In the battle between the bulls and bears, the bears are making some excellent arguments. The market’s price-to-earnings ratio is above its historical average. The cyclically adjusted price-to-earnings ratio (also known as CAPE) is reaching highs not seen since the 2008 financial crisis. #-ad_banner-#The bears argue that the bull market has gone on far too long and that we’re reaching the peak of the business cycle. But one of the most compelling cases from a technical standpoint is the ”Dow Theory” divergence. According to ”Dow Theory,” developed by Charles Dow in… Read More

In the battle between the bulls and bears, the bears are making some excellent arguments. The market’s price-to-earnings ratio is above its historical average. The cyclically adjusted price-to-earnings ratio (also known as CAPE) is reaching highs not seen since the 2008 financial crisis. #-ad_banner-#The bears argue that the bull market has gone on far too long and that we’re reaching the peak of the business cycle. But one of the most compelling cases from a technical standpoint is the ”Dow Theory” divergence. According to ”Dow Theory,” developed by Charles Dow in the late 1800s, we should see both the Dow Jones Industrial Average and the Dow Jones Transportation Average in uptrends during a bull market. That makes sense, because transportation companies ship what the industrials produce, and strength in both sectors is consistent with a growing economy. But the transports have been weak since the beginning of the year, failing to confirm new highs in the industrials. In the chart below, you can see that these two indices typically trade in tandem, but recently transportation stocks have begun to stray.   This… Read More

Last week, I suggested trading against the trend in an oversold stock. For this week’s trade, though, the trend has returned to being my friend — and for Johnson Controls (NYSE: JCI), that trend is to the downside. This maker of automobile interior systems and building heating, cooling and management systems broke down last month through its intermediate-term trendline, as seen in the chart below. That came on the heels of the June 10 breakout failure, also seen below, sparked by news the company was considering spinning off its automotive businesses. Initially the market viewed… Read More

Last week, I suggested trading against the trend in an oversold stock. For this week’s trade, though, the trend has returned to being my friend — and for Johnson Controls (NYSE: JCI), that trend is to the downside. This maker of automobile interior systems and building heating, cooling and management systems broke down last month through its intermediate-term trendline, as seen in the chart below. That came on the heels of the June 10 breakout failure, also seen below, sparked by news the company was considering spinning off its automotive businesses. Initially the market viewed the spin-off as a positive for the company, but it was a one-day wonder rally. The next day, the stock started to fall, and it has not looked back since. In the face of a series of lower highs and lower lows, the downside trend break and a drop back below the 200-day moving average, we can safely assume the bears are in charge here.  That suggests there is more downside ahead. For some additional background, Johnson Controls is in the consumer discretionary sector and its representative exchange-traded fund, the Consumer Discretionary Select SPDR (NYSE: XLY), appears to… Read More

#-ad_banner-#Although the Earth has more water than land, only 1% of the vital liquid is actually potable. Across the globe, limited supplies of clean water are in danger as demand surges. The only solution: better management of existing fresh water and cheaper, more efficient methods of turning undrinkable water into pure H2O. Welcome to a three-part look at this vital issue. The problem will not be solved overnight (or any time soon), making this a long-term source of global concern, while generating serious profits for savvy investors. Today’s essay is an overview of the topic. Part two centers on companies… Read More

#-ad_banner-#Although the Earth has more water than land, only 1% of the vital liquid is actually potable. Across the globe, limited supplies of clean water are in danger as demand surges. The only solution: better management of existing fresh water and cheaper, more efficient methods of turning undrinkable water into pure H2O. Welcome to a three-part look at this vital issue. The problem will not be solved overnight (or any time soon), making this a long-term source of global concern, while generating serious profits for savvy investors. Today’s essay is an overview of the topic. Part two centers on companies working to improve irrigation techniques. The final piece focuses on desalination and the companies reducing costs and improving efficiency in the industry. Water, Water, Everywhere The ongoing drought in California has brought home a clear reality for many Americans. Although residents of the nation’s most populous state will never die of thirst, their ability to serve as one of the nation’s primary agricultural hubs has become imperiled. Pull back the lens to a global scale and the problem is more apparent: agriculture accounts for approximately 70% of total global water consumption.  Source: International Fund for… Read More

Sometimes, an insult is actually a compliment. Warren Buffett once quipped that an idiot in the corner office is not necessarily a bad thing. I’ll let the Sage of Omaha say it is his own words: “I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.” #-ad_banner-#It’s actually a brilliant bit of insight. Let me explain. So many companies have floundered once the management baton has been handed from the founders to the next generation of management. The… Read More

Sometimes, an insult is actually a compliment. Warren Buffett once quipped that an idiot in the corner office is not necessarily a bad thing. I’ll let the Sage of Omaha say it is his own words: “I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.” #-ad_banner-#It’s actually a brilliant bit of insight. Let me explain. So many companies have floundered once the management baton has been handed from the founders to the next generation of management. The only way such a transition can be successfully handled is by establishing clear and simple principles that are easy to execute. The next CEO just has to keep his hand on the rudder and keep the boat sailing on the right heading. I’m always cognizant of that notion when adding new holdings to my Top 10 Stocks portfolio. I would never want to invest in a company that required a lengthy explanation of its mission statement. “Keep it simple,” is the mantra that we should all heed. Here’s the real problem… Read More

Earlier this year, I made the case to readers of my premium options service, Profit Amplifier, that a market correction could happen sometime this year. Just a few months later, that time has come. I recently warned investors about trouble brewing in Russia and China, and I was on the front lines during the dot-com bubble and its subsequent burst. Fortunately, I accurately foresaw both the dot-com bust and the 2008 financial collapse as well. And I not only survived both events, but prospered. #-ad_banner-#This time around, often-overlooked warning signs suggest hundreds of popular… Read More

Earlier this year, I made the case to readers of my premium options service, Profit Amplifier, that a market correction could happen sometime this year. Just a few months later, that time has come. I recently warned investors about trouble brewing in Russia and China, and I was on the front lines during the dot-com bubble and its subsequent burst. Fortunately, I accurately foresaw both the dot-com bust and the 2008 financial collapse as well. And I not only survived both events, but prospered. #-ad_banner-#This time around, often-overlooked warning signs suggest hundreds of popular investments will be in danger of experiencing 10% to 30% drops. And at worst, we could see a full-blown, longer-term correction. But once again, my readers and I have the chance to not only protect ourselves, but even profit handsomely from the trouble that’s on the horizon. And we’ll do it in a very simple, easy-to-understand way — by using put options. Given current market risk, it’s crucial you understand how options work. In early June, I introduced you to the basics of call options. Today, I’d like to discuss put options, which will… Read More

#-ad_banner-#These are gloomy times at the headquarters of digital advertising firm Rocket Fuel, Inc. (Nasdaq: FUEL).  Many of the company’s employees became paper millionaires during the September 2013 initial public offering (IPO). Shares opened for the first day of trading at $29 and soared to $62 by the end of the day. These days, shares languish around $8 and most employee stock options are deeply underwater. Yet this company’s share price implosion was quite predictable. That’s because management pursued the maxim “growth for its own sake.” They forgot that investors eventually expect sales growth to turn into profit growth. Indeed… Read More

#-ad_banner-#These are gloomy times at the headquarters of digital advertising firm Rocket Fuel, Inc. (Nasdaq: FUEL).  Many of the company’s employees became paper millionaires during the September 2013 initial public offering (IPO). Shares opened for the first day of trading at $29 and soared to $62 by the end of the day. These days, shares languish around $8 and most employee stock options are deeply underwater. Yet this company’s share price implosion was quite predictable. That’s because management pursued the maxim “growth for its own sake.” They forgot that investors eventually expect sales growth to turn into profit growth. Indeed this is a lesson learned — and forgotten — every decade. Back in 2008, strategists at consulting firm AT Kearney spelled out this growth trap in great detail. A simple look at Rocket Fuel’s financial statements paints a picture of a company with minimal expense restraint. Although investors initially applauded this company’s remarkable growth trajectory, they couldn’t understand why losses kept on rising. Rocket Fuel’s desire to “step on the gas” in terms of headcount spending has ultimately been a huge turn off. Instead, investors need to steer clear of companies with negative operating leverage. … Read More

Always cast your line where the big fish swim. With tens of thousands of potential investment choices, one smart strategy is to follow the smart money — the kind managed by the sort people who seldom guess wrong. #-ad_banner-#In most instances, that means hedge funds. These special investments are open only to the (really) rich. This is actually defined by federal law. To qualify, an individual must have a net worth greater than a million bucks, not counting home equity. An individual also needs to have $200,000 in annual income (or… Read More

Always cast your line where the big fish swim. With tens of thousands of potential investment choices, one smart strategy is to follow the smart money — the kind managed by the sort people who seldom guess wrong. #-ad_banner-#In most instances, that means hedge funds. These special investments are open only to the (really) rich. This is actually defined by federal law. To qualify, an individual must have a net worth greater than a million bucks, not counting home equity. An individual also needs to have $200,000 in annual income (or household income of greater than $300,000), with a reasonable belief that the income stream will continue. Hedge funds have professional management. I’m talking about the pinstriped suit crowd that actually run the world; the private jet types who use “weekend” as a verb. Let’s be very clear, though. Most hedge funds, no matter how lovely their managers’ suits, do not beat the market over time. That might be one reason why Warren Buffett made a famous $1 million bet that a basket of five hedge funds couldn’t beat the market over… Read More

As an economist for the state of Iowa, I learned that economic stimulus can affect growth — but only if given time to work. Of course, patience is not something investors or the markets are known for.  The lagging nature of stimulus on the economy can be excruciating for those with a stake, especially when the market wants instant gratification. This often manifests in whipsaws, where stock prices jump on news of economic stimulus, only to fall when the stimulus doesn’t come through in immediate economic growth. With this in mind, and with a little patience, you can make good… Read More

As an economist for the state of Iowa, I learned that economic stimulus can affect growth — but only if given time to work. Of course, patience is not something investors or the markets are known for.  The lagging nature of stimulus on the economy can be excruciating for those with a stake, especially when the market wants instant gratification. This often manifests in whipsaws, where stock prices jump on news of economic stimulus, only to fall when the stimulus doesn’t come through in immediate economic growth. With this in mind, and with a little patience, you can make good money as the rest of the market misses out on the bigger picture.  #-ad_banner-# For instance, a surge in stimulus measures in one country may soon jumpstart its economy. As a result, a key trading partner could see its market jump as well. Plus, Warren Buffett has taken an interest in this beaten-down market. And one of my favorite strategies offers a chance to get paid while we wait for a rebound.  China Ramps Up Stimulus Measures As of July 8, the Hang Seng index in Hong Kong had plummeted 14% in just a month… Read More

The major U.S. stock indices aggressively rebounded last week from the underlying support levels I pointed out in the July 6 and July 13 issues of Market Outlook. The rally was led by the tech-heavy Nasdaq 100, which gained 5.5% and is now up 10% for the year, and was fueled by news that China appears to have averted its major stock market crash while the eurozone is on its way to kicking the Greek default “can” further down the road. #-ad_banner-# Last week’s rally was led by the technology and financials sectors, which gained 4.8% and 3%, respectively. In… Read More

The major U.S. stock indices aggressively rebounded last week from the underlying support levels I pointed out in the July 6 and July 13 issues of Market Outlook. The rally was led by the tech-heavy Nasdaq 100, which gained 5.5% and is now up 10% for the year, and was fueled by news that China appears to have averted its major stock market crash while the eurozone is on its way to kicking the Greek default “can” further down the road. #-ad_banner-# Last week’s rally was led by the technology and financials sectors, which gained 4.8% and 3%, respectively. In fact, all sectors of the S&P 500 posted gains except for energy and materials, which both remain under pressure within a sluggish global economy. The big question this week, and the focus of today’s Market Outlook, is whether last week’s rally is sustainable.  Nasdaq 100 Meets Our Upside Target  Two weeks ago, in the July 6 Market Outlook, I pointed out that the bellwether S&P 500 was testing major underlying support at its 200-day moving average, a widely watched major trend proxy, and said this was where its larger bullish trend should resume if still… Read More

#-ad_banner-#The two titans of retail squared off last week in a discount smack down. The battle should have major  consequences for each other and the broader industry. Amazon.com, Inc. (Nasdaq: AMZN) has amassed a $100 billion revenue base through a combination of solid execution and well-timed promotions. For example, its Amazon Prime service has created a strong base of loyal and sticky customers. Celebrating its 20th anniversary of that service, the company held a special “Prime Day” on July 15, with a range of discounts. The move came as retail Wal-Mart Stores, Inc. (NYSE: WMT) is making its own… Read More

#-ad_banner-#The two titans of retail squared off last week in a discount smack down. The battle should have major  consequences for each other and the broader industry. Amazon.com, Inc. (Nasdaq: AMZN) has amassed a $100 billion revenue base through a combination of solid execution and well-timed promotions. For example, its Amazon Prime service has created a strong base of loyal and sticky customers. Celebrating its 20th anniversary of that service, the company held a special “Prime Day” on July 15, with a range of discounts. The move came as retail Wal-Mart Stores, Inc. (NYSE: WMT) is making its own massive online push. While Amazon was touting its sales event, Wal-Mart cut prices on thousands of products last week and is developing its own loyalty program, which will cost $50 a year. Walmart also lowered its minimum purchase for free shipping to $30 from $50 for the week’s promotions. Wal-Mart’s CEO even took subtle digs at Amazon and its pricey $99 per year membership fee. These two warriors are officially in battle. Tale Of The Retail Tape In tandem with a steady consumer migration toward e-commerce, Amazon’s growth rate has vastly outpaced Wal-Mart’s… Read More