InvestMacro Forex News

By HY Markets Forex Blog

According to over four thousand analysts’ predictions assembled by Bloomberg, Topix index profits rose 57 % to 74.78 yen a share this year , compared with the global 19 percent .

Toyota Motor, the world largest car-makers, stated that the profits and sales will increase to it highest in the next six years in the 12 months ending March 2014. The shares have nearly doubled and the Topix 30-biggest companies, increased by 4.1 percent on April 30^th.

An estimated $1.24 trillion was added to the value of Tokyo-traded shares since Nov 14.

Bloomberg reports showed that 52 percent session since then lifted most of the 33 industry groups and companies. Japan is the biggest country from the markets among the 72 countries led by MSCI’s benchmark global indexes.

The Chinese manufacturing growth is indicating signs of slowing down and the U.S Federal Reserve are considering reducing bond purchases that would improve the economy, have impelled the biggest Topix  price sway  .

“It’s natural that stocks will move randomly,” Abe adviser Koichi Hamada told reporters in Tokyo on May 30. “Excessive upward or downward moves can happen any time.”

The profits for the Japanese companies are growing at a fast rate than other countries. An estimated 57 percent growth rate came after the expansion in 2012, according to the analysis taken in the MSCI All-country World Index, compiled by Bloomberg.

The Japanese industrial production increased by 1.7 percent, exceeded its highest estimate in April from March, according to a survey taken by Bloomberg news. Falling for the sixth month in April , was the National consumer prices , at the same time a price weighed for Tokyo city increased on May for the first time in four years .

The post Rise in Tropix Profits appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

One sector we haven’t looked at in quite some time is the big pharmaceutical stocks sector. Exposure to this sector is always welcome in a long-term stock market portfolio.

Like every company, big pharmaceutical companies experience their own business cycles, but dividend payments within the group are significant and worthy of attention.

Bristol-Myers Squibb Company (NYSE/BMY) was one of the higher dividend paying stocks within the group.

The company got a major Wall Street upgrade from Citigroup, based on its Phase 3 development program for “Nivolumab,” a new cancer treatment.

The company recently experienced renewed stock market momentum after a period of consolidation. Its dividend yield is approximately three percent now because of the run-up. It was closer to five percent not too long ago.

I’m still a fan of combo pharmaceutical companies for long-term portfolios. By this I mean companies with other business lines, rather than pure-play drug development stocks. I’m referring to companies like Johnson & Johnson (NYSE/JNJ), which has pharmaceuticals, consumer products, medical devices, and diagnostics business lines. There’s also Abbott Laboratories (NYSE/ABT), which sells drugs, eye-care products, nutritional products, and dog food.

This multifaceted business approach that includes the expensive, but also rewarding business of drug development creates a nice bit of diversification as the business cycle changes.

Like virtually everything else in the large-cap space, Abbott has done great on the stock market over the last couple of years. The company only experienced two long periods of flat performance since 1999. Abbott’s stock chart is featured below:

Chart courtesy of www.StockCharts.com

In its latest quarterly report, the company’s earnings from continuing operations improved substantially to $545 million, up from $351 million.

Global revenues grew 3.5% on an operational basis to $5.4 billion. Currency translation knocked this back to 1.8%. The company’s strongest growth was in its nutrition division, followed by diagnostics, and then established pharmaceuticals. (See “Why DuPont’s Earnings Results Are So Typical for This Stock Market.”)

Like Johnson & Johnson, Abbott is now trading at an all-time record-high on the stock market. In terms of valuation, however, Abbott has a price-to-earnings (P/E) ratio of approximately 11.5. Johnson & Johnson’s is around 23.

For many years, I’ve seen countless stock market portfolios hold either of these two companies—sometimes both. With the stock market and these positions at all-time record-highs, it is difficult to make the case that they’re worth accumulating at this particular point in time. But with a major retrenchment in the stock market, these stocks would certainly be worthy of consideration for long-term retirement portfolios.

Both companies backed their previously stated 2013 full-year outlooks.

A big pharmaceutical company that’s diversified into other complementary business lines is the way to go if you’re looking to make an investment in this sector. I’m a big believer in the long-term wealth-creating effect of dividend reinvestment. A company with partial dividend reinvestment is also attractive.

The stock market has shown it likes to stick with its winners. With any more upside, these two pharmaceutical giants—Johnson & Johnson and Abbott Laboratories—should keep ticking higher.

Article by profitconfidential.com

May was supposed to a dud, according to the Stock Trader’s Almanac. In 2012, the month of May was a disaster, with the Dow and the S&P 500 plummeting 6.21% and 6.23%, respectively. The technology and small-cap sectors fared even worse, with the NASDAQ and Russell 2000 giving up 7.19% and 6.74%, respectively, in May 2012.

Fast-forward a year, and this May has been blooming for the stock market. The key stock indices recorded excellent gains, with the NASDAQ staging its best month in over a year.

The reality is that in spite of several days of selling in mid-April, the current upward move in the stock market this year really hasn’t faced any hurdles, which is a surprise.

In fact, we have yet to see sustained selling or a down month this year, with the exception of the 0.42% decline posted by the Russell 2000 in April. Small-caps came back with a vengeance in May, advancing nearly five percent.

And there will likely be more highs and records in the stock market to come as long as the Federal Reserve and other global central banks continue offering easy money and driving down interest rates. And if 2012 is any indication, it’s looking like full steam ahead.

In 2012, the stock market staged a strong rally following the May meltdown, reporting gains in each month from June to September.

Now, I’m not totally convinced this pattern will happen again this year, but the investment climate as far as the economy and easy money is better than it was in 2012.

The only thing that concerns me is that I just don’t see the current rate of the stock market advance keeping pace. If this were to happen, the Dow would end up with a 41% gain, while the S&P 500 would have advanced 38%. Honestly, I don’t see this happening, which means we could likely see some hesitancy over the next several months—or at least a stock market correction of some meaningful magnitude.

I would view a stock market correction not as a red flag, but as a buying opportunity to jump in and accumulate additional positions. My belief is that this stock market is heading higher.

The only thing that could derail the bull market is the Fed, especially if it decides to pare down its bond buying, which would force longer-term yields higher.

In addition, I’m concerned about the bubble-like conditions in the Japanese stock market, where I feel stocks are extremely vulnerable to more selling. (Read “Why Nikkei Sell-Off May Foreshadow Things to Come.”)

Since trading at a high on May 22, the benchmark Nikkei index has faltered 10.7% and has breached its 50-day moving average, as shown in the chart below, based on my technical analysis.

Chart courtesy of www.StockCharts.com

What concerns me in Japan is the lack of solid buying following the 7.3% correction on May 23. Of course, Japan’s situation is vastly different from the U.S., since Japanese stocks were up 70% in just six months.

Article by profitconfidential.com

While an economic slowdown is looming over the global economy, no one seems to care, as stock markets continue to reach new record-highs—giving investors false hopes of economic growth. But how long can this mirage actually last?

The economic slowdown in the global economy I’m talking about is a worldwide pullback in growth. Take India as the first example. According to India’s Central Statistics Office, the Indian economy is growing at five percent—its slowest pace in a decade! The director general of the Confederation of Indian Industry was quoted late last week as saying, “With no visible pick-up in any key levers of the economy, the situation remains grim.” (Source: Mallet, V., “India records slowest growth in a decade,” Financial Times, May 31, 2013.)

China, the second-biggest economic hub in the global economy, is facing headwinds, as its economy is growing at its slowest pace since 2009. Japan has undergone the largest per-capita quantitative easing program in history (its debt-to-gross domestic product [GDP] is running above 200%), and that country is back in a recession.

The unemployment rate in the eurozone was reported last week at 12.2% for April. It was 12.1% in March. The unemployment rate in Spain stood at 26.8 % and in Portugal, it stood at 17.8%. (Source: Eurostat web site, May 31, 2013.)

And industrial metal prices, which are supposed to be a leading indicator, are all heading downward.

Take a look at the chart below of the Dow Jones-UBS Industrial Metals Index. This index provides an overall picture of the performance of industrial metals.

Chart courtesy of www.StockCharts.com

Since the beginning of the year, this industrial metals index has declined about 14%. And, as it has been well-documented in these pages, copper stockpiles are increasing, up significantly since the beginning of the year.

But large nations facing economic slowdowns and industrial metal prices facing sell-offs aren’t the only indicators flashing warnings for what’s ahead in the global economy. Other key indicators like the Baltic Dry Index are suggesting demand is bleak and depressed in the global economy.

I can’t stress this enough, dear reader: the global economy witnessing an economic slowdown means difficult times ahead for us here in North America—it’s a major global economy now, where what happens in one part of the world has ramifications for other countries worldwide.

The U.S. economy is broken. According to a survey conducted by Pew Research, 24% of Americans said in the past 12 months that they had difficulties “putting food on the table.” In 2007, just before the Great Recession struck the U.S. economy, this number stood at 16%. (Source: Pew Research, May 24, 2013.)

We can’t fight another economic crisis in an environment in which our central bank has run out of arsenal to fight an economic slowdown and the government has already raked in a huge amount of national debt. That is why I believe this coming downturn will be significant and not so easy to recover from.

Michael’s Personal Notes:

As I have written in these pages many times before, economic growth in a country happens when people are finding jobs, real wages are rising, consumers are spending, businesses are expanding and seeing their inventories decline, and the general standard of living is rising.

But all of these events are missing in the U.S. economy.

The jobs growth we have witnessed following the Great Recession has been in low-wage-paying sectors. Despite the politicians telling us we have economic growth, we still have a significant number of Americans unemployed or working part-time because there aren’t any full-time jobs for them. The underemployment rate, which I consider to be a better measure of the jobs market situation, still stands around 14%, and it’s been at that number or higher for years.

In periods of economic growth, businesses spend their money, creating higher-paying jobs as they do. In the current U.S. economy, businesses are still shying away from spending; rather, they hold a pessimistic view on the economic growth potential of the current U.S. economy. Many companies have taken to the process of buying their shares back in order to make their per-share corporate earnings look better.

According to the Bureau of Economic Analysis, personal consumption expenditure, a measure of consumer spending in the U.S., decreased 0.2% in April after a dismal rise of only 0.1% in March. (Source: Bureau of Economic Analysis, May 31, 2013.)

Disposable income (what Americans have left after paying taxes) also declined in April, shedding 0.1% in the month.

Even with all the gains in the key stock indices and politicians saying we have economic growth in the U.S., the wealth of Americans is nowhere close to what it was before the financial crisis and recession hit the U.S. economy. According to the Federal Reserve Bank of St. Louis, adjusted for inflation, Americans have gained back only 45% of the wealth they lost during the Great Recession. (Source: Wall Street Journal, May 30, 2013.)

If this is what economic growth looks like, then I don’t even want to think about how horrible a slowdown in the U.S. economy will appear—which will happen because of what is going on in the global economic conditions.

If the Federal Reserve starts to move away from quantitative easing and its easy monetary policies, the actual economic growth picture for the U.S. economy will deteriorate quickly—and that’s why I believe the Fed can’t pull back on its paper money printing anytime soon.

Where the Market Stands; Where It’s Headed:

We are in a stock market that is severely overbought. The bear market has done an excellent job at convincing investors the stock market is safe again…and this time, the bear had a helping-hand—the policies of the Federal Reserve.

Even I’m surprised at how far this market has risen. But the fundamentals behind a real, sustainable stock market rally are missing. The higher this stock market goes, the further the fall. Then what? Let me guess: the Fed will buy stocks to support the crash?

What He Said:

“In 2008, I believe investors will fare better invested in T-Bills as opposed to the stock market. I’m bearish on the general stock market for three main reasons: Borrowing money in 2008 will be more difficult for consumers. Consumer spending in the U.S. is drying up, which will push down corporate profits.” Michael Lombardi in Profit Confidential, January 10, 2008. The year 2008 ended up being one of the worst years for the stock market since the 1930s.

Article by profitconfidential.com

As I have written in these pages many times before, economic growth in a country happens when people are finding jobs, real wages are rising, consumers are spending, businesses are expanding and seeing their inventories decline, and the general standard of living is rising.

But all of these events are missing in the U.S. economy.

The jobs growth we have witnessed following the Great Recession has been in low-wage-paying sectors. Despite the politicians telling us we have economic growth, we still have a significant number of Americans unemployed or working part-time because there aren’t any full-time jobs for them. The underemployment rate, which I consider to be a better measure of the jobs market situation, still stands around 14%, and it’s been at that number or higher for years.

In periods of economic growth, businesses spend their money, creating higher-paying jobs as they do. In the current U.S. economy, businesses are still shying away from spending; rather, they hold a pessimistic view on the economic growth potential of the current U.S. economy. Many companies have taken to the process of buying their shares back in order to make their per-share corporate earnings look better.

According to the Bureau of Economic Analysis, personal consumption expenditure, a measure of consumer spending in the U.S., decreased 0.2% in April after a dismal rise of only 0.1% in March. (Source: Bureau of Economic Analysis, May 31, 2013.)

Disposable income (what Americans have left after paying taxes) also declined in April, shedding 0.1% in the month.

Even with all the gains in the key stock indices and politicians saying we have economic growth in the U.S., the wealth of Americans is nowhere close to what it was before the financial crisis and recession hit the U.S. economy. According to the Federal Reserve Bank of St. Louis, adjusted for inflation, Americans have gained back only 45% of the wealth they lost during the Great Recession. (Source: Wall Street Journal, May 30, 2013.)

If this is what economic growth looks like, then I don’t even want to think about how horrible a slowdown in the U.S. economy will appear—which will happen because of what is going on in the global economic conditions.

If the Federal Reserve starts to move away from quantitative easing and its easy monetary policies, the actual economic growth picture for the U.S. economy will deteriorate quickly—and that’s why I believe the Fed can’t pull back on its paper money printing anytime soon.

Where the Market Stands; Where It’s Headed:

We are in a stock market that is severely overbought. The bear market has done an excellent job at convincing investors the stock market is safe again…and this time, the bear had a helping-hand—the policies of the Federal Reserve.

Even I’m surprised at how far this market has risen. But the fundamentals behind a real, sustainable stock market rally are missing. The higher this stock market goes, the further the fall. Then what? Let me guess: the Fed will buy stocks to support the crash?

What He Said:

“In 2008, I believe investors will fare better invested in T-Bills as opposed to the stock market. I’m bearish on the general stock market for three main reasons: Borrowing money in 2008 will be more difficult for consumers. Consumer spending in the U.S. is drying up, which will push down corporate profits.” Michael Lombardi in Profit Confidential, January 10, 2008. The year 2008 ended up being one of the worst years for the stock market since the 1930s.

Article by profitconfidential.com

When it comes to the equity market, the institutional mindset is useful; it’s equally as important as changes in Federal Reserve policy.

While examining views and portfolios of many large, buy-side institutions, I’ve been reading what could only be described as unscientific cautious optimism for the U.S. economy.

There is an expectation to further accumulate the equity market’s existing winners based on earnings growth and valuations. The buy-side is paid to play, but I read many views with these intentions.

This is including corporations like Wal-Mart Stores, Inc. (NYSE/WMT), Johnson & Johnson (NYSE/JNJ), PepsiCo, Inc. (NYSE/PEP), The Home Depot, Inc. (NYSE/HD), International Business Machines Corporation (NYSE/IBM), and even Berkshire Hathaway, Inc. (NYSE/BRK-A).

Sticking with the equity market’s existing winners does make sense for institutional buyers for a number of reasons: liquidity, earnings reliability, growing dividends, very strong balance sheets, and window dressing. Big investors don’t want to look like they’ve missed the equity market’s top stocks.

Everybody knows what can go wrong, but what’s most important for investors is how you structure your portfolio to deal with the investment risk.

Because of the equity market’s stunning performance since the beginning of the year, I view investment risk as being way up. I am very reticent about buying stocks right now.

But what is most important is what corporations are saying about their businesses and how the institutional mindset interprets it.

Last week, Costco Wholesale Corporation (NASDAQ/COST) reported another solid quarter of growth in sales and earnings. The company said its fiscal third quarter of 2013 (ended May 12, 2013) produced sales growth of eight percent, reaching $23.6 billion.

Comparable store sales (which black out gasoline and currency changes due to volatility) grew a solid seven percent. (See “Retail Stocks Find Big Success in the Great Outdoors.”)

Earnings rose 18% to $459 million, or $1.04 per diluted share. Membership fees (which are highly profitable) jumped to $531 million from $475 million comparatively.

All macroeconomic factors matter, but it’s still the value attributed to a corporation’s business conditions by institutions that drives equity market prices.

Costco’s earnings results were great. As a low-margin, mature corporation, membership fees are an important contributor to Costco’s earnings.

Like so many other corporations, the company’s cash and short-term investments grew nicely from $5.98 billion in the comparable quarter to $6.51 billion, making it likely that the corporation will offer up another dividend increase this year. April’s sales were up seven percent to $7.98 billion, compared to the same period last year.

This equity market will still reward the performance of growing corporations, and Costco’s latest numbers were certainly impressive.

Article by profitconfidential.com

Chinese stocks continue to be major underperformers this year—they have been for the past three years from 2010 to 2012. I must admit that having been a bullish supporter of Chinese stocks, it has been a major disappointment; but like everything in life, things will surely get better. I’m just not putting a timeframe on when Chinese stocks will regain their glory and outperform.

At this juncture, there is no evidence that the landscape for Chinese stocks will improve soon. The Shanghai Composite Index (SCI) is up a mere 2.12% this year, easily underperforming the S&P 500 and the Dow. Even the Nikkei 225 has blown away the SCI.

Just take a look at the comparison in the chart below of the SCI (as indicated by the red candlesticks) and the S&P 500 (as indicated by the green line). The purple oval on the right side of the chart shows the divergence forming between the SCI and the S&P 500 since around 2008, based on my technical analysis.

Chart courtesy of www.StockCharts.com

In the short- to medium-term of less than one year, the SCI will likely continue to underperform the U.S. key stock indices.

For Chinese stocks to come back, two things must happen:

First, China must make sure the Chinese economy doesn’t falter back into a tailspin. The new government, under President Xi Jinping and Premier Li Keqiang, must work to drive domestic consumption in the country to levels similar to those in the United States and Japan, where consumer spending accounts for about two-thirds of the countries’ gross domestic product (GDP). In China, domestic consumer spending currently only accounts for about 25%, so there’s plenty of work ahead.

To increase local spending, Chinese wages must rise. We are seeing this now, but it must continue in both the cities and the rural areas of China. A wealthier China means less dependence on exports and on what happens in the global economy.

China is estimated to show growth that will still far overshadow that of Japan and many parts of the global economy. According to the Organization for Economic Cooperation and Development (OECD), in its semi-annual Economic Outlook report, the agency reported that China is estimated to expand its economy by 7.8% this year, followed by 8.4% in 2014. (Source: “Global economy advancing but pace of recovery varies, says OECD Economic Outlook,” Organization for Economic Cooperation and Development web site, May 29, 2013.)

China is clearly stalling, as evidenced by key companies in the country. In its first-quarter report, Chinese infrastructure company Joy Global Inc. (NYSE/JOY) stated that “China’s economy has not been able to get traction and continued slowing has reduced the demand for coal. Electricity demand is growing at only half the rate of prior years, reflecting a significant deceleration in the economy.” (Source: Alva, M., “Coal Glut, Weak Demand Hit Mining Company Joy Global,” Investor’s Business Daily, May 30, 2013.)

I don’t think China will tank, but the country will continue to struggle to get back on track; albeit, it’s unlikely the country will ever be the way it used to be.

The key is patience, and there are better investing opportunities elsewhere in the world, including our own backyard. (Read “‘Year of Snake’ Favors U.S. Over Chinese Stocks.”)

Article by profitconfidential.com

By WallStreetDaily.com

Four-plus years into a bull market and stocks keep hitting new record highs.

The economy keeps recovering, too. Granted, it’s sluggish. But it’s a recovery, nonetheless.

And, of course, the Fed keeps promising to backstop the whole shebang with easy money and absurdly low interest rates.

So what’s not to like about the current market backdrop?

Well, finding bargains to profit from the continued boom keeps getting harder and harder.

In fact, the valuation boogeyman is lurking around every corner.

Beware of the P/E Creep

We know that stock prices ultimately follow earnings. But prices have gotten a little ahead of themselves.

Case in point: In the first quarter, S&P 500 companies reported earnings growth of 3.3%. Yet, on average, stock prices are already up 11.5% this year.

As Garth Friesen, Co-Chief Investment Officer at III Associates, says, “The whole move we’ve had in the S&P this year has been due to multiple expansion.”

Now, Mr. Friesen might be stretching the truth a tad. But not much. Take a look:

Since the beginning of the year, the trailing 12-month price-to-earnings (P/E) ratio for the S&P 500 Index has crept 12.6% higher, from 14.13 to 15.92 (as of Friday’s close).

As you can tell, the “multiple expansion” accelerated in recent weeks, too.

So with screaming bargains getting harder and harder to come by, what are investors doing? The absolute worst thing possible.

They’re going dumpster diving in hopes of finding an undervalued gem.

Don’t Join “The Dash for Trash”

A recent analysis by Bespoke Investment Group reveals that the 50 stocks in the S&P 500 with the highest short interest outperformed the 50 stocks with the lowest short interest. (So far this quarter, the former is up 12%, versus a decline of 5% for the latter.)

So investors are betting on the most shorted stocks, simply because their valuations might be beaten down relative to the broader market.

It’s a recipe for disaster. And Bespoke rightly labels the trend “the dash for trash.”

Whatever you do, don’t join it!

Instead, be patient and more selective. Take the time to unearth companies that trade in line with the market valuation, and benefit from accelerating sales and earnings growth rates.

Even if the current trend of a multiple expansion for the S&P 500 Index slows down or flat-lines, these companies will demand a much higher stock price in short order.

I’m about to reveal one such company to WSD Insider subscribers.

As we speak, I’m finishing up my research report on an under-the-radar and undervalued small-cap opportunity – one that could easily double in price by the end of the year.

It sells one of the hottest lines of specialty merchandise in the Southeast. And it won’t be long before the rest of the country catches on.

I plan to release the report next week. All you have to do to be included on the list is sign up here.

Bottom line: Finding bargains in the current market might require a little more work than in years past. But nobody ever said that stock picking is so easy a caveman could do it!

In all seriousness, as valuations start to get stretched and the average investor starts rotating into the stock market, now is the worst time to throw caution out the window.

Instead, we need to be more and more selective if we hope to boost our profits in the months ahead.

Ahead of the tape,

Louis Basenese

Article By WallStreetDaily.com

Original Article: The Biggest Dilemma Facing Investors Today

By www.CentralBankNews.info     Australia’s central bank left its cash rate unchanged at 2.75 percent, saying the current easy policy stance should help economic growth slowly strengthen but the current outlook for inflation “may provide scope for further easing, should that be required to support demand.”
    The Reserve Bank of Australia (RBA), which has cut rate by 200 basis points since October 2011, most recently by 25 basis points in May, said further effects of that easing can be expected over time but the pace of borrowing remains relatively subdued so far, though there has been some signs on increased demand for finance by households.
    In May the RBA also said the outlook for inflation would afford its scope for further easing.
    It also said in May that the exchange rate of the Australian dollar was at a historical high level and repeated today that despite its recent depreciation,  it was still high given lower export prices.
     “The exchange rate has depreciated since the previous Board meeting, although, as the Board has noted for some time, it remains high considering the decline in export prices that has taken place over the past year and a half,” the RBA said today, quoting its governor, Glenn Stevens.
   Since the RBA’s rate cut on May 6, the Australian dollar has depreciated by 5 percent against the U.S. dollar. The A$ was quoted at 0.97 to the U.S. dollar today.

    The RBA said economic growth over the past year has been a bit below trend with unemployment edging higher and growth in labour costs moderating. Inflation is consistent with the bank’s’ medium-term target and is expected to remain so over the next one to two years.
    Australia’s Gross Domestic Product rose by a quarterly 0.6 percent in the fourth quarter of 2012 from the third, for annual growth of 3.1 percent.
    Global growth is still running a bit below average this year, the RBA said, with reasonable prospects of a pick-up next year. While commodity prices have declined, they remain high by historical standards. But global inflation has moderated in recent months.
    In the first quarter of 2013, Australia’s inflation rate rose to 2.5 from 2.2 percent in the fourth quarter. The RBA targets inflation of 2-3 percent.
    The RBA said financial conditions internationally were very accommodative and despite the recent rise in sovereign bond yields, “funding conditions for sovereigns, well-rated corporates and most financial institutions remain very favourable.”
   

By MoneyMorning.com.au

Don’t look now…but gold stocks are soaring!

Maybe my screen’s upside down…

No, that’s not it. Maybe gold stocks really are going up after all!

Since I wrote to you last week explaining why gold stocks had bottomed, the All Ords Gold Index (XGD) is up by 9%, and the Market Vectors Gold Miners index (GDX) is up by 12%. 

Many stocks have fared much better. Northern Star (NST) is up by 28%, Troy (TRY) is up by 16%, and Beadell (BDR) is up by 20%. 

These are impressive short-term moves, and are a clear signal to sit up and pay attention. And if you thought you may have missed the boat, think again.

This is just the beginning…

In a nutshell, the reason I called a bottom last week was that the market was so universally negative on gold stocks that sentiment had hit zero.

And from there, it’s basically impossible for things to get any worse. To quote the famous market analyst Bob Dylan, ‘When you aint got nothing, you got nothing to lose.’ 

This is precisely why when sentiment bottoms out, a new bull market starts. 

One week later, and it already looks like it’s game on.

A big part of this is the recovery in the gold price.

‘Recovery!?’ I hear you say.

Yes.

No one seems to have seen what has happened since gold copped it in April with its biggest fall in 33 years.

At the time I wrote to you saying the historic fall in gold spelt a historic opportunity for you. And since then it has seen an incredible bounce. Thanks in part to the gold price and in part to the falling Australian dollar, gold in Aussie terms has jumped 14% in just six weeks. 

In fact, the bounce has been so big that Aussie dollar gold is nearly back to where it was before the once-in-33 year crash.

Aussie Dollar Gold – 85% Recovered from the Crash Already

Source: StockCharts

A reader, Pat, took our advice and was kind enough to email after the crash to say:

‘Nailed It! All the graphs show we were just off the bottom…you can have a day off from banging the gold drum because someone heard and took action!’

That’s so great to hear, thanks for that Pat.

I expect that gold stands to rise further.

But I think gold stocks are the next shoe to drop.

They are only just starting to play catch up now. Some very interesting signals have come out of the gold sector. For one thing, over the last week, they have gained faster than gold. In other words, they have provided leverage.

Once upon a time, that’s what investors bought gold stocks for. If gold looked like going up 5%, a good quality gold stock could go up 10%, 15%, or 20%. But it hasn’t worked like that for a long, long time.

So it was interesting to see gold stocks actually outperform the gold price in the last week. This chart shows the ratio of the gold stock index (GDX) to the gold price. When gold stocks are giving leverage, this ratio rises.

Gold Stocks Giving Leverage? Next Thing We Know Flares Will be Cool Again

Source: StockCharts

What really catches my eye in this chart is the fact that not only is this ratio rising, but it has poked its head above the 50 day moving average (blue line) for the first time in six months, and has actually held there. This is the first bullish sign from this chart in a long time. I’d keep a close eye on this.

Just two weeks ago, George Soros, one of the world’s most famous, experienced and wealthiest investors, made a massive bet on gold stocks. I wrote to you about how in total he now has a quarter of a billion dollar bet on gold to go up.

When players like him get involved, it’s often well worth punting alongside them. So far it’s paying off.

But that doesn’t mean all gold stocks will go up. It’s a market of stocks, not a stock market after all.

Warning: Quality Varies Wildly

Many of these gold stocks are running dangerously low on cash. So that’s the first thing look at when thinking about a stock.

To find out a company’s cash balance, I read the quarterly reports. It’s certainly not a pastime for adrenaline junkies, but it is essential. I recently read over five hundred of them, to find the most cashed up stocks on the market.

The findings were surprising. Although most stocks were running on fumes, there were also quite a few stocks with at least a few years-worth of cash.

This is so important because if they have enough cash in the bank while capital markets are tight, they can just get on with business. They can also buy their competitors for peanuts.

Three stocks in particular passed the cash test, and a host of other screening tests I use, so I tipped them in the latest monthly issue of Diggers and Drillers.

These break a six month patch in which I only tipped two stocks. That tells you how dangerous the market has been until now.

Like gold stocks, the entire resource space has been very weak, but after a very long rough patch, the mining sector looks to be on the rebound.

In fact, I’m increasingly convinced we’ve seen the low point in the resource market. Resource stocks should see good gains from here. And I’m not the only one to think this way. Controversial analyst Phillip J Anderson believes commodity markets are only half-way through a 30-year bull market cycle.

Anderson says all markets, including property and stock markets, move in long cycles. If Anderson is right (and I think he is) 2013 could be the best opportunity to buy resource stocks in more than 10 years.

And as gold is the most oversold of all the resource stocks, good quality gold stocks stand to make investors the biggest gains of them all.

Dr Alex Cowie
Editor, Diggers & Drillers
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