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

[Thierry Martin]

Random Thoughts


The Ps started firm but quickly found their high and then sold off fairly hard. They did manage to close off their worst levels but still lost ?%. This action gives up Tuesday's gains and it forms an outside day down.

The Quack put in a somewhat similar performance. It too formed an outside day down. I don't get too excited about a 1-day reversal pattern (like certain people who scream that it's the end of the world when the market makes a fat wrestler with a mawashi wedgie or a baby with a poopy diaper pattern). However, it does have to be scored as a negative day-duh.

Internally, it was a little uglier than the Ps and Quack would suggest. I suppose that's not a huge surprise when you see that the Rusty was down over 1 1/3%.

I remain concerned about the growing number of debacle de jours. PRXL and FLEX were the latest victims. In preparation for today's chart show, I made a list of recent stocks that have been hit hard. I'm mostly concerned about household names, higher volume stocks (vs. thin), and those stocks that were recently at higher levels. Here are some of the names that I found: AGCO,AKAM,ARIA,CETV,CNDO,CTXS,CVA,CYOU,DAN,FENG,FT I,HWAY,INVN,MWV,NQ,QLIK, RFMD,RYN,SANM,SOHU,SWK,SYMC,UBS,WU

This action suggests that these stocks were priced for perfection. One has to wonder if these are "Canaries in the coal mine?"

For the most part, most areas still remain in uptrends and so far, they have only begun to pull back.

Foreign shares continue to hang in there.

As you know, I'm a one day at a time kind of day guy. Yesterday was pretty ugly-to coin an oxymoron. One or two big updates would make all the difference in the world.

So what do we do? I think it's too early to run out into the streets and scream that the sky is falling. You can't completely ignore the aforementioned Canaries though. Focus mostly on the long side but use very liberal entries. This will help to avoid new positions should things worsen. I wouldn't rush out and sell the farm but you might consider putting on a short or two just in case. Worse case, you get stuck with a bad trade and your longs take off to more than make up for it. As usual, regardless of what you do, make sure you honor your stops.

Futures are soft pre-market.


Best of luck with your trading today!

Dave

__________

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.

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[Thierry Martin]

Ever wonder how the super-rich manage their investments and retire on that private island with afternoon mojitos? A big part of it is investing in the assets not available to regular people like you and me.

I'm talking about private equity. Yes, the same asset class that made Mitt Romney and Carl Icahn mega-superstars of finance.

The problem is, unless you have a net worth in excess of seven figures or a salary above $200,000, then you are not allowed to invest in private equity deals.

These investments in struggling or new companies can go bust or can produce triple-digit returns in a matter of years, but you and I are not allowed on the playground.

An analysis of 146 public pension funds over the past year showed that private equity investments have earned a 10% annualized return over the past decade, well above the 5.8% return the funds made on the general stock market. The pension for Texas' Teacher Retirement System scored a whopping 15.5% annual rate over the past 10 years.

[Thierry Martin]

In the wake of the Federal Reserve?s decision not to taper and to leave interest rates unchanged, our long positions are soaring and our short positions are collapsing.

No surprise here, as both the Mad Hedge Fund Trader and the Mad Day Trader nailed the market?s reaction well in advance with a profusion of timely Trade Alerts over the last few days.

Treasury bonds have cratered, with the (TLT) down a full point. The short Treasury ETF (TBT) has gapped up nearly a point and a half. The S&P 500 (SPY) is down 1.5 points, while the Euro has given back nearly a penny against the US dollar.

Both our RISK ON/RISK OFF positions are working at the same time. As a result, we are seeing a surge upward in the performance of the Trade Alert Service model portfolio. More than half of the potential profit in all our existing positions can be realized on a mark to market basis.

If you want to book a day trade or an overnight profit here, go ahead and do so. You don?t get windfalls like this very often. Sit back and smell the roses.
As for myself, I am going to hang on a little longer. This makes it much easier for me to run the entire book into expiration, only 12 trading days away, which was the original plan.

[Thierry Martin]

In the wake of the Federal Reserve?s decision not to taper and to leave interest rates unchanged, our long positions are soaring and our short positions are collapsing.

No surprise here, as both the Mad Hedge Fund Trader and the Mad Day Trader nailed the market?s reaction well in advance with a profusion of timely Trade Alerts over the last few days.

Treasury bonds have cratered, with the (TLT) down a full point. The short Treasury ETF (TBT) has gapped up nearly a point and a half. The S&P 500 (SPY) is down 1.5 points, while the Euro has given back nearly a penny against the US dollar.

Both our RISK ON/RISK OFF positions are working at the same time. As a result, we are seeing a surge upward in the performance of the Trade Alert Service model portfolio. More than half of the potential profit in all our existing positions can be realized on a mark to market basis.

If you want to book a day trade or an overnight profit here, go ahead and do so. You don?t get windfalls like this very often. Sit back and smell the roses.
As for myself, I am going to hang on a little longer. This makes it much easier for me to run the entire book into expiration, only 12 trading days away, which was the original plan.

To refresh your memory, here are our current positions below:

[Thierry Martin]

So much BS is flying about over the Obamacare issue that I can?t resist the temptation to put in my two cents worth.

There was no chance this was going to work on day one, and I warned senior administration officials as much on many different occasions. Even the Massachusetts health care plan only saw 100 sign ups in the first month, and it was supported by both parties.

The fatal flaw? They believed the website developer, which anyone who runs on online business, such as myself, will tell you, is a great way to ruin your life.

The truly shocking revelation is that the lead development contract was handed out to a Canadian company. Hey, we out here in Silicon Valley have web development companies! One wonders why the government didn?t hand the whole project over to Google.

While the administration has applauded the millions who rushed to sign up in the early days, I believe that the headline we will see in six months or a year is that almost of them were already sick and uninsured, with diabetes, hypertension, or even cancer. Why the rush?

The government is essentially attempting to create 50 Amazon?s overnight with the many state insurance exchanges. It took Amazon, itself, 20 years to create just one Amazon, and that?s with my old friend, the brilliant Jeff Bezos, calling the shots and taking huge risks.

Having worked with the US military for 40 years, I can tell you that the government never throws anything away, not old tanks, old fighters, old weapons, and yes, old software. I can?t tell you how many times I jumped into a Navy or Marine cockpit, looked at the instrument panel, and said to myself ?You?ve got to be kidding. This thing belongs in a museum.?

For example, the B-52 Stratofortress intercontinental bomber, which was first designed in 1946 and built in 1952, is not scheduled for retirement until 2050, when it will be nearly 100 years old. Thank goodness for preventative maintenance!

So it is no surprise then to hear that the root of Obamacare?s software problems lies with its inter platform communication. Some of the software is brand new, some is 10 years old, and some 20 years old, and custom written by programmers who are probably dead by now. But it all has to talk to each other to function. Good luck with that!

Health care accounts for 12% of our GDP, or about $2 trillion, and employs about 18 million people. That amount of money generates gargantuan fees for lobbyists to maintain the gravy train for the private companies who run the system. This is an industry that has been sheltered from competition until now, which is why costs have been running away for 30 years.

As a result, virtually all information about Obamacare disseminated by the media is inaccurate. You see kids being interviewed on the street asked how much more they will have to spend on Obamacare compared to no coverage at all, and the figure comes to about $2,500 a year.

This is for kids who make $30,000-$40,000 a year. It is a big hit to be sure. But no one asks what will happen if they get hit by a car, or fall off their skateboards. That?s because there is only one answer: go to county hospital, and then file for bankruptcy. Still, most will end up paying the first year fine, which is $85.

This week?s talking point, manufactured by political consultants working in ill lit rooms for unknown companies funded by anonymous donors, is about the millions of cancellation letters that have been sent out by insurance companies individual alarmed private policyholders. I have read a few of these letters.

It turns out that the insured in question had bargain basement policies that really didn?t cover them for anything. They don?t find this out until they try to make a claim, which then gets denied. By setting new, higher standards to fit in the round holes of the public exchanges, the government is forcing the providers to raise the quality of care or quit the business, which they are doing in droves. Somehow, Obama was supposed to know they were going to do this when the law was written five years ago.

[Thierry Martin]

?I grew up trying to separate the emotion of the market from what reality is. Eventually, emotion is just a big sine wave that fluctuates around reality. Eventually, it will catch up,? said Lloyd Blankfein, CEO of Goldman Sachs.

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[Thierry Martin]

"If you spend more than 13 minutes analyzing economic and market forecasts, you've wasted 10 minutes."
- Peter Lynch, greatest stock market investor or all time

Up until 2008, it was a given that economists had no business anywhere near the trading desk. Their work was important as a framework toward understanding the interplay between the markets and the real world - but that was about the extent of it.

Then post-crisis, some of these guys became "rock stars". Which is fine up to a point. All of us market participants and investors can learn a lot from their research. But when they started putting out newsletters and alerts and "monitors" to traders and fund managers - as though there was some sort of actionable message embedded in their reports - things got strange. All of a sudden there were economists making equity market buy and sell calls in the media and there were even economics reporters "grading the trade" on TV.

Economics is extremely important to understanding the world in which we live, but the linear application of it can be deadly with actual money on the line. Thinking that low GDP growth would mean low stock returns would have sat you out of one of the best bull markets in history these past few years. It also would have made you miss the bottom of the European stock market and led you to have guessed that China, with its world-beating growth numbers, would outperform (it's actually had the fastest economic growth and the poorest stock market returns).

The reality is that there is no such positive correlation over various periods of time between economic data and stocks in any given country. And economic data in the short-term is every bit as unpredictable as stock market behavior, so basing a forecast for one on what you predict for the other is like picking out a sports jacket and slacks in the dark and hoping one is not navy while the other is black.

A study from the London School of Economics concluded that choosing where to invest based on favorable economic factors is actually a recipe for underperformance. Researchers Dimson, Marsh and Staunton said "take the records of 83 countries from 1972 to 2009 (the most comprehensive set available) and rank them by GDP growth over the previous five years. Investing each year in the countries with the highest economic growth over the preceding five years earned an annual return of 18.4%, but investing in the lowest-growth countries returned 25.1%." Another study by BNY Mellon looked at the S&P 500 versus US economic growth from 1970-2012 and concluded that there is no link whatsoever between the two.

PIMCO provides us with a perfect example of this mismatch and the damage it can do - each year it hosts a conclave of a few hundred of the smartest people in the world, they call it the Secular Forum. At the conclusion of this multi-day event, PIMCO issues a proclamation containing the conclusions they've drawn and the forecasts they're making as a result. The good news is that the firm has been exactly right about, well, everything since the start of the post-crash period. They actually invented the New Normal concept of persistently low economic growth, high unemployment and increasing social inequality back in 2009 - Bullseye!

The problem is, as Mohamed El-Erian was forced to admit at conference this spring, that they nailed the economy and yet they got the markets completely wrong. If you had listened to PIMCO's economic forecasts and then done the opposite of what they did with your portfolio, you'd have done spectacularly well.

My friend Eddy Elfenbein, a bottoms-up value stock picker who's been blogging at Crossing Wall Street since 1964, has made this point before. In a post this fall, Eddy showed a scatterplot chart of the annual change in price for the S&P 500 versus annual nominal gross domestic product. Not only does there appear to be no correlation whatsoever, you could squint and almost perceive a slightly negative correlation!

Bloomberg News reminds us of just how disconnected economics and stocks can be sometimes with an article about the top-performing market in the world, which just happens to exist amidst the world's worst economic story of the decade:

[Thierry Martin]

Warren Buffett loves to invest in stable businesses with few competitors.
One of his recent favorites is DaVita HealthCare (NYSE: DVA), which operates a network of dialysis treatment centers in the United States catering to patients that have diabetes-induced kidney failure. Buffett's Berkshire Hathaway (NYSE: BRK-B) has been a steady buyer for several years and now owns nearly 30 million shares, equating to a $1.8 billion stake.

But DaVita has a big problem on its hands. Dialysis is expensive, and the two biggest payees for this procedure, Medicare and Medicaid, have been pushing DaVita and its rival Fresenius Medical Care (NYSE: FMS) to swallow painful reimbursement cuts.

It's not just the administration of dialysis that is costly. Many patients end up with side effects related to iron deficiency and red blood cell production, which costs billions more to remedy. And these costly treatments don't even yield the desired medical outcomes.

Thankfully, one of the biggest providers of the drugs and chemicals used in dialysis has a solution to the problem. Little-known Rockwell Medical (Nasdaq: RMTI) has been testing an iron supplement that goes right into bone marrow.

Patients on dialysis stop producing erythropoietin, a key ingredient in the production of red blood cells. A 2012 IMS Midas study found that almost all dialysis patients -- more than 400,000 in the U.S. and more than 2 million worldwide -- suffer from anemia.

In response, drug companies have been selling erythropoiesis-stimulating agents (ESAs), which help produce red blood cells, but a great deal of iron is consumed in the process. As a result, patients need to receive iron on an intravenous (IV) basis, though the current IV drips end up storing much of the iron in the kidneys instead of the bloodstream where it should be circulating.

Rockwell's solution: soluble ferric pyrophosphate (SFP), which it plans to market under the trade name Triferic. The drug has completed all three phases of FDA-mandated clinical trials, with stellar results in terms of efficacy and safety.*SFP has much smaller molecules than iron-based compounds, which is why it doesn't get ensnared in the liver as iron supplements do. That allows doctors to administer much smaller doses of SFP than they have been doing with iron supplements. The risk of anaphylactic shock from too much iron in the liver is one of the greatest risks for patients on dialysis. SFP appears to eliminate that risk.

Moreover, SFP is far simpler to administer, and as a result, costs less money for firms such as DaVita to administer them. The more targeted action of SFP allows for smaller dosing of costly ESA drugs as well. Rockwell believes that DaVita and others will cut their total spending on ESAs from $2 billion annually to around $1.4 billion annually, a $600 million savings. And that's just in the U.S.

[Thierry Martin]

Today's Chart of the Day is Treehouse Foods (THS). I found the stock by sorting the New High List for frequency making sure the stocks had positive gains for the last week and month then panned through the charts. The stock broke out back on 10/11 and since then is up 7.32%.

It is a food manufacturer servicing primarily the retail grocery and food service channels. Its products include pickles and related products; non-dairy powdered coffee creamer; and other food products including aseptic sauces, refrigerated salad dressings, and liquid non-dairy creamer.

[Thierry Martin]

As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price.