It’s been a crazy week on Wall Street.  The move has been mostly down with the exception of yesterday’s tremendous rally because of the GM IPO and a better than expected economic report (Philadelphia Manufacturing).  But all week the retail sector has been strong, and today’s Company Invest pick, Lowe’s (LOW) in particular looks poised for a big rally.

COMPANY INVEST TECHNICAL ANALYSIS

Looking at the chart “A” is the 3-day Relative Strength Index.  As you can see the momentum is positive and it is about to break through 50.  RSI readings above 50 are considered quite bullish.

“B” is the price chart.  Notice, instead of the usual candlesticks, I chose to display a line chart.  This is good for seeing certain patterns.  There is a powerful bullish pattern called the “W” pattern.  Essentially it is a double bottom pattern where the stock sells off, rallies, then pulls back again before really taking off, thus forming a “W” shape.  Two keys to this pattern:  #1 the second “V” of the “W” should not dip as low as the first.  What this says is that after a rally, there was just some normal profit taking (not a heavy selloff).  #2  The most powerful occurrence of the “W” pattern is when you see it occur right under a major moving average.  That’s because many short sellers place their stops right above moving averages.  So the theory is, if the stock price breaks through the moving average, those shorts will be forced to cover and buy back shares they sold, thus making the stock move even higher.  If it sounds confusing, don’t worry.  Just look for the W under either the 50 day or 200 day moving average with the right side higher than the left and you’ve got a winner.   And look at Thursday’s chart of LOW.  BINGO!

“C” is the MACD histogram.  Yesterday we got a bullish pPp reversal on the chart.  This is a 3-bar reversal where you have a selling bar, a deeper selling bar, then a shallower selling bar.  Confirmation of this pattern will occur when LOW closes above $21.64 (yesterday’s close).

“D” is the slow stochastic momentum indicator.  Notice the nice higher low the stochastic put in (green up-sloping line).  Also, we got a bullish touch of the signal line (black) with the stochastic line (red).  Look for a solid cross of the signal line to the upside for confirmation.

Company Invest Bottom Line: Looking at the black parallel lines in the price chart it looks like LOW could easily gain 10% in the near future and move to the $23.25 area for a great trade.  Start with 50 or 100 shares and put a stop in at $1 below the purchase price.

Company Invest Recent Picks:  Still holding ERY and QID despite a rough day yesterday.

Despite Ben Bernanke and the Federal Reserve’s $600 billion effort to prop the stock market and economy, it looks as if a correction is in order now.  Now would be a good time to pause, take profits and sell a portion of your long positions, or, if you are aggressive, why not make money when the market goes down?   You can do that by shorting stocks, buying put options, or, our preferred method, buying inverse ETFs.

We know that the market goes down much faster than it goes up because fear is a powerful thing, especially when coupled with money.  Right now the early signals indicate a 5 to 10 percent correction looming in the S&P 500.  And when the S&P 500 goes down, 3/4 of all stocks go down with it so take heed.  If you want to stay in your long positions, that’s fine.  Use a 5 to 8% trailing stop (whatever you are comfortable with).  A trailing stop is a wonderful tool offered by most online brokers.  It is a variable selling point and is great when you’ve already made money and want to lock in your profits.  If you put a 5% trail in, your selling point is always 5% lower than the current bid for the stock or ETF you are in.  That way, if the price keeps going up, so does your stop, however, once it corrects 5%, your shares are automatically sold, and your profits are locked in.

Today’s pick is QID.  QID is a reverse ETF which moves in the opposite direction of the QQQ’s (technology ETF).  That is when the technology sector is going down, QID is going up.

Looking at the chart there are several encouraging signals:

“A” is the slow stochastic momentum indicator.  It has been oscillating in oversold territory since early September!  We think this time the stochastic line has a great shot of going all the way up to 80 (overbought).  If that happens, QID will rally bigtime!  There is a powerful divergence between the stochastic and the price channel.  Look at the severely downsloped price trendline (red), compared to the stochastic lows (green line).  The stochastic line is flat to slightly sloping upward, indicating a change in trend.

“B“is the price chart for QID.  We had a powerful white candle on Friday (typically a selling day) and QID had a positive week overall.  More importantly, are the 3 and 10 day Exponential Moving Averages (EMAs).  The green and red arrows in the chart indicate buy/sell signals generated when the 3 day EMA (blue line) crosses up or down through the 10 day EMA (red line).  As you can see this technique gives wonderful stock trading signals.  The last signal (SELL) occured at the beginning of September.  Since then QID has gotten a 36% haircut! As of Friday’s close the 3 day EMA is EXACTLY the same as the 10 day and is just about to cross to the upside.  Monday could be an EXCELLENT entry point.

“C” is the MACD histogram.  Look at the massive bullish divergence between the histogram and the price channel.  This is a powerful buy signal.

“D” is the ADX indicator.  You get a buy signal when the green line crosses up through the red line (heading that direction but hasn’t happend yet).  However, the ADX line (black line) gives early signals.  The ADX line measures trend, and the trend has been up since early September, however that line is now rolling over and sloping down.

Bottom Line: Look for an entry point Monday and buy 50-100 shares of QID with a stop $1 below your entry point.

UPDATE: We had two wonderful stocks here in X (US Steel) and DGP (Double Gold ETF).  Hopefully you took profits and sold all of your shares now.

ERY:  We recommended it last week, but our stop of $29.20 was triggered.  However, ERY rallied hard on Friday and we really like it again as a trade.  Look to re-enter on Monday.

WHAT IS THE VIX?

 We strive to introduce new trading strategies at companyinvest.com.  Today we talk about a contrarian indicator, the VIX index.

 The VIX is the symbol for the Chicago Board Options Exchange’s volatility index. It measures implied volatility (not historical or statistical volatility) of a wide range of S&P 500 options. It is often called the “investor fear gauge” because it reflects investor’s best prediction of near-term market volatility, or risk. In general, VIX starts to rise during times of financial stress and lessens as investors become complacent. It is the market’s best prediction of near-term market volatility.  The good news is we can use the VIX to forecast the future direction of the market.

 HOW CAN YOU VIEW THE VIX?

 You can access the VIX index using your stock software or any major online trading platform software such as www.stockcharts.com or Yahoo Finance.  Enter the symbol “$VIX”. 

 USING THE VIX TO TRADE

 There is an old clichéd saying about the VIX index that goes:

 ”When the VIX is high, you buy… When it’s low, you GO!”

Looking at today’s chart of the VIX, “A” is the 3-day relative strength index (RSI).  Look at the past 3 times the levels were this oversold (green circles).  They all led to rallies in the VIX, while at the same time corrections in the S&P 500.  Here’s how they played out:

• June 21-Jun 30 VIX rally =     10.67% Correction in S&P 500
• July 12-July 18 VIX rally =     3.93% Correction in S&P 500
• October 19-20 VIX rally =       2.6% Correction in S& P 500
• November 5 to ? =                  3 to 10% S&P Correction on the HORIZON!

 ”B” is the price chart.  Right now the VIX is approaching a several month low, so if the saying rings true, you should sell some of your long positions or consider going short for the impending correction.  Also, today’s candlestick is a doji, indicating a probable change in trend.

 ”C” is the MACD histogram, a wonderful forecaster of trend change.  It looks like a bullish divergence is forming, meaning the VIX price made a LOWER low, while at the same time the MACD is forming a HIGHER low.

 Bottom Line: Position yourself for a 3 to 10% market correction.

 RECENT COMPANY INVEST PICKS

 We found some hot stocks recently!

 US Steel (X).  We said to buy shares at the $40 level on October 28, and since then the stock has rallied over 21%!  Many investors don’t get that kind of return in a whole year.  What to do:  Take 3/4 to all of your position off and put the profits in your pocket.

 Double Bull Gold (DGP).  We said to buy shares at the $39 level.  The trade is currently up 6.5% and still rising.  What to do:  HOLD or put a 5% trailing stop in.

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!

Sometimes simple is better.  The following strategy, developed by Dr. Charles Schaap in his book, “Investing for Success,” is a very simple, yet effective way to profit in this market.

 The essence of the system is catching a trend and riding it.  In this case, Dr. Schaap uses only two indicators to define a trend.  They are “A” the Relative Strength Index (RSI), and “B” the 50 day moving average.  When the 20-day RSI moves above 50 and the stock trades above the 50 day moving average, that is a buy signal. When the reverse happens, it is a sell (or short) signal.

 The RSI, “A” is an indicator that measures a stock’s recent performance against it’s past performance.  In this case, Schaap uses an RSI value of “20″ (default is normally 14).

 The 50 day moving average “B” is widely used in technical analysis and it a standard indicator of market health.  Simply put, if a stock is trading above its 50 day moving average it is thought to be healthy and bullish.  Below, it is struggling and bearish.  With this strategy you can use either the Simple Moving Average (SMA) or Exponential Moving Average (EMA).  These settings can be found on most charting platforms.

 The following is a daily chart of the S&P 500 Large Cap Index ($SPX).  It spans a 1 year timeframe.  The green arrows represent buy signals.  The red arrows represent sell (or short) signals.

Now imagine if all you did was buy the SPY at the green arrows, and buy the SDS (short SPY ETF) at the red arrows.  You would have made one heck of a return at the end of the year and would have beaten all the mutual fund returns.

Bottom Line:  If you would have put all your money in the $SPX and left it there all year, you would have a paltry 4.7% year to date return.  However, using the 50/50 strategy, you would have made 22.56% year to date.

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.

Ag equipment giant John Deere is today’s Company Invest focus.  Like Apple, Deere is another one of those excellent companies that always seem to find a way to be profitable, even in tough times.  Deere has a diversified product line and, when it needed to, cut costs to help streamline and strengthen the company.  It’s hard to believe that just only a year and a half ago, at the height of the financial collapse, this stock could be had at the generational low price of $25 a share.  I remember telling colleagues that DE @ $25 was the deal of the century.  Ironically, that same evening, Jim Cramer of CNBC said, “Don’t think about touching this stock until it goes down to at least $20.”  Well, those folks are still waiting for that $20 price and they may never get it.

COMPANY INVEST TECHNICAL ANALYSIS

DE is being featured today because the charts favor a short term rally and a great trading opportunity. Look at the 3 day RSI (“A” above), and look at what happened to the stock price the last 5-6 times it was this oversold.

“B” is the 50 day price moving average (@ $67.30).  This is a major area of support and this support will more than likely hold again.

“C” is the slow stochastic momentum indicator.  It has pulled all the way back to oversold territory (<20) yet the last time the stochastic hit 20, the stock was trading at around $62.  This is a higher low, which is a healthy occurrence during a stock’s uptrend.

Company Invest Bottom Line: Grab this stock at this level for a nice little swing trade using a stop somewhere below that 50 day moving average ($66 or so).  Start small with 50-100 shares so your loss is minimal if your stop is taken out, however, add on as many shares as you like if when is starts moving in your favor for a possible run to the $76 level or better.

The best investment over the past 10 years has been gold.  The good news is you don’t have to buy gold bullion to play.  There is an ETF (GLD) that tracks the price of gold.  How good of an investment has it been?  If you would have had all your money in the S&P 500 or equivalent over the past 10 years, you wouldn’t have made ANY money. In fact, you would have had a small loss.  However, an investment in gold yielded 400% during the same time period!

Gold moves opposite the dollar (ETF: UUP) as an inflation hedge.  UUP looks like it’s about to find some support after a nosedive since late August. And, although GLD will remain a wonderful long-term investment, it looks ready for a multi-week pullback.  Today’s chart is the weekly chart of GLD (so each candlestick represents one week).

COMPANY INVEST TECHNICAL ANALYSIS

“A” is the impressive uptrend the price has been in throughout 2010.  However, look at the MACD during the same time. The price keeps making new highs, while the MACD cannot. Looks like a powerful triple divergence setting up on the MACD.

“B” is the 50 day moving average. As you can see, GLD is trading WAY above both the 50 and 200, making it a very, very bullish investment.  The 13 day EMA (green line) is a good pullback target.  I would expect GLD to settle down to 120-121 (and possibly 114) over the next 2-4 weeks before another thrust up.

Looking at “C,” you can see that the buying volume has decreased for the past 3 weeks while the price kept going up.  This means the buyers are drying up for now and a pullback is imminent.

“D” is the downslope of the MACD and flat line of the histogram diverging with the price.

“E” is the 14-week RSI, which is a momentum indicator.  The “overbought” level of 70 has been breached. The last 3 times this happened, a selloff followed.

Company Invest Bottom Line: While GLD is a great investment, take some profits and look to load up again at the 120 level (or even 114). Another play is DZZ, a “short” gold ETF.  i.e., when the GLD goes down, DZZ goes up.