And that is exactly what’s happening this week. Read on below to learn more about this pattern and how to trade from it…

Earlier this week, the market broke into new highs, but after the initial boost it pretty much fizzled into a big yawn.

The thing that really has market technicians excited right now is the fact that Thursday is the 50% Fibonacci time window of the whole bear market.

In plain English, that means that the whole bear lasted 17 months, and right now we’re sitting at 8.5 months into the move off of the bear lows. That’s significant because we’ve also seen a 50% gain in stocks since the market lows back in March. Take that 50% time move, couple it with 50% Fibonacci price levels being touched on the indexes, and you’ve got confluence here.

That’s why right now is technically significant.

When looking for opportunities to deploy new dollars in the market, all that matters is the short-term uptrend off of the November lows — that’s what we’re watching.

And as you can see from the chart above, it’s not anywhere near where we want to consider being buyers on the long side, because we “buy the dips and sell the rips” and the daily charts are telling us that we’ve just been ripping into higher territory this month.

Opportunities on the Short Side

But on the short side, we see lots of opportunities — all of them in the form of the First Thrust Down/Pullback Off Lows pattern. More on those in a minute…

In addition, when looking at the indexes, odds favor those on the short side than those on the long side — why? Well the indexes are all pushing the upward trend channel resistance with well into extreme overbought territory when viewing the daily charts.

So when you combine that event occurring in each of the major indexes along with the formation of a classic short-sell set-up in many individual stocks and some ETFs, you have a good combination where odds of success are much greater by betting against stocks right now.

Remember — it’s all about trading in tandem with the market. If the indexes are at resistance and you have a list of stocks that are showing a breakdown could be imminent, those are the issues you want to focus on until that trend changes in both the indexes and other individual stocks.

First Thrust Down / Pullback Off Lows Patterns

So, what about those First Thrust patterns I mentioned earlier?

In essence, a First Thrust is a potential transitional pattern as a Change in Trend occurs from up to down, or from down to up.

For this article we will be focused upon the transition from up to down — after all, we’ve already talked about why we’re looking at the short side of the market.

In order to give you a better idea of what these look like from a chart perspective, below are a few examples of past First Thrusts that have occurred, which were followed by deeper consolidations.

Notice the Blue box in the charts above? Those blue boxes are your first thrusts down.

After a first thrust we look for a snapback rally (everything above the Pink Line), these can range in duration from 1 week, up to 6 months, but all of these snapbacks have that same look and feel to them when all is said and done.

After an issue (or index) stages a snapback rally, it’s time for investors to really be watchful. This is when the market shows us whether or not it will find support, or if it will go on to deteriorate even further

Numerous issues as of late have staged First Thrusts downward, and from here forward it is all about seeing if they are going to be short-lived snapback rallies, or if sound new bases are going to being built.

Over the coming weeks and months we will get our answers. If we start seeing these snapback rallies fail, then we’ll know which way to lean and then be ready to trade accordingly.

As you build skill and grow to understand more about technical analysis, you will be able to take action with greater confidence trading based on what you actually see in the charts is critical to removing the guesswork of investing. After all, if you own stocks at a market top, you need to know when to get out; and if you are short stocks at a market bottom, you need to know when to buy and cover your position.

Sincerely,
David Grandey
AllAboutTrends.net

November 20, 2009

Learn How to Spot a “First Thrust Down” Pattern was originally featured in the Penny Sleuth.

In 1912, 21-year-old Williams gained fame as a survivor of the sinking of the RMS Titanic.

Later that year, he went on to earn his first U.S. mixed tennis championship.

Now a member of the International Tennis Hall of Fame, there wasn’t much Williams didn’t win.

He was a 1924 Olympic gold medalist, Wimbledon champion and a five-time U.S. tennis champion.

On top of all his accomplishments, he was also a highly successful investment broker. Unfortunately for Williams, that was also his unraveling.

He became a partner in an investment firm called C. Clothier Jones & Co. in 1929. His business partners in the small $5 million firm ($61.5 million today) were some of the brightest, most successful investors in the world.

Of course, after the stock market hit the skids in 1929, the company took a hit. But thanks to the rally in first half of 1930, C. Clothier Jones & Co. was in better shape than ever.

He was on top of the world in the spring of 1930. But just like the year before, market speculators pushed stocks higher than they were worth. By late summer, the rally turned into another massive sell-off.

When October came around, Williams and his partners were doing everything they could to stay in business. Their investments turned to dust, and they were so incredibly overleveraged the only course for them was to fudge some numbers and blatantly lie to shareholders.

Williams left the country in mid-October to get married in Europe. By the time he returned, he was a wanted man, for market manipulation. Four of his colleagues and large investors in the company had ended their own lives in that single week.

We are facing another summer of 1930. The rally that started in March of this year is eerily similar to what made Williams and his partners look like kings of investing.

Luckily, you don’t have to end up like them when the house of cards falls again…

Take Advantage of the Global Edge

We’re fortunate to have history lessons when trying to figure out the market. But there are certain aspects of today’s market that just weren’t there in 1930.

Some, like trade imbalances and foreign lending, make today’s global economy a scarier environment. Others, like emerging economies, give us a serious advantage over our forefathers.

Even if the average investor of 1930 were aware of a possible second downturn, his options would be incredibly limited. Only a millionaire in 1930 could invest in other, safer economies. Of course, even that would’ve been difficult, since those were so few and far between.

Today, it’s as effortless as buying an ADR through your online broker. But as last time, figuring out which ones to buy is no easy task.

I ramped up my Lifetime Income Report portfolio to reflect my favorites: Asia, Africa and Latin America. Every single one is showing strong double-digit gains and safe, growing dividends. And I expect them all to thrive even if this is another 1930…

I just added another international giant in my absolute favorite country, and it’s set to do even better. To learn more, just click here…

Sincerely,
Jim Nelson

November 19, 2009

A Lesson from 1930: Avoid the Second Collapse with This 6.9% Brazilian Yield was originally featured in the Penny Sleuth.

We’ve said it before, and we’ll continue to say it — small caps consistently lead the way out of periods of recession. But while penny stocks generally outperform the rest of the market as a class, they rarely move against it.

In effect, small caps are a lot like gain multipliers. When a major broad-based index like the S&P 500 gains 1%, small-cap stocks in our portfolio could see gains of 3%. And when the market slips, our tumbles are equally magnified.

There’s no better example of the correlation between small stocks and the market than October 2008. As stock markets all over the world shed trillions of dollars in value, more volatile small stocks took some of the biggest knocks — regardless of their fundamental soundness as investments.

And when the market began to rebound back in March, the small caps were racking up the biggest gains…

It’s that strong correlation between small stocks and the broad market that makes knowing the market’s movements so significant. And with investors riding an emotional roller coaster in October and November 2009, now’s a particularly important time to check in with what stocks are doing as a group.

When it comes to aggregate market moves, there are two main factors to consider: fundamentals and technicals.

Fundamentals include economic metrics like unemployment and retail sales, whereas technical analysis looks at trends and patterns in price charts to determine where stocks are headed. Put simply, fundamentals look at the actual health of the stocks, while technicals look at the perceived health of the market.

And while we generally focus on a stock’s fundamentals, when it’s time to look at a broad market index like the S&P 500, technicals can be invaluable in helping us determine where prices are headed…

Here’s a chart of the S&P 500 since April…

In the chart, those vertical gray and black bars — known as candlesticks — represent the price movements of the S&P 500 on any given trading day. The gray lines are the average value of the S&P over the trailing 200 and 50 days, respectively, known as moving averages.

There are a lot of factors that make fundamental analysis work — too many to go into in this issue — but the key things that we’re going to talk about today are support, the price level that stocks have trouble falling below, and resistance, the price level that stocks have trouble pushing above.

Looking at the S&P 500 chart above, the stock has been in an uptrending channel (defined by the thick black lines) for some time now. That’s a good sign because it means that the market is obedient to the channel right now — it should continue to trade within that range until some catalyst prompts a reversal.

It also means that we have a somewhat predictable range of movement that we expect the S&P 500 to move within. Depending on its direction, a break through the thick black lines of the channel would send a strong signal to either buy or sell.

But with the market’s movements still predictable right now, we can make a couple of projections for the near term. For starters, if the last two price cycles are any indication of the S&P’s trend, we should see the current upswing last until the last week or so of November, hitting around 1,150 before turning back for another two-week down cycle.

That down cycle is nothing to worry about as long as the index bounces back up off the black lines for the fifth time since August. That’s most likely going to happen in the early days of December.

There’s no question that our small-cap positions are affected by the movements of the market at large. But while many investors look at the market’s movements as random price swings, we’re going to continue to take an analytical stance by looking at the technical indicators that stocks are exhibiting right now.

Things continue to look strong in the market for the rest of the month. We’ll monitor the indexes closely and alert you to any significant changes.

Cheers,
Jonas Elmerraji

November 18, 2009

Why You Need to Watch the Market Closely Right Now was originally featured in the Penny Sleuth.

There’s one antidote for this problem … remembering a few basic rules. Just embrace the 10 ideas that follow and you’ll be in line to make some serious money in the months ahead.

Rule Number 1: Invest on the Right Side of Major Economic Trends

That old investing adage “Don’t fight the Fed” serves as a good example here. Rising interest-rate environments make meaningful gains difficult to sustain – unless you know what to look for. Far too many investors got it wrong in the 2000-2003 and 2008-2009 periods by betting on growth stocks in a recessionary economy, and they’re still getting it wrong. Those investors are likely to get burned again should the economy slow even more, despite the government-bailout and federal-stimulus efforts. Make sure to analyze all of the other major global trends, as well – and ride the ones that are truly unstoppable. You’ll know them when you see them, because they’ll have trillions of dollars in new capital flowing directly at them – investment plays in such areas as infrastructure, inflation, energy, food, and water (both supply and purity) are great examples.

Rule Number 2: Sell Your Winners

This may seem counterintuitive, but – if you want to succeed – you must sell your winners. Rule Number 6 – thinking like a plumber to prevent losses – is only part of the success equation. To be really effective, you have to take profits, too. That way, you get more capital that you can put to work. Think of it this way – Safeway Inc. (NYSE: SWY) regularly replenishes the inventory in its Produce Department to keep it fresh. You should do the same with the “inventory” in your portfolio because, if you let your stocks sit on the shelf too long, they’ll eventually go bad – just like fruit that’s past its expiration date.

Rule Number 3: Always Sit in an Exit Row

This rule goes hand in hand with Rule Number 2. One of the most common problems investors have is not knowing when to sell. Sometimes, they’ll let a big loss get out of control (which violates Rule Number 6) – or, worse, they’ll notch a big gain and then sit on the investment so long that it sneakily turns into a loss. The bottom line is that, up or down, you should always have planned exit points when you initiate a position – and enforce them with “protective stops,” adjusting them as prices move in your favor (but never when they go against you).

Rule Number 4: Your Broker is a Salesman

So unless you know you want to buy what he has, don’t go shopping today! Wall Street is not a service business. Brokers exist for one reason and one reason only – to sell you stuff and make money…from your money. And the more of your money you give to them, the less you have to make more for yourself. So buy only what you want and what fits your goals and objectives – not the “stock of the day” the broker is pushing to meet his weekly quota.

Rule Number 5: Invest for High Yields

Contrary to popular belief, rather than investing for capital gains, you should aim for the highest possible yields and the most certainty you can find. The real secret to wealth-building is compounding small gains over long periods of time. In fact, studies show that compound returns can outperform so-called “growth stocks” by as much as 22-to-1. Furthermore, dividends account for a huge percentage of total returns – varying studies have claimed anywhere from 60% to as much as 97% over time. So, don’t ignore them!

Rule Number 6: Think Like a Plumber

Big losses – like six inches of water in your living room – are expensive and can set you back years. Professional traders – and I’m not including the risk-junkie cowboys who drove the derivatives mess to heck in a hand basket – understand this. And because they do, they focus the majority of their efforts on avoiding losses, instead of on capturing gains. It’s counter-intuitive, but it really makes a difference. Besides, if you keep those portfolio pipes from bursting, you won’t have to worry about your assets leaking away, drip by drip.

Rule Number 7: Buy Value

Buying when the underlying value is “right” can mean the difference between pathetic single-digit gain and truly market-beating returns. It’s hard to make money when valuations – as reflected by Price/Earnings (P/E) ratios are greater than 20. More normal valuations sit in the 12 to 14 range. However, to really make money, you need to buy when valuations have been beaten down into the single digits – assuming, of course, that the company’s underlying value is real. Doing so puts the odds strongly in your favor and can dramatically boost returns.

Rule Number 8: Retirement is a Lifestyle Issue, Not a Monetary One

When most people think about retirement, they think about safety. Big mistake. The single biggest problem facing us today is running out of money before we run out of life. If you’ve followed Rule Number 9, this shouldn’t be a problem. However, if you’ve thought about safety and have not invested enough, what you’re really doing is crippling your ability to earn future income – income you’re going to need in order to eat, keep a roof over your head, and provide lifelong life health care. Oh yeah, and have some fun.

Rule Number 9: Start Early and Leave Your Money Alone For as Long as Possible

This is not the same thing as “buy-and-hold” investing. Buy-and-hold is not an investing strategy, it’s a marketing gimmick – and, these days, it’s more like “hope-and-pray” investing, anyway. The world’s most successful investors – think Jim Rogers, Warren Buffett and the late Sir John Templeton, to name a few – don’t buy and hold. And I don’t believe you should, either. These experts buy and “manage,” confining themselves to stocks and strategies that meet their specific objectives. Given that one of our critical objectives is to have our money working hard for us rather than us working hard for it, the point is that you want to start as early in your life as possible and never miss an opportunity to invest. The longer you have your money in play, the better you will be paid when you’re ready to cash out!

Rule Number 10: All Investments Contain Risks – But Not All Investments Contain the Same Risks

Despite all my talk about avoiding losses, the simple truth is this: If you want to grow your wealth, you have to take on risk. It’s unavoidable. Every investment involves risk – the only questions are how much and under what circumstances. Remember, success is not about how much money you can make, but about how much money you keep. As such, the true secret of wealth-building is taking risk properly.

Indeed, the late legendary U.S. Army Gen. George S. Patton Jr., once said: “There is nothing wrong with taking risks.” But he also cautioned: “That’s quite different from being rash.” I completely agree. What’s more, I think that Patton would have agreed with my belief that if you want to be successful in anything, you have to take a certain amount of risk every day. It’s just a fact of life.

Yet, most folks are unwilling to do so – or they spread themselves too thin, and over-diversify, all with the goal of “protecting” themselves. Unfortunately, by doing so, these investors actually set themselves up for failure – not because they take too much risk, but because they don’t concentrate the risks they do take in the right places!

What are those “right” spots? They’re the investments that can provide the potential rewards to justify the risks the investor has taken.

Regards,
Keith Fitz-Gerald
Money Morning

November 17, 2009

Editor’s Endnote: Keith’s new book, Fiscal Hangover: How to Profit from the New Global Economy, was just released yesterday, and it’s already getting some glowing reviews. Right now, you can pick up your copy AND save more than $10 off the cover price. Just click here right now…

The 10 Rules for Successful Investing was originally featured in the Penny Sleuth.

Every week, we drum up a list of penny stocks that are exhibiting abnormal volume, strong technicals, upcoming news, or another catalyst that suggested they might be making a material move in the coming week.

Last week was no exception – investors who played our GeoGlobal Resources (AMEX: GGR) pick had the chance to make 17.32% in the last give trading days…

And while our Watchlist errs on the safe side of small-caps, using technical analysis to tell us where a stock is headed, we opened the comments up to readers again last week, giving you the chance to offer up more speculative penny stock plays — and win a special edition DVD of I.O.U.S.A. in the process…

Watch your email inbox to see if you’re one of this week’s winners…

Now, let’s cut to the chase and take a look at four penny stocks worth watching in the coming week:

Youbet.com (NASDAQ: UBET) – This online wagering company offers a service for its customers allowing them to securely bet on horse races at more than 150 racetracks worldwide. But are you willing to bet on this stock? Shares have recently broken out right at resistance amid significant positive volume. With the market opening strong this week, shares should continue to climb.

Waste Services (NASDAQ: WSII) – While the company may focus on trash, this stock is anything but. Increased positive trading volume and bullish technicals helped Waste Services make this week’s cut. Consider picking up shares after a dip.

ESCO Technologies (NYSE: ESE) – On the short side of things, scientific product supplier ESCO is currently showing investors a very bearish set of technical patterns right now. After posting dismal quarterly results, traders jumped on a triple top that had been forming for the last couple of months, pushing the stock through its support line (blue above), and prompting even more traders to sell off shares at Friday’s open. At current levels, this stock still has further to fall.

Western Alliance Bancorporation (NYSE: WAL) – This $300 million regional banking stock has seen its numbers fall ever since the credit crunch heightened. And now, with profit margins still 38.5% underwater, this stock has attracted trader attention. WAL could easily see another significant drop this week.

Share Your Penny Stock Picks

Once again, we’re going interactive this week…

Just post your recommendation in the comments section of this article between now and the market’s close on Friday, November 20 to share your favorite penny stock play with the rest of the world.

Cheers,
Jonas Elmerraji

November 16, 2009

Monday Penny Stock Watchlist: Bet on This Betting Stock was originally featured in the Penny Sleuth.

You see, the economic recovery in prices started in EVERYTHING last March — but to be clear, the overall market and the profitable commodities market are inextricably tied together.

The S&P 500, my proxy for the stock market in general, has been a leading indicator for commodities. With stocks up over 50% from the lows it provides insight into future moves in other markets.

The CRB Index, Commodity Research Bureau, recently broke above the 267 level making new yearly highs. It’s now on target for a new near-term goal, which represents a 50% rally in commodities since last years dip.

Higher Oil prices are also a good sign that the global economy is on the mend. In addition, it is supportive of stocks with Exxon and Chevron adding major points to the DOW sending it above 10,000.

Add it all up and it’s easy to see that the CRB, and other commodities in particular, are on target for now.

The Best Opportunity for Commodities Profits…

My recent commodities travels took me to the west coast to revisit acquaintances made during the July National Chicken Marketing convention.

My big takeaway from the exhaustive chicken information was that corn was deemed undervalued by most of the presenters and professionals in attendance. And I trust these guys, after all, it’s their business to know the cost inputs from the egg to the bird on your plate.

The corn crop at that time looked set to make it through the summer months in great condition with no fears in sight to disrupt high yields.

Though my view on trading weighs heavily on technical analysis I learned long ago not to ignore important fundamental information. The upside was greater for corn to rise than drift below $3.00 on perfect growth.

How to Turn Price Charts into Quick Gains…

Corn prices were low (just over $3 a bushel), and that’s exactly when I told readers of Resource Trader Alert to get into a corn play. Over at RTA we use options to directly play commodities themselves – options help limit our risks while giving us a nice risk reward payout.

(I normally don’t give out the specifics of my trades — but I’ll make a special exception for today’s article.)

For our corn option play the maximum risk was a little over $1100 dollars with six full months of fundamental factors to boost prices to $4.00 a bushel. Chicken convention consensus was that our goal should be reached by year’s end – but in fact it was much sooner. The recent high on our RTA option play was around $2,400 – which represents more than doubled our initial investment.

That’s just how quickly the commodity options can move.

The price of corn rallied 25% but our corn options ended up doubling in that same time. By using options we were able to maximize our profit potential and completely limit our risk.

The Charts Know More Than the Farmers…

The reality of fundamental trading on weather, planting intentions, yields, exports or crop disease is that the information does not flow freely to everyone at the same time. The farmers, seed salesmen and grain elevator operators use their legal inside information in the market before others. The price charts are one way of seeing what people know — without having to “really” know.

At the July chicken conference the major fundamental support of grain prices was slated to be ethanol demand. But the present grain rally connection to ethanol is difficult to prove at best. In fact, the correlation with crude oil gains has just now only started to kick in as prices rise above $80 a barrel.

With that in mind it’s fairly safe to say that the combination of weather premium and dollar weakness started this grain move instead of the much-anticipated demand from ethanol and biofuel production.

The chicken men were right on price but maybe wrong on the reason. This is a perfect illustration of focusing on “what” the market is going to do, not “why.”

And although huge chicken-related profits aren’t quite hatched they are definitely on the right path to growing healthy, big and strong.

It all comes back to commodities,
Alan Knuckman

November 13, 2009

The Single Best Move for Quick Commodity Profits was originally featured in the Penny Sleuth.

It seems callous, I suppose, to enjoy the effects of a storm that has already killed scores and could still claim more. That, however, is exactly what I’m suggesting you do in regard to the economy.

An economic storm continues to wreak havoc globally. Moreover, the same idiotic policies that caused the problem are now being offered as solutions. The “crowding-out effect” guarantees that it will continue for some time.

This view, that government spending and debt crowds out investment in areas that produce the greatest economic growth, is widely held at the University of Chicago Economics Department. Though this department has dominated the Nobel Memorial Prize for economics for decades, it has little or no sway with the current Chicago-centric administration.

The House’s just-passed health care bill, for example, is written primarily by Ivy League lawyers. As a result, it contains no real malpractice tort reform, the one public policy change that has been proven to lower significantly both medical and insurance costs. Instead, it puts a huge and incredibly complex part of our economy under control of the same people whose blunders stalled H1N1 vaccine delivery. Additionally, uncertainty on the part of businesses about the costs that health care “reform” will impose on employers is a major contributor to the current unemployment rate.

Regardless, my job is to identify the financial opportunities created by such blunders. The answer, more than ever, is emerging technologies stocks.

The market in general has edged back somewhat. Index and other broad financial instruments are no longer the bargains they were when the market was on its knees and whimpering. No one has real faith that this uptick will last, though, so most investors are still “playing it safe.” This means they are avoiding emerging technologies, which are, in turn, underpriced.

This is always the case in uncertain markets. When markets are shaky, the vast majority of individual and institutional investors flee risk in favor of “proven” investment opportunities. This is clearly the case today, and we may never see another time like this.

So let’s review. Scientific and technological progress cannot be stopped. It is, in fact, accelerating. If you need evidence, check out the newly released Motorola Droid.

Moreover, globalization has expanded the scientific and financial playing fields dramatically. Top American researchers are being wooed by Asian and Eastern European companies. If the U.S. legal/legislative oligarchy hobbles our pharm industry, research and development will shift offshore. So will our portfolios.

That’s one reason I’m happy to see one of our most important companies is strengthening its global strategy. For about a year and a half, the company’s founder and chairman of the board has led the executive search to replace its former CEO, who died unexpectedly last year. In fact, he has been replaced by two people: one with important international connections and one with domestic big pharm experience.

The company just announced that a noted Russian scientist and businessman will become CEO. The press release makes it clear, I’m happy to say, that his selection is in keeping with plans to explore international opportunities. The new CEO is a member of the Russian Academy of Science, specializing in management theory, strategic planning and system analysis. He has written several books in those fields and is the recipient of the Russian Federation Government Award in Science and Technology.

This man has serious influence in Russia, which is one of the world’s hotbeds of stem cell science. I wrote about Dr. Sanjay Gupta’s book Chasing Life when Gupta turned down the administration’s request to become surgeon general. In his book, the neurosurgeon details trips to Russian stem cell clinics where some of the world’s wealthiest people are receiving crest-of-the-wave stem cell therapies that are years away from approval by the FDA.

Other Russian clinics, I should add, are selling pure stem cell quackery and snake oil, so I’m not recommending that you fly off to Moscow yet. Nevertheless, Gupta reports that the wealthiest of the wealthy have succeeded in virtually stopping the aging process.

But that’s not all…

The company’s new president brings connections and experience working with big pharm. He is trained in immunology, molecular biology, finance and marketing.

Moreover, he worked previously with companies that address many of the markets that I believe stem cell therapies someday will control. This puts him in a position to further collaborations with pharm. If the market misinterprets this bolstering of our company’s executive team, I’m recommending my Breakthrough Technology Alert readers to buy on the dip.

For transformational profits,
Patrick Cox

November 12, 2009

Profit from the Government’s Blunders with Overseas Breakthroughs was originally featured in the Penny Sleuth.

The stock market has been running a rally for more than eight months now. Eventually all markets go into corrections. And although I’m not saying it’s going to right now, we are seeing a lot of potential kinks in the armor. In fact the bulk of what we are seeing are short side setups and that tells us something. It tells us to pay attention.

Above is an interesting chart. As you can see, our current market climate is looking strikingly similar to that of the minor correction in June-July.

Notice in the first blue box how the RSI and the full stochastics never really made it over the 50 level? That’s what happens during corrections.

By next week we’ll find out if we retest the highs or we fail. If we fail then it’s time to hit stocks hard on the short side. So why am I getting bearish? Because the chart below tells the story with regards to trends. It’s all about the blue line – that line shows the broad market trend from its July lows…

Volatility is on the rise, so from here on out its going to get real interesting. After all we’ve just ran for 8+ months with only a minor correction.

When an intermediate term correction rears its head it’s a huge moneymaker on the short side. Of course your long-only traditional Wall Streeter won’t tell you when an intermediate term correction is on the way because then you’d take your money out of their fund — they can’t have that now can they?

You need to be prepared so you can not only can get out of your long positions, but can profit from the correction via short-sell exposure or long positions in bearish exchange traded funds (ETFs).

For most investors, the ETF route is the simplest, especially for those without the margin accounts required to directly short stocks. If the market does indeed turn tail, two ETFs that you should consider are:

• ProShares Short S&P 500 ETF (NYSE: SH) – This ETF essentially takes an unleveraged short position in the S&P 500 index. When the markets go down, this fairly liquid fund goes up…

• ProShares UltraShort S&P 500 (NYSE: SDS) – This ETF takes a double short position in the S&P 500. That means that when the S&P 500 goes down 1%, SDS gains 2%. This fund is somewhat more risky than SH because it can move against you quickly and because it exhibits quite a bit of long-term tracking error. That means you shouldn’t hold this fund over the long term.

• ProShares Short Russell 2000 (NYSE: RWM) – This ETF takes a short position against the small-cap Russell 2000 index. While the Russell often moves in similar directions to the S&P 500, its focus on small-cap stocks means that it’s often more volatile.

Keep your eye on the Penny Sleuth to stay updated on where the market’s headed, and when to pull the trigger on your short plays…

Sincerely,
David Grandey
AllAboutTrends.net

November 11, 2009

Three Stocks to Prepare for the Market’s Correction was originally featured in the Penny Sleuth.

What’s he talking about? Today, we take a look and invest right alongside his idea. And it should start to pay off with the arrival of the first swallows of spring in 2010. It’s also timely now — in this weak-kneed economy — because it has traditionally held up well even in when the economy is on the ropes. Even the Great Depression couldn’t put this thing down.

We start with simple truths. The world’s population has more than doubled since 1950 — from about 2.5 billion to 6.7 billion. By 2050, there will be more than 9 billion people on the planet. Almost all of this growth will come from undeveloped markets such as China and India. And they will all be doing one thing, for sure — eating.

Now, hang on. I know that is a banal insight by itself, but this story has layers like a tiramisu. The second layer is the mix of food eaten, which is important. These undeveloped economies are getting richer. Predictably, as people everywhere have done and continue to do when they have a little more money in their pockets, they change their diets. They spend more on food. The average Chinese spends 40 cents of every additional dollar earned on food. In India, it’s about 70 cents of every additional dollar. What do they buy?

They buy more meat, more fruits and more vegetables. Their calorie intake rises. That’s why the U.N. says we’ll need to boost food production by 70% by 2050 — a big task, given increasing restraints on water and quality arable land.

How do we meet that demand? Here the plotlines start to thicken and things get interesting…

Let’s look at soybeans specifically. China is the largest importer of soybeans and has been since 2000. China was once the largest exporter of soybeans, but flipped to a net importer in 1995. It may well be impossible for China to meet its demands for soybeans by producing more of its own. Passport Capital, an astute hedge fund, estimates that in order to grow enough soybeans to become self-sufficient, China would need to cultivate an area about the size of Nebraska.

That looks impossible against China’s arable land base, which has been in decline since 1988 — this despite the fact that China’s subsidizes agriculture. Another reason is the low level of water resources in China. Soybeans require a lot of water — 1,500 tonnes of water for one tonne of soybeans.

Who has lots of water? Brazil. So it is no surprise to discover that the increase in demand for soybeans from China has largely been met by increasing soybean acreage planted in Brazil. (Brazil is the second largest exporter of soybeans in the world, behind the U.S. and ahead of Argentina and Paraguay.)

The easiest way for China to get around its water shortage is to import soybeans. By importing soybeans, Passport calculates that China is effectively importing 14% of its water needs.

It looks likes this trend will continue for quite some time. When you look across the world, arable land per person is in decline. (Arable land simply means land that can be used for farming; it doesn’t mean that it is currently used for farming.) But one nation has more potential for converting arable land into producing farmland than anybody else by a country mile. It’s Brazil again.

Brazil has a large tropical savanna known as the cerrado. You can think of it as the world’s arable land bank. It’s an area of about 250 million acres — about as big an area as all of the arable land in the U.S. It gets plenty of rainfall and sunshine. The soil is very old and runs deep. But there is a problem: The soil is nutrient poor. You need to add a lot of potash and phosphate — two key nutrients — to grow soybeans there.

According to estimates by SLC Agricola and Morgan Stanley, the average new acre of farmland in the cerrado requires 14 times the amount of phosphate and three times the amount of potash of a typical American acre. This means that it is expensive to grow grains here. You need a high soybean price to make it worth the effort — and there is more to it than just adding the nutrients. There is road and rail access, for instance. Someone would have to build all that out, too.

Connecting the Dots — Grains Are Cheap

So now we are in a position to connect some dots. China’s increasing population and affluence will drive its soybean imports. These imports will come mainly from Brazil. And Brazil, as it converts more arable land to producing farmland, will need a lot of potash and phosphate.

What is true of soybeans is also true of wheat and corn and rice and other agricultural commodities. We’ll need more of all of them. And all of them face the same challenges for water and land. All of them require lots of fertilizer.

I’ve not mentioned the biofuel component. But this is another big pull on demand for grains. The U.S. alone aims to produce 15 billion gallons of ethanol by 2015. All over the world, food crops now compete with energy needs.

This is not a gloom-and-doom scenario. It simply means that there is a lot of support for higher prices for agricultural commodities. Inventory levels still remain low worldwide. Grain prices are all well off their highs. After adjusting for inflation, many of them are as cheap as they’ve been in decades.

This is why Jim Rogers said he likes the agricultural commodities. That’s what he was talking about in the quote up top. I couldn’t agree more.

I also mentioned how this idea was hard to kill. In the Great Depression, purchases for jewelry and clothing and the like fell by 50%. But purchases for food — even for meat — held steady. We’ve seen similar patterns in recent busts. In the Asian Crisis of 1998–2001, the demand for food held steady even while other markets collapsed.

Put it all together and you have a great case for higher grain prices. You also have an environment that is very good for fertilizers — in particular, potash and phosphate. An investment in the fertilizer stocks is an investment right alongside the grains.

I’ve just alerted my Capital & Crisis readers to two fertilizer stocks that I believe are best positioned to profit from the coming agricultural commodity boom, but there are a number of fertilizer plays out there that are also ripe for the picking.

A couple worth taking a look at include Agrium (NYSE: AGU) and Western Potash (TSE: WPX). Naturally, I’m partial to the ones that I’ve recommended to my C&C readers – and they’ve got pages of research to back up why that is – but these two tiny stocks could make interesting moves nonetheless.

Sincerely,
Chris Mayer

November 10, 2009

Jim Rogers: Time to Buy Agricultural Commodities was originally featured in the Penny Sleuth.

Every week, we drum up a list of penny stocks that are exhibiting abnormal volume, strong technicals, upcoming news, or another catalyst that suggested they might be making a material move in the coming week.

With investors’ interest in the market rekindled after a strong week for stocks, it’s time to look at four stocks that are set to move right now.

First, let’s see how last week’s Watchlist performed. Last week, all five stocks on our Watchlist moved in the direction we predicted on Monday, with one stock – LiveDeal (NASDAQ: LIVE) – brining in as much as 11.4% returns in just five trading sessions.

That’s a compound annual growth rate of more than 273%!

And while our Watchlist errs on the safe side of small-caps, using technical analysis to tell us where a stock is headed, we opened the comments up to readers last week, giving you the chance to offer up more speculative penny stock plays — and win a special edition DVD of I.O.U.S.A. in the process…

Bringing in the top honors last week was Penny Sleuth reader Stanley S., whose Continental Prison (PINK: CPSZ) pick brought in 71.4% returns last week. Also in the winner’s circle was Sandra M., who eeked out a 30% jump in San West (OTC: SNWT) and Louise, whose BioLargo (OTC: BLGO) pick raked in 33%. All three of our winners will be getting a Penny Sleuth Prize Package in the mail for their trouble.

You’ll get another chance to win this week. More on that in a minute…

First, onto this week’s Penny Stock Watchlist:

American Science & Engineering (NASDAQ: ASEI) – This Massachusetts-based security stock delivered awesome second quarter earnings last week, prompting buyers to go on a rally, and pushing shares up more than 7% on Friday. Expect strong technicals and buyer sentiment to keep this stock rising in the coming week.

GeoGlobal Resources (AMEX: GGR) – This $91 million oil and gas exploration company focuses on finding commodity reserves in India. And while they’re far from profitable at the moment, as far as an intraweek play is concerned, the bullish technicals and uptick in volume on this stock right now make a good enough case for picking up shares.

Video Display Corp (NASDAQ: VIDE) – Video Display Corporation is a designer, manufacturer and supplier of CRT and flat panel display devices. While Video Display Corp. is higher on the volatility spectrum than our other Watchlist stocks this week, increased investor visibility should serve shareholders well.

Global-Tech Advanced Innovations (NASDAQ: GAI) – This week’s only short play, Global-Tech Advanced Innovations is a Chinese consumer products maker. This low-volume stock is currently trading just under significant resistance at its 200-day moving average. Watch for this stock to hit its head on resistance – otherwise an upward breakout could hurt those betting against the stock. Watch this one closely if you decide to play it.

How to Play SFNL

Penny Sleuth reader Mark D. wants your help this week:

“I would like to see your thoughts on a small company in the electronic payment processing business, Secured Financial Network (OTC: SFNL), the float is roughly 28M and tightly held so it trades thin, chart indicates long term accumulation and the company does not engage in putting out fluffbomb PRs and is growing Q over Q even during the current economic crisis. I am a long term holder in that stock and would like to hear your opinion on it…”

Have an opinion about SFNL? Just post your analysis in the comments section of this article. You can even post your favorite penny stock pick at the same time…

Share Your Penny Stock Picks

Once again, we’re going interactive this week… And giving readers the chance to win a free copy of I.O.U.S.A. in the process.

Just post your recommendation below in the comments section of this article between now and the market’s close on Friday, November 13. The two readers with the best performing picks each score a Special Edition DVD of the award-winning documentary.

Cheers,
Jonas Elmerraji

November 9, 2009

Monday Penny Stock Watchlist: Four Stocks Worth Watching This Week was originally featured in the Penny Sleuth.