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Posts Tagged ‘Stock Market’

Dow 12,000…Now What? Part II

Friday, June 10th, 2011

Yes… the image you see is what Dow 12,000 looks like coming from the other (less desirable) direction. Today marks the sixth time the Dow Jones Industrial Average has crossed the 12,000 level since the first time on October 19th 2006 (no relation to Black Monday, October 19th 1987).     We felt this was an opportune time to revisit our post from January 27 of this year entitled Dow 12,000…Now What?’ and to share our sentiments on the current environment for the economy and the financial markets. 

The market has declined now for six straight weeks and the decline accelerated recently when a trifecta of negative indicators came in worse than expected.  These areas of weakness included housing, employment and consumer confidence.  As of this writing, the tech heavy NASDAQ composite has slipped into negative territory for the year as the technology, materials and financial sectors have declined the most over the last month.  Utilities, healthcare and consumer staples have held up best over the last several weeks.  (more…)

Where is the silver lining?

Tuesday, May 17th, 2011

-By Tim Dyer

One year ago today, the popular commodity Silver (as measured by the index fund: SLV) was exchanging hands at $18.50 a share. Fast forward to today and you will see those same shares of SLV trading at a little over $33.  That is a pretty healthy gain of 78% vs the 20% return of domestic stocks over the same period.  What is even more eye popping is not only where SLV sits currently but where it has been. The current price is down 30% from the recent high of  $48 that was achieved on April 28th. The move from $18.50 to $48 was a move of over 150% in less that a year!  Volume on this index traded over 180 million shares at the high as the Federal Reserve issued a statement that interest rates were destined to stay low in the near term. Is that a lot you ask? YES! The most widely traded index is the SPY (S&P500) which had volume of 120 million. SLV had traded 60 million more shares that the SPY index traded for the day! 60 million times $48 a shares is a LOT of money to change hands.

Silver has had a historic run, the chart has gone parabolic ( Wall Street jargon for “looks like a hockey stick curve”).  It is not surprising that investors have been scratching their heads wondering if this is a pullback or the start of a new downtrend.  The risk level is now elevated and investors should use caution if they want to allocate money to this asset.

The silver lining here: “The trend is your friend, till the bend at the end.” The move from here, up or down,  is not for the faint of hearted and protecting profits may result in lost opportunity cost but not loss of capital.

I Love You, Your Perfect, Now Change

Monday, February 14th, 2011

By Tim Dyer

In the spirit of Valentine’s day, I remember an off Broadway show I saw here in San Diego a few years ago. It was called I Love You, Your Perfect, Now Change. It was a witty and comical view of some of the stereotypical nuances of dating and relationships. The play’s tagline is “Everything you have ever secretly thought about dating, romance, marriage, lovers, husbands, wives and in-laws, but were afraid to admit.” (Wikipedia)   If we subtract dating from the above tagline and insert “investing” or “wall street” I think you’d get a similar comedy about what is known but afraid to admit.

I was reading a blog post by Bespoke Investment Group that illustrates this point regarding shares of  Ralph Lauren (ticker: RL). The post highlights an unnamed Wall Street analyst, who while looking at the companies fundamental data maintains an Underperform rating on the stock for over two years. During that same two year period the stock of Ralph Lauren appreciated over 175%.  It looks like the analyst finally threw in the towel last week, after the company announced earnings, rallying another 8% to reach all-time highs.  His recommendation finally changed to “Neutral”.  Wow, thanks for that!

 

Source: Bespoke Investment Group

Just like in relationships things are always more complex than they can appear. We need to make decisions and even in those rare times “admit we are wrong”.  Looks like the analyst  needed to give a little more love to a stock whose trend was up. I’m sure he could heed the advice of an old Broadway show regarding his recommendation, “I love you, your perfect, now change”.

 

Actionable Investment Ideas: COW

Monday, February 7th, 2011

Following up from last week’s post DOW 12,000…Now What?, where we asked what is an investor to do when the broad equity, bond, gold and energy markets have all rallied handsomely, we offer the following actionable investment idea.

COW is an exchange traded fund (ETF) that seeks to track the overall returns of the Dow Jones-UBS Livestock Total Return Sub-Index. The index is composed of two futures contracts, lean hogs and live cattle. We find it compelling and worth taking a closer look for several reasons.

Looking at the fundamentals, the demand for meat from the United States is strong. With the price of grain at record highs, many ranchers are choosing to take their “breeders” to slaughter resulting in a significant reduction to supply.   One of the themes that  investors try to capitalize on relates to the many opportunities that present themselves in a global economy as the quality of living improves in under-developed nations around the world. From infrastructure to technology, opportunities abound in these countries and a change  to a higher protein diet is one of many known improvements that consistently take place.  Accordingly, the increased demand for livestock may prove to be an ongoing driver of price for the years to come.  In fact, China has been experiencing a shift to beef accompanied by a reduction in supply and the US recently became a net exporter there for the first time.  Some of our other (in depth, proprietary) research suggest that there may be a lot of people in China.

Since the fundamentals for “COW” appear strong, we next look to the technicals and the chart puts us in a good moo-d. Unlike so many other segments of the markets, it is not up 75-150% over the last two years.  It isn’t in free fall either.  The long-term chart looks appealing since it was in a down-trend for some time, consolidated, turned upwards and remains in an uptrend with momentum.

We believe COW is a compelling opportunity with sound fundamental reasons to drive demand/price and attractive technicals.*  We will be watching it closely and feel that it may prove to be a timely opportunity with significant upside potential over the next six to eighteen months.

Super Bowl Stock Market

Friday, February 4th, 2011

This weekend will be the much anticipated and hyped Super Bowl 45 between two historic teams, the Pittsburgh Steelers and the Green Bay Packers. Now if you are looking for a full NFL breakdown of the game, head over to ESPN.com, but I think there is an interesting lesson that coincides with successful investing. 

Looking back at numerous preseason NFL polls, the Steelers and Packers were both in the top 10 with a high probability to make it to the Super Bowl. This is in sharp contrast to the Detroit Lions, Carolina Panthers or say, Cleveland Browns who have historically underachieved.  Those are just basic assumptions based on recent history.

So if I asked “Who do you think is going to be a better team next season – the Pittsburgh Steelers or the Carolina Panthers?” What would you say? On one hand, the Steelers were 14-2 this season and have won the Super Bowl in two of the last 5 years, while the Panthers finished a woeful 2-14 this year, only making the playoffs in 4 out of the last 15 years. Of course the Steelers.  Why?  Because they have put together a strong franchise.  They have proven game plans, elite players, and savvy coaches.

 The funny thing is the way investors typically invest.  They look to the “Carolina Panthers” stocks and sectors and bet on those in hopes that they have a miraculous turnaround and are amazed when the turnaround doesn’t happen overnight.  Focus on  “strong teams”  to invest, those that possess the same qualities of the Steelers and Packers, while avoiding teams that are in need of long term rebuilding and overhauls.

Enjoy the game!

-by Tim Dyer