Profit from Looming Shortage of Rare Earth Elements needed for Hybrids and Green Technology

The world is moving more towards hybrids and future Clean and Green Technology such as wind turbines.

Honda and Toyota are dedicated to hitting and ramping their hybrid targets.

But all this demand will cause a shortage in elements needed by hybrids, wind turbines, and future technology.

According to a Reuters Article (By Steve Gorman), Hybrid cars are gobbling rare metals such as Lanthanum, Neodymium, Terbium and Dysprosium.

There will be a shortage in Rare Earth Elements.

At the moment, China produces most of the world's Rare Earth Materials, and as of 2008, the Resource Investor says "China has recently, [...], reduced its exports of rare earth metals to a total below that of the current demand just by Japan. In addition China has raised the export taxes on rare earth metals effectively raising the price of those metals directly to those who can still obtain them from China."

So is there a stock investing play on these Rare Earth Elements (REE), outside of China?

According to the Resource Investor, Six Companies in this area are:

Australia

1. Lynas Corporation Ltd (LYC.AX or LYSCF.pk)
   
2. Arafura Resources Limited (ARU.AX or ARAFF.pk)
   

Canada

1. Great Western Minerals Group LTD (GWG.V or GWMGF.pk)
   
2. Avalon Ventures Ltd (AVL.TO or AVARF.pk)
   

United States

1. Chevron Mining Inc. (CVX)
   
2. Thorium Energy, Inc.
   

Many of these stocks are international stocks and it may be difficult to find research materials. Do research these stocks (and other related stocks), well.

Disclosure: Author has a small position in AVARF.pk.

Profit from Those $1 Per Day (to Rent) Red DVD Kiosks?

Have you ever seen those Red DVD Kiosks at your local supermarket? For $1 a day, you can automatically select any movie and rent the DVD. There are no late fees, and if you keep the movie after a certain number of days, the movie is yours to keep.

In this economy, and in general, this is a very appealing option. Blockbuster (BBI), for example, offers rental of a DVD for around $4 per day. Other options include Netflix (NFLX), which mails DVDs through the mail.

The Company that profits from those Red DVD Kiosks is Coinstar (CSTR). Yes, this is the same company that makes those machines that convert loose coins to cash for a fee.

Movie studios are not happy with the underpricing of these DVDs.

Coinstar is a $1 Billion company, with a forward PE of 22, and 5 Year Estimated Growth Rate of 28%, for PEG of 0.79, a very good value. (Anything PEG under 1 is a good value).

It is said that Redbox has a 13.8% market share of the DVD rental market, up from 9% last year, and just 2.3% in 2007.

Today's Stock Chart of CSTR

Compare Performance of CSTR, BBI, NFLX

The Rise of Social Gaming

The Rise of Social Gaming

Social Gaming is the fastest growing game market.

Social games are "built to be enjoyed and shared with friends through existing social networks and platforms like the iPhone." They are often free to play, and they heighten the sense of camaraderie and competition with other players.

Full Article on "Social Networking is next big thing for gaming"

One of the most popular games is "FarmVille" made by private company "Zynga".

Social Gaming may usher in new business models by attracting many players with a free price and then monitizing a fraction of them.

Is it Time to Get Back in the Market? (S&P 500)

After seeing the market go through a strong rally since early March 2009, and seeing today's action in the U.S. Markets, with the S&P 500 going up 2.58% to the $SPX Index level of 942.87, many people are asking whether it is time to get back in the stock market.

That question requires more details. What are you going to do with money? If the money is in a retirement account (the one with tax benefits), and you do not need the money for a decade or more, allocate your assets appropriately to reach that long term goal. This may include a large percentage in the stock asset class.

If the money is in a discretionary account, then there are even more options.

When do you need the money by? If you need the money in the short term (five years or less), you should consider putting the money in safer investments like money market accounts, or high yield online savings accounts.

Other considerations you may want to take are looking at your overall debt and pay off any bad debt such as high credit card balances. Paying off a credit card balance with 15% interest, means a 15% guaranteed risk free rate of return. This is a very good deal.

You may also want to consider other asset classes such as using that money for a down payment on housing, or starting a business.

A six month emergency fund in very low risk investments (such as high yield online savings accounts) is also a must, and adequate health insurance is a must.

After looking through all the above, and deciding that you do have long term discretionary money you can use to invest, then invest appropriately. You do not need to have an all-in, or all-out mentality. You can get in the market gradually,(20% now, 30% in a few months, 40% a year from now, 10% in cash), or increase cash positions gradually (if you are fully invested).

You would have saved around 32% in the S&P 500 if you had followed the following advice:

On February 26, 2008, this blog wrote and asked if you had too much risk in your Discretionary Portfolio. The S&P 500 at that time was around 1384. At the low, the S&P 500 reached 666, for a loss of 51.8%. Many people could have panicked at that time.

Even after the recent strong rally, the current S&P 500 is at 942, for a loss of around 32%.

Today's S&P 500 Stock Chart

Reversion to the Mean Trade on SRS: Double Short Real Estate ETF?

In the Previous Post, this blog speculated how far this rally could go.

The S&P 500 rally does appear to be stalling, after being severely underneath the 50 day and 200 day moving average. Over the last several months, the S&P 500 has broken above the 50 day moving average, and approached the 200 day moving average (200 Day Moving average was approximately 950, and the S&P 500 reached 930).

Now as we look at several sector ETFs (Exchange Traded Funds), we notice that some are severely underneath the 50 and 200 day moving average.



The SRS ETF, the Proshares Double Short Real Estate ETF, is currently at 24.56. The 50 Day Moving Average is currently at 44.73 and the 200 Day Moving Average is 77.82.

This means that currently, SRS (a very volatile ETF), is 45% below the 50 day moving average and 68% below the 200 day moving average. These are very large percentages below the moving averages.

Maybe it is time for the reversion to mean trade on some ETFs such as the SRS?

How far can this (Bear Market) S&P 500 Stock Market Rally Go?

On March 10, 2009, the S&P 500 went up 6.37%. Some pundits are calling for a bottom, but many see this as merely a Bear Market Rally.

How far can this rally go?



First major candidate is S&P 500 level of 740 to 760. This was the previous low held late in 2008, and is also the level that held in the Bear Market Bottom of 2000-2002.

Another candidate is the breakout point off a symmetrical triangle pattern.

Previously, this blog demonstrated that the S&P 500 recently broke down from a symmetrical triangle.

According to stockcharts.com:

Prices sometimes return to the breakout point of apex on a reaction move before resuming in the direction of the breakout. This return can offer a second chance to participate with a better reward to risk ratio. Potential reward price targets found by measurement and parallel trend line extension are only meant to act as rough guidelines. Technical analysis is dynamic and ongoing assessment is required.

It is possible that the rally could continue to this breakout (breakdown) point of around 825 on the S&P 500.

The 50 day moving average is very close to the 825 breakdown point on the S&P 500.

Overextended from the 200 Day Moving Average

The S&P 500 is also very overextended underneath the 200 Day Moving Average. This suggests that the rally could have some room, or go sideways long enough for the 200 Day Moving Average to catch up.

Today's Stock Chart of the S&P 500

Bull Market in Guns and Ammunition in this Bad Bear Market?

Over the last few months, we've seen the next leg down in this terrible bear market. Since the US Election on November 2008 to March 5, 2009, we've seen the S&P 500 go down 28.6% and the Small Capitalization Russell 2000 index go down 34.4%.

But yet, two stocks, SWHC (Smith and Wesson Holdings) and RGR (Sturm Ruger), two Gun and Ammunition companies, have gained 45.8% and 39.8% respectively.



Despite the Current Bear Market, we have had a Bull Market in Guns and Ammunition.

Different Articles, such as from Minyanville, have attributed this boom to two main factors:

1. The new Democratic U.S. Administration is traditionally not friendly to gun rights and gun owners.
   
2. Worsening economy increases crime and mayhem encouraging people to buy firearms and ammunition.
   

Anecdotal evidence also shows the high demand. This Orlando Sentinel article has said that sales of ammunition have been flying off the shelves and there is a high demand for it.

The FBI has reported that background checks on potential firearms purchasers increased 41.6% from November 2007 to November 2008.

Even the earnings report from handgun maker Sturm Ruger (RGR) suggests this national trend. Demand is so high, Sturm Ruger reported over 175,000 of 776,000 units ordered were on back order. Over the last year, the order book grow almost 50% from $156 million to $223 million.

SWHC (Smith and Wesson) is a small capitalization stock ($179 million) with a PE (Price to Earnings) ratio of 13, and a 5 year estimated growth rate of 21.7% for a Price Earnings to Growth Ratio (PEG) of 0.60 (PEG > 2 is expensive, PEG < 1 is a good deal).

RGR (Sturm Ruger) is also a small capitalization stock ($191 million) with a forward PE ratio of 24.

Both stocks appear to have broken out recently out of bases




The trends remain strong, but how long will it last?

If the economy and stock market continue to worsen, higher unemployment would lead to higher crime rates, which can boost sales of guns and ammunition.

We could also currently be in a secular Bear Market that started in 2000 and will end sometime around 2016 or 2017.

Today's SWHC Stock Chart

Today's RGR Stock Chart

Today's CAB Stock Chart

Performance Comparison of SPY, IWM, SWHC, RGR, and CAB

Cabela (CAB), is a retailer of outdoor items such as hunting, fishing and camping equipment.

Profit from Current Bear Market with Inverse ETFs

We have recently broke down below the major support level of 741/768 on the S&P 500 which were held recently and during the great bear market bottom of 2002.

This blog has set a target of 450 to 600 on the S&P 500 based on many factors.

Excellent Chartist Louise Yamada, who has been right so far, agrees with this assessment.

If you do believe that the market could go down from here (700 level) to 600 (drop of 15%) to 450 (drop of 36%), what can the investor do?

Conservative Method: Cash

The most conservative method is to increase the cash position in the portfolio. The next decision point would be when to start reallocating money in stocks again.

More Aggressive: Profit using Inverse ETFs

The more aggressive option is to purchase Inverse ETFs, or Inverse Exchange Traded Funds.

Exchange Traded Funds, such as the ticker symbol "SPY", are similar to indexed mutual funds, but they can be traded, and bought and sold just like stocks. You would normally pay a commission.

SPY, for example, represents the S&P 500 index. If the S&P 500 goes up 2x, the SPY would attempt to track that performance and go up 2x.

Inverse ETFs, on the other hand, are very similar, but they perform the opposite of the index.

For example, the inverse ETF "SH" is the Short S&P 500 ETF. When the S&P 500 goes up 2x, the SH goes down 2x. If the S&P 500 goes down 3x, the SH goes up 3x.

Another example is the double inverse ETF "SDS". This is the Ultra Short S&P 500 ETF. If the S&P 500 goes up 1x, SDS goes down 2x. If the S&P 500 goes down 1x, SDS goes up 2x.

These ultra and short ETFs are not meant to be investments, but trading vehicles.

Other Inverse ETFs from Proshares

Proshares is the company that provides many of the popular inverse ETFs.

Other examples include:

1. DOG: Short Dow30
   
2. MZZ: UltraShort MidCap 400
   
3. SKF: UltraShort Financials
   
4. SMN: UltraShort Basic Materials
   
5. SRS: UltraShort Real Estate
   

Some of the UltraShort ETFs are very volatile and do handle them with care.

Trading Strategies

Using inverse ETFs is not meant to be an investment, but a trade. You should come up with a plan when to buy, when to sell, and know how to cut your losses.

You can use techniques as using limit orders (specifying the largest price you'll be willing to buy an ETF, for example), setting stop orders (in case you are wrong, you get to cut your losses quick), or even set trailing stops (as you profit, the stop order to sell follows your stock).

The strategies to trade these inverse ETFs are beyond the scope of this particular blog entry.

Stock Chart of SPY (S&P 500 ETF, Long)

Stock Chart of SH (Inverse or Short S&P 500)

Stock Chart of SDS (UltraShort S&P 500)

Stock Chart of SKF (UltraShort Financial)

Stock Chart of SRS (UltraShort Real Estate)

Stock Chart of QID (UltraShort Nasdaq 100)

Stock Chart of SMN (UltraShort Basic Materials)

Stock Chart of SIJ (UltraShort Industrials

Stock Chart of DUG (UltraShort Oil and Gas)

Stock Chart of REW (UltraShort Technology)

Stock Chart of EUM (Short MSCI Emerging Markets)

Stock Chart of EFZ (Short MSCI EAFE, International)

Stock Market S&P 500 to Continue Large Drop If We Break Important Levels.

S&P 500 Level of 741 is a very important technical support level. It is the major bottom in late 2008. It is also very close to the major bottom of the great bear market which ended in 2002.



In the chart above, we notice the importance of the S&P 500 level of 740 to 760. We also notice that in 1995, the slope of the chart increases at an unsupportable rate. It was during this time, that the mantra "buy the dip" was used with great success.

However, starting in 2000, the Bubble burst going down to S&P 500 level of 768.

From 2002 to 2008, we had another Bubble (credit, housing bubble), and it burst again, and went all the way down to S&P 741.

This major support area of S&P 740 to 760 has to hold. If it doesn't, then there is not much support all the way down to S&P 500 level of around 500 (1995 levels). There is not much congestion between the the S&P 500 level of 500 to 740, and support will be hard to find.

This bottom of S&P 500 level of 500 is consistent with this blog's target of S&P 500 level of 450 to 600.

On Friday, February 27, the S&P 500 closed at 735, below the important level of 740 to 760. This may be a sign that we are continuing to head to the lower S&P 500 target. If the target is S&P 500 level of 500, that is another drop of around 47%.

60 Year View



Notice that in the 60 year view, the trend line shows a support level starting at around 400, and as time passes, the support level would increase. This is close to the lower S&P 500 target of 450 to 600.

So from 1995 to 2000, we had the "Buy the Dip" Mantra. Now, as we go back in time to 1995 S&P 500 levels, we will have the "Sell the Rally" strategy which should work in this market.

Today's Stock Chart

Stock Market (S&P 500) Breakdown to New Levels Has Begun

For the last three to four months, the Stock Market, as represented by the S&P 500 has been trading in a symmetrical triangle pattern. This blog has been saying that breakout would occur soon, sometime during February.

On Tuesday, February 17, 2009, the S&P 500 has finally broken down from the symmetrical triangle and is starting a new downtrend.



There is major resistance at around the 740 to 760 level from the November 2008 lows of 741, and the major low of 768 during the last Bear Market from 2000 - 2002.



While the stock market could bounce off these lows again, based on the breakout from the symmetrical triangle pattern, we could hit a low of 558 on the S&P 500. [Since the maximum range of the previous triangle is 267 (1007 - 740 = 267), we apply this to the breakout point of 825 to come up with a downside target of 558 (825 - 267 = 558)]

This matches this blog's analysis of a S&P 500 bottom of 450 to 600.

Notice that if we break down below the major S&P 500 bottom of 740 to 768 on the S&P 500 set in 2002 and 2008, there is not much support below:



We do appear to be in the middle of a long term secular bear market that started in 2000 and will end around 2016.

Today's Chart of S&P 500

Stock Market (S&P 500) Breakout Soon! We are near end of Symmetric Triangle

The Stock Market, as represented by the S&P 500 ($SPX), is very near the end of a symmetrical triangle (see chart above).

The Market has gone back and forth inside of this triangle, and the market is consolidating the move from the all time highs. The end of the triangle converges in March, and because there is often a breakout around 1/2 to 3/4s of the pattern, it is about time the market breaks out.

According to Stockcharts.com and Edwards and Magee, "roughly 75% of symmetrical triangles are continuation patterns and the rest mark reversals." Since the previous trend from the all time highs was down, the continuation means further downside.

Previously, this blog analyzed the potential depth of the decline, and we estimated that the downside target is 600 on the S&P 500, a drop of around 27% from here (S&P 500 value of 827). This matches another analysis by this blog which suggested that the long term S&P 500 bottom is from 450 to 600.


Today's S&P 500 Chart

HMSY 52 Week High; ATVI - DJ Hero Game; S&P 500 - Breakout Near

1. HMSY (HMS Holdings) hit 52 week high
   
   HMS Holdings (HMSY), a small cap company that takes advantage of waste in Government Health care Benefits, has just hit a 52 week high gaining 3.5% on Wednesday, February 4 to $33.13. This stock is technically strong and has good fundamentals as well.
   
   
2. ATVI (Activision-Blizzard) to release DJ Hero By End of Year
   
   Activision-Blizzard, Makers of the popular Guitar Hero, Call of Duty and World of Warcraft, announced that the game "DJ Hero" will be released before the end of the year, "and will include turntable-based controllers which gamers can use to spin and mix songs."
   
   
3. S&P 500 is still in converging triangle pattern; Breakout is near
   
   The S&P 500 is still in a converging triangle pattern. The end of the triangle appears to be before the end of March. Typically, breakouts (either up or down) will occur before the end of the triangle.
   
   Many speculate that these triangles are more likely downside patterns than upside patterns.
   
   This blog examined this triangle.
   
   The Daily Markets Blog agrees with The Tech Farm Blog's assessment.
   

Stocks (S&P 500) Converging and is Breakout Near? Usually a Continuation Pattern (More Downside Ahead?)

U.S. Stocks, as represented by the S&P 500, are converging towards a certain price, forming a wedge or symmetrical triangle pattern.



Chartists and technicians often say that near the end of the triangle or wedge, a breakout could occur with good volume. While the breakout could occur in either direction (up or down), the pattern is often a continuation pattern of the previous trend:

"While there are instances when symmetrical triangles mark important trend reversals, they more often mark a continuation of the current trend. Regardless of the nature of the pattern, continuation or reversal, the direction of the next major move can only be determined after a valid breakout." (stockcharts.com)

Since the previous pattern had been down, this means that the continuation pattern would mean further downside.

Following stockcharts.com recommendation of estimating the strength of the move, we can take the widest part of the symmetrical triangle (approximately from $SPX level 1010 to 740 or so, for a depth of 270 S&P 500 points), and then apply this at the breakout level.

If the breakout occurs near 870, that means that the move could extend down 870 - 270 for a target of S&P 500 600. This lower target of S&P 500 value of 600 matches previous lower target analysis of a bottom of 450 to 600.

But as many sites warn, while the wedge or symmetrical triangle pattern is usually a continuation pattern, it could also be a reversal pattern, so let us observe the breakout and the validity of the move according to stockcharts.com.



Today's Stock Chart

Profit from Big Government Healthcare Waste

There is a trend towards Big Government and Big Government Health Care, especially with the traditionally Big Government and Big Health Care Democrats having control of both the Executive and Legislative Branch of the United States.

With so much money being spent on Health care, Government sponsored Health care, there is a niche area to recover much of the waste and inefficiencies.

HMS Holdings (HMSY) is an $800 Million company that does just that.

HMS Holdings is the nation's leader in coordination of benefits and program integrity services for government health care programs. The company’s clients include health and human services programs in more than 40 states, 80 Medicaid managed care plans, the Centers for Medicare and Medicaid Services (CMS), and Veterans Administration facilities. HMS helps ensure that health care claims are paid correctly and by the responsible party. As a result of the company’s services, government health care programs recover over $1 billion annually, and avoid billions of dollars more in erroneous payments.

HMSY has a Forward PE of 32.20, and 5 year estimated growth rate of 26%, for a PEG of around 1.25 (PEG under 1 is a value, over 2, is too expensive).

The Stock chart of HMSY is showing strength (as of January 20, 2009), and the stock is above both the 50 day and 200 day moving average even in a bad market.

On January 13, 2009, HMSY has updated its earnings guidance for fiscal year ending December 2008, and due to better than forecasted business performance for the fourth quarter of 2008, the company is revising its 2008 full year EPS guidance from $0.77 to a range of $0.78 to $0.79.

All of this good news is occurring in a bad market.

The Company's website is www.hmsholdings.com.

Profit from Obama's Digital Health Care Initiative

President Elect Obama has an initiative to modernize health care by making all health records standardized and electronic, within five years.

The idea is that the quality of health care will get a big boost, and costs, over the long run, will decline. But this will come at a cost of around $75 billion to $100 billion over ten years according to studies from Harvard, RAND and the Commonwealth Fund.

Can we profit from this?

Some Health Care Information Stocks

1. Athena Health (ATHN): Athena Health provides Internet based business services for physician practices in the United States. "Its service offerings are based on proprietary Internet-based software, database of payer reimbursement process rules and back-office service operations." The company is a $1 Billion company, with a Forward PE of 40, a 5 year estimated growth rate of 32% for a Price Earnings to Growth Rate (PEG) of 1.25 (more than 2 is expensive, less than 1 is a great value).
   
   
2. Quality Systems (QSII) : Quality Systems engages in the development and marketing of health care information systems in the United States. Its system automates various aspects of medical and dental practices, and networks of practices. The company also offers proprietary electronic medical records software and practice management systems. QSII is a $1 Billion company with a Forward PE of 19, 5 year estimated growth of 19% for a reasonable PEG of 1. It even has a forward Yield of 3%
   
   
3. Allscripts (MDRX): Allscripts-Misys Healthcare Solutions, Inc. offers software, services, information, and connectivity solutions that enable physicians and other health care providers to deliver patient safety and clinical outcomes primarily in the United States. It operates in four segments: Professional Solutions, Enterprise Solutions, Health Systems Group, and Medication Services. MDRX is a $1.2 Billion company, with a forward PE of 13.4, a 5 year estimated growth rate of 17% for a bargain PEG of 0.78.
   
   
4. Cerner (CERN): Cerner Corporation provides health care information technology solutions, health care devices, and related services in the Americas, Europe, the Middle East, and the Asia Pacific region. CERN is a $3.1 Billion company, with a forward PE of 15, an estimated 5 year estimated growth rate of 20% for a good PEG of 0.75.
   

Future of Digital Records and Health Care Information Systems

The Future of Digital Records and Health Care Information Systems is bright, even without President Elect Obama's Digital Record initiative.

However, from a short term point of view, there could be challenges. Earlier this month, firm Leerink Swan downgraded ATHN from Outperform to Market Perform. The Analyst Bret Jones said that "Our best guess as to the time line for federal money to work through state grant and loan programs in any material way is at least 12-18 months." Bret Jones also mentioned that the climate for health care IT companies is still very difficult, and investors may be disappointed as they wait for the stimulus package to take effect.

But if we look at the longer term, there is great promise in this area.