Investment Contrarians

technical analysis


Days of High Oil Prices a Thing of the Past?

By for Investment Contrarians | Nov 6, 2013

America’s Oil SectorThere’s happiness at the gas pumps. The price of gasoline has been on the decline with the average price in the U.S. down to $3.29 per gallon as of October 28, a year-over-year decrease of $0.27 per gallon. In fact, we could see even lower gas prices on the horizon as oil prices fall.

In this new energy environment in America, the country is becoming more self-efficient in producing oil from its ground thanks to the growing adaptation of fracking technology in North Dakota and Montana to squeeze oil out of the rocks in the ground.

The explosion of oil production from the Bakken region in North Dakota has been superlative and has everyone, including myself, thinking there will be a time when the country will not have to buy oil from the Organization of the Petroleum Exporting Countries (OPEC). In my view, it’s just a matter of time.

And if you add in the rise in oil from the Canadian tar sands, the move to independence in oil demand will become even more realistic. According to IHS, the amount of oil being moved via rail cars could rise to about 700,000 barrels a day by the end of 2015. (Source: Domm, P., “Canadian oil rides south even without Keystone pipeline,” CNBC, November 4, 2013.) The hotly debated Keystone XL pipeline, if it’s ever built, could move 830,000 barrels of oil per day from Canada.

Clearly, the numbers are there, and unless a crisis in the Middle East surfaces, we could see oil prices continue to decline as domestic and Canadian oil flow rises.

The days of high oil prices … Read More


How to Profit from a Potential Housing Market Downdraft

By for Investment Contrarians | Nov 1, 2013

Potential Housing Market DowndraftThe housing market has had a nice run up over the past several years, but the party is beginning to fade.

Home prices continue to edge higher with a 12.8% jump in August, according to the S&P/Case-Shiller 20-City Home Price Index. While this seems positive, you also have to wonder if the housing market is headed for a bubble down the road as mortgage rates rise—and they will.

The chart of the S&P/Case-Shiller 20-City Home Price Index below shows the current recovery in home prices. The index is still far below the peak in 2006 and 2007, prior to the subprime blow-up. These were unrealistic levels. We saw downward moves in 2009 and 2012, but it has been clear sailing. Yet the problem is that much of the buying in the housing market was driven by institutional buying. Once this begins to fade as home prices rise, we could see a relapse in the housing market.

S&P Case-Shiller Home Price Chart

Chart courtesy of www.StockCharts.com

We saw a 5.6% decline in pending home sales in September. This metric is not considered as critical as the housing starts and building permits readings, but in my view, it’s a good indicator. In August, pending home sales slid 1.6%. We may be seeing a trend of lower demand for homes, which suggests there could be some issues on the horizon if pending home sales continue to be negative.

Existing home sales were also flat at 5.29 million units in September, down from 5.39 million units in August. Less people are buying homes, and this cannot be good for the homebuilder stocks.

What makes the situation in the housing … Read More


Two Ways to Profit from Lagging Jobs Growth

By for Investment Contrarians | Oct 30, 2013

Lagging Jobs GrowthWith the slew of economic data being released this week, we’re obviously starting to get a better sense of where stocks could be heading over the next few weeks.

Of course, the focus will be on the Federal Reserve meeting today, where it’s really a no-brainer that Federal Reserve Chairman Ben Bernanke will leave his bond buying in place. Now some may argue that it may have been a different outcome if the government impasse didn’t occur, but I doubt that.

The talking points at today’s Federal Reserve meeting? The Federal Reserve will likely talk about how the economy is showing signs of growth, but that it remains fragile and will need to strengthen. The Federal Reserve will also talk about the soft results from the jobs market, and how it also needs to pick up.

The end outcome? A non-response from the Federal Reserve as far as tapering its bond purchases. In fact, based on what is happening, it doesn’t look like any tapering will occur until at least December, but most likely not until Bernanke leaves his post as head of the Federal Reserve in January.

Traders realize the Federal Reserve will keep the flow of money going, which has helped to add support to the stock market. Yet I’m still debating how high stocks can run. The key will be what consumers do during the holiday shopping season that begins in about a month with the critical Black Friday on November 29.

I’m not that optimistic, based on what the retailers said in their September reports. Also, jobs growth continues to be marginal at best, and this … Read More


Why I Believe the S&P 500 Could Fall to 800

By for Investment Contrarians | Oct 1, 2013

S&P 500 Could Fall to 800It’s that time again. As we move into the always interesting month of October and fourth quarter, I expect some surprises are in store for us in the stock market, as was the case in previous years. The big difference is that the stock market has already made some strong gains, so the upside in the last quarter is debatable, given the slew of market uncertainties surrounding us.

There’s the debt ceiling deadline today, the third-quarter earnings reporting season, the Fed’s tapering, and Black Friday, an important holiday shopping season.

For stocks to move higher, we need some major evidence the economy and corporate America are healthy. So far, it has been merely decent, but clearly not deserving of the stock market rally.

We are into the fifth year of the current bull stock market, so there are reasons to be concerned.

The chart of the S&P 500 shows the sideways channel established since 2000. We had market tops in 2000 and late 2007, prior to the subprime crisis and recession in 2008.

Now, here we sit at another key economic crux, but the S&P 500 is still on a breakout; albeit, its staying power is still questionable. The fact that we are in the fifth year of this rally makes me nervous, based on my technical analysis.

500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

Also take a look at the declining volume that accompanied this rally since 2009. In the previous five-year rally, from 2003 to 2007, the trading volume on the S&P 500 trended higher. My feeling is that there’s a lack of mass market participation in the current rally, which … Read More


Why I Won’t Be Buying Gold Anytime Soon

By for Investment Contrarians | Sep 12, 2013

Gold Anytime SoonWhen gold surged to over $1,400 an ounce, I was still not a believer in its potential as a buying opportunity—rather, I thought it was more a trade against the possibility of an expanded conflict arising in Syria.

The gold bugs were suggesting the time for the yellow metal was here again, and I even heard a target price of $1,700 an ounce. Now, with the situation in Syria looking to be resolved, the safe haven’s gains over the past few weeks are beginning to fade away as the price falls below $1,400.

My feeling is that gold could move even lower and back towards $1,300-$1,325 if the Federal Reserve decides to rein in its bond buying at next week’s Federal Open Market Committee (FOMC) meeting. The numerous rounds of quantitative easing and lower interest rates drove down the value of the greenback and created an environment of easy money that helped to drive up the price of gold.

Now, with the Fed’s bond tapering around the corner and bond yields set to edge higher, the U.S. dollar will likely get stronger. And since gold is priced in U.S. dollars, the cost to buy U.S.-denominated gold will increase. The higher expected financing rates will also impact the carrying cost of buying the yellow metal, so I also expect demand to fall, which will help to drive down prices.

In the absence of a strike in Syria, I’m calling for gold prices to decline as we move forward.

The futures market is predicting gold will stay in the $1,300 range until mid-2015 and prices to break above $1,400 by the end … Read More