Author: Andrew Packer

Commodities

Kitco: Three Key Reasons Why Gold Prices Are Going Down

Posted on by Andrew Packer

After hitting new all-time highs in mid-July, gold has sold off sharply. It ended the month near its 50-day moving average, down over $100 per ounce from its peak. Silver similarly sold off, dropping under $28 at its peak.

Part of the selloff was based on market data. The economy continues to grow. Inflation, while still on the high side, shows signs of abating. Those conditions aren’t the best for precious metals to prosper.

Plus, gold has had a strong run so far this year. As with investors shifting out of tech stocks, there may be some profit-taking at play. Given that market volatility is rising, but isn’t yet at panic levels, supports that reason.

In the meantime, investors are waiting for interest rates to decline. Expectations for interest rate cuts have been around for a while. The idea of “higher for longer” on interest rates this cycle took some time to take hold.

In the meantime, investors interested in the metal should expect to see some support around $2,275, and $2,220. The first price is the 50-day moving average. The second is where there’s been considerable support for gold prices going back to March.

Those looking to buy and hold should start adding at those price points. Those looking to trade can use gold options, or gold mining stocks, to leverage a move higher.

 

To look at the full reasons behind gold’s latest decline, click here.

 

Technical Analysis

Tastylive: This One Metric Changed Our 0DTE Trades Forever

Posted on by Andrew Packer

The past few years have seen the massive rise of trading zero-day options. These are options that expire the same day the trade is made. This tool has only been available for less than five years. Yet it’s quickly grown to become about half of all daily option trading.

Because of the short amount of time involved in these trades, traders often get caught on the wrong side. Understanding daily market moves can help get a better sense of market moves.

Looking at data for the S&P 500, there’s some sign that market volatility can play a role. How market volatility looks in pre-market trading indicates how trades may play out.

If volatility is up in the pre-market, investors can earn small, but positive returns. That’s for trades going out as far as 45 days. If volatility is down pre-market, the returns substantially improve.

Generally, when putting on trades, traders want higher volatility. That’s because it means higher option premiums. When selling options, higher volatility premiums generally lead to higher profits.

Option buyers may not want higher volatility for the same reason. Investors who use shorter time periods may want to take their profits sooner in the day. That can avoid waiting until expiration, which could lead to a reversal.

 

To view the full analysis, click here.

 

Stock market strategies

Of Dollars and Data: The Sustainable Path is the Only Path

Posted on by Andrew Packer

Investing and building wealth can be similar to dieting. Most don’t follow a set plan. When they try to do so, they may be able to for a while. But at some point, old habits kick in.

As investors, building a system to regularly add to an investment program is crucial. And those who don’t have an investment plan may not invest at all. If they do, their results will likely prove poor.

That’s why most financial experts suggest setting up an automatic plan, often involving an employer’s 401(k) plan. Doing so means putting in a set amount of money each paycheck. And it’s often invested in a basket of stocks.

That avoids the danger of picking individual stocks at random. And investing inconsistent amounts of money at different times.

A set program also helps remove emotions from investing. Rather than panic during a selloff and move to cash, an investor’s regular contribution will simply buy more stocks than before. Such a program can be tweaked to buy shares of individual companies when they go on sale, with the understanding that there will be more volatility involved.

The goal is to find a sustainable strategy that can continue under any market condition. By sticking to a strategy, investors avoid going all-in on stocks at a market top. And they avoid hiding in cash when the market finally turns around.

 

To look into more detail about creating a sustainable investment strategy, click here.

 

Economy

Sachs Realty: “Society Is Vulnerable” U.S. Economic Collapse Is Coming

Posted on by Andrew Packer

It’s said on Wall Street that stocks climb a wall of worry. That’s been the case in recent months. The AI-driven part of the market rally has started to slow down. And while there’s been some sign of market rotation into smaller-cap companies, some dangers still lurk.

Most market fears are unlikely to come to pass. However, conditions are elevated for a number of potential crises. Understanding what those are and how to handle them can be crucial to protect your wealth.

The past few weeks have seen a massive dislocation amid a computer outage. A security software update caused a number of glitches. They impacted banks, airlines, and other critical infrastructure.

While this latest outage was an accident, someone trying to compromise computer systems could someday cause far more damage. This vulnerability will always remain in the age of networked computers.

Meanwhile, even with a strong economy and market at all-time highs, other vulnerabilities exist.

The relatively high interest rates of the past few years have shown the fragility of our financial system. For instance, banks were caught unprepared for rising interest rates last year, even as the Federal Reserve noted such rate hikes were coming.

While markets are always capable of crashing at any given time, added vulnerabilities could make a selloff worse.

 

To watch the full interview, click here.

Stock market strategies

Elliott Wave Options: Buy the Rumor, Sell the News on Rate Cuts!

Posted on by Andrew Packer

Investors have had to exercise extreme patience over the past few years. First, the Federal Reserve raised interest rates over a far longer timeframe than investors expected. Then, they’ve held rates at their highest levels in 15 years for a prolonged time.

The bank is looking to cut rates at its September meeting. That means the cost to borrow money will finally decline. As that happens, assets should take off.

That’s because lower interest rates make it easier to borrow. That includes everything from buying a home and a car to starting a business. Lower interest rates typically cause the stock market to trend higher, and for the economy to post faster growth.

However, markets are also forward-looking. That means that investors may have already priced in the Fed’s move in September. Meanwhile, the market continues to trade a bit more on the fearful side.

Volatility remains elevated. And with earnings season underway, companies missing on earnings are seeing a bigger selloff than they usually do on average.

If anything, the market’s move suggests that the rumor of rate cuts has pushed markets higher. Once those rate cuts start, they may be slow enough that markets sell off anyway.

For now, traders should remain cautious. That doesn’t mean the market will have a massive selloff. Only that markets will likely see continued daily volatility through the fall.

 

To view the full video, click here.

Income investing

Dividend Growth Investor: Ten Dividend Growth Stocks Rewarding Shareholders with Raises

Posted on by Andrew Packer

Markets rise over time thanks to rising corporate earnings. As a company’s profits rise, it can continue to reinvest in its business, or it can reward shareholders. The two largest ways are with share buybacks or dividends.

While dividends are less tax-efficient, investors like having the cash flow from them. And great companies can pay increasing dividends to reward investors over time. While dividend stocks are less exciting than pure growth, the prospect of lower interest rates make them attractive now.

Several companies have a long track record of raising their payouts. Those who pay a growing dividend for at least ten years are worthy of an investor’s attention.

For instance, Duke Energy Corporation (DUK) raised its quarterly dividends by 2%. The utility has raised its payout for 20 consecutive years now. Shares currently pay a 3.9% dividend. That’s more than double the average offered from the average stock.

They’re not alone. Railroad Union Pacific Corporation (UNP) also raised its quarterly payout. They raised the dividend by 3.1%. And they’ve done so for the 18th consecutive year. Shares pay a current yield of 2.2%.

While most dividends aren’t massive, investing in dividend growth stocks can lead to compounding returns over time. Today’s 2% or 3% yield can turn far higher with patience. And these stocks will become more attractive compared to bonds as interest rates decline.

 

To see the full list of companies raising their dividend payouts now, click here.

 

Stock market

Rosenberg Research: What, Me Worry?

Posted on by Andrew Packer

Markets remain near all-time highs, and will likely hit new all-time highs again before the year is out. The past few weeks have seen a rotation from big-cap tech stocks into smaller-cap stocks. Typically, bull markets start off with smaller-cap stocks trending higher. This market rally has been different.

Plus, with earnings on big-tech stocks soaring thanks to demand for AI, market valuations don’t look stretched. We’re nowhere near the levels of overvaluation seen during the dotcom boom.

However, the past year’s stock surge has been partly earnings growth. But the largest bulk of the move is simply earnings expansion. In other words, investors are simply willing to pay more for stocks on average.

Meanwhile, individual households now have about 70% of their balance sheet in equities. That’s a far cry beyond the 60/40 model. The 60/40 split balances the long-term growth in stocks with the stability of bonds.

While markets can continue higher, the easiest money in the rally has likely been made. And seeing further massive gains from here looks unlikely.

Investors taking a strategic approach may want to trim tech positions on a rally. The profits can sit in cash earning high interest right now. Or it can go into long-term bonds, which should rally as interest rates decline later in the year.

For now, market valuations aren’t a red flag. But they’re a yellow one. Even if small caps are finally rallying too.

 

To view the full analysis, click here.

Economy

A Wealth of Common Sense: Waiting for the Coast to Clear on Inflation

Posted on by Andrew Packer

Over the past few years, traders and investors have had to exercise patience with the Federal Reserve. As the central bank started to raise interest rates, expectations for how high rates would go kept rising.

Once rates peaked, predictions for how long rates would stay high also kept getting pushed out. Now, we’re on the cusp of seeing the first interest rate cuts in over four years. That could occur as early as September.

The reason for the potential rate cut is that inflation data continues to decline. It’s not quite at the Fed’s target rate level. But if the bank waited for that target to hit, it would likely overshoot and risk deflation.

That’s because monetary policy has a lag period. It can take as long as 18 months for a change to fully ripple throughout the economy.

Meanwhile, there remain comparisons to the 1970s. The 1970’s saw a burst of inflation, which then declined, only to be followed by a second burst of inflation.

Conditions aren’t likely to create a second burst right now. But a recession or pandemic, followed up with massive amounts of money-printing, could cause a resurgence.

Given that bear markets end while the data is still ugly, the bull market should be no surprise. Those waiting to see if a second round of inflation will hit will likely miss out on substantial gains in the stock market.

 

To read the full analysis, click here.

Economy

Excess Returns: The Case for a Continued Rally

Posted on by Andrew Packer

While markets have pulled back slightly over the past few weeks, that’s a normal summer trend. The market tends to pause over the summer, decline into the fall, then rally into the end of the year.

That will likely be the case this year, although there may be some additional volatility around the election. Other trends also suggest that investors aren’t ready for a major market decline this year.

One sign of market strength is in market sentiment. Traders are generally bullish, but not as bullish as they were at the end of 2022 before the last market top.

When investors are overly bullish, they’re “all in” on stocks. And when all the money in goes in, there’s nowhere for markets to go but down.

Data on shorting volume also indicates that investors aren’t too fazed by the market’s recent pullback. Further gains are expected in the second half of the year.

On the macro front, declining inflation looks bullish for stocks, even if it is choppy on a monthly basis. Plus, with the Federal Reserve looking to cut interest rates later in the year, stocks may have more upside. They’ll look more attractive relative to bonds as yields decline.

Meanwhile, corporate earnings are holding up strong. Some companies are already reporting productivity gains from incorporating AI tools. That’s a trend that likely has far more to deliver in the years ahead.

 

To review the full case for a further market rally this year, click here.

Stock market

FX Evolution: Stock Markets Do This Before the Sell-Off Is Over

Posted on by Andrew Packer

Markets tend to rise over time. But they often face pullbacks along the way. Many market pullbacks occur at seasonal periods. There’s usually one in the spring, then one in late summer.

This year, we had a modest pullback in late April. And the past two weeks have seen markets start to pull back. But there is one key sign that will need to trigger before the selloff reaches its peak.

The sign? It relates to the market volatility index, or VIX.

Over the past several years, when markets get fearful, the VIX rises from its usual level in the teens to 20. Once it hits that level, market fear tends to be near a peak.

In a bigger crisis, the VIX may rise even further. But for garden-variety market pullbacks, 20 is a reasonable sign.

The market pullback of the past few weeks has pushed the VIX to the 16 level. That’s still within the market’s average range. Until the VIX tops 20, it’s likely that investors will see some further weakness in the market ahead.

Once the VIX does top 20, investors can start buying into beaten-down stocks ahead of a likely relief rally. That would likely most benefit tech stocks, which tend to sell off the most in a market pullback.

A VIX over 20 also means traders can buy call options cheaply, and stack the odds of big returns in their favor.

 

To watch the full analysis, click here.