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Even
though many solar stocks had massive gains in 2013, the solar bull market is
still quite young. Most solar stocks began their uptrends early in
2013. So their bull market is barely a year old. Before this year
solar stocks had been in a bear market from 2008 and basically forgotten and
cast aside. They formed a base during most of 2012 which led to the
massive breakout in 2013.
Gains
at the start of a bull market are usually huge. The gains in solar
stocks in 2013 were definitely that of a new bull market. After such
big early gains bull markets usually go through a consolidation period. That
could be what is next for the solar space. If solar stocks consolidate
high and don't give back much ground, look for the uptrend to continue going.
The
chart below shows the Stage
Analysis of the solar ETF TAN. Notice the breakout from a Stage 1
base on increased volume in 2013. The Stage 2 advance is still in its
early days even though many solar stocks have seen huge gains.
 
Coal
stocks formed a base in mid-2012, and looked like a possible breakout in
early 2013. That breakout ultimately failed, and the bear market in
coal stocks continued. Most coal stocks put in another bottom in June
2013 and have been basing since then. So coal is basically in a classic Stage 1 and
waiting for a breakout on increased volume for a new uptrend.
Coal
has a couple things going for it that it didn't have in 2012. Natural
gas finally put in a bottom in mid-2012 and has been rising ever since.
Higher natural gas prices will be bullish for coal prices. Many
coal stocks are trading at rock bottom valuations, with price to book values
less than 1. Coal stocks are more bombed out than they were at any time
in the past decade in many cases. The coal sector is also in a more
mature bear market than it was last year, which makes it more likely the bear
market is nearing its end.
Taking
a look at the coal ETF KOL, notice the failed Stage 1 base in 2012, and the
new Stage 1 base that formed in mid-2013. The coal sector is worth
monitoring for a breakout into a new Stage 2 advance, which most market participants
probably aren't looking for.
Gold
miners got destroyed in 2013. They were basically the worst sector in
the market. The price of gold is either attempting to make a double
bottom around $1200 or possibly plunge to new lows in the first quarter of
2014. Whichever happens will have a major impact on gold miners.
The key
thing to realize though is the majority of the bear market in gold and gold
stocks has probably played out. Both in time and price gold is now late
in its bear market and overdue for a major bottom. Gold stocks could
form a Stage 1 base either in the 1st or 2nd quarter in 2014 and breakout
into a new bull market. The gains in gold miners could be massive as
many of them are trading with P/E ratios in the single digits, and book
values of less than 1. Once the gold price rises the margins on gold
miners will dramatically improve and big money will get attracted to the
sector once again.
The GDX
gold miners ETF is attempting to move into a Stage 1 base and complete the
bottoming process. Notice the positive divergence on the MACD which
often precedes the transition from a Stage 4 decline into a Stage 1 base.
Shipping
stocks are similar to solar stocks in the way they have traded over the past
5 years. After a massive bear market shipping stocks also bottomed in
2012 with a long Stage 1 base. Then they began to breakout into a new
uptrend in 2013. This occurred along with a breakout in the Baltic Dry
Index, which is a widely followed barometer of international shipping rates.
Internet
stocks are a unique sector in the stock market at the current time. A
lot of new merchandise has hit the market in this sector in recent years.
Everyone knows the big names like Facebook, Twitter, Yelp, etc.
There's clearly still a lot of growth going on in this sector with the
number of new IPOs coming out. But these stocks are also expensive in
their valuations and pricing in a lot of future growth.
The key
thing to realize with these stocks is that they are in a mature bull market.
This means the big, early money has already been made. The big
money only gets made after corrections or consolidations, such as after the
2008 bear market, or the 2011-2012 massive consolidation. The Internet
Index shown below hasn't touched the 30-week moving average since mid-2013,
and is likely overdue for another consolidation. This would be the
healthiest way for the uptrend in Internet stocks to continue.
The
bull market in this sector has been going on for about 2 years. The big
money of course is being made by those that got in on this trend in 2011 and
2012. The public is only now becoming aware of this technology and its
potential prospects though. So it's certainly possible this trend
continues for a few more years. I could see a mania in this sector
eventually developing.
The
U.S. stock market is very overvalued compared to foreign markets. This
is because U.S. markets have outperformed foreign markets for a few years
now. This trend can't continue forever though and research has shown
that buying undervalued markets improves returns when taking a longer term
time frame.
If you
take a look at the Emerging Markets ETF EEM for instance it has been in a
bear market since 2011. So that bear market will be 3 years old in
2014. At some point the valuation of foreign stocks compared to U.S.
stocks will make it such that capital will flow out of U.S. stocks and into
foreign stocks. This will propel foreign stocks into a new bull market
and ETFs like EEM will start to breakout into new uptrends.
The
next chart shows the ratio of the EEM ETF to the S&P 500 SPY ETF.
What this chart shows is that emerging markets have been weak compared
to U.S. markets for 3 years now, as evidenced by the downtrend in the ratio.
What to look for is a Stage 1 bottom in this
ratio and the transition into a new uptrend as Emerging Markets will
eventually outperform U.S. markets once again.
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