Saturday, April 27, 2013

Investing scams and myths:

The four top investment myths and scams are stop loss orders, share buybacks, covered call writing and these currency hedged ETFs.

Don’t use stop loss orders. Last Tuesday a group hacked into the Associated Press’s official Twitter account, reporting that an attack on the White House had injured President Barack Obama. The news was erroneous but the Dow Jones industrial average dropped about 150 points in less than a minute. Last year we had the Flash Crash of 2010, which sent the S&P 500 down over 8.6% in minutes and in the process triggering many stop loss orders which were not reversed. There will be more of these mini crashes and so the lesson here is to ignore those business TV experts and do not place top loss orders onto your investment / trading platform. When trading on-line those mouse clicks can get you in trouble so consider using an advisor who can explain and serve up sober second thought.

The corporate share buy-back is attractive to yield chasers because it may appear to be the act of a cash rich company retuning cash to shareholders. The theory here is when a public corporation uses cash to buy and cancel shares the smaller share float becomes more valuable because the earnings are now shared by fewer shares.

Several issues here – when a company reduces the outstanding shares it gets smaller and in the long run companies do not shrink their way to greatness. The other issue is the company’s claim that buying back shares is the best use of their cash. That could mean less cash for expansion in the form of acquisition, capital spending and research and development. Two serial share buy back companies are Business Machines Corporation (IBM) and Exxon Mobil Corporation (XOM) – both relative under performers over the past year and a half.

Last Wednesday Apple Inc, (AAPL) announced that its Board of Directors has authorized a significant increase to the company’s program to return capital to shareholders. This “return capital to shareholders” statement involves increasing its share repurchase authorization to $60 billion from the $10 billion level announced last year. I guess the idea of using the cash to grow the business is not in the best interest of the shareholders.

Covered call writing can be best described to provide some income along with the opportunity to give away a rising stock and the opportunity to hold on to a losing stock. Also forget about those steady income streams – TSX listed HEX Horizons Enhanced Income Equity ETF first payout following inception at March 17, 2011 was $0.1787 and the last payout posted was $0.0354. Over the same period the unit price has declined from $10.00 to $6.91.

Currency hedging is expensive nonsense. The new iShares S&P Global Industrials Index Fund (CAD-Hedged (XGI) is supposed to clone the performance of the S&P Global 1200 Industrial sector. Canadian investors may want the exposure but currency hedging can get in the way. If a Canadian buys a property in the U.S. for an investment are they going to apply a currency hedge?

The pure U.S. $ play would be the NYSE listed Industrial Select Sector SPDR (XLI) but then a Canadian investor has the expense of round trip dollar exchange fees. Canadian ETFs are supposed to solve problems – not create them. The chart of the long term performance of the Canadian dollar vs. the U.S. $ displays the short 2003 to 2008 window where currency hedging worked. Currency hedging is for the investment sheep because they forget foreign investments should offer diversification, by location and by currency.


Monday, April 22, 2013

Charting Gold

A clip from a Getting Technical letter - Interim Update April 14, 2013 GT1400 an analysis of the recent collapse in the price of gold

“The good news - These torpedo-like moves tend to occur at the end of a bear and never at the beginning of a bear” (and) “The shorter term intermediate study - both gold and silver have built long and complicated 5-wave corrective triangles (and) the price magnitude of the 5th and last selling wave is not predictable but will end quickly and provide opportunity for investors to add to their portfolio weight. The support levels are likely the hold and introduce the continuation of the longer term advance.”

Note the updated chart on CME gold – we see a large descending triangle which is a bearish reversal pattern. There is a completed 5-wave count imbedded in a typical A-B-C type correction. From the price peak we zigzag down to (A) then zigzag up to (B) and then the collapse down to the final killer wave at (C).

As a rule the big collapse at (C) such we saw last week in gold will usually occur at the end of a corrective period and rarely at the beginning of a corrective period. 

Monday, April 15, 2013

The Stampede out of gold

This is a clip from a Getting Technical Interim Update April 14, 2003 #GT1400

See chart - The shorter term intermediate study - Both gold and silver have built long and complicated 5-wave corrective triangles. The price magnitude of the 5th and last selling wave is not predictable but will end quickly and provide opportunity for investors to add to their portfolio weight The support levels are likely the hold and introduce the continuation of the longer term advance.

These torpedo-like moves tend to occur at the end of a bear and never at the beginning of a bear.

Chart 2 – thanks to the CME a 15-min inter day at 3pm of May silver – note the triple bottom – which displays some small support in here

Thursday, April 11, 2013

How we love to hate Barrick

This is a clip from today’s Globe Report on Business

“Barrick’s woes in Chile deepen as Pascua Lama is suspended” and “Barrick has endured one of the most tumultuous years in its 30-year history, beginning with the sudden replacement of its chief executive officer in mid-2012, the subsequent cost overrun at Pascua-Lama and a $3.8-billion writedown on a high-priced copper acquisition. As an industry, mining is facing the worst cost increases in decades”

In response to the news Canadian and U.S. investors pounded the stock down roughly 8.4% to close at $24.46 yesterday.

This Barrick fiasco could be a setup for a great contrarian play. I can’t imagine any advisor having the guts to call a client and table arguments as to why Barrick should be bought today. My experience has been that when a client is easily sold on an investment, it is too late. It is the hard sells that pay off in the long run. For example if a year ago your advisor called and told you to by Air Canada or Westjet you may have moved your account to another advisor

By the way I note that Barrick has a dividend yield of 3% and a payout ratio of under 20%, one of the lowest of all the CDN large caps

Tuesday, April 9, 2013

Gold Stocks, is the selling over?

This is a clip from my Getting Technical Market Letter:

Interim Update April 8, 2013 GT1399

Gold vs. the Gold Producers: There is a possible bullish divergence setup between the price of gold (bullion) and the price of the large cap gold producers

A word on capitulation:

Emotional investors finally give up on a losing investment by selling at any price in an effort to get out of the market. This is usually accompanied by extremely high volume and sharp declines. It usually is indicated by panic selling.” According to Investopedia, the term is a derived from a military term which refers to surrender.

The Market Vectors Junior Gold Miners ETF (GDXJ) $15.26 appears to have experienced investor capitulation in early March. Note the low price and the high volume and the subsequent rebound of the money flow lines. Note the recent lower low and recovery accompanied by much higher money flow lines

Wednesday, April 3, 2013

A pending bull trap

According to the team at S&P Dow Jones Indices Communications at the close of April 2, 2013 Dow Jones Industrial Average closed at 14662.01, up 89.16 points, or 0.61% and was a new record close. The Dow was also up fourteen of the past twenty trading days. Yesterday the top five contributors to The Dow's movement and their point contribution: UNH (21.27), IBM (15.21), HD (10.37), PG (9.68), MCD (9.29).

The Dow was up 123.95% from its 12-year closing low of 6547.05 on March 9, 2009 and up 11.08% from 52 weeks and year-to-date up 11.89%.

Very impressive but what is not impressive is the failure of the Dow Transports, the SOX semiconductor index, the Market Vectors Semiconductor ETF (SMH) and the Russell 2000 small cap index to confirm the Dow’s record performance. This non-confirmation is typical of an aging bull market. The upper candlestick plot displays a bearish trend break of the SMH and as us old timers know – when the semiconductors sneeze – the market gets pneumonia.

Tuesday, April 2, 2013

Orbite – Go Up or Blow up:

According to Orbite Aluminae Inc. (ORT) they are a Canadian company whose innovative and proprietary processes can produce alumina and other high-value by-products, such as rare earth and rare metal oxides, at one of the lowest costs in the industry, without generating any wastes, using feedstocks that include aluminous clay, kaolin, nepheline, bauxite, red mud and fly ash.

According to Alice Tsang , Portfolio Manager, Marquest Asset Management and I quote ”Very exciting that they have commenced production. Watching the stock very closely but would want to see if they can have offtake contracts or some kind of marketing agreement put together. Stock has acted very well on the announcements. If it breaks out from these levels, it will probably be based on some very positive catalysts, and the stock will be a Buy.”

According to the technicals – investors have been fleeing the stock for over a year in spite of all the bullish press releases. On a daily chart the money flow numbers are plunging – so don’t even think of bottom fishing.