March 31st 2014 14:27PM
The market is still up but all 3 indexes have stalled out. This could mean we will consolidate for a while before the next move up. We could also see a top coming in, but no evidence to support it quite yet. We will hold GS for now, but make sure to adjust your stop to lock in any profits you have now. The market could sell off at any time so we don’t want a winning trade to become a losing trade.
March 31st 2014 10:02AM
The markets are up sharply this morning after tensions settled over Ukraine and Russia, and Yellens promise to add more liquidity if it is needed. Our GS trade is also up today, and we will hold it until I see a reason to sell. I am also going to look for other plays, maybe a covered call.
Company: Shire PLC
Ticker Symbol: SHPG
Action: Buy up to $155
Shire plc, a biopharmaceutical company, together with its subsidiaries, researches, develops, licenses, manufactures, markets, distributes, and sells pharmaceutical products. It offers various products for the treatment of attention deficit hyperactivity disorder (ADHD), including VYVANSE/VENVANSE, a pro-drug stimulant; ELVANSE/TYVENSE; INTUNIV, an alpha-2A receptor agonist; EQUASYM, a methylphenidate hydrochloride; and ADDERALL XR, an extended release treatment for ADHD. The company also provides PENTASA and LIALDA/MEZAVANT for ulcerative colitis treatment; and RESOLOR, a 5-HT4 receptor agonist for oral symptomatic treatment of chronic constipation in women. In addition, it offers FOSRENOL, a phosphate binder for use in end-stage renal disease receiving dialysis; and XAGRID for the reduction of elevated platelet counts in at-risk essential thrombocythemia patients, as well as for the treatment of thrombocythemia. Further, the company provides REPLAGAL for the treatment of Fabry disease; ELAPRASE for the treatment of hunter syndrome; VPRIV for the treatment of type 1 Gaucher disease; and FIRAZYR for the symptomatic treatment of acute attacks of hereditary angioedema. Additionally, it offers FOSRENOL for the treatment of hyperphosphatemia in end stage renal disease; XAGRID for the reduction of elevated platelet counts; and CINRYZE, a C1 esterase inhibitor therapy for routine prophylaxis against hereditary angioedema. The company also licenses its patented antiviral products for human immunodeficiency virus and hepatitis B virus. Shire plc markets its products directly to government hospitals, clinics, pharmacies, and other agencies; and through wholesalers and distributors. The company sells its products in North America, the United Kingdom, the Republic of Ireland, and internationally. Shire plc has research collaboration with Santaris Pharma A/S. The company was founded in 1986 and is headquartered in Dublin, Ireland.
The stock closed at $153.90 on Friday, March 14, 2014. The Health Care/Pharmaceutical sector was in a downtrend, which I feel is overdone. The SHPG chart is very oversold on the 1 hour chart, and also printed a Red Hollow Candle, which usually signals a change in trend. The stock has strong support at $151.32 and next support is at $145.00
Buy up to $155, and use a stop loss at 5-8% below your entry price. Target price is $165-$170 in 60-90 days.
See annotated chart below:
Introduction to Divergences
There are 2 types of divergences. There is positive divergence and negative divergence.
Normally when a stock price goes up in value, the oscillators like MACD, stochastics and RSI also go up, or as the stock makes new highs, the oscillators should also make new highs.
Positive divergences are found on a stock that has been in a downtrend. As you can see on the chart below, as the stock price makes new lows, the MACD and Stochastics make new highs. Positive divergence means the stock is close to a bottom and that the selling pressure in waning.
Just because there is positive divergence doesn’t mean you should buy the stock now. You want to wait for confirmation of the change in trend. When the stocks has a strong gap up or up day of at least 1% , this is the time to buy. See chart where there is a strong up move. This is when you want to buy.
Negative divergence is when a stock makes new highs, but the oscillators make new lows. This can be a sign that a correction is coming, and that the buying pressure is waning.
See the chart below. The stocks makes new highs and the MACD and Stochastic make new lows, or lower highs. Notice how the stock started moving down after and fell over $60. You can save yourself a lot of pain if you can see this on the chart and avoid buying stocks that have negative divergences.
Below are the charts for our current plays. The charts for our plays show support and resistance. The lower line is support and the top line is resistance.
After QE3 Ends
Can stocks keep their momentum once the Federal Reserve quits easing?
“Easing without end” will finally end. According to its June policy meeting minutes, the Federal Reserve plans to wrap up QE3 this fall. Barring economic turbulence, the central bank’s ongoing stimulus effort will conclude on schedule, with a last $15 billion cut to zero being authorized at the October 28-29 Federal Open Market Committee meeting.
So when might the Fed start tightening? As the Fed has pledged to keep short-term interest rates near zero for a “considerable time” after QE3 ends, it might be well into 2015 before that occurs.
In June, 12 of 16 Federal Reserve policymakers thought the benchmark interest rate would be at 1.5% or lower by the end of 2015, and a majority of FOMC members saw it at 2.5% or less at the end of 2016.
It may not climb that much in the near term. Reuters recently indicated that most economists felt the central bank would raise the key interest rate to 0.50% during the second half of 2015. In late June, 78% of traders surveyed by Bloomberg News saw the first rate hike in several years coming by September of next year.
Are the markets ready to stand on their own? Quantitative easing has powered this bull market, and stocks haven’t been the sole beneficiary. Today, almost all asset classes are trading at prices that are historically high relative to fundamentals.
Some research from Capital Economics is worth mentioning: since 1970, stocks have gained an average of more than 11% in 21-month windows in which the Fed greenlighted successive rate hikes. Bears could argue that “this time is different” and that stocks can’t possibly push higher in the absence of easing – but then again, this bull market has shattered many expectations.
What if we get a “new neutral”? In 2009, legendary bond manager Bill Gross forecast a “new normal” for the economy: a long limp back from the Great Recession marked by years of slow growth. While Gross has been staggeringly wrong about some major market calls of late, his take on the post-recession economy wasn’t too far off. From 2010-13, annualized U.S. GDP averaged 2.3%, pretty poor versus the 3.7% it averaged from the 1950s through the 1990s.
Gross now sees a “new neutral” coming: short-term interest rates of 2% or less through 2020. Some other prominent economists and Wall Street professionals hold roughly the same view, and are reminding the public that the current interest rate environment is closer to historical norms than many perceive. As Prudential investment strategist Robert Tipp told the Los Angeles Times recently, “People who are looking for higher inflation and higher interest rates are fighting the last war.” Lawrence Summers, the former White House economic advisor, believes that the U.S. economy could even fall prey to “secular stagnation” and become a replica of Japan’s economy in the 1990s.
If short-term rates do reach 2.5% by the end of 2016 as some Fed officials think, that would hardly approach where they were prior to the recession. In September 2007, the benchmark interest rate was at 5.25%.
What will the Fed do with all that housing debt? The central bank now holds more than $1.6 trillion worth of mortgage-linked securities. In 2011, Ben Bernanke announced a strategy to simply let them mature so that the Fed’s bond portfolio could be slowly reduced, with some of the mortgage-linked securities also being sold. Two years later, the strategy was modified as a majority of Fed policymakers grew reluctant to sell those securities. In May, New York Fed president William Dudley called for continued reinvestment of the maturing debt even if interest rates rise.
Bloomberg News recently polled more than 50 economists on this topic: 49% thought the Fed would stop reinvesting debt in 2015, 28% said 2016, and 25% saw the reinvestment going on for several years. As for the Treasuries the Fed has bought, 69% of the economists surveyed thought they would never be sold; 24% believed the Fed might start selling them in 2016.
Monetary policy must normalize at some point. The jobless rate was at 6.1% in June, 0.3% away from estimates of full employment. The Consumer Price Index shows annualized inflation at 2.1% in its latest reading. These numbers are roughly in line with the Fed’s targets and signal an economy ready to stand on its own. Hopefully, the stock market will be able to continue its advance even as things tighten.
Company: Michael Kors
Ticker Symbol: KORS
Action: Buy up to $105
3-5-14… Adding 10% to Michael Kors (KORS). Michael Kors Holdings Ltd designs, markets and distributes women’s apparel and accessories and men’s apparel. It operates in three business segments namely retail, wholesale and licensing.