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[Joshua Brown]

Janet Yellen speaks before the Senate Banking Committee this morning at 10am. She?s released her brief address beforehand and will probably be answering a wealth of questions, especially on the idea of the taper.

Here?s BofA Merrill?s US Economics team with a preview on that score:

The taper question, ultimately
Yellen states that ?supporting the recovery today is the surest path to a more normal
approach to monetary policy? ? in other words, policy needs to remain easy now to
tighten later. Additionally, ?a strong recovery will ultimately enable the Fed to reduce
its monetary accommodation and reliance on unconventional policy tools such as
asset purchases.? Early commentary focused on the word ?ultimately? as a possible
signal that Yellen does not plan to taper for a while. But ?reduce its monetary
accommodation? typically has meant rate hikes in official Fed communication, while
reducing ?reliance on unconventional tools? likely refers to the eventual reduction in
the size of the Fed?s balance sheet rather than tapering. Recall, most Fed officials
take a ?stock approach? to QE; in that view it?s the total amount of assets owned and
not the purchase pace that defines the degree of accommodation. No doubt she?ll
get questions about the Fed?s tapering plans on Thursday.

Expect market participants to be hanging on her every word?

[Joshua Brown]

Janet Yellen speaks before the Senate Banking Committee this morning at 10am. She?s released her brief address beforehand and will probably be answering a wealth of questions, especially on the idea of the taper.

Here?s BofA Merrill?s US Economics team with a preview on that score:

The taper question, ultimately
Yellen states that ?supporting the recovery today is the surest path to a more normal
approach to monetary policy? ? in other words, policy needs to remain easy now to
tighten later. Additionally, ?a strong recovery will ultimately enable the Fed to reduce
its monetary accommodation and reliance on unconventional policy tools such as
asset purchases.? Early commentary focused on the word ?ultimately? as a possible
signal that Yellen does not plan to taper for a while. But ?reduce its monetary
accommodation? typically has meant rate hikes in official Fed communication, while
reducing ?reliance on unconventional tools? likely refers to the eventual reduction in
the size of the Fed?s balance sheet rather than tapering. Recall, most Fed officials
take a ?stock approach? to QE; in that view it?s the total amount of assets owned and
not the purchase pace that defines the degree of accommodation. No doubt she?ll
get questions about the Fed?s tapering plans on Thursday.

Expect market participants to be hanging on her every word?

Fine, sorry. Here:

[Joshua Brown]

Random Thoughts


As I often preach, when I market is hovering near new highs you have to be careful not to chase your own tail. Near the top of the range it will look like the market is poised to explode and near the bottom of the range it will look like the market is ready to implode.

You can't anticipate the move too much. Otherwise, you'll end up over weighted on one side, and, as Murphy would have it, it'll be the wrong side.

Speaking of ranges, up until yesterday, the Ps and Quack have mostly been stuck in the short-term range. That changed on Wednesday. Both indices broke out nicely to new highs. Although breakouts are prone to failure and you shouldn't trade them blindly, the fact that this breakout came from a Double Top Knockout buy signals (especially in the Nasdaq) suggests that it might just have legs.

Internally the market was strong on Wednesday. A lot of areas, too many to mention, banged out new highs-I suppose this isn't a shocker with the Ps at all-time highs and the Quack at multi-year highs. Some weaker areas that looked questionable snapped back. Again, it was strong throughout. In market speak, the market had good breadth.

Is this the "all clear?" Well, in this business you never know for sure-if you did, you'd own the world. It does look like the indices are off to a good new start, especially since they are coming off the Knockout buy signal.

So, do we rush out and buy? Well, not exactly. I'm still not seeing a lot of meaningful buy setups at this juncture. This is perfectly normal. The methodology requires a pullback so until the market pulls back-and ideally, continues its rally first---we likely won't see a lot of new potential positions.

So, what do we do? I'm seeing a few shorts setting up. No worries though. This is perfectly normal since the rising tide is lifting all boats (i.e. weaker stocks are pulling back). With the market at new highs---especially with yesterday's vigor-you certainly do not want to fight it. Since there aren't a lot of meaningful longs, now would be a good time to trail stops and look to take partial profits in any existing longs in your portfolio as the initial profit targets are hit. If this thing turns into the real deal, then you'll still have a partial position and participate. And, if it don't, then you scratch out of the remainder of the position for a better-than-a-poke-in-the-eye trade. Honor your stops on any leftover shorts. This money and position management plan-stops, trailing stops, taking partial profits-will keep you in the game a long time. It creates and portfolio ebb and flow. This helps to keep you on the right side of the market during trends and mostly out of t he market during choppy conditions.

OH, BTW, how beautiful was Wednesday's OGRE? You're welcome! Come to the chart show today, I'll walk you through it. Trust me though, they don't always work out in such a textbook fashion. Ahhh, but when they do......

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

Best of luck with your trading today!

Dave
omgmachines.com/ericx
__________

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.

[Joshua Brown]

Random Thoughts


As I often preach, when I market is hovering near new highs you have to be careful not to chase your own tail. Near the top of the range it will look like the market is poised to explode and near the bottom of the range it will look like the market is ready to implode.

You can't anticipate the move too much. Otherwise, you'll end up over weighted on one side, and, as Murphy would have it, it'll be the wrong side.

Speaking of ranges, up until yesterday, the Ps and Quack have mostly been stuck in the short-term range. That changed on Wednesday. Both indices broke out nicely to new highs. Although breakouts are prone to failure and you shouldn't trade them blindly, the fact that this breakout came from a Double Top Knockout buy signals (especially in the Nasdaq) suggests that it might just have legs.

Internally the market was strong on Wednesday. A lot of areas, too many to mention, banged out new highs-I suppose this isn't a shocker with the Ps at all-time highs and the Quack at multi-year highs. Some weaker areas that looked questionable snapped back. Again, it was strong throughout. In market speak, the market had good breadth.

Is this the "all clear?" Well, in this business you never know for sure-if you did, you'd own the world. It does look like the indices are off to a good new start, especially since they are coming off the Knockout buy signal.

So, do we rush out and buy? Well, not exactly. I'm still not seeing a lot of meaningful buy setups at this juncture. This is perfectly normal. The methodology requires a pullback so until the market pulls back-and ideally, continues its rally first---we likely won't see a lot of new potential positions.

So, what do we do? I'm seeing a few shorts setting up. No worries though. This is perfectly normal since the rising tide is lifting all boats (i.e. weaker stocks are pulling back). With the market at new highs---especially with yesterday's vigor-you certainly do not want to fight it. Since there aren't a lot of meaningful longs, now would be a good time to trail stops and look to take partial profits in any existing longs in your portfolio as the initial profit targets are hit. If this thing turns into the real deal, then you'll still have a partial position and participate. And, if it don't, then you scratch out of the remainder of the position for a better-than-a-poke-in-the-eye trade. Honor your stops on any leftover shorts. This money and position management plan-stops, trailing stops, taking partial profits-will keep you in the game a long time. It creates and portfolio ebb and flow. This helps to keep you on the right side of the market during trends and mostly out of t he market during choppy conditions.

OH, BTW, how beautiful was Wednesday's OGRE? You're welcome! Come to the chart show today, I'll walk you through it. Trust me though, they don't always work out in such a textbook fashion. Ahhh, but when they do......

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

[Joshua Brown]

Stuff I?m Reading this Morning?

Highest conviction hedge fund exposure by asset class. (ZeroHedge)

Jobless Claims drop for fifth straight week. (USAToday)

Someone gave JPMorgan the idea that America was interested in social engagement with it. What a solipsistic bubble bubble of ignorance these people have constructed for themselves to live in. (Bloomberg) and (BusinessInsider)

Five stocks ready to break out from multi-year bases. (bclund)

Jeff Gundlach says stocks are the only game in town?for now. (Reuters)

Tyler Cowen: The robots are already here and taking our jobs. Become a libertarian. (Politico)

Ari Weinberg on creating a personal investment benchmark. (BBC)

This is not a story from an alternate universe or different dimension: SnapChat, with a dozen employees, is supposedly worth $3 billion according to internet math. (NYT)

?While quantitative value strategies focusing on both value and profitability metrics have added significant value to portfolios, they cannot identify which individual stocks you should buy.? (CBSMoneyWatch)

The yuppies and old hipsters are getting stoned in public all day with vaporizers. (NYP)

REMINDER: Backstage Wall Street is now on Kindle!

[Joshua Brown]

The Chart of the Day is Daqo New Energy (DQ). I found the stock by sorting the New High List for Weighted Alpha and this stock has a WA of 481.60+. Since the Trend Spotter signaled a buy back on 8/23 this stock has shot up 456.78%!

It is engaged in the manufacture and sale of high-quality polysilicon to photovoltaic product manufacturers. The polysilicon is further processed into ingots, wafers, cells and modules for solar power solutions.

[Joshua Brown]

Home furnishings retailer Restoration Hardware Holdings (NYSE: RH) hasn't been publicly traded for long, but so far, the company has made the most of it. Since it went public on Nov. 2, 2012, the stock has rallied more than 200%.

For its initial public offering, the company sold 5.2 million shares at $24 apiece, which valued the deal at about $124 million.

Leading up to its IPO, the company saw double-digit revenue growth for 10 consecutive quarters, and over the past 12 months, top-line growth has continued. Many analysts have adjusted their price targets higher. Jefferies, for example, raised its price target from $68 to $88 in September. The company's next earnings announcement is scheduled for mid-December.

The fact that a company selling high-end home furnishings can flourish in a slowly recovering economy is a good sign not only for Restoration Hardware, but also for the housing market.

While certainly not sporting as spectacular gains as RH, other home furnishings retailers have also rallied. Bed Bath & Beyond (Nasdaq: BBBY) and Williams-Sonoma (NYSE: WSM) have seen their share prices rise about 25% to 30% in the past year, reflecting improvements in the housing market.

Restoration Hardware caught the attention of Steve Cohen, Paul Tudor Jones and other hedge fund billionaires. Having big-money guys like these supporting the stock is another positive, but traders will need to watch the company's filings with the Securities and Exchange Commission closely for changes in ownerships.

On the charts, RH looks great from a technical perspective. On the weekly chart looking back to its IPO, the breakout in May is at the core of my bullish take on the stock.

[Joshua Brown]

I spent a weekend attending a graduation in Washington State, a stone?s throw from where the 2010 Vancouver Winter Olympics were held. While sitting through the tedious reading of 550 names, I was struck by how many seemed to come from abroad.

As I listened to the wailing ceremonial bagpipes, I did several calculations on the back of the commencement program and was shocked with what I discovered.

Higher education has grown into a gigantic industry for America, with a massively positive impact on our balance of payments, generating an impact on the world far beyond the dollar amounts involved.

According to the non-profit Institute of International Education, there are 819,644 foreign students in the US today, up an impressive 7.2% from last year. This combined student body pays an average out-of-state tuition of $25,000 a year each totaling some $24 billion. The positive impact on the US balance of payments is huge.

China is far and away the dominant origin of these students, accounting for 235,597, up 26% from the previous year. South Korea and India take the number two and three slots, thanks to the generous scholarships provided by their home governments. Saudi Arabia and Brazil are showing the fastest growth rates.

A fortunate few, backed by endowed chairs and buildings financed by wealthy and eager parents, land places at prestigious universities like Harvard, Princeton, and Yale. The top destinations of foreign students are the University of Southern California in Los Angeles, CA, the University of Illinois at Urbana-Champaign, Indiana?s Perdue University, and New York University, with each of these claiming 9,000 foreign students.

However, the overwhelming majority enroll in the provinces in a thousand rural state universities and junior colleges that most of us have never heard of. Many of these schools now have diligent admissions officers scouring the Chinese hinterlands looking for new applicants.

The financial windfall has enabled once sleepy little schools to build themselves into world-class institutions of higher learning, with 30,000 or more students. They boast state of the art facilities, much to the joy of local residents and state education officials. Furthermore, the overwhelming leadership of education industry is steadily Americanizing the global establishment.

I can?t tell you how many times over the decades I have run into the Persian Gulf sovereign fund manager who went to Florida State, the Asian CEO who attended Cal State Hayward, or the African finance minister who fondly recalled rooting for the Kansas State Wildcats.

You know the recently ousted president of Egypt, Mohamed Morsi? He was a former classmate of mine at USC. Go Trojans!

Those who constantly bemoan the impending fall of the Great American Empire can take heart by merely looking inland at these impressive degree factories. These students are not clamoring to get into universities in Beijing, Moscow, or Tokyo.

[Joshua Brown]

?When a manager with a reputation for brilliance takes a business with poor fundamental economics, it is the reputation of the business that remains intact,? said oracle of Omaha, Warrant Buffett.

[Joshua Brown]

It goes without saying that the stock market is an extremely competitive arena. Money management firms spend millions to find profitable niches, strategies and tactics.

Where short-term trading is concerned, the advent of high-frequency trading has made speed more important than ever. This niche has become so competitive that some firms have relocated their operations to their stock exchange's facilities to get their orders to the exchange before the competition's.

Fortunately, long-term investors don't have to concern themselves with the arms race in high-frequency trading. While large firms fight it out for microsecond advantages, long-term investors can exploit time-tested niches. One such niche outperformed the S&P 500 Index by an average of 13% from January 1995 to July 2012, including a period of 45% outperformance between 2000 and 2005.

However, the success of this strategy hasn't captured investors' interest. One reason, to be frank, is that it's a little boring in comparison to other investing strategies. Another is that after the catalyst for this strategy occurs, shares often trade lower for the first month or so. A third is that this strategy was decimated during the 2008 financial crisis. These factors appear to work in unison to spook many investors despite the high returns.

This strategy is known as spin-off investing. It entails buying shares in a company that has been spun off from a larger parent firm. A parent company may have many reasons for spinning off a subsidiary, but typically, the primary goal is to increase shareholder value by jettisoning debt and slashing expenses.

Yet shareholders of the original company often dump their granted shares of the new, smaller company. This is shareholders in the parent company often have no interest in owning the spun-off company, so they sell their shares, sending the spin-off's stock lower -- at least initially. However, other investors often recognize the value in the spin-off's lower price, sending shares on an upswing.

Spin-offs are often successful, and one main reason is that the spin-off's executives are frequently given greater incentives -- in the form of stock options in the new company -- to succeed than they may have had at the parent firm. Think of a spin-off as a startup -- but one with a seasoned executive staff, an existing business model and customer base, and direct experience in the field.

You can search for pending spin-off companies on the Securities and Exchange Commission website and by keeping up with the financial news. Several of the most successful spin-offs include Hillshire Brands (NYSE: HSH), spun off from the Sara Lee Corp.; Mondelez International (Nasdaq: MDLZ), spun off from Kraft (Nasdaq: KRFT); and Phillips 66 (NYSE: PSX), spun off from ConocoPhillips (NYSE: COP).

My favorite way to invest in spin-offs is to gain diversified exposure to the best spin-off companies through the Claymore Beacon Spin-Off ETF (NYSE: CSD).

The top 10 holdings include: