Volatility Rules

Has anyone else noticed that volatility has picked up in the stock market?   
 

It started on April 23, when the S&P 500 closed at 1,217. On that day in Daily Profit, I mused how investors were looking past the Icelandic volcano and the SEC charges against Goldman Sachs and simply buying stocks.   

 

I also discussed the possibility of a trend change that day. And I think it may be prudent to revisit that discussion today… 

Will You Prosper From Disaster?

The spill in the
Gulf
Coast near Louisiana is nothing short of a tragedy.
 And for certain, it’s a man-made phenomenon.  There’s really no telling
how bad this leak will be.  There’s concern that it will severely damage
fisheries along the Louisiana
coast.  It’s already disrupted shipping in the area.  And there’s no
doubt, it’s not a good thing. 

Some analysts
estimate this leak will cost BP (NYSE: BP) upwards of $3
billion in
cleanup costs alone.  BP owns the drilling rig that exploded and caused
the leak. That’s baked into the cake –
BP stock fell nearly 10% last week and another few percent today.

President Obama
was quick to blame BP.  They
deserve the blame, but I think it’s a bit disingenuous of the President
to
angrily point his finger. On March 30th,
less than a month before this leak, President Obama announced his desire
to allow
additional offshore oil and natural gas exploration and drilling in the
Gulf of Mexico.

Destroy Goldman?

Will this be the Greek bailout plan that sticks? We’ve seen enough stops and starts that I can’t blame anyone for being a little skeptical. Or even a lot skeptical.   

 

But this time, Germany Chancellor Angela Merkel is doing a victory dance as Greece was forced to accept some pretty strict austerity measures to get its budget deficit below the 3% the EU mandates by 2014.   

 

Greece was originally asking for $55-$69 billion in aid. The final package comes in at $146 billion. That’s a big difference, but it makes sense. Greece needs some cushion to assure investors that it will be able to pay its debt.   

News I’ve Been Waiting A Month For

I’ve been waiting for the
Energy Information Administration to release their updated natural gas
estimates. I thought – as did many other
analysts – that their new methods for gathering those estimates would
reveal
less natural gas supply.

I got it
wrong. But instead of trying to smooth
it over, or denying the obvious, it’s much better for our reader-writer
relationship if I come clean.

The EIA’s numbers released
this morning show that supply increased 1.6% from January to February.

Obviously, this news is the
exact opposite of what I predicted would happen – and in some ways it’s
the
opposite of what the market expected. Natural gas
futures immediately fell over 8% – down to $3.96 per
thousand cubic feet from $4.30 levels earlier this week.

Fighting With Bears

I have to hand
it
TradeMaster Daily Stock Alerts’ Jason Cimpl. Yesterday, his morning
alert to
his traders was titled "The Biggest Story You Didn’t Read Yesterday".

And I’ll admit, I
missed
this story. But Jason, ever on the lookout for events that can lead to
solid
profits for his readers, was all over it.

Of course the
biggest story
yesterday, which was the failed auction in China,
received no coverage from the U.S.
media. China’s
finance ministry could not come up with enough bids in yesterday’s $4
billion
1-year auction. Over the past year there has been much debate as to
whether or
not China’s
yuan is undervalued. Speculators have slowly priced in a currency
adjustment,
but yesterday’s auction could indicate that the adjustment will happen
this year.

The PBC has
gradually raised
reserve requirements on Chinese banks for the past year and it is widely
expected that the bank will raise interest rates for the first time in
three
years this quarter. In that environment banks favor long-term debt,
which typically
have higher yields, but the notion that a 1-year auction did not receive
enough
bids is bizarre.

The Cheapest Stock Market in 20 Years

I don’t have a
problem with
investors who are bearish on the stock market and the U.S. economy.
After all, official unemployment is near 10%. U6 unemployment, which
includes
those who are underemployed or have simply given up looking for work, is
significantly higher.

The housing
market is likely
to only gradually improve over the next couple of years. There’s record
government debt here in the U.S.
and in many other countries.

But the bears
need to take
another look before they add high stock valuations to the laundry list
of
downside catalysts. Because the numbers say stocks are as cheap as
they’ve been
since 1990.

Sure, it’s
easy to look at the 79% move by the S&P 500 and think stocks must be
expensive.

But so far, 1st
Quarter
earnings have beaten estimates by an average of 22%, according to
Bloomberg.
80% of reporting companies have beaten expectations.

Analysts have
raised forward
earnings estimates for S&P 500 companies by 9.3% in April. The index
has
responded with a 3% move in April.

Are gold stocks disappointing?

You might have
noticed
something strange going on in the markets recently – especially with
how stocks relate
to commodities like gold. And you’re not
alone. It’s easy to see that gold and
stocks shouldn’t make gains in tandem. It’s hard to imagine people being bullish on the economy at the
same
time they’re bullish on gold. That’s because gold is usually seen as a
safe
harbor, protecting against calamity in the markets and world currency.

So what’s going
on?

Yesterday I was
talking with
a well-respected gold analyst with many years of experience in the field
– who spoke
to me under condition of anonymity. He’s
been as successful as anyone I know when it comes to finding profitable
gold
stocks.

He complained
yesterday that
gold stocks weren’t performing as well as he’d like.

And he’s right –
so far this
year gold has returned about 16%, while larger gold companies like Royal
Gold
(Nasdaq: RGLD) have been somewhat disappointing. RGLD
has only returned about 6% this
year.

Check out this
chart showing
gold prices (dotted line) vs. RGLD (solid line). 

We know that
gold stocks
tend to lag gold price fluctuations, and we can see how RGLD always
seems to
tentatively follow gold prices upward, and then quickly retreat when
there’s
even a hint of trace-back in gold. 

A Blizzard in April

I’m always on the lookout
for parables in the investing world – and a snowstorm in late April is a
great
metaphor for unexpected phenomenon in the markets. 

Many
investors view each unexpected action in the market as an opportunity to
learn
and adjust – which is fine if you’re a day-trader, but disastrous if
you’re a
long-term investor.  I don’t plan on giving my shorts and t-shirts to
the
Salvation Army after one rogue snow storm.  That would be foolish. 
And it would be equally foolish to sell all of my oil positions just
because
crude oil dropped $2.50 a barrel yesterday. 

The
long-term trend for oil – a trend that’s obvious even to school children
and Congressmen
– is for prices to increase.  A dip in oil prices is an opportunity to
buy
more shares of oil companies, not sell.  Just like a mid-spring snow
storm
is an opportunity to go sledding or cross-country skiing not ditch the
charcoal
grill and golf clubs.  The point is: seize opportunities as they come,
but
don’t change your long-term plans because of short-term abnormalities. 

Speaking
of opportunities, one of my favorite oil and gas companies is about to
pay out
a quarterly installment of their 7.7% dividend yield.  This company has
raised its dividend an average of about once a year – and they’ve never
lowered
it or missed a payment.  You can click
here
to request a free report all about this
company. 

Is Your Portfolio Ready?

If
you’ve
been looking for a dip to buy, your opportunity may be coming soon.

Stocks
got
whacked yesterday, and the S&P 500 dropped below an important
support point
at 1,188. Aside from the past few weeks, that support level hasn’t come
into
play since September 2008, when the stock market was crashing. Before
that,
you’d have to go back to the October 2005 lows to find when 1,188 was in
play. 

There
were
several catalysts for yesterday’s drop. Debt problems with Greece and
Portugal are weighing on investors.
And Goldman Sachs testimony before Congress didn’t help either.

It’s
been
revealed that Deutsche Bank (NYSE:DB) has been informed by the SEC that
it,
too, is being investigated for mortgage-related fraud. It appears that
no
charges are pending at this time, but this gives investors another thing
to
worry about.

Never Underestimate the American Consumer

It was two weeks ago that I likened the ongoing Greek debt saga to a slasher flick bad guy that keeps rising from apparent death. The Greek story is truly one that will not die.  

 

It should be clear by now that none of the parties involved are playing it straight. Greece has made several misleading statements about the size of its debt and its plans to pay it off. Germany has reneged on its promise of support several times.   

 

Even the aid talks with the IMF seem to be taking far too long. In fact, this Greek aid process is taking so long that investors are starting to speculate that Portugal will not be able to get aid quickly if it needs it.