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Sprint Stock Breaks Down From Key Support Levels

File Photo: SoftBank Group Corp Chairman and CEO Masayoshi Son attends a news conference in Tokyo, Japan, February 8, 2017. REUTERS/Toru Hanai

Sprint Stock Breaks Down From Key Support Levels

By Justin Kuepper | January 19, 2018 — 1:15 PM EST

Sprint Corporation (S) shares fell about 2.7% on Thursday after the company entered into a deal with Cox Communications as part of a patent litigation settlement. Under the terms of the deal, Sprint will leverage Cox’s broadband infrastructure to accelerate the diversification of its network while increasing the efficiency of its backhaul and small cell deployments. The additional components of the patent litigation settlement remain undisclosed at this time.

While the patent overhang remains, Sprint shareholders were also eyeing Verizon Communications Inc.’s (VZ) announcement that tax reform would have an impact of $4.10 per share on its fiscal year earnings. The one-time reduction in net deferred income tax liabilities for Verizon will be approximately $16.8 billion due to the lower corporate rate. The company does not anticipate any material changes resulting from the repatriation tax or the implementation of the territorial tax system. (See also: SoftBank Invests Even More in Sprint.)

Technical chart showing the performance of Sprint Corporation (S) stock

From a technical standpoint, Sprint’s stock has been in a long-term downtrend dating back to September of last year. The stock broke down from prior lows reached in mid-December to fresh 52-week lows on Thursday before rebounding by midday on Friday. The relative strength index (RSI) appears a bit oversold at 35.81, but the moving average convergence divergence (MACD) could see a near-term bearish crossover.

Traders should watch for a rebound back above key resistance levels to S1 resistance at around $5.52 or a breakdown to lower trendline and S2 support at $5.16. While the significant downtrend suggests further downside ahead, the resolved patent litigation and favorable tax impacts could be a fundamental positive over the coming weeks. This could point to an upcoming period of consolidation. (For additional reading, check out: AT&T to Launch 5G in a Dozen Cities This Year.)

Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.

Published at Fri, 19 Jan 2018 18:15:00 +0000

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Morgan Stanley raises targets, but Wall Street wants more

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Morgan Stanley raises targets, but Wall Street wants more

(Reuters) – Morgan Stanley raised key profitability and efficiency targets on Thursday, but those loftier goals failed to impress Wall Street analysts, who repeatedly asked Chief Executive Officer James Gorman why the bank could not do even better.

The new targets came after Morgan Stanley reported fourth-quarter results that beat analyst estimates and exceeded Gorman’s previously stated ambitions for wealth management, bond trading, expenses and returns on shareholder equity.

During his eight years as CEO, Gorman, 59, has been working to transform Morgan Stanley from a Wall Street firm whose risk-taking nearly capsized it during the 2007-2009 financial crisis into a bank that relies more on businesses that generate steady fees, like wealth management.

The strategic update he laid out on Thursday included annual pretax profit margins of 26 percent to 28 percent for wealth management, returns on equity (ROE) of 10 percent to 13 percent and a cost-to-revenue ratio of 73 percent or less in the coming years.

But analysts grilled Gorman about the targets during a conference call to discuss results, arguing that the bank is already at or near those goals and should be able to do much better.

The back and forth took a cheeky turn when Gorman addressed an analyst with an exasperated “Oh my God,” before again going through his rationale, including the possibility of a recession hurting profits.

“We are all in on delivering better results than what we’ve publicly said,” Gorman added. “On the other hand, we don’t have credibility as a management team if we put out things which are artificially designed to boost confidence.”

It was not the first time Wall Street has pushed Gorman to aim higher.

When he took over as CEO, the wealth management business was generating single-digit pretax profit margins. He has gradually lifted the target from mid-teens to 20 percent to a range of 23 percent to 25 percent before outlining the current goal, and each time analysts have asked for more.

Last quarter, Gorman was also quizzed about his view that bond traders needed to generate at least $1 billion in average quarterly revenue to sustain the business. Some analysts have said that while the figure represents a minimum rather than a goal, the business can do a lot better.

In an analyst note, Devin Ryan at JMP Securities wrote that they have had conversations with investors for years who were hesitant to believe that ROEs could move back into the double-digit range.

“Therefore, we do view these new targets as an important moment for the firm in its current form”, adding that he does not perceive the targets to be end points, particularly as wealth management earnings should continue to expand.

Despite the sometimes exasperated discussion, Morgan Stanley’s stock price hit its highest level in a decade on Thursday before closing up nearly 1 percent at $55.84.

With a market capitalization of $101 billion, the sixth-largest U.S. bank by assets is now more valuable than its closest competitor, Goldman Sachs Group Inc, whose shares are worth $95 billion.

Morgan Stanley’s adjusted fourth-quarter profit of $1.68 billion, or 84 cents per share, beat analysts’ average estimate of 77 cents per share, according to Thomson Reuters I/B/E/S.

Those figures exclude a $1.2 billion charge resulting from a U.S. tax overhaul signed into law in December that also caused one-time hits at other major lenders. Analysts have been looking past those charges to focus on the long-term benefits of lower tax rates.

Morgan Stanley expects its tax rate to fall to a range of 22 percent to 25 percent this year, down from 31 percent last year.

Total revenue rose 5 percent to $9.5 billion from $9.02 billion in the year-ago quarter. Analysts were expecting $9.2 billion.

Excluding the tax charge, its return on equity was 9.4 percent last year, within Gorman’s 9 percent to 11 percent target.

WEALTH HELPS DRIVE RESULTS

Wealth management was a bright spot, with revenue rising 10 percent from the year-ago quarter to a record $4.4 billion. Its pretax profit margin of 26 percent topped Gorman’s previous target for the business, and the bank gathered a record $20.9 billion worth of fee-based client assets, the type it is trying to grow.

Morgan Stanley’s underwriting business also posted strong results, particularly in equities, helped by the bank’s leading position in initial public offerings. Underwriting revenue rose 42 percent to $915 million.

And while bond trading revenue plunged 45 percent in the fourth quarter, the business still delivered more than $1 billion in average quarterly revenue for the full year.

All Wall Street banks, particularly Goldman Sachs, have faced big declines in bond trading due to historically low market volatility.

Reporting by Catherine Ngai in New York and Aparajita Saxena in Bengaluru; Additional reporting by Elizabeth Dilts; Writing by Lauren Tara LaCapra; Editing by Bernard Orr, Meredith Mazzilli and Diane Craft

Published at Fri, 19 Jan 2018 00:45:36 +0000

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Update: For Fun, Stock Market as Barometer of Policy Success

Update: For Fun, Stock Market as Barometer of Policy Success

by Bill McBride on 1/19/2018 11:57:00 AM

There are a number of observers who think the stock market is the key barometer of policy success.  My view is there are many measures of success – and that the economy needs to work well for a majority of the people – not just stock investors.

However, for example, Treasury Secretary Steven Mnuchin was on CNBC on Feb 22, 2017, and was asked if the stock market rally was a vote of confidence in the new administration, he replied: “Absolutely, this is a mark-to-market business, and you see what the market thinks.”

And Larry Kudlow wrote in 2007: A Stock Market Vote of Confidence for Bush: “I have long believed that stock markets are the best barometer of the health, wealth and security of a nation. And today’s stock market message is an unmistakable vote of confidence for the president.”

Note: Kudlow’s comments were made a few months before the market started selling off in the Great Recession. For more on Kudlow, see: Larry Kudlow is usually wrong

For fun, here is a graph comparing S&P500 returns (ex-dividends) under Presidents Trump and Obama:

Stock Market Performance

Click on graph for larger image.

Blue is for Mr. Obama, Orange is for Mr. Trump.

At this point, the S&P500 is up 23.2% under Mr. Trump compared to up 41.1% under Mr. Obama for the same number of market days.

Read more at http://www.calculatedriskblog.com/2018/01/update-for-fun-stock-market-as.html#yRdiQOsKJzw4p9KO.99

Published at Fri, 19 Jan 2018 16:57:00 +0000

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Reagan and Bush economic adviser says stocks are due to fall

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Reagan and Bush economic adviser says stocks are due to fall

  @CNNMoneyInvest

Martin Feldstein, one of the most influential Republican economists of the last 40 years, is warning that the stock market is poised to plunge.

That could drag down the U.S. economy, Feldstein warned.

In Wall Street Journal column with the headline “Stocks Are Headed for a Fall,” Feldstein argued that years of cheap money from the Federal Reserve has produced an overvalued stock market. He expects stocks to tumble as interest rates on bonds start to rise.

“When interest rates rise back to normal levels, share prices are also likely to revert to previous norms,” he wrote. “…The implied fall in the market would reduce the value of household equities held directly and through mutual funds by $10 trillion.”

He said that enormous decline in household wealth will take a deep bite out of consumer spending. That could shave 2% off of U.S. gross domestic product, the broad measure of the nation’s economic activity.

“The drop in equity prices would also raise the cost of equity capital, reducing business investment and further depressing GDP,” he wrote.

The prediction comes as stocks continue one of their strongest runs ever, regularly setting record highs, and going for the longest period on record without even a modest 3% pullback. Feldstein was the chairman of Council of Economic Advisers under President Reagan and an adviser to President George W. Bush credited with being one of the fathers of his administration’s tax cut plan.

He blames the steps that the Fed took in 2008 in response to the financial crisis, taking interest rates down to near 0%, and buying huge amounts of assets to pump money into the economy. Investors looking for returns on the investments moved into stocks and real estate, which inflated the value of those assets. But now with the Fed raising rates.

His column says that some of the current law is likely to increase the federal budget deficit, which he says will be another factor driving up interest rates.

Published at Wed, 17 Jan 2018 13:42:08 +0000

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Asian shares retreat as commodities ease, bitcoin pummeled

 

Asian shares retreat as commodities ease, bitcoin pummeled

TOKYO (Reuters) – Asian equities stepped back from a record high on Wednesday as the region’s resource shares were knocked by falling oil and commodity prices while digital currencies tumbled on worries about tighter regulations.

European shares were expected to dip, with futures pointing to a fall of 0.3 percent in Germany’s Dax FDXc1 .GDAXI, 0.4 percent in France’s Cac FCEc1 .FCHI and 0.2 percent in Britain’s FTSE FFIc1 .FTSE.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS retreated 0.3 percent from its record high as resource shares declined after oil and other commodities succumbed to profit-taking after recent gains.

Japan’s Nikkei .N225 fell 0.4 percent from its 26-year peak reached the previous day.

Wall Street paused its rally, hit by a 1.2 percent fall in energy stocks .SPNY as well as weakness in General Electric (GE.N). The U.S. conglomerate raised the prospect of breaking itself up and announced more than $11 billion in charges from its long-term care insurance portfolio and new U.S. tax laws.

Cboe volatility index .VIX, which measures investors’ expectation on price swings in U.S. shares, rose to a one-month closing high of 11.66 from near record low levels seen earlier this month.

World shares have rallied since the start of this year on prospects of continued strong global growth and improving earnings in the U.S. and elsewhere, with many analysts expecting an extension of the bull run in equities.

“U.S. corporate earnings are beating estimates more than usual. People have been talking about ‘goldilocks economy’,” said Soichiro Monji, chief strategist at Daiwa SB Investments, adding market fundamentals remain solid. “Now they are starting to think a ‘red-hot’ economy may be a better description.”

In the currency market, the dollar was broadly weak, sticking near a three year low against a basket of currencies.

“As more countries in the world are starting to unwind their stimulus, the dollar’s yield advantage will shrink and prompt a correction in the dollar’s strength since 2014,” said Minori Uchida, chief FX analyst at Bank of Tokyo Mitsubishi-UFJ.

The Bank of Canada is seen as likely to raise its benchmark interest rate by 25 basis points to 1.25 percent later in the day, with analysts expecting three hikes this year.

The Canadian dollar traded at C$1.2452 per dollar CAD=D4, off its three-month high of C$1.2355 hit on Jan 5.

Investors also expect the European Central Bank’s eventual exit from stimulus as a major market theme for this year.

Three sources close to the ECB’s policy told Reuters that the ECB is unlikely to ditch a pledge to keep buying bonds at next week’s meeting just yet as rate setters need more time to assess the outlook for the economy and the euro.

Although the report briefly pushed down the euro on Tuesday, the currency scaled a three-year high of $1.2323 EUR= in Asian trade before easing back to $1.2242.

The ECB last week signaled a growing appetite for revising its policy message in “early” 2018, and specifically a promise to continue its 2.55 trillion euro money-printing program until inflation heads back to target

The dollar also hit a four-month low of 110.19 yen JPY= before steadying around 110.56 yen. The Chinese yuan flirted with Monday’s two-year high in both onshore CNY=CFXS and offshore CNH=D4 trade.

Gold traded at $1,340.6 per ounce XAU=, near Monday’s four-month peak of $1,344.7.

Taking a big blow, digital currencies tumbled, with bitcoin falling to a six-week low of $10,162 BTC=BTSP after reports said South Korea and China could ban trading, intensifying fears of a wider regulatory crackdown.

“Cryptocurrencies could be capped in the current quarter ahead of G20 meeting in March, where policymakers could discuss tighter regulations,” said Shuhei Fujise, chief analyst at Alt Design.

Bitcoin traded at $10,968, down 3.7 percent in Asia, after a fall of 16.3 percent on Tuesday, its biggest daily decline in four months.

Oil prices pulled back from three-year highs as traders booked profits but healthy demand underpinned prices near $70 per barrel, a level not seen since the market slump in 2014.

Prices have been driven up by oil production curbs in OPEC nations and Russia, and demand amid healthy economic growth

U.S. crude futures CLc1 traded little changed at $63.70 per barrel after hitting a December 2014 peak of $64.89 on Tuesday.

Global benchmark Brent crude futures LCOc1 fetched $69.14 a barrel, off a peak of $70.37 on Monday, which matched a high from December 2014 at the start of a three-year market decline.

Editing by Sam Holmes & Shri Navaratnam

 

Published at Wed, 17 Jan 2018 07:25:58 +0000

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Dow 26,000: The stock market is a runaway freight train

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Dow hits 26,000 milestone
Dow hits 26,000 milestone

Dow 26,000: The stock market is a runaway freight train

  @MattEganCNN

Seven trading days. That’s how long it took the Dow to rocket from 25,000 to 26,000.

The market’s latest milestone, reached on Tuesday just after the opening bell, easily sets the record for the fastest rise between 1,000-point barriers. The Dow has been around for 121 years.

The Dow has spiked almost 8,000 points, or about 42%, since President Trump’s election. The stock market boom reflects enormous excitement on Wall Street about record corporate profits and strong economic growth at home and abroad — all of which could be boosted by the GOP tax overhaul.

“The market has certainly come out of the gates fast in 2018 after a stellar 2017,” said Art Hogan, chief market strategist at Wunderlich Securities.

It’s true that 1,000-point milestones come easier at these lofty levels. On a percentage basis, it’s just not nearly as big of a move as it was from 10,000 to 11,000.

Still, the relentless surge is raising concern even among some bulls that things are getting out of hand.

Ed Yardeni, president of investment advisory Yardeni Research, told clients in a report on Tuesday that he believes the market is in a “melt-up.” That’s a rapid price increase based on emotion — fear of missing out on gains — rather than on old-fashioned fundamentals.

“I’m not a big fan of melt-ups,” Yardeni wrote. “They tend to be followed by meltdowns.”

Michael Block, chief market strategist at Rhino Trading Partners, said the “fear of missing out is resonating,” if not “screaming.”

“I just question whether this is too far too fast,” Block wrote in a note on Tuesday.

Some stocks are up even more than the Dow since Trump’s election. Amazon(AMZN) has zoomed 66%, Netflix(NFLX) has spiked 78%, and Nvidia(NVDA) has skyrocketed 218%. It’s not just tech. Look at Bank of America’s(BAC) 83% rise or Best Buy’s(BBY) 93% surge.

Hogan said that in many ways investors are scrambling to react to the tax law, which delivered a huge tax cut to corporations and a gift to Wall Street. It should save companies billions of dollars, freeing them to reward investors with share buybacks, dividends and mergers and acquisitions.

“We’re just starting to see Corporate America tell us what a lower corporate tax rate means to the bottom line. We shouldn’t dismiss that,” said Hogan.

Yet Hogan said investors, especially ones who missed a chunk of the rally, would be more comfortable if stocks finally took a breather.

The S&P 500 hasn’t declined 3%, either in a single day or over several days, since early November 2016. That’s the longest period of calm in history, according to Bespoke Investment Group.

More impressive: The S&P 500 hasn’t suffered a 5% pullback since June 2016, weeks before Trump secured the GOP presidential nomination. It’s the second-longest such streak ever, according to LPL Financial.

Dan Suzuki, senior U.S. equities strategist at Bank of America Merrill Lynch, thinks the market is experiencing a “melt-up” and investor sentiment is nearing “euphoria,” though it’s not quite there yet.

Suzuki says history shows that bull markets typically end on very, very strong notes. This bull market began in March 2009, near the end of the Great Recession.

The S&P 500 has quadrupled from its bear market low. But the gains have clearly accelerated since Trump’s election.

“It’s an extremely impressive rally,” Suzuki said. “It’s pretty indicative of what you see at the end of bull markets when sentiment is in the driver’s seat.”

Published at Tue, 16 Jan 2018 14:52:06 +0000

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Value Trap

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Value Trap

What is a ‘Value Trap’

A value trap is a stock that appears to be cheap because the stock has been trading at low valuation metrics such as multiples of earnings, cash flow or book value for an extended time period. Such a stock attracts investors who are looking for a bargain because they seem inexpensive relative to historical valuation multiples of the stock or relative to the prevailing overall market multiple. The trap springs when investors buy into the company at low prices and the stock continues to languish or drop further.

BREAKING DOWN ‘Value Trap’

Successful in prior years with rising profits and a healthy share price, a company can fall into a situation where it is unable to generate revenue and profit growth due to shifts in competitive dynamics, lack of new products or services, rising production and operating costs, or ineffective management. For the investor who is used to seeing a certain valuation of the stock, a seemingly “cheap” price becomes interesting. However, it becomes a value trap to the investor if no material improvements are made in the company’s competitive stance, its ability to innovate, its ability to contain costs, and management by the executives.

As with any investment decision, thorough research and evaluation is recommended before investing in any company that appears cheap on the basis of conventional valuation metrics.

Is it a Value Trap?

An industrial company whose stock has been trading at 10x earnings for the past six months, compared to its trailing 5-year average of 15x.

A media company whose valuation has ranged from 6x-8x EV/EBITDA for the past 12 months, compared to its trailing 10-year average of 12x.

A European bank whose valuation has been below 0.75x price-to-book for the past two years, compared to a 8-year average of 1.20x.

Published at Sun, 14 Jan 2018 06:53:00 +0000

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Investors Have Forgiven Wells Fargo for Its Sins

Investors Have Forgiven Wells Fargo for Its Sins

By Richard Suttmeier | January 10, 2018 — 6:55 PM EST

Wells Fargo & Company (WFC), the second largest of the four “too big to fail” money center banks, reports quarterly earnings before the opening bell on Friday. Analysts expect Wells Fargo to report earnings per share (EPS) of $1.05, which assumes that the bank has fully recovered from its fraudulent activities against its depositors. In my opinion, beating EPS estimates will be a challenge. The question is whether the banking giant is still losing clients. Investors should also keep an eye on mortgage lending, which is a major line of business.

The stock closed Wednesday at $63.12, up 4% year to date and in bull market territory at 28.1% above its 52-week low of $49.27 set on Sept. 7, 2017. The stock set its all-time intraday high of $63.40 on Jan. 10, 2018.

Wells Fargo ended the third quarter of 2017 with $1.76 trillion of assets on its balance sheet, which equates to 10.2% of the entire banking system. This represents a year-over-year gain of 2.2%, so this “too big to fail” bank keeps getting bigger. However, this is the lowest growth among the four “too big to fail” money center banks, as clients jumped the stagecoach given the fraudulent activities against depositors. (See also: Opinion: Wells Fargo Boss Will Vault Over Bank’s Woes.)

One issue that baffles me is how the New York Federal Reserve allowed Wells Fargo to become a primary dealer during the height of the fraud. My conclusion is that the biggest banks are also “too big to regulate.”

The daily chart for Wells Fargo

Daily technical chart showing the performance of Wells Fargo & Company (WFC) stock

Courtesy of MetaStock Xenith

The horizontal lines show that Wells Fargo is above its monthly and quarterly value levels of $57.42 and $52.89, respectively.

The weekly chart for Wells Fargo

Weekly technical chart showing the performance of Wells Fargo & Company (WFC) stockCourtesy of MetaStock Xenith

The weekly chart for Wells Fargo is positive but overbought, with the stock above its five-week modified moving average of $59.86. The stock is well above its 200-week simple moving average at $52.73, which is also the “reversion to the mean,” last tested during the week of Sept. 22, when the average was $51.79. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 88.95 this week, up from 87.17 on Jan. 5 and moving further above the overbought threshold of 80.00.

Given these charts and analysis, my strategy is to buy Wells Fargo on weakness to my monthly value level of $57.42 and to reduce holdings on strength to my semiannual and annual risky levels of $65.08 and $67.18, respectively. (For more, see: Why Big Bank Stocks Can Rise 20%: Barclays.)

Published at Wed, 10 Jan 2018 23:55:00 +0000

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Micron Stock Could Enter Intermediate Correction

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Micron Stock Could Enter Intermediate Correction

By Alan Farley | January 10, 2018 — 9:13 AM EST

Micron Technology, Inc. (MU) shares more than doubled in price last year, but recent technical weakness could signal an intermediate correction that traps the momentum crowd. That decline will face a major reality check in the mid-$30s, with a breakdown opening the door to much steeper downside. Given potential headwinds, it makes sense for shareholders to review positions, tighten stops and take other measures to protect hard-earned profits.

The uptrend has not tested the rising 200-day exponential moving average (EMA) since August 2016, highlighting one-sided price action that may now have run its course. In addition, the PHLX Semiconductor Index (SOX) finally reached resistance at the 2000 bubble high in November 2017, signaling a potential climax that could end the sector’s dramatic uptrend.  Micron stalled at the same time due to correlation that may have greater power over 2018 price action than technicals or fundamentals. (See also: SOX Semiconductor Index at 17-Year Resistance.)

The memory chip giant has a long history of grinding through massive boom-bust cycles that wipe out several years of profits in relatively short time frames. For example, the 13-month decline that began in December 2014 posted losses in excess of 35 points while retracing more than 80% of the 2012 into 2014 uptrend. A similar pullback from the current uptrend would yield a decline into the mid-teens.

MU Long-Term Chart (1995 – 2018)

A long-term uptrend stalled in the upper $40s in 1995, yielding a pullback that found support in the single digits in 1996. The stock turned higher in 1998, breaking out at the start of the new millennium in sympathy with the internet bubble infecting world markets. That buying impulse stalled a few months later in the mid-$90s, giving way to a brutal sell-off that cut through the 1996 low and dropped the stock to a nine-year low at $6.60 in 2003.

It underperformed badly through the mid-decade bull market, stalling in the upper teens in 2004 and failing to break out above that level in a 2006 test. The subsequent decline intensified through the 2008 economic collapse, with the stock finally ending the vicious nine-year downtrend at a 16-year low in March 2009. It took more than four years for the subsequent recovery wave to complete a round trip into the 2006 high.

A breakout into 2014 made limited progress, stalling in the mid-$30s and rolling over in a selling wave that cut through support in 2015. The single digits came into play once again in early 2016, highlighting the vicious boom-bust cycle, with a powerful trend advance off that level mounting the 2014 high in September 2017. The rally ended near $50 in November, right at the 50% retracement of the 2000 into 2009 downtrend. (For more, see: Micron’s Sell-Off Presents an Opportunity: MKM.)

MU Short-Term Chart (2012 – 2018)

A pullback into December 2017 ended at the .382 Fibonacci rally retracement level, giving way to an A-B-C pattern that posted a six-week high earlier this month. A trendline marks pattern support at $41.50, with a breakdown likely to trigger a swift decline into the mid-$30s. In turn, that selling impulse would generate the first test of 200-day EMA support in the past 17 months. That level also marks support at the 2014 high, significantly raising the stakes for Micron bulls.

On-balance volume (OBV) tracked price action into the 2014 peak, while heavy distribution into 2016 held high in the multi-year range. The indicator broke out with price in the second half of 2017, peaking in November and dropping into a test of support at the prior high. It bounced but has now reversed off the November peak and could test support once again. This distributive action dovetails with a monthly stochastics sell cycle, raising the odds that bears will take control into the second quarter. (See also: Micron Surges, Street Ups Price Target 13%.)

The Bottom Line

Micron Technology stock reversed after the PHLX Semiconductor Index reached heavy resistance at the 2000 bubble high, and Micron shares could enter an intermediate correction that tests support in the mid-$30s. A breakdown through that level could generate much stronger downside, given the stock’s boom-bust cyclical tendencies. (For additional reading, check out: 2018 Will Be Mixed for Chipmakers: Morgan Stanley.)

Published at Wed, 10 Jan 2018 14:13:00 +0000

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3 Charts That Suggest Pharma Stocks Are a Buy in 2018

3 Charts That Suggest Pharma Stocks Are a Buy in 2018

By Casey Murphy | January 10, 2018 — 8:16 AM EST

President Trump’s significant changes to the U.S. tax code have altered the discussions around boardroom tables across America. The lowering of the corporate tax rate and increased incentives for repatriating foreign earnings are two of the main factors that executives are busy discussing. One group that is garnering much attention due to the tax changes is large-cap pharmaceuticals because these companies tend to hold large amounts of capital overseas.

Aside from the lowering of corporate taxes, the movement of capital alone back to the U.S. could be a boon to the repayment of company debt, share buybacks, dividend increases, new business development and likely increased M&A. In this article, we take a look at the charts of one of the most common exchange-traded funds (ETFs) used for gaining exposure to U.S. pharmaceuticals and a couple of its top holdings to get a sense of where prices are headed in 2018. (For more on this topic, check out: Investing in Biotech: Is It Worth the Risk?)

iShares U.S. Pharmaceuticals ETF (IHE)

Long-term traders often rely on weekly or monthly charts to help reduce noise and get a strong sense of underlying momentum. Over the course of the past several weeks, these traders have started to take note of the bullish consolidation pattern developing on the weekly chart of the iShares U.S. Pharmaceuticals ETF.

As you can see in the chart below, the long-term trends are clearly defining the buy and sell points. Bullish traders will likely look to continue buying close to the combined support of the long-term moving average and the ascending trendline and selling near the horizontal trendline. With that said, the most strategic traders will likely want to wait to see if there will be a shift in fundamentals by waiting for a breakout beyond $160 before opening a position in anticipation of a significant move higher. Based on the height of the pattern, target prices would likely be set close to $200. (For more, see: 3 Charts Suggesting Traders Are Bullish on Healthcare.)

Technical chart showing the performance of the iShares U.S. Pharmaceuticals ETF (IHE)

Johnson & Johnson (JNJ)

Aside from being known for its packaged consumer products, Johnson & Johnson is a powerhouse drug manufacturer. Taking a look at the weekly chart below, you can see that the price has consistently stepped higher after spending some time in a short-term consolidation pattern. The break above resistance, which you’ll find happened again this week, is a clear sign that the next step is starting, signaling a flood of buy orders. Traders will likely maintain a bullish outlook on the company until the price closes below their stop-loss orders, which will probably be placed below one of the trendlines, depending on risk tolerance. (For more, see: Evaluating Pharmaceutical Companies.)

Technical chart showing the performance of Johnson & Johnson (JNJ) stock

Zoetis Inc. (ZTS)

Zoetis Inc. is the global leader in the development, manufacture and commercialization of animal health medicines and vaccines. Taking a look at the chart, you can see the recognizable step pattern that we discussed above. The price breakout suggests that the bulls are in clear control of the momentum, and traders should expect the uptrend to continue until the price moves below a key level of support such as the 50-day moving average or long-term ascending trendline.

Technical chart showing the performance of Zoetis Inc. (ZTS) stock

The Bottom Line

Recent changes to the U.S. tax code along with rising demand for products from U.S. pharmaceutical companies have many traders looking for a way to trade the move higher. The step-like consolidation patterns have reliably created clear buy and sell signals over the past couple of years, and bulls are expecting this behavior to continue in 2018. (For further reading, check out: 4 Top Pharmaceutical Stocks for 2018.)

Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.

Published at Wed, 10 Jan 2018 13:16:00 +0000

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Intel Decline Could Mark Buying Opportunity

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Intel Decline Could Mark Buying Opportunity

By Alan Farley | January 8, 2018 — 9:22 AM EST

The Spectre and Meltdown chip bugs have captured the tech world’s attention, dropping Dow component Intel Corporation (INTC) into three-month support in the low $40s. The massive scope of the security flaws make product recalls a near impossibility, but software fixes are already being distributed, and the chipmaker is unlikely to depart from its bullish trajectory in the coming weeks, offering a potential buying opportunity.

The bugs are not company specific, also affecting Advanced Micro Devices, Inc. (AMD) and ARM Holdings, co-owned by SoftBank Group Corp. (SFTBF) and Vision Fund. Highly liquid Intel stock has offered a convenient target for short sellers and predatory algorithms, but at least so far, the decline has generated little or no technical damage. Even so, dip buyers may wish to wait for a down leg that fills the Oct. 27 gap between $41.50 and $43.50 before jumping on board. (See also: AMD Stock: Dip Buyers Locked and Loaded.)

INTC Long-Term Chart (1991 – 2018)

A multi-year uptrend exploded to the upside in 1992, splitting four times while lifting the stock more than 70 points into the 2000 all-time high in the mid-$70s. It plunged when the internet bubble burst, dumping more than 80% into the low teens in the fourth quarter of 2002. A bounce into 2003 stalled just below the .382 Fibonacci bear market retracement level, printing the highest high for the next 11 years.

Two lower highs into 2007 sharply underperformed the broad tech universe through the mid-decade bull market, setting the stage for a deep slide during the 2008 economic collapse. The nine-year downtrend finally end at $12.05 in March 2009, while the subsequent recovery wave stalled near $30 in 2012. Two years of quiet sideways action yielded a 2014 breakout that generated substantial buying power into December 2014, stalling just three points above the 2003 high.

A three-year cup and handle pattern generated a 16-year breakout in the fourth quarter of 2017, lifting the stock to a 17-year high at $47.64 in mid-December. That lofty level marks the 50% retracement of the post-millennial downtrend, with tougher harmonic resistance sitting just above $50 at the .618 retracement level. Meanwhile, the monthly stochastics oscillator has just reached the overbought  level but is showing no signs of crossing over into a new sell cycle. (For more, see: The Top 4 Intel Shareholders.)

INTC Short-Term Chart (2015 – 2018)

Sideways action into the 2017 breakout carved a 13-point depth that now targets a measured move into the .618 retracement level near $51. More importantly, sell-offs into the upper $30s should offer historic buying opportunities due to the multi-decade breakout. Meanwhile, two-month price action has drawn the outline of a five-point rectangle pattern just above the unfilled post-earnings gap. That hole could act as a magnetic target until it gets filled with a decline to $42.50.

The stock bounced at the 50-day exponential moving average (EMA) last week, with that intermediate support level narrowly aligned at the bottom of the rectangle. A bounce up to range resistance could generate quick profits, but a trade entry following a gap fill will offer more advantageous reward:risk. Market players taking exposure at that level will need to watch price action at the range breakdown, with a buying surge setting off bullish signals while a reversal would raise the odds for a test at breakout support in the upper $30s.

On-balance volume (OBV) has outperformed price action since last decade’s bear market, posting new highs in 2013 and 2014. A distribution wave ended in the first quarter of 2016, generating healthy buying pressure that has matched constructive price action. The indicator posted a new high in December and turned lower following the bug disclosure, dropping to a two-month low that has held well above the October breakout level. (See also: Intel Will Take More Risks, Says CEO in Internal Memo.)

The Bottom Line

Intel sold off on high volume following reports of a worldwide security flaw but has paused at two-month support at the top of a two-point unfilled gap. The bottom of the gap could offer a buying opportunity, ahead of a strong bounce that reaches the lower $50s. (For additional reading, check out: Intel CEO’s Stock Dump Under Scrutiny.)

Published at Mon, 08 Jan 2018 14:22:00 +0000

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Asia stocks near historic highs, U.S. earnings loom

 

Asia stocks near historic highs, U.S. earnings loom

SYDNEY (Reuters) – Asian shares neared all-time peaks on Monday after Wall Street boasted its best start to a year in over a decade, with brisk economic growth and benign inflation proving a potent cocktail for risk appetite.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS added 0.1 percent having climbed 3.1 percent last week, its strongest performance in six months.

At 587.99 the index is within spitting distance of the record top of 591.50 hit in November 2007.

Australian stocks gained 0.3 percent to notch another decade summit, while South Korea .KS11 rose 0.1 percent. Japan’s Nikkei .N225 was closed for a holiday but touched its highest since 1992 last week.

“It was the global synchronized growth that drove earnings and equity markets higher last year and the global economy has entered 2018 firing on all cylinders,” said analysts at Bank of America Merrill Lynch, predicting the global economy could expand at 4 percent or more this year.

“This growth is keeping our quant models bullish and driving earnings revisions to new highs,” they added. “We stay long outside the U.S., with Asia ex-Japan and Nikkei our growth plays, Europe still for yield.”

Friday’s U.S. jobs report did nothing to challenge that outlook.

While payrolls missed forecasts, the report was perfect for equities given unemployment stayed low but with little sign of the inflationary pressures that would make the Federal Reserve more aggressive in tightening policy.

Wall Street has already enjoyed its best start to a year in more than a decade, with the Dow .DJI up 2.3 percent last week and the S&P 500 .SPX 2.6 percent. The tech-heavy Nasdaq .IXIC led the charge with a rise of 3.4 percent.

The quarterly U.S. earnings season kicks off this week with the Street expecting solid growth of around 10 percent, though many companies are also likely to be announcing one-off charges to account for recent tax changes.

INVESTORS STUFFED WITH EUROS

FILE PHOTO: Men exchange greetings in front of an electronic board displaying the Nikkei average outside a brokerage in Tokyo, Japan January 4, 2018. REUTERS/Kim Kyung-Hoon

The next major data hurdles will be U.S. consumer prices and retail sales on Friday. In Asia, China reports inflation on Wednesday and international trade numbers on Friday.

In currency markets, the dollar had steadied for the moment after a rocky couple of weeks.

With economic activity picking up globally, the dollar .DXY has been undermined by expectations the Fed will not be the only central bank tightening policy this year.

On Friday, surprisingly strong Canadian jobs data stoked speculation interest rates there could rise as early as next week and sent the local currency to a three-month peak CAD=.

Upbeat euro zone data has likewise underpinned the single currency at $1.2036 EUR=, though it has so far failed to clear major chart resistance at the September top of $1.2092.

The dollar has fared better on the yen at 113.15 JPY=, thanks in part to expectations the Bank of Japan will stick with its super-easy policies.

Japanese Prime Minister Shinzo Abe on Sunday called on central bank governor Haruhiko Kuroda to keep up efforts to reflate the economy, but added he was undecided on whether to reappoint Kuroda for another five-year term.

The combination of a soft U.S., dollar and strong global growth has been positive for commodities, with everything from coal to iron ore to copper in demand.

Spot gold XAU= made a 3-1/2-month high last week and was trading at $1,320.51 an ounce on Monday.

Oil prices reached their highest since 2015 helped in part by political tensions in Iran, the third-largest producer in the Organization of the Petroleum Exporting Countries (OPEC).

Brent LCOcv1 was last up 15 cents at $67.77, while U.S. crude CLcv1 rose 20 cents to $61.64 per barrel.

Editing by Sam Holmes

Published at Mon, 08 Jan 2018 00:25:01 +0000

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Top And Bottom Performing Stocks For Week #2

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Top And Bottom Performing Stocks For Week #2

by THE MOLE

It’s Sunday so let’s review the performance of last week’s historical top and bottom stock symbols in the S&P 500. As you may recall these symbols are the result of parsing a database containing over 50 years worth of statistical performance data. The idea is to extract the prospective top ten winners and losers of the coming week purely based on historical statistics. The result is then sorted by liquidity and any symbol that is scheduled to report earnings or pass ex-dividend is being excluded.

HOW TO TRADE ALONG

Although being no guarantor of success, the long and short candidates posted here each week are intended to perform along their respective historical bias. One way of trading along would be to simply create a small one-week portfolio by buying the long candidates and selling the short candidates on Monday morning shortly after the open. There are no official stops or targets and all transactions are reversed Friday afternoon right before the bell.

For anyone who wants to keep track I have created a new WP category that allows you to pull all pertinent posts up to date. Eventually I’ll be putting together a summary spreadsheet once we have accumulated sufficient stats.

RESULTS FOR WEEK # 1

Long Profits: F=5.68, AMD=15.56, XRX=2.61, AAPL=3.41, MSFT=3.1, MU=11.38, C=1.34, HST=0.05, NE=11.95, KGC=3.01

Long Profits Total: 58.09

Short Profits: PG=0.7, AGN=-5.32, MCD=-1.12, SYY=-1.19, CL=0.04, EOG=-3.95, FLO=1.5, GIS=-1.06, SONC=-2.0, CHD=0.2

Short Profits Total: -12.2

Combined Profits Total: 45.89

TOTAL RESULTS

I’ve finally produced a spreadsheet in my Google drive which shows us the entire P&L stats including adjusted totals, cumulative, and drawdowns. You can open it in your browser by clicking here.

Published at Sun, 07 Jan 2018 18:16:00 +0000

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S&P 500, Nasdaq post best week in more than a year

S&P 500, Nasdaq post best week in more than a year

NEW YORK (Reuters) – The S&P 500 and Nasdaq notched their best weekly gains in more than a year on Friday as technology stocks helped lift major indexes to records.

With the New Year’s Day holiday falling on a Monday this year, it was the strongest first four trading days to a year in more than a decade for all three major indices, according to Reuters data. For the Dow, it was the strongest start since 2003 and for the Nasdaq and S&P 500 it was the strongest since 2006.

A U.S. tax overhaul last month that includes hefty corporate tax cuts helped to fuel late-year gains and was the first major legislative victory in President Donald Trump’s pro-growth agenda since he took office a year ago.

U.S. stocks this week have been adding to momentum from 2017, driven by a series of strong economic reports from across the globe and expectations for strong fourth-quarter earnings, with all three major indexes hitting milestones in the last few days.

The Dow broke above 25,000 for the first time on Thursday, while the S&P closed above 2,700 on Wednesday and the Nasdaq settled above 7,000 earlier in the week.

“We’re up over 2 percent for the first four days of 2018, so that’s pretty good. Markets are still working to figure out the implications of tax cuts, and that’s provided some of the lift along with already good economic forecasts,” said Mike Baele, managing director at U.S. Bank Private Client Wealth Management in Portland, Oregon.

Weaker-than-expected December U.S. jobs data also could help the Federal Reserve stick to its policy of gradual interest rate hikes in 2018, which would be good for stocks, Baele said.

U.S. job growth slowed more than expected in December amid a decline in retail employment, but a pickup in monthly wages pointed to labor market strength. Non-farm payrolls increased by 148,000 jobs last month, the Labor Department said. Economists polled by Reuters had expected a rise of 190,000.

The Dow Jones Industrial Average .DJI rose 220.74 points, or 0.88 percent, to 25,295.87, the S&P 500 .SPX gained 19.16 points, or 0.70 percent, to 2,743.15 and the Nasdaq Composite .IXIC added 58.64 points, or 0.83 percent, to 7,136.56.

The S&P technology index’s .SPLRCT 1.2-percent gain led the advancers among the 11 major S&P sectors, with gains in Microsoft (MSFT.O), Apple (AAPL.O) and Google-parent Alphabet (GOOGL.O) boosting the index.

The year’s strong start follows a surprisingly sharp rally in 2017 that ended with the S&P 500 up 19.4 percent on the year.

For the week, the Dow rose 2.3 percent, the S&P 500 gained 2.6 percent and the Nasdaq climbed 3.4 percent. Those were the biggest weekly gains for the S&P and Nasdaq since December of 2016.

Among declining stocks, Francesca’s Holdings (FRAN.O) tanked 20.7 percent. The women’s apparel and accessories maker said it expected up to 17 percent decline in current-quarter same-store sales.

Advancing issues outnumbered declining ones on the NYSE by a 1.52-to-1 ratio; on Nasdaq, a 1.47-to-1 ratio favored advancers.

About 6.3 billion shares changed hands on U.S. exchanges, the same as the 6.3 billion daily average for the past 20 trading days, according to Thomson Reuters data.

(This story has been refiled to correct second paragraph to reflect it is the strongest first four trading days to a year since 2003 for the Dow and 2006 for the S&P and Nasdaq.)

Additional reporting by Sruthi Shankar in Bengaluru; Editing by Sriraj Kalluvila and Nick Zieminski

Published at Fri, 05 Jan 2018 22:34:27 +0000

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Netflix to Surge Another 12%: Piper Jaffray

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Netflix to Surge Another 12%: Piper Jaffray

By Shoshanna Delventhal | January 4, 2018 — 4:20 PM EST

As Netflix Inc. (NFLX) starts out 2018 strong, with shares up 7% this week, one analyst on the Street indicates that the media stock is poised to rally another 12% within the next 12 months. (See also: Netflix on Track for Q4 Beat: Piper Jaffray.)

Looking at shares of the on-demand video streaming platform from a technical perspective, Piper Jaffray’s Chief Market Technician Craig Johnson pointed to bullish momentum in the chart. “We’re still very much in an uptrend. We’ve corrected right back to the uptrend support line. It looks, to us … purely based upon the charts … we could see a measured move up to $230 on Netflix,” said Johnson in an interview with CNBC’s “Trading Nation.”

Trading down 0.2% on Thursday afternoon at $204.65 per share, a $230 price target would reflect an approximate 12.4% gain from current levels. Last year marked a breakthrough year for the popular direct-to-consumer platform, as a series of positive earnings surprises helped boost the stock 55% versus the S&P 500’s 19% gain over the same period.

Starting Off 2018 With Bullish Notes

Also this week, analysts at Macquarie lifted their rating on NFLX shares to outperform from neutral as “part of a broad realignment of views on media, where we prefer companies with subscription over ad-driven content, and scaled distribution with an international presence.” Analyst Tim Nollen also lifted his price target on NFLX, applauding the company for “changing the way people watch TV.”

In a separate note, the Macquarie analyst upgraded shares of the Walt Disney Co. (DIS), which earlier this year announced plans to cut ties with Netflix in efforts to launch its own direct-to-consumer streaming platform.

Preferring Disney over Netflix, Washington Crossing Advisors portfolio manager Chad Morganlander argued on the CNBC segment that while the former is “more of a momentum name,” the latter is a “quality company with quality assets.” (See also: Netflix Raising Another $1.6B in Debt to Pay for Content.)

Published at Thu, 04 Jan 2018 21:20:00 +0000

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Bargain Bin: ETFs for value hunters

 

Bargain Bin: ETFs for value hunters

NEW YORK (Reuters) – Think of the stock market right now as a high-school cafeteria. The most popular kids in school are growth investors, high-fiving and riding a multi-year bull run.

Meanwhile, the geeky kids off to the side, eating lunch by themselves, are the value investors.

But those geeks often end up on top as adults. So even in this growth-oriented economy, you would be wise to have a value component to your portfolio.

For a double bargain, look to value-driven exchange-traded funds, which not only offer rock-bottom management fees but in some cases have been matching or even exceeding the broader market in gains.

“Given how strong a bull market we have had, there will be an inevitable rotation to value,” said Todd Rosenbluth, director of ETF and mutual fund research at independent advisory firm CFRA. “In fact, value has already showing signs of improvement.”

Take the Deep Value ETF from TWM funds. As the name implies, the fund contains in its top 10 holdings the stocks of a number of firms that have been battered, most notably in retail, including Macy’s Inc, Target Corp, Kohls Corp and Gap Inc.

Also represented in the Deep Value fund are some long-in-the-tooth tech firms like Seagate Technology PLC and Xerox Corp, and pharma play Gilead Sciences Inc. The result is an average price-earnings ratio of around 13, well below the S&P 500’s collective P/E which is now over 25.

Those beaten-up names might make investors a little queasy, especially since this ETF is so concentrated with just 20 stocks. But you cannot argue with the performance: It boasts one-year returns of 23.1 percent, matching the S&P 500, to add to 2016’s 24.8 percent.

Other value ETFs have been picking up bargains, while the rest of the universe obsesses over growth. Another standout is Guggenheim Investments’ S&P Pure Value ETF. It sifts through the S&P 500, eliminates all growth stocks and the so-called “muddle in the middle,” and comes up with 114 pure value plays.

Among its top holdings is telecom provider CenturyLink Inc, Warren Buffett’s Berkshire Hathaway Inc, agriculture play Archer Daniels Midland Co and General Motors Co.

The one-year performance is 17.2 percent, with five-year gains at 16 percent annually – not bad for a supposedly out-of-favor strategy. “Since we’ve been in a market where growth has outperformed, many investors are now looking at value’s relative appeal,” said William Belden, Guggenheim’s director of ETF development. “And over time, a value tilt tends to outperform its growth peers.”

The $890-million fund also boasts an affordable expense ratio of .35 percent. In the fund’s rebalancing in December financial and utilities were trimmed back, thanks to their recent runups, while consumer discretionary stocks were boosted.

A word of caution for value-minded investors: Such deep-value and pure-value screens tend to make holdings more limited, and therefore more volatile, than broader market indices.

Investors wary of concentrated bets should perhaps look to a larger, steadier ship like Vanguard’s Value Index Fund. This fund, five-star-rated by Chicago-based research shop Morningstar, contains 329 total stocks and annualized returns of 15.2 percent over five years.

Its biggest holdings are familiar blue-chippers like Microsoft Corp, Johnson & Johnson, JP Morgan Chase & Co and Exxon Mobil Corp. Perhaps best of all for value-conscious investors, its expense ratio is a microscopic 0.06 percent.

Part of the appeal of value ETFs is that when the next downturn comes, high-flying growth stocks will likely get pounded more than reliable blue chips. Value stocks traditionally provide more downside protection, in part due to their dividend payouts which provide a share-price floor and attract income investors.

Editing by Beth Pinsker and Cynthia Osterman

Published at Wed, 03 Jan 2018 19:53:13 +0000

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