News Details – Smallcapnetwork
Copper & Aluminum Outlooks, Plus the Fed's "Goldilocks" Assessment
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February 2, 2024

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PDT

She's off and running. We told you yesterday, right or wrong, the market was getting back into bullish mode, and Wednesday's big gain proved it. While we're still unsure of just how far the rally could take stocks, we know they're going higher right now and we're looking to ride the trend as long as it lasts. Take a look. The one thing I don't like about the budding uptrend is the sharp plunge from the VIX. We may have just used up all the room we had tack on gains and accept more risk. With a quarterly option expiration just two days away, however, we can probably chalk up much of the dip from the VIX to expiration effects. Besides, there's still some room for the S&P 500 to keep rising before it's forced to contend with the resistance usually found at its upper Bollinger band. Just for the record, all the other major indices also have some room to keep rising before upper band lines become an issue. Oh, and you can thank the Federal Reserve for today's rally. We discussed yesterday how this week's economic data so far wasn't terribly encouraging, which means we need some stimulus. On the other hand, the burgeoning inflation in May might have led some to think more stimulus now would be irresponsible, in that it could fan the flames of inflation. Well, good news... the Fed doesn't feel the economy is so strong that it can quell its easing efforts cold turkey, but doesn't think it's so weak that it needs to hurry its taper efforts. In other words, it's in that nice middle ground - the Goldilocks zone - where Yellen feels compelled to coddle the economy as much as she's compelled to wean it. This best-of-both-worlds situation is what's kept stocks chugging for a long while now, and the Fed Chairman just said this stance was likely to persist well into 2015. This still won't stave off a short-term correction whenever it's due, but it's good news for those of you who are pure long-termers. In the short run, though we're still due the occasional daily stumble, the market could get two or three weeks' worth of bullish traction from the Fed's mostly-dovish stance today. Wow! Remember how we told you Staffing 360 Solutions (STAF) was in an acquisition mode that would allow it to rapidly ramp-up revenue and widen its margins by leveraging its growing size and scale? We even went as far as to pass along the company's expected revenue total for the first calendar quarter of 2014 - a sum of $24.1 million, which for all intents and purposes means STAF is already on pace to drive $100 million in annual sales. Yeah, well, forget that. Staffing 360 Solutions isn't going to post a revenue total of $24.1 million for Q1. After crunching all the numbers, STAF now says the total is closer to $26.8 million. This doesn't change anything about the organization's growth plans and opportunity. It does, however, have me wondering if we're going to see similar upward revisions for future quarterly reports. We know an extra $2.7 million may not seem like a lot, but it's about 10% better than the figure the company was originally expecting to see. In a couple of years when Staffing 360 Solutions is on pace to generate what's anticipated to be $300 million per year, an extra 10% is a whopping $30 million on an annual basis. And that likely possibility has us wondering something else ... what kind of effect would more of these "even better than first expected" press releases have on the stock if we were to see one each and every quarter for the next couple of years? It could really light a fire under STAF shares (which have already been firming up recently). Anyway, and just as a reminder, this is the latest revenue growth projection chart from the company. There's nothing we've seen yet to suggest Staffing 360 Solutions isn't going to do the right things to let it reach the goal of $300 million in annual sales within a couple of years, although now we're thinking the projection underestimates what the company is going to end up producing. The current revenue projections on the chart above only represents organic growth with its current pieces, and don't even factor in future acquisitions. STAF is one of those small cap companies that's not only talkin' the talk, but walkin' the walk with real fiscal growth. If you happened to miss our first, thorough look at Staffing 360 Solutions, this is the whole story. Copper and Aluminum Outlook As promised to you on Monday, we're going to carve out a little time today to share our outlook on copper and aluminum... the two most important metals within the industrial world. Before we get into our predictions, however, there are a couple of things we need to explain about our analysis. First and foremost, we firmly believe everything we need to know about supply and demand is reflected in the chart. More than that, although nobody knows what the future supply and demand levels will look like, we've seen far more often than not how commodities somehow can predict their future supply and demand levels, and reflect them in their current price trends. Point being, we're willing to use historical commodity charts to make predictions... just like we are for stocks. The other thing we need to mention about our analysis - in addition to our price charts below we're going to be adding inventory levels for each metal. This is roughly the supply level for the metal in question over time, though it doesn't necessarily reflect demand at any given time. Oh, and to give full credit where it's due, our charts and data were provided by Infomine.com. It's a great resource for investors. Ready to go? Great. Let's just dive in, starting with copper. Yes, copper prices have been dwindling since early 2011, peaking around $4.50 per pound then to as low as $3.00 per pound a few weeks ago. With just a quick glance, it looks like the downtrend is still in place too. Honestly though, I've got a feeling copper prices have hit a major bottom and are on the verge of rallying through the latter half of 2014. Part of the reason we're turning bullish on copper here has to do with the fact that copper warehouse levels - the amount of copper stored in warehouses and available for immediate purchase - is at multi-year lows. It's Economics 101... the lower the supply, the higher the price, assuming demand stays steady or even grows. And, demand should start to swell again. Though the outlooks for copper at the beginning of the year were dire, the pros now think rekindled demand from China could put new pressure on the global copper supply. A price of $3.50 per pound is possible by the end of the year, with $4.00 in reach in early 2015. As for aluminum, you may have seen the recent optimistic reports from Alcoa (AA) and from Capital Economics. The latter expects aluminum to reach $1.00 per pound in 2015 due to budding demand, while Alcoa simply remarked the multi-year price-suppressive supply glut was finally waning. Alcoa was right too, though America's favorite aluminum company as well as Capital Economics are likely seeing the glass as half full when they shouldn't be. As our chart from Infomine.com illustrates, warehouse supply levels are finally falling, and prices seem to be rounding higher. There's still a lot of supply though, and a lot of new production capacity is coming online (in China) this year and next year. That's our way of saying while it's conceivable aluminum price could drift a little higher over the coming twelve months, it's apt to be a tepid gain (if there's a gain at all) to the $1.00-ish area. at best. Copper is where we think the opportunity is if you're needing to fill a gap in the basic materials portion of your portfolio. Copper prices have a good shot at reclaiming $4.00 within the foreseeable future. If anything changes with our forecasts, we'll issue an update. We may even post updates of the above charts when merited. Speaking of opportunities, the SmallCap Network Elite Opportunity added not one, not two, but three stocks to its portfolio today, each for very different reasons; I like all of them. If you were ever considering taking the free two-week SCN EO test-drive, now's the time to do it. You'll get the most bang for your buck (proverbially) right now just by signing up and taking a look at today's newsletter in the Elite Opportunity's archives. You'll never know just how great John Monroe and his team are until you see them in action for yourself. Go ahead - it costs nothing to try. 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