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Sterling Weekly for the Week of November 29th, 2010
Quantitative Easing. Not a Fan!

The summer and fall turned out to be a far busier time than I ever anticipated. As a result it has been almost six (6) months since the previous edition of the Sterling Weekly. Since then the Dow Jones Industrial Average has risen 1,120.52 points or approximately 11.3%. During the that period of time we have seen the market retest and push below the "flash crash" lows and recover to set a new 2 year closing high. We have also seen an election that produced a historic change in the House of Representatives and the Federal Reserve Board (the "Fed.") announce a second round of Quantitative Easing ("QEII").

I am not a fan by any means of the 1st Quantitative Easing ("QEI"), let alone the 2nd Quantitative Easing. You can say what you want about the current Fed Policy and the nonstop parade of Keynesian economist who think this is the best and only solution to our current economic woes, but you don't need a PHD in economics to understand what an academic with at best, limited business experience is blind to; the business owners, investors, and everyone else who spends their hard earned dollars is severely un-nerved by what they see as fiscal and monetary policy that has in their opinion gone off the rails. Runaway deficits and the Fed printing money as fast as humanly possible goes against everything most people have ever been taught about sound economics. If you have any doubts about it, just look at the results of the November 2nd election.

I have long believed and written that politics is the number 1 influence on the market; and by extension on the economy. I have now come to believe that Federal Reserve Bank with its interest rate and QE policies is primarily effective at the margin and the real driver of the economy if the Fiscal Policy set by the Federal Government. To put it another way, the Federal Government sets the fiscal policy sets the main course for the economy through its spending and regulatory policies and the Fed is primarily able to influence how well we stay on course or how much we stray off course.

In the thirty (30) years since President Reagan and the Volcker Fed were able to align fiscal and monetary policy we have seen steadily declining inflation and decreasing unemployment. During that period of time four (4) Presidential administrations and Congressional delegations produced fiscal policies that encouraged business development and growth. During that period of time the Fed used its best judgment to set monetary policy that tried to keep the economy steered down the right path. However, the Fed is not infallible and despite its success in containing the damage from the stock market crash of 1987, the Fed through a policy of keeping interest rates lower than they should be helped create the internet and housing bubbles. However the Fed isn't entirely to blame. Almost everyone jumped on the band wagon and helped create the image of a rock star persona in Alan Greenspan as a god like figure who was the only person who could successfully manage the Fed and the economy. It was behind this almost cult like worship of Mr. Greenspan that those who sought to enact bad fiscal policy, whether it be in the form of deficit spending or anti-growth social engineering, were able to hide from the public view. Regardless of who you want to blame for the recent economic troubles, one of the biggest contributing factors was bad government policy.

The results of the 2008 election produced a situation where the grown up were gone and fiscal policy took a nose dive. Mr. Bernanke now finds himself in a situation much like a pilot who is desperately trying to pull his aircraft out of an uncontrollable nose dive, where he is desperately trying to pull the nation out of an economic nose dive by applying the last of his policy tools in the form of Quantitative Easing. I guess maybe he feels criticizing fiscal policy would be the equivalent of an airliner pilot abandoning ship with the only parachute and leaving a plane full of passengers to their doom; but surely even he should know the difference between economic growth and inflation.

What this country desperately needs is sound fiscal policy that promotes economic growth, and a Federal Reserve Bank that is focused on maintaining a low inflationary environment and a sound banking system. Creating more inflation is the opposite of what we need, and the public knows it. When the public is convinced that it has a government that it can have confidence in again, consumer confidence in the economy will return as well. Until then we will be enter 2011 with bitterly partisan Reid and Polosi leading congressional Democrats on a bid to regain power, and the rest of us left struggling with an unfathomable burden of new regulation that has the potential to further crush the economy.

P.S. You know that QEII is not a popular positive policy when there is a YouTube Video on QEII.

 

Sterling Calendars for the Week of November 29th, 2010.
Economic Calendar

Date

Est. Time Release

For

Consensus Prior
11/30 9:00am Case-Shiller 20 City Index Sep. 1.0% 1.7%
11/30 9:45am Chicago PMI Nov. 59.8 60.6
11/30 10:00am Consumer Confidence Nov. 52.0 50.2
12/01 7:00am MBA Mortgage Applications 11/26 N/A 2.1%
12/01 7:30am Challenger Job Cuts (y/y) Nov. N/A (31.8%)
12/01 8:15am ADP Employment Report Nov. 58K 43K
12/01 8:30am Productivity - Rev. Q3 2.4% 1.9%
12/01 8:30am Unit Labor Costs Q3 (0.4%) (0.1%)
12/01 10:00am ISM Index Nov. 56.4 56.9
12/01 10:00am Construction Spending Oct. (0.5%) 0.5%
12/01 10:30am Crude Inventories 11/27 N/A 1.03M
12/01 2:00pm Auto Sales Nov. 3.71M 3.68M
12/01 2:00pm Truck Sales Nov. 5.35M 5.59M
12/01 2:00pm Fed's Beige Book Dec.    
12/02 8:30am Continuing Claims 11/20 4,200K 4,182K
12/02 8:30am Initial Claims 11/27 423K 407K
12/02 10:00am Pending Home Sales Oct. 0.0% (1.8%)
12/03 8:30am Non-farm Payrolls Nov. 130K 151K
12/03 8:30am Non-farm Private Payrolls Nov. 140K 159K

12/03

8:30am Unemployment Rate Nov. 9.6% 9.6%
12/03 8:30am Hourly Earnings Nov. 0.1% 0.2%
12/03 8:30am Average Workweek Nov. 34.3% 34.3%
12/03 10:00am Factory Orders Oct. (1.2%) 2.1%
12/03 10:00am ISM Services Nov. 54.5 54.3
  Misc. Calendar
Date: Comments:
11/29 Inergy 'NGRY' announces earnings before the open. Est. ($0.62)
11/30 Barnes & Noble 'BKS' announces earnings before the open. Est. ($0.08)
11/30 Trina Solar 'TSL' announces earnings before the open. Est. $0.87
12/01 Charming Shoppes 'CHRS' announces earnings before the open. Est. ($0.09)
12/01 Aeropostale 'ARO' announces earnings after the close. Est. $0.66
12/02 Kroger 'KR' announces earnings before the open. Est. $0.32
12/02 Movado Group 'MOV' announces earnings before the open. Est. $0.32
12/03 Big Lots 'BIG' announces earnings before the open. Est. $0.24
  The full earnings calendar for this week can be found (here)

Prime Update:

The Prime Stock Newsletter is our daily newsletter that contains commentary on the overall market, and our single best trading idea for the day! (Both Long & Short Sale Recommendations) We select this stock through a combination of technical (charting) and fundamental (financial) analysis. The Prime Stock Newsletter provides select expanded quotation information, corporate description, select recent company news, our technical analysis of the shares and our expectations, and our options recommendation for the company.

Our most recent Performance Report is now available available (here). We are proud to report 18 of our last 20 recommendation resulted in profitable trades for an average profit of $0.52/share. This is an 90% success rate.

Archived copies of our Performance Reports can be found (here).

Highlights from Recent (20) Editions of the Prime Stock Newsletter
Recommendation Date Entry Point Recent Close or Exit Price Profit* Note
Informatica 'INFA' Oct. 25 $39.41 $40.66 $1.25 Sold on the 25th
Altera Corp. 'ALTR' Oct. 28 $30.59 $33.98 $3.39 Sold November 9th
Ann Taylor 'ANN' Oct. 29 $22.60 $23.76 $1.16 Sold November 1st

 

* Our November 10th short sale recommendation of Abbot Labs 'ABT' @ $50.05/share closed at $46.49/share on November 29th for a gain of $3.56/share.

* Our November 2nd recommendation of Coca-Cola 'KO' @ $61.71/share closed at $64.61/share on November 24th for a gain of $2.90/share.

* Our October 26th short sale recommendation of Avon Products @ $33.02/share closed at $28.75/share on November 3rd for a gain of $4.27/share.

 

* The per share PROFIT is a theoretical calculation based upon the opening price the day the recommendation is published and the intra day high (or low for short sales) on the exit day. The exit day is determined based upon the application of our "Rules for Trading", the implementation of "stops" within our stated policy, and may not reflect the complete or full movement of the underlying recommendation.

 

Disclaimer: The Sterling Investments series of newsletters is produced by Sterling Investment Services, Inc. All information used in the production has been obtained from sources believed to be reliable and accurate. Sterling Investment Services does not warrant or assume any liability for inaccuracy of the information used to produce our publications. To receive further information on these services please visit our web page at: www.sterlinginvestments.com If you would like to contact us our fax # is (404)-816-8830 Email address is: enelson@sterlinginvestments.com Sterling Investment Services may hold positions in the securities recommended or may be providing consulting services to the companies mentioned within this report.
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