Barchart.com's Chart of the Day - Power Solutions International (PSIX) for Nov 12, 20

The Chart of the Day is Power Solutions International (PSIX). The stock was right near the top of the New High List when I sorted for its 346.20+ Weighted Alpha. Since the last Trend Spotter buy signal on 10/29 the stock has gained 18.41%.

They are engaged in producing and distributing power solutions for original equipment manufacturers of off-highway industrial equipment in the United States. The Company sells engines for stationary generators, oil and gas equipment, forklifts, aerial work platforms, industrial sweepers, arbor equipment, agricultural and turf equipment. They also offer low-emission standard fuel and hybrid power solutions, and diesel power systems.

Stuff I?m Reading this Morning?

Investing advice for the average investor from one of history?s most above-average investors ? here?s what Ray Dalio thinks you should do: (TheTell)

Everybody?s re-doing their ladders to get shorter: ?Investors yanked $61.8 billion from intermediate-maturity debt funds in the first nine months of the year,while pouring $46.2 billion into bonds maturing in less than three years? (Bloomberg)

The S&P 500 has now spent a full year above its 200-day moving average. Hope you didn?t spend all this time trying to short it. (CrossingWallStreet)

?buying IPO shares on the open market when they start trading ? represents the worst of both worlds, simultaneously paying the maximum price for the shares, and investing in a company that doesn?t even get the full benefit of its own IPO value.? (NerdsEyeView)

Barry: The recovery?s great if you were rich already. (Bloomberg)

Is Netflix?s new user interface really the future of TV? (Wired)

Is stock market efficiency actually hurting the economy? (Fortune)

When I hear ?Hedge Fund Trading Coach?, why do I think of Will Ferrell and Andy Dick doing an MTV Awards skit? (DealBook)

Will institutions ever starve the hedge fund beast? (FT)

This is like an Onion article ? economists just now realize that the poor behave differently than the rich in the real world. (BusinessWeek)

Dougie?s 10 Laws of Stock Market Bubbles is a great read. (TheStreet)

Cullen Roche: To detect bubbles, focus on fundamentals relative to people?s behavior. (PragCap)

Steve Ballmer has earned a cool $1.7 billion since firing himself. I may try this? (Quartz)

How?s this for a social experiment ? Switzerland is going to start paying every citizen a salary just for being alive. (NYT)

Evoking online trust. (SethsBlog)

These are the five best steakhouses in New York City. Let the riots commence as we all fight over this list ? to the death. (NYP)

My former employer, The Economist, once the ever tolerant editor of my flabby, disjointed, and juvenile prose (Thanks Peter and Marjorie), has released its ?Big Mac? index of international currency valuations.

Although initially launched by an imaginative journalist as a joke three decades ago, I have followed it religiously and found it an amazingly accurate predictor of future economic success.

The index counts the cost of McDonald?s (MCD) premium sandwich around the world, ranging from $7.20 in Norway to $1.78 in Argentina, and comes up with a measure of currency under and over valuation.

What are its conclusions today? The Swiss franc (FXF), the Brazilian real, and the Euro (FXE) are overvalued, while the Hong Kong dollar, the Chinese Yuan (CYB), and the Thai Baht are cheap. I couldn?t agree more with many of these conclusions. It?s as if the august weekly publication was tapping The Diary of the Mad Hedge Fund Trader for ideas.

I am no longer the frequent consumer of Big Macs that I once was, as my metabolism has slowed to such an extent that in eating one, you might as well tape it to my ass. Better to use it as an economic forecasting tool, than a speedy lunch.

?It always sounds smarter to be bearish than bullish,? said Ron Baron, CEO of Baron Capital Group.

As the market continues to flirt with all-time highs, a considerable amount of churn is taking place beneath the surface. Investors are increasingly flocking to companies that are seemingly big and safe, while shedding exposure to smaller and riskier names.

It's a logical move, considering the current bull market is getting along in years. Indeed, I extolled the virtues of mega-cap stocks back in August, and you can still find some great bargains among America's largest companies.

Yet if the market is going in this direction, it also means that smaller stocks are falling to levels that hold real appeal. And in no sector is this divergence more apparent than in biotechs. The biggest biotech stocks appear fully priced -- while their smaller brethren are now far from their 52-week highs.

One of the most underappreciated areas of health care is also instrumental for human development. Baby formula isn't exactly a market that many investors would consider a growth industry -- but that could be about to change.

The United Nations estimates that the world's population could hit 11 billion by 2100, up from a current 7 billion. That's many more mouths to feed. One of the biggest markets for baby formula is China: With 1.3 billion people and a birth rate of 1.2%, that's 15.6 million babies a year.

The baby formula market is huge and growing -- so what's the best way to invest in it?

Mead Johnson Nutrition (NYSE: MJN) is the only pure-play pediatric nutrition company, and one that has a strong presence in China, to boot.

Mead covers all stages of pediatric development, from newborns to 5-year-olds. It generates over 75% of its revenue from outside the U.S., most notably from China, which accounts for over 25% of its revenue. Infant formula makes up around 60% of revenues, with children's nutrition accounting for the other 40%. Mead's major products are sold under the Enfa brand.

Mead was spun off from Bristol-Myers Squibb (NYSE: BMY) in 2009. It hasn't been easy for Mead investors over the past couple of years, but things may be about to change: A cycling out of bad news could lead to a relief rally, while a rising middle class in China is driving long-term growth.

MJN has been on a roller-coaster ride over the past few years, with the latest pressure coming from a U.S. inquiry into Mead's China business.

Random Thoughts



It never ceases to amaze me that a market can be off to the races on one day and then have a shoulder shrug on the following day.

The Ps went straight up last Friday but on Monday they just sat there. They were able to tack on a smidge, and at these levels, that's enough to keep them just shy of all-time highs.

As I preach, you should never take an index at face value. However, unless there are a plethora of internal clues suggesting otherwise, you also shouldn't argue with a market that is at or very near all-time highs.

As I have been saying, there has been some internal weakness such as the recently mentioned debacle de jours. For the most part though, most sectors remain in uptrends and, like the market, many also remain at or near new highs.

With last Thursday's shakeout/fakeout behind us (in the spirit of a Double Top Trend Knockout, email me if you need the pattern), I still think this we could be seeing new highs on the horizon. You know the routine though, continue to take things one-day-at-a-time. In markets, you often get a big up day, a pause day, then upside follow through. So, hopefully, Monday's action was just the "pause that refreshes."

Bonds continued to slide but with somewhat less vigor. They appear to be returning to the bottom of their trading range-near the August/September. Hopefully, they stay in this range. A Goldilocks environment with stable rates and stocks rising would be awesome.

So what do we do? Although the buy signal in the Q's is still valid, to my surprise I'm still not seeing a whole lot of new meaningful setups. As I have been saying, this is probably a good thing. This could be the database telling us to continue to let things shake out a bit. Considering this focus mostly on the management of existing positions. As usual, honor your stops. As I've been discussing, stops can help to adjust your portfolio. If we continue higher, your shorts will stop out and all you'll be left with is longs.

Futures are soft pre-market.

Click here to watch today's Market in a Minute.

Best of luck with your trading today!

Dave
omgmachines.com/ericx
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Expert swing trader Dave Landry comments on the charts for the major markets, indexes and sectors for the upcoming trading day in his daily one-minute video.

Make sure your sound is turned up. A new browser window will open and the video will begin playing within a few seconds.

Quote of the day

Andrew Huszar, ?Because QE was relentlessly pumping money into the financial markets during the past five years, it killed the urgency for Washington to confront a real crisis: that of a structurally unsound U.S. economy.? (WSJ contra BI)

Chart of the day



The S&P 500 has spent the last year above its 200 day moving average. (Crossing Wall Street)

Markets

Ten laws of stock market bubbles. (Doug Kass)

A look at S&P 500 sector breadth. (Bespoke)

Everything you need to know about stock market crashes. (The Reformed Broker)

Strategy

When active management makes sense. (Rick Ferri)

Ray Dalio thinks you shouldn?t bother trying to generate alpha. (The Tell)

On the dangers of not knowing what you own. (research puzzle pix)

How to tidy up your financial life. (Bucks Blog)

If you don?t know how your financial advisor is compensated you may want to figure it out. (WSJ)

Congratulations David on ten years of investment writing. (Aleph Blog)

Companies

A stock to play the Bakken Shale boom. (Vitaliy Katsenelson)

Blackberry ($BBRY) needs a miracle worker. Maybe they have found it in new CEO John Chen. (Fortune)

Hedge funds

Hedge funds have turned to trading coaches to boost performance. (Dealbook)

Hedge funds have become big players in distressed muni bonds. (WSJ)

Why are institutions so tolerant of high hedge fund fees? (FT)

Finance

Corporate boards are getting coaches on how to deal with activist investors. (Dealbook)

Good luck trying to identify the victims of insider trading. (Dealbook)

Financial innovation is pretty depressing these days. (Bloomberg)

Is it time to start trying higher ticker sizes for small caps? (Term Sheet)

They say to never trust a skinny cook, the logic being that any chef who works in a kitchen all day and creates irresistible dishes probably can't help but overindulge and pack on a few pounds.

For much the same reason, I find it reassuring when a mutual fund manager invests their personal cash in his or her own fund. And I like it even better when CEOs and other top executives stash a sizable percentage of their net worth in their own company's stock.

Conventional wisdom says that it's a bullish sign when a company invests in itself through stock buybacks. If that's true (and in most cases it is), then what does it say when these same managers sink a few million dollars of their OWN money in the shares?

After all, board members, directors, chairmen and other upper executives know the business and the industry better than anyone else. Who understands the inner workings of Apple (Nasdaq: APPL) better than Tim Cook? Who has their finger on the pulse of online advertising quite like Google boss Larry Page?

These well-connected individuals also have access to privileged information that the rest of us don't get to see. That's not to insinuate anything underhanded; public companies don't have to disclose everything. The point is, when these people act, they do so with good authority.

Personally, I don't pay terribly much attention to insider sales. Can they be an indication of trouble ahead? Sure. But they could also mean that the seller is simply diversifying his holdings or raising cash to pay for his daughter's wedding or grandson's college education. Bottom line, sales aren't necessarily a red flag.

On the other hand, insider purchases tend to be far more instructive. You only invest in a stock for one reason: you believe it's undervalued and headed higher. And again, when a chairman or CFO is the one buying, you can bet they aren't doing it on a whim -- but have sound supporting evidence.
The numbers back this up. There have been numerous empirical studies done over the years to quantify the effect.

A recent study at the University of Illinois found that stocks receiving heavy insider support historically outperform the market by 4.8% in the year following the transactions.

These and other studies examined different groups of stocks under different methodologies. But taken together, they do point to the same conclusion: Stepped-up levels of insider buying often foreshadow market-beating returns.

If one inside buyer is a positive show of confidence, then two or three (or more) all buying in unison sends an even louder message.

With all this in mind, I went in search of stocks that had strong levels of insider ownership relative to the overall share count. And since I'm more interested with insider buying activity that has taken place over the past few weeks or months in anticipation of an upward move or positive catalyst, I screened for stocks whose insider buying volume through the third quarter had shown the biggest surge relative to the same point last year. To tighten up the results, I also looked for companies with steady earnings prospects and, of course, generous current yields (4% or better).

Here are some of the more notable stocks that made the cu

361 Capital portfolio manager, Blaine Rollins, CFA, previously manager of the Janus Fund, writes a weekly update looking back on major moves, macro-trends and economic data points. The 361 Capital Weekly Research Briefing summarizes the latest market news along with some interesting facts and a touch of humor. 361 Capital is a provider of alternative investment mutual funds, separate accounts, and limited partnerships to institutions, financial intermediaries, and high-net-worth investors.

361 Capital Weekly Research Briefing
November 12, 2013

Timely perspectives from the 361 Capital research & portfolio management team
Written by Blaine Rollins, CFA