Notes of Interest to Start the Week

Like many of you, I spend time over the weekend looking through research and reading. I jot down notes of interest that I put on a watch list to see if opportunities develop from them going forward. Over the years I have found this to be my most profitable source of ideas. As we start a new week of trading and a potential trend change brewing, I wanted to share some notes that I found of interest with potential to pan out into trading or investment ideas going forward.

  1. Gold/Silver or Precious Metals – Gold moved above $1340 resistance and held into the close on Friday. It also broke the accelerated downtrend line from April and advanced towards the downtrend line from September 2012. This is a technical move short term and doesn’t change the longer term fundamental outlook, but it does put those short gold on notice. At each stage of advancement the short covering could accelerate the upside in the metal. The same is true for silver, which could have an even greater short interest than gold. I am not a gold bull nor am I a bear at this point, simply an observer and trader. The greater interest to me in this sector is the miners short term. They are more discounted than the metal prices at this point. I would track GDX, Market Vectors Gold Miners ETF and SIL, Global X Silver Miners ETF. Digging into both would show you additional opportunities in the leaders. I do believe it is important to note the risk level of this sector is high with extreme prejudice (the view of those looking at the stocks). I have taken plenty of notes on both the metals and the stocks, but I also understand the bias or trend longer term is down. The upside movement since the June low is nothing more than a bounce at this point and any upside or trend change will have to come with fundamental changes in time.
  2. Retail – This is a broad sector and offers many sub-sectors to explore. The home improvement/leisure sector is one of interest as the earnings reports for homebuilders begin. If they produce positive results it could push the outlook higher for the stocks like Home Depot, Lowe’s, Lazyboy, Bed Bath & Beyond, etc. The next couple of weeks will give us some more insight and add to our notes where the best opportunity is in the sector.
  3. Homebuilders – The term oversold is being assigned to the sector and as much as I hate the term… there downside looks to be approaching key support levels for the sector technically. The current downside has been motivated by valuation relative to future earnings or price-to-earnings ratios. The margins are where I see the problems short term. Labor, materials and cost of financing continue to rise. Eventually this will level off and home prices will rise… then the sector will resume the upside. I can’t say that is going to happen now, but it is something to watch as it unfolds and develops going forward. As already stated, earnings reports are due soon for many of these stocks and that will provide further insight going forward. The builders did move higher last week, off the recent lows, on upgrades in the sector.
  4. Treasury Yields/Bonds – The rise in yields on Treasury bonds remains a primary concern for many investors. The ripple effect is felt in the payment of the national debt to financing homes, cars and other assets. How high will the rates move? 4.25% has been my view for awhile and we are heading towards that level with ease currently. The downside impact to the price of the bonds has been significant since last August 2012 when we bottomed at 2.45%. We have now moved up 140 basis points and the price of the corresponding bond has declined 21%. If you had purchased TBF as a hedge relative to owning these bonds the fund is up 20% or a net difference of 1% loss on the bond. That would have protected your asset while increasing the yield to the current 3.85%. The bigger question now… how to approach this sector. As yields level and risk of ownership abates this is a sector to watch not just for the Treasury bonds (TLT), but for the discount effect in utilities (XLU), REITs (IYR), mortgage bonds (REM), preferred bonds (PFF), etc. Higher yields on bonds is a positive from my view for the economy. The retirement community will be able to produce more predictable income streams that will allow them to spend with greater confidence. This is something to watch along with all the opportunities in the sectors that have sold to new lows a result of the drop in yields.
  5. There are plenty of more notes in other sectors I don’t have room to record here. But, solar, energy, restaurants, semiconductors, gaming, media, small caps and the volatility index are other sectors that have interesting developments going forward. If time and opportunity permits I will update more on these later this week.

One thing I have learned over the years is to track ideas and keep them on a watch list to see if they develop. The investment or trading opportunities that come from these ideas produce positive returns and confidence in the trading or investment process. Most investors today are too busy tracking charts or other strategies to be bothered with the fundamental data and that is fine, but I like knowing what I am investing in and why. Some of my best ideas for investing come from tracking developments in sectors or stocks from these ideas. Hopefully you will take some time to make this a part of your strategy and research.