MARKET STUTTERS DESPITE QE

Despite the implementation of Quantitative Easing (QE2) this week by Ben Bernanke and the Federal Reserve, there was a swift selloff in the market today.
Very few stocks closed in the green with the exception of Home Depot (HD) and some others in the retail sector.

Gold, oil, and most other commodities sold off hard as the dollar rallied fiercely despite the daily buying of US Treasuries by the Fed through Permanent Open Market Operations (POMO). Speaking of Quantitative Easing, for those of you who don’t know exactly what it is, check out the entertaining video below today’s trade update; it’s priceless!

COMPANY INVEST TRADE UPDATES

ERY: ERY is a triple levereged (3X) Bearish Energy Sector ETF. We suggested getting in last week and got stopped out. We then Re-entered the trade on Monday at $29.25. Since then, ERY has gained a nice 8.25%, closing at $31.67 today. What to do now? This trade is doing fantastic! We believe it has much upside to go. Hold your shares and look to add to your position on any slight pullback (possibly tomorrow). We put a 6% trailing stop in today. That way, worst case we’re still ahead on the trade.

QID: QID is the Technology sector Ultrashort ETF. We recommended QID in last weekend’s post for purchase on Monday morning. We got it at $12.60 on Monday and since then it has gone up nearly 5%, closing at $13.20 today — Not bad for two days! What to do now? Hold and buy more on a pullback (when the market bounces in the next trading day or two).

QE VIDEO

At Company Invest,  we strive to provide analysis to give readers the most accurate forecast for the best stocks to buy based on recent chart signals.  We use technical analysis as our primary trading strategy.  For those who don’t know, technical analysis is the study of stock price charts.  We get signals from a variety of indicators including chart patterns, support and resistance levels, Japanese candlestick signals, moving averages, volume, and a variety of momentum indicators.

Before we get to the charts, on a macro level there are some interesting news events to consider.  With last week’s Federal Reserve decision to enact Quantitative Easing (QE2), many assumed, and rightly so, that the dollar would get trashed while commodities, especially precious metals would soar.  And that pretty much came true last week with gold hitting a new all-time high above $1,400 an ounce.  However, it seems to me this week (in a 180 degree reversal to that theory) that the Fed would like to strengthen the dollar.  There seems to be a sector rotation going on here that started yesterday and continued today.  The sector rotation appears to be a move out of gold, commodities, and treasuries and into stocks.

That brings us to today’s Company Invest pick, ERY.  ERY is a bearish Exchange Traded Fund (ETF) for the energy sector.  With what seems to be a coordinated effort to strengthen the dollar and with the dollar’s chart (UUP) looking quite bullish, the energy sector is setting up for a big correction.  And, by buying ERY, you can capitalize by making money when energy stocks go down.

COMPANY INVEST TECHNICAL ANALYSIS

Looking at today’s chart, “A” is the Relative Strength Index (RSI) set to the 7-day period.  At a reading of 10.44, the RSI is more oversold than it has been for at least 6 months (this entire chart).  This tells us a bounce is coming.

“B” is the ERY price chart.  Last Thurs, Nov 4 ERY gapped down pre-market and then continued to sell off throughout the day.  A “gap” occurs when prices move up or down outside of the trading session (in futures trading).  Technical analysis tells us that most of these gaps are eventually filled, meaning there is a very high probability that ERY goes back to the $34-$34.50 area in the near term.  That would mean over an 11% possible gain on a quick swing trade.  Also, yesterday’s candle was a hollow red candle, which indicates a reversal could be imminent.  The hollow red candle meant that ERY gapped down premarket yesterday, moved lower, then rallied the rest of the day to close higher than it opened, yet still lower (barely) than the previous day’s close.

“C” is the MACD histogram.  A shallower blue bar at the end of today’s session would indicate a reversal and a possible bullish divergence between the histogram and the price chart.  These bullish divergences happen when prices make a lower low, but the histogram makes a higher low (see sloping up green line on histogram and sloping down red line on price chart).

Finally, “D” the slow stochastic momentum indicator got a bullish cross (signal line “black” crossed up through the stochastic line “red”).

Company Invest Bottom Line:  This trade has a good risk reward.  You can buy it here and put a stop at $29.20, for a move to $34-$35.

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WHAT IS A MUTUAL FUND?

A mutual fund is an open-ended fund operated by an investment company, which raises money from shareholders and invests in a group of assets, in accordance with a stated set of objectives. Mutual funds raise money by selling shares of the fund to the public, much like any other type of company can sell stock in itself to the public. Mutual funds then take the money they receive from the sale of their shares (along with any money made from previous investments) and use it to purchase various investment vehicles, such as stocks, bonds and money market instruments. In return for the money they give to the fund when purchasing shares, shareholders receive an equity position in the fund and, in effect, in each of its underlying securities. Benefits of mutual funds include diversification and professional money management.

Our Take: Recent studies have concluded that the over 85% of mutual funds CANNOT beat the annual return of the S&P 500.  So much for professional money management.  In addition, mutual funds are expensive, with front end commissions and several “hidden fees,” that the average Joe has no clue about.  And your performance is dependent on the fund manager buying and selling the right securities at just the right time.  And fund managers do not get bonuses due to good performance; they get bonuses only based on the amount of dollars coming into the fund.  So all their efforts go into getting as many people to buy into their funds as possible.  Also, very few of the strategies on this site can be applied to mutual funds.

WHAT IS AN EXCHANGE TRADED FUND (ETF)?

An ETF is a fund that tracks an index, but can be traded like a stock. ETFs always bundle together the securities that are in an index. Investors can do just about anything with an ETF that they can do with a normal stock, such as short selling. Because ETFs are traded on stock exchanges, they can be bought and sold at any time during the day (unlike most mutual funds).

Their price will fluctuate from moment to moment, just like any other stock’s price, and an investor will need a broker in order to purchase them, which means that he/she will have to pay a commission. On the plus side, ETFs are more tax-efficient than normal mutual funds, and since they track indexes they have very low operating and transaction costs associated with them. There are no sales loads or investment minimums required to purchase an ETF.

Our Take:  We love ETFs.  ETFs charge a fraction of the fees of mutual funds and can be traded just like a stock.  And online broker’s offer very reasonable commissions ranging from $4 to $10 per trade.  Additionally, ALL of the trading strategies you read about on CompanyInvest.com can be used on ETFs.

MORE REASONS TO BUY ETFs

There are two main reasons we love ETFs at CompanyInvest.com:

#1: ETFs have much lower fees than mutual funds.  Over time this can be very significant.  Consider the following example:

Investor A has a portfolio of four of the leading mutual funds with an average expense ratio of 2.16% (Typical of a mutual fund portfolio).  He initially invests $1 million.  His  portfolio yields a 10% annual return.  After 30 years, his portfolio grows to $9.6 million.  Not bad right?

Investor B has a portfolio of four of the leading ETFs with an average expense ratio of 0.19% (Typical of an ETF portfolio).  He also initially invests $1 million.  Let’s assume his portfolio also yields 10% a year.  After 30 years, investor B’s portfolio grows to $16.5 million!

So over a 30 year period, with identical annual rates of return, Investor B has accumulated nearly $7 million more dollars than Investor A.  And that is ALL due to higher fund expenses and other fees over time.

#2 ETFs can be traded just like a stock. This means you can buy and sell them whenever you want, and you can also short them (and make money even when the market is trending down).

ALL of the strategies we suggest on Companyinvest.com can be used with ETFs; but very few with mutual funds.  Once you learn to trade and incorporate trading strategies such as the ones taught on this site, you can beat the S&P 500 100% of the time; not 15% like the mutual funds.

Bottom Line: Participate in mutual funds if your company offers a matching contribution to your 401k program.  But consider opening a ROTH IRA (all the major online brokers such as Scottrade, Etrade, Tradeking, and Sharebuilder) offer them.  You will get much more bang for your buck and if you use the strategies discussed on our site, your annual return can be more like 20% per year, instead of the 10% used in the example above.

In today’s environment where Central Banks are intervening, Quantitative Easing is the buzzword, currency manipulation is ongoing, there is much volatility in World currencies.  Should you trade currencies? How can you?  One way is to use ETFs.  The following is a short list of currency ETFs you can buy/sell:

• US Dollar                              UUP
• Australian Dollar               FXA
• British Pound                      FXB
• Euro                                        FXE
• Japanese Yen                      FXY
• Chinese Yuan                      CYB
• Canadian Dollar                 FXC

Forex Trading is another option.  Forex trading online is a fast way to use your investment capital to it’s fullest. The Forex markets offer distinct advantages to the small and large traders alike, making Forex currency trading in many ways preferable to other markets such as stocks, options or traditional futures. Here are seven reasons why you’ll want to look into Forex Trading online.

1 – Forex is the largest market.
Forex trading volume of more than 1.9 billion, more than 3 times larger than the equities market and more than 5 times bigger than futures, give Forex traders nearly unlimited liquidity and flexibility.

2 – Forex never sleeps!
You can execute forex trading online 24/7, from 7AM New Zealand time on Monday morning, to 5PM New York time on Friday evening. No waiting for markets to open: they’re open all night! This makes Forex trading online a very attractive component that fits easily into your day (or night!)

3 – No Bulls or Bears!
Because Forex trading online involves the buying of one currency while simultaneously selling another, you have an equal opportunity for profit no matter which direction the currency is headed. Another advantage is that there are only around 14 pairs of currencies to trade, as opposed to many thousands of stocks, options and futures.

4 – Forex Trading online offers great leverage!
You can make the most of your investment resources with Forex trading online. Some brokers offer 200:1 margin ratios in your trading accounts. Mini-FX accounts, which can typically be opened with only $200-300, offer 0.5% margin, meaning that $50 in trading capital can control a 10,000 unit currency position. This is why people are flocking to Forex trading online as a way to highly leverage their investments.

5 – Forex prices are predictable.
Currency prices, though volatile, tend to create and follow trends, allowing the technically trained Forex trader to spot and take advantage of many entry and exit points.

6 – Forex trading online is commission free!
That’s right! No commissions, no exchange fees or any other hidden fees. This is a very transparent market, and you’ll find it very easy to research the currencies and the countries involved. Forex brokers make a small percentage of the bid/ask spread, and that’s it. No longer any need to compute commissions and fees when executing a trade.

7 – Forex trading online is instant!
The FX market is astoundingly fast! Your orders are executed, filled and confirmed usually within 1-2 seconds. Since this is all done electronically with no humans involved, there is little to slow it down!

Forex trading online can get you where you want to go quicker and more profitably than any other form of trading. Check it out and see what Forex trading online can do for you!

With the dollar rallying most of the past week, materials and commodity stocks have consequently sold off hard and US Steel is no exception.  Since October 11 (in just two weeks), the stock has pulled back 13.51%.

Trading is all about finding the right time to buy.  Many investors strictly look at company fundamentals (earnings, cash on hand, debt, price to earnings ratios, etc) to place trades.  Problem is fundamentals will tell you WHY to buy a stock, but not WHEN to buy.  That is where technical analysis comes in.  Using chart patterns and momentum indicators, we can tell when the highest probability of a good trade will occur.  And at Company Invest, we think right now is a great time for a US Steel trade.

COMPANY INVEST TECHNICAL ANALYSIS

“A” is the 3-day relative strength index, a favorite swing trading indicator at companyinvest.com.  As you can clearly see, this indictor is WAY oversold (brown area). Look at what happened the last 5 times the RSI was this oversold (green circles).  Now look at the corresponding green arrows on the price chart that indicate trade entry points.  Each entry point resulted in a minimum of a 10% gain!  And here we are again…

“B” is the daily stock pricing chart (going back to mid May).  “Support” is very important in technical analysis.  Support happens when the big investors (pension funds, hedge funds, 401k fund manager) come in and buy.  We’ve illustrated two key levels of support on this chart (S1 and S2).  US Steel has been trading right at the S1 support level for the past three trading sessions without falling below it.  In this case it means buying the stock at $40 and change is a great entry.  Notice how the $40 level was also key support back on June 7.  And should the S1 support break, the next support level (S2) is the $37 area.

Also, the red selling volume bars have been getting shorter over the last 3 trading sessions while the stock has been basing.

“C” is the MACD histogram which gives nice advance signals for stock directional change.  Although you can see selling momentum has been occurring (stair step down blue bars), it looks as if a bullish divergence is occurring between the MACD histogram and the price chart (green line in “C” Vs. red line in “B”).  Simply put, it looks as if a higher low is setting up on the histogram, while at the same time a lower low has occurred on the price chart.

“D” is the slow stochastic momentum indicator.  At 8.88, it’s also deeply oversold.  Look for the signal line (black) to cross up through the MACD line (red) in the next day or two.  Multi day rallies in the stock occurred the last 4 times this signal was triggered (green circles).

Company Invest Bottom Line:   Grab US Steel (X) here and point your stop loss order in just below support at around $39.95.  A $44 price target could be hit in just a few trading days.

What a roller coaster of a week.  Monday, the market shot straight up;  Tuesday’s news of slowdown in China brought it back down.  Wednesday, rally on light volume; then today was a day of indecision: the market opened up, soared higher, sold way off on a dollar reversal, then rallied at the end of the session for a nearly flat finish.

What is interesting this week is what happened to the dollar.  The dollar can be tracked using the ETF “UUP”.  We’ve had a reversal in the dollar and, what looks like, an ensuing correction in precious metals and commodities. 

The following is a recap of recent picks from this site (which are all doing really well!!):

DZZ (Short Gold ETF):  On Oct 17 we said to watch for a rally in the dollar. The chart showed that the dollar was sitting right on support.  We recommended DZZ (short gold), DUG (short oil) or MWN (short mid cap stocks).  What Happened: DZZ has had a wonderful reversal rally week and looks poised to go higher.  The others are doing well too.  The DZZ chart also produced “buy” signals with a bullish 3/10 EMA cross.  It was trading around $8.35 when we recommended it, and has since rallied nearly 11%!!  What to do next:  Look to add to DZZ on the next pullback as it will likely go higher.

Home Depot (HD):  On Oct 19 With HD trading at $30.50, we said to grab it for a run to $33.  What Happened: A great trade is ensuing.  HD is currently trading at $31.81 and looks to go higher in the short term towards our price target.  What to do next:  Hold.

Sallie Mae Corporation (SLM).  We caught this stock at the bottom of a well defined price channel and said to grab it under $11.50 for a possible run to $13.  we said to put a stop loss order at $10.89 (meaning when the stock trades below $10.89, your internet broker will automatically sell all your shares).  What happened: The stock is hanging in there, consolidating, currently at $11.40.  A run to $13 could easily be in the cards.  What to do next:  Hold.

Three great trades this week!  We feel best about the DZZ trade though as the dollar will likely continue to rally in the short term, driving gold and silver down.

Good luck!

The greenback has been the key to nearly the entire 70% rally the market has seen since March, 2009.  Simply put, when the dollar goes down, stocks have went up, and visa versa.  This is especially true with commodities.  We at companyinvest.com expect a multi week pop in the dollar because the fed may want to increase its value right before it revs up the printing press to print more dollars to buy treasuries with (quantitative easing).  Further QE, should the fed do it, will crush the value of the dollar.

The following chart is the weekly chart of UUP (which is an Exchange Traded Fund (ETF)) representing the dollar’s movement.  Weekly charts are useful because they are longer term and could illustrate investments of weeks to months in duration.

On the chart you can see the RSI “A” is nearing “30″ which is extremely oversold.  Stocks and ETFs can stay oversold for prolonged periods of time, but this looks to be a decent entry point.

“B” is the weekly candlestick.  It’s a red candlestick, indicating the ETF lost value last week, however it is a “spinning Top,” which illustrates indecision.  It shows that during the week UUP traded both higher and lower than where it opened and closed.  This could mean UUP is ready to reverse.  A “Spinning top” sort of looks like a plus sign.  Compare that with the previous weeks red candles. Do you see a difference?

“C” is important.  “C” is a long term trendline of price support going back to early 2008.  Notice this week’s candle tagged that support line and bounced off of it.

“D” is the MACD.  Watch its final print next Friday, 10/22 and see if the histogram “blue bars” put in a shorter bar.  If so, that is a directional change and a buy signal.

“E” is the slow stochastic. Notice it went from below 20 to back above, and now it’s back dowm below 20 again.  That’s a bullish signal.  When the black line crosses up through the red line you could potentially have 1 to 3 months of buying before the black line gets all the way to “80″ again (overbought).

Bottom Line:  You can buy UUP here for a longer term trade, but instead I would look at buying either DZZ (short gold), DUG (Short Oil services), or MWN or QID (short midcap stocks, and short tech).

As you can read from the previous Company Invest blog, we’re bearish at this point in time, so it becomes difficult to recommend many stocks for a trade.  The S&P is way overbought right now, as are most individual stocks.  In addition, the market is moving up now based on anticipated federal reserve stimulus measures and not on economic fundamentals.   This all indicates to me that we will see a significant correction sometime in the not too distant future.  When is the only question.

Today’s Company Invest spotlight is the James River Coal Company (JRCC).  At $17.00 it’s an affordable play for the average investor.  And, being a commodity/energy stock, it tends to move up as the dollar goes down, which has happened since early September.

COMPANY INVEST TECHNICAL ANALYSIS

“A” is the Slow Stochastic indicator.  It just curled back up at the “50″ level and got a bullish cross (black line crossed up through the red line).  80 is considered overbought, so this stock could have a little run left in it.

“B” is the upward channel the stock has been trading in.  Based on the channel, a move up to 18.25-18.50 could happen in the next 3-5 trading sessions. While that doesn’t sound like much of a move, if you had 500 shares on, you could make a $750 profit in just a few trading days. Also, notice the “tail” on today’s red candlestick.  A long tail like that indicates a short term bottom.

“C” shows there was light volume today on a selling day.  Volume has been heavier on up days, which showindicates more buyers than sellers.

“D” shows the MACD is above the zero line and in bullish territory.

Company Invest Bottom Line: Grab it for a trade with a stop below $16.  You could get $2+ out of it in a short timespan.

Seasoned investors know all about “shorting” the market, but many newer investors do not.  When you “short” a stock, you borrow shares from your broker, immediately sell them (with the hope they will go DOWN in price).  Then if they do go down, you buy them back a lesser price, return the shares to your broker and you keep the difference.

(e.g., You short 100 shares of Alcoa (AA) at $13.00 per share.  In a week, the price of AA drops to $10/share.  You’ve just made a profit of $3/share or a quick $300 profit.)

If this sounds complicated, don’t worry. There are dozens of “short” ETFs (Exchange Traded Funds) around that you can trade.  An ETF is similar to a mutual fund, but can be traded like a stock (you can buy and sell shares intraday).

Today’s Company Invest pick is MWN.  MWN is a triple-leveraged ETF that is short the “midcap stocks.”  It seeks a return that is 300% of the inverse (or opposite) of the price performance of the Russell MidCap index.  Simple put, when the broader market goes down (S&P, Russell), this fund will go up fast.

You can see from the chart that MWN has taken a beating lately since the market has been rallying.  That is a good thing.  You want to buy stocks or ETFs AFTER they selloff, or when no one wants them.  It’s like buying wholesale instead of retail.

COMPANY INVEST TECHNICAL ANALYSIS

“A” shows the 3-day RSI in an oversold state.  This is a buy signal for a short term trade.

“B” shows the stock price sloping down, while the stochastic lines “D” are looking like they will slope up at the same time.  That is a positive divergence and another buy signal.

“C” Is the MACD histogram.  This is a nice predictor of trend change. As you can see, the blue bars have been getting smaller and are headed for the zero line. The last two times this happened (see other green arrows), the stock rallied by several dollars both times. Look for the bar to break above zero soon.

Finally, “D” is the slow stochastic, a measure of momentum. The best signals occur when the lines enter oversold territory (<20), go back above, then go back down below 20 again.  As you can see, this has happened.

Company Invest Bottom Line: At $13 a share, MWN is hard to pass up.  Grab 100 shares and put a $1 stop in.  That way, the most you could lose is $100, while you could easily make $500-$1,000 on the upside.  A great risk/reward play.

Today marked the release of the September, 2010 Non-farm payrolls report.  The report was awful; worse than expected.  Minus 95,000 jobs in September (the number was expected to be flat).  Selloff imminent right? Wrong.  As I write this, the Dow has eclipsed the 11,000 mark, all indices are solid green, and gold and other commodities are up as well.

Why? There is strong speculation that this widespread economic weakness will lead the Fed to enact “Quantitative Easing, Part II”, or QE2.  This means they will continue a zero interest rate policy and again crank up the money printing press, using those fresh greenbacks to pay off our debt through the purchase of treasuries.  This keeps interest rates low, especially mortgage rates, while trashing the value of the dollar.  Long term this policy will create many problems including widespread inflation.  However, that is a way’s off.  Until then, let’s party like it’s 1999.

Here’s a brief snippet of the past few Company Invest picks:

October 4 (John Deere: DE). What We Said: Get this stock at the $68 level for a quick run to $76.    What Happened: DE did indeed break out and rallied above $76 today for a great trade.  What to do now?:  Take profits and sell 1/2 your position.

Sept 30 (Apple: AAPL). What We Said: The stock is overheated and will more than likely pull back to 272 before resuming it’s upward trend.  What Happened: Pulled back from 285, to 278 (not quite the 272 we were expecting), and skyrocketed.  As I write this it’s trading at $294.  What to do Now? Take 1/4 to 1/2 off your position off and take profits.

Sept 29 (3M: MMM). What We Said:  Stock is in a trading range between $85 and $88.  Sell under $85 and buy above $88.  What Happened:  It broke through the top of the range and is now in a new range between $88.25 and $89.92.  What to do Now? HOLD your position and place a stop below $88.25.

Sept 28 (Alcoa: AA). What We Said:  At $12.22 take profits and let it pull back.  What Happened: Pulled back to $11.85 before taking off after a positive earnings report on 10/7. It is now trading over $13.  What to do Now? Nothing.  Don’t buy this stock until it pulls back.  Don’t chase a train out of the station.

These were some good calls.  Technical analysis is a wonderful thing and we hope you like this information and continue to visit the site.  As always, your comments are welcomed.  Stay tuned for a full week of picks next week as we fire up 3^rd quarter earnings season on Wall Street.