Why U.S. Stocks Will Rise in 2011

I think it is highly likely that the U.S. stock market will continue to put up significant gains in 2011. The reason is nothing complex. In-fact, it is just a simple phenomenon that has been going on since the 2009 lows in equities and continues to lift asset prices at this moment. It is quantitative easing and the Federal Reserves commitment to attain significant dollar inflation. Anything else one hears to the contrary is just chicanery.

But before we delve into this and the future let us look at a similar economic situation and how stocks performed in those years. In the depression immediately following the crash in 1929 banks were failing, assets were deflating and commercial credit was collapsing.

But what happened to stocks all through the 1930s despite high double digit unemployment? Stocks went up!

The big catalyst that allowed for the rise in stocks was that we went off the gold standard in 1933. This depreciated the dollar significantly and you can even see it in the CPI below.

click to enlarge

The same thing is going on now with the dollar and equities as it did in the 1930s. Bernanke has even admitted publicly that the goal of QE is to raise stock prices.



Final Thoughts
The macro picture hasn't changed much this past year and likely won't for some time. The FED will continue to try and prop up the debt bubble by rolling cheap money. Stagflation remains one of the best case scenarios. Money will run to the best assets while the bad assets continue to deflate. So, I see major commodities like oil and agriculture continuing to do well while real-estate remains flat. And of course metals like gold and silver will do well. This is all nothing new of course but I think it is going to be the status quo for many, many months to come.

Silver Analysis

Even after this run-up I see some very bullish signals setting up in the price action recently.

Fundamentally, the bullish case also remains as Ben Bernanke and the FED has pledged to keep rates low for some time and also because they have embarked on QE 2. I think it is very likely we will see QE 3,4,5 etc. eventually. Especially considering Japan is still back at a zero interest rate policy and doing even more QE here now 20 years later. There's also a lot of stories going around on JP Morgan's possible short covering going on and just how big some of these traders positions are. Whether or not there is a massive short squeeze taking place or about to take place I'm not sure but it certainly would just add to the bullish case.

Silver Chart Analysis

There was a much larger consolidation from May through August that came before the big run we've experienced recently. This recent one is a lot smaller and tighter. Old resistance has been retested successfully where the arrow points. There was major resistance at those levels. Another bullish thing is there has been a flurry of hammer and small doji candles here around trend support. In the past months there would be hammers off trend support right before big runs.

Some potentially bearish technical things about the chart are that trend support was broken. Silver was trending very well for months but that cracked. After such a run though trend support widens so this isn't a hugely bearish signal. It is more of a neutral one at this point.

In final, if silver can push up a bit from here and hit 29.57 I see significant upside. If it fails to follow through I'll switch and be short biased.

Stock Below NCAV

Thomas Group (TGIS) has a market cap of $4.14 million and from the November 12th quarterly report there is $4.18 million in net current asset value. The stock had an unusual volume spike on 12-01 and printed $2.99. The price is currently at $1.90. It is pretty speculative to me as a long term hold but I think it is worth looking at over the next couple days for a trade.


full disclosure: no position

Quantitative Easing 2 Explained Video

This funny Xtranormal cartoon has been making its way around the internet.

Gold Technical Analysis

Gold is pushing up around resistance in the 1,000's. This area it is approaching has been rock solid resistance as you can see from the first chart. A technician that uses normal trend lines and not an internal trend line will fail to read this market correctly in my opinion. That first line is way to high and was a result of momentum and emotions in the market. The arrows show a range that it tends to trade in. A resistance level it finds easier is in the second chart with the top resistance line.

Of course to clear all this resistance though it is going to have to take out all these spike tops. The grand daddy chart is last. You don't want to miss this.

This chart below is the chart to be looking at on gold.

This chart sends a powerful signal. It is saying that it is more than likely that gold the commodity will continue higher. Let me rephrase that. Very likely. Let me explain what I see.

The bottom red line is golds support trend line. In lamens terms the price keeps bouncing off of it and it goes higher. This is bullish and good for buyers. Price was consolidating off that trend line. The interesting and important thing here is the triangular consolidation that has taken place.

I want to wait a week or two to see what happens as gold tests its former highs. Any congestion would be bullish. If it breaks out I think it still would be a good idea to put on a position or with stocks or ETF's. There is a possibility that this could be a failed signal. In that case it would be a good short on a move to the low 900's. But the technical picture right now is buy, especially on a new high in the low 1,000 area. I'm not sure how the fundamentals support a major run. I feel like the best time to play it is if we see hyper-inflation. I can't ignore market forces though with the technical analysis. China and other foreign countries who hold US debt could up to something?



full disclosure:no positions in gold commodities or stocks at time of writing

China Rare Earth Metals Mining Stocks

The past week or so there has been a macro play on China tightening supply of rare elements. The mining sector in general has been extremely hot this year of course off the back of metals like silver and gold rising. This latest news which I imagine is further driving speculation of supply issues has boosted the share prices of a lot of mining stocks.

Rare earth minerals have a plethora of uses from fuel, to computers, and even lasers. This company called China Direct Industries CDII does magnesium mining and has rights on zinc mines. The balance sheet has $49 million in net tangible asset value against a current market cap of just $50 million.

full disclosure: no position in CDII

Cheap Stock Parlux Fragrances (PARL)

PARL has net current asset value of around $89 million and a market cap right now with the stock at $2.47 of about $50 million. A big bulk of NCAV is in inventory.

There was some significant volume in the stock on Friday and it is testing up against this long standing range it has been in since last year. The stock has been stuck between about $1.50 and $2.40s a share. Price action wise I think it is more likely to pull back the next couple days than start running higher. I may buy it a lower price. We'll see. I've just got it on a watchlist now.

full disclosure: no position