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Thomas H. Kee Jr., is President and CEO of Stock Traders Daily. The Stock of the Week Strategy offered by Stock Traders Daily may be the best performing strategy on the market since December, 2007 (before the credit crisis), and "The Investment Rate" is arguably the best measure of the... More
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  • Apple Improves Valuation For The Dow Jones Industrial Average

    Apple (NASDAQ:AAPL) is replacing AT&T (NYSE:T) in the Dow Jones industrial average is a very big deal. Clearly, investors in Apple are having a field day because they love the idea of their darling stock being placed in the Dow Jones industrial average, while shareholders of AT&T stare at the headlines like a deer stares into headlights.

    However, that knee jerk reaction is not why this is an important decision. The importance of this decision rests completely in the relative valuation changes that will take place after Apple replaces AT&T and Visa (NYSE:V) splits. This article will be the first of two articles that serves to identify the fair value of the Dow Jones industrial average (DJIA).

    Before going any further it is important to recognize that the valuation of the Dow Jones industrial average will improve significantly and we can make that general observation by simply recognizing that the valuation as that is defined in the peg ratio analysis below for Apple versus AT&T and Visa respectively are completely different. Apple, on a peg ratio basis, is much more attractive than AT&T and Visa and that will improve the valuation metrics of the Dow Jones industrial average because Apple will have more weight than the set and AT&T will no longer be there.

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    Although we can surmise what that new valuation will be, and it will improve, it is difficult to be exact until such time as the change actually takes place. The change is scheduled to happen on March 19, so the second article associated with this article will be issued the following day. That article will define what the fair value of the Dow Jones industrial average is once the changes have been made.

    This article, on the other hand, looks at what the fair value of the Dow Jones industrial average is today so we can compare it to the March 19th article.

    We determine fair value by looking at those forward looking peg ratios, which by definition combine the expected yearly growth rate for the Dow Jones industrial average for 2015 and then for 2016 to the associated PE multiples for the Dow Jones industrial average that would be if analysts expectations are correct and price remains the same. All of these charts are listed below.

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    Our conclusion is that the current valuation of the Dow Jones industrial average is extremely high, valuation levels were not expected to improve given analysts' expectations for the current constituents of the Dow Jones industrial average either, and instead the dow Jones industrial average would more likely appear to be much more expensive by the end of 2015 and continue to lack relative value by the end of 2016 had these changes not taken place.

    These changes, as a result, serve to improve that otherwise concerning valuation observation.

    Importantly, we should also recognize the technical patterns for the Dow Jones industrial average and I must disclose our position. The Dow Jones industrial average came very close to a test of longer-term resistance and it has already begun to pull back from longer-term resistance. When that happened short signals fired and our Strategic Plan strategy is currently short the Dow Jones industrial average from levels close to longer term resistance with an expectation of additional decline to the longer term support levels we have identified respectively. Our Strategic Plan strategy is a zero R squared objective.

    With that understood, it is important also to recognize the proximity of this new constituent, Apple, to its individual longer-term resistance line as well to see if there is any correlation to the test of longer-term resistance that has happened in the dow Jones industrial average already. The answer is that there is absolutely a correlation and Apple, just like the Dow Jones industrial average, recently tested a level of longer-term resistance itself. Our observations of Apple's longer term channel vs. the longer term channel of the dow Jones industrial average itself suggests that Apple, if it declines to its longer term support level like the dow Jones industrial average is expected to do, runs the risk of falling about twice as much as the dow Jones industrial average itself.

    According to our real time trading report for Apple, longer term support currently exists at $112.93. A test of that level should be expected if Apple remains below longer term resistance lines, but by comparison a decline in Apple of that magnitude would outpace what is expected by us currently in the Dow Jones industrial average as the market oscillates from resistance to support respectively.

    After the changes are made to the Dow Jones industrial average on March 19 a valuation update and an observation in conjunction with the short signals referenced in this article will be provided.

    Disclaimer: Stock Traders Daily provides proactive risk controlled strategies and trading reports on 4000 stocks that serve to define not only fair value but also actionable risk controlled trading plans that can be used to take advantage of both up or down cycles respectively. We believe that risk controls are required and our longer-term macroeconomic view suggests that risks are extremely high and the chance of a material market decline not unlike what we have been witness to after the Internet bubble and during the credit crisis could come at any time now that stimulus is over.

    Mar 06 5:06 PM | Link | Comment!
  • Macroeconomic Conditions Set To Deteriorate

    Real Net Stimulus in the US Economy ended on April 1, 2014, and the economy is now positioned to revert back to its normalized condition. The natural state of the economy is defined by looking at the natural forces that drive economic cycles, and that means people. The way people spend, and also invest money are the governing forces behind long term economic cycles, but interestingly, spending patterns do not actually influence longer term economic cycles as some might think.

    Instead, it is the investment patterns of people within our economy that has been proven to determine longer term economic cycles. Those investment patterns are influenced by simple societal norms that may seem initially uncorrelated to the naked eye, but have material influence over our investment decisions during our lifetime and new money infusions into the economy accordingly. We grow up, go to school, get a job, get married, buy a house, have kids, retire, and die.

    Extrapolated to include the entire country, we can use societal norms to determine lifetime investment patterns, and then determine the rate of change in these investment patterns year over year, and unless society changes, well into the future as well. There are no signs that society is changing in terms of those societal norms mentioned above, but still, those people who influence our current economy were exposed to societal norms that have already been defined anyway, so we can measure them.

    This measure is called The Investment Rate, and it defines the rate of change in the natural investment patterns in our economy, which in turn have also defined every major longer term economic cycle in US History since 1900. This measure pinpointed the start of the Great Depression, Stagflation, and the start of the Credit Crisis, based on simple observations of the core of all economies, people.

    The Investment Rate defines the economic conditions that exist today without stimulus, and shed light on what the economy will look like when stimulus is removed. This also has a direct influence on our investments in all asset classes, including the stock market, our retirement plans, real estate, private businesses, and any other asset class that relies on new money to grow.

    Given the end of net real stimulus that has already happened, investors must understand the natural condition of our economy, so on Tuesday during Market hours we will host a special webinar discussing this exact point. We will define net real stimulus and the exaggeration FOMC policy has caused, and therefore quantify the risks in the asset classes mentioned above as a result.

    In addition to the Webinar, we have the transcript and summary for this webinar available in our member's area right now for anyone who cannot attend the webinar. Webinar Transcript

    Please join us:

    Title:

    Profiting from the Stock Market without Stimulus

      

    Date:

    Tuesday, April 29, 2014

    Time:

    10:00 AM - 11:00 AM PDT

    After registering you will receive a confirmation email containing information about joining the Webinar.

    System Requirements
    PC-based attendees
    Required: Windows® 8, 7, Vista, XP or 2003 Server

     

    Mac®-based attendees
    Required: Mac OS® X 10.6 or newer

     

    Mobile attendees
    Required: iPhone®, iPad®, Android™ phone or Android tablet

     

    Space is limited.
    Reserve your Webinar seat now at:
    https://www1.gotomeeting.com/register/544665857

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Business relationship disclosure: By Thomas H. Kee Jr. for Stock Traders Daily and neither receives compensation from the publicly traded companies listed herein for writing this article.

    Tags: economy
    Apr 28 9:04 AM | Link | Comment!
  • Profit Without Stimulus: Webinar On Tuesday

    Macroeconomics: Due to its popularity and significant importance, this is the second time we are hosting this webinar. We are hosting this at a different time, one that may better accommodate those who were not able to attend last time. However, the transcript is already available for your review on our website in our Special Reports section for those who cannot attend this time either

    Join us for a Webinar on April 8

    In this webinar we will talk about the influence of stimulus, and prove what the economy and stock market will look like without stimulus. We will also prove when stimulus will actually end (that's not when the infusions equal $0) This will conclude with investment ideas designed to profit from the change in Fed Policy as that impacts the economy and stock market. If we know what is coming we can profit handsomely; that is the goal of this webinar.

    • Title:Profiting from the Stock Market without Stimulus
    • Date:Tuesday, April 8, 2014
    • Time:5:00 PM - 6:00 PM PDT

    After registering you will receive a confirmation email containing information about joining the Webinar.

    System Requirements

    PC-based attendees

    Required: Windows® 8, 7, Vista, XP or 2003 Server

    Mac®-based attendees

    Required: Mac OS® X 10.6 or newer

    Mobile attendees

    Required: iPhone®, iPad®, Android™ phone or Android tablet

    Space is limited.

    Reserve your Webinar seat now at:
    https://www1.gotomeeting.com/register/632311000

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 06 4:15 PM | Link | Comment!
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