Rules for Investors with UNG and GLD

[Joshua Brown]

The Chart of the day is Gray Television (GTN). I found the stock by sorting 12 Months Leaders List for frequency of new highs in the last month then used the Flipchart feature to review the charts. Since the Trend Spotter signaled a buy on 9/18 the stock gained 80.82%.

NOTE: I try to mix it up a little bit on the method I use to find good charts; not to confuse you but to show you there are multiple ways to find great stocks. You need to use the method that is easiest and most comfortable for you.

It is a communications company headquartered in Atlanta, Georgia, and currently operates 15 CBS-affiliated television stations, seven NBC-affiliated television stations, seven ABC-affiliated television stations and four daily newspapers.

[Joshua Brown]

If you ask most people, they will say there are two types of people that put money in the stock market.

There are "investors" -- those who put money to work in fundamentally sound companies for the long term. Then there are "traders" -- those who buy stocks for a short-term gain, without much concern for the actual business.

The reality isn't as clear cut. You see, if you aren't using the principles of both investing and trading, then I think you're limiting your returns and increasing your losses.

But it's one thing to tell you this. I want to prove it to you with one of the most widely-followed stocks of the past decade -- Apple (Nasdaq: AAPL).

You're no doubt familiar with Apple. You might have even owned some shares at some point. Maybe you still do.

Apple is one of the most fundamentally sound companies on the planet. For years, the popularity of iPods, iPhones and its computers caused earnings and cash flow to soar. Since 2003, the company's annual revenue has risen from $6.2 billion to $170.9 billion.

Meanwhile, until very recently, Apple carried no debt. Instead, it boasts a $145 billion cash pile. That's enough cash to pay every man woman and child in the United States $460.

And if you were an investor focused only on Apple's fundamentals -- a strong company with a pristine balance sheet that saw earnings soar -- you made a fortune. From 2003 until its peak in 2012, Apple's stock returned more than 9,661%.

If you focused just on fundamentals, however, the joy of owning Apple ended in September 2012. Back then, the stock hit an all-time high near $705 per share. Sure, the company was still making money hand over fist and was among the strongest firms on the planet. That didn't matter. Neither did the fact that Apple initiated a dividend to return billions of dollars annually to its investors.

Since its September 2012 peak, the stock has fallen 26%, despite the S&P 500 index rising 23.5% since that time.

But if you used a few simple trading signals, you could have avoided that drop altogether.

To be more specific, I am talking about "relative strength."

If you've never heard of relative strength, don't worry. It's simple to understand.

Relative strength is found by calculating the percentage price change over the past six months for every stock and ETF. You then sort these changes from high to low and assign the highest value a relative strength rank of 100 and the lowest value a rank of 0.

Every stock is assigned a rank based on where it fits into that range. I like to use 70 as the limit for buys and sells. If relative strength is greater than 70 (meaning a stock is rising more than 70% of the market), the stock or ETF is a buy. I sell whenever the rank falls below 70.

You can see Apple's relative strength charted below its price in this graphic:



In this case, Apple's relative strength fell below 70 back in 2012 (when the shares were still above $650), meaning it was time to sell. The result? A crystal clear signal that investors should get out.

That one signal could have saved an investor from losing thousands of dollars. What's more, this signal got them out of an underperforming stock during one of the best market rallies we've ever seen -- allowing them to put money to work elsewhere.

It's proof that if you aren't using trading signals in your investing, then you're missing one of the most important tools to beat the market.
Now, I will be the first to tell you that one example doesn't prove a system works.

That's why I want to tell you about a unique research project I've completed that puts this tool to the test.

The Maximum Profit system uses a few simple trading signals (like relative strength) and applies them to the stocks that are currently held within the various StreetAuthority portfolios. These are the same stocks held by Nathan Slaughter, Amy Calistri, Andy Obermueller and other StreetAuthority experts... and that you may already own.

From there, I rank every single holding, top to bottom, filling a portfolio with up to 10 stocks that rate the highest. The results are very encouraging. During a 10-year backtest from 2003 to 2013, my system

[Joshua Brown]

It may seem like a long time ago, but the epic stock market meltdown of half a decade ago is again worth pondering.

From around 1,300 in August 2008, the S&P 500 Index plummeted to 1,100 by late September and below 900 by the end of November. By the time we hit bottom in March 2009, the index had tumbled below the 700 mark. A nearly 50% plunge in just seven months is virtually unprecedented.

Now, with the S&P back up to around 1,800, we've seen a five-year rebound that should make us all quite thankful. This year has been especially fruitful, as the S&P 500 has tacked on more value this year (on the basis of market cap) than in any year in its history. The market hasn't even needed any breather this year on its path to record heights.

S&P 500 By Quarter

[Joshua Brown]

A number of analysts, and even some of those in the real estate industry, thought that there would never be a recovery in residential real estate. Long time readers of this letter know too well that I went hugely negative on the sector in late 2005, when I unloaded all of my holdings.

However, I believe that ?forever? may be on the extreme side. Personally, I believe there will be great opportunities in real estate starting in 2030.

Let?s back up for a second and review where the great bull market of 1950-2007 came from. That?s when a mere 50 million members of the ?greatest generation?, those born from 1920 to 1945, were chased by 80 million baby boomers born from 1946-1962. There was a chronic shortage of housing, with the extra 30 million never hesitating to borrow more to pay higher prices.

When my parents got married in 1948, they were only able to land a dingy apartment in a crummy Los Angeles neighborhood because he was an ex-Marine. This is where our suburbs came from.

Since 2005, the tables have turned. There are now 80 million baby boomers attempting to unload dwellings on 65 million generation Xer?s who earn less than their parents, marking down prices as fast as they can.

As a result, the Federal Reserve thinks that 30% of American homeowners either have negative equity, or less than 10% equity, which amounts to nearly zero after you take out sales commissions and closing costs. That comes to 42 million homes. Don?t count on selling your house to your kids, especially if they are still living rent-free in the basement.

The good news is that the next bull market in housing starts in 8 years. That?s when 85 million Millennials, those born from 1988 to yesterday, start competing to buy homes from only 65 million gen Xer?s. The next interest rate spike will probably knock another 25% off real estate prices. Think 1982 again.

Fannie Mae and Freddie Mac will be long gone, meaning that the 30-year conventional mortgage will cease to exist. All future home purchases will be financed with adjustable rate mortgages, forcing homebuyers to assume interest rate risk, as they already do in most of the developed world.

With the US budget deficit problems persisting beyond the horizon, the home mortgage interest deduction is an endangered species, and its demise will chop another 10% off home values.

For you Millennials just graduating from college now, this is a best case scenario. It gives you 8 years to save up the substantial down payment banks will require by then. People will, no doubt, tell you that you are crazy, that renting is the only safe thing to do, and that home ownership is for suckers. That?s what people told me when I bought my first New York coop in 1982 at one-tenth its current market price.

Just remember to sell by 2060, because that?s when the next intergenerational residential real estate collapse is expected to ensue. That will leave the next, yet to be named generation, holding the bag, as your grandparents are now.

[Joshua Brown]

Insiders in the natural resource business often talk about "shopping season" this time of year.

But they're not referring to Christmas presents.

As I've discussed before (see "The Little-Known 'Glitch' That Could Lead To 53% Gains), this is the time of year when many natural resource investments can be had at bargain prices.

This is particularly true for the smaller firms that my premium natural resource newsletter, Junior Resource Advisor, was created to focus on -- the kind of companies that offer potential for double- or even triple-digit gains through the discovery of major mineral or petroleum deposits.

This month's buying opportunity is upon us -- ironically -- because 2013 has been a difficult year for many resource companies.

With commodities prices falling, a large number of firms have seen their share prices decline. Sentiment has in fact turned down to such a degree that many of these firms are selling for cash flow multiples lower than we've seen in decades.

I've been purchasing a number of these companies for my portfolio over the past few months. One such company I recently told my Junior Resource Advisor subscribers about is selling for less than twice its after-tax income.

The thing is, today we're seeing even better prices on these already-cheap companies.

That's because many holders of these stocks are dumping them indiscriminately right now.

Many of the junior resource companies I tend to follow are listed in Canada -- the center of the universe when it comes to raising capital for small mining and oil and gas companies.

And Canadian investors have some unique tax incentives that come into play this time of year, affecting not only Canadian-listed companies but also firms that have cross-listings on U.S. exchanges.

But let me be clear: You don't have to live in Canada to take advantage of the bargains created by this phenomenon.

Here's how it works.

This time of year, Canadian investors sitting on stocks that have seen losses will often sell them for one reason alone -- to book the investment loss and claim it against their taxes. In many cases, the same sellers will buy the exact same stocks after the New Year. They simply need to crystallize their losses during the current tax year.

The Year-End Insider 'Secret' That Could Make You 12.8% -- Or More

This means they can afford to sell at almost any cost. It's a phenomenon that leads to tremendous selling pressure -- temporarily driving stocks to unbelievably low levels without any regard for the business fundamentals or cash flows of these companies.

Buying this disconnect has been a money-making strategy among industry veterans for decades. During the past four years when the resource-heavy TSX Venture exchange finished with a loss, if you'd bought the index during the second week of December, you would have made an average 12.8% return over the next 30 days -- as beaten-down companies rebounded from temporary tax-loss selling pressure.

This year saw similar declines. The index came into 2013 at around 1,200 and today sits around 900 -- a loss of 25%. And many of the index's component companies have seen losses even deeper than that.

When investors are facing these kinds of losses at year-end, tax-loss selling usually sets in hard and fast. And this is creating great bargains for savvy buyers in the process.

This Year's Best Tax-Loss Buys
The biggest bargains for tax-loss season are in the mining sector this year.

This is simply because metals prices are down -- having dragged many of the stocks with them. Oil and gas, by contrast, have been buoyant. You can see from the chart below that the TSX Global Gold Index is down by 50% in 2013.

[Joshua Brown]

Markets were headed slightly higher on Friday morning despite U.S. producer prices dropping for the third straight month. The Labor Department announced that producer prices were down 0.1% for the month of November. This followed a slip of nearly 0.2% in October. Economists had been expecting the index to remain flat. Wholesale prices, when subtracting food and energy, crept up a mere 0.1% in November, following a 0.2% rise in October. In October there was a drop of 0.7% in gasoline prices, which accounted for 75% of of the decline in the energy index. There was a flat line of growth in November in wholesale food prices after a 0.8% gain in October. Jim O?Sullivan, chief U.S. economist at High Frequency Economics Ltd., said, ?Inflation remains quite tame. Over the course of the next year, the core numbers will drift up a little bit as the economy remains healthy and unemployment keeps falling.?

Shares of Boeing (BA) were up slightly after news was released that the Machinist union declined the second offer from the company to produce its new 777X jetliner. The company wants to start production of the jets in Washington state. The initial offer was made to the union in November, which they declined, offered a higher signing bonus, dropped plans to reduce the pace of wage increases for new workers, along with concessions and dental benefits. The Machinists union said they wanted better health care and pension plans. Bryan Corliss, a spokesman for the Association of Machinists District 751, said that Boeing took their offer off the table once the heads of the union declined to recommend it to members. He also said the second revision of the plan had no ?significant improvement? over the contract offer from last month. Boeing said that they currently have 22 states that have written proposals to host the production of their new jets. Boeing spokesman, Doug Alder, said that the new offer ?rests with the union leadership at this point.?

Shares of Amazon (AMZN) were trading higher after the company announced their plans for launching a new service called Amazon Pantry. This new venture will help the company become competitors in the warehouse club stores market with companies like Costco and Sam?s Club. The service will be available to members of the company?s Amazon Prime (AMZN) shipping program. They will start with roughly 2,000 new products per month like cleaning supplies, canned goods and dry grocery items at discounted prices. Then they will allow their Prime shoppers to place as many of these items as they can into a pre-set sized box and as long as it doesn?t go over in weight, they will ship for a small fee. Keith Anderson, who heads up RetailNet, said, ?Amazon has the clubs in their cross hairs. This will be a potential issue for Costco.?

That?s all for the day. Have a great weekend, loyal readers!

All the best,
Jack Aubrey, Oakshire Financial

[Joshua Brown]

On Sept. 24, I invested in one of the world's leading automakers.

I liked that its valuation was cheap, that the stock had been keeping up with the market while offering about 30% less volatility, and that future growth prospects looked well above average. At about 2%, the dividend yield was a nice bonus.

Of course, there are no guarantees with any stock, but I had hoped shares would at least continue pacing the market after I bought them. Well, if you invested when I did, you know that hasn't been the case. Since then, the stock has been disappointing, dropping about 7% versus about a 7% gain for the market.

I'm not worried, though, because the stock's problems are related to an ongoing concern management is perfectly capable of resolving. Once it does, I expect the stock's bullish run -- shares are up 31% this year and more than 17% a year for the past three years -- to resume.

I'm talking about Toyota (NYSE: TM), and the company's main issue now is recalls.

You probably know recalls have plagued Toyota for some time now. One of the most publicized episodes occurred between 2009 and 2010, when more than 14 million vehicles were recalled after reports of sudden, unexplained acceleration in several Toyota models. Toyota agreed in December 2012 to settle the suit for $1.1 billion.

[Joshua Brown]

Last night, for no discernible reason that even the savviest tech watchers can think of (okay fine, an illogical reason involving block retaliations), Twitter announced a change to their blocking policy that would allow blocked users to view and even interact with the tweets of those who had previously frozen them out.

While the blocker would not be able to see the tweets of the blockee, the change was essentially turning the block feature into more of a mute button rather than a tinted window. One user compared the change to a home security system that allowed intruders into your house, but put a blindfold over your eyes so you wouldn?t know they were there. Once the word spread, petitions went around immediately and the Twitterati could be seen flipping out all over the stream and around the blogosphere.

Upon learning of the new blocking functionality and witnessing the outrage, I had a hunch that this change in policy wouldn?t last long.

I predict Twitter reverses this Block Amnesty thing within 90 days.
? Downtown Josh Brown (@ReformedBroker) December 13, 2013

Turns out 90 days would be more like 90 minutes.

Within a couple of hours of the original announcement, Twitter said ?forget it? and changed the policy back to how it was.

This about-face was in direct response to the uproar amongst their users. As both a shareholder and a user of the service, I believe they did the right thing. The other alternative ? to dig in their heels defensively or to stall for time and measure what effect, if any, this would have on engagement, would have probably been a disaster. I?m glad that management was quick to respond to what their customers wanted; social media firms need to be social entities first and foremost, and that means empathy with the consumer of the service.

[Joshua Brown]

In any given year, you'll come across "no-brainer" investments that are universally loved by the crowd. Trouble is, these stocks can be loved too much, and no matter how sales trends develop, some disappointment will be inevitable.

Indeed, one of the most popular stocks of the past few years has lost its way, buried under a set of unrealistic growth expectations. Yet, as shares bounce just above multi-year lows, contrarian investors finally see an opening.

This "can't miss" stock is Westport Innovations (Nasdaq: WPRT), which appeared set to dominate the burgeoning market for truck engines that can run on natural gas.

The appeal is evident. Natural gas is far cheaper than crude oil, and truckers could save thousands of dollars a year by moving away from pricey diesel fuel.

Westport was also expected to benefit from legislation that provided huge subsidies for truckers to switch to natural gas. That legislation never arrived, and the company's most bullish supporters had to concede that the loftiest sales forecasts simply couldn't be met. As you can see in this chart, shares responded as you might expect.

[Joshua Brown]

Legendary investor Carl Icahn recently added a "sizable position" of Apple to his $16 billion holding company -- Icahn Enterprises.

Since he announced his purchase Sept. 11, Apple is up about 20%.

After making the purchase, Icahn was quoted saying it was a "no-brainer" investment, citing that the company's valuation was "extremely cheap" by the numbers.

Icahn should know, too. Unlike most of today's billionaires, he made his fortune entirely by investing in the stock market. Since he founded Icahn Enterprises less than 30 years ago, his company has enjoyed total returns in excess of 288,000%.

To put that in perspective, if you had invested $1,500 with him back in 1987, the size of your position would be worth over $4.3 million today
That kind of performance is one reason Chartered Market Technician Michael J. Carr recently designed a trading system to leverage the financial genius of investing gurus, like Icahn.

By applying his proprietary trading system to stocks that are held by the market's 20 most successful gurus -- including Warren Buffett, George Soros and David Einhorn -- Michael has earned big gains betting alongside the world's most renowned investors.

For example, on Sept. 12, Michael's system identified a buy on Netflix (NASDAQ: NFLX), one of Carl Icahn's top portfolio holdings. Just three months after his system gave the signal, Netflix is up over 20%.