Small Cap Stocks To Lead Long Term

Everyone knows that small cap stocks are the canary-in-the-coal mine for the economy.  One can assess the strength of the overall global economy based on the performance of small cap stocks relative to large cap stocks.  They tend to outperform when business conditions are good (i.e. consumers are spending, fear is moderate, lenders are lending, interest rates are low, etc.)  During bear markets, small cap stocks underperform.  During bull markets, they outperform.  We are currently witnessing the beginning of long term small cap stock outperformance.

From a technical perspective, IWM which tracks the Russell 2000 small cap index, has broken out of a large ascending triangle pattern and is on its way to new highs.  We're just getting started...

Akamai breaks out. Tech leadership expands.

What began as market leadership in biotechnology stocks quickly spread to internet stocks and is now perpetuating in the NASDAQ 100 mega cap stocks.  We are entering a period of broad based tech market leadership which may continue for the duration of this bull market that began in 2009.  It is important to note that both the biotechnology and the internet index has doubled in a 2 year time frame.

Fear Seems Overdone

There seems to be an awful lot of fear present in this relatively neutral market lull.  I'm not sure what to make of it.  A "difficult" period of market congestion may lay ahead.  Fear index is from CNN, VIX chart from stockcharts.com.

Canadian TSX Stock Market Uptrend Has Begun

All major sectors in Canada's TSX appear to be in the early stage of an uptrend.  Financials, materials and energy sectors are all showing bullish price momentum.  This could result in the TSX leading the S&P 500 for the intermediate term.  The S&P 500 has likely entered in to a period of price consolidation after an almost 2 year uptrend.

Gold Stocks Rise From The Ashes

Charts courtesy stockcharts.com

Gold stocks appear to finally be moving off of a major bottom across the entire sector.  Price momentum divergence, money flow and volume are all looking very positive.  With the whole sector down > 50% from top to bottom, this could be a major rebound.

NASDAQ 100 Big Cap Tech To Outperform

Mega cap tech stocks have lagged the broad NASDAQ and the S&P 500 for many months.  Recent market action suggests that this could be changing.  Apple makes up 12% of the NASDAQ 100 Index alone.  A new uptrend for the world's largest technology company by market cap would pull the NASDAQ 100 Index into the lead. It's also worth noting that other tech giants like MSFT, CSCO, INTC, AMZN and GOOG also have bullish charts.  Follow the QQQ.

Has Apple Begun A New Leg Up?

Carl Ican's announcement today may have been the reason Apple was up almost 5% today, but it wasn't the only reason.  Apple has been undergoing accumulation for months as it built a base similar to 2008-09.  Today was merely the breakout.  If its chart follows a similar path set in 2009, Apple could pass $1000 quite easily.  With a P/E < 10, it is one of the most undervalued technology companies in the NASDAQ 100.

Microsoft Is The Most Underrated Tech Company

While analysts like to continually make reference to Apple's large $30B cash reserve, they seem to overlook the fact that Microsoft has more than double that.  With $76B in cash and growing, Microsoft has more in cash than the total market cap of most companies in the NASDAQ 100 Index.  It has also increased its revenue and profit year-over-year with little upside response in its stock price.  I think Microsoft will surprise the market with a significant upside breakout sooner than later.  Like many first dot.com generation tech companies, its stock price has gone nowhere for >10 years.  It's a bargain at this price.

Amgen Breaks Out Of Very Long Term Base Pattern

Amgen is an extremely interesting company in an extremely interesting position.  They are one of the largest manufacturers of biologic pharmaceuticals in the world.  The market for this type of pharmacotherapy is expanding exponentially.  From a technical perspective, Amgen has a very bullish price chart.  It has broken out of a multi year period of price consolidation that has lasted approximately 11 years.  This uptrend could last a decade or more...

Is Tesla Gaining Speed?

This is sadly one of my greatest misses.  I heavily researched Elon Musk, Tesla, Space X and Solar City about 1 year ago and, like everyone else, was amazed at what this guy was doing.  I guess I thought the story was "too good to be true".  What's really interesting is that Toyota now owns about 10% and Daimler AG owns 4.7% of the company.  It was the early financial state of Tesla and huge debt that scared me away initially.  Now that their revenue is accelerating and debt is being paid off, it looks even more interesting.  From a product perspective, Tesla is still a brand new company with only two models -- the Model S being the staple.  This story could only be beginning.  Lesson learned.  When a story seems too good to be true, it's probably true.

Apple Price Chart Showing Positive Developments

Something's going on with Apple.  On recent days when the market has been down or flat, Apple has undergone accumulation.  It is about to complete a well formed multi-month base similar to the one formed in 2009.  Apple's weekly chart is exhibiting bullish positive price/momentum divergence in addition to early outperformance when compared to the S&P 500.  The P&F chart is also showing a positive trend change.  It will likely find resistance at its 200-day moving average (~$462).  If it can break out from here, that would be extremely bullish.

I can't speak for new products in Apple's pipeline or how it may "change the world" again.  However, I can say that there have been recent notable bullish developments in its chart.

(Weekly price chart and P&F chart courtesy of stockcharts.com.  Visit stockcharts.com for more great charts.)

Long Term NASDAQ Outperformance Began In The Late 1970s

There are many market similarities between present day and the late 1970s.  The late 70s early 80s saw the conclusion of a long secular bull market in commodities, similar to the late stage bull market in commodities we are currently experiencing.  One of the most overlooked comparisons between now and the 70s market is the relative outperformance of the NASDAQ.  Prior to the emergence of the broad secular bull market in the early 1980s, the NASDAQ was well on its way as early as 1978.  We are seeing a similar trend develop in the market today, however, the outperformance of the NASDAQ began immediately off of the market bottom in 2009.

I'm long the NASDAQ 100 Index through the QQQ.  It is my favourite "buy it and forget about it" holding.  I've been adding to it since 2006.

The Exponential Nature Of The Stock Market

In his book The Singularity Is Near, Ray Kurzweil eloquently summarizes some extremely interesting phenomena about the evolution of technology and how it fits with grand scale evolution.  I have read this book twice and am fascinated with the concepts contained in it and their prospective application to the financial markets.

He suggests that an exponential trend will cross "the knee of the curve" before it becomes recognizable to the average observer.  If you consider the fact that the underlying trend in the Dow Jones Industrial Average is exponential in nature, I would place the knee of the curve somewhere during the first third of the 20th century.  In other words, we're well past it and the trend will continue much higher in an accelerating fashion.

The Way Forward For US Banks And The US Financial Sector

The XLF is the largest US investment bank ETF.  It's surprising that Berkshire Hathaway (BRK) is its largest holding along with WFC, JMP, C and BAC.  BRK and WFC have been the best performing in the sector by far (BRK owns a large percentage of WFC).

From a technical perspective, the easy money has been made as it has run into significant overhead resistance that was established in the decade prior to the financial crisis.  I think XLF is an excellent long term hold, however, choppy and sideways trading is likely the way forward.

There is still opportunity for upside in more speculative financial issues such as RF, KEY, STI and AIG.  Their long term charts illustrate the tremendous destructive force of the financial crisis, erasing in some cases equity built up over decades.  I generally use call options with issues as speculative as these.

The US financial sector now sits where the DOW did in the 1930s after the 1929 crash.  The waters may still be somewhat rough, but I think it's mostly upside from here.

The S&P TSX Composite Index Will See New Highs In The Near Future

After the 1973-74 bear market, the TSE 300 (now the S&P TSX Composite Index) underwent a multiyear period of price consolidation prior to its breakout in 1978.  Do you see the similarities between now and then?  Note how bad the following 1982-83 bear market that succeeded the breakout was.  The early 80s recession was a very difficult time for Canada.

Akamai Technologies On The Verge Of Major Breakout?

The series of higher lows over a 10 year period is a very bullish sign.

The above chart is taken from the Investor's Business Daily website.

S&P 400 Mid Cap Index Is The Intermediate Term Winner

No one would have guessed in 2009 that the S&P 400 Mid Cap Index would lead as it has post financial crisis. The charts speak for themselves.  Visit www.chartoftheday.com for more great charts.