It's that time of year when everyone -- I mean E-V-E-R-Y-O-N-E -- has their forecast and top picks for 2016. You can't escape it. It is like Christmas music this time of year. It is everywhere.
Years ago, it was just Barron's, Business Week, Forbes and Fortune, and there were actually differences between them. Today, you can get the same rosy forecast from every newspaper that is still in print, every magazine including AARP (just came in the mail yesterday), every sell-side shop, every stock market letter writer and countless emails and links from Tweets.
On the one hand, the whole idea is a little foolish, in that good investment ideas can appear at any time -- why are we all trying to find them in late December? On the other hand, it is a good exercise to think ahead and play "what if" a bit. I don't think I will ever get tired of reading the Annual Roundtable by Barron's. It is like reading an issue of Grant's Interest Rate Observer -- you read it over several times looking for one or two gems that you can act on -- it's all in the fine print and footnotes.
So what does yours truly look for in 2016 and what stock ideas are likely to outperform based on what I see in the charts? Because I am bearish on equities for the first half of 2016, I wanted to look for the out-of-favor parts of the market instead of what has been marked up to what I consider nose-bleed levels since 2009. Two things come to mind: gold and natural gas.
The very long-term chart of gold futures above shows at least two things. One is that the recent percentage decline in gold is similar to the decline in the early 1980s. Second is that the large falling wedge pattern in the past four years could break out to the upside, generating a rally to around $1400 on the metal. Yes, gold is still in a downtrend and few people like it, but it could wind up being the beneficiary if something happened to push money out of the stock market.
One small gold mining name that got our attention recently is NovaGold Resources (NG), chart above. NovaGold Resources has a rising On-Balance-Volume line and has not made new lows when gold has declined.
Yamana Gold (AUY), above, is another low priced gold name with improving technicals.
The latest edition of the Wall Street Journal tells us: "Natural Gas Prices at Lowest Since 1999." When the WSJ finally acknowledges a trend, it is very late in the game. Oil and gas producers are no longer investing in new production and this will eventually produce a rally when production cuts are realized. Unlike equities, commodities never go Chapter 11 and today's low prices eventually generate tomorrow's bull market.
Notice the rising OBV line for EXCO Resources (XCO), above.
I know my ideas are speculative and not household names who have paid handsome dividends for years, but I am not looking to have my 2016 forecast look like everyone's "safe list."