May 2016 Newsletter
Housekeeping: our website is still at pro.nextbigthinginvestor.com until we get our new site complete and updated. Our new site will carry over all your sign in and payment information...stay tuned.
We have a lot of renewals coming in May and June from our 2013 launch. With our NBTI Pro Portfolio up 142% from launch vs. 38% S&P 500...up 15% this year against a 2% S&P 500 and flatNasdaq 100...I HOPE you are planning on staying with us for the next few years of 152% of gains.
Remember our goal: 28% annual returns doubles your portfolio every 2.57 years...life changing wealth growth. We are AHEAD of that goal now with 35% annual returns since June 2013 plus dividends.
I hope you have found ourTransformity Investing strategy & system has proven its value in many ways:
- We have stayed primarily with equities because our proprietary NBT Macro Market index continues to tell us the US economy is still expanding (while others have been out of stocks for years or continue to scream "DOW 6000 is coming in 2016) and there are profits still to be made in 2016.
- We have focused our capital gains making investments in the fastest growing segments of the global economy powered by the most powerful secular (aka non-cyclical) transformational growth vectors in the world:
- The transition to 3D NAND memory (how bout that Micron--more in a minute--adding one key player but Micron up 45% since our dumpster diving in February...new target $22
- The automated vehicle safety and driving transformation--Mobileye (MBLY) up 40% from bottom but our new target $60...Nvidia hit all time high today...$55 target...we are adding one more semiconductor that we sold May 2015...NXP Semiconductor now that merger with Freescale is done.
- The transformation from LED to OLED in mobile devices and next Smart TV's... We are moving Universal Display buy under to $65 and you WANT to buy some on next global macro fear pull back (3 events in June fit the macro fear pull back). We are adding Applied Materials (AMAT) as the key manufacturing equipment player
- The FED is FINALLY moving Fed funds rates up --we are adding KRU the leveraged regional banks ETF to profit from the transformation to net positive yield curve in U.S.
- The balancing of oil production to consumption transformation: now in sight for Q4 but production disruptions in Libya, Nigeria, Venezuela and Canadian oil sands are not short term--we may get their sooner. We love Pioneer Resources as low cost producer...but will add two other favorites on a decent oil pull back
- Ultra-high Mortgage REIT and BDC yields from wrongly prices mortgage and BDC loan portfolio pricing. We have great gains in NEWT from the $4.50 of dividends and $10 price in February. BDCL is up almost 18% from our buy and 5% in monthly dividends...what not to like? MORL up 14% and 6% in monthly dividends. NRZ is up 8% and IS THE BEST BUY here as it IS a beneficiary of rising interest rates (higher yields on adjustable rate mortgages and less pre-pay on servicing portfolio.) BUY NRZ up to $14 with $18 target and 15% yield.
- NEW Investment Category: The Amazon Ecosystem. As Amazon continues to steal retail market share from bricks and mortar stores (with a few exceptions like bargain price stores like Dollar General and beauty products) and on-demand digital Infrastructure-as-a-Service they are a non-stop secular growth engine powered by an ecosystem of support services like data centers, distribution centers. At the same time they have ignored the <$45k households who are increasingly shopping at Big Lots, Dollar General and Ollie's Bargains. We will be adding to both segments of the Amazon Ecosystem in the next regularly scheduled pull back.
Action to Take:Stay with the program!
We have you on auto-renewal and will send out an email to confirm your renewal. If your credit card information has changed you simply change the data on our system from the email...no worries.
Now...back to making money taking advantage of positive global and US transformational change!
We have a real set-up here for a stock market melt-up IF we can break 2100 on S&P 500 on DECENT Volume and then 2150
This bull market...the most hated ever...is on precipice of what I call a "melt-up" because of a number of factors related to mostly hedge fund and robot algorithmic trading systems. The last day of trading for May today was lackluster but does set up a run over 2100 with decent job report this Friday.
Let me make the case for the summer meltup scenario AFTER the market digests the following June "known knowns" market moving events.
- The UK "Brexit" from EU--its NOT priced in. IF the No Go polls are dead wrong we will get a knee jerk sell off in EU stocks and that will mean profit taking in the highest profit US stocks for 2016 (Nvidia, OLED, MU will be on the sell lists as highly liquid stocks that will get 2-3 day selling to cover bad Brexit bets.) THIS is why the FED has to stay on sideline for their June 19 FOMC meeting...a +Brexit vote plus Fed rate hike would send the US Dollar index up 5-8% and then POOF...there goes SP 500 multinational profits for Q3.
- FED FOMC June Meeting: Which will tell us if the next move is July or September. IF they make all this noise about "appropriate to hike" and do nothing by September...they will have a REAL credibility problem with the capital markets. 25 basis points is priced into the September meeting..but the 3% ish GDP of Q4 will support a move in July AFTER the BREXIT news is past.
- Too Hot/Too Cold May Jobs Report: <150k jobs will be two months of slowing job creation...that will create some selling in cyclical plays on the consumer. Too hot (200K+) may convince markets the FED moves in June and forget the BREXIT risk. Still--25 basis points higher lending rates does virtually nothing to the US economy at the margin.
Action to Take:BE READY WITH CASH
And strategically put some to work if either of these "known unknown" events come to pass and spook the market for a few days. BUYING the emotional dips IS the "buy signal" of the last 18 months.
#1 NBTI Macro Market Index: Moves up to 17.2 on strong home building/buying, increase in durable goods production and Atlanta Fed "Nowcast" GDP index up to 2.9% last week. Our rising "nowcast" of 45 weighted economic index readings is moving higher as must be noticed by Janet Yellen! (note:The Fed was a subscriber to my previous newsletter ChangeWave Research for our great real time readings on the economy. They are subscriber to NBTI Pro as well...you are in good company.)
Moreover, this algorithm has become VERY accurate GDP forecaster over the last year.
The growth rate of real gross domestic product (GDP) is a key indicator of economic activity, but the official estimate is released with a delay. Our new GDPNow forecasting model provides a "nowcast" of the official estimate prior to its release. Recent forecasts for the GDPNow model are available here. More extensive numerical details—including underlying source data, forecasts, and model parameters—are available as a separate spreadsheet.
Latest forecast: 2.9 percent — May 26, 2016
The forecast for second-quarter real gross private domestic investment growth increased from -0.3 percent to 0.4 percent following this morning's durable manufacturing release from the U.S. Census Bureau. After the advance report on international trade in goods from the Census Bureau, the forecast for the contribution of net exports to second-quarter real GDP growth increased from -0.04 percentage points to 0.16 percentage points.
Key Point: The Fed's jawboning of "rate hikes in the coming months is appropriate" has the rising economic growth and 5% unemployment rate part of the tightening calculus it needs to resume Fed rate "normalization."
Again because of the BREXIT risk (lowering now as reality hits home in Britain as to the insanity of this idea and the negative economic outcome) I can't see a move till July meeting at earliest or latest September.
But the Fed IS highly aware that it's rate hike scare in December ("4 rate hikes in 2016) blew up stocks in January/Feb along with fierce fear of a China meltdown. The will NOT risk blowing up global stocks IF the Brexit vote goes through--why risk it?
Really Key Point: The fast dropping Brexit polling numbers say it will be close but no cigar on June 24th. Removing this global risk factor (as a successful British exit from the EU would start other movements undoubtedly) removes a BIG overhang on the global economy. This move will fuel risk assets appetites over "haven" or low risk assets.
Next to the S&P 500 and Nasdaq 100 Charts. If we do get a meltup condition (defined as a flood of hedge fund short covering and momentum hedge/algo robot money chasing high volatility/beta stocks) the broken down Nasdaq 100 will run fastest (and we will use TQQQ and short term options to capitalize).
IF we get the break of 5000 on the Nasdaq and 2100 on the S&P 500 on decent volume technically the ceiling of the trading range will be broken and the path of least resistance is higher.
The NASDAQ Composite is near breakout as well
S&P 500 Large Cap Index completes the technical breakout story
#3 More fundamentals support the Fed rate hike of .25 WILL not slow the US Economy.
April new home sales surged to the highest level since 2008. That followed on the heels of last week's report of strong existing home sales. The prospect of newer homes being built is good for homebuilders, the economy, and the stock market. Chart 1 shows the U.S. Home Construction iShares (ITB) climbing back over its 50- and and 200-day moving averages. The ITB/SPX relative strength ratio has started to climb again. That ratio shows homebuilders leading the market higher between February and April -- and starting to do so again.
The Financial Sector SPDR (XLF) trading at a three-week high after bouncing off its moving average lines. The XLF/ SPX ratio (top of chart) continues to lead the market higher after turning up in early April. Some of that has to do with the recent rebound in interest rates that has given a lift to banks, brokers, and insurers. Chart 3 shows the S&P Regional Bank SPDR (KRE) near a five-month high after recently clearing its 200-day moving average. Its relative strength ratio (top of chart) is at a five-month high. Regional banks benefit more from rising interest rates. An improving housing sector also helps banks. More home sales mean more mortgages.
Action to Take: BUY the KRB Under $95 with $125 Target
The Fed's move in either July or September will get priced into Regional Banks as the primary beneficiary of an increase in the spread between short term deposits and longer term lending rates (they are spread lenders mostly). With oil and commodity prices recovering (helping out energy loan issues) and rental housing costs ramping ( causing more buy vs. rent demand) we can see 2% inflation rates coming the chain-weighted price deflator this summer--that helps the Fed continue to move overnight rates higher.
The Fed does NOT use simple CPI inflation index to measure inflation--the chained index is much better reading (it measures substitution behavior like consumers buying more chicken if beef prices rise and buying goods at the lowest price available vs. simple sample of overall prices). THE Chain Weighted CPI looks to break out of range at 136.5 very soon and that makes the Fed's job easier to prep market for a "harmless rate hike."
Here is the KRU chart--its' about to breakout to the upside
Another good sign for the market melt-up is that it's starting to get new leadership from the technology sector. Chart 4 shows the Technology Sector SPDR (XLK) surging to a new high for the month. After finding support along its 200-day average, the XLK is close to overcoming its 50-day line. In addition, its 14-day RSI line (top of chart) has cleared its 50-line; and its daily MACD lines (below chart) have turned positive (see circles). Semiconductors are helping lead the tech sector higher. Just look at the moves we have in Micron (MU), Nvidia (NVDA) and Universal Display (OLED)
Semiconductors are a big reason why the technology sector is rallying. Chart 5 shows the PHLX Semiconductor iShares (SOXX) nearing a test of a resistance line drawn over its December/April highs. An upside breakout appears likely. The SOXX/SPX ratio (top of chart) is nearing an upside breakout as well. That's also helping turn the Nasdaq market back up again.
Buy Micron Under $13-Target $22 We got GREAT buys on MU around $9 and $10 in the Jan/Feb meltdown...Hope you braved the stench and picked up shares to benefit from the melt-up in the last 10 trading days.
Our investment thesis holds: the rollout of their revolutionary 3D NAND memory is on track for Q4 and higher margins and sales should take value back to $16-$18 and $22 in 2017. The recent Applied Materials equipment report shows a ramp in both OLED and 3D memory being purchased and installed...GREAT sign.
Bairds updgrade of MU to $21 target kicked it up. Nine months after downgrading Micron (MU +2.8%) to Neutral on DRAM pricing worries (shares were at $15.90 then), Baird's Tristan Gerra has upgraded to Outperform, and hiked his target by $3 to $21.
He thinks DRAM and NAND conditions are improving, believes Samsung might "shift a meaningful amount of capacity from DRAM to NAND" in 2H16, and expects NAND demand benefit from the iPhone 7 launch (expected to include the arrival of a 256GB model) and rising PC SSD adoption.
Gerra: "We expect DRAM pricing to decline by about 10% a quarter for the rest of the year, while Micron has an opportunity for a 10-15% improvement in its DRAM cost structure in 2H16 versus 1H16 as a result of an improving 20nm mix." His FY16 (ends Aug. '16) and FY17 estimates have been upped.
Separately, Micron has announced two SSDs relying on 3D NAND flash: The 1100, which has a traditional SATA interface, and the 2100, which features a next-gen PCIe NVMe interface. The company promises " extreme read performance that is up to 1900X faster for the 2100 SSD and 900X faster for the 1100 SSD, configured running client standard implementation, when compared to [hard drives]."
The 1100 enters production in July, and the 2100 will do so later this summer. Micron and NAND partner Intel first announced their 3D NAND line in March 2015, while promising density/cost advantages over rivals. Samsung and SanDisk/Toshiba have also been investing heavily in growing 3D NAND production.
Action to Take: Let's add OLED and NAND memory equipment makers Applied Materials (AMAT) and Lam Research (LCRX) onto our buy list with this upgrade cycle now getting ready to explode to the upside. The new equipment buy cycles last for 12-18 months at minimum as the equipment is very large, very expensive and new installation time is long.
BUY Applied Materials (AMAT) ON PULLBACK under $25
AMAT exploded in value as it reported HUGE increases in OLED and 3D memory production equipment 10 days ago...the news shocked investors and they piled in. The AMAT stock is WAY over bought here...81 RSI--so it will come in on profit taking. But...like I said these equipment order/install upgrade cycles last for 12-18 months simply because they are so complex. WAIT for a profit taking pull back and take advantage!
Buy Lam Research (LRCX) ON PROFIT TAKING PULL BACK Under $83
Lam Research is merging with KLA -Tencor to create the other beast of the semi-equipment world with AMAT. Again this stock exploded on the AMAT news of mass demand for OLED and 3D memory equipment...and again its right up at its key resistance price. My freind the great chip analyst Josh Hall makes a GREAT case for LCRX which still sells at a 20% discount to AMAT...click here to get the full report.
LCRX is another play on 3D memory upgrade. Most chip equipment research I read has the spend at $40-$55 billion over next 2-3 years to upgrade...a majority of that is going to LRCX with their superior equipment. This bright future for memory is important to the longer term outlook for Lam. In the most recent quarter, 70% of Lam's shipments were memory related.
In a recent report, McKinsey estimated that the current transition to 3D NAND will require the memory industry to invest $35 to $45 billion over the next 3 to 5 years to build and retool manufacturing facilities. This seems to correlate with Lam's estimate of $9 billion of memory spending in 2016. By 2018, Lam expects 3D NAND to comprise over 2/3s of installed wafer capacity. This transition from planar NAND to 3D NAND is one where Lam expects to increase their serviceable available market ("SAM") of the overall wafer fab equipment market and also increase their market share within their SAM. This has been the trend over the last three years. Lam increased their SAM from 26.5% in 2013 to greater than 30% in 2015. Also, they increased their market share from 40% in 2013 to the mid-to-high 40% range in 2015.
In an update on their pending merger, Lam Research (NASDAQ:LRCX) and KLA-Tencor (NASDAQ:KLAC) say they've each gotten a new request from the Justice Dept. It's a second request for more information and documentary material tied to the transaction, and the two say they are working with DOJ staff on a consent decree.
The tie-up has gotten clearance in Germany, Ireland, Israel and Taiwan, and they say they're working with regulators elsewhere and still expect to close the deal in Q3. With such huge competition in AMAT and others worldwide I can see no regulatory reason to stop the merger--but our DOJ is very methodical these days. Lam Research will still be a United States corporation so there is no inversion risk.
Buy Nvidia under $42--Buy July $44 PUT OPTION for <$1
We are up 44% from the $33 entry price in February...but there is a lot more in the tank for Nvidia at just 20X 2016 earnings over the long term AFTER a cool down. NVDA never got close to our "imaginary sell stop" at $42 (from our last update) and just today hit an all-time high.
In the short term, the laws of financial gravity WILL catch up to NVDA and it will correct 5-10% purely from short term profit taking. In the meantime, while we wait for it to just come back to its 20-day moving average, lets buy the July $44 PUT option for <$1 with a $3 target just for FUN and see if we get a correction before July 15.
IF you know anything about technical analysis, you know that gravity is going to apply to NVDA sometime soon. With such great profits why not play a "lottery ticket" on a put contract for .92 a share?
Buy Universal Display Under $62 $80 Target Buy July $60 PUT Options for $1 or better
We have the same way over bought chart on OLED...not near as over bought as NVDA...but still it needs to take a breather on short term profit taking on ANY 1%+ down day in June. I ALWAYS alike to buy short term cheap put options after a position gets SO over bought.
We may not get the $60 July Put Options for $1...but put them on your radar and hit em if we get lucky.
Action to Take: BUY Mobileye up to $40
The story on Mobileye is a 20 year overnight success story.
Now the US, Europe, Japan and China have ALL passed mandatory real time accident prevention technology for ALL 2019-2020 models in order to meet their highest safety ratings. In 2019 Mobileye will deliver FULLY autonomous major global auto makers. BMW, Volkswagen and GM are among the 5 global automakers on record with autonomous driving tech with driver in car in 2018--fully autonomous in 2019.
Let's not forget we play this secular transformation with Nvidia as well...the produce the chips that powers the iPad like dashboard display that comes/will come with all autonomous vehicles.
Side note: the Mobileye camera also records a real time road map of potholes, detours, traffic jams etc which the auto companies will sell as a service to its customers...what idiot would NOT buy this service for a few bucks a month?
I continue to strongly believe MBLY will get bought by a major auto component or semi-conductor chip company mostly likely in China for $20 billion plus BEFORE the huge inflection point of sales in 2018.
Nasdaq Composite Index ($COMPQ) and Nasdaq 100 (QQQ) cleared their key moving average lines.
The Russell 2000 Small Cap Index ($RUT) is also supporting the melt-up scenario. Our chart shows the RUT trading back over its moving average lines. The RUT has also exceeded a falling trendline drawn over its June/December highs. The RUT/SPX ratio (top of chart) has bottomed as well. Because of the way the two small cap indexes are constructed, the SML usually rises faster than the RUT. That's why it's encouraging to see the more broadly-based RUT turning up (which also boosts market breadth). That's a good sign for the entire market.
Final Melt-Up Evidence
Retail Investors HATE the market now...that has historically been a GREAT leading indictor of fuel for market gains. The AAII Index of member sentiment has just 17% of their survey respondents Bullish...30% bearish and rest neutral. That is the worst sentiment since 2009.
Historically, this means retail investors...the first too panic in meltdowns and meltups...have built cash and have not made much if any money in the last 18 months most likely. In the stock market panic runs both ways: people fear of capital loss in meltdowns BUT also fear loss of gains when the market explodes off of key psychological levels like new highs of the Dow and S&P 500 indexes.
The front page mainstream media coverage permeates the average investor and the greed monster takes over..."I can't stand to miss easy profits" kicks in for many.
The best look at the overall market is the unweighted S&P 500 index...which really shows ALL major stocks without the over-weighting of the tech mega-giants Apple, Facebook, Alphabet, Amazon and the biotechs.
The overall market looks ready to snap above its equal weighted high as Q2 earnings season hits.
Oil Prices Touched the Top of our $50 Range Forecast--Take Profits PXD >$160
We have an OPEC meeting on Thursday which should be a nothing burger. Our $50 top for oil held like a charm...right at $50. THAT should give up some profit taking on Pioneer Resources. WE broke the $162 "imaginary sell stop" today so I will book the profit on PXD on last Friday.
WHEN the oil drilling rigs drop US production under 8.4 million barrels and we start to see some drawdowns on inventory THEN we will have reached real price stability. If at the same time the depletion of production from shale E&P players is not replaced with new drilling and production...there's the real fuel for an oil rally (pardon the pun).
We will re-enter the oil price trade if we get a 10% correction or more evidence of US Oil production drops and $50 oil holds and we get a new range.
Final Word: We are still in a trading range market but ready now to break out
We are perfectly positioned for the sweet-spot secular growth in the global economy.
AFTER we get through the June risk factors we have earnings season hitting with the US dollar down 5% and oil peaking at $50 up 10% from Q1.
That data should give us the power to overcome the FED which will be moving rates up for the RIGHT reason--i.e., the US economy and corporate profits bottomed in Q2 and will start to hit lower earnings sequentially for the next 3 quarters vs. 2015-2016.
Glad to have us with you with NBT Investor PRO...we are making 8X the profits on the overall market with dividends (vs. S&P 500) and as long as we follow our proven investment and stock picking principals I expect that track record to continue.
US GDP will touch 3% vs. 1% in Q1 and that is just what the market needs to FINALY break out of the gravitational pull of the FED and slowly rising interest rates.
After the political conventions the mud will certainly start to fly (with Trump that is a 100% certainty) and maybe that shit show will take investor's minds off worrying about the economy--its' just fine!
Let's have a GREAT summer!
Copyright © 2016 Transformity Media, Inc., All rights reserved.