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

[Thierry Martin]

Stuff I'm Reading this Morning...

So whatever happened to that frenzy of deals we were expecting? (DealBook)

Investors are so over gold. (WSJ)

Great run of charts: Breadth by market cap. (DynamicHedge)

Dougie: Why Twitter is worth $32.50 a share and may double from its IPO. (MoneyBeat)

Billionaire Tweetfight between Carl Icahn and Bill Gross. Kill us now. (Bloomberg)

Lowlights from a pathetic earnings season. (PragCap)

How about a dating site for hedge funds and the accredited investors who love them? (HedgeWeek)

7 Market Lessons I Relearned in 2013. (Ivanhoff)

10 ways to up the noise and reduce the signal. Wait, what? (TBP)

Dana Anspach: 10 ways to wipe out your retirement savings. (MarketWatch)

There's a Google Smartwatch coming. Will it be self-winding? (WSJ)

The hottest new popstar on earth is from New Zealand and is 16 years old. And is way cooler that Katy or Miley. (RollingStone)

I think we can all agree to hate the Red Sox but love the Red Sox Girls. (TheBrigade)

REMINDER: Backstage Wall Street is now on Kindle!

[Thierry Martin]

?The consumers have voted with their eyeballs,? said Mark Mahaney, the Internet analyst at RBC Capital, about Google?s breakout through $1,000 a share.

[Thierry Martin]

The Chart of the Day is Affiliated Management Group (AMG). I found the stock by sorting the New High List for frequency then used the flipchart feature to find the chart I like. Since the Trend Spotter signaled a buy on 9/10 the stock is up 9.97%.

It is an asset management holding company which acquires majority interests in mid-sized investment management firms. AMG has developed an innovative transaction structure which it believes is a superior succession planning alternative for growing mid-sized investment management firms.

[Thierry Martin]

Quote of the day

Fred Wilson, ?Profits are critical to the health of a business, but that doesn?t mean a healthy business has to currently profitable.? (A VC also Om)

Chart of the day





Corn is way oversold. (The Short Side of Long)

Markets

In the long run valuation matters. (Mebane Faber)

[Thierry Martin]

This week?s focus is on transports and shipping. But before we get to the fuel-burning details, we?ve got good news to share. Let?s review two successful trades that turned out their profits very quickly.

Trade Recap

The first trade under review is our August 26th initiative, in which we purchased CALLs and sold PUTs on CBOE Holdings (NASDAQ:CBOE) in a letter called Options Strategy for a Takeover Play.

After speculating that CBOE Holdings looked ready for a takeover bid, we bought our March 55 CALLs for $1.20. We paid for them by selling March 40 PUTs for $1.00, so our up-front cost was only $0.20 for the trade. And as of last Friday?s close, CBOE shares sat barely half a percent off their all time highs, so our CALLs have profited very handsomely.

Here?s the way it charts ?

[Thierry Martin]

Striking it rich in the precious metal business is a goal far older than the United States.

In the 19th century, many Americans' ancestors traveled west across the country with dreams of building new lives. Some ventured west to find freedom and land, others moved west in search of fortune. It was the lure of riches -- in the form of precious metals -- that attracted these fortune-seekers to the faraway land of California.

Known as the California Gold Rush, over 300,000 fortune hunters traveled from all over the world to find wealth in the form of gold nuggets. Known as forty-niners in reference to the gold rush of 1849, many of the early gold seekers struck it rich while gold was easy to find and retrieve.

As the numbers of fortune seekers increased, however, it became more difficult to discover new sources of gold. Soon, the equation shifted, with most of the new miners losing money on their venture. The easy pickings were gone forever, and only the merchants selling mining supplies and the dream continued to create wealth.

Today, it is still possible -- though far more difficult -- to build great wealth in the precious metal business. Investors no longer have to face the hardships of the original forty-niners to profit from skilled mining companies. However, high risk still remains when investing in miners of precious metals. While this risk is no longer to life and limb, as it was for the forty-niners, heavy monetary risk remains for investors in this sector. In addition, the miners themselves face several layers of risk.

I recently learned from my father-in-law, a skilled and knowledgeable precious metal investor, of a clever way that certain mining companies use to greatly mitigate their risk factors while retaining the upside of striking it rich. These companies benefit from multiple mining operations, which spreads out these firms' risks, and actually lock in the purchase price of the mines' production, regardless of market price. Sound too good to be true? At first, I thought so, too, but a little research confirmed this remarkable strategy.

These companies are called streaming companies. At its essence, a streaming company is a firm that provides capital to mining companies in exchange for an agreement to purchase all or some of their precious metal production at a low pre-negotiated price. This arrangement eliminates market price risk and spreads the streaming company's risk out across many companies, mines, regions and projects.

In addition, streaming companies obtain leverage from the ability to purchase precious metal at a significant discount to market price. The streaming company also does not have to carry the significant costs of exploration, extraction, and production. It's all upside without the common risks associated with direct mining companies.

Two streaming companies are Silver Wheaton (NYSE: SLW) and Sandstorm Gold (NYSE: SAND). As their names suggest, Silver Wheaton focuses on silver miners, while Sandstorm targets gold miners. Let's take a closer look.

Sandstorm Gold is a Vancouver-based company that secures streaming agreements in exchange for funding from advanced-stage development projects and producing mines. The company has 16 projects under agreement, including a variety of gold, copper and zinc mining excursions. Sandstorm CEO Nolan Watson says his company has $100 million to deploy for future projects but is waiting for the bottom in the mining sector to execute the deals.

Technically, SAND bounced from the $4 area before finding resistance at the 50-day simple moving average in the $5.60 zone.

[Thierry Martin]

My kids will probably never become big Coca-Cola drinkers. First, we're not going to keep big 2-liter bottles of that kind of thing in the house and second, there are now so many alternatives to soda that what made Coke special to so many previous generations will probably be utterly lost on them.

During my routine run-through of large cap performance charts, I came across the old blue chip stalwart and was quite surprised. I couldn't believe how poorly it's been acting given the rising tide that's been lifting nearly everything else. And don't tell me that the "defensive" widows-n-orphan stocks are supposed to act badly in a risk-on tape - you'd be hard-pressed to find another high profile consumer staples stock that's been dribbling its way lower over the last few months as Coke has.

In the below chart, you're looking at two years of the SPY (S&P 500 ETF) and XLP (consumer staples sector SPDR) in blue and green respectively, with the glaring negative divergence in shares of KO below them (in yellow):

[Thierry Martin]

Random Thoughts


Friday was another good day for the Ps. They tacked on nearly ?% to close at all-time highs.

The Quack had an intra-day reversal but still managed to hold on to over 1/3%. This is enough to keep it right at multi-year highs.

The sector action still looks pretty darn good Defense, Consumer Non-Durables, Drugs, Leisure, Manufacturing, Media, Retail, and others managed to close at new highs. I suppose this isn't a shocker when the major indices themselves are at new highs.

[Thierry Martin]

With the recent decline in interest rates thanks to a strong bond market, dividend stocks are back in favor. Sectors that do well when bonds rally are setting up for a nice move higher.

HCP (NYSE: HCP) is a real estate investment trust (REIT) that owns and manages health care properties. I am not big on trying to figure out what stocks will do well under the Affordable Care Act (aka Obamacare) -- I'd rather look for stocks with charts that signal they are ready to go higher. With a generous 4.9% dividend yield and improving technical indicators, HCP is indeed set up for price gains.

As a group, stocks offering big dividends peaked in May when the bond market began to fall. At the time, the Fed first hinted that it was considering the tapering of its bond buying program. Utilities, REITs, housing and many consumer staples stocks headed lower as traders thought interest rates would rise.

Now that tapering seems to be off the table for a few months, dividend-paying stocks have regained favor. HCP in particular bottomed in early October and has been moving higher ever since.

On Oct. 3, there was a management shake-up, and the stock plunged 4.7% on exceptionally heavy volume. It continued lower the next day on an analyst downgrade, but the two-day event was an emotional event called a "selling climax."

Bullish investors basically threw in the towel and sold. Sentiment was excessively bearish and, theoretically, everyone who was going to sell did so. Bearishness was washed out, and in the absence of selling pressure, it didn't take much demand to get prices shooting higher from there. It was contrarianism at its finest.

[Thierry Martin]

If you can get a dividend higher than the yield on ten-year debt, it?s an opportunity we haven?t seen in our lifetime. On a five-year horizon, investing in large multinationals with high dividends will have a large payday,? said Lawrence Fink, CEO of BlackRock.