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Altaba Stock Breaks Out After Verizon Sale

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By Alexas_Fotos from PixabayAltaba Stock Breaks Out After Verizon Sale

Nasdaq-100​ component Altaba Inc. (AABA) holds the balance of the remaining Yahoo assets, including 15.4% of Alibaba Group Holding Limited (BABA), following Verizon Communications Inc.’s (VZ) partial acquisition. The newly minted $52 billion market cap seems pricey, but no one really knows the value of this corporate hodgepodge or how it’s going to grow in the coming years.

Technically speaking, the stock is well positioned for gains through the rest of 2017 because the new entity has adopted Yahoo’s long-term chart, yielding a timely breakout above the 2014 high at $52.62. While it’s easy to second guess this glued-together reporting, consider that other big caps including United States Steel Corporation (X) and AT&T Inc. (T) have also sewn together bits and pieces of newly acquired operations or divestitures into multi-decade price charts. (See also: What Is Altaba Anyway?)

AABA Long-Term Chart (1996 – 2017)

The former company came public at $1.49 (after adjustment for five stock splits) in April 1996 and fell into a downtrend that found support near 65 cents. It then entered a powerful trend advance driven by the awakening of the net bubble, rising to an all-time high at $125.03 in March 2000. The subsequent downtrend relinquished the majority of the prior decade’s dramatic gains, dropping the stock more than 97% to $4.01 at the end of 2002.

The subsequent uptrend topped out at $43.66 in January 2006, highlighting severe technical damage because the rally failed to reach the .386 Fibonacci bear market retracement level. A pullback into 2008 accelerated during the economic collapse, dropping the stock back into the single digits for the second time in six years. It underperformed badly after hitting a bottom in November 2008, stuck in a narrow trading range bounded by resistance in the upper teens.

The stock took off in the strongest buying impulse so far this decade in the second half of 2012, breaking out above the 2006 high in October 2014 before topping out in the low $50s a few weeks later. It then entered a steep correction that found support in the upper $20s in early 2016, ahead of an equally strong bounce that reached within a few points of the prior high in May 2017, just a few weeks before this month’s post-acquisition breakout. (For more, see: Verizon Officially Now Owns Yahoo, Mayer Resigns.)

AABA Short-Term Chart (2015 – 2017)

The sell-off into 2016 unfolded through an Elliott five-wave decline, perfectly aligned with bearish action throughout the tech universe during that period. The stock tested the September 2015 low at $27.20 in February 2016, broke down and then rallied strongly, setting off a 2B buy signal that denotes the failure of bears to hold new resistance. Rumors about a company sale or divestiture generated speculative buying interest into September, when it disclosed high-profile hacking incidents that raised questions about the company’s valuation. (For more, see: Yahoo Confirms Massive Data Breach.)

On-balance volume (OBV) topped out in 2014 and entered a persistent distribution wave that ended four months before the price bottomed out in the first quarter of 2016. This bullish divergence contributed to steady buying interest that reached a new high ahead of the Verizon sale. The transaction triggered high-volume price bars and a sharp indicator downturn to a nine-month low, signaling aggressive profit taking as well as new purchases.

The OBV downturn tells us that the stock needs to rebuild previously loyal sponsorship to continue the 16-month uptrend. However, the price remains in breakout mode, and it makes sense to ignore recent signals because they’re unfolding right at the interface between the two corporate identities. In other words, this seemingly bearish activity could reflect the natural rotation from one set of shareholder hands to another. (See also: On-Balance Volume: The Way to Smart Money.)

The Bottom Line

Altaba came to life after Yahoo sold key assets to Verizon, with the new entity using the parent’s long-term chart. The split has triggered a major breakout undermined by a bearish volume signal, but we’ll ignore that red flag for now, given broad tech strength and confusion about the new entity’s legitimate supply and demand. (For more, check out: Altaba Spends $3.5B on Its Shares in Dutch Auction.)

(Why?)

Published at Tue, 27 Jun 2017 16:34:00 +0000

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Have oil prices stopped plunging?

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Summer gas prices dip to 12-year low
Summer gas prices dip to 12-year low

 Have oil prices stopped plunging?

  @mattmegan5

Just six months ago, many on Wall Street thought $60 oil was a slam dunk. That turned out to be a terrible bet.

Crude oil prices plunged to $42 a barrel last week, sinking into a bear market amid renewed concerns about a massive supply glut that just won’t go away. Some even feared a return to the sub-$30 prices that spooked global investors early in 2016.

But there are signs that the notoriously-moody oil market may have gotten a bit too pessimistic.After crashing more than 10% in June, crude prices have rallied four straight days to climb back above $44 a barrel. The rebound has lifted beaten-down energy stocks like EOG Resources(EOG) and Chesapeake Energy(CHK).

Edward Morse, global head of commodities research at Citigroup, believes the worst may soon be over.

“A bottom in the oil price is likely near,” Morse wrote in a report on Monday.

Rob Thummel, a portfolio manager at energy investment firm Tortoise Capital, expects demand for oil to rise during the summer driving season when Americans take more road trips — and use more gasoline.

“Ultimately, I don’t see oil going into the $30s — and if it does it’ll be very short,” said Thummel.

Yet few are calling for a speedy return to the higher prices that many investors bet on last fall when OPEC and Russia moved to rescue the oil market by cutting production. Before that, OPEC, led by Saudi Arabia, had been pumping away aggressively in a battle to regain market share lost to U.S. shale producers.

By agreeing to dial back production, OPEC seemed to be acknowledging that its strategy wasn’t working.

OPEC’s production cuts haven’t fixed the oil glut either. U.S. crude stockpiles are higher than they were before OPEC slashed production in November.

“Oil inventories in the U.S. are still elevated. They aren’t coming down as much as everyone thought,” said Thummel.

Citigroup warned that some big investors who were banking on an oil rebound last fall may hesitate to do the same this time.

“The fund community has been burned so badly as to reduce the likelihood of them jumping back in no matter what the fundamentals,” Citi’s Morse said.

Morse lowered the odds of oil prices topping $60 this year to below 50%, citing the “badly damaged” sentiment on Wall Street.

That would be just fine with American drivers. The recent slump in oil prices led to the cheapest gas prices at the start of summer in 12 years. Gas prices fell to an average of $2.25 on Tuesday, compared with $2.372 a month ago, according to AAA.

Published at Tue, 27 Jun 2017 19:22:04 +0000

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Your money: How many college savings buckets do you need?

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Your money: How many college savings buckets do you need?

By Beth Pinsker| NEW YORK

Like many financially savvy parents, Jim Stehr started a college savings account for his son at birth. When Stehr’s second and third children came along, he opened accounts for them too.

But now Stehr, a financial adviser based in the San Francisco Bay area, is now rethinking the math. His oldest two kids are in pricey private colleges and might end up in graduate school, while the youngest is eyeing the Naval Academy, which is free.

As parents consider the best way to save for college, financial advisers say the kind of accounts matter, as well as the plan to spend the money when the time comes.

 

ONE BUCKET OR MANY?

It is a natural parental instinct to do what Stehr did: open new accounts as the kids come along. Parents like to keep things equal, and there is also something psychologically satisfying about watching each child’s account grow.

Financial adviser Peter Palion of Master Plan Advisory in East Meadow, New York, says it does not matter how you slice the pie in terms of growth. The difference in compounding between three accounts with $3,000 and one account with $9,000 will be negligible if they all have the same allocations. Children who are far apart in age might have different risk tolerances along the way, though.

You might have an annual maintenance fee if you are saving in a tax-advantaged 529 college savings plan. Even at just $30 a year, it could amount to 3 percent of a $1,000 yearly contribution.

If you saved all in one account until it was time to spend the money, you could just shift the beneficiaries as needed, or open new accounts and distribute the funds, without penalty.

Most states offer a tax deduction for 529 contributions per tax return, not per account. But more accounts would be better in Virginia, where there is a deduction for contributions of up to $4,000 per account per year, says Carl Holubowich, a certified financial planner in the Washington, D.C. area.

 

SPENDING

The psychology involved is especially tricky when it is time to spend down money saved for college. Saving college money for each child was so engrained in Ricardo Noceda’s thinking that the idea of shifting funds from one account to the next was akin to stealing.

“It’s robbing Peter to pay Paul,” says Noceda, a physician from Orange County, California.

Though the money technically belonged to him, in his head all those years it was one bucket for Olivia, now 24, and one for Dylan, 22. Even when his older daughter ran short to pay for her last year of school, Noceda did not transfer money from the other account to cover the shortfall.

Kelly Bressette, a mom of three from Massachusetts, took a more pragmatic approach, after saving in separate 529 accounts for 15 years for her daughters, who are now 24, 22 and 19.

“It was not easy because I needed to divide up the funds,” says Bressette. When it came to spending for the first two, she was cautious, because she was afraid of running out. Then it turned out that the youngest’s tuition was far more expensive.

“I decided that I would use $10,000 per year for the first child and second child, and then use $20,000 per year for the last child,” Bressette says.

Shifting funds around can often be more an issue of family dynamics than accounting, says Darin Shebesta, a financial adviser from Cave Creek, Arizona. A lot of it has to do with managing expectations, because even the kids get involved in the bucket theory – and can get attached to the notion that what is in their college fund belongs to them.

Jim Stehr will be sorting this out soon, as he decides what to do if his youngest gets a full ride. He had always told the kids that if there was money left over, they could have it.

The older two used all of their money up, but the youngest would be in for a windfall of more than six figures.

“It would be a healthy chunk of change,” Stehr says.

(Editing by Lauren Young and David Gregorio)

Published at Tue, 27 Jun 2017 15:33:09 +0000

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Becoming an Evidence-Based Trader

 

Becoming an Evidence-Based Trader

The recent article I wrote for Forbes is perhaps the most important one I’ve written.  It is about a trend that is sweeping the trading world.  Yes, we talk about algos and quantitative trading, factor-based investing, and passive index strategies and all of those are helping to reshape the landscape of finance.  The broader revolution, however, is one in which financial decisions are evidence-based.  Those who assume the responsibility for achieving returns on capital are expected to do so in a way that is objectively verifiable.

As the Forbes article points out, this mirrors developments in medicine.  The clinical judgment of the wise, experienced doctor is no longer enough.  Too many studies document the fallibility of such judgment.  Instead, physicians are expected to follow “best practice” guidelines that follow from well-conducted outcome research.  We are rapidly approaching a point at which the alternative to evidence-based medicine is not discretionary medicine, but malpractice.

If you read old texts on technical analysis, you’ll encounter generalizations such as “this is a bullish pattern”.  No actual evidence is produced to document this.  It is the “clinical judgment” of the practitioner.  Similarly, a fundamental analyst might assert that the price of a stock or index will rise because of increasing consumer spending or a growing GDP.  Once again, no evidence is provided for those links.

The alternative to technical analysis is not fundamental analysis.  The alternative to technical and fundamental analysis is evidence-based decision-making.  

Think of it this way:  the emerging perspective says that if less research rigor goes into your trading and investment decisions than your decision to buy a new car, something is very wrong. 

So how can discretionary traders become more evidence-based?

It starts with what Victor Niederhoffer calls “counting”.  When we see a pattern that we believe has some implications for non-random forward returns, we look back in time and see if that pattern indeed has led to those anticipated results.  Cherry-picked examples supporting our inference does not constitute an evidence-basis.  Rather, we look back over a meaningful sample and count the times when the pattern has and has not led to expected returns.

Mike Bellafiore’s text The Playbook is a great example of nudging traders in an evidence-based direction.  When a daytrader identifies a “setup” for an anticipated market move, that setup becomes part of a playbook and the trader tracks his or her simulated (and then actual) trading of that setup.  Only setups that empirically demonstrate profitability become an enduring part of one’s playbook.  The professional trader is one who sticks to their playbook and tests out new plays before adding them to the playbook.

Once a trader begins to count, the development of many skills follows:  data management skills with spreadsheets; statistical skills to determine when returns are truly significant; and programming skills to acquire and transform large data sets.  With the advent of online education through such sites as Coursera, it is easier than ever to upgrade one’s skills.  At most of the firms where I consult as a trading coach, there has been a movement toward the development of team-based trading to bring those skills to discretionary traders.

If you are a developing trader, I encourage you to check out the article on the evidence-based revolution and reflect upon how you will be part of the future of finance and not one trapped in its past.  There still is a role for intuition, pattern recognition, and judgment in the world of medicine, and there will be that role in trading.  Those subjective hunches are the sources of hypotheses, however, not conclusions. Great things can happen when we are fertile in our generation of hypotheses and rigorous in our establishment of conclusions.

 

Published at Mon, 26 Jun 2017 11:24:00 +0000

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Precious Metals Lottery Tickets

 

Precious Metals Lottery Tickets

Apparently some alleged fat finger just caused a massive drop in gold moments ago dragging silver with it. If you’re a sub then you know that we were actually waiting for a slight drop in both last Friday. And boy are we glad that we didn’t get filled that day! Technically speaking this puts us on the fringes of the short term bullish scenario, however it does not invalidate it plus it’s possible we are going to see a bit of mean reversion.

Let me point thought that in many cases there is follow up downside and thus any long positions right here should be considered coin flip lottery tickets. That said let’s get to the setups:

2017-06-26_gold

Gold has dipped below its prior lows and may just decide to continue in the same direction. However a small 0.25% lottery ticket right here with a stop <1235 is justified. The win/loss rate is slightly negative (e.g. ~45% depending on the cycle) but the winners far outweigh the losers, usually banking 3R plus.

2017-06-26_silver

Silver is about to roll over but I’m showing you the July contract first so that you have the overall picture. The daily panel is looking very compelling to me so I will devote another 0.25% to a long position here with a stop a bit further away than on gold unfortunately. Doesn’t really matter for most retail traders anyway as it’s a big contract and if you’re only grabbing 0.25% most likely you can afford one or two contracts anyway.

2017-06-26_silver_sept

Now here are the actual entry levels on the September contract. Entry is near 16.5 with a stop < 16.28.

Caveat

Not to sound like a broken record but let me once again emphasize that both setups are low probability high payoff lottery tickets in a highly volatile post flash crash situation. Which means extra small position sizing and wide stops.

Happy hunting and catch you guys later.

(Why?)

Published at Mon, 26 Jun 2017 10:24:48 +0000

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Gold Summer Doldrums

by PublicDomainPictures from Pixabay

 

Gold Summer Doldrums

By: Adam Hamilton | Fri, Jun 23, 2017


Gold has spent most of June grinding lower on balance, damaging sentiment and vexing traders. Usual selling leading into the Fed’s latest rate hike contributed, but the summer doldrums are also in play. Gold has typically suffered a seasonal lull this time of year, on waning investment demand as vacations divert attention from markets. But these summer doldrums offer the best seasonal buying opportunities of the year.

This doldrums term is very apt for gold’s summer predicament. It describes a zone in the world’s oceans surrounding the equator. There hot air is constantly rising, creating long-lived low-pressure areas. They are often calm, with little or no prevailing winds. History is full of accounts of sailing ships getting trapped in this zone for days or even weeks, unable to make any headway. The doldrums were murder on ships’ morale.

Crews had no idea when the winds would pick up again, while they continued burning through their precious stores of food and drink. Without moving air, the stifling heat and humidity were suffocating on these ships long before air conditioning. Misery and boredom were extreme, leading to fights breaking out and occasional mutinies. Being trapped in the doldrums was viewed with dread, it was a very trying experience.

Gold investors can somewhat relate. Like clockwork nearly every summer, gold starts drifting listlessly sideways. It often can’t make significant progress no matter what the trends looked like heading into June, July, and August. As the days and weeks slowly pass, sentiment deteriorates markedly. Patience is gradually exhausted, supplanted with deep frustration. Plenty of traders capitulate, abandoning ship.

Thus after decades of trading gold, silver, and their miners’ stocks, I’ve come to call this time of year the summer doldrums. June and July in particular are usually desolate sentiment wastelands for precious metals, totally devoid of recurring seasonal demand surges. Unlike the rest of the year, these summer months simply lack any major income-cycle or cultural drivers of outsized gold investment demand.

The vast majority of the world’s investors and speculators live in the northern hemisphere, so markets take a back seat to the great joys of summer. Traders take advantage of the long sunny days and kids being out of school to go on extended vacations, hang out with friends, and enjoy life. And when they aren’t paying much attention to the markets, naturally they aren’t allocating much new capital to gold.

Given gold’s dull summer action historically, it’s never wise to expect too much from it this time of year. Summer rallies can happen, but they are rare. So expectations really need to be tempered, especially in June and July. That early-1990s Gin Blossoms song “Hey Jealousy” comes to mind, declaring “If you don’t expect too much from me, you might not be let down.” The markets are ultimately an expectations game.

Quantifying gold’s summer seasonal tendencies during bull markets requires all relevant years’ price action to be recast in perfectly-comparable percentage terms. That’s accomplished by individually indexing each calendar year’s gold price to its last close before market summers, which is May’s final trading day. That’s set at 100 and then all gold-price action that year is calculated off that common indexed baseline.

So gold trading at an indexed level of 105 simply means it has rallied 5% from May’s final close, while 95 shows it’s down 5%. This methodology renders all bull-market-year gold summers in like terms. That’s critical since gold’s price range has been so vast, from $257 in April 2001 to $1894 in August 2011. That span encompassed gold’s last secular bull, which enjoyed a colossal 638.2% gain over those 10.4 years!

So 2001 to 2011 were certainly bull years. 2012 was technically one too, despite gold suffering a major correction following that powerful bull run. At worst that year, gold fell 18.8% from its 2011 peak. That was not quite enough to enter formal bear territory at a 20% drop. But 2013 to 2015 were definitely brutal bear years, which need to be excluded since gold behaves very differently in bull and bear markets.

In early 2013 the Fed’s wildly-unprecedented open-ended QE3 campaign ramped to full speed, radically distorting the markets. Stock markets levitated on the Fed’s implied backstopping, slaughtering demand for alternative investments led by gold. In Q2’13 alone, gold plummeted by 22.8% which proved its worst quarter in an astounding 93 years! Gold’s bear continued until the Fed’s initial rate hike of this cycle in 2015.

The day after that first rate hike in 9.5 years in mid-December 2015, gold plunged to a major 6.1-year secular low. Then it started rallying sharply out of that irrational rate-hike scare, formally crossing the +20% new-bull threshold in early March 2016. Ever since, gold has remained in this young bull. At worst last December after gold was crushed on the post-election Trumphoria stock-market surge, it had merely corrected 17.3%.

So the bull-market years for gold in modern history ran from 2001 to 2012, skipped the intervening bear-market years of 2013 to 2015, and resumed in 2016 to 2017. Thus these are the years most relevant to understanding gold’s typical summer-doldrums performance, which is necessary for managing your own expectations this time of year. This spilled-spaghetti mess of a chart is actually simple and easy to understand.

The yellow lines show gold’s individual-year summer price action indexed from each May’s final close for all years from 2001 to 2012 and 2016. That collectively establishes gold’s summer trading range. All those bull-market years’ individual indexes are then averaged together in the red line, revealing gold’s central summer tendency. Finally the indexed current-year gold action for 2017 is superimposed in blue.

(Click to enlarge)

While there are outlier years, gold generally drifts listlessly in the summer doldrums much like a sailing ship trapped near the equator. The center-mass-drift trend is crystal-clear in this chart. The vast majority of the time in June, July, and August, gold simply meanders between +/-5% from May’s final close. This year that equates to a probable summer range between $1205 and $1332. Gold has stayed well within trend.

Gold surged as high as $1293 in early June on a couple key events. On June’s first Friday, the headline May read on US monthly jobs came in at just +138k actual versus +185k expected. On top of that major miss, the internals were even worse with another -66k in past-month revisions! So gold powered 0.9% higher that day on gold-futures speculators’ hope such weak data would dampen the Fed’s hiking enthusiasm.

Just a couple trading days later, gold surged another 1.0% on a serious geopolitical rift opening between Qatar and its Arab neighbors. That early-summer strength was actually atypical, on the high side of all the modern bull-market years. And indeed it soon faded on mounting Fed-rate-hike fears leading into last week’s fourth rate hike of this cycle. Pre-rate-hike gold-futures selling is typical, as I just explained last week.

By this Tuesday gold had dropped 3.9% in just a couple weeks, really demoralizing traders and feeding bearish sentiment. But despite this volatility, gold hasn’t veered materially from its average of past bull-market years’ June price action. As long as gold remains well within its usual +/-5% summer-drift trading range, there’s nothing to get excited about either way. Gold is trapped adrift in the summer doldrums like a tall ship.

Understanding gold’s typical behavior this time of year is very important for traders. Sentiment isn’t only determined by outcome, but by the interplay between outcome and expectations. If gold rallies 5% but you expected 10% gains, you will be disappointed and grow discouraged and bearish. But if gold rallies that same 5% and you expected no gains, you’ll be excited and get optimistic and bullish. Expectations are key.

History has proven it’s wise not to expect too much from gold in these lazy market summers, particularly June and July. Occasionally gold still manages to stage a big summer rally, which is a bonus. Last year was a great example. In June 2016 gold first soared on an utterly-huge US-monthly-jobs miss, and later on that surprise UK-Brexit-vote outcome. Those anomalies early in a new bull made for an exceptional gold summer.

In this chart I labeled some of the outlying years where gold burst out of its usual summer-drift trend, both to the upside and downside. But these exciting summers are unusual, and can’t be expected very often. Most of the time gold grinds sideways on balance not far from its May close. Traders not armed with this critical knowledge often wax bearish during gold’s summer doldrums and exit in frustration, a grave mistake.

Gold’s summer-doldrums lull marks the best time of the year seasonally to deploy capital, to buy low at a time when few others are willing. Gold enjoys powerful seasonal rallies that start in August and run until the following May! These are fueled by outsized investment demand driven by a series of major income-cycle and cultural factors from around the world. Summer is when investors should be most bullish, not bearish.

The red average indexed line above encompassing 2001 to 2012 and 2016 reveals that gold stealthily carves a major seasonal low in mid-June. After that gold soon starts gradually grinding higher through July and August, before surging in September as gold’s usual autumn rally accelerates. Although this coming climb within gold’s summer-drift trend is subtle, it illustrates why June is the best time to deploy capital.

Gold’s momentum actually builds throughout the summers within the context of that +/-5% trading range off May’s final close. Gold averaged a nearly-dead-flat 0.1% loss in Junes between 2001 to 2012 and 2016. In July that reversed to a 0.8% average gain. And then in August as Asian buying starts coming back online, gold powered an average of 2.1% higher which is considerable. June is the worst of the doldrums.

These gold summer doldrums driven by investors pulling back from the markets to enjoy their vacation season don’t exist in a vacuum. Gold’s fortunes drive the entire precious-metals complex, including both silver and the stocks of the gold and silver miners. These are effectively leveraged plays on gold, so the summer doldrums in them mirror and exaggerate gold’s own. Check out this same chart type applied to silver.

(Click to enlarge)

Since silver is much more volatile than gold, naturally its summer-doldrums-drift trading range is wider. The great majority of the time, silver meanders between +/-10% from its final May close. Like gold, silver remains firmly in trend this year with nothing atypical going on. Interestingly silver’s major seasonal low arrives a couple weeks after gold’s in late June. And not surprisingly it is considerably deeper than gold’s.

Again using these red average lines, silver tends to drop 4.3% from the end of May to late June. That’s much greater than the 1.0% average gold loss from May’s final trading day to its own seasonal low in mid-June. So silver sentiment this time of year is often worse than gold’s, which is plenty bearish. Being in the newsletter business, I’ve heard from countless discouraged investors over the decades during the summers.

While I can’t quantify it, anecdotally it feels like silver investors are disproportionately represented in this bearish summer-doldrums feedback. Silver usually amplifies whatever is happening in gold, both good and bad. But again the brunt of this is borne in June, where silver averaged 3.2% losses during these bull-market years. Month-to-date this June, silver is down 5.1% which is roughly in line with past precedent.

Weathering June without waxing too bearish is the key to surviving the silver summer doldrums. Those June losses reversed sharply in July, which enjoyed a big 4.3% average rally! And those gains largely held in August, with a mere 0.6% average loss. Since gold is silver’s primary driver, this white metal is stuck in the same drifting boat as gold in the market summers. Fully expecting this prevents being disheartened.

The gold miners’ stocks are also hostage to gold’s summer doldrums. This last chart applies this same analysis to the flagship HUI gold-stock index, which is closely mirrored by that leading GDX VanEck Vectors Gold Miners ETF. The major gold stocks tend to leverage gold’s gains and losses by 2x to 3x, so it’s not surprising that the HUI’s summer-doldrums-drift trading range is also twice as wide as gold’s own.

(Click to enlarge)

The gold stocks’ trading action this summer has closely mirrored and amplified gold’s, surging in early June before slumping hard in the past couple weeks. Yet the HUI still remains near the middle of its usual summer-doldrums-drift trading range of +/-10% from May’s final close. As you can see, the gold stocks indeed trade within this range the vast majority of the time during modern bull-market summer years.

The red average of these individually-indexed gold-stock summers behaves very similarly to gold’s. The HUI tends to bottom in mid-June on the very day gold does seasonally. The average loss by that point is 2.3% since the end of May. By this week the HUI was down 4.0% month-to-date, also roughly in line with that summer-doldrums precedent. This typical June weakness tends to damage prevailing gold-stock sentiment.

But just like in gold, this early summer-doldrums hit for the gold stocks marks their best seasonal buying opportunity of the year! These gold miners tend to rally strongly on balance between August and the following May. So it’s important to weather the June weakness without getting bearish enough to flee. And that’s a whole heck of a lot easier if you fully expect the summer doldrums and prepare psychologically.

On average in modern bull-market Junes, the HUI has actually climbed 1.2%. A similar performance this year would put it at 194.8 by month-end, up 3.7% from this week’s levels. Gold stocks then tend to drift in July, with modest 0.7% losses on average. But in August as gold starts powering higher again on big Asian buying, the gold stocks accelerate to considerable 3.9% average gains. Late summer gets much better.

Like everything in life, withstanding the precious-metals summer doldrums is much less challenging if you know they’re coming. While outlying years happen, they are fairly rare. So the only safe bet to make is expecting gold, silver, and the stocks of their miners to languish in June and July. Then when these drifts again come to pass, you won’t be surprised and won’t get too bearish. That will protect you from selling low.

Gold, and therefore silver and their miners’ stocks, are actually looking very bullish this year. Gold’s new bull market ignited by that first Fed rate hike of this cycle in December 2015 remains very much alive and well. Gold rallied strongly out of the first three Fed rate hikes of this cycle, and as I outlined last week it’s very likely to rally out of the recent fourth. Unfortunately the doldrums have delayed this post-hike surge.

But it’s still coming after this usual seasonal lull passes. Investors worldwide are radically underinvested in gold after the extreme Trumphoria stock-market surge since the election. Gold is a unique asset that tends to move counter to stock markets, making it the ultimate portfolio diversifier. Thus gold investment demand wanes when stock markets are near record highs, then surges when they inevitably roll over again.

With today’s massive Fed-goosed stock bull the second-longest and nearly-third-largest ever seen in US history, a day of reckoning is nearing. Sooner or later this extreme bull will yield to a major correction-grade selloff or more likely the long-overdue subsequent bear. As stock markets inevitably weaken, gold will catch a major bid as investment capital floods back in to attempt to diversify today’s stock-heavy portfolios.

Smart investors, including billionaire hedge-fund managers, have been accumulating gold positions in anticipation of this coming huge demand surge. As the summer doldrums pass in the coming weeks and gold starts grinding higher again, gold investment buying will pick up whether or not stock markets have started to weaken. The usual Asian harvest buying will start in late July regardless of what’s going on here.

Gold and especially its miners’ stocks remain deeply undervalued today, with powerful mean reversions higher ready to continue after their summer-doldrums pauses. The coming big seasonal gold rallies after this typically-weak spell can be played with major ETFs like GDX. But the individual stocks of elite gold miners with superior fundamentals will really outperform their sector, offering amazing upside potential.

The bottom line is gold, and therefore silver and their miners’ stocks, usually drift listlessly during market summers. As investors shift their focus from markets to vacations, capital flows wane. June and July in particular are simply devoid of the big recurring gold demand surges seen during much of the rest of the year, leaving them weak. Investors need to expect lackluster sideways action on balance this time of year.

So there’s no reason to be bearish on the precious-metals complex today despite the recent weakness. Gold, silver, and their miners’ stocks remain well within their usual summer-doldrums-drift trends this year. This June weakness is actually the best time of the year seasonally to buy low and get long, ahead of the major autumn, winter, and spring gold and gold-stock rallies. Don’t fear the summer doldrums, embrace them!

By Adam Hamilton for Safehaven.com


Adam Hamilton

Adam Hamilton, CPA
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Published at Fri, 23 Jun 2017 11:35:03 +0000

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Schedule for Week of June 25, 2017

Schedule for Week of June 25, 2017

by Bill McBride on 6/24/2017 08:11:00 AM

The key economic reports this week are Personal Income and Outlays for May, Case-Shiller house prices, and the third estimate of Q1 GDP.

—– Monday, June 26th —–

8:30 AM: Durable Goods Orders for May from the Census Bureau. The consensus is for a 0.4% decrease in durable goods orders.8:30 AM: Chicago Fed National Activity Index for May. This is a composite index of other data.

10:30 AM: Dallas Fed Survey of Manufacturing Activity for June.

—– Tuesday, June 27th —–

Early: Reis Q2 2017 Apartment Survey of rents and vacancy rates.Case-Shiller House Prices Indices9:00 AM ET: S&P/Case-Shiller House Price Index for April.

This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the March 2017 report (the Composite 20 was started in January 2000).

The consensus is for a 5.9% year-over-year increase in the Comp 20 index for April.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for June.

—– Wednesday, June 28th —–

7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.Early: Reis Q2 2017 Mall Survey of rents and vacancy rates.

10:00 AM: Pending Home Sales Index for May. The consensus is for a 0.5% increase in the index.

—– Thursday, June 29th —–

8:30 AM ET: The initial weekly unemployment claims report will be released. The consensus is for 239 thousand initial claims, down from 241 thousand the previous week.8:30 AM: Gross Domestic Product, 1st quarter 2017 (Third estimate). The consensus is that real GDP increased 1.2% annualized in Q1, unchanged from the second estimate of 1.2%.

Early: Reis Q2 2017 Office Survey of rents and vacancy rates.

—– Friday, June 30th —–

8:30 AM: Personal Income and Outlays for May. The consensus is for a 0.3% increase in personal income, and for a 0.1% increase in personal spending. And for the Core PCE price index to increase 0.1%.9:45 AM: Chicago Purchasing Managers Index for June. The consensus is for a reading of 58.2, down from 59.4 in May.

10:00 AM: University of Michigan’s Consumer sentiment index (final for June). The consensus is for a reading of 94.5, from the preliminary reading 94.5.

Published at Sat, 24 Jun 2017 12:11:00 +0000

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Tech Rebound Sends US Markets Higher

Tech Rebound Sends US Markets Higher

By Justin Kuepper | June 23, 2017 — 5:50 PM EDT

The major U.S. indexes moved higher over the past week, led by technology stocks and lagged by industrials. The leading economic index rose 0.3% in May, according to the Conference Board, suggesting that the overall economy remains strong. Notably, the housing sector rebounded with a 1.1% increase in existing home sales to a higher-than-expected 5.620 million rate, while jobless claims were little changed from their strong prior showing.

International markets were mixed over the past week. Japan’s Nikkei 225 rose 0.97%; Germany’s DAX 30 fell 0.15%; and Britain’s FTSE 100 fell 0.43%. In Europe, IHS Markit’s June flash purchasing managers’ composite dipped to 55.7 in May, but it remains well above the 50 mark that would indicate a contraction. In Asia, Japan offered the first upbeat assessment of its economy since December in a sign of improvement. (See also: The Importance of the Purchasing Managers’ Index.)

The S&P 500 SPDR (ARCA: SPY) rose 0.2% over the past week. After briefly touching upper trendlineresistance, the index moved lower to R1 support at $242.69. Traders should watch for a rebound to retest upper trendline and R2 support at $245.10 or a breakdown to the 50-day moving average or pivot point at $238.49. Looking at technical indicators, the relative strength index (RSI) remains relatively neutral at 59.87, while the moving average convergence divergence (MACD) has started a bearish crossover that could indicate downside ahead for the index.

Technical chart showing the year-to-date performance of the SPDR S&P 500 ETF (SPY)

The Dow Jones Industrial Average SPDR (ARCA: DIA) rose 0.08% over the past week, making it the worst performing major index. After briefly breaking out from R2 resistance at $214.00, the index moved lower toward R1 support at $211.81. Traders should watch for an ongoing move lower to those levels or a rebound to re-test its upper trendline resistance and all-time highs. Looking at technical indicators, the RSI appears overbought at 65.41, while the MACD could be on the verge of a bearish crossover. (For more, see: Top 3 ETFs That Track the Dow.)

Technical chart showing the year-to-date performance of the Dow Jones Industrial Average ETF (DIA)

The PowerShares QQQ Trust (NASDAQ: QQQ) rose 2.24% over the past week, making it the best performing major index. After rebounding from its lower trendline support, the index continued to move toward R1 resistance at $143.07. Traders should watch for a move to those levels or R2 resistance at $145.24, or a move lower to re-test its lower trendline and pivot point at $139.29. Looking at technical indicators, the RSI appears neutral at 57.12, while the MACD is on the verge of a bullish crossover.

Technical chart showing the year-to-date performance of the Powershares QQQ Trust (QQQ)

The iShares Russell 2000 Index ETF (ARCA: IWM) rose 0.51% over the past week. After briefly hitting R1 support at $139.70, the index rebounded toward the upper end of its price channel this week. Traders should watch for an ongoing move to upper trendline​ and R2 resistance at $143.07 or a move lower to the 50-day moving average at $138.59. Looking at technical indicators, the RSI appears neutral at 56.74, while the MACD has been trending sideways, which provides traders with few hints into future price action. (See also: IWM: iShares Russell 2000 Index ETF.)

Technical chart showing the year-to-date performance of the iShares Russell 2000 ETF (IWM)

The Bottom Line

The major U.S. indexes moved higher over the past week thanks to the strong recovery in the tech sector. Next week, traders will be closely watching several key economic indicators, including consumer confidence data on June 27, pending home sales on June 28, GDP data on June 29 and personal income data on June 30. The market will also be keeping a close eye on any political developments in the United States and around the world. (For related reading, check out: ETFs With Major Recent Breakouts.)

Note: Charts courtesy of StockCharts.com. As of the time of writing, the author had no holdings in the securities mentioned.

Published at Fri, 23 Jun 2017 21:50:00 +0000

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Trading Psychology Diagnosis: Identifying the Root of Trading Problems

 

Trading Psychology Diagnosis: Identifying the Root of Trading Problems

Every trained physician knows that diagnosis precedes treatment.  We have to understand what is going wrong before we attempt any kind of solution.  Auto mechanics engage in the same process: they listen to the engine, look under the hood, and run tests before they identify problems and begin to fix them.  Too often, traders attempt solutions for their trading problems before they’ve truly understood the sources of those problems.  Equally often, mentors and coaches of traders offer their solutions without actually going through a thorough diagnostic process.  In this post, I will model for you a way of thinking that can help you identify what might be going wrong with your trading.  This way of thinking is anchored by several important questions.

Question #1:  Is there actually a problem here?

This may seem like a strange question.  You’ve just drawn down; you’ve been frustrated in your trading.  Of course there’s a problem!  The issue, however, is a bit more subtle.  Any successful trading is still a probabilistic enterprise.  Hit rates and Sharpe Ratios don’t grow to the sky; people are fallible and markets embed a fair amount of uncertainty.  As a result, losing periods are inevitable and frustrations will be encountered.  Just as we expect baseball hitters to strike out every so often and football quarterbacks to throw incomplete passes on occasion, we can expect losing trades.  A trading approach with a 60% hit rate could be phenomenally profitable, but it will still encounter strings of losing trades with regularity.

What this means is that we begin the diagnosis by examining a meaningful sample of past trading, not just the last few days or trades.  A frequent day trader making many trades a day might look at the month’s results and compare with results from the past year.  A longer term trader might need to assemble data over a year or more before confidently identifying a problem.  In other words, to identify a problem, it’s necessary to see that recent results fall short of past ones and that recent drawdowns are not similar to past ones.  That requires a proper historical view.

When traders assume that a problem exists without a sufficient historical analysis, they run the risk of tinkering with methods that work and making those methods worse.  This is very true when traders begin to trade systems.  They become discouraged when the system has a (normal and expectable) drawdown, so they begin to change the system, front run the system, etc.–only to turn the setbacks into protracted slumps.

Sometimes traders are taking too much risk–trading position sizes too large for their actual loss tolerance–and those strings of expectable losing trades create a “risk of ruin” situation.  In such a case, the trader can look at hit rates and average win/loss statistics and determine whether the problem is in risk taking or if the actual performance of the trading methods has changed.

All of this is a strong argument for keeping detailed performance metrics on your trading.  Only by comparing recent performance to past performance can you understand if you truly are improving in your trading or having an actual problem.  If you’re a beginning trader, then you would compare your recent returns to the returns you achieved in simulation mode.  (For more on trading metrics, see this post; also this post.  A detailed treatment of trading metrics can be found in Chapter 8 of The Daily Trading Coach). 

Question #2:  If there is a problem present, is it associated with a change in the market(s) you’re trading?

My first hypothesis when I encounter a trading problem (my own or that of an experienced trader) is that the problem has occurred for a reason, and that reason is related to a change in how markets have been trading.  Because of those changes, the methods that had been working no longer command the same edge.  

A great example of this has been the recent decline of volatility in the stock market.  Many, many traders who made money from momentum and trend trading have suffered during this low volatility period because moves no longer extend and, indeed, tend to reverse.  That, in turn, leads to frustration and discouragement.

The key tell for when trading problems are related to changes in markets is that people trading similar strategies are also experiencing performance difficulties.  This is one reason it’s important to have a broad network of trading colleagues, even if you trade independently.  If the great majority of traders trading similar styles are also experiencing drawdowns, you can safely assume that not everyone has turned into an emotional basket case at the same time.  

Performance indexes for various hedge fund and CTA strategies are available from industry sources and can help identify when certain approaches are winning and losing.  For example, the Barclay’s short term trading index (STTI on Bloomberg) tracks the returns of professional money managers trading short term momentum and trends.  The performance of those managers over the past year or two has been dismal, again related to the collapsed volatility of markets in the wake of low interest rates around the globe.  

If your trading problems are widely shared and can be linked to shifts in how your markets have been trading, no psychological exercises in and of themselves will solve the problem.  Nor is it a solution to put one’s head in the sand and hope that markets will “turn around”.  Rather, the answer to the trading problems is to adapt to the new environment and search for fresh sources of edge that can complement one’s traditional trading.  For example, one might find mean reversion or relative value strategies that nicely complement one’s directional/trend/momentum trading.  The combination of trading approaches truly diversifies returns and produces a smoother P/L curve.  (See Trading Psychology 2.0 for a detailed presentation of adapting to changing markets).

Question #3:  If there is a personal problem present, is it–or has it been–present in non-trading parts of your life?

Here is a very, very important issue.  Many personal issues, such as anxiety, anger, depression, attention deficits, and impulsivity, show up in trading, but not exclusively within trading.  For example, a person might have trouble with patience and frustration in personal relationships, and those same problems crop up in his relationship with markets.  Similarly, a person might have self-esteem problems in life that then show up as negative thinking patterns during periods of market losses.  When the emotional patterns, thought patterns, and behavior patterns that interfere with trading are also occurring and interfering with other aspects of life, that is a strong indication that simply working on trading will not be sufficient.  It makes sense to seek professional help.

The great majority of psychological challenges can be dealt with via short-term approaches to counseling and therapy.  Research suggests that problems such as relationship difficulties, depression, anxiety, and anger can benefit significantly from cognitive, behavioral, psychodynamic, interpersonal, and solution-focused approaches. (A thorough review of research and practice in this area can be found in the textbook that I have co-edited.  A new edition will be coming out late this year).  The key to brief approaches to therapy is that they are highly targeted and make active use of exercises and experiences during and between sessions.  

In situations in which the psychological problems have been longstanding, when there has been a family history of similar problems, when those problems have been severe (significantly impairing important areas of life), and when those problems have been complex (impacting many areas of life, as in drug or alcohol abuse), longer-term approaches to helping are generally indicated.  Attempting short-term approaches to help for more significant problems runs the risk of relapse.  When problems have been longer standing, severe, and complex, it often is the case that more than one form of help is required, such as medication help in addition to therapy or group sessions (as in A.A.) in addition to counseling.  In such instances, it is very helpful to have a thorough assessment from a qualified mental health professional.  If there is meaningful depression and/or anxiety, a workup from an experienced psychiatrist is helpful, as safe and non-habit forming medications often can play an important role in addressing the problems.

Depression, anxiety, attention deficits, addictions, bipolar disorder, relationship problems–these impact a high percentage of people in the general population.  Traders are not exempt from these general problems.  Assuming that an emotional issue impacting trading is necessarily a trading issue may prevent you from getting the right kind of help.  No amount of writing in a trading journal will rebalance neurotransmitters in your brain or solve the conflicts you bring to your marriage.  When you see the problems affecting your trading also affecting other areas of your life, it’s a strong indication that a more general approach to change will be needed.

Question #4:  If the problem you’re facing occurs uniquely in trading settings, do you need psychological coaching or do you need further mentoring of your trading?

Here again is an important distinction.  Especially for newer traders, frustrations and other emotional problems arise in trading simply because they are still young on their learning curves.  What they need is not simply emotional coaching, but guidance from experienced mentors who can help them correct trading errors and more consistently apply trading skills.  Even experienced traders can encounter drawdowns and frustrations because they are making trading mistakes that a mentor can pick up.  I recently worked with a trader who was very discouraged because of a drawdown that occurred simply because he was not closely monitoring correlations among his positions.  What he thought were several independent trades turned out to be versions of the same trade once the central bank indicated a possible policy shift.  He lost money because he was too concentrated in that one, converged trade.

This is yet another reason why it’s very helpful to be connected to networks of peer traders.  Many times such relationships offer mutual mentoring that can address situational problems and mistakes in trading. 

When drawdowns and disruptions of trading are more psychological and situational, several psychological approaches can be helpful, including behavioral methods (exposure therapy) for anxiety and performance pressure; cognitive restructuring techniques for perfectionism, overconfidence, and negative thought patterns; and solution-focused approaches to identify and expand one’s own best practices.  (Specific applications of these methods can be found in The Daily Trading Coach; the creation of best practices is a major topic within Trading Psychology 2.0; an overview of cognitive and behavioral techniques for improving trading performance can be found in Enhancing Trader Performance).

Behavioral techniques are skills-building methods that you practice in real time, during problem situations.  You literally are teaching yourself new skills and new habit patterns.  For example, a very simple behavioral technique would be to take a break during trading whenever you feel anxious, frustrated, bored, or discouraged.  You quickly recognize that you’re not in the right mindset for trading and you take a break from the screens.  During that break, you might engage in other skills-building activities, such as relaxation training to slow oneself down and reduce tension.  Behavioral methods are typically practiced outside of trading hours so that the skills become automatic in real time, when problems crop up.  

Cognitive restructuring methods are techniques that you use to identify and challenge patterns of negative thinking that can distort your emotions and interfere with sound decision making.  Many traders, for example, become highly self-critical when they miss a trade or when they take a loss.  This can interfere with their focus on the next opportunities.  In cognitive restructuring, keeping a journal helps the trader become more aware of his or her thinking and challenge that thinking when it’s harsh and negative–or when it’s overconfident!  

Solution focused techniques are ones that examine what you are doing during your best trading, both in terms of trading practices/processes and psychological self-management.  The goal of solution focused work is to “do more of what works” and become more consistent so that best practices can turn into repeatable best processes.  Trading Psychology 2.0 contains 57 best practices contributed by myself and other traders; the chapter on Building Strengths also embraces a solution-focused approach to identifying what you do best and building your trading around it.

The bottom line is that how you work on your trading should reflect the diagnosis you make of your trading challenges.  Sometimes we encounter challenges because of tricky markets; sometimes because of our psychology; and sometimes those challenges are just a normal part of risk and uncertainty in markets.  In this post, there are quite a few ideas tossed out.  For more information on those, you can simply Google the relevant topic by entering “Traderfeed” and the topic of interest.  Thus, enter into the search engine “Traderfeed solution focused” and you’ll see quite a few posts relevant to that topic.  If you want even more depth and detail, the above book references will be useful.

In an upcoming series of posts, I will identify 20 top challenges that traders face and highlight specific approaches to work on each of those.  Yet another series will look more into detail into evidence-based techniques that help traders and when to use those.  All of this is part of a grander plan to eventually link all the posts into a free, user-friendly, comprehensive online encyclopedia of trading psychology.  

Thanks, as always, for your interest and support–

Brett

Published at Sat, 24 Jun 2017 15:10:00 +0000

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Ford recalls 15,600 cars in South Africa over fire risk

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Ford recalls 15,600 cars in South Africa over fire risk

Ford Motor Co (F.N) is recalling nearly 16,000 Ikon and Figo models in South Africa due to a potential fire risk, it said on Friday.

 

The models were built between 2004 and 2012 in India, Ford said in a statement.

 

“A power steering fluid leak could result in fumes being emitted from the engine compartment,” it said.

 

“It may also be possible for power steering fluid to come into contact with the vehicle’s exhaust system components, creating the potential for smoke and, in extreme cases, fire.”

 

Earlier this year in South Africa Ford recalled 4,500 Kuga SUVs following dozens of reports of the vehicles catching fire.

 

(Reporting by Tiisetso Motsoeneng; editing by Jason Neely)

Published at Fri, 23 Jun 2017 08:43:48 +0000

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DAX Elliott Wave Analysis: Bullish Against 12617

DAX Elliott Wave Analysis: Bullish Against 12617

By: Elliottwave-Forecast | Wed, Jun 21, 2017


Short term DAX Elliott Wave view suggests the rally from 5/18 is unfolding as a double three Elliott Wave structure. Minute wave ((w)) ended at 12879.5 and Minute wave ((x)) pullback ended at 12617. Internal of Minute wave ((x)) subdivided as an expanded flat Elliott Wave structure where Minutte wave (a) ended at 12633.5, Minutte wave (b) ended at 12922.5 and Minutte wave (c) of ((x)) ended at 12617. DAX has broken above Minutte wave (b) on 6/14, adding conviction that the next leg higher has started. Up from 12617, the rally is unfolding as a zigzag Elliott Wave structure where Minutte wave (a) ended at 12948.5 and Minutte wave (b) is proposed complete at 12772.5. Near term, while pullbacks stay above 12772.5, and more importantly above 12617, expect Index to extend higher. We do not like selling the proposed pullback.

DAX 1 Hour Elliott Wave Chart

(Click to enlarge)


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Published at Wed, 21 Jun 2017 07:25:17 +0000

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Solar Energy to Cost Less Than Coal by 2021

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Solar Energy to Cost Less Than Coal by 2021

By Shoshanna Delventhal | June 20, 2017 — 7:45 PM EDT

A recent survey by Bloomberg New Energy Finance expects solar energy to outrun coal and natural gas with lower costs much sooner than previously forecasted. Within a few years, renewables will be cheaper than coal almost everywhere in the world, according to the research group.

The study concluded that in the U.S. and Germany, solar already rivals the cost of new coal power plants, and is expected to do the same in high-growth markets such as China and India by 2021.

The cost of electricity from solar energy, or photovoltaic panels has fallen nearly 25% since 2009, and is expected to to decline another 66% by 2040. Onshore wind, after experiencing a 30% reduction in price over the same period, is forecast to slash costs another 47% in just over two decades. (See also: 2017: A Turning Point for the Solar Industry.)

Renewable Energy Prices Are Falling

If the projections turn out correct, total global carbon dioxide pollution from fossil fuels may actually begin to decline after 2026. By contrast, the International Energy Agency’s central forecast sees emissions continuing to grow for decades to come. “Costs of new energy technologies are falling in a way that it’s more a matter of when than if,” said BNEF researcher Seb Henbest, the lead author of the report.

Total coal-powered generation in the United States is estimated to be slashed in half by 2040, compared to an 87% drop in Europe, where environmental laws have increased the price of using fossil fuels. A whopping 369 gigawatts of coal projects stand to be canceled, amounting to the entire electricity output of Germany and Brazil combined.

Despite President Donald Trump’s decision to pull out of the Paris Agreement on climate change and his stated commitment to bringing back the U.S. coal industry, BNEF expects the world’s hunger for coal to subside in less than 20 years as governments work together to reduce emissions. “Beyond the term of a president, Donald Trump can’t change the structure of the global energy sector single-handedly,” wrote Henbest.

Wind and solar are expected to make up nearly half of the world’s total installed generation capacity by 2040, compared to just 12% now. (See also: Oil Giant Total Sees Bright Future in Electricity.)

Published at Tue, 20 Jun 2017 23:45:00 +0000

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No holy guacamole: Chipotle sinks on weak outlook

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5 Stunning stats about Chipotle

No holy guacamole: Chipotle sinks on weak outlook

Good news for Chipotle: Customers have come back following the chain’s E.coli nightmare a few years ago. Bad news for Chipotle: Higher marketing costs and surging avocado prices may eat into its profits.

Shares of Chipotle(CMG) tumbled 6% Tuesday — making it the worst performer in the S&P 500 — after it said in a regulatory filing that operating costs in the second quarter would be higher than originally expected and potentially up from the first quarter as well.

Chipotle said specifically that an increase in marketing and promotional expenses was the main reason for the higher costs.

That’s why Wall Street is worried. Instinet analyst Mark Kalinowski cut his earnings forecast and price target for Chipotle by 6% Tuesday following Chipotle’s new outlook.

But Chipotle, which launched a major national ad campaign earlier this year, must feel it needs to get the word out to convince any customers still skeptical about food safety that it’s okay to go back and eat burrito bowls and sofritas.

Sales plunged in late 2015 after the E.coli outbreak was first reported — and sales continued to fall as more and more illnesses throughout the U.S. were linked to the chain. The CDC ultimately found that 60 people in 14 states wound up getting sick.

But the increase in marketing is working — even if it is proving to have a bit of a negative impact on profits.

Chipotle reiterated in its filing with the Securities and Exchange Commission that it still expects same-store sales (which measures the performance of restaurants open at least a year) to rise in the high single digits for the full year.

And shares of Chipotle are up nearly 15% so far in 2017 — despite the big drop on Tuesday.

Still, a recent surge in avocado prices due to concerns about a shortage in Mexico could be another problem for the company as well.

For now, Chipotle still thinks that food costs will account for a little more than 34% of its sales in the second quarter — the same as what it told Wall Street in April. But avocado prices have shot up in recent months.

That could put pressure on the company to raise prices for guacamole, which, of course, is one of its key menu items. (Chipotle, to its credit, has resisted the urge to jump on the Millennial-fueled avocado toast train.)

An increase in guac prices could potentially alienate customers who may still be skittish about Chipotle to begin with after the E.coli outbreak. But if Chipotle doesn’t raise prices to deal with rising commodity costs, that may lead to another drop in profits.

So Chipotle could be in a bind for the rest of the year.

It can’t afford to cut back on its TV commercials since it still needs to woo back former customers who have yet to return. And it may have to eat those higher avocado costs too because a big price hike won’t help its reputation either.

Published at Tue, 20 Jun 2017 17:17:09 +0000

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Has Alphabet Topped Out?

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Has Alphabet Topped Out?

By Alan Farley | June 19, 2017 — 10:11 AM EDT

Alphabet Inc. (GOOGL) has rewarded institutional and retail shareholders for months, but its impressive uptrend may be coming to an end, replaced by an intermediate correction that could relinquish 200 or more points before committed buyers return in force. As a result, investors and market timers who have profited from this rally should tighten up stops, take profits or institute options plays to protect their hard-earned gains.

While the tech giant has delivered a broad assortment of innovations and initiatives in the past decade, search engine advertising revenues still comprise a much greater share of quarterly revenues than cloud computing, self-driving cars or artificial intelligence. That cyclical force could dampen profitability in coming quarters, given weaker-than-expected U.S. growth in the first half of 2017. This type of shortfall is typical late in an economic expansion, often presaging a recession lasting one or two years. (For more, see: The Business of Google.)

GOOGL Long-Term Chart (2004 – 2017)

The company came public at $50 in August 2004, after adjustment for the 2014 split that created two equity classes and a new corporate identity. It ground sideways for two weeks following its introduction and took off in a historic uptrend that continued into the first quarter of 2006, when it stalled at $237.55. The stock then eased into a broad trading range, ahead of a cycle-ending rally burst that ended at $373 in November 2007. (See also: Why Google Became Alphabet.)

The stock plunged in two broad waves during the 2008 economic collapse, coming to rest at a two-year low just above $120 in December. The subsequent recovery wave lagged other tech stocks, requiring nearly four years to complete a 100% round trip into the prior-decade’s high. A 2013 breakout caught fire, lifting the stock in a stairstep pattern that featured quick rally bursts interspersed with long periods of sideways consolidation.

A 2015 breakout lost momentum in the first quarter of 2016, giving way to choppy sideways action, ahead of a 2017 breakout that mounted a four-year trendline of rising highs in April. The uptick then ran into a buzzsaw of selling pressure, declining to new support in a testing process that is still under way as we head toward the third quarter. This marks a binary setup in which new highs will continue the uptrend while a breakdown may signal the rally’s end, ahead of a multi-month trading range or long-term top. (To learn more, check out: Identifying Tops and Topping Patterns With Surprising Accuracy.)

GOOGL Short-Term Chart (2015 – 2017)

A July 2015 gap ended more than a year of lagging performance, generating a two-step rally that topped out near $800 at the start of 2016. The stock stretched toward $840 in the second half of the year, grinding out a rising wedge pattern that finally broke to the upside in April 2017. That uptick also broke long-term resistance at the rising highs, reaching $1,000, where aggressive selling pressure triggered an intermediate reversal.

The quick downturn at the magic number raises the odds that the April rally signaled a climax event that will soon give way to a multi-month correction. However, bulls will retain control as long as the price holds above new support at the unfilled gap between $890 and $920. Sidelined players should avoid long and short positions between that level and the all-time high at $1,008 until one side takes control with a breakout or breakdown. (See also: The Anatomy of Trading Breakouts.)

On-balance volume (OBV) has faithfully tracked price action since 2014, also rising in stairstep increments. It reached a new high in May 2017, signaling bullish convergence that keeps bulls in charge, at least for now. However, the first leg of the downturn at $1,000 generated the highest selling volume since the fourth quarter of 2016, when the stock fell nearly 100 points in under four weeks.

The Bottom Line

Alphabet broke out above a multi-year rising trendline in April 2017, highlighting significant relative strength, ahead a rally burst just above $1,000. Aggressive sellers then triggered a sizable reversal, setting up a key test of the uptrend, with a decline through $890 signaling the start of a major correction or long-term market top. (For related reading, see: The Tech Bubble Will Burst: The Question Is When.)

Published at Mon, 19 Jun 2017 14:11:00 +0000

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Why The Ethereum To Bitcoin Ratio Matters

 

Why The Ethereum To Bitcoin Ratio Matters

by Taki Tsaklanos from InvestingHaven.com

The price of Ethereum largely recovered from its 40 percent correction on Thursday.  Ethereum was trading at $360 on Wednesday, got smashed to $256 on Thursday, and is now back above $360.  This is typical behavior in cryptocurrency land: strong sell offs in a very short period of time, followed by new highs one week after.  We believe Ethereum will be trading at new all-time highs at the end of June.  Because of that we stick to our long term Ethereum forecast of $1000.

When it comes to understanding the outperforming cryptocurrencies most writers look at the market cap.  For instance, according to Coinmarketcap Bitcoin has a market cap of $42B while Ethereum stands at $33B.  Early this year Ether has a market cap of $4B.

In our view the market cap comparison does not reflect the best way to look at cryptocurrencies.  What is valuable as an indicator is relative strength, for instance the Ethereum to Bitcoin price ratio.  That stems from analysis in traditional markets.  When analyzing traditional markets we look at the gold to silver ratio to identify which of the two is outperforming or to understand whether a bull market has started or ended.  In stock markets the S&P 500 to Russell 2000 ratio is popular as a gauge of risk (the small cap Russell typically outperformers when investors are in ‘risk on’ mode).

When we look at the two biggest cryptocurrencies, Bitcoin and Ethereum, it is worth analyzing the Ethereum to Bitcoin price ratio. It is shown on the following chart:  http://ethereumprice.today/wp-content/uploads/2017/06/ethereum-to-bitcoin-price-chart.png

This ratio tells that Ethereum’s relative strength dipped in January of this year. However, as of that moment, it went up almost in one straight line.

It moved to an “all-time high” right when it crossed the horizontal red line annotated on the chart.  In chart analysis terms we call it a “breakout.” As goes with most breakouts it tends to come back down to test the breakout point before moving higher as of that point. That is called a “confirmation of the breakout” so it suggests that the uptrend will continues.

In May, the Ethereum to Bitcoin ratio crossed the other red line, see green circle. That is when the acceleration of Ethereum’s outperformance started.

Why is this important? Because it shows the outperforming cryptocurrency. Similar to the gold to silver ratio, it is great to know as an investor if Ethereum is the stronger cryptocurrency compared to Bitcoin which is considered a reference point as it was the first cryptocurrency to become big and is the most well known cryptocurrency currently.

Likewise, readers can do their own research by looking at other ratios: think of the Ethereum to Ripple ratio, the Ethereum to Litecoin ratio, and the likes.

Relative strength tells much more than absolute prices, investors have to make use of it.

Note that this ratio does not suggest anything about the future price of Ethereum or Bitcoin.

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When Discipline Works–And When It Doesn’t

 

When Discipline Works–And When It Doesn’t

Trader A has a preferred trading style.  It might be a momentum style; it might be a directional style.  It’s a style that fits Trader A’s personality and that has made money in the past, so Trader A sticks to that style.  In sticking to what fits his or her personality, Trader A demonstrates discipline.

Trader B has preferred trading “setups”.  These are patterns in the market that make the most sense to Trader B.  Those patterns might be breakout patterns; they might be patterns of mean reversion.  Trader B has seen these patterns work out, so Trader B sticks to trading those setups.  In sticking to what fits his or her understanding of the market, Trader B demonstrates discipline.

Trader C studies the kind of market we’re currently experiencing.  Trader C has used some basic dimension reduction methods to boil markets down into a few categories, such as price change and volatility.  Once Trader C figures out the kind of market we’re in, Trader C studies the edges present in that type of market.  In trading only the edges present in the current market, Trader C demonstrates discipline.

Three traders, three forms of discipline.

Two of those traders are losing money.

Are you trading what you subjectively prefer, or are you trading what is objectively present in the market?

I submit that the answer to that question accounts for much of the success and failure we’re currently seeing among traders and trading firms.

 

Published at Sun, 18 Jun 2017 12:37:00 +0000

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Your Money: Money secrets of parents with multiple kids in college

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Your Money: Money secrets of parents with multiple kids in college

By Beth Pinsker| NEW YORK

 

Sometime soon after his fourth child was born, it dawned on Howard Krooks that he was going to be on the hook for 12 consecutive years of college tuition payments when they all grew up.

 

It scared him into action.

 

“I’m a planner. I don’t like surprises,” said Krooks, an elder law attorney in Boca Raton, Florida.

 

Krooks figures he will spend upwards of $1 million to put four children through college. His oldest child is now 19 and attending a culinary institute in New York. His 16- and 14-year-olds are in high school, and his youngest, now 10, is about to start sixth grade.

 

Krooks has 529 college savings accounts for all of them, plus pre-paid tuition plans in Florida, where they now live. That pre-paid tuition can be converted to a credit for any institution if the child does not end up at a state school.

 

About 14 percent of U.S. families have four or more children, while 24 percent have three children, according to the Pew Research Center. Advance planning is key for those facing a long-haul of tuition payments. Depending on the age spread between their kids, college costs can double up for years or end up spread out for more than a decade.

 

Having multiple kids in college at once can be a boon for families receiving financial aid because the expected family contribution for tuition determined by the federal financial aid form will not shift – although living expenses and book fees will compound. But for families paying full freight, it means costs are condensed over a shorter period of time.

 

Jim Stehr, a financial adviser who runs Paragon East Advisors in Lafayette, California, is steering three kids through college in eight years. His oldest started school in 2014, and when he is all done in 2022, Stehr expects his total costs to be roughly $800,000.

 

Stehr started saving when his oldest was born, but there were no good 529 savings options at that point in his state, so he just put funds aside in taxable accounts.

 

“The good news is that I have most of the money they need, but I’m paying the price in capital gains,” Stehr said.

 

Mitchell Walker, a retired businessman from Mount Pleasant, Texas, took the opposite approach out of necessity, when he was putting five kids from a blended family through college on a limited income.

 

When Walker got remarried, his kids were 17 and 13, and they were joined by his wife and her kids, who were 8, 6 and 5 at the time. Walker had nothing saved when his oldest started college, but eked out $300 a month from his budget.

 

That was enough to get started at a community college, before the son transferred to Texas A&M. The youngest of the kids graduated six years ago, ending 11 years of tuition payments over the course of 12 years.

 

“We took almost no loans,” said Walker, who credits living in a small town with low living expenses plus a lot of belt tightening, for pulling off the feat. Walker is so keen on budgeting that he has a book coming out on his methodology(pouchplan.com/pages/book).

 

Dual-credit classes taken in high school also helped tremendously, because it allowed Walker’s children to take a lighter class schedule in college and work more.

 

TIME TO RECOUP

 

For Allan Ripp, who runs a public relations business in New York, the key to getting through 10 years of college tuition payments is the age spread of his children – who are now 32, almost 30 and 19. He got his oldest two through in six years, and then had a long gap before their younger son started last year.

 

“In my late 40s and 50s, it was a more financially solid period. We didn’t plan it that way, but it was a bit better,” Ripp said.

 

While they did not have dedicated college savings accounts, Ripp was able to lean on his business and use cash flow to cover tuition. Ripp and his wife also kept their living expenses as low as possible, driving one car for 21 years.

 

When all the tuition payments are finished in three years, Ripp says he will actually be sad that his kids are done and grown.

 

“You’re always welcome to have the money you don’t spend on tuition, but I don’t think I’ll feel that it’s releasing us to go to Europe,” he said. “We lead a pretty humdrum life.”

 

(Editing by Lauren Young and Andrew Hay)

 

Published at Thu, 15 Jun 2017 18:38:17 +0000

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Tobacco Stocks Probing New Highs

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Tobacco Stocks Probing New Highs

By Alan Farley | June 15, 2017 — 1:39 PM EDT

Tobacco stocks have offered perfect investment vehicles for patient shareholders in the past decade, paying sizable dividends while posting a near endless series of new highs. Of course, taking exposure in this controversial industry isn’t for everyone, especially if loved ones have paid the price for nicotine addiction. However, buying shares of a company isn’t the same thing is supporting their business practices, and it’s our job to seek out superior returns wherever we can find them.

Strong Asian growth now drives industry profits, along with a resurgence in U.S. consumption triggered by modern vaporizer technology. In addition, the current administration has plans to strip away regulations across a broad swath of industries, making it unlikely that producers will get singled out for criticism in coming years. Given these tailwinds, tobacco stocks are likely to perform well into the next decade. (For more, check out: Back From the Dead: Why Tobacco Stocks Are Soaring.)

Philip Morris International Inc. (PM) carries the highest sector capitalization for tobacco producers trading on the U.S. exchanges at $184 billion. It spun off from parent Altria Group, Inc. (MO) at $50 in March 2008 and entered an immediate downtrend that posted an all-time low at $32.04 in March 2009. The subsequent recovery wave reached the upper $90s in 2013, giving way to a multi-year correction that found support in the mid-$70s.

The stock rallied above the prior high in 2016 and stalled out, building a base on new support and then spiraling lower in November. That marked the washout low, ahead of a strong buying impulse that reinstated the breakout in January 2017, followed by a powerful trend advance to an all-time high at $122.90 on June 6. Philip Morris stock has been pulling back in a bull flag pattern since that time, while daily stochastics have dropped into the oversold zone. (See also: Philip Morris, the Best Is Yet to Come: Wells Fargo.)

Both monthly and weekly indicators have held buy cycles through this period, signaling a bullish divergence and potential pullback buying opportunity ahead of continued upside. Even so, a more advantageous trade entry might come if aggressive sellers break short-term support and knock the stock down to the top of the first quarter range and 50-day EMA at $115.

Altria Group expanded into spirits and finance leasing services following the Philip Morris spin-off,​ but tobacco remains its biggest profit component. It fell just 7 points during the 2008 economic collapse, returning to the prior high in 2010, ahead of a 2011 breakout that reached $70.14 in July 2016. A pullback into the fourth quarter settled near $60, ahead of a January 2017 rally into March’s all-time high at $76.54. (See also: Altria Optimistic on FDA’s Filing of Heated Products.)

Altria Group shares sold off into May, testing new support near $70 and turning higher into June, settling into a narrow platform that traded within 60 cents of resistance this week. On-balance volume (OBV) has already risen to a new high, highlighting strong institutional sponsorship that should support a fresh rally leg into the low $80s, where a two-year rising-highs trendline could trigger another reversal.

Reynolds American Inc (RAI) rallied above the 2008 high in 2011 and entered a rising channel that accelerated into a steeper channel in 2014, highlighting impressive relative strength. The uptrend stalled near $50 at the end of 2015, giving way to a shallow correction that ended with a high-volume October gap to a new high in the mid-$50s. It took three months to clear the high posted in that session, yielding a long series of new highs into last week. (For more, see: Reynolds Announces Leadership Roles Post Acquisition by BAT.)

The stock sold off with the broad market, dropping into the first test at the 50-day EMA since January, and it is still testing that level. Weekly stochastics fell into an unconfirmed sell cycle in reaction to the decline, raising odds for an intermediate correction lasting a minimum of eight to 12 weeks. Given this scenario, a pullback into deep support at $50 could offer a buying opportunity.

The Bottom Line

Tobacco manufacturers and distributors are leading the broad market, resistant to broad headwinds facing other high-yielding instruments. This resilience could last into the new decade, given humankind’s addictive interest in the controversial crop. (For additional reading, see: Behind Tobacco Stocks’ Recent Strength.)

Published at Thu, 15 Jun 2017 17:39:00 +0000

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New Help for the Millennial Money Dilemma

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New Help for the Millennial Money Dilemma

By Julia Kagan | June 17, 2017 — 6:00 AM EDT

Media coverage of America’s massive Millennial generation can make them sound like Martians who just landed on the planet or a new species recently cracked out of its pods. In fact, according to a recent survey of 1,010 Americans (80% of them Millennials aged 21-34), the nation’s youngest adults have remarkably traditional goals.

That was the most surprising conclusion of the 2017 Bank of the West Millennial Study, an in-depth look at what Millennials want and what they’re doing to attain it. Bank of the West recently visited Investopedia to talk about the survey and some new initiatives that reflect some of of its findings.

The American Dream, Millennial Style

Almost identical to Generation X (age 35-51) and only somewhat less than the Baby Boomers (age 52-70), Millennials see the top elements of the American dream as:

  • Being happy (Millennials 70%/Gen X 70%/Boomers 80%),
  • Owning a home (60%/62%/69%)
  • Being debt-free (55%/56%/66%)
  • Retiring comfortably (51%/57%/67%)

What’s more, six in 10 of the respondents in the survey see the dream as either still attainable (56%) or say they’ve already attained it (5%).

“What surprised me the most was the level of optimism of this generation,” says Paul Appleton, executive vice president, products and payment solutions at Bank of the West. “Eighty-five percent are confident that they will attain their American Dream. And two-thirds believe that they have more opportunity than their parents to be successful.”

What Millennials don’t have: the kind of job stability and benefits many members of earlier generations enjoyed. A growing number are part of the gig economy instead of holding permanent jobs. And pretty much everyone lacks the defined-benefit pensions that even most Boomers have missed out on. As Appleton points out, 17% of Millennials work part- rather than full-time, not because they want to but because that’s how the job market is in many places.

Family Over Fortune

Millennials are far more home-and-family oriented than people think, the survey found. After travel (46%), what they’re saving for most is to buy a home (38%). That’s especially striking because 43% of the respondents already own one.

Given the chance to move, 80% would move closer to family. Given a choice between a rich professional life and a rich family life, 78% choose family.

A Cautious Generation

Not surprising for a generation that came of age with the Great Recession of 2007-2009, Millennials are not big risk-takers. Quit a job without having another one lined up? No way, say 79% of Millennials. Move to a new city without lining up a job first? Not me, add 62%. Older generations are also cautious, but they’re more likely to be tied down than young adults.

That caution spills over into how Millennials handle finances. A startling 76% keep their money either in their checking/savings accounts (64%) or in cash (12%). Only 24% invest their money – either on their own (17%) or with the help of an advisor or robo-advisor (7%). It’s likely that the stock market crash is a more powerful memory than its more recent rise.

And, although they want to achieve the American Dream, only 49% of Millennials have a financial plan to do so.

Money Solutions

In short, Millennials need some help reaching their goals. “The survey and other research we’ve done on Millennials have shown they need three things,” says Eileen Loustau, senior vice president, head of segment strategy for Bank of the West. “They want help with budgeting, they need to move from being a saver to an investor, and they would like a lot of apps and tools to help them save.” The bank is looking at setting up an information desk where Millennial-age bank employees would be available in branches to help their peers and others with financial questions.

Meantime, to help the gig-economy generation – especially those socked with high banking fees because their paychecks don’t come with direct deposit – the Bank just launched a new checking account called “Any Deposit Checking” in all 19 states where it has branches. This allows individuals to open a full-service account with no minimum balance or direct deposit required, and no monthly fee as long as a monthly deposit (no minimum size) is made. For customers under 25, the monthly service charge ($10) is waived automatically, even without a deposit.

“We know that 18% of employees don’t have access to direct deposit,” says Appleton. “This account will give them access to a full-service branch and a debit card,” He also pointed out that opening the account won’t require a credit rating – another barrier for some Millennials just beginning their financial lives.

Mortgage Solutions

Nearly 6 in 10 Millennials haven’t yet bought a home, the goal that’s #2 on their generation’s American Dream list. While about two-thirds of the non-homeowners follow that option for various other reasons, a third say the only reason they haven’t bought is that “it’s too expensive.”

An expensive housing market is an especially big barrier these days, Appleton explains. Most lenders require borrowers to have 20% of the price of the home as a down payment, which is especially difficult in high-cost-of-living cities, such as San Francisco, where Bank of the West is based. The bank recently launched a mortgage-lending program that requires only 10% down to get a mortgage without needing the private mortgage insurance usually required of those who don’t make the 20% mark. The financing is a little complicated – a mortgage on 80% and a home-equity loan for the other 10% – but it offers borrowers with good credit scores but less-than-optimum cash a chance to finally buy a home. “The study showed how we needed to learn to approach mortgage lending differently,” says Appleton.

The Bottom Line

Millennials have notably traditional goals, but they need new solutions for today’s economic environment. Banks competing with other types of financial services companies for their attention and business will need to find new ways to step forward. Bank of the West’s research provides new directions for financial services to explore – and useful questions for individuals to ask about their own financial planning.

For more on this topic, read Millennials: Finances, Investing & Retirement and The Biggest Financial Mistakes Millennials Make.

Published at Sat, 17 Jun 2017 10:00:00 +0000

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Tough Times Ahead for Kroger

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Tough Times Ahead for Kroger

By Alan Farley | June 16, 2017 — 11:21 AM EDT

Supermarket giant The Kroger Co. (KR) saw its shares fall nearly 19% on Thursday after meeting first quarter EPS and revenue estimates but lowering fiscal year 2018 profit guidance, now calling for 0% to 1% growth. The stock took a second hit on Friday morning, following a wave of downgrades that list stiff headwinds due to steep discounting by Wal-Mart Stores, Inc. (WMT) and other big-box retailers as well as online portals that have sliced off grocery market share at a quicker-than-expected pace.

Intense competition has undermined traditional profit venues that include aggressive commodity management, i.e. taking advantage of futures market pricing anomalies that generate higher margins for key staples. Kroger also faces an uphill battle in competing with Amazon.com, Inc. (AMZN), now the nation’s third largest food retailer, intensified by Friday’s Whole Foods Market, Inc. (WFM) acquisition announcement. Of Kroger’s 2,796 storefronts, just 22% were offering online sales at the time of the March 2017 earnings call. (For more, see: Amazon to Buy Whole Foods in $13.7 Billion All-Cash Deal.)

KR Long-Term Chart (1988 – 2017)

The supermarket chain joined the national exchanges just above a buck (after three stock splits) in 1988 and entered a shallow uptrend that peaked at $3.06 in 1991. A narrow consolidation into 1992 gave way to a powerful trend advance that unfolded in a straight line into the 1999 high at $17.45, ahead of a multi-year correction that bottomed out at $5.50 in the fourth quarter of 2002.

Price action in the next 11 years held within the narrow boundaries of the three-year downtrend, with a multi-year uptick into 2007 stalling less than two points below the 1999 peak, while a bear market decline into March 2009 found support about four points above the 2002 low. Volatility dropped off a cliff into the new decade, with the stock grinding sideways in a three-point range that failed to reward long-suffering shareholders.

Kroger stock awoke from its long slumber in 2012, lifting off range support in a positive feedback loop that reached the prior century’s high in 2013. It broke out into 2014 and took off in the most productive period since the 1990s, lifting in a strong uptrend that continued into the March 2015 high at $38.87. A shallow decline into August found support in the upper $20s, yielding a December test of the high that attracted aggressive selling interest, carving the next stage of a broad top ahead of a 2017 breakdown. (See also: Kroger Nosedives on Downward Revised Guidance.)

KR Short-Term Chart (2015 – 2017)

A slow-motion decline off range resistance at the 2015 high reached range support in October 2016, yielding a modest bounce that posted a lower high in December. The price drifted back to support in March 2017, completing a head and shoulders topping pattern, and it broke the neckline on heavy volume earlier this week. This selling impulse signals the start of a secular downtrend that could reach the mid-teens in the coming months.

On-balance volume (OBV) topped out in the second half of 2015 and entered an aggressive distribution wave that reached a four-year low in the first quarter of 2017. A bounce into June has now ended, marking aggressive abandonment by institutional and retail shareholders getting out of the way of lower prices. Curiously, the company’s 1.59% dividend yield should have eased selling pressure, but it hasn’t, adding an additional bearish note to the long-term outlook. (See also: US Grocer Kroger Scrambles Before German Invasion.)

The broad uptrend between 2013 and 2015 should slow or stall downside momentum in coming weeks, with support near $20 likely to end the current sell-off wave. The 200-month EMA is rising slowly toward that price level, adding a significant support layer that should allow the company to catch its breath while considering aggressive steps needed to compete in the digital marketplace.

The Bottom Line

Kroger has broken down from a multi-year top after warning that annual sales may not grow in the current fiscal year. The bearish news follows a near endless string of warnings from a broad variety of brick-and-mortar retailers, signaling an escalation out of traditional sales and into e-commerce. (For related reading, check out: Evaluating Grocery Store Stocks.)

Published at Fri, 16 Jun 2017 15:21:00 +0000

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