Mind the Gap: Gap Shares Gap Up as Sales Surprise

The Gap’s (GPS) surprised investors with top-notch results today, resulting in another gap–the one between yesterday’s closing price and where it’s trading now.

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The Gap reported said it would earn 71 cents a share, well ahead of analyst forecasts for 66 cents. Even better, so-call same -store sales rose 4%, topping forecasts for a 0.6% increase.

This gap up, however, comes a little less than a month after shares of the Gap gapped down 7% on Oct. 11, following disappointing same-store sales. What will November hold?

Janney’s Adrienne Tennant and Gabriella Carbone urge caution. They write:

We believe merchandise margins will be under pressure for the remainder of the year, as a result of the sector-wide increased promotional activity. For November, we are modeling a +1% comp. We point out several negative factors impacting November: 1) one week later start to retail November, 3) shorter overall holiday season, 3) one week later Thanksgiving, which will shift CyberMonday and some Black Friday DTC sales out of retail November (GPS recognizes e-commerce sales upon estimated receipt by customer)…

…offsetting this, and specific to Old Navy, will be more Thanksgiving Day store openings (900 stores versus 750 last year from 9 am to 4 pm) and most of the stores open from 7 pm Thanksgiving Day through Black Friday (recall last year, Old Navy reopened at midnight missing much of the earlier off-mall traffic).

We continue to believe the global brand management structure of the business will help attain greater speed and efficiencies, as well as fuel future long term global growth; however, in the near-term we remain cautious given challenging mall traffic and aggressive promotions.

Shares of the Gap have jumped 8.9% to $41.12, while L Brands (LTD) has gained 1.6% to $62.77, Urban Outfitters (URBN) has risen 2.1% to $39.27 and Ann (ANN) has advanced 1.5% to $35.47.

The Ever-Fascinating Plight of Billionaire John Paulson

The StressTest column appears every Thursday on Fool.com. Check back weekly, and follow @TMFStressTest on Twitter.

If you're an investing wonk that loves lessons in investing process or behavioral finance, billionaire hedge-fund manager John Paulson is utterly captivating. Of course, if you're a fan of schadenfreude or are on a warpath against the "one percent" he's also interesting -- but those are stories for another place.

A quote in a recent Bloomberg article from hedge fund advisor Jay Rogers does a great job summarizing the Paulson story:

It's a bit of ego on his part -- 'I made billions of dollars and did this big trade and I'm a genius,' ... That hubris leads him to make big bets and unfortunately most of them have gone wrong.

All signs point to the view that Paulson had been a very competent and successful manager of an event-driven / arbitrage hedge fund. That is, a fund that bet on specific catalysts, corporate events, and mergers. Then came the housing run-up.

Paulson bet big on the housing bust. And Pauslon bet correctly. The result was billions to the fund's investors and billions to Paulson himself. 

After that, it seems Paulson suddenly fancied his fund a macro-oriented fund and started to construct big-picture bets. In mid-2009, he began building an outsized position in big banks -- including billion-dollar-plus positions in Bank of America  (NYSE: BAC  ) and Citigroup  (NYSE: C  ) -- on the view that the banks would turn on the post-recession recovery. 

If the bet wasn't a disaster, it was something very close. As the S&P 500  (SNPINDEX: ^GSPC  ) recovered, the stocks of both B of A and Citi crumpled.

BAC data by YCharts.

By December 2011, he'd zeroed out the positions. And in a sad coda to that trade, both stocks turned around and solidly outperformed the S&P between when he sold and today.

Around the same time, he also started building a large position on gold and gold-related investments. According to S&P's Capital IQ, by March 2009, the Paulson family of funds already had nearly $3 billion in the SPDR Gold Trust  (NYSEMKT: GLD  ) . That was accompanied by smaller stakes in Market Vectors Gold Miners ETF (NYSEMKT: GDX  ) , Kinross Gold, and Gold Fields -- among others. 

The gold mining companies -- Kinross in particular -- didn't exactly shoot the lights out. But the overall view -- that gold would continue powering higher -- worked quite well.

^SPX data by YCharts.

That is, it worked quite well until it didn't. Starting around mid-2011, gold started to shudder, and the gravy train slowed markedly. It slowed enough that it's significantly lagged market indices over the past few years, leaving Paulson-fund investors in the lurch.

^SPX data by YCharts.

That leaves Paulson today with substantially less of a "master of the universe" reputation than he had coming off his outlandish housing-crash win. 

Looking ahead, the real story will be whether Paulson can successfully turn things around. My take is that the turnaround won't come via a sudden insight into the macro-investing game that will lead to another big-bet win. Instead, it would more likely come from a realization that his forte and alpha-producing potential lie in arbitrage investing, not big-picture bets.

In the stock market, it can be mind-numbingly difficult to separate the true skill of an investor from dumb luck. I won't pretend to have insight into whether the housing bet was the latter or the former. But what does seem clear to me is that Paulson's skill seems to lie in the event-arb arena. Sure, it's a quieter backwater that isn't typically a media king maker, but for those that can do it well, it's a steady performer.

To Paulson's credit, Bloomberg makes it sound as if the fund is gravitating back to that traditional strength. 

Since late 2012, Paulson has emphasized to clients his firm's strength in investments that aim to profit from takeovers, restructurings and spinoffs. The firm's new website, started last week, portrays Paulson & Co. as a bottom-up, event- driven arbitrage firm that seeks capital preservation and above- average returns, without mentioning gold.

Individual may not think they have much in common with a big shot billionaire like Paulson, but his experience over the years since his big win suggest a lesson that we all can learn from. Process, outcome, skill, and luck play very big roles in investing. That something worked in the past doesn't mean it was the result of your brilliance, or that a similar approach will work in the future. On the other hand, a positive outcome that was the result of a well-honed process that relies on carefully selected inputs is far more likely to lead to the long-term results you're looking for.

More from The Motley Fool
The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

Universal Stainless & Alloy Products Misses on the Top and Bottom Lines

Universal Stainless & Alloy Products (Nasdaq: USAP  ) reported earnings on May 1. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended March 31 (Q1), Universal Stainless & Alloy Products missed estimates on revenues and missed estimates on earnings per share.

Compared to the prior-year quarter, revenue dropped significantly. GAAP earnings per share dropped significantly.

Margins dropped across the board.

Revenue details
Universal Stainless & Alloy Products notched revenue of $49.1 million. The two analysts polled by S&P Capital IQ hoped for a top line of $49.5 million on the same basis. GAAP reported sales were 34% lower than the prior-year quarter's $74.6 million.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
EPS came in at $0.01. The two earnings estimates compiled by S&P Capital IQ averaged $0.13 per share. GAAP EPS of $0.01 for Q1 were 99% lower than the prior-year quarter's $0.86 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 9.5%, 960 basis points worse than the prior-year quarter. Operating margin was 0.3%, much worse than the prior-year quarter. Net margin was 0.1%, 830 basis points worse than the prior-year quarter. (Margins calculated in GAAP terms.)

Looking ahead
Next quarter's average estimate for revenue is $58.2 million. On the bottom line, the average EPS estimate is $0.28.

Next year's average estimate for revenue is $246.8 million. The average EPS estimate is $1.31.

Investor sentiment
The stock has a three-star rating (out of five) at Motley Fool CAPS, with 380 members out of 401 rating the stock outperform, and 21 members rating it underperform. Among 73 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 72 give Universal Stainless & Alloy Products a green thumbs-up, and one give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Universal Stainless & Alloy Products is outperform, with an average price target of $49.00.

Steel is for real, but gold is shiny and increaingly popular as a hedge among those who fear inflation. Should you move beyond Universal Stainless & Alloy Products and look into a precious metal play? Find out how Motley Fool Analysts think you can profit from inflation and gold with a little-known company we profile in, "The Tiny Gold Stock Digging Up Massive Profits." Click here for instant access to this free report.

Add Universal Stainless & Alloy Products to My Watchlist.

Here's How Bally Technologies Is Making You So Much Cash

Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.

Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.

Calling all cash flows
When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That's what we do with this series. Today, we're checking in on Bally Technologies (NYSE: BYI  ) , whose recent revenue and earnings are plotted below.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. FY = fiscal year. TTM = trailing 12 months.

Over the past 12 months, Bally Technologies generated $122.5 million cash while it booked net income of $122.1 million. That means it turned 12.9% of its revenue into FCF. That sounds pretty impressive.

All cash is not equal
Unfortunately, the cash flow statement isn't immune from nonsense, either. That's why it pays to take a close look at the components of cash flow from operations, to make sure that the cash flows are of high quality. What does that mean? To me, it means they need to be real and replicable in the upcoming quarters, rather than being offset by continual cash outflows that don't appear on the income statement (such as major capital expenditures).

For instance, cash flow based on cash net income and adjustments for non-cash income-statement expenses (like depreciation) is generally favorable. An increase in cash flow based on stiffing your suppliers (by increasing accounts payable for the short term) or shortchanging Uncle Sam on taxes will come back to bite investors later. The same goes for decreasing accounts receivable; this is good to see, but it's ordinary in recessionary times, and you can only increase collections so much. Finally, adding stock-based compensation expense back to cash flows is questionable when a company hands out a lot of equity to employees and uses cash in later periods to buy back those shares.

So how does the cash flow at Bally Technologies look? Take a peek at the chart below, which flags questionable cash flow sources with a red bar.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. TTM = trailing 12 months.

When I say "questionable cash flow sources," I mean items such as changes in taxes payable, tax benefits from stock options, and asset sales, among others. That's not to say that companies booking these as sources of cash flow are weak, or are engaging in any sort of wrongdoing, or that everything that comes up questionable in my graph is automatically bad news. But whenever a company is getting more than, say, 10% of its cash from operations from these dubious sources, investors ought to make sure to refer to the filings and dig in.

With questionable cash flows amounting to only 9.6% of operating cash flow, Bally Technologies's cash flows look clean. Within the questionable cash flow figure plotted in the TTM period above, other operating activities (which can include deferred income taxes, pension charges, and other one-off items) provided the biggest boost, at 2.8% of cash flow from operations. Overall, the biggest drag on FCF came from capital expenditures, which consumed 10.6% of cash from operations.

A Foolish final thought
Most investors don't keep tabs on their companies' cash flow. I think that's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. Better yet, you'll improve your odds of finding the underappreciated home-run stocks that provide the market's best returns.

Looking for alternatives to Bally Technologies? It takes more than great companies to build a fortune for the future. Learn the basic financial habits of millionaires next door and get focused stock ideas in our free report, "3 Stocks That Will Help You Retire Rich." Click here for instant access to this free report.

We can help you keep tabs on your companies with My Watchlist, our free, personalized stock tracking service.

Add Bally Technologies to My Watchlist.

Global Growth Problems?

The recent revenue numbers, and more importantly, the guidance from Kellogg, may have implications for the global economy, says MoneyShow's Jim Jubak.

Okay, Kellogg reported its third quarter earnings on November 4, and, while the earnings themselves were pretty good, in the sense that they beat Wall Street estimates by about six cents a share, revenue was really pretty terrible, it was down 1% year over year, and the company said some really, very negative things about growth going forward. The important thing I think here is that a) yes, Kellogg as a specific company has growth problems, the food sector, the cereal sector, as a specific sector, has growth problems, but it looks like we're also starting to talk about global growth problems that really transcend these problems.

Kellogg's problem, as an individual company, is that, well, it gets about 64% or so of its revenue from the United States, it really doesn't have much of a presence in the faster growing emerging markets and that has really held it back. In terms of a sector, well, Kellogg is fighting against trends in the breakfast market toward more protein-rich things like Greek yogurt, and cereal consumption is not growing very fast. Globally, the problem is that global growth indeed seems to be down.

What Kellogg said was that it's not looking, it cut guidance for the rest of 2013 into 2014, and it basically said, "Hey, you know, we're not seeing growth, in fact we're going to have to get involved in deeper, deeper cost cutting," the company said that it would cut about 7% of its workforce by 2018. It put in place a cost cutting program called Project K, not to be confused with Special K, but again there's a four-year time horizon.

All this designed to get the company back to a position where it's generating enough cash they can reinvest in markets and products that it can grow. What was interesting is that if you put what Kellogg together with something like one of its peers like Kraft Foods said, it's clear that we're not talking just about a specific company or even necessarily a specific sector.

What Kraft Foods said at its conference call was hey you know we're not seeing global growth, what we're seeing is the global consumer is really, really stretched. People are not buying more than they need maybe for the next day or week, and we don't see, Kraft said, "a way to sort of promote our self out of this, we need more global growth, we can't simply market more efficiently; we can cut costs but the growth simply isn't there."

If you're looking at that and saying "Oh, stocks are at an all-time high in the US, growth is really not coming through," then Kellogg is a good example of the problem, and not one that's specific to itself. One of the problems here is that if you look at Kellogg, these are numbers from Credit Swiss, the food group, that's Kellogg, Kraft, Campbell's Soup, over the long-term trades at about a 20% discount to the general beverage and personal healthcare sector. Right now that's the 20-year average; 10-year average is down, about a 10% discount. Right now the discount for Kellogg and the food group is only about 7%, so despite these growth problems, you could then say, historically these stocks are still pricy, it's a bad combination, lower growth as well as higher than usual premium. It suggests that there are troubles here in the global economy that are really being papered over, if you will, by a flood of paper money from the world central banks.

This is Jim Jubak for the MoneyShow.com video network.

Silver Linings

Last Friday, The Wall Street Journal ran a piece that we're pretty sure will make just about every reader feel better about themselves: true confessions from some Wall Street bigwigs on the best and worst investments they ever made. They aren't all market related, of course—some fondly recall their collegiate years and sweetheart meet-cutes—and few if any normal people can really learn from Dolly Parton's investment in Dollywood. Others, like the anecdotes from passive investing stalwarts, have a clear bias that we'd advise taking with a grain of salt (see this and this for more). But in between are stories of some gigantic hits and misses—and valuable lessons. Everyone makes mistakes, even the best of the best. Believe it or not, that's good news! Recognizing and learning from your mistakes can help you reduce your error rate over time, making you a better investor.

[Related -Parliamentary Vote in Greece Threatens Euro–zone Recovery.]

This is easier said than done. In real life, we learn from our mistakes all the time, starting from childhood. If you touch a scalding pan and get a nasty burn, you learn to use potholders. If you eat too much raw cookie dough and get sick, you learn to avoid raw eggs and an abundance of sweets. If you catch a cold in winter because you went out without a coat, you learn to bundle up. This is how we all grow, adapt and become better at the game of life.[i]

[Related -This Week in Arbitrary Milestones]

In investing, though, it's harder to learn from errors. That section of our brain is just programmed differently. As humans, when our investing decisions don't work out, our brains are hard-wired to do anything but take stock and teach ourselves a lesson. How so? We hate losses, so we shun regret! Prospect Theory tells us humans tend to hate losses about two and a half times harder than we enjoy equivalent gains, and we will do just about anything to avoid that pain. For some, that means simply hanging on to a losing investment in hopes it will rebound and spare them the pain of selling at a loss—without giving one single thought to why the stock is falling and whether a recovery is at all likely or what other, better opportunities they might miss in the meantime. For others, it means absolving themselves of any and all blame for a bad decision. If Jim or Judy's[ii] mutual fund goes down, it isn't their fault—it's the fund manager's! And it isn't their fault they picked that fund manager, no siree bob. It's the fund ranking website's fault! Or the marketing materials' fault! Or their broker's fault for recommending it! Ditto if we're talking individual stocks. Or it's the analyst's fault for issuing a clearly bogus "buy" rating. Or the CEO's fault for setting too-high expectations. Anyone, anyone's fault but Jim or Judy's.

This might make you feel better in the short term. Shifting blame lets you feel innocent, making losses less painful! But it does you no favors. Mistakes are valuable, but only if you recognize them and take the time to study and learn from them. If your stock picks aren't working out, instead of blaming others or hanging on blindly out of sheer hope, think about why you owned the stock in the first place. Was it a good, forward-looking reason, like having solid growth potential and dominant market share? Or were you caught up in things like recent past performance? If your decision-making was sound, and things just didn't work out, that happens—maybe a new competitor stole that company's thunder, and your investment thesis didn't hold true. Even sound investment theses don't always win out! Can't win 'em all. But if it turns out you used suspect criteria, like past performance, "hot tips" that you never looked into, industry analysts' "buy" ratings that you never looked into or anything in that vein, then that's a good opportunity to learn the inherent perils and take a different, wiser approach the next time. Ditto for when you're picking which categories (sector, country, size or style) to emphasize. Or which funds to own, if you're into funds.

To see this in practice, let's look at some of the examples from that Wall Street Journal piece. Like, for instance, the finance professor who thought he spied a property bubble in Japan in 1989, bought put warrants on Japanese stocks a year before they started falling, racking up losses as the Nikkei rose, and then sold shortly after Japan's decline began—locking in big losses and missing the potential for astounding gains as Japan continued sliding, all because of an emotional reaction. His takeaway: "Though I lost money, this was a valuable investment. I learned that I couldn't time markets and that a bet that eventually pays off doesn't do you any good if you can't afford to stick with it." Truer words have rarely been spoken.

Or, consider the famous activist investor who decided to plop his entire portfolio into a single medical device stock, which promptly tanked after its products were linked with several users' deaths: "In the years it took to remake my lost profits, I had a lot of time to absorb the important lesson of not overconcentrating positions." A well-known author and TV personality learned a similarly timeless lesson: "When you have a low-priced stock, don't think to yourself, 'How much more can I lose?' You can still lose everything from a lower dollar level." Past performance, folks, isn't predictive—a lesson underscored by a businessman who learned, the hard way, not to chase hot trends.

Mistakes are painful. No one likes making them, and the losses hurt! But every cloud has a silver lining, and learning opportunities are a big silver lining when investing decisions don't work out. See them for what they are, and don't let your brain trick you out of the chance to make yourself better. Investment mistakes might not be profitable, but investing time and energy in learning can pay dividends in the long run.

Stock Market Outlook

Like what you read? Interested in market analysis for your portfolio? Why not download our in-depth analysis of current investing conditions and our forecast for the period ahead. Our latest report looks at key stock market drivers including market, political, and economic factors. Click Here for More!

[i] Not to be confused with the game of Life. Though that has some valuable lessons, too! 

Gilead Sciences: Here Comes the Competition

Having a hard time keeping track of all the competitors for Gilead Sciences’ (GILD) Sovaldi? You’re not the only one, so RBC Capital Market’s Michael Yee and team provide a handy table (click for a larger one) listing the companies with drugs in the works, including AbbVie (ABBV),  Bristol-Myers Squibb (BMY), Achillion Pharmaceuticals (ACHN) and Merck (MRK):

Yee also explains why it’s so important to keep up with the competition:

Gilead is a buy here on pullback and for relief rally into approval and bounce in scripts. (1) consensus widely expects FDA approval of “all-oral” by this Friday 10/10 and around a $95k price for 12 weeks which is great and implies cheap $65k for 8 week regimens which should be in the label; it already got (+) EU CHMP recommendation in Sep. (2) Q3 earnings we said Sovaldi should meet consensus $3B WW and there is probably a lot of inventory drawdown ahead of all-oral; this should be expected and doesn’t matter if new all-oral is launching now, (3) consensus expects AbbVie approval by mid-Dec and we predict a $80-90k price i.e. slightly lower than GILD at 12-weeks with around expected 20% share of scripts by H2:15.

Shares of Gilead Sciences have dropped 0.4% to $104.74 at 1:02 p.m., while Achillion Pharmaceuticals has dipped 0.1% to $9.96, Merck has fallen 1.3% to $58.78 and Bristol-Myers Squibb has declined 1.9% to $50.15.

Here’s How Cable Companies Are Competing For Your Business

In this episode of "Where the Money Is" Motley Fool Technology and Consumer Goods Analysts Nathan Hamilton and Sean O'Reilly discuss current trends in the cable industry following recent comments made by industry leaders concerning "unbundling". This trend, which is currently in its infancy, could have major implications for consumers and investors alike. They also discuss current government legislation affecting the trend and how it is likely to affect the businesses of the major cable providers such as Comcast Corp (NASDAQ: CMCSA  ) and Verizon Communications (NYSE: VZ  ) . 

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple.

4 Stocks Rising on Big Volume

DELAFIELD, Wis. (Stockpickr) -- Professional traders running mutual funds and hedge funds don't just look at a stock's price moves; they also track big changes in volume activity. Often when above-average volume moves into an equity, it precedes a large spike in volatility.

>>5 Rocket Stocks to Buy for Earnings Season

Major moves in volume can signal unusual activity, such as insider buying or selling -- or buying or selling by "superinvestors."

Unusual volume can also be a major signal that hedge funds and momentum traders are piling into a stock ahead of a catalyst. These types of traders like to get in well before a large spike, so it's always a smart move to monitor unusual volume. That said, remember to combine trend and price action with unusual volume. Put them all together to help you decipher the next big trend for any stock.

>>5 Stocks Under $10 Setting Up to Soar Higher

With that in mind, let's take a look at several stocks rising on unusual volume recently.

Kandi Technologies

Kandi Technologies (KNDI), through its subsidiaries, designs, develops, manufactures and commercializes various vehicles. This stock closed up 6.2% at $14.87 in Monday's trading session.

Monday's Volume: 3.67 million

Three-Month Average Volume: 1.76 million

Volume % Change: 148%

From a technical perspective, KNDI gapped up sharply higher here with strong upside volume flows. This stock has been uptrending over the last month and change, with shares moving higher from its low of $10.85 to its intraday high of $15.58. During that uptrend, shares of KNDI have been making mostly higher lows and higher highs, which is bullish technical price action. Market players should now look for a continuation move to the upside in the near-term if KNDI manages to clear Monday's intraday high of $15.58 to more resistance at $16 with high volume.

Traders should now look for long-biased trades in KNDI as long as it's trending above Monday's intraday low of $14.65 or above more support at $13.80 and then once it sustains a move or close above $15.58 to $16 with volume that's near or above 1.76 million shares. If that move gets underway soon, then KNDI will set up to re-test or possibly take out its next major overhead resistance levels at $17.69 to $19

Gentex

Gentex (GNTX) is engaged in designing, developing, manufacturing and marketing automatic-dimming rearview mirrors and electronics for the automotive industry; variable dimmable aircraft windows for the aviation industry; and commercial smoke alarms and signaling devices for the fire protection industry worldwide. This stock closed up 0.9% at $30.27 in Monday's trading session.

Monday's Volume: 1.26 million

Three-Month Average Volume: 790,229

Volume % Change: 85%

From a technical perspective, GNTX trended modestly higher here right off its 200-day moving average of $29.63 with above-average volume. This spike higher on Monday is starting to push shares of GNTX within range of triggering a major breakout trade. That trade will hit if GNTX manages to take out Monday's intraday high of $30.31 to $31.13 and then once it clears some key resistance levels at $31.59 to $31.86 with high volume.

Traders should now look for long-biased trades in GNTX as long as it's trending above its 200-day at $29.63 or above its 50-day at $28.98 and then once it sustains a move or close above those breakout levels with volume that's near or above 790,229 shares. If that breakout begins soon, then GNTX will set up to re-test or possibly take out its 52-week high at $34.41.

Daqo New Energy

Daqo New Energy (DQ) manufactures and sells polysilicon and wafers in China. This stock closed up 2.3% at $31.04 in Monday's trading session.

Monday's Volume: 151,000

Three-Month Average Volume: 112,978

Volume % Change: 50%

From a technical perspective, DQ trended higher here back above its 50-day moving average of $30.88 with above-average volume. This stock recently formed a double bottom chart pattern $29.39 to $29.23. Following that bottom, shares of DQ have started to spike a bit higher and move within range of triggering a near-term breakout trade. That trade will hit if DQ manages to take out some near-term overhead resistance levels at $32.59 to $33.39 with high volume.

Traders should now look for long-biased trades in DQ as long as it's trending above those double bottom support zones and then once it sustains a move or close above those breakout levels with volume that's near or above 112,978 shares. If that breakout materializes soon, then DQ will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $36.40 to $37.50, or even $39.50.

Winnebago Industries

Winnebago Industries (WGO) manufactures and sells recreation vehicles primarily for use in leisure travel and outdoor recreation activities. This stock closed up 2.2% at $26.62 in Monday's trading session.

Monday's Volume: 374,517

Three-Month Average Volume: 263,373

Volume % Change: 50%

From a technical perspective, WGO jumped notably higher here back above its 200-day moving average of $26.55 with above-average volume. This stock recently broke out above some near-term overhead resistance levels at $24.60 to $25.29 with heavy upside volume. Market players should now look for a continuation move higher in the short-term if WGO manages to take out Monday's intraday high of $26.69 with high volume.

Traders should now look for long-biased trades in WGO as long as it's trending above Monday's intraday low of $25.69 or above $25 and then once it sustains a move or close above Monday's intraday high of $26.69 with volume that's near or above 263,373 shares. If that move gets started soon, then WGO will set up to re-test or possibly take out its next major overhead resistance levels at $28.43 to $28.90, or even its 52-week high at $32.41.

To see more stocks rising on unusual volume, check out the Stocks Rising on Unusual Volume portfolio on Stockpickr.

-- Written by Roberto Pedone in Delafield, Wis.

RELATED LINKS:

>>3 Big Stocks on Traders' Radars

>>5 Blue-Chip Stocks to Trade for Summer Gains

>>5 Stocks Insiders Love Right Now

Follow Stockpickr on Twitter and become a fan on Facebook.

At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including

CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.

These Lies Could Trigger Another Market Collapse

The public has been brainwashed about deflation.

We've been hoodwinked by central banks, governments, and the manipulators who pull the reins of those Trojan horses into believing that deflation is a deadly disease. It's not.

Deflation, left to its own devices, is nothing more than a necessary and healthy corrective counterbalancing of excesses that build up in free-market economies.

So, why are we browbeaten into believing that deflation is so bad?

Here's the truth about deflation and how its fearmongers are really screwing us over.

Why Deflation Fears Drive Policy

First of all, deflation is when prices of commodities and goods and services fall.

When they increase, that's inflation.

Historically, deflation is woven into our subconscious as causing the Great Depression.

Which is convenient for the fearmongers, who swear they'll do everything in their power to prevent another depression. Their rallying cry is "stamp out deflation."

But deflation didn't cause the Great Depression. Deflation was a byproduct of a series of bad government and central bank decisions.

The Great Depression resulted from the excesses of the Roaring Twenties, which triggered the stock market crash of 1929. That on its own didn't cause the Depression, either.

How the government and bankers handled the crash exacerbated what would have been a tough recession, but their mishandling blossomed it into the Great Depression.

That's where the fear of deflation comes from. But that's rubbish. In fact, it's a lie.

Fast forward to 2008. We had another stock market crash, once again caused by excesses. The crash led to the Great Recession. And we're still nursing the hangover.

All that happened, really, was that interest rates were driven down by the Federal Reserve and lending standards were lowered to allow mortgage borrowers and corporations and banks to leverage themselves to take advantage of rising home prices, rising stock prices, and rising derivatives prices in an orgy of excess and greed.

No big deal, that happens. When the game ended, as it always does, the free market, as it always tries to, hammered home prices, stocks, and derivatives.

But while consumers could have largely benefited from the resultant deflation, wealthy investors in financial assets, governments, and the private bankers who run central banks, lose money in deflationary times.

And they're just not going to let that happen.

How the Fed and Banks Benefit from Inflation

As prices of homes, stocks, derivatives, commodities, and just about everything were falling, the Fed and the government went into high gear, ratcheting up fears of another Great Depression and lowering interest rates as their first line of deflation defense.

Now, here's the thing. As consumers, we are better off when prices decline after they've been artificially inflated by excess capital coursing through the economy with increasing velocity and speculative leverage that accompanies fast-rising prices.

When the speculative bubbles burst and leveraged consumers, producers, banks, and speculators get margin calls, dump assets, and stop buying hand over fist, prices drop quickly.

That's the free market doing what it does best, correcting excesses.

But, while that's good for the economy and especially middle-class Americans struggling with limited resources, it's not good for banks and it's not good for governments.

Banks and governments want inflation. They pretend they're afraid of inflation and say they'll do whatever it is they have to do to make sure inflation doesn't get out of control. But the truth is, they want inflation, they need inflation.

Inflation is caused by increasing amounts of cash and credit in the economy. Sometimes the added money comes from central banks "printing" money; sometimes more money becomes available because money is turned over (used more often and lent out over and over) in what's called an increase in the "velocity of money."

Sometimes inflation results from the high-powered effect of the combination of more printing and greater velocity of money.

If you're a bank and you lend out money, and there's more money circulating in the system all the time, your borrowers will likely have more money to pay you back.

If you're a government that runs deficits and has to borrow all the time, if there's more money in the economy you preside over, resulting inflation pushes people into higher tax brackets and elevates prices of goods and services that are taxed (so the total tax collected rises with rising prices). This all adds to government revenues and at the same time, like banks, they benefit by there being more money circulating to buy their bonds.

Inflation lowers the cost of fixed debts. It's great for banks and governments.

Deflation is good for consumers because it lowers the cost of goods and services after they've been artificially inflated. As long as deflation is allowed to squeeze out excesses, it's a very healthy part of cyclical economics when leverage and speculation run amok.

But governments and banks can't stand deflation. So they artificially manipulate free markets to stem what would otherwise be a healthy correction of excesses.

The reason the Fed lowered interest rates to essentially zero, for banks, not consumers, while fearmongering that deflation would lead to another Depression, was to pump banks full of money so they could buy the government's debts. The banks would use leverage to earn a decent return on the low-yielding bills, notes, and bonds the government was dishing out (as other international buyers pulled back).

When zero interest rates weren't enough, the Fed, with the government's approval and applause, embarked on quantitative easing (buying the same government bonds from the banks that they were buying from the Treasury so they could buy more of them, and buying their mortgage-backed securities that no one else wanted) so banks could return to record profit-making, increase their dividends, and lure more equity capital investors to make them stronger.

The Critical Lesson They Ignored... That Is Already Costing Us

There's no way after the crash and Great Recession that interest rates would have risen much. Prices of most goods and services would have come down a lot more and eventually found an equilibrium bottom in a more protracted recession. When it had run its course, it would have yielded a more advantageous level of prices for average Americans.

Instead, the Fed pumped banks full of money and lowered rates for corporate borrowers and the richest 1% in America.

The 1% could afford to borrow and leverage themselves again with financial assets that increase their wealth exponentially as they rise in yet another speculative pump-priming, asset-inflating binge.

By artificially manipulating interest rates - once again, for the benefit of banks, the government, and the richest 1% of Americans - the Fed has gotten prices up before average Americans could ever have benefited from what should have been a much lower, naturally settled base.

Are average Americans better off? No.

Is the economy growing again? No.

Are prices of goods and services at low and sustainable levels that encourage healthy consumption? No.

We've turned Japanese.

We haven't learned that the Japanese had a property bubble that led to a stock market bubble, and when both peaked in 1989 and crashed by 1992, the central bank artificially lowered rates and the government propped up insolvent banks.

And the country is still doing the same thing 22 years later.

That's what we're doing.

We're relegating the middle class to oblivion while the rich get richer and corporations get fatter.

And we're heading towards another speculative bubble in financial assets.

So, the next time someone warns you about deflation, tell them you'd love to see the free market back in operation and that a healthy dose of deflation is what really sets the stage for sustainable economic recoveries and feeds a growing middle class.

Instead of the 1%.

The death of U.S. savings bonds

NEW YORK (CNNMoney) U.S. savings bonds, a graduation gift staple for nearly a century, are on the verge of extinction.

Americans bought over 40 million of the most popular savings bonds in 2000. Last year, the U.S. sold a mere 400,000 of them.

They were often given to students, newly married couples or anyone having a birthday. It was akin to gifting cash, but better. The bond certificate looked extra official, and it encouraged young people to save for the future -- whether for further study, a car or a house.

Savings bonds offer some interest each year -- much like money held in a bank's savings account -- but if you hold the bond to the end of the 10 to 30 year duration, you often make more money due to various adjustment procedures. It's akin to a bonus payment.

But these bonds are going the way of the landline telephone, and there are several reasons why.

For starters, savings bonds, which have been around since the 1930s, are no longer an attractive investment.

"The interest rates are so low these days that people just don't even get involved in them anymore," says Jim Moore, a Wells Fargo financial advisor based in St. Louis.

The fixed-rate "EE" bond offers a mere 0.5% interest rate for the next 20 years, barely better than putting money under a mattress. Bonds issued at the end of last year were yielding an even more lousy 0.1% rate.

Moore recommends buying a good quality, high paying dividend stock or exploring other savings options instead. Many parents and grandparents utilize 529 savings plans for colleges that are run at the state level. Investment growth in a 529 plan is tax deferred, and any money taken from the 529 to pay for college isn't taxed at the federal level.

But it's the Internet that really killed off demand for sa! vings bonds.

You can no longer buy a paper savings bond. On January 1, 2012, the government stopped sales of over-the-counter paper bonds and forced people to buy them online via TreasuryDirect.

That's when the big plummet occurred. The goal was to save money, but in the process, the government made it harder for potential buyers.

Many older Americans were raised on ads to be patriotic and buy these bonds to help the country (and yourself). There were slogans such as "Back Your Future." The savings bonds were sold in many places, including local banks and brokerages.

Now you have to go online and fill out cumbersome forms with your taxpayer ID number, the intended recipient's Social Security number, your bank account and other information. It's even more complex if you try to gift a savings bond to someone under 18.

Kate Warne, investment strategist for Edward Jones, says the only time she hears about savings bonds these days is from clients telling her how hard the website is to navigate.

"The complaint I get is 'I have trouble. What should I do instead?'" Warne says.

Those formal looking certificates that made such lovely accompaniments to graduation degrees are history. The only way to get one now is to ask for your federal tax refund to be returned to you as savings bonds.

Even that is convoluted. The bonds are only issued in $50 increments, so unless your refund is perfectly divisible by 50, you get savings bonds plus a check for the difference. It's a small program according to the Treasury Department.

The government has no plans to revive paper savings bond sales. There is a mock certificate people can print out online to wrap up in a box and give as a gift. But that just doesn't have the same appeal.

Can Alibaba cure tech's troubles?

SAN FRANCISCO -- Tech investors -- especially those who've taken a financial bath of late in social media stocks -- need not fret.

Alibaba is coming to the rescue.

On Tuesday, the Chinese e-commerce giant filed its much-anticipated plans to sell shares publicly in the U.S.

Alibaba didn't specify how many shares it will offer in its initial public offering or what valuation it will seek, but it could raise a record $20 billion in a titanic IPO that would value it around $168 billion, based on various reports. It would easily top Visa's 2008 IPO as the largest American initial public offering ever.

ALIBABA: China's e-tail giant sets IPO plans

Alibaba's IPO filing Tuesday revealed several gems of its dominance: It commands more than 76% of all mobile e-commerce sales in China. It has 136 million monthly active users at the end of 2013. And, in April, it reported an eye-popping 66% jump in quarterly revenue, to $3.06 billion.

Top 5 U.S. tech IPOs

Facebook holds the record of most money raised by any tech company with its IPO in 2012.

Sponsored byInfonet ServicesYandex N.V.GoogleTwitterFacebook IPO amount (in billions)Renaissance CapitalBy Karl Gelles, Denny Gainer and Julie Snider, USA TODAY

Alibaba's boffo IPO is a potential gold mine for two of its largest shareholders: Japan's Softbank, which controls 37%, and Yahoo, which owns 24%.

More important for Silicon Valley, the massive stock offering could reignite the U.S. IPO market, which has cooled of late after starting the year at its fastest pace since the dot-com era.

Some deals, including Chinese Internet firms Weibo and Leju Holdings, priced below their most optimistic forecasts.

The potential IPO magic of Alibaba might also raise the hopes -- and prices -- of tech stocks, particularly in social media. Shares of LinkedIn, Twitter and Pandora have tumbled the past few months as impatient "momentum" investors eye other industries with steeper growth curves.

Apple Jumps on Earnings Beat, Stock Split

Updated from 4:08 p.m. to include comments from the conference call and updated share price.

NEW YORK (TheStreet) -- Apple (AAPL) shares jumped after the tech giant posted fiscal second-quarter earnings that beat Wall Street estimates, and announced a 7 for 1 stock split.

Apple reported second-quarter earnings of $11.62 a share, generating $45.6 billion in revenue. The company shipped 43.7 million iPhones, 16.4 million iPads, and shipped 4.1 million Macs during the quarter. Gross margin, a highly watched level for Apple, came in at 39.3%. On the conference call, Apple noted there are more than 800 million iTunes accounts, up from a previous number of around 600 million.

Apple CEO Timothy D. Cook noted on the call that Apple has sold more than 20 million Apple TV set-top boxes since the product was introduced. For the fiscal third quarter, Apple said it expects revenue between $36 billion and $38 billion, with gross margins between 37% and 38%. Operating expenses will be between $4.4 billion and $4.5 billion, and it will have a tax rate of 26.1%. Shares were soaring in after-hours trading, gaining 7.7% to $564.99.
WATCH: More market update videos on TheStreet TV | More videos from Kori Hale "We're very proud of our quarterly results, especially our strong iPhone sales and record revenue from services," said Cook in the earnings press release. "We're eagerly looking forward to introducing more new products and services that only Apple could bring to market." "We generated $13.5 billion in cash flow from operations and returned almost $21 billion in cash to shareholders through dividends and share repurchases during the March quarter," said Peter Oppenheimer, Apple's CFO, in the release. "That brings cumulative payments under our capital return program to $66 billion." Analysts surveyed by Thomson Reuters were expecting the Cupertino, Calif.-based Apple to report earnings of $10.18 a share on $43.53 billion in revenue, as Apple continues to promise new products and new categories. Apple also announced that it was upping its capital allocation program to over $130 billion by the end of calendar year 2015. As part of the program, the Board increased its share repurchase authorization to $90 billion from $60 billion, and boosted its quarterly dividend by 8% to $3.29 a share. "The Company also plans to increase its dividend on an annual basis. With annual payments of $11 billion, Apple is among the largest dividend payers in the world," the company said in the release. From August 2012 through March 2014, Apple has spent $66 billion in cash on its capital return program. Apple will access the public debt markets this year to help paying for the program, and raise an "amount of term debt similar to what the Company raised during 2013." "We are announcing a significant increase to our capital return program," Cook said, when discussing the allocation program. "We're confident in Apple's future and see tremendous value in Apple's stock, so we're continuing to allocate the majority of our program to share repurchases. We're also happy to be increasing our dividend for the second time in less than two years." "We believe our current stock price does not reflect the true value of the company," both Cook and new CFO Luca Maestri said on the call. The Board of Directors also announced a seven-for-one stock split, effective June 2, 2014. Shares will will begin trading on a split-adjusted basis on June 9, 2014. On the conference call, Cook noted Angela Ahrendts, the former CEO of Burberry, would be joining Apple's executive team next week, as she helps to lead Apple's retail stores.

Shares of Apple closed the regular session lower, falling 1.3% to close at $524.75. --Written by Chris Ciaccia in New York >Contact by Email. Follow @Chris_Ciaccia

Stock quotes in this article: AAPL 

Questions stalking Barra: Could she be jailed?

General Motors CEO Mary Barra, on the job only since January, already faces what could be her toughest challenge as she faces House and Senate subcommittees this week that are probing GM's handling of a recall of 2.53 million small cars with faulty ignition switches that GM links to 12 deaths in the U.S., one in Canada.

The switch problem first was noted by GM in 2001, and by 2006 a design change had been made, but the automaker didn't recall any cars then.

STORY: Yet another GM recall

REMARKS: NHTSA chief says no GM defect trend evident at first

TESTIMONY: Barra can't explain recall lag

Key questions likely to get aired in pointed fashion as Barra is questioned by members of the House and Senate committees:

Q: How could it happen?

A: Barra has been candid saying she can't explain it, and has hired a legal heavyweight to conduct an aggressive internal investigation into the matter.

Q: Will she go to jail?

A: No, but others might. She appears not to have known anything about the problem until shortly before the February recall announcement.

And her position atop a limited liability corporation should insulate her.

But if that 2006 change in switch design was done to fix a known safety problem, and federal safety officials weren't told, then people involved in that could have broken federal law.

Q: Will she arrange GM compensation for the victims' families?

A: No promises. She has said GM will "do the right thing," but hasn't specified what. GM might — legally — need to do almost nothing. Most of the deaths happened before it went through government-scripted bankruptcy reorganization in 2009. That left "new GM" freed from most obligations of "old GM."

Lawyers for victims' families are trying to prove that GM knew about the deadly switch problem and covered it up going through reorganization. That could wipe out the automaker's liability shield.

Q: How do all these other GM recalls the past few weeks relate?

A: They don't involve the same issue, which is a faulty ignition switch that can shut off air bags. But so many are happening so fast because Barra wants to prove GM is accelerating its own product and safety reviews, and won't wince when embarrassing public recalls are needed.

Q: Will anybody ever trust GM again?

A: It might take a long time. Dan Akerson, who preceded Barra as CEO, used to say it would take decades to recover in the public eye from poor-quality vehicles the automaker sold in years past. Adding in new wariness over these multiple recalls, and the deaths linked to the switch issue, could keep GM under a cloud for quite awhile.

Billionaire Buzz on Three Tech Stocks

Nuance Communications Inc. is creating a buzz with voice recognition and language-smart technologies that can enhance productivity across a number of industries. The company reported financial results for its fourth quarter of fiscal 2013, ended September 30, 2013, with revenue of $472.2 million (GAAP), up from$468.8 million in the same quarter of fiscal 2012. Also in the fourth quarter of fiscal 2013, the company reported a net loss of ($32.3) million (GAAP), translating as a loss of ($0.10) per share. In the same quarter a year ago, Nuance's net income was $117.6 million, with earnings of $0.36 per diluted share. The company reported $93.5 million cash flow from operations in the reporting quarter, compared to cash flow a year ago at $141.5 million. Here's an update on NUAN, championed by Guru Carl Icahn, and two more technology stocks creating a billionaire buzz.

Nuance Communications Inc. (NUAN)

Down 37% over 12 months, Nuance Communications Inc., the mobile phone voice ad company, has a market cap of $4.43 billion; it trades with a P/B of 1.70.

The current share price is around $14.08. The company does not pay a dividend.

Nuance Communications Inc. provides digital voice and language-recognition technologies for businesses and consumers around the world. The company's applications and services are geared to transforming the way people interact with devices and systems.

Guru Action: 10% owner, Carl Icahn is one of eight gurus holding NUAN as of the third quarter of 2013. Read about his real-time trade.

After his latest add of 0.37% as of Dec. 10, 2013, Icahn's current shares are 59,154,623.

As of Sept. 30, 2013, Ray Dalio made a new buy of NUAN. He bought 32,638 shares at an average price of $19.11 per share, losing 26.3%.

Dalio has a long trading history with NUAN. He has sold out five times over a five-year history. Out of 13 quarters, he saw four quarters of gains in 2008 and 2009.

There is NUAN insider trading to repo! rt.

Track historical pricing, revenue and net income:

SolarWinds Inc. (SWI)

Down 40% over 12 months, SolarWinds Inc. has a market cap of $2.5 billion; shares trade with a P/E of 28.20.

The current share price is $33.29. The company does not pay a dividend.

First incorporated in 1999, SolarWinds Inc. designs, develops, markets, sells and supports enterprise-class IT infrastructure management software. The company's products include software tools and comprehensive software solutions that solve problems common to IT professionals.

Guru Action: In the third quarter of 2013, there were eight gurus holding SWI and active insider trading. Three gurus made new buys in the third quarter.

As of Sept. 30, 2013, top guru stakeholder Lee Ainslie increased his position by 68.97%, buying 2,911,971 shares at an average price of $39.11 per share, taking a loss of 14.9%.

In the same quarter, Jeremy Grantham sold out his holding of 5,200 shares after two losing quarters. He sold 5,200 shares at an average price of $39.11, for a loss of 14.9%.

Track historical pricing, revenue and net income:

Volterra Semiconductor Corp. (VLTR)

Up 30% over 12 months, Volterra Semiconductor Corp. has a market cap of $575.49 million; shares trade with a P/E of 41.20.

The current share price is $22.97. The company does not pay a dividend.

Incorporated in 1996, Volterra Semiconductor Corp. designs, develops, and markets proprietary, high-performance analog and mixed-signal power management semiconductors for the computing, storage, networking, and consumer markets.

Guru Action: As of Sept. 30, 2013, three gurus hold VLTR and there is recent insider selling.

In the third quarter of 2013, Chuck Royce sold out his VLTR after three quarters of gains. He sold 1,161,920 shares at an average price of $18.84! for a ga! in of 21.9%.

In the same quarter, Mario Gabelli made a new buy of 417,900 shares at an average price of $18.84, for a gain of 21.9%.

Track historical pricing, revenue and net income:

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Consumer spending up 0.3% in October

WASHINGTON (AP) — Consumers increased their spending in October even though their wages and salaries barely increased, raising questions about how strong the economy will grow at the end of the year.

Consumer spending increased 0.3% in October compared with September when spending rose 0.2%, the Commerce Department reported Friday. Wages and salaries rose a slight 0.1% after a much stronger 1% rise in September.

JOBS: Unemployment rate falls to 7%, 203,000 new jobs in November

Overall income actually fell 0.1% following a 0.5% rise in September. But September's gain was inflated by a legal settlement that boosted farm income that month, leading to a big decline in farm income in October.

The personal saving rate dipped to 4.8% of after-tax income in October, down from 5.2% in September, reflecting the difference between spending and income.

The rise in spending reflected gains in purchases of long-lasting manufactured goods such as autos and gains in spending on non-durable goods such as clothing and services such as rent and utilities. It meant a solid increase for the first month of the current quarter.

Consumer spending is closely watched because it accounts for 70% of economic activity.

The economy grew at a 3.6% annual rate from July through September, the fastest since early 2012, but nearly half the growth came from a buildup in business stockpiles, a trend that could reverse in the current quarter and hold back growth. When excluding inventories, the economy grew at a 1.9% rate in the third quarter, down from 2.1% in the spring. That's in line with the same subpar rate that the economy has seen since the Great Recession ended four years ago.

Many economists believe overall economic growth will dip below 2% in the current October-December quarter, in part because a slowdown in inventory building will act as a drag on activity.

But there have been some signs of strength including a separate report Friday showing that the unemployment rate dro! pped to a five-year low of 7% in November as the economy created 203,000 jobs.

In the third-quarter, consumers increased their spending at a tepid 1.4% annual rate. That was the slowest since the final quarter of 2009, a few months after the recession officially ended. But the spending activity in the third quarter was held back by flat spending on services. That may have reflected an unusually mild summer, which cut demand for air conditioning. One hopeful sign: Consumers spent on goods at the fastest rate since early 2012.

An inflation gauge closely watched by the Federal Reserve showed prices were flat in October and have risen just 0.7% over the past 12 months, well below the Fed's 2% target for inflation.

Seasons, Sentiment, and Election Cycles

Market timing expert Sy Harding looks at seasonal patterns and the role of the four-year election cycle on the market. Here's the latest market assessment from the editor of Street Smart Report.

Steve Halpern: We're here today with market timing expert, Sy Harding, Editor of Street Smart Report. How are you doing, Sy?

Sy Harding: Well, I'm doing just fine, Steve. How are you?

Steve Halpern: Very good. Thank you for joining us. Despite the market being at all-time highs, you have some shorter-term worries that you talked with your readers about. Part of that concern is based on sentiment. Can you explain?

Sy Harding: Yeah. According to the Investment Company Institute and others, after being mauled by the 2008/2009 bear market, investors pulled money out of the market in each of the first three years of the bull market that began in 2009.

But last year, seeing how much they had missed out on, they began pouring money back in and have been doing so at a near record pace this year, with their optimism and confidence now at levels usually seen at market tops.

For instance, Vanguard reported last week that investors now have 57% allocation to stocks—a level that was only surpassed twice in the last 20 years—in the bubble-pop near 2000, and again in 2007. We can also see the level of optimism in the high margin debt now currently at near record levels.

Steve Halpern: You've also expressed concerns over the eventual Fed tapering, as well as some concern for guarding the potential for deflation. What do you expect on that front?

Sy Harding: Well, I expect the Fed is going to be forced to postpone tapering back at stimulus until next spring. I think that the continuing mix of disappointing economic reports are going to weigh on that decision, and concerns about how Congress will handle its next chance to reach budget agreements before the next deadlines in January and February, and by the latest concerns about the lack of inflation.

The Fed would like to see some inflation to help support the recovery, and expected the easy money policies to achieve that; but instead, inflation is declining so quickly this year, that concerns about a possible deflationary environment are coming into the picture.

Both the CPI and PPI are down quite sharply this year and only running at something less than 1%. The Fed's target is 2%. So, the Fed is probably concerned about tapering back stimulus because it would likely exacerbate that deflationary environment also. I think for those reasons, they will postpone until next March.

Steve Halpern: Now, as an expert in market cycles, you pointed to the history of the second year of a presidential cycle and that's the second year out of the four-year cycle. What are the implications that you draw from that historic pattern?

Sy Harding: Well, I think the market has a very long history of usually experiencing a significant correction in the first two years of each presidential term. It doesn't happen all the time, but it happens so consistently that there are even very successful market timing strategies based on it.

The market didn't have a correction this year and that raises the odds that it will have a significant correction next year. There are reasons to believe that will happen. Historically, this bull market has lasted longer than most, and there is the high level of investor enthusiasm usually seen at market tops.

I think another telling indication is that, as the top becomes nearer, corporations become concerned that a serious market top may be approaching and they try to get as much additional money as possible from investors, while investors are still confidently buying.

There's usually a sizeable increase in the number of initial public offerings, or IPOs, of stock in previously private companies and start-ups, as well as secondary offerings of additional stock by established public companies.

So far this year, there has been $51 billion of new IPOs, the most since $63 billion in the same period at the market top in 2000, when that market bubble was beginning to burst, and there has been $155 billion in secondary offerings, so far, this year—more than near, either the 2000, or 2007 tops.

So, it looks to me like the four-year presidential cycle is going to play out and have a significant correction this time in the second year.

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