Tuesday, May 29, 2012
Heavy is the head that wears the crown - Status of the US Stock Market
The US market is one of very few trying to maintain a long term uptrend Bull cycle around the world. Most major world indices are in decline, only Germany and London are also trying to hang in of the major indices.
Will the rest of European problems continue to spillover and weigh down our markets in finally cause a flush? Or… will the US stay strong and lead higher amidst the turmoil?
The threat of debt repudiation resonates throughout Europe and has major headwinds for the Banking industries and otherwise… and it may be hard for the US market to gain much traction until we find out if there are any resolutions near term.
The Technical picture is mixed. The drop to 1292 from 1422 highs created a 38% fibonacci retracement of the October lows at 1074 and the March highs of 1422. This is typical for a 4th wave correction after 3 waves of rally. In addition, we had Mclellan Oscillators at extreme lows coming into this past week, investor sentiment running at multi month lows not seen since last summer, and many other oversold indicators.
This led to a 36 point bounce early in the week from 1292 to 1328, but it had trouble holding into the end of the week. I was looking for a strong close over 1322 to help confirm the downtrends lows were in place at 1292, but we did not get that just yet. Near term we have to see a very strong bounce this coming week over 1330 on a closing basis or the market will be at risk of a rising bearish wedge and then another large downleg to new lows since the 1422 highs. Therefore, Tuesday and Wednesday in my opinion will likely immediately tell us which way this market is about to go.
We have a few outlooks that are valid. One is that we had an ABC correction from 1422-1292 and we are in the early stages of a Major Wave 5 up bullish pattern. The other is we had 3 waves down, this is a 4th wave bounce, and a 5th wave to new lows on the move is next. Again, early in the week will be key in my opinion.
Below are two charts. One shows the Weekly SP 500 pattern and prior pivot points where downtrends halted and reversed. In each case the candlestick pattern for the week was inside and above the prior weeks lows and closed higher (White Candlesticks). This also happened this past week, but I again would like to see higher closing levels early in the week to confirm.
The other chart is a daily chart showing the 1330 barrier we would like to see crossed to avoid a rising bearish wedge pattern.
Friday, May 25, 2012
Don't Invest Another Dime Before Reading This Free Report at Least 3 Times
Let me tell you about the page-turner of a report on U.S. and European markets I read three times today. You shouldn't invest another dime in the U.S. or in Europe without reading it three times, too. Learn more about the new free report here.
As a financial publisher, literally dozens of investment reports come across my desk each quarter, and only occasionally does one capture my attention for more than a couple of minutes.
Those that do touch a nerve and have me eagerly turning each page are rare indeed. But when I find one, I read it at least three times -- I want to ensure I pick up every last morsel of insight.
Today, I found just such a page-turner, and I want you to read it, too.
Elliott Wave International, a leading provider of technical analysis to individual investors and institutions worldwide, has just made its May 2012 Elliott Wave Financial Forecast available -- for free. This is rare: As one of its flagship publications with paying subscribers around the globe, EWI almost never gives away the Financial Forecast at no charge.
With Europe in turmoil, U.S. stocks retreating and the mainstream financial press totally on the wrong side of the trend (as usual), EWI's big-picture forecast -- though dire -- is actually quite refreshing to read. In trademark fashion, EWI tackles the issues that everyone else ignores, and they explain the future using straight-talking language I appreciate.
The folks over at EWI have put together a webpage to allow you to download this special issue for free, but fair warning: It's only available until Thursday, May 31.
I could describe the report for you here, but the webpage EWI put together speaks for itself. I encourage you to follow the link below to go there, read about the report and then download it for free.
Click here to learn more and download EWI's new 10-page May 2012 Elliott Wave Financial Forecast here -- it's free.
Wednesday, May 23, 2012
Long time readers know that I have been and remain bullish on gold and gold stocks in the longer-term. However, the reasons why I believe gold and silver will perform well in the longer-term are a bit different than what many economists and pundits are expecting.
I am a contrarian by nature. I generally try to do the opposite of the crowd in every situation I find myself regardless of whether I am in a movie theater or trading options. Before getting into the gold and gold miners analysis, I thought I would explain my position publicly to readers. I do not consider myself an expert economist, but I try to read those who many consider to be experts looking for similarities in their viewpoints and expectations.
The herd mentality exists in financial markets and a similar behavior exists among economists. Most economists in the mainstream media today tend to be Keynesians or neo-classical economists. Both viewpoints are generally accepted as the correct interpretation of economic and monetary policies by academia.
However, the academic world can actually reduce open thought through ridicule and persecution. In the world of academia the herd is right, until someone proves that they are wrong using logic based reasoning.
Very similar to political ideologies, economic ideologies are deeply rooted. Paul Krugman is a great example of Keynesian economist. Like it or not, the majority of economists believe his views are correct regardless of whether they are based on fact, history, or dare I say “common sense.”
This leads me to the reason why precious metals and commodities in general may be approaching a major bottom and the potential for a monster rally. The reasoning stems from the fact that across the world central bankers generally share the same views as Paul Krugman. They believe that the modern finance system does not need gold and that fiat currency is the answer even though history argues in their face across multiple millennia.
Most economists and financial pundits believe that sovereign debt is going to bring down the economy and they may be correct. Many believe that the debt will unleash a massive deflationary spiral that will consume fiat valuations, specifically on risk assets and debt obligations.
I do not necessarily disagree that this is a likely outcome, but what concerns me is the number of people that believe this is true. This is the herd’s idea and as I have said many times before the herd is rarely right. This time may be different, although it rarely is. For inquiring minds I offer a rather different potentiality.
What if the debt crisis causes a totally different outcome that very few economists envision? What if they follow Dr. Krugman’s ideas and create massive amounts of debt to stimulate the economy while printing vast quantities of fiat money to prop up failing financial institutions? Clearly increasing debt levels and debasing the currency do not imply a long term positive scenario.
Central banks do not have a strong track record when it comes to reducing liquidity or increasing liquidity at the appropriate times. Thus these actions are likely to facilitate some sort of crisis in the future whether it is a result of runaway deflation or inflation.
I believe that should a deflationary crisis caused by massive debt levels and diminishing economic strength present itself, central bankers around the world will behave exactly the same way. They will act simultaneously and through dovish monetary policy central bankers will flood the world with massive sums of freshly printed fiat currency with the intent to print away issues with a liquidity induced risk-on orgy.
Should that be their ultimate choice, risk assets will rally sharply higher initially. Paper assets like stocks will produce huge gains in a short period of time while supposedly safe assets such as Treasuries would likely arrive at negative interest rates across the yield curve in nominal terms. The next phase is the scary part and why I am bullish long term of precious metals specifically.
The devaluation of fiat currencies simultaneously around the world will result in a monster economic crash when the masses realize that the majority of the major worldwide currencies are becoming worth less and less. The resulting crash would be caused by the opposite force of runaway inflation while the herd mentality that anticipates a deflationary debt spiral espoused by most experts and pundits would be proven materially false.
Under those circumstances, precious metals will be the true safe haven. Gold and silver will prove to be a true store of wealth that they have been for centuries. So many so-called experts fail to recognize that gold and silver are currencies. Yes they have industrial uses, but gold and silver represent the last unequivocal bastion of wealth preservation against the constant debasement procured by central bankers and their minions.
Under the scenario whereby central bankers flood financial markets with cheap, freshly printed fiat currency one would expect other essential commodities such as oil to also perform well. Furthermore agricultural based commodities would also flourish under those economic conditions. Investors would be in much better fiscal condition owning things that they could hold in their hands versus stocks or bonds.
I posit this potentiality not to say that this is exactly what is going to happen, but to challenge readers to open their minds. The crowd is usually wrong. The central bankers and most economists generally share the same viewpoints and their behavior is literally a giant group-think.
Is it possible that they are a herd which ultimately will be proven wrong? Will the herd mentality of economists and central bankers cause a massive currency crisis as they attempt to stem the tide of a deflationary debt crisis?
The two possible outcomes go hand in hand. I do not know what is going to happen, but neither outcome in the longer-term is especially optimistic. Should either scenario come to pass, the human condition will likely be threatened by a decrease in the standard of living across multiple developed countries and ultimately the threat of revolution and military action on a scale not seen in several decades could eventuate.
Clearly I have simplified the issues at hand presently for ease of reading, but the ultimate endgame will likely be one or a combination of both a debt crisis and a currency crisis. They will likely occur in close proximity to one other in terms of time, but the precise outcome will likely be different than what is commonly expected.
Regardless of which scenario occurs, precious metals will eventually be sought for their protection against the constant devaluation of fiat currencies by central banks around the world. For this reason, I remain a long term precious metals bull. With that said, why don’t we take a look at the recent price action in gold, silver, and gold mining stocks shown below.
A lot of writers have stated that gold has bottomed. I am not totally convinced, however I do believe that gold is in a bottoming process. For me to get completely in my gold bull suit I would need to see price action exceed the key resistance trend line shown below.
Gold Futures Contract Daily Chart
As can be seen above, until we see price push through resistance I will remain cautious. I would also point out that the last two times gold found bottoms near current prices the bottom forming process took several weeks to complete.
I do not expect for gold to form a V shaped reversal. In fact, lower prices in the short term would help drive the bullish case for the longer term. Bottoms take weeks to form and can be very dangerous trading environments where active traders get chopped around.
Silver is very similar to gold in that it appears to have formed the beginning of a possible bottom. Bottoms are generally not formed in one day. During the recent selloff, silver showed relative strength against gold. It is important to acknowledge that silver has yet to test the key lows that should offer support.
Because of this divergence in these two precious metals, I continue to believe that gold may see more downside again before a much stronger rally begins to take hold. Similar to gold, the descending trend line offers a great resistance level where traders can flip from being short-term bearish to longer-term bullish if the resistance line is penetrated. If we see silver carve out multiple daily closes above the resistance trend line paired with strong volume, I would anticipate that a bottom has formed and silver prices will have an upward bias. The daily chart of silver is shown below.
Silver Futures Contract Daily Chart
As expected, the gold miners have shown relative strength recently. The miners were just absolutely massacred during the recent selloff in equities and precious metals. However, gold miners similar to precious metals have a major descending trend line which they have already tested today. If the gold miners can push through resistance a large scale rally could play out. The daily chart of gold miners is shown below.
Gold Miners (GDX) Daily Chart
In addition, if readers look at a long term GDX price range that dates back to the 2009 lows the recent pullback is almost precisely a 0.50% Fibonacci Retracement. Similar to gold and silver, I would expect to see the gold miners pull back a bit here before pushing through major resistance. We may be setting up for a possible major bottom in precious metals and gold miners in the near future. Only time will tell.
In closing, remember to keep an open mind with regards to the future. The more often you hear the same message coming from financial pundits and experts, the more cynical you should become. Both potential scenarios will likely not end well. The question is whether the reason for the crash is deflation, inflation, or a combination of both scenarios. Regardless of the outcome, the long-term future for precious metals remains quite bright.
Click here to review more Market Trend Forecasts
Tuesday, May 22, 2012
Before I tell you about this little system that you can pick up today, it's important that you know that it will only be there for a short time. It's called the "Pip Key" system. A few people who were on Piet Swart's webinar last week got an advanced copy, and they are going nuts over it. More about that in a minute.
Most people don't have time to learn a system.
Did you know that the most common problem people have these days is that they just don't have time to learn how to trade, or spend hours in front of a computer screen?
In fact, most people are totally turned off by complicated systems that you need hours of email support back and forth to learn. Here's the good news - a small time farmer who has made the first truly simple Forex system that performs better than any other system out there.
His name is Piet Swart and he knows what it's like to go through hard times. It wasn't that long ago that he lost his farm and they called him a bad risk. Those same people now call him up every day asking for advice about what to trade and how to trade it.
The best way to get to know Piet is to go to his website and watch his story. The video is called "A Farmers Story". It's probably the best time you could spend in the next few minutes.
Piet's also released a brilliant trading system that's simple to learn and comes with its own MT4 indicator that makes the system easy to use.
4 hours of absolute Gold (Value priceless)
On the same page, you will also see over 4 hours of webinars that he recorded especially to help traders. I think his true character shines through in these talks, and I highly recommend you watch them and take notes.
There are 3 places in Piet's "Map Room" up for grabs.
Piet has a very special private member's area he calls his "Map Room". This is where he and a few handpicked people map out trades according to Piet's system. You work side by side with Piet and everyone in that room is making a killing.
Would you like to know how he does it?
Well, just try the Pip Key system, watch his life story video, or watch one of his webinars. Basically just engage with Piet and leave a comment. He will pick 3 people whom he believes have said something meaningful and invite them to join him to learn the "Forex Income Map" system and members area.
Nobody has ever made Forex trading this simple. I think there is a genius in the way he trades, and you can't argue with results! Get your copy of Pip Key here:
Monday, May 21, 2012
I don't have a buy or sell stock pick this week as I usally do. Stocks are oversold and look like they could continue lower with the US Dollar heading higher for the time being. Instead this week I've got information on the Facebook IPO from Morningstar.
Facebook's debut has unsurprisingly been one of the most talked about tech IPOs in years. The sheer size of the offering, the ubiquity of its service, and the lack of growth elsewhere in the market has led to a very high level of interest from investors of all stripes. But is this excitement warranted?
To find out, we've cut through the hype and taken a deep dive into the company's fundamentals and its competitive advantages. The bottom line for investors, according to Morningstar's Rick Summer, is that Facebook is a wonderful wide-moat business. But a choppy growth trajectory will likely send shares lower at some point providing investors an entry point at a much more attractive valuation.
Facebook a Future Advertising Force
Morningstar's Rick Summer sees Facebook and Google dominating the Internet advertising market as Facebook finds better ways to monetize its massive user base.
Facebook Poised for Massive Revenue, Cash Flow Growth
Facebook's trove of data on its users is its ace in the hole as it races to develop new revenue streams.
How Facebook Dug Its Wide Moat
Facebook has a wide economic moat based on its 'social graph,' communications layer, and competitively advantaged platform for brands, application developers, and advertisers.
Full Facebook Analyst Report
Facebook has a bright future, but revenue growth and profits may stumble in the near term.
First Day Pop Doesn't Spell Long-Term Success for IPOs
Recent tech IPOs have had great first days, but performance has lagged since then, says Morningstar's James Krapfel.
How Facebook Will Sneak Into Your ETFs
Facebook will be added to the holdings of several of these exchange-traded funds soon. Other funds, however, won't be graced with the presence of the social-networking giant for weeks--or months--to come.
4 Things Not to 'Like' About the Facebook IPO
Facebook has a solid business right now, but keep these weaknesses in mind before getting too excited.
Facebook's $100 Billion Valuation May Not Be Heroic
It will be a volatile ride, but Facebook's strong competitive advantages and growth opportunities could be the recipe for a hefty valuation, says Morningstar's Rick Summer.
Investing in Facebook: An IPO for Fools?
Investing in the Facebook IPO might not get you the returns you are looking for in the long run.
Huge Facebook IPO, Small Impact on Funds
Facebook's IPO will be huge for company insiders and early investors, but it probably won't be as much a boon for mutual fund investors.
Nygren: Taking a Pass on Facebook
There are plenty of other more attractively priced businesses in the market right now, says Oakmark's Bill Nygren.
Click here for a free trial of Morningstar Investment Research and in depth analysis of the Facebook IPO along with the rest of the equities markets.
Thursday, May 17, 2012
“If you’re trading under $500,000, this market glitch could deliver 25% a MONTH in passive income”
Wall Street firms are too big to capitalize on this, but it’s perfect for the small investor who wants passive investing income.
Click here now to see the details
On its face, 25% a month is an outrageous return.
That kind of return is totally outside the realm of possibility in traditional investing.
This is not a traditional opportunity.
Check this out: For the last 18 months or so, the research team at Market Authority has tracked a very strange, very powerful market glitch. The strange glitch discussed in today’s presentation caused one very specific group of stocks to move an average of 44% in a SINGLE DAY when the glitch triggered.
In 19 out of the 20 times this glitch triggered during that time period, it caused the stock to go up in price.
In fact, when the glitch triggers, it causes the stock it hits to go up an average of 480%—often in a matter of weeks.
Market Authority took this remarkable market phenomenon—a phenomenon too small for major Wall Street firms with hundreds of millions of dollars to invest in—and found a way to turn it into a passive income.
Watch this video and you’ll see why 25% a month is actually a conservative number in the context of this specific trading opportunity. Click here now to see how it works.
Tuesday, May 15, 2012
I do a lot of analysis based on the past. I am constantly looking at long-term historical price charts and data. As a trader, I am always looking for an edge.
Obviously the keys to long-term success involve proper position sizing, risk management mechanisms, and ultimately leveraging probability. Professional traders are masters of these tenets. These characteristics are what separate successful traders from average traders over the long haul.
Sometimes through my rigorous analysis I come across price charts and oscillators that help put together a picture that helps shape my view of the marketplace. The past few months have been some of the most difficult market conditions that I have seen in some time.
The “wall of worries” permeates the financial landscape as risk at present seems unprecedented. The list of macroeconomic concerns ranges from the European sovereign debt crisis to escalation of military action in the Middle East.
I could probably write an entire article about the various risks that plague global financial markets at present, but I try to focus on the positive in any situation. Right now remaining optimistic is a daily battle amid the constant barrage of depressed economic data. Instead of focusing on all of the various risks, I focus on finding opportunities where probabilities are favorable based primarily on historical price data, cycle analysis, and tape reading.
Back awhile back I proffered an article that discussed my expectation that the U.S. Dollar Index would rally while risk assets such as equities and oil prices would collapse. Additionally I commented on my expectations for weakness in gold, silver, and the entire mining complex. I was wrong about the timing of the U.S. Dollar’s advance, but the ultimate price action analysis was correct.
The following quote came from that article, “As shown above, I believe that short term targets to the downside are likely somewhere in the 1,475 – 1,525 price range. I think gold will find a major bottom near these levels and a strong bounce will play out.” (Click here to view the entire article)
When I originally wrote that article referring to a decline in gold prices gold futures were trading around 1,630 an ounce. Price rallied sharply higher after my article went public, but fast forward to today and my concerns appear to be well founded. I am a long-term gold bull and I ultimately believe that new highs will occur in the future. However, gold and gold miner’s may have further to fall before they find major support.
As stated above, my original expectations for the Dollar Index did not happen in the time frame I was anticipating. However, the belief that a rally was forthcoming proved to be accurate as can be seen from the price chart of the U.S. Dollar Index shown below.
U.S. Dollar Index Daily Chart
As can be seen above, the price action is confirming serious strength. The weekly close on Friday saw the Dollar close above a key short-term resistance level. Additionally I would point out the double bottom that has been carved out on the chart above which is also bullish. Should resistance near 80.76 give way to higher prices a test of the recent highs is quite possible.
The technical picture suggests higher prices in the near term for the greenback. From a fundamental viewpoint, recent economic data also suggests that higher prices may await as one the largest weekly debt issuance of 2012 among sovereigns within the Eurozone will transpire next week. If any of the debt auctions go poorly it will reflect negatively on the Euro currency and help push the Dollar higher.
Most of the debt issuance is outside of the 3 year maturity window so the LTRO justification to encumber risk does not apply. Next week we will find out just how serious investors are about accepting default risk on European debt instruments. I would be shocked if the ECB sits idly by, but the sheer amount of capital required to safeguard debt issuance next week is extreme, even for a major central bank.
The Euro currency continues to fall and has broken key resistance around the 1.30 price level on the EUR/USD currency pair. Price is not collapsing as of yet, but we are seeing a slow and steady slog lower for the Euro. This price action serves to boost the Dollar which ultimately places downward pressure on risk assets such as equities and oil. Additionally, it reduces the valuation of gold. The daily chart of gold futures is shown below.
Gold Futures Daily Chart
The recent price action in gold has been quite ugly and price is resting at key support stemming from an intermediate-term descending channel shown above. Should the lower bound break to the downside a sharp move lower could play out.
It is important to remember that gold is coming off a monster multi-year bull run and it only serves to make sense that a nasty pullback that shakes out the bulls would be forthcoming. I continue to believe that strong support and buyers will come back into gold around the 1,450 – 1,550 price range as significant long-term support levels should hold up prices. The key support zone is clearly illustrated in the chart above.
I continue to wait for price to reach that key support level and based on the current proximity those support levels are magnetizing price toward them. When long-term support / resistance levels are near price a test is a common occurrence. The most important question to ask is whether the support zone shown above will hold, or will even lower prices ultimately play out?
Gold and silver both are starting to become oversold on the daily time frame. While the gold bugs have been feeling pain the past few weeks, the gold miners have been taken out back to the woodshed for a good whipping. The miners have been absolutely crushed in 2012 .
My long term analysis revealed something quite extraordinary on the longer term weekly chart of the HUI gold mining index which I believe is critical for readers to watch and monitor. We are nearing valuation levels based on the true strength index that have not been seen since the market crash that took place back in 2008. The weekly chart of the gold bugs index is shown below.
Gold Bugs Index Weekly Chart
As can be seen above, the Gold Bugs Index (HUI) has been under considerable selling pressure since early September of 2011. However, note how low the True Strength Index is based on 5 years of price data. We are nearing the same level that we saw back in 2008 which marked a major bottom that ultimately resulted in a monster move to the upside for the gold miners.
I am of the opinion that this chart demonstrates quite clearly that a great buying opportunity for gold, silver, and the miners is likely going to present itself in the near future. I will be watching this price relationship over the next few weeks waiting for a strong entry point for a longer-term purchase. After this pullback concludes, the potential returns that could occur in gold, silver, and the miners could be breathtaking.
With 3 clear support levels, a defined risk approach could be used in order to scale in or to reduce market risk should prices continue to move below each support level. While the time is not right just yet, more than likely a solid long-term risk / reward trade may very well present itself in the precious metals and mining space. I am likely a bit early, but the ultimate end game as it relates to fiat currency is documented throughout history. The final result has a finality that few truly comprehend.
Click the link above for more Market Trend Forecasts
Monday, May 14, 2012
I'm seeing continued downward pressure on equities for the time being. I would begin to be a possible buyer if and when the SP500 hits 1320 to 1260 price levels. I don't have a stock pick this week as I usually do. Instead I've got some Telecom industry forecast outlook analysis.
The telecommunications industry is identified as a major driver of global economic recovery. An unprecedented growth of high-speed mobile Internet traffic, particularly for wireless data and video, has transformed this industry into the most evolving, inventive, and keenly contested industry.
In addition, emergence of mobile broadband technology has created several new service areas, which potentially offers huge growth potential. This includes IPTV, collaboration and cloud computing, videoconferencing, and mobile payment to name a few. Several industry researchers estimated that the market size of the global telecommunications industry may reach $1.8 trillion - $2 trillion in the next three years. The U.S. telecommunications industry will hold the largest share of it.
The telecommunications industry encompasses a lot of technology-related businesses. Besides the legacy local and long-distance wireline phone services, the telecommunications industry also includes wireless communications, Internet services, fiber optics networks, cable TV networks and commercial satellite communications.
A major characteristic of the telecommunications industry is the huge barriers to entry due to scarcity of public airwaves (spectrum). The U.S. telecom market is controlled by just four national players; regional low-cost operators are not eligible to compete with these large carriers.
Furthermore, it is not easy to establish a new telecom carrier since it would require government permission to transmit voice, data and video on public airwaves. Spectrum licenses are limited and therefore quite expensive. Moreover, deployment of network infrastructure, whether high-speed wireless (3G/4G) or wireline (fiber optic), requires significant capital expenditures, which very few entities can afford.
We believe that the overall economic dynamics may shift in favor of telecommunications industry, primarily due to its key attribute of being a major infrastructure product for both the emerging and the developed nations. Telecommunications is one of the very few industries, which witnessed massive technological improvement even during the recession. The major thrust for the telecommunications sector is coming from the industry due to continuous network and product upgrade and invention by the industry players.
In last 15 years, the U.S. wireless industry invested an enormous $300 billion to install most efficient seamless communications networks in the world. The telecommunications industry as a whole generates over 2.4 million jobs in the U.S., which is expected to grow by another 200,000 in 2012 due to gowning adoption of next-generation super-fast 4G LTE networks.
Growing demand for technically superior products has been the silver lining for the telecommunication industry in an otherwise tough environment. These developments are also helping telecom equipment manufacturers, infrastructure solutions providers and mobile phone makers to consolidate their finances.
Wireless is the Key
Despite the massive growth in fiber-to-the-home networks, we believe wireless networks will be the key player in the telecom industry growth story. The sector is witnessing a fundamental change. Earlier, it was voice calls that brought money to the operators. At present, data and video have become the focus.
Any new network standard aims at faster data connectivity, quick video streaming with high resolution, and rich multimedia applications. Growing demand for wireless products has been the silver lining for the telecommunication industry in an otherwise tough environment.
Telecommunications industry is witnessing consistent growth despite experiencing a slow moving U.S. economy. Most of the large national telecom service providers together with the regional prepaid telecom operators generated net subscriber addition in the fourth quarter of 2011.
Verizon Wireless, a joint venture between Verizon Communications Inc. and Vodafone Group plc., added 1.2 million post paid subscribers, its second best result in last two years. AT&T Inc. added a net 717,000 wireless subscribers, its historic high quarterly figure. Sprint Nextel Corp. gained a net 161,000 postpaid subscribers. MetroPCS Communications Inc. and Leap Wireless International Inc. added net 197,410 and 175,000 wireless subscribers, respectively, in the previous quarter.
The U.S. telecommunications industry is likely to be benefited in the near future two ways: (1) recent approval of the U.S. Congress to initiate a fresh round of spectrum auction for the wireless industry, and (2) significant technological inventions and innovations that make even a mature market like the U.S. highly lucrative for the telecom operators.
In February 2012, The U.S. Congress has decided to free up spectrum currently used by TV broadcasters for commercial wireless networks and to deploy a nationwide interoperable public-safety broadband network. Huge proliferation of smartphones, tablets and several other pocket-sized mobile devices significantly raised the demand for bandwidth for seamless wireless connectivity. The spectrum auction is expected to generate $25 billion - $30 billion in the U.S. government exchequer.
Furthermore, as the global economy recovers slowly, demand for real-time voice, data, and video increases by leaps and bounds. The FCC has estimated that within the next 5 years, mobile-data demand will grow 25-50 folds from its current level. These latest developments are enabling the telecom service providers to undertake large network extension while upgrading plans. The decision of Congress is mainly aimed to solve growing consumer demand for efficient wireless networks.
Smartphones and tablets have become the next-generation choice and are increasingly taking over market share from the basic mobile handsets. Although the economy is under recovery phase, and we are not completely out of the woods, the growth in the smartphone market maintains its impressive trend.
This reflects a shift in consumer preference toward application-rich devices from ordinary mobile handsets used primarily for voice telephony. Smartphones are generally characterized by very powerful operating systems capable of supporting a variety of services and applications that need very high-speed network infrastructures.
GSM Association has forecasted that within the next 5 years, telecom operators will invest approximately $100 billion to upgrade their respective networks for accommodating hassle free transmission of mobile data and video traffic. The major technical areas will be High-Speed Packet Access (HSPA), 3G mobile broadband, and next-generation (4G) LTE. One simple example of this significant rate of growth is that LTE network, which was globally first deployed in late 2009, at present provides over 2 million connections.
As smartphone users are now downloading increasing multimedia contents, video has become the primary network traffic. What is more interesting, in addition to download, the smartphone and tablet users are uplinking more and more video content, and in turn, becoming broadcasters on their own. Several industry researchers predicted that video may account for 60% of total network traffic by the end of 2012.
Mergers & Acquisitions to Continue
Despite the failed merger agreement between AT&T and T-Mobile USA, we believe the U.S. telecom industry will witness more M&A in 2012. AT&T needs spectrum to compete with its bigger rival Verizon Wireless. Similarly, small prepaid operators like MetroPCS and Leap Wireless may also join or merge with a nationwide carrier in order to attain economies of scale and pricing power. DISH Network Corp., which holds a large wireless spectrum, has already declared that it is not averse to a deal as an acquirer or an acquired entity.
Competition Looms Large
Massive technology invention and innovation have resulted in significant competitive atmosphere within the telecommunications industry. Product life-cycle and upgrade-cycle have been reduced drastically since several firms are coming out with new types of products and services within a short span of time. Increasing competition is actually forcing each and every player to offer heterogeneous and bundled services.
We may see more product sharing deals between telecom, cable TV and satellite TV operators as each of these players are trying to get a foothold into the other’s territory. Even pay-TV services, offerings to business enterprises, and mobile backhaul and metro-Ethernet segments may witness more convergence. Mobile phone makers are now gradually offering tablets (small laptops), chipset manufacturers for personal computers and mobile phones are frequently interchanging their areas of operations.
The telecommunications industry as a whole offers a number of attributes that are difficult to ignore from the standpoint of investors.
Telecommunications is a necessary utility: The need for telecom in both rural and urban areas, and its role in the infrastructure of both developed and developing markets, continues to grow. In addition, economic stimulus plans in the U.S. and throughout the world should boost select service providers and equipment manufacturers. Structural Subsidies: The Broadband Stimulus Program of the U.S. government has received significant acceptance among rural carriers. President Obama has endorsed a wireless spectrum hike plan proposed by the FCC, which will nearly double the currently available spectrum for wireless broadband services while increasing Internet connectivity. FCC together with the U.S. Department of Commerce will identify unused airwaves to raise the available spectrum size to 500 MHz in the next 10 years.
International diversification: Though diversification within a country offers only limited protection in the current highly-correlated world equity markets, it offers hedging opportunities from local economic weakness and associated currency exchange differentials.
The companies that match well with the aforementioned considerations include AT&T Inc. Verizon Communications Inc., MetroPCS Communications Inc. and CenturyLink Inc.
Generally, telecommunications companies that were under pressure in the recession have high debt levels and large financial leverage ratios or are unable to cope with the recent market trend. Other risks that remain are as follows:
Potential business slowdown: Lower overall top-line sales among carriers are expected to continue to weigh on capital spending decisions -- a major problem for equipment vendors. The companies are expected to remain focused on improving balance sheet, financial discipline and free cash-flow generation. Unfortunately for the equipment vendors, the method of choice for improving free cash flows remains disciplined capital outlays.
Weak credit profiles: Over the near term, telecom companies may be exposed to high debt levels and limited liquidity, which puts a premium on sustainable cash flow to service debt obligations. As a result, telecom companies may have free cash flow on the back of a slowdown in demand.
Increased competition: The markets for broadband wireless solutions are emerging rapidly in terms of technological innovation. The pure wireless/wireline service providers started entering the video services market for cable operators, while the cable MSOs are entering the telephone business for the small & medium sized business enterprises.
The companies that match well with the aforementioned considerations include France Telecom, United States Cellular Corp. and NII Holdings Inc.
Thursday, May 10, 2012
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Monday, May 07, 2012
I don't have a buy or sell stock pick this week, but after last Fridays dismal unemployment report with stocks selling off you might expect the sell-off to continue, so you might want to sell stocks short and or buy the US Dollar for the time being. I'm seeing more stock selling off for the time being but I'm thinking stocks will find a bid at these upper major index support areas I've listed below. I'm thinking Ben Bernanke will come back with more quantitative easing to keep asset prices and the economy from tanking more, which is a mistake in the long run in my opinion but I don't set rates. Looks like the cliche "sell stocks in May" is going to come true again as it has many times in the past.
Market Index Major Support Areas
DJIA 12,689.10 to 12,303.16
SP500 1,321.44 to 1,259.23
Nasdaq 2,870.44 to 2,707.04
The Dollar and Manipulation Control the Market by Market Trend Forecasts
Over the weekend I had an interesting conversation with a local trader. We typically meet a few times a year to share our market outlooks, new trading tools and techniques, and usually finish our session off in a debate about the US market manipulation and how to trade around it.
Talking about market manipulation always opens up a can of worms and sparks some interesting theories… And while everyone has their own views and opinion on this subject I thought I would briefly share the main points I pulled from our conversation.
I did talk about the dollar index last week, but the recent price action unfolding today is important so I’m going to recap on it again.
Point form thoughts supporting Lower Equity prices and a Higher Dollar:
Dollar index looks ready for a major rally (high dollar means lower stocks)
SP500 may have just formed a double top
SP500 closed strongly below the 20 day moving average
First week of May for the past two years have been intermediate market tops
Points supporting Higher Equity prices and a Lower Dollar:
Countries around the globe are trying to keep their currency value low including the United States.
Presidential cycle strongly favors higher stocks prices which means the dollar should not rally until Nov.
What do all these points mean? Let’s take a look at the dollar charts below…
4 Hour Dollar Index Chart:
This chart time frame allows us to see all intraday price action while being able to zoom out several months for patterns along with key support and resistance levels.
As you can see over the past few months the dollar has been consolidating sideways. Within this consolidation it has formed two bullish falling wedges with the most recent one breakout last week right on queue.
Using this 24 hour futures dollar index chart we can see where things are trading through the weekend. On Friday the dollar index closed around the 79.50 level. As you can see the dollar has surged Sunday night by more than half a penny breaking through its down trend line.
The next few weeks will continue to be exciting ones as strong moves in the dollar will create wild movements in stocks and commodities.
Long Term Weekly Dollar Index Chart:
If you zoom WAY OUT using the weekly chart this shows you the two major areas where the dollar index is likely to reach come November. Also with these levels are my SP500 price points which are simply numbers I pulled from the charts using basic analysis. I say this because I’m not into long term forecasting but rather shorter term price movements. A lot can change between now and then.
So, if the dollar index rallies to the 86 – 88 level then I would expect the SP500 to be trading back down at the 1000 level. If this takes place, the Fed will likely issue QE3 to jam the dollar back down and boost equities.
The flip side of the coin is that the dollar rolls over here and gets pulled down. This will boost stock prices in favor for the president’s election. After that the dollar would likely rally which in turn would put a major top in the stock market, kick starting a bear market.
The big question:
Do you short the market in anticipation of rising dollar and falling stock prices? OR do you buck the trend and stick with the theory of a lower dollar value and presidential cycle?
The charts above clearly show how we are entering a major tipping point for the market and the next couple months are likely going to provide some big price swings for stocks, commodities and currencies.
Friday, May 04, 2012
Profit from the Non-Farm Payroll report and other major economic data reports with the straddle trading method.
Straddle trading is a good strategy to pursue if you believe that a stock or in this case a forex pair price will move significantly, but your not sure which direction it will move. The USA Non-Farm Payroll Unemployment Report is the largest financial data report in the economic universe and it can move very big especially if the number is outside of consensus estimates higher or lower. The disadvantage to straddle trading is that the price could whipsaw in both directions entering both of your long and sell limit trades making it harder to manage for some novice traders. If it does whipsaw and enters both of your limit trades now you have a hedged position.
How Forex Straddle Trading Works
Below is a EUR/USD chart example of how to setup a forex straddle trade.
Enter two limit trades. A buy-stop trade for an upside breakout, and a sell-stop trade for a downside breakout, along with stop-loss price entries for each trade and enter into the market about 15 minutes before the Non-Farm Data Report hits.
Find consolidation high and low of the last 6 to 8 hours of 20 to 60 pips range. Place the two limit orders in the market before the news. The first order to buy 3 pips above the consolidation and the second order to sell 3 pips below the consolidation range. Stop losses are placed below the range when buying or above the range when selling.
Take profit upon your discretion or once the volatility and price calms down after the report and price move. Don't ever let a profit turn into a loss.
Review the EUR/USD Chart for an Example Forex Straddle Trading Method
Consolidation high: 1.2050
Consolidation low: 1.2015
Place an order to buy at 1.2053 with stop loss at 1.2012
Place an order to sell at 1.2012 with stop loss at 1.2053
In the chart below the sell order was triggered at 1.2012 and the EUR/USD went down about 100 pips which is a very nice very fast large profit.
Thursday, May 03, 2012
Equities Fight to Hold Up While EU & US Data Give Mixed Signals
Investors and traders just can’t seem to catch a break when it comes to economic news. For example Tuesday in the United States we saw strong ISM manufacturing numbers which surprised the market. The numbers were way above expectations and it triggered a feeding frenzy in US based investments like stocks and the green back.
The following session Italy reported terrible PMI and unemployment rate numbers which took most of the wind out the European and US stocks. One day the data is great, next day it’s bad…
The strong numbers in the US have everyone including myself thinking that this week’s jobless claims (unemployment rate) will be down. If this is the case then we will see stocks jump along with the dollar, much like what we saw trader do last Tuesday which is what Jim Cramer says best – BUY BUY BUY.
Normally we do not see the dollar index rally along with stocks but if EU continues to show signs of weakness then it is very likely the dollar and equities inverse relationship could decouple. Reason being investors around the globe will focus their money on the more stable US investments like the dollar and US stocks.
The Dollar is Trading at a Major Tipping Point – Weekly Chart
The dollar index is something that I watch very closely on a daily basis. Focusing on the weekly and 8 hour charts I look for support and resistance levels along with price patterns.
As you can see from the weekly dollar chart below, a large bull flag has formed. This pattern typically means higher prices and in this case the price target is between the 86 and 88 level.
There are few wild cards to toss into the game on what will unfold next:
Currency manipulation seems to be strong and if the US wants a low dollar value then it’s likely it will stay low. This bodes well for stocks and commodities.
Depending on what happens and how things unfold in Euro-land the dollar/stock relationship could decouple meaning they could start to rise together. If we get neutral economic data out of the EU and positive data out of the US it will likely boost the value of stocks and the dollar. But strong negative data out of the EU will more than likely just sent the dollar higher and spooking investors and triggering a selloff in stock prices.
Dollar Index 4 Hour Chart
I find the dollar index to be a great trading tool in helping me time short term reversals in the equities market.
Taking a look at the 8 hour chart below you can see recurring bullish falling wedge patterns. The most recent brake out was this week and I anticipate the 79.50+ levels to be reached in the near term. If the dollar does continue to move higher then I expect sideways to lower stock prices for a couple more sessions.
That being said, the mixed economic data between the US and EU is going to cause this scenario to be unpredictable. Depending on the jobless claims this week stocks could actually rally while the dollar moves highlder. Unfortunately, this week’s mixed data does not provide any trading opportunities that I feel comfortable making.
Market Forecast Conclusion:
In short, I feel a higher dollar is likely to happen. As for stock prices, well they are more of a wild card at this time but my analysis slightly favors higher prices.
To quickly touch on precious metals, they are likely to be under pressure for a few sessions simply because of the rising dollar.
Click the Link Above to Review More Weekly Market Forecasts & Trade Ideas To Your Email Inbox
Tuesday, May 01, 2012
Debunking the myths about investing with options.
I once heard an interesting distinction made between investing and gambling: If you can reasonably expect to win on average, it's investing. If not, it's gambling.
Options have a reputation as the gambling den of the investing world; most view them as vehicles for high-risk speculation. This reputation doesn't change the fact that, when used properly, options can make tremendous contributions to your portfolio.
At Morningstar, our mission is to help you use options to invest, not to gamble. The key to success with all investing is only to invest when you have an edge—an insight that gives the investment a positive expected return. This applies to options investments just like any other investment. Some investments may be risky, or may have a short time horizon, but option investors are willing to take those risks if they have an edge through fundamental research, because they know the strategy will win over the long run.
The number-one objective of this guide is to help you develop an intuitive understanding of stock options. By intuitive understanding, I do not mean a "gut feel" or a "trader's instinct." That's hokum. I mean a fundamentally sound understanding of the theory and practical use of stock options. Although stock options can seem intimidating at first blush, they really are understandable—I promise!—and they can enable you to generate profits in bull or bear markets.
In addition, I think the insights that come from understanding options can (and will!) improve your stock-investing skills as well.
I've distilled this guide down to 10 key principles. Once you have developed a strong grounding in the use of options through these 10 principles, you'll be able to see how analysis of the fundamentals of the underlying company, and therefore the future of the stock price, can be transferred to an investing edge in the options market.
Sure, there are myriad books on the basics of stock options, and many of them do a good job explaining the mechanics of options in a traditional theoretical framework. In this guide, however, I instill a practical fundamental, intuitive understanding of options, augmented by some simple examples, rather than plowing through detailed numbers and models.
It's the approach that you'd expect from Morningstar.
Click here to review more options investing trading information resources and trading software.