I feel that this new law can have a profoundly positive affect on business startups, established local businesses, local economies, and jobs. So, although this post is not directly related to investing or financial planning,  it’s potentially an important economic development.

The Crowdfund Act allows small investors to invest in U.S.based startups and established businesses with less than $5 million in annual sales. Each business is allowed to raise as much as $1 million during any twelve month period through SEC approved crowdfunding portals.

Under crowdfunding regulations (to be completed by the SEC by January 2013) individual investments in any one crowdfund issuer are limited by income or net worth. Investors earning less than $100,000 per year will be limited to the greater of $2,000 or 5% of their annual income or net worth. Investors earning more than $100,000 will be limited to 10% of their annual income or net worth up to a maximum of $100,000

Crowdfunding transactions must be conducted through a broker or funding portal that has registered with the SEC and any applicable self-regulatory organization. The intermediaries will play an important gate keeping role in crowdfunding transactions, and will have significant responsibility for preventing issuer fraud and protecting investors. 

These responsibilities include educating and screening potential investors, taking appropriate action to reduce the risk of fraudulent transactions (including checking the background of the issuer and its insiders), providing disclosure to the SEC, ensuring that the issuer does not receive any investors’ money until the target offering amount has been raised, and taking steps to ensure that investors do not purchase more than their annual limit of securities of the issuer. 

Issuers making a crowdfund offering must disclose the amount of money they intend to raise.  Investors will be able to rescind their commitments if the issuer does not reach this target.

Seasonality says we stay weak through spring and summer, but Q1 earnings will set the tone for the slow months. At the end of this week we get Google and JP Morgan earnings. These should be pretty good “tells” for where the market goes in the near term.

If  Spain’s debt problems cause more general weakness in U.S. markets, it may create opportunities to buy some of our best U.S. companies that are stuffed with cash and well positioned in global markets.

What to do? Clean out underperformers. Trim position size in big gainers. Make a shopping list of stocks/funds you want to buy or add to if they get cheap.

Good economic news and an easy Fed continue to make life difficult for those (like me) who have felt the market needs a rest. Although trading volume is low and the advance/decline line is not robust, the market does not want to go down. It seems to be the classic “Wall of Worry” condition where too many funds are caught on the wrong side of the market and are forced to buy.

Bottom Line: Can’t fight an easy Fed or a market with an unbroken trend. Trimming laggards and taking profits on partial positions is still smart, but selling aggressively or buying extended stocks aggressively probably isn’t.

Since one can own gold and/or gold miners in ETF form (GLD and GDX) one can buy and sell each like a stock during market hours, providing luiquidity and transparency. Stops can be used on these ETFs to help minimize losses in case enthusiasm is misplaced at the time.

GLD  (SPDR Gold Trust) hit a high in early August 2011 at nearly $186. Today it’s at $163, with the 200 day moving average just below at $160. So a stop could be placed on any new or existing position at $158-159 for reasonable protection. Below current levels, GLD traded for several weeks between $145-150 last summer, also providing a reasonable area to place stops.

GDX (Market Vector’s Gold Miners ETF) also peaked in late summer last year, at nearly $67. It’s currently trading at $52, with $49-50 looking like an important level to hold on a 1 year chart. The stock is below all three important moving averages (20, 50 and 200 day,) but there are multiple points in a longer term chart that indicate support at $45-50. If one were stopped out just under $49 they might consider reloading early in a subsequent bounce, depending on conditions at the time.

This narrative is meant to illustrate how a position in gold ETFs, or almost any stock or ETF for that matter, can be reasonably protected by using stops, especially if it turns out to be late in a trend. Scaling into and out of positions requires a deeper discussion, but developing a sense for support and resistance levels is very helpful. I’m usually available for questions and more help.

Traders should prepare to close out marginal positions and tighten stops on others if a general market selloff accelerates. Investors (including 401k accounts) should then reduce or clean out this year’s underperformers, and ring the cash register on a portion of their biggest gainers.

I think the correction, if it develops, will provide opportunities to scale into a shopping list of stocks/funds. By industry I’m watching: tech, biotech, select pharma, select energy, gold, and almost anything that pays a solid dividend. I might look at some regional bank ETFs, potentially building strength after several difficult years.

It’s emotionally comfortable to project this trend onto the remainder of the year, but we’ve come pretty far pretty fast since the end of November. Although I feel the U.S. economy can contiue to improve this year, it looks like Europe’s economy is going to struggle some (probably in current market prices,) and there are some troubling signs in China (maybe not in current prices.)

As well, some of the most popular stocks have charts that are starting to look parabolic as others are running up against overhead resistance. There were quite a few poor end of year earnings reports and disappointing outlooks from several CEOs.

Having said all this, large cap, multi-national companies with solid and growing dividends and solid end of year reports are still attractive on pullbacks. Valuations don’t seem to be stretched in several industries like telecom, “old” tech, and healthcare, among others.

Emerging markets have rallied nicely in the past few months, after a bad 2011. It looks like time to trim a little there if you’ve got a full allocation (more than 10% of investable assets.) If you’re underinvested in emerging markets (less than 5%) a substantial (10% or more) pullback would probably be an opportunity since they are still well off their early 2011 highs. A pullback in gold could also be an opportunity as long as it stays above $1500 per ounce.

This is a very good time to go into our 401k accounts and trim laggards and research new funds that may have been added to your plan. Be willing to add to your best funds on market pullbacks. (This process is how you insulate your 401k from multi-year underperformance.)

As always, call or email with questions. Bob

Some big retailer rallied into the end of the year while others flattened out after the early December lift from the November lows. Tech also flattened out while oil and gas stocks, although not as strong as food and drugs, did pretty well by Santa.

The big market issues facing us in the New Year continue to be:

• Will Europe’s continued incremental support of its banks and sovereign debt prevent the Eurozone from unwinding.
• Will some important economies, like the U.S. and China, continue to grow, however slowly, even if Europe goes into recession.

My view is that Europe doesn’t get enough credit in the U.S. financial press for what they have done already to stabilize thier financial system. I believe they will continue to work on it in their slow, incremental way, and the Euro will still be one of the world’s top currencies at the end of 2012.

In the U.S. the job picture doesn’t look much better going into the New Year than it has been in most of 2011, but there are consistent signs of growth in several of the recently announced economic stats, especially manufacturing.

The U.S. consumer came alive in the 4th quarter, although it’s not clear that will continue into 2012. People are still paying down debt and not optimistic about their home values. Most analysts expect the Fed to maintain an easy monetary policy through 2012, as do I.

Europe is China’s largest end market, so if Europe slows down so will China. Too, the property boom in China shows signs of slowing. However, few analysts expect China’s growth rate to slow to the point where it’s a problem, as long as the U.S., China’s second largest export market, avoids recession.

So, global recession concerns and Euro problems balanced by an easy Fed and some U.S. growth seems to be already reflected in stock (and bond) prices, and I don’t see much changing in 2012.

What to do? Dividend yield on stocks bought on market or sector pullbacks have the best chance of providing positive returns in this coming year’s probable environment. The stock groups mentioned above, food, drugs, energy,  would be the first place to look. 

Bonds, having  priced in Fed Policy and a slow economy, offer little return potential in 2012, although they are still an important asset class for diversification.

Some selected short and intermediate term high grade corporate bonds in the banking and deep cyclical sectors, as well as selected muni’s, may offer good entries during the year for both decent yield and some appreciation.

Gold? Hold it if you own it. Buy it on dips if you don’t own enough (5-10% of your investments.)

As always, stops are important, cash is not trash, and stay diversified.

Happy New Year

Then we found support. This last weekend Central Bankers, led by our Fed, brought the markets a gift, actually a gift swap-Dollars for Euros. Now we’re back over 1200 at 1250 and looking good technically.

The market’s Season of Good Will is upon us and, assuming more progress in Europe, we’ve got a good set up for a market that will be reluctant to go down. Several big funds may be under-invested and feeling the need to buy pullbacks.

We’re getting near the top of the late summer/early fall trading range and near to the 50 dma on the major U.S. indices. I think these levels will prove to be good support, assuming the EU doesn’t disintegrate. (Earnings season is out of the way.)

What to do? Add to your best growth and dividend positions when they begin to bounce off important support. Use stops under the recent lows where you can.

Although the Greek Prime Minister’s referendum may not survive the week, we still have a softening global economy and shaky banks to check our enthusiasm. We should continue to hold our best dividend paying stocks and funds. A few select  growth stocks can be added on pullbacks to support. Use stops, and keep cash (money market, short term bonds) nearby.