Facebook, based on my stock analysis.
In fact, I think Google has more of an opportunity to reach $1,000 than Apple. Of course, that is if Google doesn’t undergo a stock split. I recall when Google first debuted in August 2004 at $100.00 a share, when I was debating in my mind whether the stock was a highflier or the real thing. At that time, Internet stocks were really still in their infancy.
The stock chart for Google below shows the stock’s upward trending channel and strong relative strength. But you need to be careful, as the stock could decline back to the area defined by the blue circle between $715.00 and the current price. A retrenchment into this space could signal a buy, based on my technical analysis.
Knowing what I have learned over the past eight years, I wish I had picked up some shares of Google; but … Read More
Cashing in on the Automakers with China Exposure
By George Leong for Investment Contrarians | Feb 5, 2013
The auto sector has been on a nice upward rally since trading at a bottom in July 2012, according to my stock analysis. Driven by low financing rates and rising domestic and foreign sales, we are seeing more carmakers taking the plunge and updating their older clunkers.
In January, auto sales were sizzling, with General Motors Company (NYSE/GM) and Ford Motor Company (NYSE/F) recording sales growth of 16% and 22%, respectively. Toyota Motor Corporation (NYSE/TM) also rallied, reporting sales growth of 27% year-over-year in January. (Source: Seetharaman, D. and Klayman, Ben, “GM, Ford post stronger-than-expected auto sales for January,” Fox Business, February 1, 2013.)
The numbers are estimated to be even better this year, so it would be an opportune time to accumulate some auto and auto-based stocks, based on my stock analysis. GM estimates that there will be between 15 million and 15.5 million autos sold this year. (Source: Ibid.)
Take a look at the stock chart for the S&P 500 Automobiles & Components Industry Group Index below. Notice the bullish ascending triangle followed by the breakout at the horizontal blue resistance line. But there is risk, as the index is currently facing support at the present level on weakening relative strength and a bearish moving average convergence/divergence, according to my technical analysis. Watch to see if the support level holds.
Chart courtesy of www.StockCharts.com
My stock analysis indicates that the auto sector has gone through major structural changes over the past few years since the bankruptcy of General Motors (GM) in June 2009. In the nearly four years since, my stock analysis shows that the auto sector has … Read More
Why I’m Actually Excited for Today’s “BlackBerry 10” Release
By George Leong for Investment Contrarians | Jan 30, 2013
I can honestly say that I’m excited to see the introduction of the new and highly anticipated “BlackBerry 10” (BB10) operating system and products by Research In Motion Limited (NASDAQ/RIMM; TSX/RIM) today. The overall market also appears hyped up on the BB10 platform. Research In Motion (RIM) has surged 176% since trading at $6.43 on September 21, 2012, as traders speculate on the company.
My technical analysis shows a widening gap on the chart on January 22 on a bullish moving average convergence/divergence (MACD) indicator (marked by the circles in the chart below), which is bullish. But watch the overbought condition. Also, the emergence of a bullish golden cross as indicated on the chart was a strong buy signal.
My stock analysis suggests that RIM appears to be rising out from the ashes, as investors dive back into the once-fabled maker of the BlackBerry. For RIM, it has been quite the journey after the investment community, including myself, thought the end was near for this former Wall Street star. Since the emergence of Apple Inc. (NASDAQ/AAPL), the BlackBerry and “Playbook” tablet have proven to be horrible failures, based on my stock analysis.
Chart courtesy of www.StockCharts.com
Based on what I have already seen, from what’s been leaked out on the Internet, the new BlackBerry has the familiar rectangular shape and touch screen feature of many of the most popular smartphones out there. RIM has aligned with many of the big carriers to market this product. The company is also looking at licensing out its software, which would be a first for RIM. The strategy appears to be in place; now … Read More
Be Careful of the Three-Headed Dragon on the S&P 500
By George Leong for Investment Contrarians | Jan 28, 2013
The 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.
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.
Chart courtesy of www.StockCharts.com
Technology has … Read More
Is the Housing Market “Home Sweet Home?”
By George Leong for Investment Contrarians | Jan 21, 2013
It was extremely difficult times for homeowners following the subprime mortgage implosion that helped to drag down the global economy in 2008. I recall how easy it was to get a mortgage without even having to provide an income or work history to the lenders. When an entry-level worker at McDonalds Corporation (NYSE/MCD) can get a mortgage with no questions asked, you have to wonder how long it might be before a housing bubble surfaces.
Luckily, after several years of the housing market being dragged through the mud, the current situation has vastly improved to the point where housing stocks are hot.
The declining mortgage rates have helped. The $40.0 billion in mortgage-buying by the Federal Reserve each month has driven down the cost of interest rates to record lows.
More people are working now, and with the jobs picture improving (albeit, at a slow pace), I expect the housing market will continue to strengthen.
Wherever you live, it’s clear the housing market is displaying much-improved industry metrics. We just saw another strong housing starts and building permits reading.
In December, there were an impressive 954,000 annualized starts, which is above the Briefing.com estimate of 880,000 and November’s 851,000.
Also lending support to the housing market recovery was a strong building permits reading of 903,000 in December, beating the Briefing.com estimate of 880,000 and September’s 900,000. The strong reading indicates that builders are expecting a good flow of buying in the housing market, and this could only bode well for homebuilder stocks.
Home prices, representing another key piece of the housing market, are edging higher, with the S&P/Case-Shiller U.S. Home … Read More
Why Apple Faces Strong Headwinds
By George Leong for Investment Contrarians | Jan 16, 2013
Have you seen the share price of Apple Inc. (NASDAQ/AAPL) lately? Since it traded at its record high of $705.07 on September 21, 2012, it has been a mess. Faced by rising competition, better products, and superior pricing, Apple has seen its price shaved by about 28.0% in what has been a trend reversal to the bearish side, according to my technical analysis. Apple is on the verge of breaking below $500.00, a move that was last encountered on February 16, 2012.
There are questions swirling around regarding the ability of CEO Timothy Cook to deliver the superlative revenue growth traders have been accustomed to in the past. The problem is with the rise of Samsung Electronics Co. Ltd. and Google Inc.’s (NASDAQ/GOOG) “Android”-based phones and tablets; the competitive environment has tightened, so Apple will need a “Plan B,” according to my stock analysis.
The slippage in Apple’s business is evident. Apple shipped 14.6% of the total smartphones shipped globally in the third quarter, versus 23.0% in first-quarter 2012, while Samsung’s shipments surged to 31.3% in the third quarter, according to International Data Corporation (IDC). (Source: “Apple Cuts Orders For iPhone Parts As Demand Slips,” Yahoo! Finance via Wall Street Journal,January 13, 2012.) The article also speculates that Apple is cutting its orders for parts used to build the “iPhone 5” due to lower demand.
Chart courtesy of www.StockCharts.com
In my view, Apple is in trouble, based on its global market share and declining revenue growth. According to analysts polled by Thomson Financial, Apple is estimated to grow its revenues by 22.2% in fiscal 2013, falling to a mere 15.1% … Read More
Why You Shouldn’t Sell Oil
By George Leong for Investment Contrarians | Jan 14, 2013
When oil prices recently fell to below $80.00, I said don’t sell.
The U.S. Energy Department increased its projections for crude oil prices for this year, adding that global oil consumption will rise to a record high in 2013. (Source: “U.S. Energy Department Raises 2013 Oil Forecast,” Bloomberg, January 8, 2012.)
Take a look at the price chart for the December West Texas Intermediate (WTI) futures contract. After trading at $115.00 in May 2011, we have seen oil prices slide, despite multiple attempts at rallying back to the $100.00 level. The spot WTI is trying to hold at its 50-day moving average (MA), currently above its 200-day MA of $85.08.
Yet the chart is displaying what looks like a bullish flag formation setting up, which means that higher oil prices could be coming, rising above $100.00 in the best-case scenario, based on my technical analysis. You need to be watchful of the $80.00 support level, which was breached on several occasions, but in each case, there was a rally after.
Chart courtesy of www.StockCharts.com
I believe oil will continue to hold above at least $80.00 a barrel going forward and will rally as the global economy strengthens. If you extend the oil futures contract to 2021, the current prices range from $83.00 to $96.00, so I’m not that worried and don’t have the urge to go and sell.
Helping to add support will be the continued erosion in the major economies in the eurozone, along with its impact on the U.S. and China.
Also add in the geopolitical issues in the Middle East. Iran and North Korea are real threats … Read More
Why Gold’s Worth a Look on Dips
By George Leong for Investment Contrarians | Jan 10, 2013
Gold is currently in a holding pattern at below $1,700 an ounce, but one thing is for sure: in spite of what some pundits are saying, it’s not time to sell yet. In an interview on CNBC, Marc Faber, also known as “Dr. Doom,” suggested that gold could correct 10% or more to as low as $1,550 or $1,600. (Source: “‘Dr. Doom’ Faber Sees Possible 10% Gold Correction,” Yahoo! Finance via CNBC, January 8, 2012.) While I’m not as negative, I do believe gold could retest support between $1,600 and $1,625 in the near term. Failure to hold could see a sub-$1,600 price.
In my view, gold continues to be a place to park some capital, and for this reason, I feel the metal will likely continue to hold above $1,500 after 11 straight up years.
For instance, if we assume the global economy will weaken, especially in the eurozone, the impact on global gross domestic product (GDP) growth would be negative. Stock values would fall, so you would need a safe haven to park your capital, which many of you know is in gold.
There’s been plenty of talk around here regarding whether the precious metal is heading for $2,000. In my view, the current global risk will support and drive gold higher.
The chart shows sideways trading around the 50-day moving average (MA) with weakening technical indicators, based on my technical analysis. I view downside moves as an opportunity to accumulate the precious metal, given the current macro situation.
Chart courtesy of www.StockCharts.com
I continue to like gold going forward, given the massive financial distress and recession in … Read More
Should You Be Worried About Apple?
By George Leong for Investment Contrarians | Dec 19, 2012
What the heck is going on with Apple Inc. (NASDAQ/AAPL)? The stock has corrected 26% since trading at a record high of $705.00 on September 21, and based on my stock analysis, Apple has made a chart reversal in a bear market.
While the price chart shows two major downward moves, don’t panic yet, but be careful.
I still consider Apple one of the best stocks in technology, but the company is clearly facing increased competition in the lucrative tablet, mini-tablet, and smartphone markets. The stock was recently downgraded, but sales in China are encouraging after Apple launched its “iPhone 5” and saw over two million units sold from December 14–17. (Source: “iPhone 5 First Weekend Sales in China Top Two Million,” Yahoo! Finance via Business Wire, December 16, 2012.) The iPhone 5 will be sold in over 100 countries by year-end.
Its valuation is attractive at 9.04X its estimated fiscal 2014 earnings per share (EPS) consensus estimate of $57.83 per diluted share, according to Thomson Financial. Its price/earnings-to-growth (PEG) ratio of 0.5 is bargain-cheap, based on my stock analysis.
The chart is bearish, showing the stock’s recent break below the 50-day moving average (MA) of $578.67 and the move below the 200-day MA of $597.41, which represents a bearish “death cross,” based on my technical analysis.
Chart courtesy of www.StockCharts.com
My stock analysis is that there are clearly some concerns that Apple may not be able to continue on its merry way. Chief rival Samsung sold a staggering 97 million mobile phones in the third quarter, well above the 23 million iPhones sold by Apple, according to Gartner. (Source: … Read More
Why Silver May Be Heading for $40.00
By George Leong for Investment Contrarians | Dec 11, 2012
Silver continues to hold strong on the charts, with a possible upcoming move at the tough $35.00 resistance level and potential retest of the $40.00 level. The aggressive upward move has largely been driven by the move in gold, along with speculative trading.
Buying in the white metal is generally in line with global economic growth, which drives the demand for industrial goods that use silver as a raw material, while it also pushes up income levels and the global demand for silver and gold jewelry.
Here in the U.S., the economic recovery is faring well. The better-than-expected U.S. gross domestic product (GDP) growth revised up to 2.7% for the third quarter, along with other encouraging economic data, is also adding some optimism of economic renewal.
While gold is considered more of a pure-play hedge against risk, any sign of industrial recovery helps, as silver—unlike gold—is used in numerous industrial applications.
The price of silver has had some bull legs on the chart since its breakout in August, based on my technical analysis.
As you can see on the chart below, the upward move in prices for March contracts above the 50- and 200-day moving averages (MAs), which is bullish. The March silver is also showing a bullish golden cross with the 50-day MA of $33.09 above the 200-day MA of $31.06.
The MA convergence/divergence (MACD) is also quite bullish, but it may be approaching a top. The risk is that the run-up appears to be overextended and vulnerable to some near-term selling pressure with resistance at around $35.00. For the white metal to advance, we need to see a … Read More
Why Housing’s “For Sale” Sign Is Gone
By George Leong for Investment Contrarians | Nov 21, 2012
There were extremely difficult times for homeowners following the subprime mortgage implosion that helped to drag down the global economy in 2008. I recall at that time how easy it was to get a mortgage without even having to provide an income or work history to the lenders. When an entry level worker at McDonalds Corporation (NYSE/MCD) could get a mortgage with no questions asked, you had to wonder how long it would be before a housing bubble would surface.
Luckily, after several years of the housing market being dragged through the mud, the current situation has vastly improved to the point where housing stocks are hot.
The declining mortgage rates have helped. The $40.0 billion in mortgage-buying each month by the Federal Reserve has driven down the cost of interest rates to record lows.
There are more people working, and with the jobs picture improving, albeit at a slow pace, I expect the housing market will continue to strengthen.
Wherever you live, it’s clear that the housing market is displaying much-improved industry metrics. We just saw another strong reading for housing starts and building permits.
In October, there were an impressive 894,000 starts, according to the U.S. Census Bureau, which is above the Briefing.com estimate of 815,000 in October and the 863,000 starts in September.
Also lending support to the housing market recovery was a strong building permits reading of 866,000 in October, albeit short of the Briefing.com estimate of 900,000 and the 890,000 reading in September. The strong reading indicates that builders are expecting a good flow of buying in the housing market, and this could only bode … Read More
Why Stocks Are on the Edge of an Abyss
By George Leong for Investment Contrarians | Nov 19, 2012
The market is moving lower, and there’s nothing that appears to be supporting it. The S&P 500 has lost nearly eight percent since its peak of 1,465 in September.
The fact that the S&P 500 failed to hold above 1,400 was not a surprise, based on my technical analysis. In May, the break at 1,400 was the S&P 500’s fourth top above 1,400 since 2008.
Since the election, the market has edged lower in six of seven sessions due to heightened stock market risk.
On average, only about 37% of U.S.-listed stocks are trading above their respective 200-day moving averages (MAs), versus 61% a month ago. The short-term weakness is even more prevalent with about 19% of stocks above their respective 50-day MAs, versus 61% a month ago.
What happened to what were supposed to be the best six months of the year for investment gains?
Based on historical records, investing in the six months from November to May has produced the best returns for stocks versus the June to October period, according to the Stock Trader’s Almanac.
So far, November has been horrible, with the key stock indices down more than four percent. But as I said when I previously discussed this pattern, things could be different this time around, given the abundant stock market risk, including the financial crisis in the eurozone, a stalling economy in China, tension in the Middle East, and the presidential election and upcoming fiscal cliff in the U.S.
We are seeing some selling capitulation in the market because of the abundant stock market risk and lack of any positive news that would encourage … Read More
Why You Need to Seriously Look at Housing Stocks
By George Leong for Investment Contrarians | Oct 19, 2012
You can still buy cheap homes in America if you don’t mind living in cities like Detroit, Pittsburg, Rochester, Memphis, or Cleveland. Unbelievably, in Detroit, you can even buy a home for under $100.00 if you don’t mind living in an area that is extremely depressed.
On the other end of the housing spectrum, there’s New York City, but to live there, you would need to dip deep into your pocketbook, as the median home price was $1.1 million for the period between July and September 2012, according to Trulia.com (source: www.Trulia.com, October 18, 2012).
Wherever you live, it’s clear the housing market is displaying much-improved industry metrics. We just saw a blow-out in housing starts and building permits on Wednesday.
In September, there were an impressive 872,000 starts, 13.5% above the 768,000 estimate and the upwardly revised 758,000 in August. Also lending support to the housing market recovery was an equally strong building permits reading of 894,000 in September, well above the 815,000 estimate and the revised 801,000 in August. (Source: Yahoo! Finance with data supplied by Briefing.com.) In my view, the strong readings indicate that builders are expecting a good flow of buying in the housing market.
Moreover, representing another key piece of the housing market, home prices are edging higher, with the S&P/Case-Shiller index, comprising of the 20 largest U.S. metropolitan cities, increasing a better-than-expected 1.2% in July; this represented the sixth straight month of increases.
The improvement in the housing market is also showing in the results of numerous homebuilder stocks.
Homebuilders are continuing to deliver better results. Toll Brothers, Inc. (NYSE/TOLL) blew away the consensus … Read More
Will the S&P 500 Hit 1,525?
By Sasha Cekerevac for Investment Contrarians | Oct 9, 2012
Many analysts and investors have been hesitant about the rally in the S&P 500. While I wasn’t surprised with the rally into the Federal Reserve announcement, I thought it highly likely that the S&P 500 would have a pullback in the fall. However, it appears that the S&P 500 is continuing its strong move up and, at this point, it would be quite dangerous to bet against this rally and the Federal Reserve.
Since the S&P 500 broke the downtrend in June, it has formed a very clean and resilient uptrend. In technical analysis, trendlines are extremely important. We note that in April of this year, the S&P 500 broke a long-standing trendline that is extremely important in technical analysis. This led to a subsequent decline in the market.
Another important note is that the highs reached in May of this year were not in excess of the highs reached in April. In technical analysis, if the S&P 500 cannot overtake its previous high, it is seen as extremely bearish. We saw the net results leading to a low in the S&P 500 in early June.
Chart courtesy of www.StockCharts.com
With this new uptrend developing, technical analysis will tell you to pay attention to whether or not the highs of the S&P 500 continually get broken. As is obvious by the chart, this is certainly the case. Another bullish sign is that the minor occurrence of the Relative Strength Index (RSI) being overbought in the middle of September has apparently been resolved.
In technical analysis, when the RSI becomes overbought, it does not mean that the S&P 500 will crash; … Read More
Why You Should Stay Away from HP
By George Leong for Investment Contrarians | Oct 5, 2012
Hewlett-Packard Company (NYSE/HPQ) sank on Thursday after warning the market to expect less in 2013, as the former technology kingpin struggles to revamp its business.
The company has seen over half of its market-cap dissipate over the past year, rewarding the short-selling traders, according to my stock analysis.
CEO Margaret Whitman has a titanic job ahead of her, as she tries to turn the sinking ship around; but with crippling declines in the demand for PCs and intense competition in printers and other products, my stock analysis tells me that the path will be difficult and there is no guarantee of success.
My technical analysis of the chart of Hewlett-Packard (HP) tells the story of the company’s demise from a Wall Street darling to a misfit. Based on my stock analysis, the rapid switch between CEOs (there have been three since 2010 alone) has hurt the company’s business. HP had been in the retail tablet market, but it exited in August 2011 under the leadership of former-CEO Leo Apotheker, who took over in 2010 from Mark Hurd. Following the company’s departure from the tablet business, Apotheker was replaced by Whitman in September 2011, who now faces the daunting task of figuring out what to do to save the company.
Chart courtesy of www.StockCharts.com
According to Whitman, it will take years to turn HP around, as the company looks to streamline its product line and become a leaner, more efficient technology company. Yet, according to my stock analysis, the company’s lack of exposure in the surging mobile business is problematic. But this could change, as HP now has a dedicated group … Read More
Read This if You Want to Be a Successful Investor
By George Leong for Investment Contrarians | Oct 3, 2012
The NASDAQ is up 20% this year, as stocks continue to edge higher to multi-year highs. Blue chips are at their highest level since December 2007. Small-cap stocks are hot, up a sizzling 3.1% in September following a 3.3% advance in August. The S&P 500 is at a five-year high, and while the index has held above 1,400, the possibility of the multiple top formation concerns me, based on my technical analysis.
Now is the time to make sure that your portfolio is not overly vulnerable to a stock market correction if one were to surface. Of course, you should always take some profits off the table, a key for stock market success.
In my view, a critical investment strategy includes asset allocation, diversification, and the addition of small-cap stocks to maximize the expected return of your portfolio and increase your stock market success.
The concept of asset allocation should be a key part of any prudent investment strategy, as it will increase your stock market success.
Asset allocation refers to the asset mix of your portfolio, which is divided into the three major asset classes—cash, fixed income, and equities. Too much equities and you are vulnerable to selling. Too much cash and you could miss out of a stock market rally.
As the macro and micro factors change, you should rebalance your asset mix and modify your investment strategy, thereby increasing your stock market success.
A great investment strategy for stock market success is the use of Put options as a hedge against weakness.
The more risk assumed, the higher the expected rate of return; albeit, this is not … Read More
Why There Will Never Again Be Cheap Oil
By George Leong for Investment Contrarians | Sep 25, 2012
Oil prices recently briefly traded at $100.00 a barrel prior to retrenching back down towards the $90.00 level. Yet, having been in a bear market in June, oil has since rallied. The November West Texas Intermediate (WTI) futures contract is up 16.7% from its 12-month low. While the November oil is displaying a bearish death cross on the chart with the 50-day moving average (MA) of $93.92 below its 200-day MA of $97.52.
The chart appears to be showing a bullish flag formation setting up, which means that higher oil prices—to over $115.00 in the best-case scenario—could be coming, based on my technical analysis.
I believe oil will continue to hold above at least $80.00 a barrel going forward and will rally as the global economy strengthens. Extending the contract to 2020, the current prices range from $86.00 to $93.00.
Helping to add support will be the continued erosion in the major economies in the eurozone, the U.S., and China. Also add in the geopolitical issues in the Middle East and rising tensions in the South China Seas between China and Japan.
Chart courtesy of www.StockCharts.com
I also expect oil prices to be supported by the Organization of Petroleum Exporting Countries (OPEC) oil cartel. OPEC estimates oil prices in nominal terms could hold in a range of $85.00 to $95.00 a barrel for the rest of this decade, according to its internally produced World Oil Outlook (WOO). The report blames the spikes in oil prices on speculators, which I fully agree with, but it’s part of the business. An interesting note in the WOO report is the assumption that oil … Read More
Intel Declines; Is it the End for PC Component Makers?
By Sasha Cekerevac for Investment Contrarians | Sep 11, 2012
The latest company citing economic weakness as a headwind is Intel Corporation (NASDAQ/INTC). The firm drastically lowered its forecast for the third quarter based on a dramatic decline in demand, which the firm believes stems from a weakening global economy. While we have seen commodity stocks, such as iron ore producers, suffer in a weakening global economy, it now appears that technology stocks are feeling the brunt.
Some have hoped that technology stocks might be able to weather this latest economic storm because of the ability of new technologies to increase productivity without having to hire additional workers. Increased levels of productivity are one of the strongest selling points for technology stocks.
A large portion of Intel’s sales goes into the personal computer (PC) market. With PC makers lowering orders ahead of the holiday season, it becomes apparent that consumers have shifted away from traditional computers and are now opting for tablets. The environment for technology stocks continues to evolve, and it appears Intel is still relying on the consumer trends of yesterday.
Some might be thinking that PC sales are only slow ahead of the launch of the new operating system created by Microsoft Corporation (NASDAQ/MSFT). This might be the case; however, it is a dangerous time to trade technology stocks based on such a hunch. I would suggest waiting to see some early indications of adaptation of the new operating system and whether it will translate into substantially higher PC sales. Personally, I would focus on technology stocks for tablets and smartphones, as this segment appears to be the market segment for growth.
Chart courtesy of www.StockCharts.com
Intel … Read More
Contrarian Coffee Player Ripe for Investment
By George Leong for Investment Contrarians | Aug 10, 2012
Many of us cannot start off the morning without a cup of coffee. I know I can’t.
Coffee prices are showing some life after nine straight months of contraction, according to data from the International Coffee Organization (ICO). The price of coffee rallied in July 2012 with the ICO composite indicator surging up 9.5% versus June.
My stock analysis is that the fundamentals also look promising on the demand/supply end.
World production is estimated at 131 million bags in 2011 and 2012, which is lower than the 138 million bags predicted to have been consumed in 2011, as shown on the chart.
Source of statistics: International Coffee Organization
Chart © Lombardi Publishing 2012
In the equities market, my stock analysis is that Starbucks Corporation (NASDAQ/SBUX) is the dominant player on the retail side, especially with its aggressive growth strategy in China.
While I do like Starbucks as a long-term play, based on my stock analysis, mid-cap coffee wholesaler Green Mountain Coffee Roasters, Inc. (NASDAQ/GMCR), a producer of higher-end specialty coffees and single-cup brewing systems, has a better risk-to-reward profile.
Green Mountain sells hundreds of varieties of coffee, tea, and other beverages that are used in single-cup brewing machines, including the company’s “Keurig K-Cup Single Cup” brewers. Green Mountain also offers whole bean and ground coffee in bags.
Green Mountain coffees are sold under the Van Houtte, Brûlerie St. Denis, Brûlerie Mont-Royal, and Orient Express brands. The company also licenses coffee from Bigelow and Wolfgang Puck.
Yet this former high-flying stock has been under extreme pressure on concerns of increased competition in the single-cup coffee business and its bagged coffee sales…. Read More
Housing Market Reality: Average Home Price in Detroit a Shocking $21,000
By George Leong for Investment Contrarians | Aug 6, 2012
I was just reading a Wall Street Journal article on real estate and was shocked to discover that the average list price of a house in Detroit is a mere $21,000 at this time. After seeing this, you may think of hauling your belongings to the auto epicenter of the U.S.; however, given that you may have a tough time finding adequate paying work, it may not be a good idea. Although, yes, you can probably work at minimum wage and buy a house in Detroit.
What I’m getting at is there are numerous places (maybe not as bad as the situation in Detroit) in America where the housing market is dirt cheap.
The media will tell you how the housing market is ramping up. That’s true as far as housing starts and building permits go, which have improved significantly since the subprime crisis in 2008, but the reality is home prices continue to be dogged by high home foreclosures and short sales. In my view, this factor will continue to cast a cloud over the housing market.
While the housing market has clearly improved from last year and the start of the subprime housing crisis in 2008 that led to the worst recession since the Great Depression, I still feel that the optimism is somewhat high and that there will continue to be hurdles ahead.
We have seen an uptick in homebuilder stocks as the optimism picks up.
The chart of the S&P Homebuilders Select Industry Index (NYSE/XHB) shows the upward trend from the October 2011 bottom to the May peak. We are currently witnessing some stalling on the … Read More
Silver in Meltdown Mode; Is It a Buy?
By George Leong for Investment Contrarians | Aug 2, 2012
In early 2011, silver was the toast of the town, as speculators ran up the price to the $50.00 an ounce level on speculation that the world economies would continue to expand. But, straddled with the eurozone debt crunch and slowing in Europe and China, silver quickly fell.
The price of the white metal has steadily declined over the past 15 months. As you can see on the chart, the upward move in prices leading up to $50.00 was overextended and vulnerable to selling pressure that drove the metal to just above its multi-year lows.
Chart courtesy of www.StockCharts.com
The long-term chart of cash silver from 2003 shows the metal managing to trade above its 50-day moving average (MA) at around $25.00. The price is currently stuck below its 50-day MA of $27.76, as well as its 100-day MA and 200-day MA of $29.31 and $30.81, respectively.
Since May, trading has been lackluster. There is decent downside support around $25.00 on the bottom end and just over $35.00 on the top end based on technical analysis.
Silver is down 15.6% since the start of the year and is underperforming gold.
Yet, over the past 20 years, silver has largely outperformed gold, as shown in the following chart that indicates returns to July 1, 2012.
If the metal can hold, we could soon see another rally back above $30.00 towards $35.00. Of course, this would depend on the global economies picking up.
I would rather be in gold, which is used mainly as a hedge against risk and for jewelry.
Silver is used in numerous industrial and electronic applications; … Read More
Don’t Trade Apple Until You Read This
By Sasha Cekerevac for Investment Contrarians | Jul 27, 2012
With the recent corporate earnings release from Apple Inc. (NASDAQ/AAPL), many investors are unsure how best to trade the stock. Before we get to that, let’s take a closer look at the corporate earnings the firm posted. The common thread throughout the disappointing corporate earnings release from Apple is that it appears customers are postponing purchases, awaiting new products to be released in the fall. Frankly, this is to be expected; I’ve talked to plenty of people who are holding off buying an “iPhone” until the new one comes out.
Another reason for the disappointment in Apple’s corporate earnings was a weakening of the global economy, including China. While China negatively impacted corporate earnings this quarter, international growth will be a key driver for the next several years. Only a small number of Apple stores are outside of developed nations like America. This then provides a huge opportunity over the next decade to continue expanding in the retail space. However, the economic turbulence engulfing the world will have a significant impact on the company’s corporate earnings and margins over the short term.
Chart courtesy of www.StockCharts.com
While that’s a brief glance at Apple’s corporate earnings, from a technical analysis point of view, the stock is in a dangerous area. Following the corporate earnings release, many fund managers have stated that they are interested in buying shares; the proof is in the pudding, as the saying goes. Technical analysis will help us understand if money is actually being funneled into the stock. A break of the upward sloping line is a significant move, as the stock is now trading at … Read More
Stock Market About to Break Out, But Which Way?
By Sasha Cekerevac for Investment Contrarians | Jul 19, 2012
As we are in the middle of earnings season, many investors are questioning what the next most likely direction for stock prices will be. While individual stock prices will be determined by their company-specific quarterly earnings releases, the market overall as represented by the S&P 500 has many factors influencing the gyrations, some of which can be understood through technical analysis.
With a macro-economic backdrop of poor economies around the world, including the European continent that continues to have serious structural issues, you would think that this type of environment would be extremely bearish for stock prices. When investing, I would urge you not to be dogmatic and to let stock prices show you the path of least resistance. Technical analysis is one tool that can help illuminate the highest probability of directional movement in stock prices, in addition to helping you understand the fundamental drivers of the market.
Chart courtesy of www.StockCharts.com.
Taking a look at stock prices from an overall market viewpoint by examining the S&P 500 through technical analysis, one should note the importance of any break in a trendline. The most notable example is when stock prices broke down through the long-term uptrend in early April. This has led to a decline down to the 200-day moving average, a very important moving average when it comes to stock prices and technical analysis.
Stock prices, having moved down into June, have since rebounded, forming an upward trading range. Stock prices are now hitting the top end of the downward-sloping resistance level formed between the two tops in April and May. Many traders following technical analysis will … Read More
Oil Prices Bounce Off the Bottom; How Far Will They Run?
By Sasha Cekerevac for Investment Contrarians | Jul 5, 2012
Oil prices are one of the most erratic commodities to invest in. Not only are oil prices affected through the various economic phases globally, but geopolitical tensions are an active ingredient that makes the situation quite volatile. Predicting markets when it comes to oil prices is even more challenging, as there are many issues when it comes to both the supply and demand side of the equation.
With the economic data that has come out globally, it is very evident that not only are Europe and Asia slowing down, but the U.S. is as well. The financial crisis in Europe has severely dragged down their economy. This slowdown has driven down demand for oil and, thus, oil prices with it as well. China and India are both slowing down as well, adding more pressure to oil prices.
On the geopolitical front is the Middle East, as usual. In spite of the drop in oil prices over the past few months, Saudi Arabia has continued to pump large amounts of oil. Heading into July, Saudi Arabia is now producing above average oil output for the sixth month in a row. While the initial rise in oil output was to make up for the loss of Iranian output, due to the sanctions about to hit that nation, oil prices have continued to fall. Saudi Arabia has continued to pump out oil in order to drive oil prices down to hurt the Iranian government. Since most of the revenue Iran generates comes from oil, it feels more pain the lower oil prices drop. The push by nations to stop the Iranian regimes from … Read More
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