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

[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.

[Thierry Martin]

When you think of domestic oil production in the United States, Wyoming probably isn?t the first area of the country that comes to mind as a major player. Texas has traditionally been a regional powerhouse in the industry, with South Dakota a rising force over the past decade. Right now, however, oil companies both big and small are setting their sites on exploiting the vast energy reserves in Wyoming?s Bighorn Basin, estimated to hold 2 billion barrels of recoverable oil and already home to eight of the 12 of the state?s largest oil fields.

In fact, Wyoming has a long and storied history as an oil heavyweight. Marathon Oil, formerly one of the largest producers in the United States, has been doing business in the state for over a century. And, in the early 1980?s, Davis Petroleum, led by legendary oil-man and billionaire Marvin Davis, uncovered what is known as ?the Muddy formation,? one of the largest and most significant oil and gas discoveries in the region. Bighorn Basin alone has already generated 3.1 billion barrels of oil.

Far from being ?tapped out,? however, estimates by the University of Wyoming put remaining recoverable Bighorn Basin oil reserves at over 2 billion barrels, with the potential for 3.5 million additional barrels waiting to be tapped. That?s in addition to the massive volume of Wyoming?s natural gas deposits, estimated to be a whopping 2 trillion cubic feet.

One intriguing young company that may be presenting a ground-floor opportunity for investors to capitalize on Bighorn Basin?s reemergence as a major energy-producing hub is Bison Petroleum, which just began trading on the OTC exchange under the symbol BISN. Bison has announced plans to first focus their attention on two of their longer-term lease blocks in the area, estimated by the company to hold approximately 20% of their overall potential resource holdings ? about 27 million barrels of recoverable crude.

Referred to by Bison as the ?Independence Prospect,? the company acquired these two leases in August. The first is a 100% Working Interest and 80% Net Revenue Interest in the 840-acre tract located in the heart of the Bighorn Basin. The Prospect?s two leases offset Marathon Oil?s 150 million barrel (MMBO) Spring Creek Field, and are less than 10 miles from the 475 MMBO Oregon Basin Field. An independent report on the Independence Prospect?s original acreage position estimates a potential of original oil in place (OOIP) of 135 MMBO.

In light of the prospect?s potential, the company announced on Wednesday that it is currently developing an exploration plan for these leases that includes 2D seismic acquisition, a Seep Study, and 3D seismic to define optimized drilling locations in the targeted Lower Cretaceous Muddy Formation. The company became aware of the Muddy?s potential by mapping fields nearby current production, with the Spring Creek Field showing possible hydrocarbons in the Muddy based upon well log characteristics. The Independence Prospect is located along several of the existing structures marbling the area, which are cut by numerous faults. Bison expects the Muddy accumulations to be between 2,000′ to 6,000′ drilling depths, with well-spacing potential at 10 acres per well.

These assets are located in close proximity to established industry infrastructure, allowing for rapid transition from discovery to production through the quick connection to the existing pipeline network, which contains spare capacity for potential crude production. The company is also employing a conventional drilling strategy, reducing both the technical complexity and cost of other approaches. Management believes that by focusing on historically proven basins and utilizing conventional drilling technology, it can achieve relatively low-cost production with substantially less capital risk than many of its industry peers.

[Thierry Martin]

When you think of domestic oil production in the United States, Wyoming probably isn?t the first area of the country that comes to mind as a major player. Texas has traditionally been a regional powerhouse in the industry, with South Dakota a rising force over the past decade. Right now, however, oil companies both big and small are setting their sites on exploiting the vast energy reserves in Wyoming?s Bighorn Basin, estimated to hold 2 billion barrels of recoverable oil and already home to eight of the 12 of the state?s largest oil fields.

In fact, Wyoming has a long and storied history as an oil heavyweight. Marathon Oil, formerly one of the largest producers in the United States, has been doing business in the state for over a century. And, in the early 1980?s, Davis Petroleum, led by legendary oil-man and billionaire Marvin Davis, uncovered what is known as ?the Muddy formation,? one of the largest and most significant oil and gas discoveries in the region. Bighorn Basin alone has already generated 3.1 billion barrels of oil.

Far from being ?tapped out,? however, estimates by the University of Wyoming put remaining recoverable Bighorn Basin oil reserves at over 2 billion barrels, with the potential for 3.5 million additional barrels waiting to be tapped. That?s in addition to the massive volume of Wyoming?s natural gas deposits, estimated to be a whopping 2 trillion cubic feet.

One intriguing young company that may be presenting a ground-floor opportunity for investors to capitalize on Bighorn Basin?s reemergence as a major energy-producing hub is Bison Petroleum, which just began trading on the OTC exchange under the symbol BISN. Bison has announced plans to first focus their attention on two of their longer-term lease blocks in the area, estimated by the company to hold approximately 20% of their overall potential resource holdings ? about 27 million barrels of recoverable crude.

Referred to by Bison as the ?Independence Prospect,? the company acquired these two leases in August. The first is a 100% Working Interest and 80% Net Revenue Interest in the 840-acre tract located in the heart of the Bighorn Basin. The Prospect?s two leases offset Marathon Oil?s 150 million barrel (MMBO) Spring Creek Field, and are less than 10 miles from the 475 MMBO Oregon Basin Field. An independent report on the Independence Prospect?s original acreage position estimates a potential of original oil in place (OOIP) of 135 MMBO.

In light of the prospect?s potential, the company announced on Wednesday that it is currently developing an exploration plan for these leases that includes 2D seismic acquisition, a Seep Study, and 3D seismic to define optimized drilling locations in the targeted Lower Cretaceous Muddy Formation. The company became aware of the Muddy?s potential by mapping fields nearby current production, with the Spring Creek Field showing possible hydrocarbons in the Muddy based upon well log characteristics. The Independence Prospect is located along several of the existing structures marbling the area, which are cut by numerous faults. Bison expects the Muddy accumulations to be between 2,000′ to 6,000′ drilling depths, with well-spacing potential at 10 acres per well.

[Thierry Martin]

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Quote of the day

David Merkel, ?Most market players don?t think; they mimic.? (Aleph Blog)

Chart of the day

[Thierry Martin]

Random Thoughts



The Ps had a decent day. They tacked on over ?%. This action keeps them at all-time highs.

It was mostly a big cap party but the Quack did manage to end up 1/3%. And, this is enough to keep it at multi-year highs.

The Rusty came in third with a little over ?% gain. This was enough to keep it at all-time highs-albeit barely.

Let's look at the good:

Like the indices, most areas remain at or near new highs. Consumer Non-Durables, Consumer Durables, Drugs, Energy, and Leisure to name a few. Areas at lower levels such at Metals & Mining continue to improve.

The Transports also ended at new highs.

Foreign shares (EFA) remain in a solid uptrend.

The Bad:

The Quack and Rusty have lost a little steam. They haven't made much progress over the last week or so.

The Ugly:

There continue to be quite a few debacle de jours. SANM and DAN are the latest victims. See recent columns for others.

Prognosis:

As I preach, you have to put together the clues and weigh the evidence. As you can see from the above, the good outweighs the bad and the ugly. You have to be careful not to fight the trend but you certainly don't want to become too euphoric and completely ignore the warning signs as they present themselves.

So what do we do? Even though there is some bad and ugly, not much has changed just yet: I'm still seeing some setups in trending stocks that have pulled back. These include areas such as Solar/Alternate Energies, Energy-Oil, Metals & Mining, Internet, Hardware, and Drugs. Therefore, continue to look to add/add back on the long side. As usual, make sure you wait for entries. As I preach, this, in and of itself, can often keep you out of new trouble. Continue putting together your momentum watch lists (or pay me to do it for you). Stocks like QTWW should be on that list--I'll do a Youtube soon on how to create momentum lists. Once again, as long as the market remains near new highs, I would avoid the short side for now. Regardless of what you do, make sure you honor your stops once triggered

Futures are firm pre-market.

[Thierry Martin]

The Chart of the Day is Astronics (ATRO). I found the stock by sorting the New High List for frequency then flipped through the charts. Since the Trend Spotter signaled a buy on 8/15 the stock is up 36.44%.

It is a manufacturer of specialized lighting and electronics for the cockpit, cabin and exteriors of military, commercial transport and private business jet aircraft. A major lighting and electronics supplier to the aircraft industry, its strategy is to expand from a components and subsystems supplier to an aircraft lighting systems integrator, increasing the value and content it provides to various aircraft platforms. Luminescent Systems Inc. its primary operating subsidiary which produces its aerospace and defense products.

Barchart's Opinion trading systems are listed below. Please note that the Barchart Opinion indicators are updated live during the session every 10 minutes and can therefore change during the day as the market fluctuates. The indicator numbers shown below therefore may not match what you see live on the Barchart.com web site when you read this report.

Barchart technical indicators:

100% Barchart technical buy signals
Trend Spotter buy signal
Above its 20, 50 and 100 day moving averages
16 new highs and up 15.30% in the last month
Relative Strength Index 81.20%
Barchart computes a technical support level at 45.83
Recently traded at 47.85 with a 50 day moving average of 41.36


Fundamental factors:

Market Cap $694.30 million
P/E 27.85
Revenue projected to grow 27.60% this year and another 32.40% next year
Earnings estimated to increase 41.40% this year , an additional 17.18% next year and continue to increase by 19.00% annually for the next 5 years.
Financial Strength is B++

[Thierry Martin]

Have you ever wanted to spend your summers basking in the sunlight at your mountain top Tuscan villa, surveying the manicured vineyards which produce your own estate bottled wine? Are you drawn by the cachet of claiming George Clooney as a celebrity neighbor on the model strewn shores of Lake Como? How about a luxury apartment that is walking distance from the Vatican?

Hedge fund managers are salivating at the prospect of one of the greatest fire sales in history, as assets of every description were being dumped in the wake of the hard times that hit Europe. On the menu are trillions of dollars of distressed loans hived off by desperately downsizing and deleveraging continental banks. Corporations are expected to dump money losing divisions and subsidiaries in a race to raise cash.

In many respects, these deals of the century represent the second shoe to fall after similar bargains were had in the US during the 2008 crash. Europe?s day of reckoning was postponed by four years, thanks to a recovery in the US, QE1, QE2, QE3, and Federal Reserve policies that kept interest rates at century lows.

The complacency in Europe since then has been staggering, with many turning their noses up, claiming it could never happen there. Some are predicting that the balance sheet scrub could take as long as a decade, similar to Japan?s tortuously long repair of its own banking system.

Some hedge funds are taking advantage of the wholesale withdrawal of European banks from the credit markets to beef up their own international lending?at much higher interest rates. The same funds, like Highbridge, similarly locked in enormous spreads in the US when conditions were dire.

Several American private equity firms are said to be setting up new European distressed asset funds to peddle to pension funds and high net worth individuals. Those who made similar investments in the US four years ago, made fortunes.
For individual investors the easiest and ripest pickings may be among the European bond ETF?s that already trade in the market. Many of these have suffered gut churning declines in recent months as the European melt down unfolded, despite offering yields multiples of what can be found at home.

Below is a short list of continental ETF?s you may want to consider:

PowerShares DB Italian Treasury Bond Fund (ITLY)

Wisdom Tree Euro Debt Fund (EU)

iShares S&P Citigroup International Treasury Bond Fund (IGOV)

SPDR Barclays Capital International Treasury Bond ETF (BWX)

Germany Bond Index (BUND)

Of course, the eternal question of when to buy is the open to debate. There have been enormous declines in European bond yields since the peak. It was a simple shortage of paper, not any ECB intervention that drove yields down so rapidly.

Aggressive traders are already starting to scale in.