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stock newsletter, stock picking

June Stock Letter

June 4, 2016

Weak GDP growth, a shrinking labor force, but a rising stock market?

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Overview

The S&P 500 and the Dow are in very distinctive wedge patterns. But the Nasdaq Composite) has rallied to the top of its bullish trend channel. Stocks at the top of their trend channel are likely to retreat; this happened in the nasdaq composite from the highs in late February and early March down to the April, 13 low that touched the bullish trend line. The economy has been consistently weak since the end of the great recession. The labor force has shrunk as the potential workers that are not part of the work force has increased from 15 million to almost 16 million. Workers wage gains, five percent per year in 1998 has shrunk to two percent per year recently. That is below the level of inflation. This cash squeeze has hurt retail sales; growth in retail sales is almost 19% below the 1992 to 2007 baseline. A recent Harvard study reported that 70% of people in the U.S. had only $1,000 of savings or less. Is it any wonder that retail sales is suffering? But, how can the stock market keep on going up?

My table of stock-market sectors shows a devide between the Technology Group and the Cyclicals Group; stocks in both these groups are considered growth stocks. The Technology Group has exploded higher by 2.8% on huge increases in the Computer Software and Semiconductors Sectors while the Cyclicals Group shrank by 0.5%.

The stock market shoots higher making valuations ever higher and increasingly divorced from fundamentals. Here are 3-year cash flow results from my Transportation Sector that gained a high 3% since May 1.
SymbolSales
DAL1%
LUV5%
CSX-5%
UPS3%
UNP-6%
NSC-6%
FDX7%
UAL-2%
CHRW0%

The average sales was only -0.33.

Stock Market Sectors

Sector Group Sector Contents Sector June July Aug Sept Oct Nov Dec Jan Feb March April May Sector Average
Overall graph of strength (cyclicals) versus weakness (staples)
Cyclical Automobiles -2.1% 4.9% -3.0% 1.6% -4.1% -0.3% 7.1% 6.7% -3.9% 6.7% 1.0% 0.9% -0.50%
Cyclical Aerospace 0.3% 2.6% -1.3% -1.3% 0.0% 6.8% 6.8% -4.8% -0.4% 1.9% -1.0% 3.0%
Cyclical Machines 2.9% 4.0% 0.8% 0.8% 8.2% 7.3% -4.1% -0.1% -1.2% 0.0% 3.6% 0.7%
Cyclical Building -0.4% 3.0% -0.3% -5.1% -3.0% -2.1% 0.7% 3.6% 4.5% 4.0% -1.1% 0.0%
Cyclical Leisure 2.0% 0.4% -0.4% 0.9% 6.6% -3.1% -1.6% 4.1% -3.3% 6.6% 5.9% 2.2%
Cyclical Basic Materials 12.0% 7.3% -11.4% -5.1% 4.6% 19.2% -2.3% 2.7% -2.7% -6.3% -5.9% -6.5%
Cyclical Energy 3.1% -4.5% 2.4% 2.7% -2.4% 0.4% -0.9% -3.9% -5.2% -3.2% -3.5% -1.2%
Cyclical Media -2.9% -2.0% -1.5% 0.0% 3.7% 2.4% 1.0% 1.4% -2.7% 3.0% -4.6% -6.5%
Cyclical Real Estate 1.3% 0.9% -3.9% -5.1% 4.3% -3.3% 1.4% -2.1% -0.3% 1.8% -0.9% -2.1%
Cyclical Retailing 0.6% 0.9% -4.2% -3.6% -0.7% 2.9% -3.9% -1.7% -0.8% 0.0% 3.9% 1.1%
Cyclical Transportation -2.1% -0.4% 2.0% 3.8% 2.3% 10.1% -2.6% 1.6% -0.5% -3.2% 0.9% 2.9%
Finance Banks -7.0% 5.1% 6.9% 0.5% 8.2% 12.5% 0.0% 1.9% 2.6% -6.4% -1.7% -6.4% -2.43%
Finance Diversified Financials -9.2% 6.1% 3.9% 0.4% 2.5% 7.0% 0.6% 0.4% -0.9% -3.0% -1.0% -3.1%
Finance Insurance -3.9% -1.0% 3.9% 3.3% 2.8% 3.9% -0.5% -0.2% 0.1% -0.9% 1.0% 2.2%
Staple Cmmcl Svcs & Supplies -2.1% -0.1% -1.7% -1.6% -0.9% 0.5% -1.1% 2.2% 2.8% -1.8% -2.0% -1.8% 0.62%
Staple Consumer 2.2% -1.5% 0.5% 0.5% -2.9% -6.6% -1.6% 2.0% 1.3% 2.6% -2.2% 1.1%
Staple Apparel 0.9% -2.5% -1.7% -4.7% -3.8% 3.0% -8.7% -12.1% -5.1% 4.9% -1.3% 0.8%
Staple Food & Beverage 3.9% -2.5% -1.7% -2.0% 3.3% -8.4% 2.5% -2.7% -1.8% 1.5% -1.8% 0.1%
Staple Alcohol & Tobacco 4.3% -6.9% 0.8% -0.3% 0.0% -11.5% 0.7% 1.0% 2.3% 1.8% 3.4% 5.0%
Staple Health Care 0.5% 1.2% -5.7% -0.8% -4.6% -0.2% -1.0% -0.7% 1.7% -1.4% 0.1% -1.4%
Staple Agriculture -4.6% -1.2% 5.6% -3.1% 5.9% -5.7% -0.4% 0.7% -1.5% -1.0% -4.5% -0.2%
Staple Chemical -1.9% -1.2% 4.8% -1.0% 2.3% 2.7% -3.0% 2.6% -2.1% -0.2% -0.9% -0.5%
Staple Utilities 6.4% -6.6% -5.5% 3.1% 3.2% -7.7% 2.1% -2.3% 0.0% 1.8% -2.0% 2.5%
Technology Pharma & Biotechnology 0.8% 0.0% 4.5% -3.8% -0.3% -4.8% 0.6% 4.2% 2.9% -1.7% -2.0% -5.5% 2.79%
Technology Semiconductors -2.2% 8.7% 5.4% 4.6% 0.0% -0.8% 2.1% 5.8% -5.2% 6.1% -0.6% 9.7%
Technology Software & Services 1.6% -4.2% 4.0% 3.5% 0.0% -11.3% 1.0% 7.0% -6.4% 5.3% 4.0% 10.2%
Technology Technology Hardware -2.4% 7.4% 4.4% 5.9% -2.7% 0.2% -0.7% 6.2% 4.0% 1.2% 1.4% -0.2%
Technology Electronics -5.5% 1.5% 2.2% 2.3% 0.9% 1.7% 0.1% 6.0% -1.7% 1.8% 2.4% 2.4%
Technology Internet -4.5% 4.6% 1.7% 1.9% 1.4% -8.9% 3.7% 1.9% -1.7% 0.8% 5.8% 2.3%
Technology Telecommunication Services 7.5% -3.1% -4.4% -1.3% -6.8% 1.6% 0.5% -2.5% -5.4% 0.2% -3.0% 0.6%

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 since early January and at a higher rate in the last few months. The Energy Sector in the stock market has been sinking for six straight months.

Both the 30-year bond and the 10-year note have been rising since last December but are well below their highs of last July. The 10-year note has moved up to the mid point of the drop that started last July. The 30-year bond is well below this same mid point. The long-term interest rates marked by this bond and note are still very low indicating how weak the economy remains.

The dollar has been dropping since January. But it has been moving sideways, at this relatively high level, since early 2015. There is worldwide deflation evidenced by the bankruptcy of shipping companies and the very low price of shipping containers. As this increasingly takes hold, the U.S. Dollar will become stronger as most debts are priced in dollars.

Last Issue's Stock Selections:

(See our Trading Tutorial and Historical Trading Results)

My two trades in May resulted in an average gain of 4.1%. This was much better than the S&P 500's gain of 2.1%.

Shorts

X 1.2%

KIM 7%

MAT - not traded

HAL - not traded

Current Stock Selections:

Longs:

No long picks this month.

Shorts:

Fift Third Bancorp (FITB)

FITB is rated 28 out of 99 by Investors.com and is in the banks super-regional group ranked 166 of 197 groups. Its three year sales growth was 4%, and its sales in the last quarter was -4%. There has been a 1% reduction in fund ownership. It has been in a bearish trend since its high in March. On Thursday, the open was well below the low of the previous days and the stock rose during the day to almost equal the previous day's high. But Friday was down. This shows that there was not enough demand to continue the otherwise bullish move. Look to short on a close below Thursday's low.

Cliffs Natural Resources (CLF)

CLF is rated 9 of 99 by Investors.com and is in the mining metal ores group ranked 162 out of 197 groups. The 3-year sales growth was -28% and the last quarter EPS was -118%. CLF has been bearish since mid February. Short on a close below Wednesday's low.

Avon Products (AVP)

AVP is rated 8 of 99 by Investors.com and is in the cosmetics personal care group ranked 65 out of 197 groups. Its three-year sales growth was -16%. It has been in a bearish trend since last October. Look for entry.

Historical Performance

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

Average monthly return: 5.82%

Average 12 month return: 70%

Cumulative return: 880%

On a monthly basis, I have beaten the S&P 500 130 out of the last 152 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%.