Is Another Breakout Possible?

Hard to image, but with the VIX at a 30 month low and Oil sticking again at $80 a barrel we could see many commodities related stocks break to new highs before we roll over.

USA stock fundamentals have been improving. Even if the top lines are not expected to grow, profits will, resulting from two years of layoffs and hiring freezes. This market has been like a snowball rolling downhill and picking up momentum as it goes. It just feels like the worst case scenario near term is only a 5% downside risk. But of course, that's for the aggregate market, not individual stocks. Still plenty of 10-20% pull-back risk in individual stocks. At this point in the game I'd beware playing break-outs and look more for quality names in a pull-back (falling wedge patterns)e.g. Exxon. U.S. Steel for example is back at the top of it's range. It's been climbing for two months to reach new 12 month highs. Purhaps the US declaring China is dumping steel and plans a small but important tariff caused US Steel (X) to hit those highs. Long term you know USA steel is in recover but you can also see how easy it was for it to fall back 20% last fall. Note how it dropped 20% even as the market continued to climb.

Keep an eye on those individual stock trendlines and range bands. I've seen to many market tech. newbies only recommending buying individual stocks on breakouts to new highs. At this point in the game thats a very high risk play. Best to buy cyclical stocks only after a falling wedge pullback. I read two Seeking Alpha gurus telling people to by POT after it had a 30-35% run up. POT and gold stocks (GG, ABX) where at the top of their buy list two months ago. Why can't these guys right these articles before the 30-35% run up? As expected the big boys sold into those new breakouts and the stocks just fell back down 20-25% making those recomendations look stupid and sending the sheep to their financial death in a roaing bull market. But you can bet as they hit those imaginary support lines the big boys come into to buy them again. Note how deepwater drillers RIG, DO and ESV had been in a fallen wedge pattern like Steel stock X and Bank stocks C and BAC since early fall. All these stocks began climbing again in December when it was clear oil was not falling below $70.

Now steel stocks like X have hit new highs. I sold my US Steel(X)much to early into this advance. Health care providers like AFAM and AMED hit new highs. Two weeks ago the deepwater drillers began their climb and oil transport tanker FRO is holding close to highs. Now the drybulks shippers like DRYS, GNK and DSX are showing strenght and look set to move backup to their highs from a few months ago.



Over the last three months little money has been made on betting on any 10% move in the index up or down. The market is so stable it's hard to make money with the ususal ETFs. Best to look for turning points and pull backs. One ETF I've continued to make money with in spite of it's issues is Natural Gas play UNG. It fell all last year but on three occassions I made money buying at new low extremes and selling into the bounces that always followed. This year with a recovering economy and winter cold snap I'm betting the institutional buyers will be pushing this into a new upward trend.

In a steady eddie stable market the money has beem made in selling cyclical stocks reaching new highs and buying those stocks on major sector(falling wedge)pull backs.

One need only look at the charts of Steel stock X or Oil driller RIG and ESV along with refiners to see examples. At this point I'm selling airline CAL which recently hit new highs to buy Exxon (XOM) and more drybulk shipping. I loaded the boat on the dog with fleas stock Citi (C) along with a little BAC and GE on this most recent pull back. No need to sell them until they return to their old highs of last year. No need to worry about any panic sell-off in the first quarter like last year with bank stocks.

Health care and big pharma stocks like PFE (3.5% yield) and LLY (5.5%) paying high stable dividends are safe value plays. Lots of telecom dividend plays, with VZ yielding 5.5% and VOD with 5.5%. Korean play SKM and China Mobile paying 3.5% in a strong growth markets have fallen back from last summers highs. I recently picked up both shares alone with steady eddie MO. With USA money market funds paying less than 1/2% any steady eddie 3.5% or higher dividend play is a safe bet in this market.

Brasil is Hot -Part 2

Here is the editor of Intelligence Report discussing why he likes Brazil. This follows on the heals of my prior post on Brasil.

Richard C. Young, editor of Intelligence Report, says Brazil is an emerging economic power with a stable democracy and a healthy financial system.

As an investment destination, Brazil offers profound promise. Slightly smaller than the continental US, Brazil [has] a population of 190 million. More than half the population is now considered middle-class by Brazilian standards.

Unlike many emerging-market countries, Brazil is not overly dependent on commodities or exports. Its economy is highly diversified, with personal consumption expenditures accounting for 60% of [gross domestic product] and exports accounting for only 14.3% of GDP. Manufactured goods account for 60% of exports. Brazil is the world's seventh-largest manufacturer of automobiles and the fourth-largest manufacturer of airplanes.

Brazil is the only BRIC nation that is both a stable democracy and at peace with all its neighbors. Brazil's financial system is healthy: Total credit to GDP is only 41%. Brazil has $233 billion in foreign exchange reserves, which is equal to 19 months of imports and fully covers the country's public and private external debt.

Brazil is also endowed with natural resources. It is the world's leading exporter of iron ore, coffee, soy, orange juice, beef, chicken, sugar, and ethanol. Brazil has 958 million acres of highly productive arable land, with 222 million acres that have yet to be farmed. The country generates 73% of its energy needs from hydroelectric power. Brazil is also home to one of the ten largest oil reserves in the world, the Tupi field.

Decades of recurring turmoil, arcane lending laws, and high inflation have kept Brazil's economy underleveraged. Mortgage debt in Brazil is equal to only 2.5% of GDP, compared to 80% in the US. There is huge pent-up demand waiting to be unlocked in the housing sector. Mexico, which has 60% of the population of Brazil, builds four times as many homes.

Lower interest rates and changes to lending laws are likely to unlock Brazil's pent-up demand for housing over the coming decade. Falling interest rates have already begun to unlock credit growth in consumer loans—65% of car purchases are now made on credit, and purchases with credit cards have been growing at 22% annually during the past decade.

Brazil has always had great potential, but has consistently managed to stumble. Change is now under way. Inflation has been tamed, the state has found an acceptable balance with private industry, excessive government debt is no longer a problem, and stability has returned to the economy. A more stable Brazil should result in higher earnings multiples on Brazilian stocks, lower interest rates on Brazilian debt, and a more valuable currency.

You should continue to expect wicked volatility when investing in Brazil. The government still has its hands deep in the private economy, as evidenced most recently by the implementation of a tax on capital inflows. Plus, while Brazil is headed toward developed market status, it is not there yet. Begin with a starter position in Market Vectors Brazil Small-Cap (NYSEArca: BRF) or iShares MSCI Brazil (NYSEArca: EWZ), and add to your position on dips.

Current Ratio Analysis

Current Ratio Education Combined With Zacks Analysis By: Kevin Matras



Current Ratio is calculated by dividing current assets by current liabilities. The higher the ratio the better, meaning the company has more liquid assets to meet its short-term obligations. A ratio of 2 or more (meaning a company has at least twice as many short-term assets than short-term liabilities) is generally considered good.

Currently, the average current ratio for the stocks in the S&P 500 is 2.09. This is a nice improvement from mid-year when it was at 1.75; and an even bigger improvement from the beginning of the year when it was at 1.67.

Screening for this is quite easy to do.

It's a ratio, so on any stock screener programs, including the Zacks Research Wizard, you'd want to first go to 'Ratios'. And then go to the 'Liquidity and Coverage' section. From there, you'll find an item called 'Current Ratio'. That's the one.

As for what value to use, I prefer to compare a stock's Current Ratio to the median for its Industry. And in this week's screen, were doing just that. We'll also add in some other items to help us find sound companies with solid prospects for the future. But please keep in mind variables like the individual companies and industry outlook are far more important than its current ratio in moving stock prices.

Screen Parameters. Below is just one example.

■Zacks Ranks = 1
(Only Strong Buys allowed.)

■Current Ratio > median for its respective X Industry
(Looking at the companies with the strongest liquid positions to meet their short-term financial obligations.)

■Current ratio > 2
(And at the very least, we want the companies to exceed the commonly held definition of good, which means greater than 2.)

■Projected 1 Yr. Growth Rate > median for its respective X Industry
(This means we’re looking for the companies with the best growth rates within their groups.)

■Projected 1 Yr. Growth Rate > 0
(I only want positive projected growth rates.)

■Price >= $5

■Volume >= 100,000

Here are 5 stocks that passed this week’s screen:
BLK - Snapshot Report BlackRock, Inc.
CBT - Snapshot Report Cabot Corp.
FIRE - Snapshot Report Sourcefire, Inc.
ISRG - Analyst Report Intuitive Surgical, Inc.
VRX - Snapshot Report Valeant Pharmaceuticals

Note: Current Ratio Analysis is only one of many financial ratio's and I'd say you would only use this as a confirmation of your investment choice based on economic and industry outlooks combined with the more important earnings and revenue outlook for the company you are considering investing into.