Time to Sell Biotech Stocks?

Not yet, says Weeden’s Michael Purves–but it’s sure time to hedge. He explains why:

Special to The Chronicle

Hedging biotechnology stocks once again appears timely. This sector, a stand out in 2012 and 2013 is still outperforming the broader market (iShares Nasdaq Biotechnology ETF (IBB) up 12.4% ytd vs S&P 500 up 7.5%). None the less, we think this sector is increasingly vulnerable to sector rotation. Should a broader sell off occur, this sector will likely be among the most aggressively sold given the very significant gains. The technicals are weakening and the recent rallies appear to be more squeeze driven. This sector may have enduring fundamental legs, but investors should remember that the March sell off brought the sector down 25% in six weeks.

Biotech stocks aren’t falling much today, however. The iShares Nasdaq Biotechnology ETF has dropped 0.5% to $254.31, while Biogen Idec (BIIB) is off 0.3% to $335.85 and Amgen (AMGN) and Regeneron Pharmaceuticals (REGN) are little changes at $122.25 and $304.41, respectively.

SEC, FINRA Enforcement: More Charged in Football-Related Boiler Room Scheme

The SEC filed additional charges in a fooball-related boiler room scheme. It also charged a penny stock company CEO and his business partner with defrauding investors and an investor relations executive with insider trading.

In addition, FINRA took action against ConvergEx Execution Solutions for reporting and other failures, and against Gilford Securities for disclosure and other failures.

SEC Charges More in Football-Related Boiler Room Scheme

Football fans and would-be investors might have thought the game was over back in September, when the SEC charged the operators of a South Florida-based boiler room scheme with defrauding seniors and other investors they pressured into purchasing stock in a company that purportedly developed groundbreaking technology for the National Football League to use in the Super Bowl. But they would have been wrong.

Thought Development Inc. (TDI), a Miami Beach-based company, was touted by the boiler room operators, and claimed that its signature invention is a laser-line system that generates a green line on a football field for a first-down marker visible not only on television but also to players, officials and fans in the stadium. The first group of wrongdoers went down, but there was more yet to come.

In another round of charges, the SEC went after four executives who made the scheme possible, as well as the three companies they operate. Brothers Dean Baker of Coral Springs, Florida, and Daniel Baker of Valley Village, California, were charged, along with Bret Grove of Delray Beach, Florida, and Demosthenes Dritsas of Newhall, California. In addition, the SEC also charged DDBO Consulting, DBBG Consulting and CalPacific Equity Group.

Approximately $1.7 million was raised through these companies from more than 110 investors who were told that an IPO in TDI was imminent and that their money would be used to develop the groundbreaking technology.

The four execs and their companies made deals with Peter Kirschner, the mastermind of the original scheme, to solicit investors and sell stock. They lied to investors about TDI and about where the money was going, and pocketed what they didn’t use to hire sales agents to push the stock further.

The defendants have all agreed to settle the SEC’s charges, while Daniel Baker and Dritsas have also entered into plea agreements in criminal cases relating to this action.

In parallel actions, the U.S. Attorney’s Office for the Central District of California announced criminal charges against Daniel Baker and Dritsas, and the U.S. Attorney’s Office for the Southern District of Florida announced criminal charges against Dean Baker and Grove as well as Kirschner and Stuart Rubens. The latter two were charged by the SEC in the initial complaint filed last year. Dean Baker was previously barred from association with any FINRA member firm in 2006.

Penny Stock CEO, Con Artist Charged with Investor Fraud

The SEC has charged Lex Cowsert, the CEO of penny stock company CytoGenix and his business partner Christopher Plummer with defrauding investors via false press releases.

According to the agency, the pair used those releases to portray CytoGenix as a successful company that developed vaccines, when it was actually on the skids.

The releases touted CytoGenix with extravagant claims about the microcap company’s revenue and other benefits flowing from a “shared revenue agreement” with Franklin Power & Light, an electricity provider supposedly operated by Plummer. But Franklin was a sham, and CytoGenix had actually lost all of its vaccine patents and other intellectual property in a lawsuit.

To make matters worse, Plummer and Cowsert stole proceeds from CytoGenix stock offerings that they told investors would be used for energy production projects and other corporate purposes.

Cowsert took $91,000 in cash, telling investors to make checks out to him personally. He then put the checks into his personal bank account and paid personal expenses with the proceeds. Not to be outdone, Plummer defrauded a shareholder out of more than 6.5 million free-trading shares of CytoGenix stock.

Plummer also ran a similar but separate scheme around the same time in 2010. This one also involved a microcap company that also sent out a flurry of press releases filled with bogus information.

Among the faked claims were another deal with Plummer’s phony power company, this time to own and operate solar energy farms across the country. That microcap issuer was financially in the suds and couldn’t financially or logistically come up with any kind of product, certainly not launch full-scale energy farms. To this day it has no operations, customers or revenues.

Trading in both CytoGenix and the other microcap company was suspended in 2011 as part of a mass suspension. Plummer is already serving a multiyear federal prison term for yet another fraud unrelated to either of these, and has two prior fraud convictions.

The SEC seeks permanent injunctions along with disgorgement, prejudgment interest, financial penalties, and orders barring Plummer and Cowsert from acting as officers or directors of a public company and from participating in a penny stock offering. The investigation is continuing.

Investor Relations Executive Charged with Insider Trading

The SEC has charged Kevin McGrath, a partner at a New York-based investor relations firm, with insider trading on confidential information he learned about two clients while he helped prepare their press releases.

McGrath, who lives in Brooklyn and works at Cameron Associates, had bought shares of Misonix Inc. in April 2009. Not long after, he was working on a press release in which Misonix was set to announce disappointing quarterly results. McGrath found out the target date for the press release, and sold all his shares before the release came out on May 11. The move saved him losses of $5,400 when Misonix’s share price fell 22%.

He also bought stock in Clean Diesel Technologies Inc. after he worked on a press release in which Clean Diesel was announcing approximately $2 million in orders it received for certain products. Minutes after finding out on May 24, 2011, that the release would come out the next day, McGrath purchased 1,000 shares. He sold it all on May 27 after the stock gained 95% on the positive news. He made $6,376 on that trade.

Without admitting or denying the SEC’s charges, McGrath has agreed to settle by paying disgorgement of $11,776, prejudgment interest of $1,492 and a penalty of $11,776, for a total of $25,044. The settlement is subject to court approval.

SEC Charges Florida Transfer Agent for Boiler Room Tactics

The SEC charged a Florida-based transfer agent and its owner with defrauding investors by using aggressive boiler room tactics to peddle worthless securities with promises of high returns or discounted prices. 

Transfer agents are typically used by publicly traded companies to keep track of the individuals and entities that own their stocks and bonds. The SEC alleges that Cecil Franklin Speight, whose firm International Stock Transfer Inc. (IST), was a registered transfer agent, abused the transfer agent function by creating and issuing fake securities certificates to both U.S. and international investors.  While investors collectively sent in millions of dollars thinking they were purchasing high-yield investments and discounted stock, they ended up receiving counterfeit certificates that Speight and IST fooled them into thinking were legitimate.  

In a parallel action the same day, the U.S. Attorney’s Office for the Eastern District of New York announced criminal charges against Speight.

“Speight brazenly misused his transfer agent authority to commit fraud by creating fake certificates and acting as if he was authorized by issuers to do so,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “His promise of high-yield investment returns and his use of attorneys to receive investor money were simply lures to take advantage of unsuspecting investors.”

Speight and IST agreed to settle the SEC’s charges. He will be barred from serving as an officer or director of a public company and from participating in any penny stock offering. The court will determine monetary sanctions at a later date.

FINRA Fines, Censures ConvergEx on Reporting Failures

ConvergEx Execution Solutions LLC was censured by FINRA and fined $425,000 after the agency found that two separate programming errors led to the firm’s submission of inaccurate Regulation NMS Rule 605 reports related to the execution of covered orders in its alternative trading systems. Programming errors also meant that the firm submitted inaccurate Regulation NMS Rule 606 reports and incorrectly reported long sales to the Trade Reporting Facility (TRF) with a short sale indicator. Also, the firm overreported transactions to the TRF as the result of a programming error.

According to the agency, as a rule the firm orally informed subscribers of its indications of interest (IOIs) practices prior to the institution of those practices and during the on-boarding process, and to provide an opportunity to opt out of the IOI process.

However, the firm could not establish through its records that oral or written disclosure of its IOI practices had been provided to every subscriber prior to using IOIs based on subscriber orders as part of the X-Streaming process. As a result, not all subscribers were aware, and the firm could not confirm that they were aware, of X-Streaming.

FINRA also found supervisory system failures regarding the firm’s associated persons in the marketing and management of an alternative trading system.

The firm consented to entry of the findings without admission or denial.

Gilford Securities Fined, Censured on Disclosure, Supervisory Failures

FINRA censured Gilford Securities Incorporated and fined the firm $125,000, after finding that it published research reports that failed to disclose that the research analyst received compensation consisting of commissions on transactions by the analyst’s customers in the securities the analyst covered. The front page of the firm’s research reports, which supposedly referred to the page on which the disclosures were found, were deficient.

Also, the firm authorized a research analyst to post research-related information and recommendations from firm research reports on his blog without including either disclosures required by NASD Rule 2711(h) or links to the research reports containing the disclosures. The firm also failed to provide approvals of research reports.

Other failures included supervisory failures over five producing managers who were responsible for generating 20% or more of the revenue of the business units supervised by the producing managers’ supervisors, and anti-moneylaundering failures.

The firm neither admitted nor denied the findings.

---

Check out SEC Enforcement: Golf Buddies Charged in Insider Trading Ring on ThinkAdvisor.

Why "Mr. Softy" Will Continue to Rebound

Just under a year ago, Capital Wave Forecast Editor Shah Gilani said it was time to buy Microsoft Corp. (NasdaqGS: MSFT).

It was a surprising call. The once-great software giant had become a moribund also-ran, and Wall Street clearly saw no future for the Redmond, Washington-based company.

As is so often the case, Wall Street was wrong.

Microsoft shares are up 40% in the last year, and still some of the pros seem reluctant to believe in the turnaround.

But it's a new day for Microsoft. Satya Nadella is firmly in charge from the corner office. He's setting the new tone and company direction, and he announced a massive layoff last week that sent shares surging.

And now comes the payoff, as MSFT's earnings take center stage on Tuesday. All of which makes it a great time to revisit this call on Mr. Softy.

The Upside for Microsoft Is Huge

Resident tech expert Michael Robinson also believes there's more to come for Microsoft...

Lots more...

Microsoft was a true stock-market "kingmaker" throughout the 1990s. After a long stretch in stock-market purgatory, it's emerged as a "special situation" turnaround play with a hefty upside.

"You know, Bill, most investors have written this company off - or have forgotten about it altogether," Michael told me during a late-night telephone call the other day. "It's become something of a 'wallflower' stock. But Shah made a great, great call ... and I think Microsoft is going to show us something very special. The stock is up nearly 20% this year; it has a $50 billion cash hoard, and a committed dividend policy. It has a new CEO. And it just spent $7 billion in a big buyout. It's the kind of corporate turnaround play that I just love."

To understand why the pros just don't seem ready to "believe" in this rebound - and to fully grasp the opportunity at hand - we need to take a look at Microsoft's past.

A Fond Remembrance of Those Halcyon "Wintel" Days

With its Windows operating system installed on virtually all of the world's PCs - its market share peaked at about 95% - Microsoft was the personal computer revolution.

Microsoft teamed with chip giant Intel Corp. (Nasdaq: INTC) to create the "Wintel" standard, and the duo's bare-knuckled business practices made the PC market uninhabitable for any other chip-and-software standard.

Microsoft's dominance didn't stop with operating systems, either. With its Microsoft Office suite of productivity software, the Redmond tech titan did nearly the same thing in the applications market.

The result: Microsoft's shares went on a 9,000% ride during the 1990s.

Today, Microsoft continues to dominate the PC market. But the PC market is not the dominant force it once was.

With the dot-bomb implosion of 2000, the PC market began to slow. From 2001 to 2011, while the tech-heavy Nasdaq Composite Index gained 34%, Microsoft shares plunged 25%.

"If you think back, Bill, so dominant was Microsoft that it drew the attention of government anti-trust watchdogs in both the United States and the European Union," Michael said. "All the lawsuits - designed to curb Microsoft's bullying of other, smaller companies - did virtually nothing to derail the Microsoft Express. But Microsoft's mastery of its markets and the slowing growth rate in the PC market that followed the dot-bomb implosion of 2000 ended the years of eye-popping increases. The decade that followed taught Microsoft investors a very hard lesson: The market doesn't reward companies that rake in profits but show only modest rates of growth. That's why the Street has written the company off."

But we haven't and here's why....

These Catalysts Power Microsoft's Gains

Setting aside quarterly earnings buzz, we've identified four specific catalysts that will continue to power the Microsoft stock rebound. They are:

The change at the top (new CEO Satya Nadella). Big Data and Cloud Computing. The mobile revolution. And the creation of a Microsoft tech "ecosystem - akin to the one that rival Apple Inc. (Nasdaq: AAPL) has created with its iPhone, iPad, iPod and iWatch product lines, and its vision of a unified future.

Let's take a look at the four catalysts...

A New Club Member

Microsoft insider Satya Nadella was appointed CEO back on Feb. 14. And that makes him a member of a very exclusive club.

"Even though Microsoft turns 40 next year, it's only had three CEOs," Michael said. "You've got Bill Gates, Steve Ballmer, and now Nadella. That is one very exclusive group."

A native of India who grew up and was educated in the United States, Nadella is a Microsoft veteran who's not imbued with some of the perceived personality flaws of his predecessors. For instance, Nadella is very much a "people person," which is already endearing him to his management team. He thrives on success and innovation, and he's excited about change.

"When I analyze a corporate turnaround - and I know you share the same view, Bill - I prefer to see new blood at the top," Michael said. "And by 'new blood,' I'm talking about an outsider - an exec without ties to current management. That wasn't what happened here... but that's okay. In fact, in this case, I believe the Microsoft board has made a very savvy move."

While Gates is still immensely popular among the company's hefty work force, the workers understand that the company, the workers - indeed the entire corporate culture - needs to continue its transition from a pure PC play to a company that's capitalizing on the mobile wave, cloud computing and a tech "ecosystem" akin do the "unified computing" model Apple is creating.

"Nadella occupies a rare position in the technology industry," Michael said. "He is both deeply rooted in Microsoft's history and is also seen as a visionary change agent. And he has broad support from the company's roughly 100,000 workers - as well as from Gates himself."

Folks already like Nadella's decisiveness and investor focus.

In late April, he won plaudits from Wall Street when he joined a call with analysts to discuss Microsoft's quarterly earnings. It was the first time in five years that a Microsoft CEO had been present on an earnings call.

He also understands the opportunities at hand...

Like the Cloud.

Send in the Clouds

One great thing about this appointment is that Nadella is a true expert in one of Microsoft's key growth areas: Prior to his appointment, he had served as the executive vice president of Microsoft's strongly performing Cloud and Enterprise group. Under Nadella, the unit outperformed its peer group, and the overall cloud market.

It's a massive opportunity.

Market researcher Forrester says the Cloud market - where customers pay vendors to host data and applications at remote computer centers - will hit $55 billion by the end of this year. By the end of this decade, that number will climb to more than $241 billion.

Microsoft has already staked a claim.

In its recent ranking of top Cloud players, researcher Gartner gave Microsoft's Azure cloud platform a No. 2 rating. It trailed only Amazon.com Inc. (Nasdaq: AMZN). That means it finished ahead of Google Inc. (Nasdaq: GOOG), Computer Sciences Corp. (NYSE: CSC), and International Business Machines Corp. (NYSE: IBM).

And just weeks ago, Microsoft struck a key partnership with Salesforce.com Inc. (NYSE: CRM). The terms were not disclosed, but the alliance blends Salesforce's popular customer relationship management cloud app platform with Office and Windows.

"As I see it, this should give the Cloud business a further boost from its impressive fiscal 2014 third-quarter results," Michael said. "Office 365, a Cloud offering, now has an annual run-rate revenue of $2.5 billion and grew sales 100% compared with the year-ago results."

This Is a (Really) Big Deal

Much of Microsoft's current trouble stems from the fact that it missed the mobile revolution.

But it's making a heck of a comeback attempt - and the recently completed $7.2 billion acquisition of the Nokia Corp. (NYSE ADR: NOK) device business is a linchpin piece of the strategy.

The reason: It makes Microsoft a legitimate player in mobile.

It was Ballmer who made the deal, but it's Nadella who will have to make it work.

Nokia makes 90% of the mobile devices running the Windows Mobile operating system. And in the first quarter, market researcher IDC said Windows smartphones were in third place, with a 3.5% market share.

But IDC says Windows phones will see their market share grow at triple the rate of iPhones and double the growth of Google's Android operating system. Windows phones could capture as much as 6.4% of the market by 2018.

"Nadella is taking no chances here, Bill," Michael said. "He's making Windows Mobile free for smaller mobile devices. This is a savvy move, because it makes Microsoft competitive in emerging markets that are still in the early stages of smartphone adoption. Researcher IDC says that Android is now the operating system in 78% of all mobile devices worldwide. So, by copying Google's playbook and making its operating system free, Nadella hopes to see even greater growth in India, East Asia, Latin America and the Middle East. I get a really good vibe here from all this."

Copying Apple

Folks often misunderstand Apple. It's not just a device company. It's a "tech-ecosystem" player. It created all those great iDevices - and found a way to make them work together... seamlessly.

And the new unified computing strategy that we told you about earlier this month figures to take this new "ecosystem" into entirely new areas of opportunity. Shah understood this last fall, which is why he recommended Apple at the same time that he recommended Microsoft. Apple is up more than 54% right now, and we expect more to come there, too.

But we're intrigued by the Apple model because it's clear to us that Microsoft hopes to do something very similar.

That's why the hardware Microsoft makes - the Surface line of tablets, its Xbox gaming system, and now its Nokia lineup of mobile devices - figures to become ever more important to the company's ongoing turnaround. The devices can help drive "brand awareness" up and down the product family, and drive growth in the Cloud, in mobile, in software, and in products yet-to-be unveiled.

It works the other way, too: Microsoft's Cloud business can be used to drive growth in mobile, in software, or in services.

And that brings us to our forecast for "Mr. Softy."

Muscle-Soft?

Microsoft brings some strong financials to these growth markets.

The stock closed at $44.71 a share Friday - 28.8% above our $34.70 recommendation price.

But Michael believes there's plenty more to come.

"You're talking about a company with sterling financials, $50 billion in cash, a dividend yield of nearly 3%, and some very nice catalysts," Michael said. "The shares are trading at a forward price/earnings (P/E) ratio of 16.8 - a bit of a discount from the overall market. It has operating margins of 34% and a return on equity (ROE) of 27%. Throw in that nice dividend and you have a stock that offers us an excellent yield and the prospect of continuing price appreciation."

The stock traded at about $60 a share back in the late 1990s. That's a reasonable target.

"Bill, if Microsoft's shares just got back to their late-1990s highs in the neighborhood of about $60, we'd be looking at a profit of 44% from current levels and a gain of 73% from where Shah recommended it," Michael said. "I think these are the minimum gains we can expect to see. Given Nadella's aggressive plans for mobile and cloud computing, all that cash, and the other catalysts we've talked about today, I believe that Microsoft will continue to earn double the market returns over the next few years. This leader-turned-laggard has become a leader again."

In short, Microsoft has added some real muscle.

Mr. Softy is getting even stronger.

3 Stocks Under $10 to Trade for Breakouts

DELAFIELD, Wis. (Stockpickr) -- At Stockpickr, we track daily portfolios of stocks that are the biggest percentage gainers and the biggest percentage losers.

>>Warren Buffett's Top 25 Stocks for 2014

Stocks that are making large moves like these are favorites among short-term traders because they can jump into these names and try to capture some of that massive volatility. Stocks that are making big-percentage moves either up or down are usually in play because their sector is becoming attractive or they have a major fundamental catalyst such as a recent earnings release. Sometimes stocks making big moves have been hit with an analyst upgrade or an analyst downgrade.

Regardless of the reason behind it, when a stock makes a large-percentage move, it is often just the start of a new major trend -- a trend that can lead to huge profits. If you time your trade correctly, combining technical indicators with fundamental trends, discipline and sound money management, you will be well on your way to investment success.

>>5 Rocket Stocks to Buy for Blastoff Earnings Season Gains

With that in mind, let's take a closer look at a several stocks under $10 that are making large moves to the upside.

China Ming Yang Wind Power Group

China Ming Yang Wind Power Group (MY) designs, manufactures, sells and services megawatt-class wind turbines in the People's Republic of China and the Republic of India. This stock closed up 3.5% to $3.20 in Tuesday's trading session.

Tuesday's Range: $3.13-$3.21

52-Week Range: $1.48-$4.34

Tuesday's Volume: 997,000

Three-Month Average Volume: 1.55 million

From a technical perspective, MY jumped higher here with lighter-than-average volume. This stock recently formed a double bottom chart pattern at $2.93 to $2.95. Following that bottom, shares of MY have started to spike higher and move within range of triggering a near-term breakout trade. That trade will hit if MY manages to take out its 50-day moving average of $3.26 to some more near-term overhead resistance at $3.29 with high volume.

Traders should now look for long-biased trades in MY as long as it's trending above those double bottom support zones and then once it sustains a move or close above those breakout levels with volume that hits near or above 1.55 million shares. If that breakout gets started soon, then MY will set up to re-test or possibly take out its next major overhead resistance levels at $3.61 to $3.88, or even $4 to $4.20.

Alimera Sciences

Alimera Sciences (ALIM), a biopharmaceutical company, is engaged in the research, development and commercialization of prescription ophthalmic pharmaceuticals. This stock closed up 4.5% to $6.02 in Tuesday's trading session.

Tuesday's Range: $5.66-$6.09

52-Week Range: $1.65-$8.44

Tuesday's Volume: 148,000

Three-Month Average Volume: 154,137

From a technical perspective, ALIM ripped higher here right off its 50-day moving average of $5.70 with decent upside volume flows. This spike higher on Tuesday is quickly pushing shares of ALIM within range of triggering a major breakout trade. That trade will hit if ALIM manages to take out some key near-term overhead resistance levels at $6.10 to $6.37 with high volume.

Traders should now look for long-biased trades in ALIM as long as it's trending above Tuesday's intraday low of $5.66 or above some more key support at $5.54 and then once it sustains a move or close above those breakout levels with volume that hits near or above 154,137 shares. If that breakout gets underway soon, then ALIM will set up to re-test or possibly take out its next major overhead resistance levels at $7 to $7.50, or even $8.

Magnegas

Magnegas (MNGA) is an alternative energy company. This stock closed up 3.4% to $1.52 in Tuesday's trading session.

Tuesday's Range: $1.46-$1.58

52-Week Range: $0.40-$2.45

Tuesday's Volume: 1.32 million

Three-Month Average Volume: 1.26 million

From a technical perspective, MNGA jumped higher here right off its 50-day moving average of $1.46 with above-average volume. This spike higher on Tuesday is quickly pushing shares of MNGA within range of triggering a near-term breakout trade. That trade will hit if MNGA manages to take out Tuesday's intraday high of $1.58 to some more key overhead resistance levels at $1.60 to $1.65 with high volume.

Traders should now look for long-biased trades in MNGA as long as it's trending above some key near-term support levels at $1.43 or at around $1.40 and then once it sustains a move or close above those breakout levels with volume that hits near or above 1.26 million shares. If that breakout kicks off soon, then MNGA will set up to re-test or possibly take out its next major overhead resistance levels at $1.77 to $1.83. Any high-volume move above those levels will then give MNGA a chance to make a run at its 52-week high of $2.45.

To see more stocks that are making notable moves higher, check out the Stocks Under $10 Moving Higher portfolio on Stockpickr.

-- Written by Roberto Pedone in Delafield, Wis.

RELATED LINKS:

>>3 Stocks Rising on Big Volume

>>5 Stocks Ready for Breakouts

>>5 Dividend Stocks Set to Pay You More

Follow Stockpickr on Twitter and become a fan on Facebook.

At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including

CNBC.com and Forbes.com.

You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.

Kotlikoff: Investors at Risk of Wipeout, SIPC a Fraud

Economist Laurence Kotlikoff is calling on all Americans to close their brokerage accounts immediately because of the risk of a total wipeout — a risk he says stems from a massive Wall Street insurance scam perpetrated by the Securities Investor Protection Corp. (SIPC).

“SIPC, a brokerage ‘insurance’ arm of Wall Street, has been and remains today engaged in insurance fraud,” Kotlikoff told ThinkAdvisor in a telephone interview. “SIPC claims to insure brokerage accounts. Nothing could be farther from the truth. What it's really doing is placing all brokerage account holders at extreme risk.”

The Boston University professor, who has long been outspoken on a wide range of public policy questions, was careful to add that investors in mutual funds are likely to be safe if their fund companies place assets in the care of third-party custodians who are responsible for the safety of customer funds and do nothing but custody assets.

But the arrangement is very different in the case of brokerage accounts, nearly all of which notify their customers — fraudulently in Kotlikoff’s view — that accounts are insured up to $500,000.

The economist offers as his Exhibit A of the fraudulent nature of this insurance the fact that Wall Street firms, including such giants as Goldman Sachs with nearly a trillion dollars in assets, have been paying premiums totaling a mere $150 a year to SIPC.

“How can there be any insurance protection for brokerage accounts if they don’t have any money [to pay claims]?” Kotlikoff asks.

Congress created SIPC in 1970 legislation to protect investors in the event of a brokerage failure and thereby increase their confidence, but the Wall Street firms who make up its membership prefer to hold onto their cash rather than reserve funds sufficient to pay large claims to investors.

But the real crime, says Kotlikoff, is a process by which Wall Street firms criminalize innocent brokerage account holders by essentially making them pay for any criminal misconduct — not once, but twice.

“If your broker, or the broker at the next desk, engages in fraud that shuts down the firm,” Kotlikoff explains, you’ve not only lost your hard-earned assets, but SIPC will put its army of paid-by-the-hour lawyers to recover other customer losses from you.

By declaring the fraud a Ponzi scheme, the organization can claw back any funds from account holders who withdrew money from their accounts in the past two years (or six, under some circumstances), under the theory that the account holders knew something was amiss and reacted by withdrawing their wealth.

Adding further insult to injury, countervailing evidence that the account holder had no knowledge, and may have even added funds to the account during the same period of time, is not considered.

And worse, Kotlikoff says that innocent account holders are legally obligated to withdraw funds from retirement accounts on reaching age 70 ½.

Kotlikoff illustrates the problem thusly: Say a 40-something investor—you—put $200,000 into a SIPC-insured retirement account decades ago, which grows to $2 million. Also suppose you withdraw $1 million in your late 60s and early 70s and spend the money to help defray your parents’ nursing home costs, live off the funds, give to charity, or help pay grandchildren’s college costs.

Then your New York-based brokerage firm goes bust because of fraud within the firm. Not only have you lost your remaining $1 million in life savings, but SIPC will regard you as a “net winner” (you put in just $200,000 and took out $1 million based on decades of what you thought were legitimate market gains) and will sic its lawyers on you to claw back every penny you withdrew over the prior 6 years (i.e., $1 million, but limited to the $800,000 difference between your past withdrawals and contributions over the entire life of your account). 

The significance of being a net winner, Kotlikoff says, is that SIPC rules will then make you ineligible to recover $500,000 of the supposed insurance on the account but will rather go after you to make whole those customers who are net losers.

Rather than the firms insuring accounts, SIPC will protect its members from having to pay out losses and will hire expensive lawyers with an incentive and the legal cover (thanks to an economically ignorant 2nd Circuit decision, he says) to go after winning accounts, under the theory that the case was a Ponzi scheme and some accounts benefited.

“But there’s no clear economic definition of a Ponzi scheme,” says Kotlikoff, who cites reports that such schemes are uncovered on average every four days, thus making it easy to call any broker-dealer fraud a Ponzi scheme that will thus protect SIPC members from having to pay.

“They’ll sue for gross withdrawals, not net — in other words, it makes no difference to them at the time you were supposedly fleeing with your money you were adding to the account,” he says.

“If you had $2 million in the account and took out $1 million — and spent it on kids, retirement and all the rest — SIPC says 'you’re a net winner and therefore do not qualify for $500,000 insurance protection; therefore we owe you nothing. You just lost a million and now we’re going to come after you for $800,000.'

“There is no inflation adjustment in any of these calculations — another travesty,” the economist adds.

The model for this arrangement is the recovery of funds in the Madoff investment scandal, says Kotlikoff, who discloses that scandal victims include both his family and friends — such as his Boston University colleague Elie Wiesel.

“[Madoff victims trustee] Irving Picard has essentially sued some victims to pay other victims and has collected millions and millions of dollars in legal fees,” Kotlikoff says.

In contrast, Kotlikoff adds, “JPMorgan was banker to Madoff for decades, was engaged in money laundering for decades, and has paid nothingto those being sued by SIPC.”

So while Wall Street is protecting itself, the Boston University professor calls it “risky for anyone to hold a brokerage account” until such time as Congress passes, and President Barack Obama signs, legislation that would strengthen SIPC investor accountability.

“Thanks to SIPC's precedent-setting, atrocious mistreatment of Madoff victims, none of us can safely invest in a U.S. brokerage account.  If the brokerage account goes under because of fraud, SIPC can a) declare the fraud a Ponzi Scheme, b) renege on its obligation to cover up to $500,000 of your loses and c) sue you for every dollar you withdrew over the last 6 years,” Kotlikoff says.

The economist strongly backs legislation introduced last November by Reps. Scott Garrett, R-N.J., and Carolyn Maloney, D-N.Y.,the Restoring Main Street Investor Proectection and Confidence Act of 2013.

In a release announcing the bill, Maloney described the intent of the legislation this way:

“Markets run as much on confidence as capital, and this bill will restore investors’ confidence in the markets by modernizing the Securities Investor Protection Corp., and by protecting innocent victims of Ponzi schemes and other frauds from further clawbacks by the very government agency that is charged with protecting them.”

An inquiry to Garrett’s office by ThinkAdvisor found the bill, which was referred to the House Committee on Financial Services on Nov. 14, to be languishing, with no action taken since initial hearings held in subcommittee on Nov. 21.

Kotlikoff has taken to the Web to spread his campaign against brokerage accounts and SIPC, writing in both Forbes and PBS Newshour’s Making Sen$e about the matter.

His PBS article triggered a tete-a-tete with SIPC president and CEO Stephen Harbeck, who defends his organization’s record in recovering investor losses and sharply criticizes the proposed legislation as supposed redress that would have the effect of “legitimizing Ponzi schemes.” Kotlikoff countered that Harbeck was “shamelessly trying to deceive the public.”

---

Related on ThinkAdvisor:

Moms and Dads Attaching More Strings to Paying for College

zimmytws/Shutterstock More parents are behaving like business executives when it comes to helping to finance their children's college education: They're open to putting in some cash, but they want to know what the return on their investment will be. "The trend now is that parents and students are looking beyond college," said Jodi Okun, founder of the College Financial Aid Advisors and a brand ambassador for Discover Student Loans, a division of Discover Financial Services. "They're looking at what you accomplish in those four to six years in order to get what you want after college." While 96 percent of the parents responding to a Discover Student Loans survey said they see college as a worthwhile investment, one third said they would limit the amount of assistance they provide a child based on their offspring's major. It's no longer good enough to get a college diploma. You need to get one that puts you in a position to get a good job. Okun says parents aren't talking about specific majors, but rather taking a big-picture look at their children's career direction, and what they need to study in order to achieve their career goals? The Rewards of Engineering Georgetown University provides information on the average starting salary for students graduate who with bachelor's degrees in 171 majors. Chemical engineering majors, for example, earn an average of $86,000, compared to an average salary of $39,000 for those who majored in social work. The long-term earnings benefits of a college degree are clear, but that doesn't make it any easier to pay for it. So 74 percent of parents say they are very worried or somewhat worried about having enough money to pay for their children's education.

Carlos Slim Taking a Wrecking Ball to His Mexican Telecom Empire

At first glance, it looked as if the condemned man had stolen the executioner's axe and cut off his own head rather than wait for the inevitable. Facing imminent antitrust legislation in Mexico aimed squarely at his telecom empire, Carlos Slim opted to act first with announced plans to break up America Movil (AMX). America Movil will spin off some of its fixed-line and mobile assets into a new, independent company, and it will also spin off its wireless towers.

Slim is no dummy; he knew the jig was up and he figured he could better shape the outcome if he acted early. America Movil controls 70% of the mobile phone market and 80% of landlines, and its dominance in the Mexican market and the lack of significant competition has led Mexico to have some of the most expensive communications costs in the world.

The OECD published a study last year found Mexico to be the most expensive of twelve major markets for a basic talk, text and data mobile phone plan. And recent ranking of broadband internet costs by country had Mexico's service ranked as the 16th most expensive in the world, more than three times more expensive than that of the United States after adjusting for incomes.

AMX stock has been rallying on the news of the breakup; shares are up more than 10% since Tuesday. Investors have taken the view that the divestures and subsequent competition—which will bring America Movil's market share to below the 50% threshold at which the Mexican government would impose penalties—will be less damaging than the potential punitive actions by the Mexican government.

So, what does this mean for AMX stock and for its largest single competitor in Latin America, Spain'sTelefonica (TEF)?

To start, this will, by default, massively diversify AMX's revenue stream globally. Though AMX is the number-one or number-two mobile provider in nearly every Latin American country, its home market of Mexico is by far its biggest. Mexico currently accounts for about a third of sales and nearly half of profits. The new AMX will be a pan-Latin-American telecom giant based in Mexico rather than a Mexican telecom giant with operations in Central and South America.

Over the next year or two, I would expect AMX's restructuring to be a major distraction for management, which should—all else equal—be a boon to Telefonica. But the Mexican divestures are likely to make Carlos Slim all the more aggressive in pursuing growth outside of Mexico once the dust settles.

Within Mexico, the picture is somewhat cloudy. AMX has indicated it prefers to sell the bulk of the assets to a single buyer in order to create a competitor strong enough to appease Mexican regulators. That could mean that Telefonica steps up and increases its presence in Mexico, though Bloomberg reported that broadcasting juggernaut Grupo Televisa (TV) could be the strongest contender.

More details on Slim's plans will be coming in the coming weeks. But one point should be immediately obvious. The biggest winner here will be neither America Movil nor Telefonica but rather the Mexican consumers who should soon be benefitting from increased competition and lower prices. That may mean lower margins for AMX and TEF in their Mexican operations, at least for a time. But if AT&T (T) and Verizon(VZ) can profitably coexist in the brutally competitive U.S. market, then investors in AMX and TEF should have nothing to worry about.

About the author:Charles SizemoreCharles Lewis Sizemore is the Editor of the Sizemore Investment Letter premium newsletter and Chief Investment Officer of Sizemore Capital Management. Mr. Sizemore has been a repeat guest on Fox Business News, has been quoted in Barron's Magazine and the Wall Street Journal, and has been published in many respected financial websites, including MarketWatch, TheStreet.com, InvestorPlace, MSN Money, Seeking Alpha, Stocks, Futures, and Options Magazine and The Daily Reckoning.

Visit Charles Sizemore's Website

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LPL losing a top recruiter

LPL Financial is losing one of its leading recruiters, Joseph Line, in the wake of three other recruiters resigning in the past year and a half.

A 12-year veteran of LPL, Mr. Line told the firm last week he was resigning, according to two industry recruiters outside LPL.

Mr. Line recruits 40 to 60 advisers to LPL annually, with those advisers producing $10 million to $15 million in annual fees and commissions, known as an adviser's “trailing 12” in the industry, recruiters said.

Mr. Line's territories for LPL included Kentucky, Tennessee and Ohio.

One of the recruiters with knowledge of Mr. Line's departure, Jonathan Henschen, said, “If he can be a top recruiter in those territories compared to major metropolitan regions of the country, that is impressive indeed.”

The other recruiter aware of Mr. Line's resignation asked not to be identified.

Mr. Line did not return phone calls on Monday to comment. His LinkedIn profile lists his current job as senior vice president of business development for Wells Fargo Advisors. Wells Fargo has an independent broker-dealer network, FiNet. Mr. Line joined LPL in 2002 and remained until this month, according to the LinkedIn profile.

Asked to confirm Mr. Line's resignations, Sallie Larsen, managing director and chief human capital officer at LPL, wrote in an e-mail, “At times, some employees will be targeted by other firms seeking to strengthen their own talent. ... We understand that from time to time our people will choose other career paths and we always wish them the best.”

The departure of LPL recruiters has been ongoing since the end of 2012.

In January 2013, former LPL recruiter Daniel Schwamb joined rival broker-dealer NFP Advisor Services Group as senior vice president of business development.

Another LPL recruiter, Jeff Draper, left the firm in April and joined NFP in May. Contacted via e-mail, Mr. Draper, now vice president of business development with NFP, did not respond to a question asking why he had resigned from LPL.

The LPL recruiter for Maryland, Virginia and the District of Columbia, Michael Brown, confirmed to InvestmentNews he resigned two weeks ago. He declined to comment about his resignation.

The industry giant of recruiting, LPL has 30 to 40 professionals involved in recruiting. The largest independent broker-dealer with 13,600 registered reps and advisers, LPL's annual goal is to gain 400 to 500 net new advisers. After the company stopped its acquisition binge of broke! r-dealers in 2010 prior to its initial public offering, recruiting and not acquisitions has been the lifeblood of the firm.

That strategy shifted a bit last week when LPL said it had an agreement to buy the assets of an independent broker-dealer, Financial Telesis Inc. LPL has an exclusive right to recruit the firm's 470 registered reps.

Canada’s Exports Come Roaring Back

After April's disappointing performance, Canada's exports came roaring back in May.

According to Statistics Canada, the country's merchandise exports increased by 3.5 percent in May, well ahead of import growth of 1.6 percent. As a result, Canada's trade deficit narrowed dramatically, to CAD152 million from CAD961 million in April.

The total value of exports was CAD44.2 billion, the second-highest value on record. Trade volume was up 4.2 percent, while prices declined 0.7 percent.

We've been monitoring Canada's international merchandise trade closely because the Bank of Canada (BoC) believes a sharp rise in export activity, particularly from the country's beleaguered manufacturing sector, is the first step in shifting the economy away from its dependence on debt-burdened consumers.

The central bank sees higher exports ultimately spurring new business investment along with the hiring necessary to precipitate a virtuous cycle in economic growth.

May's results were primarily driven by exports of motor vehicles and parts, which grew 9.8 percent, to CAD6.6 billion, the fourth consecutive monthly increase. Volumes were up 10.7 percent.

Drilling down into this category, exports of passenger cars and light trucks led the way, with growth of 15.7 percent, to CAD6.6 billion, or nearly 15 percent of total exports in May, as production resumed after manufacturing plants had been temporarily sidelined for maintenance.

Naturally, energy products continue to account for a plurality of total exports (nearly 25 percent in May), advancing 3.4 percent, to CAD10.9 billion, on higher volumes.

Exports of refined petroleum energy products jumped by CAD505 million, to CAD1.1 billion in May, after falling nearly 40 percent in April, as some Canadian refineries that had been undergoing maintenance resumed normal levels of production.

Exports of consumer goods increased 4.4 pe! rcent, to a record CAD4.8 billion, as volumes were up 6.5 percent.

On the imports front, the one area we keep close tabs on is the import of industrial machinery and equipment, since an upward trend in this area would suggest companies are making the necessary expenditures for growth.

Interestingly, while Canadian companies have lagged their developed-world peers in keeping up with such investments, May's number registered an all-time-high, at CAD4.3 billion, for growth of 2.5 percent month over month and 12.7 percent year over year.

Although the US absorbs roughly three-quarters of Canada's exports (or 72.7 percent in 2013, to be precise), trade with the European Union (EU) increased the most in May, up 22.7 percent month over month, to CAD3.3 billion. On a year-over-year basis, exports to the EU have climbed 27.8 percent.

The EU is an important trading partner, accounting for 7.2 percent of exports in 2013, which means it's ranked second after the US as an export destination. But while growth in exports to the Continent is certainly helpful at the margins and a promising sign of a resurgent global economy, obviously our focus remains largely on the US.

Exports to the US grew 2.1 percent month over month, to CAD33.5 billion. On a year-over-year basis, that number represents an increase of 14.5 percent.

Meanwhile, imports from the US declined by 0.2 percent, to CAD28.7 billion. Consequently, Canada’s trade surplus with the US widened to CAD4.8 billion from CAD4.0 billion in April.

Canada's largest recorded trade surplus with the US was CAD10.6 billion, achieved in late 2005, amid the commodities boom that preceded the Global Financial Crisis. Since the downturn, the highest surplus posted was nearly CAD6 billion in late 2011.

So while some things have changed since then, especially since the advent of the shale revolution, that gives some sense of what might be possible once the US economy starts firing on all cylinders again.

How Super is Supercomputing Stock Cray Inc (CRAY)? IBM, HPQ & SGI

On Thursday, small cap supercomputer stock Cray Inc (NASDAQ: CRAY) announced that it had been rewarded with one of the largest contracts in its history for $174 million to provide the National Nuclear Security Administration (NNSA) with supercomputers - meaning its worth taking a closer look at the stock along with the performance of large caps like International Business Machines Corp (NYSE: IBM) and Hewlett-Packard Company (NYSE: HPQ) plus small cap Silicon Graphics International Corp (NASDAQ: SGI) who sort of compete with the company in the supercomputing space. I should note that over a year ago, we had Cray Inc in our SmallCap Network Elite Opportunity (SCN EO) trading portfolio when we had suggested it was potentially a good low risk longer-term play.

What is Cray Inc?

Small cap Cray Inc offers a comprehensive portfolio of supercomputers and big data storage and analytics solutions that leverages 40 years of experience in developing and servicing the world's most advanced supercomputers. The company's innovative systems and solutions enable scientists and engineers in industry, academia and government to meet existing and future simulation and analytics challenges.

As for potential competitors or performance benchmarks, International Business Machines Corp and Hewlett-Packard Company need no introduction while Silicon Graphics International Corp is a leader in high performance computing (HPC) and Big Data that is focused on delivering technical computing, Big Data analytics, cloud computing and petascale storage solutions.

What You Need to Know or Be Warned About Cray Inc

Cray Inc has been awarded a $174 million deal to provide the National Nuclear Security Administration (NNSA) with a next generation Cray® XC™ supercomputer and a Cray Sonexion® storage system. The system, named "Trinity" by the NNSA, is a joint effort between the New Mexico Alliance for Computing at Extreme Scale (ACES) at the Los Alamos National Laboratory and Sandia National Laboratories as part of the NNSA Advanced Simulation and Computing Program (ASC). Substantial system acceptances is expected to occur in both late-2015 and 2016.

Back in June, Cray Inc was awarded a $54 million contract to provide the Korea Meteorological Administration (KMA) with two next-generation Cray® XC™ supercomputers and a Cray Sonexion® storage system. That multi-year multi-phase contract is valued at more than $54 million with final system delivery expected to be completed in 2015.

With those recent contract wins in mind, it should be noted that while Cray Inc has reported consistently rising revenues of $525.75M (2013), $421.06M (2012), $236.05M (2011) and $319.39M but more mixed net income of $32.22M (2013), $161.24M (2012), $14.33M (2011) and $15.06M (2010). Moreover and the last time Cray Inc reported earnings, shares fell 11.47% despite better-than-expected results that came with a more cautious 2014 guidance (see Is Big Data and Supercomputer Stock Cray Inc (CRAY) Still a Super Stock? SGI, IBM & HPQ for a lengthy look at what was specifically reported) while back in February, shares surged 39% after solid fourth-quarter results along with encouraging forward guidance were reported. In other words, the supercomputing business can be volatile and dependent on a few big sales.

Otherwise, it should be noted that Cray Inc has a trailing P/E of 47.28 and a forward P/E of 31.49 according to the latest Yahoo! Finance statistics – meaning its not exactly a bargain.

Share Performance: Cray Inc vs. IBM, HPQ & SGI 

On Thursday, small cap Cray Inc rose 15.69% to $31.49 (CRAY has a 52 week trading range of $20.75 to $42.09 a share) for a market cap of $1.28 billion plus the stock is up 13.3% since the start of the year, up 54.5% over the past year and up 305.3% over the past five years. Here is a look at the performance of Cray Inc verses that of International Business Machines Corp, Hewlett-Packard Company and Silicon Graphics International Corp:

As you can see from the above chart, Cray Inc has been a real outperformer for the past two years while International Business Machines Corp has been a steady to flat performer, Hewlett-Packard Company is now on a steady upswing and Silicon Graphics International Corp has bounced around a bit.

Finally, here is a look at the latest technical charts for all four supercomputing players:

The Bottom Line. Supercomputing stock Cray Inc can be a good stock for investors who understand the risk associated with owning a stock that is dependent on a few big homeruns. However, new investors may want to be cautious given its current valuation.

SmallCap Network Elite Opportunity (SCN EO) previously had an open position in CRAY. To find out what other open positions SCN EO currently has, and to learn why so many traders and investors are relying on this premium subscription service, click here to find out more.

5 Big Trades to Conquer a Correcting Market

BALTIMORE (Stockpickr) -- Buckle your seat belts, folks. If this morning's early price action is any indication, investors are in for a rough ride. And an overwhelmingly positive earnings season isn't doing much to stop it.

>>5 Stocks Hedge Funds Love This Summer

So far, the early earnings results look good. Of the S&P 500 companies that have already reported their numbers, nearly 70% have posted positive earnings and sales surprises. But the broad market continues to look top heavy, and investor anxiety remains high. Frankly, being within grabbing distance of all time highs in the big stock indices doesn't change the fact that now is a difficult time to be an investor.

That doesn't mean that you've got to take your lumps as the market moves lower. Today, we're turning to five big technical trades that look primed to outperform as Mr. Market stumbles.

If you're new to technical analysis, here's the executive summary.

Technicals are a study of the market itself. Since the market is ultimately the only mechanism that determines a stock's price, technical analysis is a valuable tool even in the roughest of trading conditions. Technical charts are used every day by proprietary trading floors, Wall Street's biggest financial firms and individual investors to get an edge on the market. And research shows that skilled technical traders can bank gains as much as 90% of the time.

>>5 Stocks Set to Soar on Bullish Earnings

Every week, I take an in-depth look at big names that are telling important technical stories. Here's this week's look at five high-volume stocks to trade this week.

SPDR S&P 500 ETF

It makes sense to start with a look at what's happening in the big picture right now. To do that, we're turning to the SPDR S&P 500 ETF (SPY), the biggest investible proxy for "stocks" in general.

>>4 Stocks Rising on Big Volume

It may come as some surprise to hear that, from a technical perspective, nothing has changed in the S&P 500 index in nearly the last two years now. Over that stretch, the S&P has continued to bounce its way higher in a well-defined uptrending channel, and even though 2014's price action feels different from the nonstop rally we got last year, we're still in a textbook "buy-the-dips market."

In other words, every test of trend line support in the last 19 months has been a supremely low-risk opportunity to buy SPY, and every brush up against trend line resistance has been a good opportunity to either sell or reduce equity exposure. It's really just as simple as that. So with SPY pressing the top of its channel since the start of June, we look ready for a correction back down to the bottom of the channel.

One more recent signal that's come into play is the bearish divergence in RSI, our momentum gauge at the top of the chart. Higher prices on weakening momentum is typically a big red flag that price is about to reverse.

The broad market's context here is important: A correction isn't the same thing as a crash, and SPY could fall all the way to 187 today without threatening the long-term uptrend in stocks. So take smaller risk exposure up here, and get ready to buy the next support bounce in the S&P.

Microsoft

We're seeing the exact same setup in shares of Microsoft (MSFT) right now, but with one key difference: Microsoft's uptrend looks buyable this week. Granted, the uptrend in Microsoft hasn't lasted nearly as long as the one in the S&P 500, but the correlations between the $344 billion tech stock and the big index are ramping up this summer.

>>5 Tech Stocks to Trade for Gains This Week

MSFT has been in a well-defined uptrending channel since mid-January, bouncing its way higher in between a pair of parallel trend lines that identify the high-probability range for Microsoft's stock to stay within. We're getting another important test of trend line support in today's session. Tat means that you should buy the next bounce higher.

Waiting for a bounce is important for two key reasons: It's the spot where shares have the furthest to move up before they hit resistance, and it's the spot where the risk is the least (because shares have the least room to move lower before you know you're wrong). Remember, all trend lines do eventually break, but by actually waiting for the bounce to happen first, you're ensuring MSFT can actually still catch a bid along that line before you put your money on shares.

I also featured Microsoft recently in "5 Dividend Stocks That Want to Pay You More in 2014."

Merck

Big pharma name Merck (MRK) has been a serious performer in 2014, rallying close to 17% since the calendar flipped to January. That's more than double what the S&P 500 has managed to accomplish over the same stretch of time. But that performance gap could widen this summer; Merck looks primed for a big breakout here.

>>5 Stocks Insiders Love Right Now

Merck is currently forming an ascending triangle pattern, a bullish setup that's formed by horizontal resistance above shares (in this case at $59.50) and uptrending support to the downside. Basically, as MRK bounces in between those two technically important price levels, it's getting squeezed closer to a breakout above that $59.50 price ceiling. When that happens, we've got a buy signal in MRK.

Momentum, measured by 14-day RSI, adds some extra confidence to this setup. In spite of the sideways price movement since April, RSI is still making higher lows in the intermediate term. Don't jump in until price actually punches through $59.50 resistance.

For another take on Merck, check out "Cramer: Five of the Best."

Berkshire Hathaway

Berkshire Hathaway (BRK.B) is another ascending triangle trade to keep an eye on this week. The breakout level to watch in Berkshire is just under $130 -- a price that shares have hit their head on twice since the beginning of May. A breakout above that $130 level is the signal that it's time to join the buyers in this stock.

>>3 Big Stocks on Traders' Radars

Why all of that significance at $130? It all comes down to buyers and sellers. Price patterns are a good quick way to identify what's going on in the price action, but they're not the actual reason a stock is tradable. Instead, the "why" comes down to basic supply and demand for Berkshire's stock.

The $130 resistance level is a price where there has been an excess of supply of shares; in other words, it's a spot where sellers have previously been more eager to step in and take gains than buyers have been to buy. That's what makes a breakout above $130 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level. When it happens, I'd recommend keeping a protective stop just below the 50-day moving average.

Comcast

Last, but not least, is Comcast (CMCSA). The cable and content giant has been turning out some lackluster performance in 2014, more or less remaining flat since January -- but zoom out a bit, and the price action suddenly looks a whole lot more constructive in this $142 billion name. Comcast may be a slow mover, but the rewards in the second half of the year could be worth the wait.

Comcast is currently forming a rounding bottom setup, a price pattern that indicates a gradual transition in control from sellers to buyers. The pattern's name is a pretty good description of how it looks on a chart. Even though Comcast's rounding bottom came in at the top of its recent price range (not the bottom), the trading implications are just the same. The buy signal triggers on a move through our $55 price ceiling.

One final indicator to watch in CMCSA is relative strength. While Comcast's relative strength line spent most of the year trending lower as CMCSA underperformed the S&P, the downtrend broke at the end of May and began making higher lows. Statistically speaking, positive trends in relative strength make a stock likely to keep outperforming the broad market for the following 3-to-10 month window; that bodes well for Comcast buyers right now.

Wait for $55 to get taken out before you take this trade.

To see this week's trades in action, check out the Must-See Charts portfolio on Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.

RELATED LINKS:

>>Book Double the Gains With These 5 Shareholder Yield Champs

>>3 Stocks Under $10 Moving Higher

>>3 Big-Volume Stocks in Breakout Territory

Follow Stockpickr on Twitter and become a fan on Facebook.

At the time of publication, author was long BRK.B.

Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to

TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.

Follow Jonas on Twitter @JonasElmerraji

Why Lumber Liquidators Disastrous Quarter is Bad News for Home Depot, Lowe’s

Lumber Liquidators (LL) found it a lot harder to liquidate its lumber during the second quarter–and its weakness is hitting shares of Home Depot (HD) and Lowe’s (LOW) today as well.

Bloomberg News

The reason: Lumber Liquidators said that second quarter earnings would come in between 59 cents and 61 cents a share, well below forecasts for 90 cents, as same-store sales fell 7.1%.

Raymond James’ Budd Bugatch and team are “waiting for the dust to settle” at Lumber Liquidators:

We felt like management spent its call trying to rationalize reasons for the weaker than expected results. After all, on its 1Q call, management exuded confidence that 1Q's results were totally weather related and that early order indications heading into the April sale gave it belief that consumers were ready to get back to work on delayed projects. As such, it left FY14 guidance intact. Now, management hypothesizes that the strong early 2Q orders and sales were, in fact, pent-up demand; but that the purchase cycle was interrupted by the bad weather. We are not convinced. While we are very respectful of the Lumber Liquidators business model (excellent operating and capital returns); it is a big-ticket business with attendant volatility. Management noted that the difference in 2Q sales between stores weather-affected (131) and those not (206) was "~1 transaction per store every other day." So, despite the attraction of the model, there are times when results can and will be different than expected, making it a challenging public equity. To us, this reinforces our value bias to buying and owning Lumber Liquidators…

For now, we are keeping our Underperform rating on Lumber Liquidators intact, waiting for the dust to settle after management's 2Q14 business update press release and late afternoon conference call.

Deutsche Bank’s Mike Baker and Adam Sindler see tougher times ahead for Home Depot and Lowe’s following the bad news from Lumber Liquidators and Tractor Supply (TSCO):

Despite major differences between Home Depot/Lowe’s and these two retailers including product categories and the timing of the quarters, both Tractor Supply and Lumber Liquidators have historically correlated positively with Home Depot and Lowe’s on comps. Lumber Liquidators and the home centers have exposure to housing markets, which have not been as strong in 2014 versus last year, and Tractor Supply and the home centers have exposure to the outdoor / weather sensitive business. Hence, we think it's prudent to lower numbers. That said, due to the differences in the business models, we think comps are probably holding up better at Home Depot and Lowe’s, and so our reductions are relatively minor. We maintain our Buy rating on Lowe’s and Hold on Home Depot.

Baker and Sindler lowered their second-quarter earnings forecast on Lowe’s to $1.02 from $1.03, and on Home Depot to $1.44 from $1.45.

Shares of Lumber Liquidators have plunged 22% to $54.78, while Tractor Supply has fallen 2.3% to $59.99, Home Depot has declined1.6% to $79.47 and Lowe’s has dropped 1.1% to $47.31.

3 Road and Rail Stocks to Sell Now

Popular Posts: Hottest Technology Stocks Now – IGTE GTAT PRLB BBRY8 Biotechnology Stocks to Buy NowHottest Healthcare Stocks Now – MNKD INO ACAD INCY Recent Posts: Hottest Technology Stocks Now – INVN SMI SPIL BBRY Biggest Movers in Services Stocks Now – TLK EJ RAD XRS Biggest Movers in Basic Materials Stocks Now – SCCO SID CENX GGB View All Posts 3 Road and Rail Stocks to Sell Now

This week, the ratings of three road and rail stocks on Portfolio Grader are down. Each of these rates a “D” (“sell”) or “F” overall (“strong sell”).

Roadrunner Transportation Systems, Inc. () earns an F (“strong sell”) this week, moving down from last week’s grade of D (“sell”). Roadrunner Transportation Systems offers truck freight transportation services. In Portfolio Grader’s specific subcategories of Earnings Revisions and Earnings Surprise, RRTS also gets F’s. .

Guangshen Railway Co. Ltd. Sponsored ADR Class H’s () rating falls to a D (“sell”) this week, down from C (“hold”) the week prior. Guangshen Railway is a provider of railroad passenger and freight transportation, as well as railway network usage and services. .

The rating of Kansas City Southern () declines this week from a D to an F. Kansas City Southern operates a railroad system that provides shippers with rail freight services in commercial and industrial markets of the United States and Mexico. The stock has a trailing PE Ratio of 35.40. .

Louis Navellier’s proprietary Portfolio Grader stock ranking system assesses roughly 5,000 companies every week based on a number of fundamental and quantitative measures. Stocks are given a letter grade based on their results — with A being “strong buy,” and F being “strong sell.” Explore the tool here.

Constellation Brands, Inc. (STZ) Q1 Earnings Preview: Drink Up

Constellation Brands, Inc. (NYSE:STZ) will report financial results for its fiscal first quarter ended May 31, 2014, on Wed., July 2, 2014, before the open of the U.S. markets.  A conference call to discuss the financial results and outlook will be hosted by President and Chief Executive Officer Rob Sands and Executive Vice President and Chief Financial Officer Bob Ryder at 10:30 a.m. eastern time, July 2, 2014.

Wall Street anticipates that the alcohol-beverage company will earn $0.93 per share for the quarter, which is a lot more than last year's profit of $0.38 per share. iStock expects STZ to top Wall Street's consensus number, the iEstimate is $0.94.

[Related -Bond Yields Rise On Stronger Economic Data]

Sales, like earnings, are expected to explode higher, increasing 111.8% year-over-year (YoY). Constellation Brands' consensus revenue estimate for Q1 is $1.43 billion; a lot more than last year's $673.4 million.

Constellation Brands, Inc., together with its subsidiaries, produces, imports, and markets beer, wine, and spirits in the United States, Canada, Mexico, New Zealand, and Italy.

The company sells wine across various categories, including table wine, sparkling wine, and dessert wine. Its wine brands include Arbor Mist, Black Box, Blackstone, Clos du Bois, Estancia, Franciscan Estate, Inniskillin, Kim Crawford, Mark West, Mount Veeder, Nobilo, Ravenswood, Rex Goliath, Robert Mondavi, Ruffino, Simi, Toasted Head, and Wild Horse; and Spirits Brands comprise Black Velvet Canadian Whisky and Svedka Vodka.

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Mexican beer is the reason for STZ's revenue explosion. A little more than a year ago, the company acquired full ownership of Grupo Modelo's U.S. beer business from Anheuser Busch Inbev SA (ADR) (NYSE:BUD).

The brands include Modelo, Corona Extra, Corona Light, Modelo Especial, Negra Modelo and Pacifico. The Mexican beers essentially doubled STZ's sales.

With or without south of the border beer, Constellation Brands has a strong history of delivering bullish earnings surprises. The spirits company topped the street's view 14 of the last 16 quarters by an average of 16.91%, ranging from 2.56% to 81.58% more than expected. For the remaining two, earnings missed by -7.32% once and hit the Wall Street's consensus once.

The stellar track record translated into shares heading higher in the days surrounding nine of the last 16 quarters. On average, buyers bid STZ higher by 7.8% in the days surrounding the nine bullish quarterly checkups.

Once, the stock traded flat with six red reactions. Constellation Brands typically dipped -5.68% when EPS-driven price sensitivity was negative.

Overall: The iEstimate and Constellation Brands, Inc. (NYSE:STZ) suggest a small bullish surprise. The last four July announcements, while split between two green and red reactions, favored bulls with moves of 5.7% and 27.3%. Meanwhile, the two selloffs were limited at -2.2% and -2.5%. 

Even decades of legal protection don't create diversity

(iStock)

Fifty years after the Civil Rights Act mandated equality under the law, the ethnic diversity of the nation's financial advisory business pales in comparison to the demographics of the population.

About 64% of Americans are white, according to the 2010 Census; about 92% of advisers are white, according to the Securities Industry and Financial Markets Association.

Some might argue that the population of wealth managers is white because that's where the wealth resides. But even on that measure, the proportion of minority advisers lags wealth demographics.

Non-white Americans hold 12% of the wealth in this country, according to a Demos analysis of Federal Reserve data. Only 8% of advisers are ethnic minorities — and in most firms it's likely less.

Few of the major financial firms break down their adviser populations by ethnicity. One that has been more visible is Edward Jones, and it estimates that it has about 6% minority advisers among its ranks.

Many industry leaders agree that there is a diversity issue, even a considerable problem.

Bernie Clark, head of Schwab Advisor Services, told me last week that he believes the industry needs more diversity among its ranks, especially looking out a decade or two.

The great transfer of wealth that's expected in the coming years from men to women also will extend to ethnicity, he said. The number of minority advisers needs to increase because the client base will become more diverse.

“The reality is the diversification of the pools of assets are going to change dynamically over the next tens of years,” Mr. Clark said. “Then diversity of the advisory industry will become even more important.”

He believes “infiltrating the university structure” and educating more minorities about the financial advice industry and trying to get people accredited earlier will help.

Some think the education should come earlier.

Mac Gardner, a Raymond James adviser in Houston who is a Caribbean-American, blames the national lack of financial literacy and education for keeping most Americans ignorant about financial planning as a whole.

Most people who get exposure to financial concepts and advice when they are young get it through family and those networks, he said. His own father was a bank executive.

Those without a financially literate role model are lost.

“The overarching issue is that the education system is not teaching about finances,” Mr. Gardner said. “You need to hear the story of investing and saving from somewhere or someone.”! ;

More minorities would naturally be led to the financial planning profession if they were taught the fundamentals of finance, he said.

Other than a lack of adequate education, which could be argued is a national issue, not an racial or ethnic one, most people don't point to distinct barriers that keep minorities from the profession. It's not an issue that the 50-year-old Civil Rights Act can address alone. But it is one that needs further examination.

Look for InvestmentNews stories overs the coming months that probe the reasons why minority graduates aren't going into financial planning and whether firm efforts to boost diversity are having an impact. Please share your thoughts on these issues by commenting here or to me privately at lskinner@investmentnews.com.

Book Double the Gains With These 5 Shareholder Yield Champs

BALTIMORE (Stockpickr) -- It's so simple it's almost hard to believe: Companies that return cash to their shareholders tend to outperform the rest of the market. And not by just a little, either.

>>3 Huge Stocks on Traders' Radars

I'm talking about nearly double the average 10% annualized gains that you'd get by buying and holding the S&P 500 or the Dow Jones Industrial Average over the long-run. To figure out which names you should own, it boils down to three simple metrics that measure the cash a company is giving back to its investors each year.

What is the secret sauce I'm talking about? It's shareholder yield.

In a nutshell, shareholder yield is made up of anything that directly returns cash or equity to your portfolio. Yes, that includes obvious moves such as dividends -- but it also includes share buybacks and paying down debt.

Any of those three corporate actions can unlock significant value for shareholders, and the data back it up. According to research by James O'Shaughnessy, over a 40-year period, large-cap stocks with the highest shareholder yield delivered average gains of 18.05%. That's almost double the returns that investing in the vanilla big index would have earned you.

>>5 Dividend Stocks That Want to Pay You More in 2014

With low interest rates and record levels of cash sitting on corporate balance sheets, management teams are looking for the most effective ways to return value to shareholders. It's not one size fits all, either -- the best mix varies from company to company. But by looking at the trifecta of dividends, buybacks and debt extinguishment, you can be sure that you won't miss out on any of the proceeds.

With that in mind, here's a look at five names that have provided superior shareholder yield in the last year.

NetApp

Topping the list of shareholder yield stocks is data storage firm NetApp (NTAP). While NetApp's 1.8% dividend yield is no slouch compared with most of its peers, it only scratches the surface of the pile of cash that NTAP has returned to its investors this past year. Between dividends and buybacks, NetApp has delivered a 15.9% shareholder yield over the last 12 months.

>>5 Stocks Ready for Breakouts

NetApp is a pure-play computer storage stock. The firm makes the hardware and software that enterprise customers use to expand their storage capacity. Because NetApp's network-attached storage devices can be purchased ad-hoc (rather than as part as a major datacenter overhaul), it's an ideal vendor for firms whose storage needs are gradually increasing (and those who don't want to shell out massive capital for all-new IT infrastructure). Despite rising competition in the storage business, NTAP's big installed base and IP portfolio should provide a defensible moat for the firm in the years ahead.

From a financial standpoint, NetApp is in stellar shape. The firm currently carries more than $4 billion in net cash, enough to pay for roughly 34% of the firm's current market capitalization. Subtract out that huge cash position, and NTAP's current P/E drops to just 13 times trailing earnings. That's a 25% discount to the rest of the firm's peer group right now.

NetApp isn't just cheap here, it's also shelling out returning cash to shareholders by the fistful. For investors in search of a new tech name, NTAP deserves a second look. For more on the stock, read about TheStreet Ratings' rating on the stock.

Target

Big box retailer Target (TGT) is another major shareholder yield payer that investors should have on their radar. Target may have taken some knocks in the past year thanks to a handful of dumb missteps (such as the data breach that led to the ouster of the firm's then CEO), but that doesn't change the fact that Target is executing well in 2014. In the past 12 months, Target has given its shareholders a 12.28% shareholder yield.

>>4 Big Stocks Getting Big Attention

Target doesn't need much of an introduction. The $37 billion firm is one of the biggest retail names in North America, with approximately 1,800 stores spread across the continent. Despite a saturated big box retail space, Target has been able to carve out its own niche, becoming one of the first chains to team up with exclusive designers and market form over cost in a big box setting. More recently, it's copied competitors, turning to the addition of grocery offerings as a tool to drive foot traffic in its doors.

While the addition of grocery has been diluting margins for TGT, that was a known evil of that strategy from the get-go. Overall, absolute profits have been on the rise, and that's exactly what Target's PFresh initiative was designed to accomplish. Meanwhile, the negative sentiment still in shares of TGT from last year's data breach makes this stock look like a bargain relative to its peers.

Bed Bath & Beyond

Bed Bath & Beyond (BBBY) is another big retail name that's making our shareholder yield list. BBBY operates more than 1,475 BBB stores spread across the U.S. and Canada, as well as a couple of hundred stores under the Christmas Tree Shops, Cost Plus, Harmon Face Values and Buy Buy Baby locations. BBBY remains one of the best-run names in specialty retail. The only problem is that this $11.7 billion household goods stock isn't priced like it.

>>5 Stocks Set to Soar on Bullish Earnings

Bed Bath & Beyond's product mix gives it exposure to household staples (such as linens and cookware) as well as more discretionary spending (such as kegerators), a combination that gives BBBY some downside protection when times get tough as well as upside potential when consumers get spend-happy. Consumers have been the latter for the last five years, and BBBY's revenue and profit have stair-stepped higher as a result.

One impressive attribute for Bed Bath & Beyond is the fact that the firm has grown its store footprint substantially without taking on any debt. Instead, it's mainly financed that expansion through cash from operations. And it's paid back shareholders along the way -- in the last year, BBBY dished out an 11.08% shareholder yield, returning $1.28 billion in net buybacks to shareholders last year.

BBBY is dirt cheap compared with the lofty price tags it's sported in the last few years. Now it looks overdue for upside.

Hewlett-Packard

It's been a stellar year for shareholders of Hewlett-Packard (HPQ). Since last summer, shares of the $64 billion tech stock have rallied more than 38%. And that's all on top of the 11.02% shareholder yield that HPQ management has paid out to shareholders in the form of dividends, buybacks and debt extinguishment. That top-notch shareholder yield payout means that H-P is positioned for additional upside for the rest of 2014.

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Hewlett-Packard may be best-known to consumers for its huge PC business, building computers accounts for around half of HP's yearly revenue. But competition is eroding the profits in PCs, and the firm has been working hard to shift its exposure away from building commodities and more toward services, enterprise hardware and software instead. The plan is working, albeit slowly; since 2004, profit margins at Hewlett-Packard have been slowly working their way back up.

That doesn't mean that this tech giant has executed perfectly along the way. The firm's $11 billion Autonomy acquisition in 2011 can only be described as a disaster that destroyed significant shareholder value, but management is less likely than other big cash-saturated tech names to make the same mistake again. And the discount on shares (based on P/E, H-P is 30% cheaper than its peers) more than makes up for it.

Momentum is clearly on Hewlett-Packard investors' side this summer. For more on the stock, read TheStreet Ratings' take here.

United Parcel Service

With a 2.6% dividend yield, investors in United Parcel Service (UPS) could be forgiven for fixating on the firm's 67-cent quarterly payout. But anyone who ignores the complete shareholder yield picture in UPS is missing out on the bigger story: In the last 12 months, UPS has paid out a hefty 7.24% shareholder yield between that dividend, buybacks and a debt extinguishment.

That's a total of $6.84 billion returned to shareholders over the past year.

UPS is the largest package delivery company, with a fleet of 500 aircraft and 100,000 vehicles that deliver a combined 16.2 million shipments per day to homes and businesses around the world. The barriers to entry don't get much higher than package delivery. With UPS and main rival FedEx (FDX) saturating the market, the costs of replicating their networks mean that new competition is rare, and typically futile.

Besides package delivery, UPS is a major player in freight forwarding and logistics services, a business that's becoming more and more important (and profitable) as fuel costs rise for UPS' customers. UPS has started outperforming the S&P 500 within the last three months, a good indication that this stock is gaining favor with buyers in 2014. Look for that relative strength to carry over into the second half of the year in this shareholder yield champ.

To see these names in action, check out the Shareholder Yield Stocks portfolio on Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.

RELATED LINKS:

>>Must-See Charts: 5 Large-Caps to Trade for Gains

>>4 Biotech Stocks to Watch for Breakout Trades

>>One Big Investor Loves This Small Stock -- Should You?

Follow Stockpickr on Twitter and become a fan on Facebook.

At the time of publication, author had no positions in stocks mentioned.

Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to

TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.

Follow Jonas on Twitter @JonasElmerraji