Tuesday, March 3     Published daily Receive trading 'touts' free
Commentary for the Week of February 22

Hoping for Inflation

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[Following is a letter that my friend Doug Behnfield, a Colorado financial adviser whose thoughts have been featured here many times before, sent out to clients as the new year began. Doug is an unapologetic deflationist like your editor — a point of view that has served him well in recent years. Although February has been disappointing for investors weighted in long-term bonds, Doug sees them recovering, and yields falling even lower, as the U.S. economy fails to gain strength. For our part, Rick’s Picks has predicted a drop in long-term rates below 2%, and possibly to as low as 1.63%. If so, those who hold T-Bonds and long-term munis stand to reap substantial capital gains, since the longer the maturity, the more leveraged these assets are to even small changes in interest rates. RA]

1. want something to happen or be the case.

Hang me just ez high ez you please but please don’t fling me in dat briar-patch!

– Bre’r Rabbit


The performance of the bond market in 2014 took practically everyone by surprise (except for yours truly and a few money managers like my friends at Hoisington Management). Here is an excerpt from a great article in the New York Times that tells the tale: “For Bond Investors, That Other Shoe Still Didn’t Drop”:

If you asked anyone at the beginning of 2014 where the rate on the 10-year Treasury would end the year, I don’t think anyone would have said lower, and most would have said one percentage point higher,” says Stephen Kane, a group managing director at TCW, which manages $110 billion in fixed-income portfolios, including the Metropolitan West Total Return Bond fund.

Yet the bellwether Treasury note ended 2014 at 2.17 percent [it hit 1.72% today] after starting it at 3 percent. And while the United States economy showed some vigor — typically a trigger for rates to rise — global investors fleeing weakness in other markets were eager to buy American bonds. That demand pushed bond prices higher and yields lower.

The upshot is that last year was frustrating only for the bond bears who have been waiting since 2009 for interest rates to rise from the abnormally low levels manufactured by Federal Reserve policy.” [click to continue…]

Thought for Today

As Apple Goes…

Apple, the world’s most important stock, sold off into the close Friday, ending the week on a small cliff. Just a little more weakness would suggest a further fall of $3, presumably dragging the broad averages down with it. For precise details, including a chart with a crucial midpoint support, check out my latest tout for the stock. If you don’t subscriber but would like a free peek, click here for a two-week trial subscription.

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$USM15 – June T-Bonds (Last:159^23)

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$AAPL – Apple Computer (Last:129.00)

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AAPL – Apple Computer (Last:128.44)

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$ESH15 – March E-Mini S&P (Last:2104.50)

Are the futures trying to tell us somethingMore Chinese water torture. It’s easy enough to see where the futures are headed most immediately — in this case lower, to the 2094.75 target. But the trend itself is not tradable because of the wrenching spasms that continue to punctuate moves in either direction. Does this irritable and vexatious change in the stock market’s behavior perhaps portend “something big”? A subscriber raised the possibility Friday in the chat room, and I tend to agree. Yes, I’m already on record with a prediction of a 120-point rally — equivalent to about 1000 Dow points.  But it was based on the broad averages decisively exceeding important target recently achieved — something they have yet to do — as well as a push by Apple shares, a global bellwether, to a $140 target that has grown more distant with the stock’s fall last week to $126.

We’ve learned never to count out this rampaging bull, which is about to enter its seventh year. But that doesn’t mean the good times can last forever — especially with negatives piling up as the weeks and months roll by. Sentiment and breadth are not merely menacing, but appalling, existing-home sales have collapsed, and profits of big U.S. multinationals have gotten clobbered by the strong dollar. America’s economic recovery, such as it is, has narrowed to a boom in auto sales sustained by a gusher of subprime lending. Count the Escalades in run-down neighborhoods, and be grateful for it while it lasts.

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$GCJ15 – April Gold (Last:1209.90)

Don't let gold's weaknessThe correction from January’s 1308.80 high has been nasty, but we shouldn’t let that distract us from seeing the turn if it comes.  It’s tempting to think yet another leg down is coming over the next day or two and that we should therefore be looking for a way to get short. Notice, however, that the larger, bullish ABC pattern going back to the January 2 low is still intact. That pattern would generate a buy signal on a print at 1225.80 (rounded).  Accordingly, I’ll recommend using a ‘camouflage’ entry signal on the 3-minute chart or less to get long once that number has been hit. This is liable to be tricky, so don’t hesitate to seek guidance in the chat room.

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$+DIA – Dow Industrials ETF (Last:181.15)

DIA calendar spreads have doubledTwo weeks ago, with DIA trading around 177, subscribers acting on my instructions bought 16 March 27/Feb 27 185 calendar spreads for 0.48. The rally since has nearly doubled the value of the spread, and so I’ve advised selling ten of them so that you still hold six spreads, effectively for no cost. Now, bid 0.01 to cover the short Feb 27 calls. If successful, we’ll hold six ‘free’ March 27 185 calls for a swing at the fence.  If you are able to buy back the calls, offer six March 27 187 calls short for 2.00, good till further notice. ______ UPDATE (March 2): We continue to hold six March 27 185 calls effectively for nothing. Filling the short offer is unlikely at the moment, but you should keep trying, since the sale carries no risk. _______ UPDATE (March 2, 7:41 p.m.): It would take a rally of a little more than 300 points, to around 18600, to get us filled, but we can afford to be patient for a while longer. True, our ambitious goal will grow more difficult as time premium erodes the value of the March 27 187 calls we’re trying to sell short. But if the pace of the rally slows, we can always just cash out of the calls we continue to hold. They are currently trading for 0.70, implying a $420 paper profit on the position.

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$DXY – NYBOT Dollar Index (Last:95.19)

When dollar bull resumesIt’s no coincidence that the stock market’s steep rise in February began just days after an equally steep rise in the dollar stalled in late January.  The dollar has been moving sideways ever since, extending a monotonous sine-wave correction that is setting up the dollar’s next powerful rally. It projects to at least 96.30, a relatively modest move of about 2% that would leave DXY a tad shy of  a small but technically important peak at 99.25 recorded in August of 2003 (see inset). The dollar has already blown past a more significant ‘external’ peak at 99.25 from 2005, so it’s got nothing to prove. But if the next upthrust eventually exceeds the 96.30 target as I expect, it would add a robust new dimension to the bull market begun in earnest last year.  It would also put considerable pressure on U.S. stocks, perhaps even ending February’s joy-ride on Wall Street. _______ UPDATE (February 26, 10:15 p.m. EST): Yesterday’s sharp rally generated a bullish impulse leg on the daily chart. If this is the breakout we’ve been waiting for, a run-up to 96.58 is imminent. If DXY needs more time to  consolidate, look for oscillations around a midpoint pivot at 94.92 in the day ahead (daily chart, A= 92.15 on 1/21).

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+SNIPF – Snipp Interactive (Last:0.77)

If bulls are going to take a restSnipp Interactive [SNIPF: OTC] remains my favorite stock pick for 2015. Subscribers who bought the Canadian-listed shares (SPN:CN) when I first recommended them last January could have gotten aboard for as little as 10 cents. They’ve since traded as high as 0.82. I bought SNIPF myself after sitting in on a conference call a little more than a year ago with its CEO, Atul Sabharwal. I was impressed with his pitch but am even more impressed now that I’ve seen how very innovative and imaginative the company is. They continue to win new business with a growing list of blue chip clients, often by inventing appealing new ways for the clients to engage customers. The latest such offering features an “augmented reality” campaign designed for Honda’s exclusive licensee in Kuwait, Alghanim Motors. Click here to read more about this.

Some of Snipp’s clients are understandably skittish about revealing the marketing tactics the company has developed for them. Under the circumstances, Snipp’s business successes sometimes go untrumpeted or even unremarked. Take a look at Snipp’s home page, though, and you’ll see that the young company is gaining traction with a very impressive list of clients. What I like most about the firm, however, is that it makes money in ways that any investor can understand. Here’s how they describe themselves on their web site: ‘Snipp builds shopper marketing and promotions solutions for brands, agencies and marketers. We have a comprehensive suite of solutions including receipt processing, loyalty, rebates, mobile promotions and contests, mobile messaging, rewards and more.’  In the digital age, every investor should own at least one tech stock whose business methods and revenue model are as transparent as Snipp’s. From the client’s standpoint, the results Snipp achieves with mobile-phone-based marketing not only demonstrate the power of such promotions, they do so in real time. That is one of Snipp’s strongest selling points, as well as a perfect formula for winning repeat business.

Those who already own the stock would not have failed to notice that a “bought sale” underwritten by Canaccord and completed just days ago will significantly dilute shareholder equity. The deal originally sought to raise $8M, but the amount was increased to $12M ( @ 0.55 CDN per share) to accommodate unexpectedly strong demand. The sale appears to have slowed SNIPF’s steep rise on the charts (see inset), but my gut feeling is that this will be temporary and that the ultimate impact will be highly beneficial to shareholders. Give a lean, aggressive upstart and innovator like Snipp $12 million to grow, and they will do so — as efficiently as any investor could hope for. _______ UPDATE (February 17, 5:25 p.m. EST): The stock took a powerful leap today on Canadian volume of 2.1 million shares — most impressive. The percentage gain was 13.41% CDN, or 18% in U.S. dollars. From a technical standpoint, the OTC stock is due to meet daunting Hidden Pivot resistance at exactly 0.8065, equivalent to around 0.98 CDN (see inset, a fresh chart). I expect a sharp pullback from that price, but if SNIPF simply blows past it, that would imply there are still plenty of investors eager to jump aboard, even at these nosebleed heights. _______ UPDATE (February 18, 5:05 p.m.): The stock popped once again after taking a modest hit in the early going. The high on Canada’s Venture Exchange was 0.99, and although the O-T-C price in the U.S. seems to have remained at 0.77, the 0.8065 target should be considered filled. Now let’s see whether the target, clear and compelling as it is, marks at least a temporary top.

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$KSS – Kohl’s Inc. (Last:69.62)

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$CLH15 – March Crude (Last:51.07)

Even if this is just a dead-cat bounce in crudeThe futures reversed yesterday from a low that was 26 cents shy of a 47.10 midpoint pivot where we might have expected the turn. The failure to reach a correction target is incipiently bullish, but how high can this suspected dead-cat bounce go? A logical answer is to 58.45.  That’s the midpoint Hidden Pivot of the long-term bear-market pattern shown, and a corrective rally that returns to it would hardly be unusual. We often count on it, not only to forecast price swings accurately, but to trade them profitably. Typically, we try to get short at the top of rallies like this one — retracements to midpoint pivots (shown here as a red line). We will in fact attempt to do so aggressively if the opportunity should arise, but in the meantime we’ll trade with a bullish bias, even if we strongly suspect that the rally is no more than reflex bounce that is doomed to fail. A move up to the red line may not look like much in the context of the long-term chart, but it would in fact represent a 34% gain relative to the recent low at 43.58. _______UPDATE (February 26, 10:20 p.m.): Zzzzzzzzz. _______  UPDATE (March 1): I’m tracking the April contract now, and it is as boring as the March. Zzzzzzz.

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$+JNK – High-Yield Bond ETF (Last:39.74)

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