Is The Sun Going to Rise on Solar?

Is the multi-year drag on solar energy stocks over? That is the question being posed on ChartsAndSignals.com by one of our contributors. Many of the PV manufacturer stocks are near all time lows after years of relentless declines. Its almost as if the whole industry was going out of business.

But looking at the earnings of some of the companies we see that they are making money. Better than that, the price/earnings ratios look very attractive, assuming the earnings are real. Just today there was a big win with the Topaz Solar Farm, a $2 billion, 550 megawatt project. This is a big project with a planned output enough to supply energy to 160,000 homes, located in San Luis Obispo County, California. The investor is MidAmerican Energy Holdings, controlled by Berkshire Hathaway.

Here's a list of solar stocks worth watching*: FirstSolar (FSLR), SunTech (STP), Trina Solar (TSL), Yingli (YGE), ReneSola (SOL), JA Solar (JASO).

*Not a recommendation, just a list to research more on.

This morning there's good news from Europe. France and Germany have agreed on a series of reforms to address the euro zone sovereign debt crisis. The Euro has strengthened against the dollar to 1.34. Markets liked that Angela Merkel said "We need binding debt brakes, which can be verified by the European court of Justice ... in order for the Stability and Growth Pact to hold,".

Still the issue remains that both Germany and France are currently above the Maastricht limit. France has 84.7% debt to GDP and Germany has 82.4%. Both of the two 'fiscal leaders' of Europe have a worse debt to GDP than Spain at 68.1%. They still have a lot to address.

Keep an eye on the dollar index as seen with 'UUP'. The dollar is still in an 'Up Signal' as seen on the weekly charts here:

http://www.chartsandsignals.com/ic-sig2.html

Monthly and Weekly Charts Show Reversal Potential on RIG

Transocean Symbol:RIG has the potential for an early reversal indication on all three charts, monthly, weekly and daily. The close after the last week of November will be key. Keep this one on your radar, as a reversal signal with period lows on all three charts could be a nice entry point.

http://www.chartsandsignals.com/icc-vucomm-dtl.cfm?editid=27&src=vucomm

Separated New Zealand Telecom debut

According to Reuters "Shares of newly structured New Zealand phone company Telecom Corp. debuted at NZ$1.97 on Wednesday while its spinoff network unit Chorus started at NZ$3.03 in a slightly firmer market."

"Telecom, once New Zealand's largest listed company, has split into a retail operation, and a fixed line operator, as a condition of winning the contract to roll out most of the New Zealand government-sponsored ultrafast broadband network."

http://www.reuters.com/article/2011/11/22/telecom-chorus-idUSL4E7ML38V20111122

Our Signals are Great Trend Indicators

My computer generated "Down Signals" for the S&P have been 100% accurate so far for 2010 and 2011 (The only unknown is always "How far down?" on any single signal). Currently the S&P market pattern looks similar to May-August 2010. Back then the algorithm correctly indicated the entry and exit of the correction with the yellow and turquoise stars (Weeks of May 7th & Sept 17th, 2010). Here's what the signals look like for the S&P now and then:

http://www.chartsandsignals.com/ic-sig1.html
Other than bonds, the financial "safe haven" this summer was tobacco in addition to gold*. Especially dividend paying tobacco companies. From late July to now, Reynolds (RAI) gained 5.6%, Altria (MO) gained 2.4%, and Lorillard (LO) gained 4%. That's not including any dividends paid ... and those dividends currently range from 4.6 to 6.1% annualized.

China to use gold to "internationalize" the RMB?

ZeroHedge brought to our attention an interesting Wikileaks that many fund managers will surely take note of regarding gold.  In short, China is looking to gold to help it internationalize its currency.  Funds managers that have been on the fence on gold, will soon be hitting the 'buy' button.  Here's the excerpt from Wikileaks:

"According to China's National Foreign Exchanges Administration China 's gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the U.S. and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB."

Sure, it could be a "plant", but a little bird tells us it's real and gold prices will be the verdict.

Is there a dollar surprise in the making?

Nearly, everyone is negative on the dollar and the market is currently pricing in the continuation of quantitative easing. 


Why is the dollar’s direction important, you may ask?  Well, when the dollar drops, the US stock markets tend to rise because when the dollar is stronger, it has greater purchasing power, so the market rises in dollar terms.


Take a look at what happened on August 23, 2011 as the market prepared for the results of the Fed meeting.  The dollar fell over half a percent and the Dow, the S&P, and the NASDAQ surged 2.97%, 3.43%, and 4.29% respectively.  


HOWEVER, what if 'most people' are wrong?  Wouldn’t it be great to have a signal as to which way the market thinks the currencies will go?  Fortunately for followers of ChartsandSignals.com, the dollar trend can be seen plainly.


We are seeing a possible early warning sign in our proprietary US Dollar chart, which could surprise a heck of a lot of people!  Here's the snapshot of the dollar chart for this week (Jackson Hole -2 days and counting):   http://www.chartsandsignals.com/ic-sig2.html


Every week, on our proprietary charts, we can see the dollar’s current action, and the likely future trend.  You can get access for FREE here:


http://www.chartsandsignals.com/icc-newacc.cfm

Inflation to worsen

Last Saturday John Mauldin wrote a very timely newsletter about the Fed's QE2 (2nd quantitative easing) Treasury buying program.  The question is will it end, or will QE3 be announced to follow it?  In this article John questions if the Fed will be able to continue buying Treasuries after June.  While core inflation is low, inflation including food and energy is running at 5% on an annual basis over the last three months.  I previously predicted a jump in inflation and this week companies such as Kimberly, Colgate, and P&G announced 5-7% price increases.  I fear that this is just the beginning.  In his newsletter John explains why rents will be rising as well.

My view is that the catastrophe in Japan is going to exacerbate producer price inflation.  Japan produces around 30% of global flash memory, 20% of semiconductors and 40% of electronic components.  I believe it will be months, not weeks before they are able to resume normal production.  In the meantime, limited supply will push prices up, and the less price elasticity, the higher price will go.

More seriously, questions about food safety in Japan are going to worsen an already delicate food supply situation.  The world has been consuming grains faster than farmers can grow them.  This is draining reserves and pushing prices higher.  According to Keith Collins, former chief economist of the U.S. Department of Agriculture "The stage is set for very serious disruptions, should weather disasters happen," he also added "It seems clear to me that the chance of a more widespread global food crisis has increased."  He said this before Strontium-90 and Cesium-137 were raining on Japanese arable land.

For me it is unthinkable that the Fed would NOT announce QE3.  Without it, I believe, we have little chance of funding our deficits.  Especially with Japan now more likely to sell Treasuries to raise money needed to rebuild.  Without ongoing QE, we would need to raise taxes significantly, reduce transfer payments such as social security and Medicaid, or reduce military operations substantially.  Essentially the Fed's traditional tools to reduce inflation are a jail sentence for our economy.

Natural Gas Poised to Rise?

Natural gas prices are about to change course and rise due to several factors.  Natural gas prices have been depressed due to an amazing over-supply caused by new fracturing technologies combined with limited storage facilities.  There is currently an inadequate distribution chain for natural gas, and so the supply has had no where to go.  This will change with a new distribution infrastructure that is being built which will absorb the supply.  Natural gas will begin replacing the traditional sources of coal and oil.  Right now, electric utilities are in the process of converting from coal as a major electricity-generation system to natural gas.   Our algorithms will most likely spot the bottom in natural gas prices but no need to worry about perfect timing because the potential for gain is so great.

Dollar Fibonacci Fans

The rules of investing are totally different than they have been the last 30 years. We are in an ongoing world-wide debt crisis, which is likely to turn into a systematic breakdown in faith of government. Your focus should be on learning how to preserve wealth, especially if your investments are in any of the western currencies, and in cash.
For U.S. citizens the focus should be on the dollar index.  If 76 fails, then the next support is around 74.15.  Under that is the ultimate low of 72, and it would be very bad for 72 to be breached.  Think of 72 as the dollar's last stand. 

As of February 22nd around 10:00 pm EST the dollar index is holding 77.65.  Since November 30th, the dollar index has been following Fibonacci fan lines down.  This fan is based on a trace of the June 7th, 2010 daily high to the November 4th, 2010 daily low.  As long as the pattern holds, the dollar is going down long-term.

Cost of Oil

West Texas Intermediary (WTI) crude oil jumped up again today.  It is important that I remind you, that per the Federal Reserve Board of San Francisco "For each $10/barrel increase in oil prices, the United States pays an effective "tax" of about $50 billion (5 billion barrels times $10), or 0.4% of GDP."  But with our leverage, roughly calculated, each dollar move up in oil wipes out about $100 billion in U.S. GDP.  The current Banking-Treasury-Administration partnership won't allow for a significant drop in GDP at this stage.  Can we avoid a vicious cycle where more Federal Reserve "Quantitative Easing" is necessary to offset each reduction in GDP, reducing the value of the U.S. dollar and thus indirectly raising oil prices further, and on and on?

Of course oil prices should turn back down after things calm down in the Middle East, but timing is the issue.  The analysis provided by most media sources makes this point, but I think that matters are far more complex than that.  While I don't pretend to have a handle on all of the correlations and interactions in our global economy, I do have data that tracks the U.S. dollar, oil, and gold prices in response to the Fed's Quantitative Easing and Permanent Open Market Operations (POMO).  Some of the relationships are not obvious and could be disputed, but time is showing us otherwise so far.

Tough to Find Good Values

I've been having a difficult time finding equities that don't have sky high price/earnings ratios.  I look at price to earnings ratios (otherwise know as the P/E ratio) as an indication of how expensive a share of any particular company is at any point in time.  This is simple math taking the market value (price) per share and dividing it by the earnings per share over the last twelve months.  Most financial sites do the math for us, so there's little in the way of doing this.  As smart investors we want to buy stocks when they are cheap relative to their earnings, and sell them when their earnings falter significantly, or their stock prices reach unsustainable levels.