Traders' Library

Brand New DVD by Jake Bernstein

Jake Bernstein was one of the most popular presenters at our forum; he received great reviews from the attendees.  So we had to get his new DVD out ASAP.  Take a look at a clip from his session.

His DVD, The Profitable Truth About Seasonality: Breaking Trading Myths that Cost You Money, is available for Pre-Order now!

 

3 Ways To Play Sovereign Debt Crisis

3 Ways To Play Sovereign Debt Crisis

As the sovereign debt crisis continues to take its toll on Europe and fails to linger away, currencies continue to deteriorate, government bond yields continue to rise and stock markets remain volatile.  Depsite the fear that this crisis has brought on, there are four ways one can play it.

Japan

Many believe that the next country to be hit by the crisis is Japan.  Traditionally, the Japanese Yen and Japanese bonds have been a safe haven in times of uncertainty; however, this is no longer the case.   According to a study conducted by Moody’s, Japanese government debt is estimated to be more than 200 percent of the nation’s gross domestic product (GDP), which puts limitations on the government’s ability to spend and implement additional fiscal stimulus plans to stimulate a much battered economy. 

In regards to interest rates, the Bank of Japan needs to keep interest rates at or close to zero and continue its asset-purchase program to curb the effects of deflation and worsen the overall health of its economy.  To make things even more challenging in the Asian nation, Japan’s demographics are highly unfavorable.  The Japanese population is aging and shrinking, which eventually will result in the labor force retiring and cashing in on government bonds, which is likely to result in the Japanese government borrowing more at higher yields from more prospering countries.  

With the future looking relatively gloomy for Japan, some possible plays include the ProShares UltraShort MSCI Japan (EWV), which aims to seek twice the inverse daily performance of the MSCI Japan index.  A second play includes the ProShares UltraShort Yen (YCS), which allows one to bet against the Japanese Yen.  EWV closed at $47.29 on Tuesday and YCS closed at $20.65 on Tuesday.

Corporate Bonds: A New Safe Haven

By Kevin Grewal, Editor at www.SmartStops.net

As companies continue to outperform Wall Street’s expectations, bonds issued by non-financial companies are the most expensive they have been since the start of credit debacle and investors are starting to shun away from Treasuries turning to corporate debt.

According to Bank of America Merrill Lynch Index data, Chevron Corp.(CVX) and Johnson & Johnson (JNJ) led a drop in U.S. industrial company debt yields to 130 basis points more than similar-maturity Treasuries.   Additionally, the overall U.S. corporate bond market is up 1.3% this month and is expected to post its fourth straight month of gains.  In comparison, U.S. Treasuries have returned a mere 0.4 percent for the month, after witnessing a decline of nearly 0.85 percent the month before. 

Another indicator that corporate bonds are gaining appeal is overall corporate credit risk appears to be declining.  The Markit CDX North America Investment Grade Index Series 14 continues to increase as it gained 1.2 basis points, reaching a level of 89.4 yesterday.  The index is known to be used as hedge against losses on corporate debt or a way to bet on corporate creditworthiness.  Increases in the index generally indicate deterioration in investor confidence and decreases in the index indicates improving investor confidence.  Overall, the consensus behind corporate debt is that it is likely to outperform credit-default swaps. 

Four Reasons Google Is Attractive

By Kevin Grewal, Editor at ww.SmartStops.net

Despite the continued hype behind its competitor’s innovative products, and its withdrawal from China, Google (GOOG) may be worthy and for good reason.

The search engine giant’s emergence into the mobile device world through its Nexus One and Android software stack which includes an operating system has been a hit.  Recently, Google announced that 60,000 cell phones equipped with Android are shipping on a daily basis.  Additionally, advertising on the Android continues to increase.  According to advertising firm AdMob, U.S. ad impressions on Android devices have increased from 27% in November to 42% in February and worldwide ad impressions have increased by 2%.  What makes Google even more appealing on this front, is that it appears to be taking advertising share from Apple’s iPhone, which has seen declines of ad impressions from 55% to 44% during the same time frame.  Furthermore, Google’s mobile phone can be found on Verizon (VZ), Sprint (S), AT&T (T) and T-Mobile’s platforms.  

A second factor that is likely to support Google’s strength is its upgrade to its online package of word processing and spreadsheet programs, Google Docs.  The changes, which were introduced on Monday, include several editing tools for word processing and quicker ways to fill cells in spreadsheets, which will enable it to directly compete with Microsoft (MSFT) Office.  The beauty behind Google Docs is that all of its applications are hosted over the Internet, whereas Microsoft’s software is typically installed on individual’s computers or workspaces.

Another factor likely to bolster Google’s attractiveness is the recent talks about developing a tablet device based on its Android operating system software.  The New York Times recently reported that Google has been working with numerous hardware makers to construct the perfect tablet device to compete against Apple’s iPad and the Amazon (AMZN) kindle. 

3 Reasons Gold Is Worthy

By Kevin Grewal, Editor at www.SmartStops.net

Recently, gold had a technical breakout surpassing $1,150/ounce and history suggests that a pullback is likely to follow. Despite this, there are three reasons to consider adding the precious metal to a portfolio.

First, gold is a traditional hedge against inflation and the U.S. dollar.  A combination of massive stimulus spending and excess printing of dollars by the government is ultimately going to lead to inflation and a weak dollar.  With the inverse relationship between gold and the dollar, gold is likely to reap the benefits of the inevitable.

Second, the precious metal offers a good method of asset diversification.  Gold, as with most other commodities, is uncorrelated to equities and bonds, meaning that gold generally reaps the benefits when traditional equities and bonds are falling.  The primary reason behind this lack of correlation is because gold prices are not driven by the same factors that drive the performance of other assets. 

Gold is a nonearning asset whose demand is far more diverse than that of many other assets.  Additionally, the demand for gold is driven by discretionary spending from the jewelry sector, investment demand and industrial demand; whereas demand for most commodities is primarily driven by industrial, non-discretionary demand.

Crude Oil Likely To Gain Ground

By Kevin Grewal, Editor at www.SmartStops.net

Bigger than forecasted inventory gains caused crude oil to drop two days in a row, however, there are plenty of reasons to suggest that the highly sought after commodity is likely to appreciate and potentially hit the century mark.

Over the past six months, black gold has been oscillating back and forth in the $70-$85 range and according to an analyst at Lind-Waldock, the commodity is at the uppermost point of its range.  To take it a step further, crude’s pattern suggests that it will break away from its high point and could potentially add an additional $15 per barrel.

On the supply side, the recent increases in crude stockpiles will likely dissipate in the coming months.  The driving force behind this is relatively flat production.  When the global financial meltdown put a damper on demand for crude, OPEC cut production levels to reach an economic equilibrium point.  Now that both developing and developed nations have emerged from the Great Recession and expected growth in global GDP is set to reach 4.5%, the demand for crude will likely be bolstered, resulting in a supply and demand imbalance which will slowly eat away at excess inventories. 

ETFs For Currency Debasement

By Kevin Grewal, Editor at www.SmartStops.net

As developing nations around the world have turned to government funded stimulus packages to ignite their economies, a nation’s debt and currency debasement should be of much concern. 

Most recently, a study indicated that the U.S. national debt has ballooned nearly 12 fold over the last 30 years.  Additionally, over this same time span the ratio of debt to GDP has gone from nearly one-third to 85%.  During this time of exploded debt, GDP has only expanded 5.3 times, indicating that debt is growing at twice as fast as the U.S. economy.  Similar trends have been seen in Europe, in particularly Greece, Spain and Portugal.

Some concerns of this exponential growth in debt include hyperinflation, as a result of printing more currency, a decline in the value of a nation’s currency, better known as currency debasement, and increased costs of borrowing, which make it difficult to chip away at deficits.

Some experts suggest that this trend in the developing world, in particularly the United States, is likely to continue as nations have become accustomed to borrowing extraordinary amounts of money and printing extra currency to stay afloat.  If this is the case, than inflation will be inevitable and currency values will diminish. 

Some possible ways to protect against currency debasement and increases in inflation include the following: 

Japan Could Pose An Opportunity

By Kevin Grewal, Editor at www.SmartStops.net

The world’s second largest economy has been struggling to get back on its feet and emerge from its worst recession since World War II. However, recent data suggests that Japan’s economic recovery efforts are finally starting to reach households and its economy could finally be starting to stabilize paving the road to opportunity. 

According to Japan’s Ministry of Economy, Trade and Industry, consumer demand and spending has been on the rise.  Higher demand for automobiles, energy and machinery has pushed retail sales up in February, marking the second straight month of increases, and nearly 4.2%. 

In fact, despite negative publicity and suspension of U.S. production for five days, the world’s largest automaker, Toyota Motor Corporation (TYM), boasted an increase in production in nearly all of its regions.  In fact, Toyota boosted output 83% from a year earlier and February was the seventh straight month the automaker has witnessed jumps in production.

This trend has further trickled down to automakers Honda Motor Company (HMC) and Nissan Motors.  Honda is boasting production increases of nearly 49% from a year earlier and Nissan’s production is up nearly 72%. 

Anticipate Entry/Exit and Risk/Reward

An excerpt from Intra-Day Trading Tactics course book from Greg Capra.

Chapter 4

Moving Average Concepts: Smoothing Out the Trend

Anticipate Entry/Exit and Risk/Reward

Support and resistance levels help you anticipate when and where the actual setup occurs and aids you in timing your decisions better. Finding the entry/exit must involve checking these levels, and the key is found in proximity between moving averages and price. Figure 4.5 demonstrates this.

Always look to the left of price and observe the moving average to find actual support or resistance points.  It’s going to help you anticipate entry and exit points and risk/reward.  The entry point is found at the very end of the chart, following the correction from the first point of resistance. Note the horizontal arrow showing these two points; by the pattern in the price and the trend of the two MAs, you can see that this second rise is likely to be overcome.

The distance between moving averages defines potential reward levels. In other words, you can interpret this pattern by assuming that the 200-MA is a future price potential level, and, by the same argument, that your risk is found below the point where COG occurs. These observations also work in reverse. If you were to flip these patterns, the entry/exit and risk/reward would also flip and take the opposite points.

Pharma ETFs Likely Winner Of Health Law

By Kevin Grewal, Editor at www.SmartStops.net

Now that the historic Health Care Bill has been signed into law by President Obama, drug makers are likely to reap all the benefits and for good reason.

The overhaul of the healthcare system will likely add to the revenues of Big Pharma companies.  From a mere quantity perspective, the reform is expected to provide insurance coverage to more individuals, hence giving more people the ability to pay for prescription medication and pushing sales volumes up significantly. 

From a competition perspective, it appears that the pharmaceutical sector has won nearly a decade of protection against generic-like competition for biotech drugs.  Additionally, the law does not contain any measure which bars the sector from paying generic drug makers to delay the launch of less-expensive alternatives; in essence, cash heavy pharmaceutical firms have the ability to pay off more cost effective competitors who manufacture “knock-off” alternatives and control the prescription drug market.

Retail Remains Questionable

By Kevin Grewal, Editor at www.SmartStops.net

As the economy starts to recover and consumers start to come out of their shells, retailers have reaped the benefits of extra spending.  Some are even taking on additional efforts to retain these customers and their spending habits; however, the likelihood that these trends are sustainable is unclear.

According to the most recent report issued by the Commerce Department, a range of retailers boasted month over month gains, enabling the sector as a whole to show seasonally adjusted increases of 0.3% in February over the prior month.  Additionally, a Thomson Reuters index of 28 retailers suggests that sales at stores open at least one year, rose 4% in February compared with a year ago.  

Of all the retail sub-sectors, electronics and appliances saw the largest gains followed by groceries.  Despite wary consumer sentiment over the health of the economy, illustrated by the recent decline in the University of Michigan/Reuters consumer-sentiment index, which registered at 72.5, some retail experts suggest that consumers see the light at the end of the tunnel and are starting to upgrade their appliances and adding additional items to their shopping baskets at the checkout line. 

Gold Likely To Regain Footing

By Kevin Grewal, Editor at www.SmartStops.net

Over the past week, gold prices have been teetering in positive and negative territory and somewhat uncertain; however, there is much confidence that the price of bullion will increase this year.

One factor that is likely to support the price of the precious metal is the fact that central banks around the world have been hoarding onto the commodity and reluctant to sell it.  In fact, some bullion analysts expect the Central bank of China, Russia and India to continue to gobble up gold as they move away from sovereign bonds and seek safer investments. 

A second factor likely to support the price of the yellow metal is the expected increase in global demand for base metals.  There is an indirect correlation between the two types of metals, and in general as the prices of base metals increase so do those of gold.  Thirdly, investor appetite for safe-haven tools is expected to continue to rise as sovereign debt issues in Europe, in particularly Greece, continue to make headlines and remains of concern.   

Tech ETFs Likely To See Boom

By Kevin Grewal, Editor at www.SmartStops.net

As the economy starts to show signs of prosperity and tries to mend the wounds caused by the recession, the technology sector is likely to boom.

For starters, the sector appears to have strong fundamentals and is relatively cheap as compared to other sectors.  In fact, as a whole, the sector boasts a projected five year PEG ratio of 1.1, which indicates that value on the expected growth of the sector is prevalent.  In general, a lower PEG translates to higher value because an investor would pay less for each unit of earnings growth.

Additionally, big technology companies are known to hoard cash, which makes it that much easier to expand into new businesses and hold onto competitive advantages.  With excess cash, these companies are able to take on risk without being at the mercy of a tight credit market. 

According to a recent study by the Wall Street Journal, tech giants Apple Inc (AAPL), Oracle Corp. (ORCL), Google (GOOG) and Microsoft (MSFT) along with six other companies have accumulated a whopping $68.5 billion in new cash over the past two years and are putting it to use.

ETFs To Play The Jobs Bill

By Kevin Grewal, Editor at www.SmartStops.net

In an attempt to ignite the labor markets, Congress passed a $17.6 billion measure and sent it over to President Obama to sign into law, paving the path of opportunity in some sectors.

With unemployment lingering around 9.7%, spring break right around the corner and Congressional elections looming at the end of the year, the clock was ticking and policymakers decided to agree on the Job Bill. This Job Bill is expected to exempt businesses from paying the 6.2% payroll tax on newly hired employees who have been jobless for at least 60 days and offers a $1,000 tax credit to businesses who keep the newly hired workers employed for at least a full year. 

In addition, the bill provides an extra $19.5 billion, through subsidized state and local construction bonds, to shore up road and bridge construction and extend the federal highway program through the end of the year.  This extra funding could potentially lead to an increase in domestic demand for raw materials, such as steel, industrials and transportation services related to getting these materials to desired destinations.

Financials Could Feel The Heat

By Kevin Grewal, Editor at www.SmartStops.net

Although the future of reform legislation remains unclear, a recent bill proposed by Senator Christopher Dodd could potentially hinder the financial sector and its exchange traded funds (ETFs).

This new proposed reform, which is expected to be forced onto the Senate Finance Committee as early as next week, aims to give the Federal Reserve extraordinary control and power over large financial institutions.   More specifically, it would give the Fed the power to break up any large financial institution which could potentially jeopardize the stability of the financial system. 

Additionally, the bill will give the Fed authority and control over the nation’s largest bank-holding companies, those with assets of $50 billion or more, and be the focal point of oversight and regulation over mortgage-related businesses and non-bank financial firms like insurance companies.  The bill specifically aims to regulate risky financial instruments, like mortgage-backed securities. 

Another caveat of the bill includes Federal Deposit Insurance Corporation (FDIC) oversight over state-chartered banks with less than $50 billion in assets.

ETFs To Play Smartphone Growth

By Kevin Grewal, Editor at www.SmartStops.net

As consumers start to loosen the grip on their wallets and search for a solution to fuel their appetite for innovation, the technology sector is likely to reap the benefits.

The technology sector as a whole is relatively broad based.  Of all the sub-sectors included in the sector, those which are involved, either directly or indirectly, with smartphones will likely benefit the most.  According to a research study, the surge in global demand for phones like the Apple (AAPL) iPhone and the Google (GOOG) Nexus One will soon push sales of smartphones past those of personal computers.  In fact, sales of smartphones as a whole are expected to triple over the next two years, heading towards the billion-unit category.

Some suggest that this surge in demand for these mobile devices is primarily driven by the fact that they offer many of the same benefits and functions of personal computers from the palm of one’s hand.   In fact, most of these phones, such as the iPhone, enable users to download applications, or “apps”, directly to their devices which enable them to do everything from read the latest news published on the New York Times (NYT) to utilize social media by posting new comments on their Facebook pages.  

Playing the Amplified Energy Markets

By Kevin Grewal, Editor at www.SmartStops.net

As the global population continues to expand and purchasing power in developing nations increases, the world’s appetite for energy is likely to amplify painting an opportunity for investors.

According to the Energy Information Administration (EIA), average consumption of crude oil is expected to increase to 1.5 million barrels per day, up nearly 300,000 barrels per day from its previous forecast of 1.2 million barrels per day.  This uptick in demand is primarily being driven by expected economic growth in the Asia-Pacific regions and the Middle East as well as a more optimistic domestic economic outlook.

Additionally, the EIA has stated that it expects the average price of a barrel of crude oil to average a price well north of $80/barrel, which is being supported by an increase in demand and the decision by OPEC to curtail any increases in production.  These price pressures has further lead the EIA to forecast the average price of a gallon of gasoline in the U.S. to hover around $2.35/gallon for 2010, an increase of nearly 21% from a year earlier. 

Three Tasty ETFs To Watch

By Kevin Grewal, Editor at www.SmartStops.net

As consumers around the world continue to opt for choices that don’t break the bank, some fast-food eateries remain attractive and for good reason.

Most recently, the most well known fast food franchise in the world, McDonalds (MCD), reported that same stores sales are on the rise.  The retailer stated that sales at restaurants open for at least one year increased 4.8%, marking the largest one month gain in nearly one year.  Domestically, analysts suggest that the gains may be attributed to McDonald’s dollar menu, which recently expanded to include breakfast items and promotional items boosted by the Olympics, and is expected to continue to gain share against its competitors.

To further give the Oak Brook Illinois-based fast food giant a boost, international markets witnessed an exceptional uptick  with the Asia Pacific, Middle East and Africa regions seeing the highest gains  of over 10%.  Additionally, sales in Europe grew by more than 5%, primarily driven by jumps in France and the United Kingdom.

A second fast food chain that has been performing well is Yum Brands (YUM).  This popular fast food parent company which includes Taco Bell, Pizza Hut and KFC offers cheap food and has a large store base which makes it easy for consumers to reach.  Additionally, YUM has beaten Wall Street’s expectations in each of the last four quarters and is trading around 14 times earnings making it relatively undervalued.   Lastly, YUM has the largest fast food chain presence in China which is expected to be the fastest growing consumer market in the coming year.  

China Driving Fate Of ETFs

By Kevin Grewal, Editor at www.SmartStops.net

When it comes to the global economy, China continues to be the talk of the town.  To take it a step further, the nation, expected to witness the largest economic growth in 2010, is said to be driving the fate of exchange traded funds (ETFs).

According to a recent Securities and Commission filing by the Chinese Investment Corporation (CIC), the sovereign wealth fund holds north of $9 billion in U.S. equity investments.  The detailed filing further indicates the following allocations:

· $254 million to the iShares S&P Global Materials (MXI)

· $235 million to the Select Sector SPDR TR SBI Int Energy (XLE)

· $207 million to the iShares MSCI EAFE Index (EFA), which holds BHP Billiton as one of its top holdings.

· $156 million to the SPDR Gold Trust (GLD)

· $116 million to the Market Vectors Gold Miners ETF (GDX)

· $107 million to the iShares S&P Global Energy (IXC)

· $83 million to the Materials Select Sector SPDR (XLB)

· $79 million to the U.S. Oil Fund (USO)

In addition to these allocations, the CIC has allocated $6.2 million to Anadarko Petroleum (APC), and $5.2 million to Chesapeake Energy (CHK), which are holdings in XLE and IXC and indirectly influence their performance.

Real Estate ETFs May Not Be As Stable As You Think

By Kevin Grewal, Editor at www.SmartStops.net

Over the past year, the real estate sector has been on somewhat of a roller coaster ride as the federal government has poured billions dollars worth of incentives its way to add stability; however, recent data indicates the sector is far from being stable. 

Most recently, the Commerce Department indicated that new home sales slumped to an all-time low and the National Association of Realtors stated that sales of previously owned homes unexpectedly dropped 7.2% in January, after witnessing a record decline in the month before.  This resulted in overall pending home sales to see a decline of 7.6% in January. 

Despite the extension of government funded programs like the first-time homebuyer tax credit, factors such as a weak job market, stricter lending standards, higher fees charged by lenders and an overall weak consumer sentiment over the health of the economy are taking its toll on the sector.

The Federal Reserve has pushed lending rates to near record lows, but many are unable or unwilling to make use of these rates.  In fact, a recent study indicated that new refinance applications were at their lowest levels over the past year.  The primary reason behind this is that homeowners just can’t get refinancing because they have negative equity in their homes and no collateral to back the value of their homes and the pain of falling home values doesn’t seem to be easing.