How Old Economy Stocks Like These Can Make Investing Easier

How Old Economy Stocks Like These Can Make Investing Easier
How Old Economy Stocks Like These Can Make Investing Easier
Among the many realities in a slow-growth economy, some traditional, old economy businesses continue to impress with their ability to increase revenue and earnings. It’s no small feat to grow sales by double digits these days; but this company is doing it, and it’s about as “old economy” as you can get.

At the beginning of this year, we considered A. O. Smith Corporation (AOS). Based in Milwaukee, this company is in the water heater business. It isn’t fancy, and it won’t ever make front-page news, but this is a good business. It’s proven to be a good moneymaker, and it’s consistent.

According to the company, its third-quarter sales grew to $536.2 million for a gain of 16% over the comparable quarter last year. Management cited improving business conditions in new home construction and some improvement in replacement demand for water heaters as reasons for the growth.

North American sales grew 10% to $370.1 million, while international sales grew 31% to $175.2 million. The company also sells in China, where it saw a $38.0-million gain in sales, totaling $147.6 million during the third quarter.

Earnings came in at $46.2 million, or $0.50 per share, compared to $37.0 million, or $0.40 per share, in the comparable quarter. Both sales and earnings beat Wall Street consensus. The company’s long-term stock chart is featured below:

Smith AO Corporation Chart

Chart courtesy of www.StockCharts.com

I really like finding businesses like A. O. Smith; and often, they are old economy. (See “Why These Old Economy Stocks Are Absolutely Crucial.”) They are companies that execute carefully and diligently, not operating with visions of grandeur but to provide consistent and reasonable shareholder returns from a mature industry.

Another company that falls into the category of consistent wealth creation is AAON, Inc. (AAON). This Tulsa, Oklahoma firm sells heating, ventilation, and air conditioning (HVAC) equipment to industrial customers.

Business is holding up pretty well, as the company’s latest earnings report (for the second quarter of 2013) showed record results.

The company said second-quarter sales grew to $91.2 million, up from $83.3 million in the comparable quarter. Earnings were $12.1 million for a gain of 30% over the same quarter last year. The shares recently split three-for-two in July, and the position just hit a split-adjusted all-time record high on the stock market of $28.00 a share.

It’s difficult to imagine solid financial growth from such old economy businesses, but it’s happening, and these two companies boast solid prospects for continued growth through 2014.

In most cases, I find it more useful for equity investors to go with existing winners over employing the buy low/sell high investment strategy. A company’s share price is typically way down for a reason and betting on a business turnaround is difficult in that you also have to bet on whether other investors will be willing to return to the story.

A successful business with a proven track record of operational success and wealth creation on the stock market already has a solid following.

J. C. Penney, Coach Joining the Losers in the Retail Sector?

J. C. Penney, Coach Joining the Losers in the Retail Sector?
J. C. Penney, Coach Joining the Losers in the Retail Sector?
The retail sector is fierce and competitive, and the reality is that in this sector, a bad move or investment strategy could set a company up for continued miscalculations down the road. Of course, Blockbuster is a classic example.

However, my modern-day example of a total screw-up in the retail sector is J. C. Penney Company, Inc. (NYSE/JCP). The company is a perfect case of continued miscalculations and just horrible decision-making that could inevitably bankrupt this century-old American retail icon, sending it in the direction of Blockbuster to settle in the retail graveyard.

The chart of J. C. Penney below shows the horrific damage caused by its poor execution in the retail sector, which makes the events in Congress seem trivial in comparison.

The crossing of the 50-day moving average (MA) below its 200-day MA in December 2012 (as shown by the shaded sideways oval on the chart below) was a good indication that the worst was yet to come, based on my technical analysis.

Just take a look at the subsequent decline following the “death cross” on the chart, especially the major fallout from the $15.00 to the $6.00 level in just a matter of weeks.

JC Penney Company Inc Chart

Chart courtesy of www.StockCharts.com

Execution in the retail sector tends to be more critical than any other sector.

Take high-end handbag maker Coach, Inc. (NYSE/COH), for instance. The luxury brand stock has been struggling against its high-end rivals in the retail sector, but so far, it’s seen a difficult run.

Coach Inc Chart

Chart courtesy of www.StockCharts.com

Coach reported a horrible fiscal first quarter, in which sales fell one percent year-over-year. The key comparable store sales plummeted 6.8% in the North American retail sector. The positive was that Coach was able to continue to expand its sales in China, with comparable store sales growing in the double digits.

Going forward, the sales growth, while positive, pales in comparison to rival Michael Kors Holdings Limited (NYSE/KORS), which I continue to believe is the “Best of Breed” in the luxury apparel and accessories area. The stock is up 35% since I last featured it in these pages. (Read “Why Michael Kors Outdoes Other Luxury Stocks.”)

Coach is estimated to grow its fiscal 2014 sales by 4.4% and its fiscal 2015 sales by 7.2%, according to Thomson Financial. By comparison, Michael Kors is near its 52-week high and sizzling on the charts.

Michael Kors Holdings Limited Chart

Chart courtesy of www.StockCharts.com

A maker of high-end clothing and accessories, Michael Kors has beaten earnings-per-share (EPS) estimates for the last four straight quarters. Sales in fiscal 2014 are estimated to grow at a whopping 36.9%, followed by 24.3% in fiscal 2015, according to Thomson Financial. These metrics are far superior to Coach’s, and that’s why Michael Kors deserves its higher market valuation in the retail sector.

Coach needs to get its act together in North America, but it’s not going to be easy, with Michael Kors in its path and not letting up on the accelerator.

For investors, your best bet may be to consider sticking with Michael Kors in the retail sector. Only traders or contrarian investors should even consider looking at Coach.

Why the S&P 500 Could Hit 1,800 Before the Year’s End

Why the S&P 500 Could Hit 1,800 Before the Year’s End
Why the S&P 500 Could Hit 1,800 Before the Year’s End
It’s time to look at the charts again. The S&P 500 scored yet another record high of 1,759.33 on Tuesday and is now up over one percent from its mid-September high.

I must admit: the S&P 500 looks pretty good on the chart, driven by bullish sentiment and a desire to reach higher. The breakout appears to be holding, so 1,800 looks reachable by the year’s end. Of course, a lot will depend on whether shoppers spend in the upcoming holiday season and if the Federal Reserve starts tapering its bond buying.

For now, as shown by the long-term yearly chart of the S&P 500 below, you’ll notice the two plateaus highlighted by the horizontal blue line, which stretch from 1965 to 1980, when stocks did nothing, and from 2000 to the present. As shown on the chart, the S&P 500 staged an impressive breakout that resulted in a two-decade-long rally extending from 1980 to 2000, based on my technical analysis.

Back in 1985, the S&P 500 was trading at a mere 200 points. We are up nearly eight-fold since.

Now, is the S&P 500 headed for another extended breakout like the one it experienced more than 30 years ago? It could definitely happen, that is, if all the stars are aligned.

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

Perhaps we are in a state of utopia for the stock market—with steady growth, low interest rates, benign inflation, and cheap accommodative monetary policy.

But be careful before treading on. The problem I see is that we will likely need to see a bigger stock market correction than the recent five-percent correction by the S&P 500.

Take a look at the past two years on the chart below. There was a correction of about 10% in the S&P 500 in the second quarter of 2012, followed by another 7.5% adjustment in the fourth quarter (as indicated by the shaded ovals). Then there was the 6.5% correction a few months back.

With the S&P 500 now at another record high, another correction could be brewing on the horizon, as indicated by the final shaded oval in the chart below.

S&P 500 Chart

Chart courtesy of www.StockCharts.com

Of course, we may not see a correction until the stock market reaches higher. Once that point is achieved, say the S&P 500 at 1,800, then we could see a fallout, as the market realizes the economic and corporate growth are not that good and they don’t support the market gains.

The months of November and December will be interesting and stocks could go either way. Just make sure you take some profits off the table and cut some losses prior to year-end.

Booming Agriculture Business Makes This Solid Dividend Payer Even More Attractive

Booming Agriculture Business Makes This Solid Dividend Payer Even More Attractive
Booming Agriculture Business Makes This Solid Dividend Payer Even More Attractive
Well, it turns out that third-quarter earnings were pretty good for E. I. Du Pont de Nemours and Company (DD). The company surprised with solid volume growth and its cash balance soared.

DuPont recently broke out of a two-year-long stock market consolidation. Still yielding around three percent, this position is not expensively priced, and its latest numbers were very good, considering the size and maturity of this business.

The company’s third-quarter consolidated sales grew five percent to $7.7 billion. The strongest division was, once again, in agriculture, with a 15% gain in sales to $1.6 billion on stronger volumes and higher pricing in Latin America.

Every single operating division posted improved operating earnings comparatively, except for the company’s performance chemicals business. Sales in Europe, the Middle East, and Africa (EMEA) grew a surprising 10% during the quarter, while sales in North America and the Asia Pacific grew three percent; Latin American sales grew four percent.

Of note was the company’s strong improvement in shareholders’ equity, and as is typical with so many large corporations, DuPont’s cash and cash equivalents balance soared to $7.0 billion, from $4.3 billion at the end of 2012.

The company’s third-quarter dividend was $0.45 a share, compared to $0.43 in the same quarter last year. Another dividend increase is likely within the next two quarters; the company can certainly afford it.

As I stated before, the most important division for DuPont is its agriculture business. Third-quarter expenditures on research and development were $540 million, compared to $521 million in the same quarter last year. Virtually all of the increased spending was dedicated to the company’s agriculture business.

Wall Street wants DuPont to spin off its agriculture division into a whole new company. This certainly would make for a very attractive asset, but it’s the one bright spot in DuPont’s mature roster of businesses. It’s hard to imagine the company would sell its best asset.

On the stock market, DuPont has seemingly broken out of its major consolidation, and while growth expectations are still very modest for this conglomerate, the prospect of increasing quarterly dividends is improving. The company’s stock chart is featured below:

DuPont Company Chart

Chart courtesy of www.StockCharts.com

More and more of DuPont’s business is being considered non-domestic. According to the company, the percentage of total consolidated sales in developing markets increased to 40% from 38% in the comparable quarter. For DuPont, developing markets include China, India, Latin America, Eastern and Central Europe, the Middle East, Africa, and Southeast Asia. While many of these regions are the source of decent growth for DuPont, local prices and currency translation is a hurdle.

All in all, it was a very solid quarter for DuPont. Just like so many other large companies have been reporting, DuPont’s operating earnings beat consensus but revenues came in slightly short.

Street estimates for DuPont for this year and next have been going up across the board. Company management cited that its agriculture segment is experiencing a strong start to the fourth quarter. Management was deliberately conservative with its year-end forecast and this is typical of companies wanting to beat consensus. DuPont is a solid dividend payer and may be an attractive investment opportunity on dips for income-seeking investors.

Four “Proofs” Stock Market Rally Will Fall Flat on Its Face

Four “Proofs” Stock Market Rally Will Fall Flat on Its Face
Four “Proofs” Stock Market Rally Will Fall Flat on Its Face
Historically, key stock indices and the price of copper have moved in line with each other. Why? The relationship is very simple: copper is an industrial metal, and when demand for it is increasing (and its price rises), it means companies in the economy are producing and selling more. Investors usually take that as a bullish signal for key stock indices.

But today, we see copper prices and key stock indices moving in the opposite direction of each other.

Below, I’ve put together a chart that shows the action of both the S&P 500 (top of chart) and copper prices (bottom of chart). The chart shows that since 2011, the S&P 500 and copper prices have been moving farther apart.

S&P 500 Large Cap Index ChartChart courtesy of www.StockCharts.com

But the chart of the S&P 500 above doesn’t just show its relationship with copper; it also shows that volume on the S&P 500 has been declining. Look at the bars just below the rising trend of the S&P 500, and you will see I have drawn a line showing a significant decline in volume on the S&P 500—fewer and fewer shares are being traded despite the index trading near an all-time high.

Historically, and like any asset, prices rise when demand rises. But today, we have the S&P 500 moving higher on declining volume—a historical omen for the markets!

And corporate revenue growth (the mainstream focuses on corporate “earnings”) are worrisome, too.

We are in the midst of the third-quarter earnings season. As of October 18, of the 97 companies in the S&P 500 that have reported, 69% of the companies have reported earnings above market expectations. But only 53% of them were able to beat revenue expectations! (Source: FactSet, October 18, 2013.)

Companies showing better-than-expected corporate earnings but missing out on their revenue targets is a signal to me that companies are achieving profits through financial engineering (stock buyback programs and cost-cutting) as opposed to real growth. How long can these “tricks” go on for?

Putting aside what I just said, we know key stock indices are a forward-looking animal. So maybe, by rising so high, the S&P 500 and other key stock indices are telling us the economy is improving? Wrong, again.

The U.S. economy is in a deep hole, and it’s going to take a very long time for it to get out. As I have been writing, the most powerful factor that drives the U.S. economy—consumer spending—is in serious trouble.

Wherever I look, the fundamentals behind any rally in key stock indices are missing. The prices for key commodities like copper and oil are falling, stock market trading volume is declining, corporate revenues are showing almost no growth, and consumer spending and sentiment are very, very weak.

So why are key stock indices rising? It all has to do with money printing.

Here’s what has happened: The Federal Reserve, through its quantitative easing, has been effectively creating $85.0 billion a month in new money out of thin air and using the new money to buy bonds from the government and mortgage-backed securities (MBS) from banks.

Look at the table below. It shows the percentage increase in the Federal Reserve’s balance sheet (in other words, money printed) over the past month or so.

Date Assets on Federal Reserve’s Balance sheet % Change from Previous Period
9/4/2013 3,654 Billion  
9/11/2013 3,662 Billion 0.21%
9/18/2013 3,722 Billion 1.64%
9/25/2013 3,734 Billion 0.32%
10/2/2013 3,747 Billion 0.36%
10/9/2013 3,758 Billion 0.30%
10/16/2013 3,813 Billion 1.46%
  Total Change  4.30%

Oh my, what a coincidence! In the same period the Federal Reserve’s balance sheet has gone up by 4.29%, the S&P 500 has increased by 4.92%.

Dear reader, the fundamentals that drive the key stock indices are simply not there. Key stock indices are rising because, somehow, the Fed’s newly printed money is making its way into the stock market.

Marty Zweig, a famous stock market analyst, coined the adage, “Don’t fight the Fed.” Marty was right. But Marty never dealt with a situation in which the Fed was creating so many trillions in newly printed money. If I had to crudely rework the adage today, I’d simply say, “Printing money to boost stock prices is a scam, and like any scam, it will eventually fall flat on its face.”

How to Invest in This Fundamentally Broken Economy

How to Invest in This Fundamentally Broken Economy
How to Invest in This Fundamentally Broken Economy
Well, the latest numbers related to job creation were recently released and to no one’s surprise, they were worse than expected.

For the month of September, job creation totaled 148,000, down from expectations of 180,000. (Source: Bureau of Labor Statistics, October 22, 2013.) While most people are simply writing off the latest data by saying that the U.S. government shutdown was the primary reason for the lack of job creation, I think there’s much more going on behind the scenes than simply a couple of weeks of not going to work.

This lack of job creation extends beyond simply the past few weeks; the trend over the past couple of years has remained far below potential. Even with the Federal Reserve throwing literally trillions of dollars into the U.S. economy for the past few years, there are no signs of life.

However, looking at the total level of job creation is not enough. Two other key figures you should pay attention to in addition to the total level of job creation are wages and hours worked. The Federal Reserve takes these additional metrics into account when trying to develop a picture of the economy.

The average hourly earnings increased by 0.1% in September, slightly below expectations of 0.2% from the previous month. The average hourly workweek did not change at 34.5 hours.

I don’t know about you, but seeing a mere 0.1% increase in my pay would not cause me to run out and spend more money or feel more secure about my financial future.

Before job creation takes place, you will usually notice hours increasing as employers use existing workers for longer hours through overtime, rather than hiring new employees right off the bat. Therefore, the fact that average hours worked per week is not rising indicates that businesses are not seeing an increase in demand for their products.

If this is the net result stemming from the most aggressive monetary policy ever put in place by the Federal Reserve, I can only think of one word to describe the situation: pathetic.

Even though the lack of job creation shows that our economy remains weak, stocks are moving upward. This tells me that people aren’t buying stocks based on true fundamentals, but because of the promise of continued Federal Reserve-induced stimulus.

The problem now for the Federal Reserve is that they are running out of arrows in their quiver. I think that the Federal Reserve’s monetary policy is losing its effectiveness—meaning, the central bank is pushing on a string. At some point, this will begin to impact stocks.

However, once the Federal Reserve begins to reduce its aggressive monetary policy stance, I think the economy and job creation will get hit significantly.

Look at it this way: if job creation was only at 148,000 new positions last month with the most aggressive monetary policy stance by the Federal Reserve in history, does that give you any confidence that the U.S. economy can stand on its own two legs?

Not to me, it doesn’t, as it appears that the fundamental nature of the economy is broken and needs significant structural reforms. But try telling that to the stock market.

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

You would think that with a weak economy, muted job creation, and no real income growth, the stock market would have trouble moving higher—wrong. The S&P 500 is at its all-time highs.

While the market was oversold in 2009, I would say most of this year’s move has been fueled by the Federal Reserve’s monetary stimulus.

Considering where the job creation is today, I would certainly look at raising cash, because at some point, the fundamental picture of the economy will begin to impact the stock market and bring prices back down to reality.

This article How to Invest in This Fundamentally Broken Economy originally published at Investment Contrarians by Sasha Cekerevac

What’s Really Behind China’s Economic Growth and Why It Won’t Last

What’s Really Behind China’s Economic Growth and Why It Won’t Last
What’s Really Behind China’s Economic Growth and Why It Won’t Last
When I read some of the headlines by other news organizations, sometimes I can’t help but chuckle at their oversimplification. Other media outlets take a kernel of truth, and ignore the rest of the picture, only to blow that tiny piece of truth out of proportion.

As an example, there was a recent release by the National Bureau of Statistics of China that reported the Chinese economy grew 7.8% year-over-year for the three months of July to September. (Source: National Bureau of Statistics of China, October 18, 2013.)

That headline number for the Chinese economy does look impressive at first glance. Of course, the mainstream media has used that one data point to extrapolate that the economic recovery we are all expecting is close at hand.

However, the Chinese economy is far more complex than simply looking at the headline data point of year-over-year gross domestic product (GDP) growth.

While nothing would make me happier than to finally hear of a real economic recovery occurring somewhere in the world, I’m afraid that the Chinese economy is simply being pushed higher by a government injection of stimulus that will only be temporary.

While America is suffering from a lack of economic recovery, China is also seeing problems. Inflation is pushing a seven-month high and the government is trying to shift the Chinese economy from being export dependent to domestically oriented.

So while the headline number looks nice, if the Chinese economy hits its target of 7.5% for the full year, it will still be the worst growth level in 23 years. Is that the economic recovery we should be celebrating—the worst level in decades?

Most of the media are printing headlines such as “Chinese Economy Accelerates,” which looks great. But the problem is that most of the boost the economy is getting is government-led. Exports are pulling the economy down, so the government is pumping even more money into the Chinese economy to keep it afloat.

Infrastructure spending is rising at a massive pace. Now, I do think that spending on infrastructure can help build a long-term economic recovery if it’s done correctly; this means fixing roads that actually need to be fixed. However, the problem is that the Chinese economy is growing even more dependent on spending in any capacity. We all know about the Chinese cities that were built and are now completely empty. This is taking the old saying about the government hiring people to dig ditches and fill them up again to absurd levels.

Officials know they need to shift the Chinese economy from this dependence onto a more sustainable path. The problem is that this will cause pain not only to the Chinese economy, but the economic recovery around the world.

As an American investor, don’t think you’re immune to what happens in the Chinese economy. Some of our biggest companies conduct a lot of business within the Chinese economy, including Caterpillar Inc. (NYSE/CAT).

Firms like Caterpillar need the global economic recovery to begin accelerating, since their products depend on growth. If the economic recovery falters, what happens to new projects and developments? They get delayed until the economic recovery takes hold, meaning the company’s growth is also put on hold.

The Chinese economy is extremely important for Caterpillar, not only for this quarter, but over the next decade. If the Chinese economy’s growth rate begins to slow, investors need to re-price their estimated revenue and earnings for firms like Caterpillar. Downward revisions are never a positive for a stock.

What I do know is that if we don’t see a global economic recovery begin to emerge over the next few months, stocks that have gone straight up recently will likely come back down to earth, as investors begin to realize that much of the growth was not based on strong fundamentals, but short-term government-led band-aid solutions.

This article What’s Really Behind China’s Economic Growth and Why It Won’t Last originally published at Investment Contrarians by Sasha Cekerevac

How a Struggling Jobs Market Will Reward Investors in 2014

How a Struggling Jobs Market Will Reward Investors in 2014
How a Struggling Jobs Market Will Reward Investors in 2014
Wow! Considering all of the money spent by the government on stimulus and the quantitative easing by the Federal Reserve, it really is quite discouraging to see the jobs market stuck in neutral.

In September, only 148,000 new jobs were created, according to the U.S. Bureau of Labor Statistics. The result was subpar and well below the consensus estimate of 183,000.

The unemployment rate edged lower to 7.2%. That doesn’t mean the jobs market is improving, though; instead, it indicates that more workers who are unable to find work have pulled out of the workforce.

Folks, there is a lack of jobs out there, and the jobs market is not getting better. Case in point: the economy produced an average of 143,000 monthly jobs in the July-September period, well below the average 182,000 from April to June. The trend in the jobs market is down, and with what we are seeing with the lack of third-quarter earnings season revenue growth, I don’t expect things to improve much in the jobs market.

There are some three million jobs out there, but there are over 21 million workers looking. The official number for those searching is around 11 million, but trust me—this is understated.

In addition, there are many workers with jobs that are way below their experience or skill set. I just watched a documentary on the high unemployment among college graduates and the mismatched low-paying jobs they’re forced into due to a lack of jobs matching their education and skill levels. In restaurants, for example, the majority of the servers were college grads. What’s worse is that these workers also have massive debt loads from their education and are making minimum wage.

According to the U.S. Bureau of Labor Statistics, the number of “involuntary part-time workers” in the jobs market stood at 7.9 million in September. These are the workers who are forced to work fewer hours due to company cutbacks or the inability to find full-time work. Add these workers to the number of unemployed in the jobs market, and I guarantee you the unemployment rate would shoot shockingly higher.

I guess the Federal Reserve will likely refrain from any tapering of its bond buying until at least the December meeting; however, it’s more likely tapering won’t begin until early 2014, when the new Federal Reserve chairman, Janet Yellen, takes over. We know she is also supportive of easy money, so investors are clearly happy.

As an investor, as long as the jobs market continues to struggle, the easy money will likely continue to be pumped into the economic system, rewarding the stock market. Assuming this scenario, you might want to consider keeping your money in stocks and riding the gains into 2014.

This article How a Struggling Jobs Market Will Reward Investors in 2014 originally published at Investment Contrarians by George Leong

Five-Year Bull Market Run Showing Signs of Fading?

Five-Year Bull Market Run Showing Signs of Fading?
Five-Year Bull Market Run Showing Signs of Fading?
A soft jobs reading came out last Tuesday, and the stock market…soared? That’s right. Initially, I was a bit taken aback by the surge, but then again, the buying was driven by the optimism surrounding soft economic growth—because that means the Federal Reserve can justify its continuance of cheap money and the stock market stays at its highs. (You’d be a fool to think the buying was driven by sound economic and corporate growth—even if that is the first lesson in Economics 101.)

My sense is the Federal Reserve will most likely refrain from any tapering of its bond buying until early 2014, when the new Fed chairman, Janet Yellen, takes over. She’s also accommodative towards the printing of cheap money.

And that’s exactly what the stock market wants. Without all of this so-called monetary “cocaine,” I doubt the stock market would have moved this high.

But investors need to be wary. The stock market is warped now in its thinking and the continued dependence on cheap money is ridiculous. The stock market needs a stronger economic recovery, more job creation, and much better revenue growth from companies, which remains problematic.

However, in spite of the absence of these fundamental factors, the stock market will likely continue to edge higher, partly due to the continued lack of alternative investments. With the 10-year bond yield down at 2.49%, the bond market is a cesspool for your capital. Heck, you can make that in a day on the stock market at the rate it’s moving! Investors realize this and will likely continue driving cheap money into stocks and pushing equities higher.

Again, this is great for investors, but you have to think about how it will negatively impact the financial soundness of America going forward, especially as interest rates begin to ratchet higher. The amount of debt being carried by the government and Fed is massive. We could be headed towards a financial tsunami down the road that will really hinder America’s ability to grow and retain its spot as the top economic powerhouse in the world, especially with China sitting squarely in America’s rear-view mirror.

So enjoy the ride and make your money now. It’s not going to last forever, as we are into the fifth year of the current bull market that is showing some signs of fading on the horizon.

Be on the lookout for this and make sure you have an exit strategy in place.

This article Five-Year Bull Market Run Showing Signs of Fading? originally published at Investment Contrarians by George Leong

Time to Look at Chinese Stocks Again?

Time to Look at Chinese Stocks Again?
Time to Look at Chinese Stocks Again?
There are still many on Wall Street who frown on Chinese stocks and China. When word was spreading that the country’s real estate market was going to implode, China was a cesspool for capital.

Well, I don’t belong in that group of investors. Many of my readers will recall how I remain bullish on China and Chinese stocks in particular. Just take a look at many of the top-performing stocks over the past few weeks, and you’ll see that there are numerous Chinese small-cap stocks charging up on the charts. The buying has been driven by a move to seek more returns in regions, like China, that have largely not followed U.S. stocks higher.

Take a look at the S&P 500, as shown by the red candlesticks in the chart below, versus the Shanghai Composite Index, as reflected by the green line.

The obvious finding is that the S&P 500 has continued its upward move, while the Shanghai Composite Index has been unable to find any rhythm on the chart, based on my technical analysis.

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

In my assessment, the divergence between the two indices has resulted in a buying opportunity for Chinese stocks.

Since making its initial acquisition in a 20% stake of specialty chemicals maker China National BlueStar in 2008 for $600 million, private equity firm The Blackstone Group L.P. (NYSE/BX) has been steadily involved in buying Chinese companies. Blackstone just signed a definitive merger agreement to buy China-based IT services firm Pactera Technology International Ltd. (NASDAQ/PACT) in a $600-million deal. Of course, the Chinese government, via its overseas investment fund, invested $3.0 billion in Blackstone back in 2007, which clearly is a factor.

The reality is that China continues to hold vast opportunities for investors. The country is not set to implode; in fact, it’s showing decent growth, while the rest of world appears to be struggling.

China’s gross domestic product (GDP) growth expanded at 7.8% in the third quarter, according to the National Bureau of Statistics. (Source: “Overall Economic Development Enjoyed Momentum of Steady Growth in the First Three Quarters of 2013,” National Bureau of Statistics of China, October 18, 2013.) The reading was the highest pace of growth this year, and it runs counter to the views by some pundits who predicted the Chinese economy would only see growth in the five-percent range this year.

In addition, industrial production grew at a healthy 10.2% year-over-year in September. Fixed asset investment also continued to be strong, growing at 20.2% year-over-year in September.

Consumer spending, a key area of the country’s growth strategy to drive domestic spending, continues to rise. Retail sales, while stalling on this side of the Pacific, expanded at 13.3% year-over-year in China in September.

The bottom line: smart investors should consider looking at moving some capital to Chinese stocks for added returns. (Read “Your Portfolio Stopped Growing? Here’s Why You Really Need to Think Chinese.”)

Third-Quarter Earnings Season Rosier Than It Appears?

Third-Quarter Earnings Season Rosier Than It Appears?
Third-Quarter Earnings Season Rosier Than It Appears?
There are countless factors that support the case that the bull market for stocks can continue.

Interest rates are low, inflation is modest, monetary policy is very accommodative, and new initial public offerings (IPOs) are opening up well above their offering prices.

There are even some decent earnings results, which you wouldn’t necessarily expect given the headlines and economic data.

Snap-On Incorporated (SNA) is a $6.0-billion company that sells small tools and equipment to vehicle technicians. The Kenosha, Wisconsin-based company beat Wall Street consensus on revenues and earnings in its most recent quarter.

Third-quarter sales grew 5.8% to $753.2 million, while diluted earnings per share grew 13.5% to $1.43. The stock is up 25% year-to-date and 50% over the last two years.

PPG Industries, Inc. (PPG) is a Pittsburg-based company that supplies coatings and specialty products to industrial customers in the automotive, military, and aerospace industries.

The $24.0-billion company announced record third-quarter financial results. Total sales grew 17% to $4.0 billion, while earnings beat the Street by a wide margin.

And Winnebago Industries, Inc. (WGO) surprised once again by beating expectations on both revenues and earnings. The Forest City, Iowa-based manufacturer of recreational vehicles said that sales in its fiscal fourth quarter (ended August 31, 2013), jumped 32% to $214.2 million. Earnings grew to $10.6 million compared to adjusted earnings of $4.0 million (excluding a one-time tax benefit).

This is the company’s sixth consecutive quarter of increased sales in its order backlog. Management expects gross margins to improve throughout fiscal 2014.

Not everything is rosy, but in many cases so far, those numbers are about a company not meeting Wall Street consensus (Overstock.com, Inc. [OSTK] is just one example). That doesn’t mean there isn’t growth out there.

Corporations are continuing to do what they’re good at—hoarding cash, squeezing costs, and keeping expectations for the future as modest as possible.

Like the second quarter, investor expectations were brought down considerably, so it doesn’t take much for a company’s shares to soar if they slightly beat consensus.

And not all financial metrics have to beat the Street for a company’s share price to take off. Chipotle Mexican Grill, Inc. (CMG), which has been a hot stock over the last 12 months, soared on the stock market after announcing that sales at existing restaurants rose an industry-beating 6.2% during the third quarter. Earnings grew to $83.4 million, or $2.66 per share, compared to $72.3 million, or $2.27 per share. This was below Wall Street consensus of approximately $2.78 per share for the third quarter of 2013. (See “Two Old Restaurant Stocks Offer Investors Growth.”)

The action is the action, and there remains a positive disposition to this market now that there is some near-term certainty from Washington. With several key stock indices pushing new highs, it won’t take much for the stock market to keep ticking higher on a short-term basis.

Has The Stock Market Reached Peak Optimism?

Has The Stock Market Reached Peak Optimism?
Has The Stock Market Reached Peak Optimism?

Optimism towards key stock indices is increasing each day. The U.S. stock market “seems” to be a safe place, and it’s common to hear stock advisors suggesting we are going higher on key stock indices.

Key stock indices like the S&P 500 are making fresh highs. Google Inc. (NASDAQ/GOOG) has surged above the $1,000-per-share mark. Just take a look at the chart below.

Recently, we heard the “Godfather of Charts,” Ralph Acampora, turn bullish on the key stock indices as well. Not too long ago, he held a very bearish view on them. In August, his stance was that key stock indices like the Dow Jones Industrial Average would decline 20% to 12,000. (Source: Wall Street Journal, October 17, 2013.)

Hold on a second! This all looks too familiar!

Google Inc Chart

Chart courtesy of www.StockCharts.com

Whatever happened to what Sir John Templeton said about the bull run stock markets? If I remember correctly, it went something like this: “They are born when investors are most pessimistic, rise when they are skeptical, mature once optimism builds up, and come crashing down once there’s euphoria.”

It’s almost as if investors have forgotten everything that we saw with the stock market in 2007 and 2008—how it went crashing down after optimism surged.

And remember 1999? Investors were so bullish on the key stock indices that they were investing in companies that did not have any revenues or weren’t going to make money in the long run. After that euphoria, we saw it all come crashing down. Investors forgot one basic principle: when stocks keep reaching new highs; fundamentals really matter when it comes to the stock market.

Have we reached peak optimism on the key stock indices on the current rally?

One of the major factors behind the bear market rally we have seen since 2009 was easy money. It’s still around. I can potentially see key stock indices going a little higher, as the punch bowl is still on the table and I hear the new Fed chairman wants to keep the easy money polices in place as well.

In the short term, key stock indices are showing robust price rises, and that’s what the bear dressed as a bull does best. Unfortunately, take away easy money, and there is not much for stocks to celebrate. That’s why I don’t buy into this stock market rally.

Why the Gaming Sector Should Be on Your Radar

Why the Gaming Sector Should Be on Your Radar
Why the Gaming Sector Should Be on Your Radar
With the upcoming release of new video consoles from Sony Corporation (NYSE/SNE) and Microsoft Corporation (NASDAQ/MSFT), the video game sector appears to be set to experience a revival, as my stock analysis indicates.

According to NPG Group, the U.S. sales of video game-related hardware, software, and accessories surged by 27% year-over-year to $1.08 billion in September. (Source: The NPD Group, Inc. web site, last accessed October 22, 2013.) The sale of software, specifically, surged 52% to $754 million, accounting for 70% of total sales. Yet with the debut of two new consoles in November (Sony’s “PlayStation4” and Microsoft’s “Xbox One”), my stock analysis indicates that sales in the hardware sector will pick up, giving a boost to the share prices of Microsoft and Sony.

In the hardware area, Microsoft has done well with its Xbox console in spite of its lag in sales compared to Sony’s PlayStation console, based on my stock analysis. Yet the move by Microsoft into the gaming and entertainment console market is a big selling point for the company, as my stock analysis points out. (Read “Why Microsoft May Finally Be Set to Turn Its Fortune Around.”)

I know my son is anxiously anticipating the release of the PS4 and, in particular, the “NBA Live 14” game that is made by one of the top games developers Electronic Arts Inc. (NASDAQ/EA). Electronic Arts (EA) develops games for the Xbox, PlayStation, and ”Nintendo Wii” consoles. The company also develops games for mobile phones and tablets.

EA games are broad in scope and include action, military, sports, racing, simulation, strategy, family, kids, music, and puzzle-based games. Popular titles include “The Sims,” “Madden NFL,” “NBA,” “NHL,” “FIFA Soccer,” and numerous other lines.

The company has beat quarterly earnings-per-share (EPS) estimates in three of the past four quarters.

On the chart of EA below, note the upward price channel and the recent bullish golden cross, as indicated by the shaded oval. A surge could see the stock jump above $30.00, based on my stock analysis.

Electronic Arts Inc Chart

Chart courtesy of www.StockCharts.com

A second software games developer I like is Activision Blizzard, Inc. (NASDAQ/ATVI), based on my stock analysis. The company is best known for its hugely successful “Call of Duty” series.

According to Thomson Financial, Activision Blizzard is estimated to make $0.89 per diluted share in 2013, and $1.28 per diluted share in 2013; revenues are projected to fall 13.9% this year, rallying 8.5% to $4.66 billion in 2014.

On a quarterly basis, Activision Blizzard has beaten EPS estimates in each of its last four quarters.

As my stock analysis notes, the chart of Activision Blizzard below shows current hesitation following the stock’s recent run-up, due to the most recent release of its “Call of Duty” game. A golden cross remains in play, and the stock could break higher, based on my technical analysis.

Activison Blizzard Inc Chart

Chart courtesy of www.StockCharts.com

Overall, my stock analysis indicates that the launch of the new consoles next month will surely help the video game sector and software games makers; investors would be wise to keep this sector on their radar.

This New Trend in Printing a Boon for Tech Investors?

This New Trend in Printing a Boon for Tech Investors?
This New Trend in Printing a Boon for Tech Investors?
All kinds of companies are listing on the stock market and one of the hottest sectors remains three-dimensional (3D) printing. This is an investment theme with real staying power and a sector that every risk-capital investor should be scrutinizing at this time.

One of the stock market’s hottest initial public offerings (IPOs) this year is voxeljet AG (VJET), which is a German manufacturer of industrial 3D-printing systems. This small but growing micro-cap recently sold 6.5 million American depositary shares (ADS) for $13.00 each, raising $64.5 million after fees. The rest of the proceeds went to selling shareholders.

On its first day of trading last week, the position opened at approximately $24.50 and is now near $39.00. This incredibly strong action reveals just how attractive 3D printing is becoming to the eyes of institutional investors. It’s definitely a bright spot for stock market traders. A whole new industry is being formed right now.

Voxeljet is the latest IPO related to 3D printing, following The ExOne Company (XONE). We looked at ExOne recently after the position pulled back on the stock market. The company’s shares experienced a strong reversal at the beginning of October and are now settling around the $50.00 mark. (See “Wall Street Lowered Expectations for This Stock, But It Got NASA’s Attention.”)

Wall Street expects ExOne’s sales to grow an average consensus of approximately 68% to $48.0 million this year. Sales are expected to grow another 50% in 2014, as the company turns profitable.

There are still only a handful of 3D-printing companies that trade on the stock market. There is 3D Systems Corporation (DDD), out of Rock Hill, South Carolina. And then there’s also Stratasys Ltd. (SSYS), out of Eden Prairie, Minnesota, whose 3D-printing machines are used to create prototype parts, mostly serving the manufacturing sectors, including automotive, aerospace, computer, and defense customers.

In terms of stock market performance, 3D Systems has outperformed the group. The stock is very pricey, but it illustrates the desire that investors have to bid up this developing industry.

In the company’s second quarter of 2013, total revenues grew 45% to $120.8 million. Earnings grew to $9.3 million from $8.3 million, but earnings per share declined a penny.

The company has lots of cash in the bank and describes demand for its 3D-printing machines and related supplies as “heavy.” The company’s third-quarter results are due next week, and the Street expects the company’s numbers to grow at about the same pace as the second quarter.

For the most part, 3D printing is being used in industrial applications, but the transition to the retail market is highly likely. There’s plenty of time before 3D printers seemingly will become commoditized; therefore, there should be some good stock market returns to be had.

There is a fair amount of new IPO activity currently. With the stock market at an all-time record high, it is a good time for companies to be selling shares.

A number of IPOs recently hit the stock market and were bid well above their offering prices. There is an appetite in this market for new stories; 3D printing is one of them, and it’s a growth industry that investors may want to consider, as it should continue to produce excellent returns.

How Investors Can Play the “Losers” in Blue Chips

How Investors Can Play the “Losers” in Blue Chips
How Investors Can Play the “Losers” in Blue Chips
The key to buying stocks and stock market success is to always be on top of your outstanding positions, especially with any major changes in the underlying fundamentals.

If you ignore the warning signs, you may as well go to Las Vegas and gamble away your capital. Buying stocks is not like going to the grocer’s and looking for the cheapest deals. If stocks are getting thrown around and are steadily moving lower on the chart on higher volume, clearly, something is wrong or the company has experienced some dramatic change. This is what you want to avoid.

When I trade, I don’t care about the company’s fundamentals. I simply look out for reversals, whether I’m buying stocks or shorting them. The key is to be on top of things.

For the majority of investors, you don’t need to be constantly staring at the chart on the screen. What you need to do is be on the lookout for any major changes in the sector, a company rival, or the company itself. Failure to recognize changes and heed red flags could result in major losses.

The risk of buying stocks is intensified even more when it comes to smaller companies. If you buy a blue chip stock, one bad quarter or weakness in just one area is no big deal, since the company is usually big enough to absorb any short-term shocks and bounce back. This principle doesn’t apply to small-caps.

For instance, buying the “dog of the Dow” is a strategy often used by traders and institutions to invest in out-of-favor stocks that are paying the highest dividend yields at the time due to weakness in their stock prices.

For instance, as of October 21, the top five dividend yields on the Dow were as follows:

1. AT&T Inc. (NYSE/T; $34.61; 5.20%)
2. Verizon Communications Inc. (NYSE/VZ; $50.01; 4.24%)
3. Intel Corporation (NASDAQ/INTC; $23.88; 3.77%)
4. Merck & Co., Inc. (NYSE/MRK; $46.61; 3.69%)
5. McDonalds Corporation (NYSE/MCD; $95.20; 3.40%)

Take a look at the chart for McDonald’s below. The company faced issues in the 1970s and then steadily rallied into 1999 before facing another downturn to 2003. If you bought the stock at these down points, you would have made a lot of money just by holding.

McDonalds Corp Chart

 Chart courtesy of www.StockCharts.com

When buying stocks for a contrarian turnaround, a simple strategy would be to accumulate these blue chip companies. The reality is that these companies are not going away anytime soon, so they offer investors a decent investment opportunity for buying stocks on weakness.

As I said earlier, the same idea cannot be said for small-cap stocks compared to blue chips. A small company that sees a major reversal in one of its businesses may never recover. This is why you need to be extra careful when looking at smaller companies when buying stocks.

This article How Investors Can Play the “Losers” in Blue Chips originally published at Investment Contrarians by George Leong

Getting Ahead of the Fed to Protect Your Investments in 2014

Getting Ahead of the Fed to Protect Your Investments in 2014
Getting Ahead of the Fed to Protect Your Investments in 2014
After months of getting the markets riled up with talks of reducing quantitative easing, the Federal Reserve will, once again, continue the “taper-shuffle” dance.

According to a survey by Bloomberg, most economists now expect the Federal Reserve to begin reducing its quantitative easing program in March of 2014. (Source: “Fed QE Taper Seen Delayed to March as Shutdown Bites,” Bloomberg, October 18, 2013.)

Just to recap: The Federal Reserve has put into place the most aggressive quantitative easing program in American history, literally spending trillions of dollars to try and boost the American economy. After several years of this aggressive quantitative easing program, we are at a point now where the economy still can’t accelerate.

Now, with Washington taking center stage, the increased uncertainty is throwing another curveball at the American economy. Sure, a temporary budget deal was reached, but nothing has been solved—and we’ll surely see more bickering between politicians over the next few months.

With this backdrop, can we really believe that the American economy will begin accelerating next year?

If the trillions of dollars spent over the past couple of years haven’t generated any growth yet, I just don’t see many reasons to simply assume that everything will be alright in a few months. This is odd coming from me, since I’m an optimist by nature; however, we’ve been fooled so many times into thinking that the situation will improve that being somewhat skeptical really does make sense in the current environment.

Obviously, with the government shutdown, economic reports have been on hold. Since the Federal Reserve needs economic data to determine the state of the economy and whether it should begin tapering its quantitative easing program, no adjustments are possible for at least a couple months.

As a result, we’ll see more money pushed into the stock market simply because quantitative easing by the Federal Reserve is still running at full speed. While it would be great to see significant economic growth emerge, I would question the strength and sustainability of that growth.

When you think about it, if the economy is growing at such a weak pace now with the most aggressive quantitative easing program ever put in place by the Federal Reserve, what will happen when the Fed pulls the plug?

I just don’t believe that the current economy is anywhere near strong enough to stand on its own legs.

This economy is like a junkie, addicted to the extremely strong stimulant of quantitative easing being pushed by the Federal Reserve—that’s all that’s holding the U.S. economy up.

The problem is that at some point, the price needs to be paid. With the Federal Reserve’s balance sheet growing, trillions in quantitative easing sloshing through the system, and no real, long-term structural change by Washington to help America’s economy turn the corner, we’re just delaying the inevitable.

As an investor, this postponement of the Federal Reserve reducing its quantitative easing program will help over the short term to keep interest rate-sensitive stocks holding their own. However, I would look to begin taking profits and avoiding any stocks that rely on interest rate-sensitive financing to close their deals, as interest rates will inevitably reach higher.

As we move into 2014, we will find out exactly how strong (or weak) the U.S. economy really is, and that could bring substantial pain to many sectors of the market. If the stocks you own need low interest rates to keep pushing sales, you can expect those companies to be on the front line over the next year.

This article Getting Ahead of the Fed to Protect Your Investments in 2014 originally published at Investment Contrarians by Sasha Cekerevac

Higher Inventories Weighing On Oil And Gas Prices

Higher Inventories Weighing On Oil And Gas Prices
Higher Inventories Weighing On Oil And Gas Prices

Crude oil climbed again this morning after traders pushed the prices too low earlier in the week. Crude is trading at 97.37 up by 26 cents while Brent oil is up 22 cents at 107.18 with the spread at $10 even. Crude oil rose for the first session in four on Thursday, though gains may be capped by rising crude stockpiles in the world’s top consumer that dragged prices to their weakest in nearly four months in the prior session. Oil refiners in the United States including, for the first time, those on the Gulf Coast are set to gain from a renewed widening of the price gap between the world’s two most actively traded crude contracts. Forties oil flows, which underpin the global benchmark Brent, will soon cease to be dependent on the UK’s troubled Grangemouth refinery as a new power source to keep the oil flowing will come online, a British government source said on Thursday.

Better manufacturing data from China, the second biggest global consumer of oil, suggested an improved outlook for energy demand. Data published by HSBC showed the bank’s preliminary Chinese purchasing managers’ index for this month was 50.9, an improvement from September’s 50.2 and the highest level since March. The index tracks manufacturing activity in China’s factories and is a closely watched gauge of the health of the economy. A reading above 50 indicates growth, while anything below signals contraction.

U.S. crude price fell to the lowest level in almost four months on Wednesday as data signaled ample supplies in the United States, the world’s largest oil consumer. The U.S. Energy Information Administration said crude supplies increased by 5.2 million barrels to 379.8 million barrels for the week ended Oct. 18, beating analysts’ expectation of 4 million barrels. Today traders will evaluate the US durable goods report along with consumer confidence numbers which might affect the price of crude late in the US session.

Natural gas is trading at 3.618 down by 22 points this morning with some delayed response to the EIA inventory report and updated weather forecasts. Yesterday natural gas shrugged off bearish weekly inventory data and milder weather forecasts, ended slightly higher on Thursday, underpinned by some technical buying and expectations for a more supportive storage report next week. A government report showed that working natural gas in storage increased to 3,741 Bcf as of Friday, October 18, according to the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report. A net storage injection of 87 Bcf for the week resulted in storage levels 2.4% below year-ago levels but 2.1% above the 5-year average.

US Recovery Stalling, EU Recovery Slow & UK Recovery Growing

US Recovery Stalling, EU Recovery Slow & UK Recovery Growing
US Recovery Stalling, EU Recovery Slow & UK Recovery Growing
The number of Americans filing new claims for unemployment benefits fell less than expected last week, while U.S. manufacturing grew at its slowest pace in a year in early October, data showed on Thursday. Data from the US continues to show a sluggish recovery, which could almost come to a stall caused by the government shutdown that lasted from October 1-16th. Traders will not see data for October until well into November, which means that the FOMC at their meeting this week should leave their current asset purchase program on hold at $85 billion. As Mr. Bernanke’s tenure as the head of the Federal Reserve is close to expiring we might see him pull out all stops to get the economy on track before Janet Yellen takes over and there is a slight possibility very slight, but a possibility that he might lead the members towards adding a bit of stimulus before the holiday season to help the economy rebound before the new year. There are two important data releases due today, that could help that decision. The US will see durable goods orders and consumer confidence numbers. U.S. consumers showed signs of caution. Spending on foreign cars and consumer goods—including drugs and cellphones—declined in August. Some economists expect consumer demand to struggle into the fall, given Washington gridlock that weighed on confidence and caused furloughs of thousands of workers. U.S. exports fell 0.1% from July to a seasonally adjusted $189.22 billion, while imports were essentially unchanged at $228.02 billion, the Commerce Department said Thursday. As a result, the nation’s trade gap nudged up by 0.4% to $38.80 billion from a revised $38.64 billion in July. The US dollar remains well below the 80 price level trading this morning 79.24 a bit in the red, while the euro continues to gain remaining above 1.38. The strengthening currency poses a dilemma for the European Central Bank. Officials there have been trying to safeguard the fragile and uneven recovery by keeping interest rates at record lows. A rising euro complicates that effort. In addition, it threatens to push inflation, which is only about half the rate ECB officials consider appropriate for the economy’s well-being, even lower. The higher euro weighs heavily on exports from the eurozone. Business activity in the euro zone unexpectedly slowed in October, a closely watched survey of purchasing managers indicated, suggesting an already lackluster economic recovery may downshift further. The prospects for the euro zone may not look exciting; but after several years of crisis, boring may be good news.

While across the channel business seems to be booming as the UK recovery is poise to burst out of the gates. Data including retail sales and jobs have been better than expected and now the rumor mill is saying that the Bank of England maybe the first central bank to increase interest rates. The pound has climbed to trade above 1.62 and has been holding steady. The pound rose against the dollar and the euro on Thursday ahead of growth figures for the third quarter due on Friday which could point to an economic recovery taking hold in Britain. Preliminary gross domestic product dollar (GDP) data from Britain is due on Friday and is expected to show the economy grew by 0.8 per cent in the third quarter, compared with the previous three months.

Gold Up, Copper Down Leaving Silver Stuck In The Middle

Gold Up, Copper Down Leaving Silver Stuck In The Middle
Gold Up, Copper Down Leaving Silver Stuck In The Middle
In a surprise market turn around this week gold continued to climb trading on a high note through Thursday to trade just under 1350.00. In the Asian session this morning traders are booking profits and pushing down prices, gold is trading at 1342.90 down by $7.40. On Thursday, gold rallied to its highest close on the New York Mercantile Exchange since Sept. 19, getting a boost from improved manufacturing data out of China, a massive gold buyer. The overall metals market is mixed this morning as platinum fell $6.30 to $1,449.90 an ounce, while palladium slipped 89 cents to $747 an ounce. High-grade copper for managed to hold steady at $3.27 a pound. Strong Chinese HSBC manufacturing data had little effect on industrial metals, after China reveal a surge in bad debts by local banks which might cause the government to tighten lending conditions. Gold headed for a second weekly advance as weaker-than-forecast U.S. data and concern that growth was hurt by a government shutdown boosted speculation the Federal Reserve will delay a cut in stimulus. Investors await economic data from the U.S. and Germany due later today. U.S. durable goods orders may have risen 2.3 percent last month, after gaining 0.1 percent in August, according to a Bloomberg survey. Germany’s Ifo institute business climate index probably rose this month to the highest since April 2012, according to another survey.

Gold lost 20 percent this year amid speculation the Fed will curb stimulus measures. More Americans than forecast filed jobless claims, data showed yesterday. The 16-day government shutdown that started Oct. 1 probably trimmed 0.25 percentage point from fourth-quarter growth and cost 120,000 jobs this month, according to Jason Furman, President Barack Obama’s chief economic adviser. Traders will focus on the FOMC meeting scheduled for the middle of the coming week although odds are that the Fed will keep everything as is until their December meeting after they access the damage caused by the government shutdown. Fed policy makers unexpectedly refrained from slowing the monthly $85 billion bond purchases last month and economists surveyed by Bloomberg Oct. 17-18 said the central bank probably will delay a reduction in the stimulus until March.

Initial jobless claims decreased by 12,000 to 350,000 in the week ended Oct. 19, the Labor Department said yesterday, compared with 340,000 forecast in a Bloomberg survey.

Copper is doing just the opposite of gold which leaves silver stuck in the middle. Silver is trading at 22.663 down 159 points. Copper is poised for a weekly decline amid concern that China is tightening monetary policies to curb inflation, reducing the demand outlook for industrial metals from the biggest consumer.

The contract for delivery in three months on the London Metal Exchange was little changed at $7,182 a metric ton. The price has fallen 0.9 percent this week, set for the first monthly drop in four months. The benchmark money-market rate in China yesterday jumped the most since June as officials’ drained cash from the financial system amid a sign of a recovery in the second-biggest economy. Manufacturing strengthened more than economists estimated this month and inflation rose to the highest level since February.

Weak U.S. Economic Data Pushes EUR/USD Over 1.38

A decline in the U.S. Dollar boosted demand for foreign currencies and commodities this morning as concern that U.S. economic growth was negatively affected by the government shutdown continued to fuel bets the Federal Reserve would push its tapering plan into 2014.

This morning, U.S. weekly jobless claims fell to 350K from 362K. This, however, was higher than the estimate of 340K. Flash Manufacturing PMI fell more than expected to 51.1. The previous number was 52.8. Investors were looking for a decline because this report reflected the impact of the government shutdown and debt ceiling debate.

eur 2

The EUR/USD continued to rally on the heels of a sluggish U.S. economy. The rally put the Forex pair in a position to challenge the major 61.8% retracement level at 1.3833. Although there may be a technical bounce following the first test of this level, unless there is a complete recovery in the U.S. Dollar, look for the Euro to continue to rise over the near-term.

The GBP/USD also moved higher, but investors were a little tentative about buying so close to the double-top at 1.6247 and 1.6259. Investor bullishness appears to be waning since yesterday it was revealed that the Bank of England’s Monetary Policy Committee voted unanimously to keep interest rates at historically low levels. Bullish investors have been trying to build a case for the central bank to end its loose monetary policy sooner than expected, central bankers have not be swayed by the economic data.

British Pound investors are going to have to decide to whether to increase their long positions at this lofty price level because of the weaker dollar or back away while heeding the advice of the BoE that the U.K. economy is not strong enough to support a high priced currency.

The decline in the U.S. Dollar also drove up December gold. The weaker Greenback is making oversold gold more attractive to foreign investors. In addition, speculators may be increasing their long positions as a possible hedge against a drop in the stock market.

Technically, the main trend is up in gold on the daily chart, but the market is finding solid resistance at a major 50% level at $1342.50. A break through this level should trigger a quick rally into a downtrending Gann angle at $1354.00. Eventually, gold should test the Fibonacci level at $1364.09 if investors can sustain a move over $1342.50.

After posting an early gain, December Crude Oil declined following the release of the weak PMI data. Crude oil traders pressured prices on the thought that a weakening economy will trigger a drop in demand and increase supply. Now that the market has broken through the Fibonacci level at $98.17, this price is new resistance.