David Zanoni's  Instablog

I'm curious to see how this week trades.  The jobs report Friday should especially provide the market's near-term direction. Last week's sell-off looked like all of the typical sell-offs since early March, but I wonder if that will change this week. 

Is now the time for natural gas?  As it breaks through $3 and the natty stocks making new highs, it may be the time to get in stocks such as CHK, DVN, XTO, APA, etc.

After the recent run in the stock market from March 2009 to August 2009, many investors are taking some profits and waiting to see if the leading indicators continue to improve or if they slide to the downside.   Will manufacturing, retail, housing, and financials continue to see improvements?   It looks like the economy and the stock market could go either way in the near term.   So, if you’re a trader or a long term investor, what looks promising right now?   How about the low priced commodity, silver.    
     I would choose silver over gold for the simple reason that it’s much cheaper than gold.  Furthermore as silver rises along with gold, the percentage gains are significantly higher with silver.  For example, when gold rose from $900 to $1000 investors enjoyed a nice 11% gain while silver investors enjoyed a nicer 23% gain with just a 3 dollar rise $13 to $16.  
     With the value of the dollar falling, and large inflation risk on the horizon due to the government’s unprecedented money printing machine, commodities will rise over time.  Silver should be a key player in this commodity rise.  Gold is currently trading more than 60 times time the price of silver.  Historically, gold trades 15 times higher than silver.  I’m not saying that silver will definitely return to price in at 15 times below the price of gold, but things do tend to revert to the mean over the long term.
     Silver also has its usefulness beyond jewelry and silverware.  Its characteristics include: strength,   reflectivity, malleability and ductility, electrical and thermal conductivity,  antimicrobial, and the ability to endure extreme temperature changes.  Silver is used in mirrors, electrical contacts/conductors, photographic film, and disinfectants.  As the economy eventually improves, so will the various uses of silver, thus contributing to a higher demand .  However,  I think its popularity as a moderately priced hedge against inflation will drive its demand more than its functional applications.
    The purest play is to purchase the physical silver.  If you prefer to trade it in stock form than SLV is the next purest play.  Other stock ideas include: SLW, PAAS, AGQ, AEM, and AAUK.

Disclosure: No positions

With the market pulling back this week, the next key level to watch for is 979 on the S&P.  If we can remain above 979, that will be bullish.  If we go much lower than that 979, then 879 is the next key holding level.  If that 879 gets broken, then the bears will say I told you so.  The 979 is 5% below the peak of 1031 from Aug. 27, so the bulls will be looking good if that level is held.

     The correction from August the 14th & the 17th was only 3.4%, a mild and healthy pullback (not a bloodbath) for the S & P index.  That pullback was followed by four positive days, with Friday August 21 making a new high for 2009 at 1026.  

stockcharts.com/h-sc/ui?s=spx

     This new high for the year was a victory for the bulls, confirming that "the trend is in fact, your friend".  The bears are still talking about the next Great Depression, while missing out on one of the best bull runs in market history.  The bears will  probably wait until the S & P hits 1600 before investing their money back into the market.   That's fine with the bulls because we will be buying the shares that the bears are selling.  
      The bears have been talking up the high unemployment rate for quite some time as their primary argument for another downturn in the markets .  However, the bears are failing to see that the new unemployment claims are trending downward.  The 200k loss of jobs will eventually be 100k lost, then we'll get to zero jobs lost, and finally back to job growth.

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     Other bullish news was the reporting of existing home sales for June which marked the third consecutive month of rising home sales at 4.89 million.  First time home buyers are taking advantage of the 8k tax credit, attractive home prices, and low interest rates.  Experienced buyers are enjoying the later two. 
     Consumers are spending less but saving more.  Spending less may hurt the short term economy, but will be better for long-term growth.  This will probably result in a healthy, gradual improvement in the economy which is better in the long run.  If consumers continue to increase savings then there will be plenty of money to pump into the economy when people feel they are ready and there will be less burdensome debt in the system.   Furthermore, with increased savings, banks will have more capital, increasing their strength. 

    Smartphones have been the Apple of tech's eye ever since the iphone was conceived.   Investors have various choices to participate in the success of Apple's iphone and other smartphones and handheld devices.  Of course, investing in Apple itself is not a bad idea, but here are some other alternatives to consider to benefit from Apple's pin-action.  
    Intel INTC (not much smaller than Apple in market cap)  supplies the Nor flashchips embedded into the iphones.  With 9.7 times more cash on hand than debt, Intel is in a good position going forward.  They also hold iphone's updateable system software.  Marvell Technology MRVL with over 300 times more cash than debt makes iphone's WiFi chips.  Broadcom BRCM with zero debt makes the interface chip that interprets the movement of your fingers on the iphone's multitouch screen.
Other manufacturers that produce chips for the iphone are: Taiwain Semiconductor TSM and United Microelectronic Corp. UMC.  Both of which are also solid cash flow generators.
    There are also a few other key public companies that are involved in the design and manufacturing of hand-held components that have been participating in the tech rally.  RF Micro Devices RFMD whose stock went from under $1 to over $5 since March designs radio frequency technology for wireless systems, cellphones,  WLAN, cable television, broadband, aerospace and defense markets.  Another maker of RF products is TriQuint Semiconductor TQNT, which makes modules for handsets, networks, and military systems.  TQNT has enjoyed a 250% stock rise since March. Skyworks Solutions SWKS whose stock has tripled since January, produces analog & mixed signal semiconductors enabling wireless connectivity.

Disclosure: Long RFMD