LOTM Blog

The SPY (S&P 500) closed above its 40-week moving average Monday. If the SPY can hold above its 40-week moving average; it might trigger long-term technical buying into to the market. The 30-week and 40-week moving averages (M.A.), act as a ceiling if the price is just below, and a floor if we can close above them.

We are above the 30-week M.A. though, by just a bit.

Friday we had an opportunity to close above the 40-week M.A. but could not. The trend in the last week was strongly up but we also appear to be tired. To LOTM’s eye, it looks like we will need a pause or pull back first before the SPY can close and stay above its 30 and 40-week moving averages. A decisive close above the 40-week (or 200-day) could create a panic buying spree into year-end. Headline news plays a big role, but in general the market has been moving higher since early October. If we have more positive headline news we could really blow out to the upside going into year-end!

Do not ask for logic in this. Technical traders have their disciplines and a decisive breakout above the 40-week (200-day) moving average will force them to buy. Look back in time (chart below) to other price crossing of the 30 & 40 week moving averages for a historical perspective.

It is hard to know what to do these days, one soothsayer says 1000 point down is coming, another say’s 1000 point up before the end of the year! Both have good track records. The truth is, no one knows what would happen with a default of debt from Europe. One thing is for sure, governments around the world are trying hard not let a default happen. The big question is, will they succeed? More importantly, what is the cost if they succeed or don’t?

The printing presses are at work so it would appear that an increase in the inflation rate is on the horizon. In my mind, that is what will happen. The result if they do not succeed is deflation or depression. I have seen the U.S. come close to financial collapse before, but it was within the US or limited to a specific country or region. This is new, and it is a direct result of globalization. We are living in interesting times.

I have attached some links to very good articles discussing both the good and bad coming out of the current situation. I suspect we will muddle through this with higher inflation being the outcome. Run-away inflation? That I do not know. Only time will tell.

Positive:

World Power Swings Back to America – By Ambrose Evans-Pritchard, International Business Editor, The Telegraph – 23 Oct 2011

The Negative:

The Western World Is ‘Finished Financially’: CIO – 30 Nov 2011 – By: Antonya Allen Assistant Editor, CNBC

Central Banks Signal Financial System Concern, El-Erian Says: Tom Keene

By Cordell Eddings and Tom Keene – Nov 30, 2011

 In summary, as I said above, I think we will muddle through. That is what we do. Buy companies you like long-term even if you are trading short-term. Lock in some dividends while the rates are high. The biggest sleeper risk? US Treasuries. Why? Because interest rates are artificially low, and sooner or later, Treasury prices will go down as interest rates go up. This is the time to be moving into more risk, because prices are cheap, and the price for safety in treasuries is high.

The S&P 500 is in a rising trend. The S&P 500 as traded as SPY is above its 50-day moving average. Late last week the SPY crossed above its 150-day moving average. A trading rule is that when the price is above its own 50-day moving average, the stock is in an intermediate (two to four months) rising trend. Once the stock price crosses above its 150-day and/or 200-day moving average, the stock price is in a long term rising trend. The SPY with Fridays close is above both its 150-day and 200-day moving average. See the chart below.

Trade alert: Piper Jaffray (PJC) $21.23

Financial companies have been out of favor but are now beginning to show positive chart patterns. PJC is an example of companies in the financial services industry.

Technical View:

PJC looks very attractive from a technical perspective. Our two accumulation/distribution indicators CMF and OBV are rising. The stock price has risen above its own 50-day moving average suggesting an intermediate term rally has begun. Our two to four month price target would be the bottom of the 150-day moving average, currently at $26.47. PJC has stock options so one could use a buy stock / sell call strategy.

Fundamentals:

PJC currently trades at 17.4 times trailing earnings, and 9.56 forward earnings (from Yahoo Finance). PJC is estimated to earn about $1.28 per share in 2011, and $2.22 in 2012.

Book value is stated at $53.07 per share.

Cash is $1.39 billion with debt stated at $712.9 million. This is probably not as simple as it seems as brokers and banks can have leverage (risk) on their books that is not readily seen.

Valuation:

PJC has a market capitalization of $336.8 million, but has an Enterprise Value (EV) of minus $340.4 million. This means PJC trades at $340.4 million lower than its Market Cap + debt. That is a cheap price and an unusual number. PJC also trades at a PEG ratio of -2.64. A number below 1.00 is considered attractive, so a number this far below 1.00 is highly unusual.

Institutional ownership is 17%, which is low for a company of this quality. I suspect the debt crisis of the past few years (and this summer) has driven many institutions away from ownership of brokers as it has of banks. This suggests that as /when the debit crisis subsides, the institutional ownership in PJC shares will increase and thereby driving the share price higher.

Risk Factor: A large percent of Piper’s new business is municipal bond originations. There is uncertainty on the health of this industry with the poor fiscal shape of many municipalities. The Jefferson County bankruptcy in Alabama last week was the largest municipal bankruptcy in history.

Obviously, there is fear of the unknown priced into shares of PJC. Psychologically, we think it is a positive that PJC is rising in price so close after the announcement of the bankruptcy of MF Global. MF Global is a financial services firm with 1060 employees.

Generally, financial institutions trade close to, or around book value. With a book value of $53.00 per share, PJC has significant rebound potential.

Brokerage firms are also one of the fastest recovering industries from a stock market sell off – so if you believe we are emerging from the Euro debt crisis – then this might also be a contributing reason to buy shares of PJC.

Shares outstanding and floating are modest at 15.9 million and 14.6 million. This suggests it will not take much buying to push PJC shares higher.

This idea is based on the technical look of the chart pattern. Keep a stop loss on the trade if you decide to get involved. An eight percent to ten percent trailing stop loss is suggested.

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LOTM Under $10 Idea List year to date Performance:

The focus at LOTM is on stocks priced under $10.00 per share. However, we will share short term trading ideas priced at any level if we think there is an opportunity to make money. PJC above is one such idea.

The year to date performance of our LOTM Under $10 Idea list is down 10% for the year after closed out trades and dividends are factored in. We would not be surprised at all to be positive on this account by year-end- but we are optimists. We believe in both the market system and in ourselves.

Making a Million – $5,000 to $1,000,000 Challenge:

After a slow start, we are in the black (or should I say green) with the account value at $5,100. We have not traded the account. We are still holding the original company we started with on July 18.

Consider a monthly subscription LOTM priced at $39.95! The $5,000 to $1,000,000 challenge is included in the subscription!

Areas of interest in the LOTM Newsletter include:

• High dividend paying stocks

• Stock ideas in healthy niche leading companies priced Under $10.00

• Trading Ideas as we see them

• $5,000 to $1,000,000 Making a Million Challenge.

• Coaching, teaching & educating as we go!

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Greece – Democracy at Work

Greece’s Prime Minister George Papandreou is in the doghouse with world leaders only because he dared to offer voters a choice. Link to full story.

Greece is the headline story whether we like it or not. It has trapped our stock market simply because we do not have a clue on what happens to the global financial system should Greece default in an unstructured way.

The USA seems to have achieved a modest sense of financial stability. Certainly, the unemployment numbers are not acceptable. There is plenty of structural work to do in addressing the tax code, looming deficits and divisive politics. What we do have are companies mostly surprising with their positive earnings results. We have a stock market that has broken out of the trading range it was trapped in for what seemed like forever, but in reality was only three months.

If it were not for the referendum news from Greece and Europe, we might be well on our way to the year-end rally most of us have been expecting. LOTM does not want to minimize the Greek situation. We do not know the final outcome. On the other hand, we want to go about our business as much as possible. Technically, we might still be on track for a strong year-end rally. The market so far is pulling back to support – the top of the former trading range. Another week will tell us more. Will support hold or are we breaking down again? So far, this is still in the area of a normal pull back after a channel breakout. Support is 120.50 plus or minus. The 50-day moving average will be a second support level. On the S&P 500 (SPY), the 50-day is at 119.04.

Our strategy at LOTM is to accumulate shares in a portfolio of healthy small and micro cap companies while also looking for high dividend opportunities. Our LOTM Under $10 Idea List is down about 13% year to date after dividends and closed out trades. We still feel a positive return on our portfolio of Under $10 Ideas for 2011 is within reach. Remember, our LOTM Under $10 approach returned 69% in 2009 and 26.5% in 2010. We are not done with 2011 yet! November and December are historically two of the best stock market months of the year.

Where are we finding dividend opportunities? The Business Development Companies (BDC) sector is paying dividends between 7% and 13%. BDC’s are not taxed at the corporate level as long as they pay out 90% of their earnings as dividends. BDC’s lend money to businesses, usually in amounts between $5 million and $50 million. They also take equity positions in private companies but usually as part of a lending package. The risk for investors in BDC’s is that you own a loan package. If the economy worsens, or the loan committee reaches to make risky loans, the BDC itself could go out of business quickly. Not all BDC’s are equal. Many suspended dividends during the 2008 and 2009 financial crisis. A Google search under Business Development companies will produce names of many of the companies. Seeking Alpha also has many articles on Business Development companies.

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MAKIN’ a MILLION Challenge Update

Our quest to turn $5,000 into $1 Million was derailed by the Euro Debt Crisis. Our starting amount of $5,000 in mid-July dropped to as low as $3,449 at the end of September but is now on the comeback trail. The Makin’ a Million account closed at $4,165 at the end of October. This account owns one company. We do not expect to own more than three companies over the course of turning $5,000 into $1 million. I did this once before, I would like to think it was ability more than luck. That is why I doing it again.

I am very comfortable with the one company currently in the account. It has high growth in revenue and earnings with a low valuation and a very strong balance sheet.

If you’d like to join the Makin’ a Million journey subscribe to our newsletter. We will share with you our LOTM Under $10 Idea List of thirty stocks trading Under $10 that we profiled using 20 plus criteria, Our Makin’ a Million trades as we make them and share our High Dividend Ideas we find of particular interest.

SIGN UP FOR OUR NEWSLETTER!

One approach to the market at this time that makes sense is to accumulate a portfolio of dividend paying stocks to balance out the LOTM Under $10 idealist. I know each of us has a limited amount of money, but I also know that some of you have been sitting on cash due to the uncertain economic and political situation. Dividends in the 4% to 13% area are readily available. Building a portfolio with 3% to 5% of available cash, in any one stock, would give you a diversified income portfolio that could average about 8 or 9 percent return in dividends – perhaps growing dividends.

Keep in mind that ten year treasuries are paying 1.97%. Thirty year Treasuries are paying 3.99%. This is your benchmark.

With treasuries, your risk is when the economy improves, interest rates will rise and treasury prices will drop. The opposite will happen with stocks. When the economy improves and interest rates rise, price earnings multiples, which are compressed because of fear of recession and political uncertainty, will expand thus driving stock prices higher. The moral of the story is that what looks safe today (treasuries) are probably higher risk longer term than what feels risky (stocks) which will rise in price when current events normalize – which they will.

Business Development Companies are among the higher dividend paying sectors in the stock market so we thought it would be a good idea to talk about them a bit.

What Does Business Development Company – BDC Mean?

Business Development Companies (BDC’s) is a form of publicly traded private equity in the United States created by Congress in 1980 as amendments to the Investment Company Act of 1940. A BDC is company that is created to help (make loans to) small companies grow in the initial stages of their development. BDCs are very similar to venture capital funds. Many BDC’s are set up much like closed-end investment funds and are actually public companies that are listed on the NYSE, AMEX and NASDAQ.

BDCs are usually taxed as regulated investment companies (RIC) under the Internal Revenue Code. Like real estate investment trusts (REITs), as long as the RIC meets certain income, diversity, and distribution requirements, the company pays little or no corporate income tax. As a pass-through tax structure, RICs must distribute at least 90 percent of taxable income as dividends to investors. Most BDCs distribute 98 percent of their taxable income to avoid all corporate taxation.

Because income is not taxed at the corporate level, distributions to investors are generally taxable for investors based on the type of income earned by the BDC. For example, ordinary income to the BDC is taxable for investors at ordinary income rates, while capital gains income to the BDC is generally taxable for investors at capital gains rates.

The biggest risk in owning BDC’s is the unknown valuation of the companies they lend money to. BDC’s clients are generally privately held companies; so no public information is available about them. The risk is a recession or depression where client companies cannot repay loans.

There is certainly a need in financing private industry in the US. Banks are not lending. As a country, we cannot expand jobs without financing the companies that grow jobs. With the spread between what banks pay depositors – less than 1%, and what they charge on credit cards – 19% to 27%, there is room for lending opportunities. BDC’s is an industry that fills this opportunity/need to finance new industries that create jobs!

Subscribe to LivingOffTheMarket for one month ($39.95) and we will send you our list of high dividend Business development Companies along additional high dividend paying stocks we find of interest!

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WORTH LISTENING TO TWICE

The Looting of America…

By Catherine Austin Fitts former Assistant Secretary of Housing and former partner with Dillon Read.

In looking at chart patterns, I am seeing more chart patterns in what Stan Weinstein calls stage 1 chart patterns.

Weinstein breaks chart patterns into four groups:

Stage 1 is the bottom or basing period

Stage 2 is the uptrend stage

Stage 3 is the topping stage

Stage 4 is the breakdown or downtrend.

LOTM refers to moving averages frequently to attempt and identify which stage of activity a stock might be in. In general a stock (or commodity) that is above its 50-day moving average is in a short term rising trend and a stock whose price is below its 50-day moving average is in a short-term declining trend. To help identify longer term rising or falling trends the same approach is taken using the 150-day or 200-day moving average. This is a basic approach but also has power in its simplicity.

Sourced from Tradingday.com

Compare the chart on Gold (GLD) right now with the chart above.

Sourced from stockcharts.com

It is too early to say gold has topped and is in a declining trend but at the same time, the double top is a troublesome development. Conversely, a potentially positive signal for stock prices as gold, oil, the US dollar and stocks have interconnected relationships. Gold and stocks often move in opposite directions.

A chart of the S&P 500 below shows that the recent volatility has been frightening but each sell off has found support at a higher price. The mirror of my comment on Gold, while it is too early to say the stock market is in a rising trend, it is encouraging to see the higher lows and the consolidation of the sell-off from the May and July highs.

At this time, I am more focused on chart patterns and news from individual companies and not so much on the macro news coming out of Washington and Europe. Companies earnings have been out-performing and stock prices will turn positive sooner than the news headlines.

I have already heard Pimm Fox of Bloomberg TV asking guests “with the news so negative why are we starting to see positive developments in share prices?” This was asked in a head scratching way.

LOTM is anticipating a year-end rally.

Macro conditions prevail over company events.

It is important to recognize that macro events are pressing valuations lower that they have been in decades. When I entered the brokerage business in the late 1970’s we had high inflation (Money markets rates hit 18%) and price earnings ratios (P/E) in the market were very low. Six to eight P/E ratios were common.

Looking backwards, we see that by the late 1990’s P/E’s went in the opposite direction. Coca Cola (KO) was trading at 80 times earnings in the late 1990’s. Many large cap companies were trading above 40 times earnings.

The decade between 2001 and the present is the lost decade for stock returns. It has been the worst decade since the great depression and in some respects even worse.

Big gains in markets are when valuation changes from historical undervaluation to historical over valuations. P/E’s going from 8 or 9 to between 30 & 40 combined with corporate growth. Anyone remember the press articles of ten years ago about how smart Warren Buffet was with his Coca Cola (KO) purchase at 8 times earnings in the late 1970’s and twenty years later it was trading at 80 times earnings? Earnings going from $1.00 per share to $3.00 per share compounded the return. Do the math – it is astounding.

There are three legs to the American growth engine – government, corporations and the public. Today corporations are the strongest of the three entities mentioned. They are performing the best of any of the three entities and they are priced at historically low valuations.

Major companies like Microsoft (MSFT) and Intel (INTC) are reporting record results, are cash rich and at historically low valuations – nine times trailing earnings.

While timing the turn is difficult if not impossible, we are in the area from which mega-wealth is created from the stock market. It might take twenty years – perhaps it will be quicker and happen in five to ten years.

Example: Gold has been running for ten years ($250 to $1900). Very few were excited about gold at $250 back in 2002. I was not. I thought it was a good deal but did not act on it. How about you?

Our financial problems are well known and talked about. When issues are well known and discussed it is usually a bottoming point. The risk today is a singular event that breaks the financial system. This could happen but it is also a potential event that is high on everyone’s awareness list and therefore priced into the market. There is a lot of cash on the sidelines.

On a risk reward basis and a longer-term time line, we are set up for major gains in the stock market. True we have some structural problems to solve. There is work being done behind the scenes to make these changes.

Example: The pentagon is in discussion to shift to a 401K type retirement plan Vs the current defined benefits plan.

Look back to the 1980’s &1990’s. Government is going through now what corporate America when through then. We will come through this financial crisis. There is history of success in corporate America to look back to as an example. We will come through this stronger and better. We are Americans.

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Pros offer advice on volatile market

What should average investors do with the market’s volatility?

Evaluate your risk appetite: David Chalupnik, head of equities for Nuveen Asset Management, hopes investors took a cue from 2008 and have already rejiggered their portfolios to match their risk tolerance.

Don’t sell: “Unless you’re retiring or need money in six months, it’s the exact worst thing you can do,” said David Joy, chief market strategist for Ameriprise Financial. On the other hand, if you are heading into retirement or are retired, he suggests having three years’ worth of living expenses in cash. Likes stocks that pay dividends: “The dividend yields are very competitive vis-a-vis bonds,” Joy said. Plus “large cap stocks tend to hold up better anyway” in uncertain markets.

Don’t open your account statements: “We’ll look back and say, ‘Oh, do you remember those days in August?’ and the market will be higher two years from now,” said Beth Lilly, small-cap fund manager for Gabelli Woodland Partners.

Rally the Federal Reserve to raise rates: Steve Leuthold, founder of the Leuthold Group, says the Fed keeping interest rates so low is a “great disservice” to individuals, who have no income-producing safe haven and lack access to some of the attractive fixed-income opportunities available to institutions or the super wealthy.

Believe: “At the of the day, if we really believe in our heart that the U.S. is not going away and that we’re open for business … you want to find good assets,” said Brian Belski, chief investment strategist for Oppenheimer Asset Management. He suggests that investors look for companies that consistently grow, even if slowly, that are in tangible, understandable businesses.

Source — Minneapolis Star Tribune

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Real Estate instead of Gold?

Seth Setrakian partner at First New York Securities in a Bloomberg interview thought real estate today is a much better hedge of inflation than gold. His view is that gold has moved higher for ten years while real estate is bouncing along a low price trough with little downside risk remaining. Based on his method of making risk reward analysis, he would much rather be buying publicly traded Real Estate Investment Trusts (REIT’s) today than gold.

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Large Cap Value:

One of my favorite global strategists is Barton Biggs of Traxis Partners. Biggs was bullish prior to the past five weeks and remains bullish. His favorite companies include large cap technology companies such as Microsoft (MSFT) and Intel (INTC). He believes these are still viable growth companies trading at value bargain prices.

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Diagnostic tests should double within two to three years:

LOTM daily newsletter is adding a new sector focus. Small Cap Molecular Diagnostic companies. Roche Holding over the weekend stated that:

Roche Holding AG (ROG) expects government austerity measures to boost its medical-diagnostics unit in the next three to five years thanks to broader use of tests to see which patients should use expensive treatments.

The number of tests to help single out the patients who will benefit most from Basel, Switzerland-based Roche’s medicines should double within two to three years, Roche Diagnostics Chief Operating Officer Daniel O’Day said in an Aug. 23 interview.

Many small molecular diagnostic companies trade publicly. It is our view that the larger companies like Roche Holding will acquire many of these small molecular diagnostic companies in the next two to four years. Valuations are compelling. Opportunities abound.

Bernanke’s comments recognized that the problems appear to be structural and not short term. That’s great but it’s been shouted at him and the administration for a long time.

Announcing that The Federal Reserve would keep interest rates where they are for two more years is actually depressing emotionally. It shows no expectation of recovery or the potential for a problem we, the public, don’t know about.

Both signals from the Fed Chief say basically they don’t know what to do…which is not what gets stock markets moving.

Stability and a clear action plan (leadership) would allow the market to look forward. Normally my glass is half full. I am feeling right now that my glass is half empty because there is no leadership that does more than state the symptoms of illness. What we need is a leader who can tell us what the illness is – not the symptoms’ – and what actions are being done to heal the patient. Only then can we move forward.

The illness is well defined. Our Politicians are not addressing it.

We have too much debt and waste in Government and we have too many regulations choking small businesses.

Aug 4, 2011 Administration Adds 608 Regulations — Just in July! By Paul Bedard, U.S. News and World Report

Stocks are poised for a huge rally on news of a tangible and specific action plan. When that leadership comes is what we are waiting for.

From a good source who would know, I am hearing that Homeland Security is preparing for domestic terrorism and civil unrest similar to what is happening in Greece and London. That is, just in case it was to happen here. Perhaps it has already begun.

This is not uplifting I know. I am trying to interpret the situation as I see it and state it accordingly.

Our problems are not that unique. There are real solutions but it seems no one is willing to take the action to deal with them on a national level.

Do not misread my belief in and for the stock market. It is where the greatest opportunity lies for financial freedom and independence. It is just frustrating to believe you know what the problem is and not see our elected officials take action to solve those problems.

This is a great time to buy stocks! How do I know? Because I am down emotionally on the stock market and that does not happen often. When it does happen, we usually have a big rally.

Go stocks!

LOTM has a strong interest in Emerging Markets. We believe a good way to keep track of Emerging Market trends are to follow people who are established leaders in the field.

Mark Mobius is just such a person. We suggest matching country ETF’s technically to Mobius comments. If the ETF has a technical chart pattern that matches the outlook suggested by Mobius, a trade might be considered.

Here are some of his recent comments:

Mark Mobius on India, July 29, 2011

Recorded interview on CNBC TV18 India’s No. 1 Financial Portal – Believes equities will rally as the U.S. debt ceiling issue passes behind. In the emerging markets, Mobius like in the following order Russia, China and Brazil. Asked why he did not mention India, his reply was that he like India’s growth but at this time, India was fully valued and had a high degree of corruption. In time, he felt growth would take care of the valuation and he hoped that the government would deal with corruption.

List of India’s ETFs

Small caps suffer more in a rising interest rate environment (happening now in India) than large companies do so you might look at a short sale on SCIF – Market Vectors India Small Cap Index. The chart pattern looks tired and below all three major moving averages (50, 150 & 200)

Mobius on US Treasuries no longer a safe haven:

“The debt crisis in the U.S. and Western Europe puts emerging markets in a very strong position because their debt to GDP ratios are much lower than the developed countries and their foreign reserves are greater than the developed countries.”

Mobius believes a shift is under way towards emerging market stocks and said that he was bullish on commodities and gold.

LOTM Comment: In the short term, we think the dollar might rally with a debt ceiling deal. We not take a position against the USA Dollar at this time but stalk it for a better opportunity.

Philippine Daily Inquirer July 26, 2011

Philippine stocks getting expensive: Compared with emerging market peers, Mobius said the Philippines was at the middle of the pack in terms of certain benchmarks like real interest rates on deposits, corporate governance based on the United Nation’s human development index, and degree of economic freedom. “We believe in commodities, whether it is nickel, iron, ore and coal, that is where the Philippines’ potential is,” Mobius said. Given the incredible natural resources in this country, Mobius said, it was odd that there were not too many of those big mining companies around.

ETF Philippines Investible Market Index Fund (EPHE) $26.10

LOTM Comment: Extended technically but still in a strong uptrend. This uptrend is likely due to an inverse action (decline) in the US Dollar. We suspect that if/when the US dollar rallies the shares of EPHE will correct. Looks interesting on a pullback but nimble traders might consider a short sale here when the US Dollar rallies.

“Men of experience succeed even better than those who have theory without experience…If, then, a man has the theory without the experience, and recognizes the universal but does not know the individual included in this, he will often fail to cure; for it is the individual that is to be cured.” –Aristotle

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Click here for video:

http://www.washingtonpost.com/business/rendino-expects-market-to-accelerate-by-end-of-2011/2011/07/25/gIQAQGteYI_video.html

The world can be a dangerous place, but seeking opportunities when fear is high is the proper way to invest. It is a true act of being counter intuitive.

One need not do anything dramatic but adding to “companies” you like in times of market uncertainty is usually rewarded a few months down the road. I believe we have such a situation now.

In my gut, I believe the Obama administration is scared to death of a market selloff and will do anything and everything to move the market higher.

I know nothing in fact to support that statement. It is an observation based on experience, human nature and political survival.

I think you could go down the list of Under $10 Ideas and add shares to any of the positions listed. The last email that contained a complete list was on 7/20/2011 LOTM #29.

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Expect some new names to be added to the LOTM Under $10 list in the coming week.

As an industry sector we are shifting our focus towards the Molecular Diagnostics field.

This sector is moving from emerging to mainstream. The time to market (clearing FDA) is faster than drug approval. It is a high recurring revenue industry. Over the next three to five years we believe merger and acquisition activity will be high in the sector.