Where Is The Market Heading this Week? Down Down Down

               Wow what a week, a massive 300 point drop on Monday followed by huge triple digit gains on Thursday and Friday. Add in a cloudy jobs report, mixed earnings, and an announcement by the Secretary of the Treasury that the U.S might run out of money by February 27^th and it makes for a wild and potentially very volatile future.

                Personally I had a very flat week, until Friday when a wrong bet against three major DOW components (J.P Morgan Chase, American Express, and Intel) left me treading water when the rest of the market soared. This just goes to show you how volatile and unpredictable the current Market really is. But instead of venting my frustration I want to discuss what Friday’s shady jobs report really means for the future of the U.S stock market and the recovery of the American economy.

                Realistically after taking a close look at the report, which stated that the U.S economy added 113 thousand new jobs in January (way below estimates of 180-185 thousand) I saw that many things could of negatively impacted the jobs report.

First thing, which many over optimistic bulls have labeled as the reason the jobs report disappointed in both December and January, is the frigid weather. The weather might have played a small part in the poor jobs report, but job sectors that traditionally lose jobs to weather such as construction, actually added jobs in January. My opinion as to why the jobs report disappointed was that January was a bad month for just about everyone, I am not just talking about the stock market that lost over 5% in the first month of 2014 I am talking about small businesses and the world wide picture in general. With the emerging markets falling part, the winter storms hammering our Country and the stock market in decline it is easy to label January as an off month.

So as to whether the January jobs report was a good or bad indication about the strength of the rest of the economy I am obliged to say that it does not show as bad of a picture as the headline suggests. I consider the jobs report as another indication January shaped up to be a terrible month, but what really shocked me was how the stock market reacted to the news.

When I got the alert on my phone that the jobs report missed expectation I immediately checked the futures which all fell after the news, and I was overjoyed (considering I had puts betting against several DOW components). Unfortunately for me, the market quickly reversed itself and in the day climbed to the triple digits and closed with a 163 point gain. What I do not understand is why? I agree the jobs report might not have painted as bleak a picture as at first glance it suggested but neither did it warrant such rapid gains. After doing some digging I came to the conclusion that investors bought on the presumption that the Fed will suspend its taper and continue pumping money into the economy. This might help stocks in the short term but in reality it is bad, by suspending the taper the Fed would acknowledge that the U.S economy needs support. And if the current moodiness of the market is any indication stocks will react violently.

For those of you who made money on Thursday and Friday I would take your profits and run. Volatility in the market has returned and I expect the gains made will be reversed in next week’s trading. Plus the market will not be helped by the fact that the U.S will not be able to pay its debts unless the debt ceiling is raised by February 27^th. But that topic is probably going to be discussed in next week’s blog entry.

So my analysis of the current market is that the gains made on Thursday and Friday will be wiped out next week when a number of factors, such as a reevaluation of the jobs report and possible debt ceiling problems starting up again, converge and send the market lower.

But in the words of Jim Cramer “there is a bull market somewhere” so read my page on possible investment opportunities, to see how to make money even in this wild unpredictable market. (That page should get posted sometime next week.)

 

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Profit in a Market Correction and Investment Oppurtunities

       It's been a bad week for markets around the world. The U.S markets had there worst week since 2011, as the Dow fell 539 points including a 318 point drop on Friday. It appears as though the over due market correction has started. Now the question becomes how to make money as the stock market retreats from it's all time highs? The answer is buying up Put options on companies that have yet to fall with the rest of the market, one notable company is Microsoft, the best performing stock in the Dow on Friday. 

Microsoft corp-

       Microsoft was spared from the correction that consumed most of its fellow Dow components due to its good earnings announcement on Friday.

       Microsoft was up 2.08% on Friday, as the company announced Quarterly earnings of $24.52 billion in revenue (a rise of 14% from last year) and net income of $6.56 billion (above last years $6.38 billion) the company also made $.78 a share once again posting a higher number then last years $.76 and trumping estimates that predicted net earnings of $.68 a share. These better then expected quarterly earnings were achieved due to good sales of Microsofts X-box one game console and it's surface tablet.

       Microsoft might of been able to avoid Fridays drop but if the correction continues Microsoft will join the ranks of its fellow blue chips and watch its stock price fall. Microsoft shares have already fallen .26% in the premarket on Friday and I expect them to fall on Monday.

       So if you were one of the people who were hit hard by last weeks sell off (and believe me I was hit to) a good way to make up some of those losses is to buy put options on Microsoft, so when the market heads lower you could profit while your fellow traders lose.

Delta Airlines-

       Microsoft is the perfect company to bet against going into next week but one company that was hit hard during the sell off but you should hold off selling is Delta Airlines.

       Friday was maybe the worst day for the airline industry since August (when the Federal Government said it was suing to stop the American Airlines- U.S Airways merger). Due to a combination of the general market correction, weather related flight delays and cancellations major airlines including Delta, JetBlue,Southwest, and American all saw there stocks deflate.

Personally I am great fan of investing in Airlines, I have had success in investing in them before and as Fuel prices drop Airlines are becoming a strong and stable business, and I find this sell off an amazing opportunity in investing into them.

       Now I am not the first person to say this but Delta Airlines is arguably the best airline to invest into. With a large profit margin of nearly 10% and with its own refinery and did I mention the stock trades at just 2.5x earnings!

       Yes you read right, Delta trades at just 2.5x earnings, since the company posted 4th quarter profit of $13 a share, while the stock trades at just $31.11. Let me put this into perspective, the S&P 500 trades at a p/e ration of 15. If Delta was valued at the same evaluation the S&P 500 is that means the stock should trade at $186.66 a share. Now I am a realist, I know that it's unlikely Delta airlines will see its stock increase 6 fold, but it is a very real possibility this stock will double in the upcoming year.

       Personally I bought stock and call options on Delta on Thursday when the stock was down 1.09%, I figured that Delta stock would bounce back.....how wrong I was, Delta shares fell 4.28% dealing me a heavy hit. But I am not selling my stock, in fact I plan on buying more.

I Believe Delta Airlines is the buy of the year, and with the market correction putting pressure on the stock there is no better time to buy then now.

      But how about the rest of the stock market? As January unfolds many feel as though 2014 will be the year of the bear. The last week has reinforced that opinion, but if you assess Friday's trading day you will see that the orders to sell are coming from small individual investors.

       Hedge Funds and Mutual Funds are not rushing to sell there investments. And why not? Because the managers of these firms know that this is not a panic but an orderly retreat. The correction that has been awaited for a long time has finally arrived and it might send the markets down another 2-3% but in the long term it is a good thing.

       Once this correction occurs there will be bargains and investors could go shopping for opportunities and the stock market will continue its march upwards. So if you got burned on the market this week do not despair, panic and sell your investments. Instead wait it out, or buy some put options betting against the market where you could get some short term profit and nullify your losses. Also I would suggest to liquidate a piece of your portfolio so when the market bottoms out you have cash on hand to exploit the opportunities the sell off presents




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Investment Oppurtunities or Danger Zones? BestBuy, CSX, and GE

        As the big banks reported earnings this week the stock market was ripe with volatility, and if you were lucky you managed to capitalize on the upswings. But I do not want to analyze earnings from the big banks since most beat earnings instead I want to discuss potential opportunities in some of the market movers this week.

       - Best Buy Co Inc.

       Lets face it this week proved to be a disaster for the technology retail giant. The stock was off almost 35% this week as the company announced disappointing holiday sales which fell 2% from last year. This dramatically underperformed Wall Streets expectations which were that holiday sales would rise 4-5%.

       The crash in Best Buy stock was surprising for some since the company seems to be in the middle of a turn around with the stock up nearly 150% before this weeks crash. And with C.E.O Hubert Jolly's plan of matching the prices of online competitors like Amazon. 

       Realistically speaking Best Buy's stock crash should of been foreseen since the companies earnings although stable did not grow enough to justify the rapid growth of the stock, and with consumers shopping more and more online Best Buy would of had to post a dramatic gain in holiday sales if it was to continue being a momentum stock.

       Those sales did not materialize and the Best Buy bubble popped. Now the question becomes, what's next for the technology retailer? Based on fundamentals I would not touch Best Buy, the company is unprofitable, and rapidly losing ground to online competitors.

       With this said BestBuy is not a lost cause. The company notified shareholders that online sales were up. This means that if BestBuy focuses its time and money on its online retail business then the company would continue to survive well into the future.

       As of right now though BestBuy is a dinosaur that will inevitably go out of business and I would not invest.

       - CSX corp

       Normally I would not invest in railroads because as gas prices fall across the country the advantages of shipping freight by rail become nullified. But on Thursday CSX, a multi billion dollar railroad giant announced disappointing 4th quarter earnings that sent shares of the company spiraling down. (The stock was down almost 7% at the close of Thursday's trading day.)

       CSX announced earnings of $426 million on $3 billion of revenue. This is a decline of nearly 5% from last year. Profits were dented mostly because of low demand for coal, coupled with a rise of expenses attributed with it.

       A drop of profits by a margin of 5% is not a good thing but the sell-off that followed was overdone. I agree shares should of fell but not as heavily as they did. Also besides the shipment of coal falling other parts of CSX's business were good.

       Chemical shipments which include the shipment of crude oil increased 18%, agricultural shipments increased 16% and the shipment of intermodal containers increased 11%. Also CSX is by no means a troubled business, the company operates 21,000 miles of track in 23 eastern states and 2 Canadian provinces. Also after the stocks slide on Thursday the stock trades at only 14.9x earnings which is well below the industry average of 18.5x. 

       I bought up call options on CSX stock and expect a large profit sometime next week, if you are lucky you can get in on the action on Tuesday when the market reopens. For the short term anyway this stock in my opinion is a buy. 

- General Electric

       GE was another corporate giant that announced earnings this week, but unlike the previous two companies I have mentioned GE stock did not have some kind of dramatic swing. General Electric stock was down just 2.28% on earnings. Normally this is what should happen when a company announces poor earnings that did not meet expectations, the hing GE announced 4th quarter earnings that did meet expectations. 

       GE announced operating earnings of $5.4 billion or $.53 a share, an increase of over 20% from last year. In what way does this warrant the stock falling. Honestly I think this is an opportunity to buy into GE but this is not a short term buy. Like I said on previous posts I think GE is a perfect retirement stock and if you need a place to put your money right now GE is the place to put it. 

       These three companies are just a few that were impacted by last weeks events. Other movers were credit card companies American Express and Capital One, both of which missed earnings estimates by the way. Most of the major banks announced earnings that were mixed some like Morgan Stanley ended 2013 well others like Citigroup not so much.  

       Some of these companies provide good opportunities to invest and I don't have to the time to talk about them all, you will have to do the research yourself and make your own decision on whether investing in these companies is the right decision. 

       Some notable companies that announce earnings next week are Dow components IBM and Johnson & Johnson. But in my opinion the companies to look out for this week are Netflix and Delta Airlines, both of these companies were heavy gainers last year and if BestBuy was any indication these companies have to deliver fantastic earnings to keep Wall Street on the hook.

       If I was to make a prediction I would think that Delta will exceed expectations since the company although seeing its stock price more then double still trades at a decent value. Netflix on the other hand I think will disappoint since the company has seen its shares triple last year and currently trades at a very high premium to the market. 

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Exploding Industries of 2014! Marijuana and 3D Printing

       It appears the stock market is starting off 2014 in the red, with a tepid jobs report which dramatically missed expectations. Many analysts are now expecting 2014 to be the year of the bear. Yet some industries are poised to explode in 2014!

- Legalized Marijuana

     On January 1st Colorado became the first state to legalize recreational marijuana, and in that time stocks in companies that produce the federally banned substance have seen there stock increase dramatically.

     And yes you read correctly there are actually such things as pot stocks! These companies like greengro and Cannabis are in most cases penny stocks with valuations of rarely more then $150 million and like all penny stocks fluctuate wildly. But this these "pot stocks" gained national attention as there prices went through the roof as investors rushed to buy into an industry that made $1 million dollars within one day.

     Personally I find most marijuana companies as foolish investments with no real future but investing in weed does have upside. First of all the substance is being legalized for both medical and recreational use in many states (Washington is the next state after Colorado to legalize recreational marijuana) so as an industry weed has room to grow. Also as we have seen in Colorado marijuana is very profitable considering its easy enough to grow and could be sold at very high prices. 

     Clearly investors who buy stock in marijuana companies are betting on the fact that the substance will be legalized nationally and the company they are invested in will expand to these new markets. Unfortunately many seem to have forgotten that the weed companies they are invested in do not have the resources or the capital to expand past the area they already operate.

     The reason for this is that most banks will not lend money to marijuana companies because since the substance is illegal by federal law the banks might get fined for lending money for its distribution. Hence forth weed companies are forced to conduct there business in cash which hampers there ability to expand to other states.

     Also as marijuana is legalized in states throughout the country current marijuana companies will face competition from local marijuana distributors. This means that although the industry as a whole might prosper in the future it will not be dominated by large companies but rather small regional ones. 

     This reason coupled with the fact that all public marijuana companies have horrible evaluations and show little or no real profit turns me off to investing in marijuana. In essence marijuana is a large bubble.

     If you are interested in investing into marijuana though here's a tip, instead of buying stock In marijuana distributors like Greengro invest in companies that dispense services for marijuana. These type of companies would benefit most from marijuana getting legalized throughout the country since they have the ability to borrow from banks since they do not handle the physical weed and would not have to compete with local competitors.

     One such company is Medbox (MDBX) this company manufactures marijuana dispensers, basically vending machines. As marijuana gets legalized in more states Medbox can have the ability to set up more machines throughout the country. Also Medbox, unlike most other marijuana associated companies, is not a penny stock. On Friday the stock closed at $34.01 a share, with a market value on the company of $416 million.

     Unfortunately just because the size of the company is larger does not mean its stock fluctuates any less then it's penny stock cousins. On Tuesday the stock was up over 65% while one Wednesday it fell 35% and fell another 20% on Friday at one point last week the company had a $1 billion dollar evaluation.

     Another negative is that the company only has a little more then $4 million in revenue. So you could call this company remarkably overvalued. But as weed is legalized that number is likely to grow. 

     So if you are gambler and wish to gamble on marijuana invest in companies that are associated and profit from substance but do not actually handle the distribution of the substance itself. This way they don't have to deal with the federal regulations and scrutiny from the banks.

- 3D Printing

     Marijuana is definitely shaping up to become a huge bubble but another far less federally scrutinized industry is all shaping up to become huge. That industry is 3D printing. 

     It is obvious that 3D printing is the future and companies like 3D systems corp (in which I hold stock in) and Stratasys with it's makerbot to subsidiary, have already seen national attention and have seen there market valuations swell into the billions. Unfortunately at its current state 3D printing technology is more like a novelty then a practical technology but.... As technology improves 3D printing has the ability to revolutionize the world as we know it.

     Also 3D printing has made strides in recent years with Makerbot even announcing a 3D printer with a price tag of less then $2,200. This no doubt makes having a 3D printer in every house possible, what's even better about these companies is that there evaluations although trading at a premium to the market are not completely crazy.

     For example 3D systems corp trades at 202x earnings, this seems like way over the market average of 15 and the S&P's current average of 17 but 3D printing technology deserves to trade at a premium. What's even more shocking, at least to me is that some 3D printing companies like 3D systems are profitable.

     The fundamentals of the 3D printing industry are sound and over the next few years I'm sure that 3D printing will form a bubble but as of right now I consider 3D printing to be a great industry to get into considering the fact that the technology will only get better and as it does the market will grow translating into massive profits for these companies and investors that get in now.

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Investment Strategies for the New Year

        As the trading year comes to an end the Fed has decided to start tapering, cutting down the bond buying program from $85 billion to $75 billion a month. The news that the Federal Reserve believes that the U.S economy is strong enough to warrant less support has sent markets up over 393 points in the last week.
      If you were amongst the traders who has seen their portfolios increase tremendously in the last few trading days congratulations, now though is the time to start planning your investment strategy for next year.
      In light of the Fed tapering announcement many former bears who were predicting a falling stock market in 2014 have changed their minds and instead forecast a slower but gradual increase in the stock market. The number that appears most often is an increase of between 10-15%.
      In my opinion this analysis is correct, the stock market will continue to rise through 2014 but at a far slower rate. In this case many large blue chips like General Electric and Microsoft will continue to see their stock prices rise. What investors have to be wary of are the momentum stocks of this year, companies like Facebook, Tesla, Twitter, and Yahoo, companies whose stocks are overvalued and who face the possibility of becoming the laggards of 2014.
So if you plan on investing into the stock market in 2014 avoid investing into flashy tech companies like twitter who are part of a new social media bubble and instead focus on companies who are part of laggard industries who have trailed behind the rest of the market.
      The industry that appears to show the most opportunity going into 2014 is energy. Energy stocks are only up around 11% this year while the broad market is up almost 30%, coupled with the fact that with shale oil the U.S is about to become the largest energy producer in the world, and like I said last week, Mexico is about to open up its oil market to outside competition. The seeds are set to launch a boom in the U.S energy market and companies like Chevron and Exxon Mobil who are trading below the market average stand to benefit the most. With this in mind I Suggest to start filling your portfolios with energy stocks.
      Last week I provided a short term analysis on Chevron which recommended by call options on the stock, this short term analysis proved to be right with Chevron up 2.5% in the last week. If you bought options at the price I suggested (which was 119) you would of yielded at least a 50% return on your investment.
      If you missed that remarkable opportunity here's another one. After reading an article in the Wall Street Journal (written by Mike Esterl) about how Tobacco makers Philip Morris and Altria Group have teamed up to market electronic cigarettes, I saw an opportunity in the stock of the two cigarette giants.
      It's easy to dismiss an investment into tobacco companies for many reasons, amongst which are increasingly heavy taxation, increasing regulations and lower cigarette volumes. All these concerns are well founded but in the short term Philip Morris and Altria stock provide a unique opportunity to profit. The joint agreement between the two tobacco giants to market electronic cigarettes positions the two to take control of the small but growing alternate tobacco market,
      Taking dominant market share in the e-cigarette market would no doubt set an upward trend in the stock of the two companies, and generate high returns to investors who buy in now.

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Brief Investment Tips and Opportunities

         This week I have decided to try something different. Instead of writing a general overview of the market as I have been doing, instead I am going to give my analysis on a particular stock and the investment opportunities I believe it presents.
         The stock that I believe presents the most opportunity this week is Chevron (CVX) I have had my eye on this company for a while, and I have noticed patterns in the stock which have it rise to around 125 a share and then fall to below 118 and then rise back up.
          Using Put options I have been able to make an almost 50% profit in under a week, as the stock fell below 120. If you missed out on the downward trend of the stock this week, don't worry, next week as the stock falls to below 118 you could buy up call options on the stock, preferably call options offering to buy the stock at 119 or at a price slightly higher then the market price. Or if options are not your thing you could simply buy Chevron shares at 118. Either way you could profit as the stock rebounds and rises above 120-122.
          Using this strategy you could easily make a large profit just in time for the new year. This is a short term play for those trying to make a quick buck and use the profit to buy your loved ones a nice gift for the holidays.
          For those of you reading this who are not willing to risk your money in a short term investment into options, at 118 Chevron is the perfect stock to buy and hold through next year. At 118 the company will be trading at just 9 times earnings, which is way below the market average of 15. Also Chevron will no doubt be profiting from the shale energy boom in the U.S which would make the country the leading oil producer in 2014. Besides the attractive valuation and energy boom, Chevron is part of an energy sector that has been dramatically underperforming the rest of the stock market.
           Chevron stock is up only 11.2% this year, compared to the S&P 500 which is up over 25%. While the rest of the market is overheated and in need of a correction Chevron and other energy stocks seem to be in a perfect position to rise through next year, especially as countries such as Mexico open up their oil markets to outside competition.
            These factors point to a boom in energy stocks, so my analysis  is to buy up shares in various oil companies like Chevron now , and watch them rise through next year.



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A New Bubble in Virtual Currency?

                 Five day sell off followed by a massive comeback on Friday, Bitcoin prices continue to fluctuate and the positive jobs report. What do these things mean to you and your money?

                Let’s be honest, it has been a tough and painful week, if it was not for the great jobs report that came out Friday morning sending the market up an astounding 173 points, the Dow would have ended down over 218 points for the week. Luckily if you read my article from last week where I suggested buying put options on major retailers you would have ended the week with a profit.

-          Wal-Mart was down 1.24% for the week.

-          Sears was down almost 25% this week

-          J.C Penny was down over 18%.

-          Amazon was down 2.73%

Wise bets against any of the companies above would have yielded immense profits but let’s not talk about what happened last week let’s talk about what’s going to happen next week. This week was obviously a sell off week, and a much needed one at that. The Dow closed up for 8 straight weeks, and I hate to say it needed to cool down. The very positive jobs report on Friday though stopped the selloff in its tracks; un-employment fell to 7% from 7.3%. The economy added 203 thousand jobs in November, blowing past estimates of 183 thousand.

Unfortunately this positive jobs report might be a double edged sword considering that it might cause the Federal Reserve to start tapering its bond buying program in early 2014. The good news is that Wall Street appears to have gotten over its moodiness and forget the fears of an early taper that have plagued the markets since talk of them began.

In my opinion the sooner the Fed begins tapering the better, and hopefully when they do start to taper it might cause a much needed correction in the market. Now I said in one of my last articles, that although the markets might see a sell off as early as January or February next year the companies that will be hit the hardest will be the ones that have seen their stock surge way past the average of the market without growing their revenues in any substantial way, and the companies that currently see their market evaluation out pace their revenue growth.

Such companies are found, mostly in internet, and specifically social media although companies such as Netflix, Tesla and Yahoo are also amongst the companies I figure will be hard hit in a market correction.

Now this might make me sound like a bear but in truth in the long term I am a bull all the way, I have faith that the U.S economy will continue to recover and that after a correction and the popping of several specific bubbles the markets will surge to well beyond their current all-time highs.

What I am really interested in discussing though is the new virtual currency bitcoin. If you do not know what bitcoin is, it is a currency that exists solely in cyber space, in essence bitcoin represents the future of all currencies. With that said though the price of bitcoin went from $10 in January to over $1,200 dollars in December (before falling 20% to786.40 after China announced that its central bank will no longer accept Bitcoin as a source of payment and that it will not insure any transaction made with Bitcoin)

Bitcoin’s massive surge in price is mostly due to speculation, may I remind people that the cause of every financial bubble is over speculation. With that in mind it is easy to call Bitcoin the perfect bubble, comparable to that of tulips in the 1600’s and the Internet bubble in the 1990’s. My major grievance about Bitcoin is that it is not backed by anything! Nothing the currency really doesn’t have any substance to it. This along with the over speculation in Bitcoin makes me want to discourage any people from buying it.

Off course the second I came up with this analysis I started looking for a way to bet against the Bitcoin bubble. Unfortunately my search proved discouraging; in order to bet against bit coin you must convert your money into bitcoin and invest in certain Bitcoin exchanges that are few and far between. In essence if you want to bet against bitcoin you must first invest into it at its current price.

But in the end virtual currency is the future and although I do not think Bitcoin is the currency that will replace all others I do think that in the near future our world’s major currencies such as the Dollar and the Euro will be configured to the same virtual cyber space as Bitcoin exists in now.    

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I will be posting an article every weekend and looking back at the political and economic events of that week, both personally impacting events and suggestions about my opinions on the future of the market