Beijing’s policymakers have shown more proof that they’ve changed course: The yearlong fight to suppress inflation is shifting to economy-boosting efforts.

That means money-tightening policies are reversing course. Easier credit hopefully will fight the economic drag imposed by, among other things, Europe’s crisis.

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Bloomberg reports that the People’s Bank of China will let the country’s five biggest banks increase lending by roughly 5% in the current quarter. The report cites “two people at state lenders who have knowledge of the matter.”

Most interest rates in China are fixed by the government, including deposit rates, commercial rates and mortgage rates.

The PBOC’s primary monetary tools include the supply of credit — caps on how much a bank may lend, for instance.

The PBOC’s tool of choice in its recently ended tightening phase was the reserve requirement ratio, that percentage of deposits that a bank must set aside as cash. More cash put aside means less cash available for lending.

Hopes for easing have helped boost China’s Shanghai composite and Hong Kong’s Hang Seng indexes recently.

Those two gauges each rose 1.3% Thursday. Talk of more action from the International Monetary Fund to address Europe’s debt crisis also lent a hand, analysts say.

What does this mean for U.S.-listed ADRs from China? Remarkably little. A scan of the best-rated names from the mainland that trade on the NYSE or Nasdaq yields almost nothing worthwhile.

Gone are the days when a solid uptrend in the U.S. was dominated by names such asBaidu (BIDU), Sina (SINA), New Oriental Technology & Education (EDU), China Mobile (CHL) and Yanzhou Coal (YZC).

It’s no surprise that former leaders have fallen so hard — and indeed these have done just that.

But almost no new Chinese names have taken their place. And that’s odd coming from the country that many have said would be the world economy’s new driver of growth.

Try this exercise. Run a screen of American depositary receipts — from all countries — that show RS and EPS Ratings of at least 75 each.

What do you notice? First, the pickings are slim. Second, China is barely represented.

Soufun Holdings (SFUN) appears on the list. The small-cap company operates a Web portal that provides real estate listings and information. Soufun’s earnings will likely show a 57% gain for 2011 when the final numbers come in. That will be its sixth straight year of profit improvement.

But look past the 99 EPS Rating and 94 RS Rating, and you’ll see a thinly traded stock that is rebounding from a 68% dive.

Mindray Medical (MR), a Chinese maker of patient-monitoring systems, is breaking out from a long base. But much of that base was built below its 10-week line, a serious flaw. And while sales and margins are fat, earnings are not.

Mindray Medical’s biggest plus may be a huge outstanding short interest. That’s not enough to make a great winner.

source form: investors

Three medical industry groups are in the top 11 of IBD’s 197 groups, based on six-month price performance. A fourth is No. 30.

The overall sector is held back by the four additional medical industry groups that are in the bottom 30 of IBD’s 197, going into Thursday.

 

“There are quite a few macro forces at work,” said Steve Silver, equity analyst for S&P Capital IQ. “Some industry groups are beneficiaries. Others are victims.”

Several sector leaders are clustered in two of the top 30 groups.

Alexion Pharmaceuticals (ALXN) and Celgene(CELG) are in No. 2-ranked medical-biomed/biotech. Takeovers of small biotechs have helped drive the group, Silver says.

Endo Pharmaceuticals (ENDP) is in No. 30 medical-ethical drugs.

Biomed/biotech was No. 23 six weeks ago and Medical-ethical was No. 29.

Wells Fargo Advantage Growth , with $7.6 billion in assets, boosted its Alexion stake in its latest disclosure period. The $4 billion Goldman Sachs Growth Opportunities recently began its position.

The $2.6 billion Janus Global Select recently began to invest in Celgene. And $32 billion Fidelity Low Priced Stock Fund added to its Endo holdings.

Alexion is up 49% and Celgene 23% in the past six months. Endo is down 6% but up 42% from its Oct. 4 low.

All three are driven by products with competitive advantages. “Several treat rare, life-threatening diseases, so they are powerful niche medicines,” Silver said.

Alexion treatments serve small patient groups. No one else makes treatments for them.

Its Soliris treats the blood disorder known as PNH. It won approval in September for patients with the syndrome called aHUS.

“Cash flow goes to profits and pays for takeovers,” Silver said.

Celgene keeps finding new applications for its cancer treatment Revlimid. The company has several other drugs in various stages of development.

Endo is diversified with devices as well as drugs. Silver sees the firm’s acquisition streak slowing to give it time to pay down debt.

Going forward, Greg Bolan, an analyst for Sterne Agee, likes HMOs. As workplace health plans shift more costs onto plan members, more of them switch to HMOs.

IBD’s medical-managed care group ranks No. 10.

Bolan also likes health care information technology. Medical-systems/equipment is ranked No. 11.

“The government’s $30 billion in incentives to physicians and hospitals to take record-keeping electronic from paper is a massive jolt of incremental revenues,” he said.

Outsourcing has been another driver for the sector. Small caps like Parexel (PRXL) andCovance (CVD) help big-cap drug and device makers with several stages of new product development, Bolan says.

Parexel is barely above where it was 52 weeks ago. Its Composite Rating from IBD is a dreadful 23.

After eight quarters of slowing earnings per share growth, Covance’s EPS grew 0%, 14% and 42% the past three stanzas. Sales growth also accelerated.

Still, the stock is way down over the past 12 months. It is struggling to regain its 10-week line, which is below its 40-week average.

source form: investors

Expectations of some sort of ECB lending operation helped spark Tuesday’s gains, including the follow-through move in the U.S. market. News of a bigger-than-expected refinancing added the promise of more gains, at least initially.

For more in-depth coverage on the Longer Term Refinancing Operation, click here for related story.

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With the U.S. market’s big gains Tuesday pointing the way, Taiwan’s weighted index shot up 4.6%. There, as if to help a market already on the upswing, the government announced a fund that will support prices on the Taiwan stock exchange, which had been diving.

That index shows a year-to-date loss of 22.4%. The iShares MSCI Taiwan Index (EWT) has lost 25.7% in 2012, and is in 14th place out of the 18 slots on IBD’s Daily World Map.

India’s Sensex 30-share index leapt 3.4%, South Korea’s Kospi jumped 3.1% and the Singapore Straits Times index added 2.3%.

Hong Kong’s Hang Seng index rose just 1.9%, while the Shanghai fell 1.1%.

China’s stocks have been lagging for more than a year.

The Shanghai composite has dropped a year-to-date 22%, while the iShares FTSE China 25 Index (FXI) lost 19%, holding the No. 9 slot on the Daily World Map.

There, hopes for standout growth are giving way to fears of a slowdown after more than a year of tightening from the People’s Bank of China.

Add to that some loss of confidence among investors after a spate of corporate-accounting fraud. Some companies simply invented fictitious customers, sales and money.

In Europe, major indexes ended lower: Frankfurt’s DAX-30 fell 0.9%, France’s CAC-40 shed 0.8% and the FTSE 100 lost 0.6%.

Those mild declines mask a wild ride.

The DAX-30 had climbed as much as 2% on optimism that the ECB’s move, a sort of back-door approach to quantitative easing, would help see the EU through its crisis. The CAC-40 saw a 2.2% intraday best. As doubts about the plan crept in, those bourses reversed lower.

But the EU’s woes weren’t the market’s sole sore spot Wednesday. Tech giant Oracle Systems’ (ORCL) Q2 report, issued late Tuesday, missed estimates so badly as to cast a pall over all things technological.

Oracle’s gap-down 12% loss set the tone for foreign tech ADRs. Ireland-based IT services provider Accenture (ACN) lost 4%, German business-software giant SAP (SAP) sank 6% and Taiwanese chip designer Silicon Motion Technology (SIMO) dropped 2%.

ASML Holding (ASML), a Netherlands-based chip-equipment maker with fast-fading profit and sales results, dipped 1%.

source form: investors

The stock has found support at its 10-week line, which has been rising. Look for the stock to clear resistance around 40.

BE, which makes seats, drink carts and other products, got a boost last week when aircraft maker Boeing (BA) announced thatSouthwest Airlines (LUV) would buy 150 next-generation 737s, adding to a previous order for 58 current-generation 737s. It was one of Boeing’s biggest orders ever.

 

Still, profit at Wellington, Fla.-based BE is seen growing just 19% in Q4 vs. a year ago, down from gains of 44%, 38% and 56% in the prior three quarters. Also, the Composite Rating and its Earnings Per Share Rating rank 10th and fifth, respectively, in the Aerospace-Defense industry group.

Nevertheless, big investors are showing interest. Fund ownership has increased for three consecutive quarters, and the stock’s up/down volume ratio of 1.2 tops the neutral reading of 1.0, indicating rising demand.

The Aerospace-Defense industry ranked a respectable 36th out of 197 in Wednesday’s IBD.

Also, BE’s base is a first-stage pattern, which has a better chance of success than those in later stages.

Southwest’s big order for Boeing aircraft reflects growing global demand for commercial jets, which stands to benefit suppliers like BE.

The International Air Transport Association sees worldwide passenger traffic rising an average 4.6% annually through 2015. International travel is seen climbing at a slightly faster 5.4% average annual pace during that time.

Planes used on international routes are bigger and have more amenities.

“Industry conditions remain very favorable,” BE CEO Amin Khoury told analysts last month.

source form: investors

IBD asked big money managers to share their potentially most profitable ETF investing strategies for the tough market they see ahead.

• Alan Zafran, partner at Luminous Capital in Menlo Park, Calif., with $4.7 billion in assets under management.

Money managers, from left, Alan Zafran, Jeffrey Sica, Rob Stein and Mark Eshman favor dividends and/or shorting emerging markets. View Enlarged Image

1. Vanguard Dividend Appreciation Index Fund(VIG) : This fund lets investors buy a basket of companies with a history of raising their dividends over time. Only companies with solid cash flow generation and predictable, sustainable business models can steadily raise their dividends year after year. These are the type of high quality stocks that investors should own during times of heightened macroeconomic uncertainty.

2. IShares IBoxx Investment Grade Corporate Bond Fund (LQD): U.S. corporations have markedly improved the strength of their balance sheets over the past three years for two reasons.

First, they have taken advantage of the low interest rate environment to refinance their debt obligations. Second, they have been reticent to add fixed costs (labor, capital spending), given the tepid economic recovery, so they are generating ample amounts of cash from operations to support their debt obligations.

3. SPDR Gold Trust (GLD): In order for politicians to find a credible and actionable solution to the European debt crisis, there will eventually need to be some form of money printing/quantitative easing to offset the defaults and fiscal austerity measures. Accordingly, since the euro is a fiat currency, it will fall in value relative to the price of gold.

• Jeffrey Sica, president of Sica Wealth Management in Morristown, N.J., with more than $1 billion in assets.

ProShares Short MSCI Emerging Markets (EUM): In 2012, we expect a year of uncertainty combined with extreme market volatility. We would invest in EUM to take advantage of our predicted declines in the emerging markets, due to the contagion of the European debt crisis. Emerging markets have done considerably well in the past few years as we saw the world economy emerge out of the subprime debt crisis of 2008.

However, in recent years we have seen slowdowns in several of the emerging markets combined with rising food prices. We anticipate that as the economic debt crisis in Europe accelerates, we will see less mature economics in the emerging markets.

The major risk to my theory would result from the unlikely possibility that Europe would emerge from its debt crisis, banks would stabilize and therefore avoid contagion. The second scenario would be that we would see the costs of raw materials decline, improving the overall economic health of countries with the emerging markets.

The third detriment to our thesis would be improvement in gross domestic product numbers, which most likely would involve these countries being able to export to Europe, the U.S. and emerging markets countries, further expanding the profitability of the businesses that are a part of the MSCI Emerging Markets index. The stop-loss level on EUM is 29.50.

• Rob Stein, global head of asset management at Astor Asset Management in Chicago, with $1.2 billion in assets.

SPDR S&P Dividend (SDY): With GDP (growth) to be in the lower end of the historical range as a result of reduced government spending, uncertain tax policy and declining high probability of recession in the euro zone where fiscal issues are worse yet, it would be hard to see sustainable stock market rallies.

Although earnings have been impressive as margins remain at historically high levels and profits following suit, it appears this is needed to just stay in place.

In the three years following the financial crises, corporate America has done a great job in repairing its balance sheets, creating ample cash reserves and improving efficiencies and margins.

Unfortunately, the private sector and government sector have not followed corporate America’s lead, and debt levels for both are not only unsustainable, but a real head wind for the economy and markets. With the housing sector still in decline, the almighty consumer, which accounts for more than 70% of GDP, will find it increasingly more challenging to support the fragile economy.

Corporations are the strongest leg of the economy, and dividend yields (as of Dec. 20) are appreciably above 10-year Treasury yields and some might say with less risk, given the state of the government’s financial condition.

Even if the market doesn’t hold up well in 2012, you get paid handsomely to wait. And balance sheets can support the dividend income with little worry of a cut.

• Mark Eshman, chairman of ClearRock Capital in Sun Valley, Idaho, with $300 million in assets.

IShares Dow Jones International Select Dividend Index (IDV): Europe is in the midst of an existential crisis, but it cannot and will not fail.

The reason is simple. Both the healthier countries (Germany and the Netherlands) and the weaker countries (Spain and Italy) will lose if a major bank fails. While any resolution in the euro zone will likely result in a recession, valuations are currently reflecting this.

Consequently, we like the idea of buying the highest quality, highest dividend-paying international companies.

IDV is comprised mostly of non-euro zone companies from the U.K. and Australia in recession-resistant industries like utilities, communication services, energy and noneuro zone financials. IDV sports a current yield of 4.68%, so we get paid nicely while we wait for Rome to stop burning.

source form: investors

That isn’t odd. The ideal short candidate will often show you the sort of earnings and sales growth you’d want to see in your portfolio. Shorting opportunities appear in the technicals.

So what does Baidu’s picture reveal? The stock has been a leader in virtually every market uptrend since 2006.

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That’s a red flag by itself. New uptrends are rarely led by old leaders. Baidu already has broken that rule in the past and may be seen as pushing its luck.

Baidu’s last base, a cup-with-handle, appears from late April through mid-July. The 148.54 buy point was triggered July 18, but volume fell flat on its face.

Baidu rose 12%, but volume didn’t kick in until the climb’s very last day. Even that proved to be a last-gasp exhaustion gap.

Losses fast ensued, with clusters of high-volume declines popping up on Baidu’s chart.

Simple base-counting shows that last base was a fifth-stage structure. So Baidu was failing in August from a very late-stage base.

The stock sliced through its 50-day moving average and fell straight to its 200-day line.

It rebounded some and threaded around its 50-day line through mid-September. Volume fell in this period, which made Baidu’s rebound attempt seem half-hearted.

Baidu resumed its sell-off in earnest on Sept. 20, with a 4% loss in heavy trade that again pushed the stock below its 50-day line.

That proved to be Day 4 of a streak that saw Baidu lose ground in 11 days out of 13. Baidu fell 29% in that painful stretch.

Baidu bottomed Sept. 30 and a week later was rising with the broad market.

Baidu steadied up nicely and again regained its 50-day line. The effort ended Oct. 28 with a gap-up 5% gain.

But that performance held a key flaw: Baidu actually closed in the lower 40% of the day’s trading range. Baidu drifted sideways to lower for 2 1/2 weeks.

Then, last Thursday, sellers re-emerged. Baidu that day sank back below its 50-day line for at least the third time since its July 26 peak.

Volume on this three-day decline, never swelled above average, so this may not yet be the decisive blow.

A rebound that carries Baidu back to, or near, the 50-day line may be the spot to short. Or after such a test, you might first want to see a high-volume decline.

Bear in mind that decline in late September undercut the prior base’s low, thus resetting the base count. If Baidu can right itself and build a new base, it would be a first-stage structure.

For now, the stock is damaged. Its RS Rating has fallen to 69, while its up/down volume ratio stands at 0.8 and hasn’t seen the sunny side of 1 in months.

source from: investors

Meanwhile, economist David Levy projected the U.S. will fall into a recession in 2012 or sooner despite upbeat economic data.

SPDR Gold Shares (GLD) fell 2.4% as it broke below key price support at its 10-week moving average. Market Vectors Gold Miners ETF (GDX) dropped 1.6% and Market Vectors Junior Gold Miners ETF (GDXJ) 4.9%.

 

IShares Silver Trust (SLV) skidded 1.9%. It closed in the upper end of its intraday range after falling as much as 5% in the morning.

IPath DJ-UBS Copper ETN (JJC) — a harbinger of industrial production levels — fell 2.9%.

Investors are taking profits from the rally off the October low and have been selling assets to cover margin calls and raise their cash positions, James DiGeorgia, editor of Gold & Energy Advisor, wrote in client note. “Cash is king.”

DiGeorgia believes once the sell-off bottoms, gold should be bought because central banks continue to buy gold. In addition, if there’s a sovereign debt default, it could lead to a global depression, he says. With massive amounts of debt, the U.S. and Europe will have to print money to pay it off.

Ed Carlson, founder Seattle Technical Advisors, expects gold to fall to $1,480 an ounce. That would translate to $148 a share for GLD or a 10% drop from Monday’s close. GLD fell below key price support at its 10-week moving average, marking a bearish development.

SPDR Dow Jones Industrial Average (DIA) fell 2.2% and SPDR S&P 500 (SPY) slid 1.9%.

IShares MSCI Emerging Markets Index (EEM) declined 3.2%; iShares MSCI EAFE Index (EFA), tracking foreign developed markets, fell 2.6%.

In an about-face to his previous outlook, Monty Guild — founder and CEO of Los Angeles-based Guild Investment Management — recommended selling U.S. and emerging market stocks.

Guild changed his bullish view after reading about a memo leaked to London’s Daily Telegraph that stated Germany proposes to create a German-controlled superstate to take over the beleaguered euro zone countries.

“That’s going to create a lot of uncertainty, and the markets don’t like uncertainty and that’s why it sold off today,” said Guild. “This will delay (Europe from) doing any quantitative easing and bailout of the banks.”

Although many news headlines blamed the sell-off on the supercommittee’s failure to come to an agreement over slashing the budget deficit after three months of talks, Guild said he thinks it didn’t have anything to do with the sell-off. “No one expects the supercommittee to do anything anyway,” he said.

Recession Imminent?

Despite some positive economic conditions such as solid retail sales, corporate spending and exports, the U.S. will likely enter a recession next year or even before, says Levy of the Levy Forecast.

“The main question is whether domestic fiscal policy will lessen or aggravate the recession,” Levy wrote. “Domestic profits plateaued in the first half and appear to have held up in the third quarter, but the outlook for the fourth quarter and for 2012 remains a pronounced downward trend.”

source from: investors

• Tahar Mjigal, co-portfolio manager at International Capital Management Corp. (ICMC) in Dallas. Debt-related problems with the PIIGS (Portugal, Italy, Ireland, Greece and Spain) were the catalyst of significant market volatility in August and September. The fear of defaults by Greece and Italy drove investors into their now-familiar “risk off” mode, resulting in a brief period of volatility and converging correlations similar to that of 2008.

The risk of default by other PIIGS is likely to remain high for several years, which could bring the survivability of the euro into question. At the very least, the makeup of the European nations using the Euro as their common currency is likely to change. Further, other countries in developed Europe are themselves struggling with budget deficits, high debt and a recession.

The value of the euro has weakened amid the debt crisis, which should keep gold miners busy and the price of the precious metal rising. AP View Enlarged Image

The recent sell-off in the markets, triggered largely by the problems discussed above, hit the euro zone and emerging markets heavily. Therefore, I believe the likelihood of continued above-average market volatility has increased significantly. Although the long-term growth prospects for select emerging market economies is still intact, I currently favor U.S. equities over emerging market and fixed income because of the following:

1. Emerging countries are raising interest rates to control inflation.

2. European debt crisis and the austerity measures will impact emerging markets.

3. Middle East unrest.

4. U.S. slowdown.

The S&P 500 bottomed Oct. 4 after forming a “W” shape weekly chart pattern. Subsequently, the index rose to approximately 1292, compared to my 1300 price target. I believe the market is likely to rally through early 2012. My target projection for the S&P 500 is 1350 by May 2012, with some corrections on the way up, before ultimately turning down.

In this environment I expect iShares Russell 1000 Growth Index (IWF) and iShares Russell Midcap Growth Index (IWP) to benefit.

• John Nyaradi, publisher of Wall Street Sector Selector in Bend, Ore. We’re due for the traditional “Santa Rally” from now through the end of January — even as Europe burns and economic uncertainty abounds — and “window dressing” from institutional asset managers, who are eager to dress up their returns in time for Christmas bonus season.

In spite of all of the negative news, technical indicators say that there is more upside ahead and seasonality would support this view. Unknowns are the situation in Europe and the results of the “supercommittee” deliberations due to be completed by Nov. 23.

source from: investors

The downside for such companies is that a recession can cause customers to delay purchases.

Mattress company Select Comfort (SCSS) serves the high end of the market with adjustable air-chamber mattresses. Select suffered eight quarters in a row of declining sales during the 2007-09 recession. Last year, that trend ended as Select grew revenue 11%. This year the Street expects sales to jump 21%. That would be the best annual sales growth since 2005.

 

Earnings jumped 128% last year against easy comparisons. This year Wall Street expects 77% EPS growth. Analysts expect 24% earnings growth in 2012, but that could prove conservative. Select Comfort has beaten the Street’s numbers for 11 consecutive quarters, often by wide margins.

The potential for further market penetration appears to be good.

At the earnings call on Oct. 19, CEO Bill McLaughlin said the company has less than 5% market share in the U.S. mattress market. “The largest metro areas … are among our least developed, which represents significant opportunity,” McLaughlin said.

The company is undertaking a three-year “acceleration strategy” in the underdeveloped large metro areas, according to Chief Operating Officer Shelly Ibach.

Ibach said the company’s strategy of targeting “a younger, more affluent aspirational and active customer” is paying off. “Our results are encouraging, which has given us confidence in our outlook,” Ibach said.

Select Comfort broke out of a first-stage base on Oct. 20 in huge volume, clearing a 19.33 buy point. The stock then moved sideways for three weeks. Recently, Select fell under the sideways consolidation, but volume was calm. The stock is just under the buy point.

source from: investors

Of course, understanding a company’s story, its products, management strategy and markets, are crucial pieces of fundamental research. But the most important data point in determining a potential leading stock is quarterly earnings growth.

That’s why the CAN SLIM acronym starts with current, or quarterly, earnings and sales growth.

 

In fact, sales and earnings growth are important enough factors in winning stocks to rate two mentions in the CAN SLIM acronym: C, for current quarterly sales and earnings growth of at least 25%, and A, for annual earnings gains of at least 25% for the past three years.

Earnings growth is not some static, isolated indicator. Accelerating growth generally says the market is strongly attracted to something the company is doing, a new technology or a need created by a shift in the market itself.

Some analysts argue that earnings reports are easily manipulated and that other factors, like cash flow or valuation, are more vital.

But IBD research consistently shows stocks that post winning runs see pronounced accelerations of earnings growth prior to and alongside their breakouts. A study of the 600 best stocks from 1952 to 2001 showed three out of four saw EPS growth of at least 70% in the quarter just before their breakout. That’s right: three of four.

The record-setting stocks that fit this mold are legion: Microsoft (MSFT) in 1986, eBay(EBAY) in 2002, Dell (DELL) in 1996, F5 Networks (FFIV) in 2010.

Measure growth by gauging the current quarter vs. the year-ago quarter, not from Q2 to Q3, for example. If the third quarter’s year-over-year growth rate is higher than the second quarter’s year-over-year change, that shows accelerating growth. Three straight quarters of such gains, in a stock that is basing and near a buy point, is a very good starting point for a potential leading stock.

But remember, it is a starting point. Be sure to fulfill the other CAN SLIM requirements and keep a steady eye on the market’s status.

Also, keep an eye on discrepancies in sales and earnings growth. Slowing sales growth and rising earnings may show a company maintaining profitability by cutting employees and closing down capacity.

Such temporary fixes tend not to last, and often set a company up for steep earnings declines.

A sharp reversal in earnings growth can send a warning: If earnings growth slows by two-thirds or more from the growth rate of prior quarters, it can be a red flag.

A slowdown from 80% to 55% is still within a healthy range. But a slowdown from, say, 180% to 15%, however, should put you on your guard.

source from: investors