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stock newsletter, stock picking

May Stock Letter

April 30, 2016

Stock-market earnings have dropped for two strait years, but price goes up.

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Overview

The S&P 500 and the Dow are below the early March high. But the Nasdaq Composite) is much higher than it was in March. It is astonishing how high the Nasdaq has moved and how stable the Dow and S&P are considering the very weak 0.9% GDP report for the first quarter.

My overall graph of cyclicals divided by consumer staples shows the cyclicals well ahead over the last couple of weeks. My sector table shows both the Cyclical and Technology groups much stronger than the Consumer Staples and Finance groups. For quite a few weeks I have been examining the most bullish sectors for their fundamentals and have found them hollow; bad earnings and weak sales doesn't prevent these stocks to rise. Here are the last-quarter's earnings and sales results for the Retail Sector. It gained a high 3.5% during April.

SymbolEarningsSales
GES-28%3%
SYY6%11%
TJX4%6%
COST-6%6%
M-3%-4%
KR-7%6%
CVS12%12%
MCD18%-4%
SBUX15%6%
SPLS-4%-3%
TGT-5%-4%
WMT-13%-1%
BBY27%-1%
LOW46%19%
EBAY4%4%
DG15%14%
JCP64%-1%

The average earnings was only 8.5% and the average sales only 4.2. But there were 7 of these 17 rows that had negative earnings in the most-recent quarter.

Stock Market Sectors

Sector Group Sector Contents Sector April May June July Aug Sept Oct Nov Dec Jan Feb March Sector Average
Overall graph of strength (cyclicals) versus weakness (staples)
Cyclical Automobiles -2.5% -6.4% -2.1% 4.9% -3.0% 1.6% -4.1% -0.3% 7.1% 6.7% -3.9% 6.7% 0.76%
Cyclical Aerospace 6.7% 0.3% 2.6% -1.3% -1.3% 0.0% 6.8% 6.8% -4.8% -0.4% 1.9% -1.0%
Cyclical Machines 2.7% -1.0% 2.9% 4.0% 0.8% 0.8% 8.2% 7.3% -4.1% -0.1% -1.2% 0.0%
Cyclical Building -3.3% -0.3% -0.4% 3.0% -0.3% -5.1% -3.0% -2.1% 0.7% 3.6% 4.5% 4.0%
Cyclical Leisure 7.7% 8.3% 2.0% 0.4% -0.4% 0.9% 6.6% -3.1% -1.6% 4.1% -3.3% 6.6%
Cyclical Basic Materials 13.7% -5.4% 12.0% 7.3% -11.4% -5.1% 4.6% 19.2% -2.3% 2.7% -2.7% -6.3%
Cyclical Energy 2.4% -3.7% 3.1% -4.5% 2.4% 2.7% -2.4% 0.4% -0.9% -3.9% -5.2% -3.2%
Cyclical Media 4.4% -3.1% -2.9% -2.0% -1.5% 0.0% 3.7% 2.4% 1.0% 1.4% -2.7% 3.0%
Cyclical Real Estate 1.5% -1.0% 1.3% 0.9% -3.9% -5.1% 4.3% -3.3% 1.4% -2.1% -0.3% 1.8%
Cyclical Retailing -2.2% -2.6% 0.6% 0.9% -4.2% -3.6% -0.7% 2.9% -3.9% -1.7% -0.8% 0.0%
Cyclical Transportation -0.9% -3.7% -2.1% -0.4% 2.0% 3.8% 2.3% 10.1% -2.6% 1.6% -0.5% -3.2%
Finance Banks 3.9% -1.3% -7.0% 5.1% 6.9% 0.5% 8.2% 12.5% 0.0% 1.9% 2.6% -6.4% -3.43%
Finance Diversified Financials 0.3% 0.4% -9.2% 6.1% 3.9% 0.4% 2.5% 7.0% 0.6% 0.4% -0.9% -3.0%
Finance Insurance -0.4% 0.7% -3.9% -1.0% 3.9% 3.3% 2.8% 3.9% -0.5% -0.2% 0.1% -0.9%
Staple Cmmcl Svcs & Supplies -1.4% 5.5% -2.1% -0.1% -1.7% -1.6% -0.9% 0.5% -1.1% 2.2% 2.8% -1.8% 0.92%
Staple Consumer 1.0% 2.2% 2.2% -1.5% 0.5% 0.5% -2.9% -6.6% -1.6% 2.0% 1.3% 2.6%
Staple Apparel -3.9% -6.3% 0.9% -2.5% -1.7% -4.7% -3.8% 3.0% -8.7% -12.1% -5.1% 4.9%
Staple Food & Beverage 0.2% 0.1% 3.9% -2.5% -1.7% -2.0% 3.3% -8.4% 2.5% -2.7% -1.8% 1.5%
Staple Alcohol & Tobacco 2.0% 0.0% 4.3% -6.9% 0.8% -0.3% 0.0% -11.5% 0.7% 1.0% 2.3% 1.8%
Staple Health Care 0.5% 1.3% 0.5% 1.2% -5.7% -0.8% -4.6% -0.2% -1.0% -0.7% 1.7% -1.4%
Staple Agriculture 2.1% 5.9% -4.6% -1.2% 5.6% -3.1% 5.9% -5.7% -0.4% 0.7% -1.5% -1.0%
Staple Chemical 4.2% 1.1% -1.9% -1.2% 4.8% -1.0% 2.3% 2.7% -3.0% 2.6% -2.1% -0.2%
Staple Utilities -0.9% 0.0% 6.4% -6.6% -5.5% 3.1% 3.2% -7.7% 2.1% -2.3% 0.0% 1.8%
Technology Pharma & Biotechnology -3.8% 2.6% 0.8% 0.0% 4.5% -3.8% -0.3% -4.8% 0.6% 4.2% 2.9% -1.7% 1.81%
Technology Semiconductors -7.6% 6.9% -2.2% 8.7% 5.4% 4.6% 0.0% -0.8% 2.1% 5.8% -5.2% 6.1%
Technology Software & Services -2.6% -6.5% 1.6% -4.2% 4.0% 3.5% 0.0% -11.3% 1.0% 7.0% -6.4% 5.3%
Technology Technology Hardware -15.1% 11.7% -2.4% 7.4% 4.4% 5.9% -2.7% 0.2% -0.7% 6.2% 4.0% 1.2%
Technology Electronics -2.3% 1.1% -5.5% 1.5% 2.2% 2.3% 0.9% 1.7% 0.1% 6.0% -1.7% 1.8%
Technology Internet -4.2% 1.1% -4.5% 4.6% 1.7% 1.9% 1.4% -8.9% 3.7% 1.9% -1.7% 0.8%
Technology Telecommunication Services -3.5% -2.4% 7.5% -3.1% -4.4% -1.3% -6.8% 1.6% 0.5% -2.5% -5.4% 0.2%

Futures that affect Stocks

These futures parallel or move opposite to the market. Crude oil and gasoline mostly move opposite to the market. The note and the bond tend to move with the market but the bond and note generally change trends six to eighteen months earlier then the stock market. The dollar also tends to move with the market because a rising dollar, tends to mirror an expanding economy.

Both crude oil and gasoline have dropped in the second half of April, gasoline dropping below its mid March lows unlike crude. It's just the reverse situation with the Commitment of Traders report. In the report, the commercials (i.e., insiders) for crude are much more bearish than the commercials are for gasoline. The Energy Sector in the stock market has been sinking for five straight months and dropping even faster over the lst two months.

Both the 30-year bond and the 10-year note are still much lower than their highs in last July. Since the Federal Reserve has instituted "rate hikes" the price of both the bond and note has increased. This big drop in the price of the bond and note presages a drop in the stock market. John Murphy, well known market analyst and author, says that trend changes in the bond market occur twelve to eighteen months ahead of stocks. That would mean a crash in the stock market sometime in 2017.

There are two scenarios with the U.S. Dollar after it made a high in early January. One is that it started a new trading range. The other is that is in a bearish trend. The trading-range scenario seems more likely because the dollar bounced off of support, or the trading range bottomn, on March 27 and April 27. If the bearish trend is correct, the price will drop below the support and stay underneath. If it's a trading range, it will automatically break the bearish trend line by simply continuing to progress sideways.

Last Issue's Stock Selections:

(See our Trading Tutorial and Historical Trading Results)

My two trades in April resulted in an average gain of 0.25%. This was worse than the S&P 500's gain of 0.9%.

Shorts

M -4.7%

MTW 5.2%

SPLS - not traded

WIN - not traded

Current Stock Selections:

Longs:

No long picks this month.

Shorts:

U.S. Steel (X)

X is rated 25 out of 99 by Investors.com and is in the steel producers group ranked 110 of 197 groups. Its three year sales growth was -20%, its debt to equity is 131%. There has been a 2% reduction in fund ownership. It has been in a bearish trend since its high in February. It gapped down even lower on Wednesday. This is very bearish; look for entry.

Kimco Realty Corp (KIM)

KIM is rated 9 of 99 by Investors.com and is in the finance property REIT group ranked 115 out of 197 groups. Last quarter's sales growth was -1% and the last 3 quarters EPS was only 3%. KIM has been bearish since last July. It is, bar far, the weakest of the nine stocks in my real-estate sector. Look for entry.

Haliburton (HAL)

HAL is rated 2 of 99 by Investors.com and is in the oil and gas field services group ranked 184 out of 197 groups. Its three-year sales growth was -24% and the EPS last quarter was -43% and over three quarters was -75%. The debt to equity was 130%. It has been in a bearish trend since late January. Look for entry.

Mattel Inc. (MAT)

MAT is rated 2 of 99 by Investors.com and is in the toys games and hobby group ranked 168 of 197 groups. Its EPS in the last quarter was -129%, its 3-year sales in the last quarter was -15%. There has been a two percent reduction in the amound of funds owning this stock. On April 21, the stock crashed on five-times average volume. Since then, the price has moved up a little. Wait for the price to break below that low.

Historical Performance

Here are our performance results since we started this newsletter in May 2003:

Average monthly return: 5.8%

Average 12 month return: 70%

Cumulative return: 880%

On a monthly basis, I have beaten the S&P 500 129 out of the last 151 times.

Trading Methodology:

For more information about our trading techniques, read our free trading tutorial.

Rates (recurring):

1 Month $35

3 Months $90

6 Months $150

12 Months $250


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These comments are given to serve as guidelines only. Traders and investors are advised to thoroughly research trades prior to investing. No guarantees are made for accuracy. Trading involves risks as well as gains and the reader is solely responsible for any actions taken in the markets. Neither the author or publisher assumes any responsibility whatsoever for the reader's decisions.



This stock picking stock newsletter has had superb gains since its beginning in 2003. Stock picking in the stock newsletter is based on technical market analysis. This stock newsletter has an average monthly return of 6.1%. The stock picking in this stock newsletter has an average 12-month return of 73%. Our cumulative return since 2003 for our stock picking in this stock newsletter is 480%. Our stock picking stock newsletter has had superb gains since its beginning in 2003. Stock picking in our stock newsletter is based on technical market analysis. Our stock newsletter has an average monthly return of 6.1%. The stock picking in our stock newsletter has an average 12-month return of 73%. Our cumulative return since 2003 for our stock picking in our stock newsletter is 480%. The stock picking in our stock newsletter has had superb gains since its beginning in 2003. The stock picking in the stock newsletter is based on technical market analysis. Our stock newsletter has an average monthly return of 6.1%. Stock picking in this stock newsletter has an average 12-month return of 73%. Our cumulative return since 2003 for the stock picking in this stock newsletter is 480%.