In this week’s issue:

• Weekly Commentary
• Strategy of the Week
• Stocks That Meet The Featured Strategy 

In This Week’s Issue:

– Stockscores’ Market Minutes Video – Stop Trying to Make Money
– Stockscores Trader Training – Sell Signals
– Stock Features of the Week – 

Stockscores Market Minutes Video – Stop Trying to Make Money
Most traders focus on money when making their decisions and that leads to mistakes. This week, I discuss the importance of taking money out of the decision. Plus, my regular weekly market analysis.

Click here to watch

Trader Training -Sell Signals
Selling your stocks at the right time is the most emotionally challenging step in the trade. There are times when we are wrong and we must exit at a loss – that is hard. There are times when we buy strong stocks that perform very well which we tend to sell too early because we doubt that the strength can last. Then there is the pain of watching a winning trade turn in to a loser because we fail to exit at all.

This makes it important to have an approach to selling that allows the trader to maximize profits over time. A tested and proven approach can help the trader take the emotion out of this difficult decision. Should the investor use fundamental or technical analysis to tell them when to sell?

Those who use the business fundamentals to make their investment decisions will typically set a price target based on their determination of fundamental value. If their fundamental analysis determines that a stock trading at $10 is really worth $15 then it makes sense to buy it at $10 and sell it when it hits $15. This is why you often hear fundamental analysis include a price target.

A technical analyst will wait for the market to give a sell signal, either by a loss of momentum, reaching an overbought state or by suffering a breakdown on the stock chart. Technicians may set price targets based on price ceilings that the market has defined in the past or they may simply wait for the market to give a signal that the buyers are losing their enthusiasm.

Whether you use a fundamental or technical approach, there are countless varieties that can be applied, making it a challenge to arrive at an answer to which approach is better. However, if we stick to a very basic set of competing definitions, it becomes possible to see the strengths and weaknesses of each.

Let’s define a fundamental approach to selling as exiting a trade when the stock’s price is greater than its fundamental value. Put that up against the technical approach which is to sell a stock when there is a signal from its trading activity that the stock is more likely to go lower than higher.

While the notion that we should sell a stock if its price is higher than its fundamental value makes a lot of sense, there are major problems in its application.

First, do stocks only rise to their fundamental value?

History is filled with stories of stocks that have enjoyed amazing upward trends that go far beyond any fundamental analyst’s estimation of value. Consider shares of Tesla (TSLA), the electric car manufacturer. This company makes about 20,000 cars a year (as a comparison, Ford makes about 2 million cars a year). TSLA has a market cap of about $20 billion dollars (that is $1 million of market cap per car for a company that sells its cars for around $100k). No matter how you crunch the fundamental valuation models, it is not possible to justify the price that TSLA shares trade at. Even the company founder, Elon Musk, has said that he thinks the shares are overvalued which is perhaps why the stock has finally started to lose its long term upward momentum. However, a shareholder that used fundamental valuations would have sold the stock very early in the long term upward trend and left a LOT of money on the table.

The second major issue for using fundamental analysis to determine an exit point is the actual assessment of what fundamental value is. There is no rule book which determines how the pricing model should look. Even if fundamental analysts use the exact same pricing model they could still arrive at very different valuations if they use different information to arrive at price.

If you believe in market efficiency then you have to believe that the price a stock is trading at today is correct given the information that the public has to work with. The stock’s price in the future will not depend on what the market knows today, it will be determined by what new information the market learns in the future.

A good fundamental analyst has the ability to predict what the company’s value will be in the future because they have information that the general public does not have. To be a good fundamental analyst requires the use of private information.

That is where good technical analysis comes in.

Most technical analysis uses market activity to assess what investors think of the company’s fundamentals. Momentum indicators like the MACD or moving averages judge whether the buyers or sellers are in control of the stock. Oscillators like the Stochastic or RSI determine whether the buyers or sellers have been too aggressive, pushing the stock up or down too quickly. While these indicators have some use in analyzing the stock, they are like most fundamental analysis – they don’t provide an edge.

To beat the market, you have to trade with private information. Since most of us do not have the expertise or insight to gather private information on a lot of stocks, we have to use technical analysis to figure out what the people who are doing really good fundamental analysis know.

From the sell side, we need to look for evidence that those with the best information are selling for a reason. It is normal for stocks to have up and down moves in a long term trend. What is key is to be able to figure out the difference between a pull back and a trend reversal. That is where good technical analysis comes in.

A stock that is trending higher will form an upward sloping trend line that can be drawn by placing a line across the bottoms on the stock chart. As long as that line is not violated, the buyers are in control of the stock and the perception of fundamentals is improving over time.

A trend line that is broken implies that some investors have information which justifies aggressive selling. We have to listen to those investors so sell your winners when their upward trend line is broken.

The second approach to technical selling is to establish a range of price volatility that is normal for the stock and plan to sell if the stock moves down more than that price volatility range tolerates. This is a sort of trailing sell signal concept which allows the investor to lock in more profit as the stock moves higher by establishing a higher floor price. If the stock pulls back to hit the floor it is time to exit.

This approach is not without its faults. The most common mistake that traders make is taking too short term a view for the trading style that they are applying. If you are a longer term trader looking for entry signals on a daily chart then you should not be looking for trend line breaks on an intraday chart. It is probably best to look for a longer term entry signal using a weekly chart. As good traders say, the profit is in the patience.

The two technical approaches discussed here are very simple and will be useful to anyone holding winning stocks. It is possible to improve upon them with more sophistication but without making them complex. These better selling rules are taught in the Stockscores trader training programs, which you can learn more about at www.stockscores.com/learn.

2015 is starting off in similar fashion to 2014 for the Gold (and Silver) miners. After ruthless tax loss selling pressure in to the end of the year, we are seeing a bounce back on relatively light volume. Some of the miners have moved up more than 50% in just a few weeks.

The problem for the longer term trader is that most of the charts for these stocks are still pretty ugly. There is not yet a good sign that the long term downward trend is reversing. That does not mean you can’t trade and make money from these stocks, you just have to take a short term view. Day and swing trading the more active and volatile names is working well right now, but the probability that they will continue to show strength through 2015 is still pretty low.

If you have the time to be a more active trader, there are some ETFs that are very actively traded and which make big short term moves when the sector is attracting buyers. Here are a few ETFs to consider if you want to take advantage of the short term action in the Gold Mining sector.

1. NUGT
NUGT is a US listed, leveraged ETF that moves 3 times as fast as the underlying sector of Gold Mining stocks. Very active with some big moves but be very careful holding this for a long time against the trend. It suffers value decay each day because of rebalancing so you have to be very disciplined with using stop losses if your trade does not work. (Do a Google search for leveraged ETF rebalancing to see some explanations of how this works).

2. T.HGU
T.HGU is a Canadian listed ETF that is similar to NUGT except that it is based on Canadian Gold Miners and is leverage 2 times rather than 3. It has moved from $4.50 to $7 in the past few weeks as investors bottom fish the oversold Gold Mining stocks. Since it is a leveraged ETF, be careful with longer term holds.

3. GDXJ
GDXJ is a non leveraged ETF that is based on the junior Gold Miners listed in the US. Less volatile and not subject to the daily rebalancing, it is a more conservative way to trade the sector. If you want to focus on the larger cap Gold Miners, use the GDX.

References

• Get the Stockscore on any of over 20,000 North American stocks.
• Background on the theories used by Stockscores.
• Strategies that can help you find new opportunities.
• Scan the market using extensive filter criteria.
• Build a portfolio of stocks and view a slide show of their charts.
• See which sectors are leading the market, and their components. 

Disclaimer
This is not an investment advisory, and should not be used to make investment decisions. Information in Stockscores Perspectives is often opinionated and should be considered for information purposes only. No stock exchange anywhere has approved or disapproved of the information contained herein. There is no express or implied solicitation to buy or sell securities. The writers and editors of Perspectives may have positions in the stocks discussed above and may trade in the stocks mentioned. Don’t consider buying or selling any stock without conducting your own due diligenc

Monthly time frame:

• So far there is no indication of a trend reversal, as the potential bearish December’s Spinning Top in order to be confirmed requires an end of month print below 1973. Therefore the December candlestick has to be considered as indecision between bulls and bears.

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Weekly time frame:

• From the October low we have a sequence of higher high/low therefore also in this time frame there is no indication of a trend reversal.
• In spite of the 2 weeks decline it finished the week considerably above the low and the 20 wma, printing a Doji. The long lower tail can be considered a constructive pattern due to the buying interest at the dip.
• We are at a resistance zone 2046 – 2054.
• If next week this resistance zone were reclaimed odds would favor a move back at the previous high.
• If instead bulls fail odds would favor a retest of the support zone which has a range 2019 – 2014.
• We can draw two trend lines: the upper one connects the July-November-December higher highs while the lower one connects the December-January higher lows. We can deduce that as long as the lower trend line is not breached odds should favor a move towards the upper trend line with new ATHs.
• If we add a third trend line that connects the October – January low, if the boundaries are not breached then we could make the case that price is forming a Rising Wedge. If this pattern pans out it could have bearish implications over multiple time frames.

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Although the long-term trend remains up we must be aware that weekly oscillators are not in agreement with the constructive price development. It stands out the RSI negative divergence in force since July 2014 and that the RSI trend line from the October low has been breached. If next week the MACD rolls down and issues a bearish cross the short-term outlook would be damaged.

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Daily time frame:

• At first sight we could consider the sharp down leg off the December high a failed breakout, however since the internal structure of the decline has unfolded a corrective move and so far we have a higher high and a higher low for the time being, it would be prudent to convey that the trend remains up biased.
• However probably the January 6 low is not another “V” bottom
• Friday’s candlestick with the eod print at the 50 dma (Most likely saved by the closing bell) could be interpreted as a consolidation of the gains achieved by the two previous days.
• Last week price action should have counterbalanced the sharp decline off the December high but does not exclude the odds of a larger corrective decline within the scenario of maintaining the sequence of higher lows if the 10 dma is not reclaimed.
• Therefore if next Monday the 50 d ma does not hold then I will be looking for a reversal signal either at the gap fill or at the Trend Line 3
• Hence my preferred short-term scenario calls for a Zig Zag higher from the January 6 low.

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Price could be forming two potential patterns:

• The suggested Ending Diagonal:

If price is forming an Ending Diagonal, since the two trend lines must be converging, from the November high price should have unfolded a Running Flat wave (II), therefore the current up leg must unfold a Zig Zag or a Double Zig Zag higher (No lower low is allowed).

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• Triangle:

If the next up leg establishes a lower high then odds would favor a Triangle provided price maintains the sequence of lower highs/ higher lows:

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Either the wave (V) of the Ending Diagonal or the thrusts following the completed Triangle are candidates to establish a Major Top.

60 Minutes time frame:

If next Monday Friday’s lod is breached a Zig Zag down would have an equality extension target at the gap fill. If this is the case I will be looking for to cover my short (I am long SPXU) and seek a long entry in UPRO.

It is noteworthy to mention that the 50 hma has crossed below the 200 hma. If this bearish cross were not erased probably the upside would be limited favouring the Ending Diagonal scenario.

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Next Monday I will be pay close attention to the NYSE TRIN, since if we have follow through to the downside, a reading above 2.00 should be the prelude of a potential short-term bottom.

A January Investment Outlook should normally be filled with recommended “do’s and don’ts,” “picks and pans” and December 31, 2015, forecasts for interest rates and risk assets. I shall do all of that as usual when I travel to New York City for the annual Barron’s Roundtable in a few weeks’ time. That is always an opportunity for me to engage in verbal jousting with Marc Faber, Mario Gabelli and the usual bearish forecast from the Gnome of Zurich, Felix Zulauf. So I’ll leave the specific forecasting for a few weeks’ time and sum it up in a few quick sentences for now: Beware the Ides of March, or the Ides of any month in 2015 for that matter. When the year is done, there will be minus signs in front of returns for many asset classes. The good times are over.

Timing the end of an asset bull market is nearly always an impossible task, and that is one reason why most market observers don’t do it. The other reason is that most investors are optimists by historical experience or simply human nature, and it never serves their business interests to forecast a decline in the price of the product that they sell. Nevertheless, there comes a time when common sense must recognize that the king has no clothes, or at least that he is down to his Fruit of the Loom briefs, when it comes to future expectations for asset returns. Now is that time and hopefully the next 12 monthly “Ides” will provide some air cover for me in terms of an inflection point. Manias can outlast any forecaster because they are driven not only by rational inputs, but by irrational human expressions of fear and greed. Knowing when the “crowd” has had enough is an often frustrating task, and it behooves an individual with a reputation at stake to stand clear. As you know, however, moving out of the way has never been my style so I will stake my claim with as much logic as possible and hope to persuade you to lower expectations for future returns over the next 12 months.

My investment template shares a lot in common with, and owes credit to, the similar templates of Martin Barnes of the Bank Credit Analyst and Ray Dalio of Bridgewater Associates. All three of us share a belief in a finance-driven economic cycle which over time moves to excess both on the upside and the downside. For the past few decades, the secular excess has been on the upside with rapid credit growth, lower interest rates and tighter risk spreads dominating the long-term trend. There have been dramatic reversals as with the Lehman Brothers collapse, the Asia/dot-com crisis around the turn of the century, and of course 1987’s one-day crash, but each reversal was met with a new and increasingly innovative monetary policy initiative on the part of the central banks that kept the bull market in asset prices alive.

Consistently looser regulatory policies contributed immensely as well. The Bank Credit Analyst labels this history as the “debt supercycle,” which is as descriptive as it gets. Each downward spike in the economy and its related financial markets was met with additional credit expansion generated by lower interest rates, financial innovation and regulatory easing, or more recently, direct central bank purchasing of assets labeled “Quantitative Easing.” The power of additional and cheaper credit to add to economic growth and financial asset bull markets has been underappreciated by investors since 1981. Even with the recognition of the Minsky Moment in 2008 and his commonsensical reflection that “stability ultimately leads to instability,” investors have continued to assume that monetary (and at times fiscal) policy could contain the long-term business cycle and produce continuing prosperity for investors in a multitude of asset classes both domestically and externally in emerging markets.

There comes a time, however, when zero-based, and in some cases negative yields, fail to generate sufficient economic growth. While such yields almost automatically result in higher bond prices and escalating P/E ratios, their effect on real growth diminishes or in some cases, reverses. Corporate leaders, sensing structural changes in consumer demand, become willing borrowers, but primarily to reduce their own outstanding shares as opposed to investing in the real economy. Demographics, technology, and globalization reversals in turn have promoted a sense of “secular stagnation” as economist and former Treasury Secretary Larry Summers calls it and the “New Normal” as I labeled it as early as 2009. The Alice in Wonderland fact of the matter is that at the zero bound for interest rates, expected Returns on Investment (ROI) and Returns on Equity (ROE) are capped at increasingly low levels. The private sector becomes less willing to take a chance with their owners’ money in a real economy that has a lack of aggregate demand as its dominant theme. Making money by borrowing at no cost for investment in the real economy sounds like a no-brainer. But, it comes with increasing risk in an environment of secular stagnation, demand uncertainty, and with the ROI closer to zero itself than an entrepreneur is willing to bear.

And so the miracle of the debt supercycle meets a logical end when yields, asset prices and the increasing amount of credit place an unreasonable burden on the balancing scale of risk and return. Too little return for too much risk. As the real economy of developed and developing nations sputter, so too eventually do financial markets. The timing – as mentioned previously – is never certain but the inevitable outcome is commonsensically sound. If real growth in most developed and highly levered economies cannot be normalized with monetary policy at the zero bound, then investors will ultimately seek alternative havens. Not immediately, but at the margin, credit and assets are exchanged for figurative and sometimes literal money in a mattress. As it does, the system delevers, as cash at the core or real assets at the exterior become the more desirable holding. The secular fertilization of credit creation and the wonders of the debt supercycle may cease to work as intended at the zero bound.

Comprehending (or proving) this can be as frustrating as understanding the differences between Newtonian and quantum physics and the possibility that the same object can be in two places at the same time. Central banks with their historical models do not yet comprehend the impotence of credit creation on the real economy at the zero bound. Increasingly, however, it is becoming obvious that as yields move closer and closer to zero, credit increasingly behaves like cash and loses its multiplicative power of monetary expansion for which the fractional reserve system was designed.

Finance – instead of functioning as a building block of the real economy – breaks it down. Investment is discouraged rather than encouraged due to declining ROIs and ROEs. In turn, financial economy asset class structures such as money market funds, banking, insurance, pensions, and even household balance sheets malfunction as the historical returns necessary to justify future liabilities become impossible to attain. Yields for savers become too low to meet liabilities. Both the real and the finance-based economies become threatened with the zero-based, nearly free money available for the taking. It’s as if the rules of finance, like the quantum rules of particles, have reversed or at least negated what we historically believed to be true.

And so that is why – at some future date – at some future Ides of March or May or November 2015, asset returns in many categories may turn negative. What to consider in such a strange new world? High-quality assets with stable cash flows. Those would include Treasury and high-quality corporate bonds, as well as equities of lightly levered corporations with attractive dividends and diversified revenues both operationally and geographically. With moments of liquidity having already been experienced in recent months, 2015 may see a continuing round of musical chairs as riskier asset categories become less and less desirable.

Debt supercycles in the process of reversal are not favorable events for future investment returns. Father Time in 2015 is not the babe with a top hat in our opening cartoon. He is the grumpy old codger looking forward to his almost inevitable “Ides” sometime during the next 12 months. Be cautious and content with low positive returns in 2015. The time for risk taking has passed.
–William H. Gross

With 2014 in the books, it’s time to look forward and see if we can exceed last year’s results.

Let’s start with the M&A picture for 2015, which should continue to be strong as long as interest rates stay low. The tricky part now is that the valuations have continued to rise in this cycle and there are fewer undervalued names from which to choose.

To further complicate things, we have the fragile world economy, oil dropping 50%+ in a few months, which has a bigger impact than most people think, then add in copper prices at 5-year lows, and it smells like deflation. With that in mind, we could be in for a very tough year.

Let’s start with our M&A picks for 2015:

Twitter (TWTR) Talk about a company not living up to its potential. Management is basically loathed by almost everyone. New talent ought to be able to better leverage the company’s assets. Maybe this year someone will.

Nokia (NOK): The company has a turnaround underway and a number of competitors look like they may have topped out. I also like Nokia’s investment and research around haptic technologies. While it would have been much cheaper to Nokia two years ago, it is still possible a big player will still look to merge or acquire them.

Nuance Communications (NUAN) – Repeat from last year but the story stays the same. Move to recurring revenue should have been largely digested. Tremendous underperformance with the CEO on the hot seat. The pressure will be even greater on the company to get it together or get the company sold.

Maxwell Technologies (MXWL) Growth has stalled but the market for ultracapacitors appears to still have major growth prospects. Maxwell could be a great tuck-in for a bigger player.

Lumos Networks (LMOS) Lumos has been unloved for some years now but is sitting on some great assets and appears to have a very motivated management team. The company can do fine as a standalone but with all of the fiber consolidation going on it seems like they would be a great fit for a number of larger providers. Like this one a lot especially on any pullbacks.

Now, let’s move onto my forecast for trends, technologies and products:

1) Shadow IT

The consumption of cloud services without any oversight will continue to grow putting many companies at risk. In turn, C-Suites will start to feel the heat and IT departments will have to do something constructive about the issue.

2) Augmented/Virtual Reality Hype Turns to Actual Reality 

Augmented and Virtual Reality have yet to do much for the masses. Though I am down on Google (GOOG) Glass, I am very excited about this space. Facebook definitely thinks the space is worth having a seat at the table, buying Oculus Rift for $2 billion. Low cost, high bang-for-the-buck products such as MergeVR could entertain the masses. Tour kid could be asking you to buy one of these in the near future.

Higher cost products from Samsung and Oculus will help provide the marketing dollars to get this category noticed, but it is still way too early to pick a winner. The question is, who can deliver in mass with a killer app in 2015?

3) Security of Thing

The Internet of Things will have a host of new privacy and security issues to deal with as hackers look to exploit some of the early roll-outs.

Wearables will become the next frontier for BYOD, and many industries will have to grapple with managing new classes of products in order to leverage staff productivity. This will create a new set of headaches for corporate IT departments.

4) Mobility Pushes the Cloud 

Companies already have incorporated push mobile devices in mass, but what type of ROI are they getting? Can they prove it? W

ith newly designed cloud applications available, recognizing the benefits of mobility and quantifying them will become much easier.

5) Xiaomi

Haven’t heard of them yet? Well you will as they have a huge war chest to try and invade the west. Look for them to try and exert their muscle on the mobility front as they are skilled copyists, just like Samsung was a few years ago.

Sound far-fetched? Well, just 4 years ag,o this company wasn’t even on the map and now they are #1 in China. Here is the crazy part — they run Android but have made their phone look and behave more like an iPhone than Samsung has ever come close to doing.

6) The Skill Shortage Continues 

The world economies will likely continue to face a number of issues keeping the labor market soft, but key skills are in high demand. Just try hiring a Senior Big Data Analyst or a Chief Marketing Technologist. Many other highly skilled positions will continue to be in high demand with many slots going unfilled for more than 12 months.

7) Samsung Runs Out of Steam

Samsung helped lead the Android revolution as they have been great at copying features from competitors and delivering a quality product. Given that they lost market share this year, they will need to come up with something new. Can they finally innovate? I am doubtful and feel the company has hit a wall. This is part of the reason I think Nokia and others have a chance to rebound this year.

8) Wearables

2015 appears so far to be more of the same. Lots of products are coming out which include quite a bit of cool technology. The problem is that many of these lead to gadget fatigue, and it is still really hard to leverage all of the data. Many products miss key features and to get everything you want, you would have to wear 10 products at once. Even then, the overall benefits are minimal.

Until someone really figures this out, we won’t be able to see how disruptive this category could really be.

Could Apple (AAPL) have the answer?

9) Startups

Look for a couple of things this year. Money should flow into a range of security related companies as major breaches continue to make headlines throughout the year. Also, look for more specialization around verticals. Many companies will be created to attack vertical industries and continue to disrupt them. Previously, potential customers for these products were stuck developing their own code or having to purchase a major vendor’s product before spending millions to customize it to their needs. This will keep many of the big players on their toes and potentially looking for acquisition targets.

10) Apple

You know I can’t leave this company out.

So here it is: Apple Watch is a hard sell. So far I have seen no compelling applications that make me want to buy one. Factor in the faithful and they will probably still sell 7-10 million of them in 2015. Can this product get legs and really redefine a category? Will this product release define the post-Jobs era? For now, prepare for disappointment.

On to other things. How about an overhaul of the Macbook Air and finally a new Apple TV. The watch better not be the only new thing Apple is banking on if it wants to start building momentum beyond 2015. But show me a killer app and I might change my mind.

I hope you enjoyed this year’s forecast.

What did I miss?

What big things do you see happening in 2015?

Read more: http://www.minyanville.com/sectors/technology/articles/don-douglas-tech-stocks-for-2015/1/9/2015/id/55920#ixzz3OMb34V4s

Today’s chart illustrates how the stock market has performed during the average pre-election year. Since 1900, the stock market has tended to outperform during the first seven months of the average pre-election year. For the remainder of the year, pre-election performance has tended to be choppy and slightly subpar. In the end, however, the stock market has tended to outperform during the entirety of the pre-election year. One theory to support this behavior is that the party in power will make difficult economic decisions in the early years of a presidential cycle and then do everything within its power to stimulate the economy during the latter years in order to increase the odds of re-election.

Quote of the Day
“If you are planning for one year, grow rice. If you’re planning for 20 years, grow trees. If you’re planning for centuries, grow men.” – Chinese proverb

Events of the Day
January 01, 2015 – New Year’s Day – Rose Bowl – Sugar Bowl
January 11, 2015 – Golden Globe Awards
January 12, 2015 – BCS Championship Game

Stocks of the Day
— Find out which stocks investors are focused on with the most active stocks today.
— Which stocks are making big money? Find out with the biggest stock gainers today.
— What are the largest companies? Find out with the largest companies by market cap.
— Which stocks are the biggest dividend payers? Find out with the highest dividend paying stocks.
— You can also quickly review the performance, dividend yield and market capitalization for each of the Dow Jones Industrial Average Companies as well as the performance of the  Dogs of the Dow.