Blog Posts by Matt Nesto

According to Merriam-Webster's dictionary ambivalence is "simultaneous and contradictory attitudes or feelings toward an object, person, or action." For Dan Fitzpatrick, the President of StockMarketMentor.com, it's all about the ambivalence-trade right now in the stock market. "There's no real conviction one way or the other," the former trader and hedge fund manager says. "There's just this ball of confusion going on where most traders are waiting for the next catalyst."

And if you're looking to Federal Reserve Chairman Ben Bernanke's speech on Friday morning from Jackson Hole as a catalyst, make sure you're positioned to the downside. "I don't think that anything that Ben Bernanke says will be by itself, a reason to buy stocks," says Fitzpatrick, especially if we have rallied before hand. "The worst thing to happen would be to rally right into Friday and the Bernanke decision, because almost irrespective of what he says... the market would sell the news."

While labeling the current investment climate as a really difficult time, Fitzpatrick suggests investors "zoom in on a few stocks or sectors that you know and that you really like because you're probably going to get a really good buying opportunity.'' And he says the same will soon hold true for gold, specifically if it dips to $1600 or less.

"I am one of those guys that says the long-term trendline will support the price of gold," adding that this "hasn't been a blow-off top." Fitzpatrick calls himself a "buy and never sell gold guy" who agrees with Louise Yamada, well-known technical analyst who discussed gold on Breakout last week. Both think gold is headed significantly higher; up to $2,500/oz. next year then upwards of $5,000/oz. longer term.

Nothing ambivalent about that call!

Finally, a note from my co-host Jeff Macke updating his "Sell Today and Go Away" column from yesterday:

In yesterday's column I discussed selling off my trading positions, not to be confused with long-term holdings. In my case, I refer to "core holdings" as names I've held for more than a year with fundamental stories which remain unchanged. I still think the bottom was put in at 1,100 on the S&P 500. But with the market over 5% higher than that point, the "easy money" trade may be done.

It was fun while it lasted, but it looks as though the gold trade is finally unwinding. The precious metal booked a record high close just two days ago, settling at $1,891.90 an ounce on Monday. Today it took a fast and furious 5.6% dive to close at $1,757.30/oz; its biggest single-day drop since March 2008.

What's been curious about the recent rush to gold is that gold mining stocks weren't taken along for the ride higher. "There's long been a knock on the miners," says Ryan Detrick of Schaeffer's Investment Research. "Gold is making multi-year highs but the miners aren't."

A simple comparison chart shows spot Gold leading the Market Vectors Gold Miners ETF (GDX) by about 30% on a year-to-date and 1-year basis. But as relative strength in miners improves and the world's favorite safe haven plunges, Detrick says it might be time for "a catch-up buy."

There are many theories as to why the miners have lagged at a time when Gold and gold-linked funds like the SPDR Gold Trust ETF (GLD) have soared. "We're seeing that negative sentiment on gold miners in the options market. Analysts are wishy washy...by no means are analysts extremely bullish on miners. So there's contrarian thinking there," says Detrick. He points to Royal Gold (RGLD) as a favorite.

I feel like I need to get in touch with my inner Bob Barker this morning, the legendary host of The Price is Right. After talking to Ryan Detrick, Senior Technical Strategist at Schaeffer's Investment Research, and hearing him list a half dozen positive reasons to own stocks, his sentiment is still cautious as he waits for a better price.

"Price action is the key," says Detrick from his office in Cincinnati. Usually, a better price would imply a lower or cheaper one, but this is not the case. As much as he's encouraged by earnings, unconcerned about inflation, emboldened by buybacks, and reassured that rates will stay low, he is ultimately unmoved by any of it until the S&P 500 gets back above the 1260 level, about 8.5% above current levels.

Fueling this unease is Detrick's analysis of the options market, specifically the Put-Call Ratio. He says in good markets, money managers buy lots and lots of puts as a form of insurance on their investments and that causes the Put-Call Ratio to rise. Right now, it's falling and that gives Detrick reason for concern that in the short-term will see little rallies that attract more sellers then dips that attract buyers.

"There's a lot of room to go lower to the previous major lows. So right here we're concerned that the hedge funds aren't putting their money to work and kind of know that market is weak. So for us, it's kind of dicey here," he says. "The bears appear to be in control."

As investors anxiously wait to see whether or not Fed Chairman Ben Bernanke has another rabbit up his sleeve, at least one pro is calling for the next round of stimulus to come from the government rather than the Federal Reserve.

"If you look at the economy, it is slowly coming back, but there is one area - a massive area - that has hit this economy for the last two years, and its housing," says Don Hays, President and Chief Investment Strategist of Hays Advisory. He wants policymakers to try something new and different that will jump-start the entire economy, not just the banking sector. As much as stimulus has become a much harder sell in Washington, D.C. these days, I think a populist pitch to prop up housing might just catch on.

Hays is particularly fond of a proposal that is being circulated by Ed Yardeni that would make rental income tax-free for a decade to encourage investment into vacant homes. Given the dubious benefits derived from the first few rounds of stimulus and easing, a handout to housing seems at least worth a try.

"We have 2.2 million people in the housing construction industry that are still out of work and cannot get a job so that is the place that has to be stimulated," Hays says. "We think that is the one area that has not had the same long term encouragement."

If you have been waiting for something or someone to get you off the sidelines and back into the stock market, Don Hays just might be your guy. The chief investment strategist at Hays Advisory of Brentwood, TN not only thinks the worst is over and volatility has peaked, but that we're also not in a recession.

While economic data released earlier today on New Home Sales and manufacturing from the Richmond Fed Survey indicate continued weakness, Hays is willing to bet that we are closer to the bottom than the top and "calling the next 3 days or 30 days is a loser's game."

"You can't go by your emotions" he says. According to the indicators Hays follows, "the peak of downward momentum was reached two-weeks ago, much like it was in May of last year." Right now he says the market is in a period of "super undervaluation."

"For baby boomers, this may be the last great time to buy stocks in the next 3 to 4 years...maybe even for the rest of their lives," Hays says.

In the meantime, many investors, including Macke, simply want out ahead of the Bernanke speech this Friday from Jackson Hole, WY on concerns that it holds too many variables. Hays believes Bernanke is still important and will continue to support the market. "But the real key in my opinion is not Bernanke, it's what's going to happen in this Super Committee," he says, referring to the Deficit Reduction Committee tasked with a Thanksgiving deadline to reach a bipartisan budget cutting deal.

While the market can't decide which way it's headed from one hour to the next, Scott Bleier founder of Create Capital Advisors is anything but wishy-washy when it comes to investing. In his bold, unwavering style Bleier returned to Breakout for a victory lap of sorts. After calling an end of the bull market in early June, we invited Bleier back to discuss the current environment and where investors should hide out until the storm passes.

His advice is 3-fold:

1) Stop chasing things like gold

2) Wait for the right moment, it will come

3) Don't do what everybody else is doing

"The problem is that everybody is doing the same thing," he says. Take gold for example. It's up $400 an ounce since July 1st and more than 50% in the past year. Many feel it has already gotten too expensive, but they've been proven wrong over and over again. Bleier acknowledges the move but refuses to chase it. "Metals are the momentum trade right now, the trader's dream, and they are going to bag you if you chase them."

Instead of piling in to gold, Bleier recommends getting ready to buy some high yielding stocks or preferred stocks, but just not yet. Right now investors are piling into utilities, MLPs, and seeking out yield. But "you've got to wait for this volatility to play out," he says, adding that we'll see a lot more ups and downs before things smooth out.

Remember that quintessential but awkward schoolyard tradition of picking sides in order to fairly set up battle in your sport of choice? Kickball comes to mind for me, and I confess that as a large lad, I never had to endure the stress of being picked last. In the financial markets today it feels like we're still picking sides on the playground; only now we're battling over degrees of weakness in the economy and whether or not we're heading into another recession or are in one already.

The Financial Times today has Mort Zuckerman, the Chairman of Boston Properties (BXP) and Publisher of US News and World Report, saying a "double dip is nearly inevitable", while a note this morning from Jeff Saut, Chief Investment Strategist at Raymond James explains why he "is in the NO camp" when it comes to recession.  It could be months before we settle argument conclusively, and even when we do, many market watchers concede that it really doesn't matter. If we go into another shallow recession or narrowly avoid one, both will feel about the same.

In the meantime, our markets are battered, confidence is shaken, European unity is unraveling, and we are once again turning our collective gaze to a ski town in western Wyoming and a bearded man who many feel is out of ammo to lead us through the quagmire. With expectations high, we're left to speculate about Federal Reserve Chairman Ben Bernanke and what he could say or do in Jackson Hole this Friday to give the global markets comfort and confidence?

When it comes to mastering the MLP's (Master Limited Partnerships), the notion becomes a lot more manageable since the entire universe consists of only 80 publicly traded companies (err excuse me, partnerships). Breakout guest Doug Rachlin, senior portfolio manager for the Rachlin Group -a unit of Neuberger Berman- manages a concentrated portfolio of "18 of the best" MLPs.

The average yield on the benchmark Alerian MLP Index portfolio is 7%, while the Rachlin portfolio yield is just above 6%. "The yield spread versus the historical benchmark 10-year Treasury yield (at 2%) is very, very attractive," Rachlin says.

While that yield didn't prevent a decline in the recent rout, it definitely dampened it. In Fact, the MLP index is down about 7.2% in August compared to a 12.5% drop for the S&P 500, and that excludes dividends.

The MLP sector is dominated by energy names, which has some investors concerned given the outlook for the economy and weak energy prices. But Rachlin isn't worried. "What we always liked about the MLPs is that they are not commodity sensitive. It's about the volume and throughput of energy products in a pipeline or a storage facility," he says. And even if energy demand declines in a recession (as they inevitably do) Rachlin's MLP picks have long-term contracts that are based on capacity instead. It's like leasing a bus that seats 50 people for a group of 25 at the same price.

Rachlin's first pick is El Paso Pipeline Partners (EPB), which yields about 5.5%. "The average contract life is seven years and is capacity-based... so for the next seven years over 90% of their revenues are accounted for. That makes us very comfortable and allows us to sleep very well at night," he says.