PowerTrend Brief: Where to Fish for Stocks in Today’s Market
Questions arose again last week about the strength of the U.S. economic recovery. While construction spending in February strengthened month over month, and auto and truck sales continued rising in March, the highest-volume month since August 2007, an order drop associated with the ISM manufacturing index and a bad March Employment Report served as a counter balance.
What drives me crazy, however, is the way the media simply glosses over what the March Employment Report really is telling us. As I was driving to my son’s lacrosse game on Saturday, I kept hearing the news reports tout a falling unemployment rate in March to 7.6%. I was so mad at how misleading that report was that I had to turn the radio off and sit there in silence for a minute to let my anger subside.
Now, let’s back up a bit and I will share with you one of my key investing beliefs. We investors cannot simply reply on the headlines to make sound investing decisions. Only by looking into the details can we truly understand what actually is going on. For my near 20 years of working with mutual fund and hedge fund managers, this lesson is one of the most important I have learned.
What steams me up, however, is when something as important as understanding that the labor force continued to shrink in March and that the real reason for the continued drop in the unemployment rate is that more people are leaving the work force is not discussed at all. If we were to rely solely on just the reported unemployment rate, one would think that all is well and the economy is firing on all cylinders. Looking around, however, you and I know that’s not the case.
My key takeaways from the Employment Report were that not only did the labor force shrink again, but the labor force participation rate is at multi-year lows. That reality is not good news for the consumer and industries like restaurants and retail that rely on them. Factor in the potential impact of the sequester, as well as gas prices, which are down recently, but still are high on a year-over-year basis. Also consider that the stock market is near record levels and this situation indicates that the soon-to-be-released corporate earnings will be the key for the stock market’s near-term direction.
While the season officially starts after today’s market close when Alcoa (AA) reports its 1Q 2013 results, it seems we already are off to a questionable start. Data from FactSet issued on Friday reported that 86 companies already have issued negative earnings per share (EPS) guidance and 24 companies have issued positive EPS guidance. That’s not a favorable ratio in my book and I bet it’s not one in yours.
That’s why for the last few weeks, I’ve been steering subscribers of ETF PowerTrader into more defensive positions like Consumer Staples Select SPDR Fund (XLP), Vanguard Health Care ETF (VHT) and the Vanguard Dividend Appreciation ETF (VIG). Now, I understand the popularity of ETFs, which make it easy to buy a basket of companies at once and buy and sell during trading hours.
To me, the one drawback is that ETFs, for the most part, deliver modest returns… at least to me. Generally speaking, I need to see upside of at least 25% to get interested in a company for my investment newsletter PowerTrend Profits.
I reconcile using ETFs in ETF PowerTrader because I combine them with call options to turbo charge the returns. Last week alone, subscribers to that trading service booked profits of 740% on one position and 289% on another — both with holding periods of just four to six weeks. Those two trades are just the latest triple-digit percentage winners we’ve booked during the last few months and I’m laying the ground work for more trades just like those. Be a part of it and turbo charge your returns.
To read my e-letter from last week, please click here. I also invite you to comment about my column in the space provided below.
Editor, ETF PowerTrader
Editor, PowerTrend Profits
- You are invited to hear me speak and to meet me this Wednesday, April 10, at 7 p.m., when I discuss “3 Power Trends to Profit From” at a lecture that I will give at New Jersey City University in Jersey City, N.J. The Wall Street Perspectives Lecture Series 2013 event is scheduled for the Harborside Financial Center 4A, 286 Washington Street, in Jersey City. To RSVP, contact Bernard McSherry, an assistant professor of finance, at 201/200-2529 or [email protected]. I hope to see you there!
- Las Vegas Money Show, May 13-16: Join former Fed official Robert McTeer, many other experts and me at this big investment conference. Tickets are complimentary for my subscribers. Call 1-800/970-4355, and mention code # 031170.