China stocks have been one of the best places to profit for traders and longer term investors alike over the past several years and that continues today.  Granted, the risk increases with each passing day as the market continues to push higher off the March lows, but the longer term opportunities are here to stay.  The longer term investor may just want to practice a little patience before diving in after such a torrid run

I like to focus on niches of the China market and certainly my focus in the coming years will be on companies in the green energy space, which would include everything from solar, to wind, to electric cars to water conservation and treatment.  China is leading the way in alternative energy technology and will continue to pour billions into it to ensure they remain on top.  Back in June, I focused on the China water industry with a look at Duoyuan Global Water (DGW) ahead of its IPO.   It’s just one of a few China water plays that have been on fire in recent months, with gains of 100 – 300%.  For news, analysis and tracking of all the China alternative energy play, you might like to have a look at a new site I launched last year called Green Stocks Central.

Today, I shift gears a bit and focus on the China auto industry which has seen tremendous growth over the past year. 

Read Entire Post “Next Hot China Auto Stock? China Auto Logistics (CALI)” Here

Well, those battle tested bulls were able to hold the line for another week and even showed a bit of life at the end of the week, rallying in hope and anticipation that Super Geithner will swoop in and save the day Monday with his bank band-aides.  Let’s just keep in mind what has happened in the past following these government initiatives.. the euphoria wears off in a hurry.

Whether that happens this time around remains to be seen, but for now the indices maintain critical support levels but still confined within bearish descending triangles with much overhead resistance to contend with.  The song remains the same in this market: don’t chase rallies and only buy on pull backs.  If in fact  this market rallies again either before, during or soon after the Geithner press conference (update: it looks like this may be delayed until Tuesday), do avoid chasing it! 

Let’s jump into the charts. …

Read Entire Post “Nasdaq Goes Green, Makes Run At Top of Descending Triangle” Here

Just a quick heads up to let you know that I’ve created a new page that tracks headlines from top online finance magazines.

I’ve added Barrons, BusinessWeek, CNN/Money, SmartMoney, Kiplinger and Forbes (and will add the WSJ once they get their RSS feeds working!)  I’ll probably add a few more in the coming weeks.

This page will provide a quick way to scan the columns and news stories from top finance portals.  Here are some interesting headlines from the page right now…

Solar Stocks New Dawn
Cheaper Fuel Pressures Visa, Mastercard
A Cure For the Real Estate Blues
Detroit Should Get Cracking on its Googlemobile
10 Tips to Protecting Your Nest Egg
6 Retail Stocks That Need a Respirator
Who’s Vetting These Guys?  (Geihtner, Daschle anyone?)

Check out all the headlines at the new top online finance magazines headlines page

With the light holiday trading coming to a close we find ourselves in no man’s land but with the lines in the sand drawn.  I’m still in vacation mode and refreshing the batteries for 08 so will keep the analysis short tonight and move right into the charts. 

What you’ll see in both the Dow and S&P is channel trading over the past few weeks with price getting squeezed to a narrower point (which could eventually carve out a triangle formation).  With this formation, we have firm areas of resistance and support setting up with a breakout above or a breach below revealing much about this market.  I would guess that we’ll continue to trade fairly directionless for a couple more weeks until earnings start ramping up again. 

Note the Dow bounced off support of this trianlge formation on Friday so the odds are good for a bit of a push up this week.

You’ll see a similar formation in the S&P with price getting squeezed around 1480.  Eventually, the build in pressure must release and the it’s still up to the bulls to prove themselves.  The prevailing trend is still down, so odds are in favor of a break below out of this triangle.  Time will tell. 

In the Nasdaq, current support and resistance levels are better defined within a channel with the upper bound around 2725 (an area it’s had trouble clearing) and the lower bound of support around 2550 (an area it has bounced from on 2 occassions in November and again here in December.  The market probably won’t make any significant moves out of this channel until normal trading levels resume and the earnings season begins in the 3rd week of January.  Until then, I continue to tread lightly, not making large bets on either side.

::: Recommended Reading :::

This is a new section that will appear in the Weekly Report for some time but will probably be moved to separate post at some point.  Usually my responsibilities in running SelfInvestors.com prevents me from doing much reading during the trading week but if you do get a chance to read some good articles from other blogs or news outlets send them my way and I’ll post them here.  Send to support at selfinvestors.com

**

Marc Faber in an article at Daily Reckoning discusses the credit crisis and inflation.   He says, "Will rate cuts be of much help to the asset markets and the economy? I believe we are in a war between two major adversaries. On the one side we have the Fed (and other central banks) pumping liquidity into the system in a desperate attempt to support the asset markets and the economy. On the other side we have the private sector, which, as Hatzius explained, is being forced to curtail lending due to heavy losses in the credit market and to fight the Fed’s reflation efforts by widening credit spreads. Complicating matters is the fact that both adversaries have powerful allies."Will rate cuts be of much help to the asset markets and the economy? I believe we are in a war between two major adversaries. On the one side we have the Fed (and other central banks) pumping liquidity into the system in a desperate attempt to support the asset markets and the economy. On the other side we have the private sector, which, as Hatzius explained, is being forced to curtail lending due to heavy losses in the credit market and to fight the Fed’s reflation efforts by widening credit spreads. Complicating matters is the fact that both adversaries have powerful allies."

Is Starbucks a good barometer of the economy?

Pressure on revenues and cost increases contributed to the dismal performance of earnings in the third quarter of 2007. For example, Starbucks (SBUX) increased prices by an average of 9 cents a cup in July. However, customer visits to US stores fell 1% for the quarter ended September 30. Starbucks’ CFO noted that a "similar decline may occur in the fourth quarter although they will be positive for the full year". (This would seem to indicate that the economy slowed down considerably in the second half.) According to him, "unbeknownst to us, we saw economic headwinds that quite frankly came up probably stronger than I thought." Earlier, Starbucks’ CEO had remarked: "The consumer is being faced with rising costs in every sector of their lives, and so part of that is reflecting on us." An informed friend of ours suggested that declining traffic at Starbucks stores in the US is of particular concern, since Starbucks serves all income levels.

**

Bill Bonner of Daily Reckoning puts China in perspective. 

"Per-capita income in China is less than 1/10 of America’s and its per-capita greenhouse gas emission is less than 1/5 of ours. But if 1.3 billion Chinese were to consume at the level Americans do, we’d need several more Earths.

**

Jim Cramer has evolved but continues his flip flopping ways.

Cramer says, "trying to game short-term movements in stocks (is) almost impossible," Oh really?  I think many, including myself can prove him wrong on this point.

On the much publicized Fed rant:  "I’m very proud of that call," Cramer says, saying the Fed really had no idea of the severity of the crisis. Arguably, Cramer was proved right by the market turmoil that followed. "I subsequently heard from people at the Fed that it had an impact," he says.  The Fed listens to you?  In your dreams.

**

Tom Lydon of ETF Trends reviews his ETF predictions for 2007 and makes some new ones for 2008.

1. Global markets will no longer be in sync with the U.S. market, and ETFs are the way to take advantage of global growth.
2. Actively managed ETFs fail to generate excitement.
3. ETFs hit $1 trillion in assets.
4. More ETFs will appear on global exchanges.
5. Bigger players will enter the market.
6. Commodity ETFs will continue their expansion and gain even more popularity.
7. Fixed-income assets will grow.
8. U.S. investors will begin realizing that they can look abroad for their investments.
9. Individual investors will start asking their financial advisors why ETFs aren’t part of their portfolios.
10. An ETF of ETFs will finally hit the U.S. market.

**

Really there is inflation.. really there is. 

Even with gasoline prices soaring, milk still tops gas prices. The nationwide average for a gallon of whole milk is $3.80, according to the U.S. Department of Agriculture. That dwarfs the nationwide average of $2.99 for a gallon of unleaded, according to AAA.

"A lot of basic foodstuffs seem to be going up and dairy products are going through the roof," said Norris of Oakworth Capital.

It’s not just milk-drinking kids – coffee drinkers are taking a hit from higher dairy prices as well. Back in August, Starbucks Corp. (SBUX, Fortune 500) chief executive Jim Donald blamed "rising expenses, particularly higher dairy costs" for a 9-cent rise in the price of coffee drinks. For the first time in three years, Starbucks reported a 1 percent drop in customer visits to their stores, even as the value per transaction increased 5 percent.

**

Hugo Chavez is proving yet again that socialism doesn’t work.

The strength of the Venezuelan economy has long been a key factor in the popularity of President Hugo Chávez. With oil prices surging and government coffers bulging, Chávez has been able to offer generous social programs and price controls to keep basics affordable for all. But now the first cracks in the economic boom are starting to show. Inflation is surging, shortages of certain products are spreading, and the value of the bolivar, the local currency, is sliding, at least on the black market.

**

Did Bear Stearns (BSC) provide the spark that kicked off the credit crisis?

It’s too soon to tell whether authorities will find any wrongdoing. But a BusinessWeek analysis of confidential hedge fund reports and interviews with lawyers, investors, and securities experts reveals just how pivotal a role Cioffi’s funds played in the mortgage market’s dramatic rise, dizzying peak, and disastrous fall.

**

Ah, when to sell your stock?  That’s the million dollar question and the most difficult part of trading.  I would argue that it’s more art than science.  Chris Perruna provides key points from a book by Justin Mamis called appropriately "When To Sell"

A few examples include: 

1. Rule One of the professional trader is: When a stock doesn’t do what you expect it to do, sell it.
2. Stocks are bought not in fear but in hope. They are typically sold out of fear.

**

Will joint ventures bury the homebuilders?  Lennar (LEN) has the most exposure here.

**

Zach provides some excellent analysis of Wuxi Pharma Tech (WX) and Interactive Brokers (IBKR)

 ::: Self Investors Model Portfolio :::

** This section will now appear as a separate report to be published on Wednesdays.

Would you like to receive buy and sell alerts within minutes of each transaction of the Model Portfolio?  You can receive these along with ALL of the tracking tools and reports with the very popular Gold membership.  Don’t delay, get started today and join me for many more highly profitable months here at SelfInvestors.com.

::: Best/Worst Performers :::

- Top 10 Performing Industries For the Week -

1. Silver: 12.05%
2. Gold: 9.70%
3. Computer Peripherals: 7.50%
4. Nonmetallic Mineral Mining: 5.65%
5. Oil & Gas Refining & Marketing: 5.45%
6. Oil & Gas Drilling & Exploratoin: 5.20%
7. Telecom Services – Domestic:  5.10%
8. Agricultural Chemicals: 5.00%
9. Oil & Gas Equipment & Services: 4.80%
10. Packaging & Containers: 4.65%

- Top 10 Worst Performing Industries For the Week -

1. Semiconductor – Memory Chips: -6.30%
2. REIT – Hotel/Motel: -5.50%
3. Electronic Stores: -4.30%
4. Water Utilities: -4.05%
5. REIT – Office: -3.95%
6. Toy & Hobby Stores: -3.90%
7. Broadcasting – Radio: -3.50%
8. Savings & Loans: -3.45%
9. Recreational Goods: -3.40%
10. Sporting Goods: -3.35%

- Top 5 Best Performing ETFs For the Week -
 
1. ASA Gold (ASA) 13.30%
2. iPath India (INP) 13.25%
3. Morgan Stanley India (IIF) 10.60%
4. Latin America Discovery (LDF) 10.20%
5. Market Vectors Gold Miners (GDX) 8.75%

- Worst 5 Performing ETF’s -

1. Mexico Fund (MXF)  -12.05%
2. Japan Small Cap (JOF) -7.85%
3. Chile Fund (CH)  -3.00%
4. Ishares Homebuilders (ITB) -2.75%
5. Market Vectors Nuclear Energy (NLR)  -2.30%

:::  IPO’s Worth Watching for This Week :::

This section will now appear as a separate report on Mondays. 
Note: there are no IPO’s scheduled for the next few weeks, so you won’t see IPO posts on Mondays for awhile

::: Upcoming Economic Reports (12/31/07 – 1/4/08) :::

Monday:         None
Tuesday:       Holiday
Wednesday: FOMC Minutes, ISM Index, Construction Spending
Thursday:      Auto/Truck Sales, Initial Claims, Factory Orders
Friday:            Nonfarm Payrolls, Unemployment Rate, Hourly Earnings, ISM Services

::: Upcoming Notable Earnings Reports :::

None

::: In Case You Missed It – SelfInvestors Blog Entries of the Past Week :::

1. Solar Stocks Still Energized – Solarfun (SOLF) Pennant Breakout

After two days of very orderly selling with light selling volume the bull looked ready to charge again with ferocity.  The set up was there and the bull charged but it was a half hearted, tired attempt at resistance levels of the major indices.  How could I make a statement like that on a day the Dow rose nearly 200 points with volume higher than the day before (technically accumulation)?  Volume continues to wane as we get closer to key resistance levels.  I want to see massive buying before I’m convinced the market has hit a longer term bottom rather than a short term pause point in a bear market.  I’m not there yet.

The market continues to focus on the positive news as it brushed aside the Fannie Mae dividend cut and cheered the ADP employment report as well as increased productivity and factory orders.  The market is also pricing in some kind of a Fed cut and imminent news of some government meddling into the subprime mess.  Fortunately the meddling won’t be sweeping according to the New York Times:

"The agreement, to be formally announced Thursday by President Bush, is expected to contain numerous limitations that would exclude many — if not most — subprime borrowers, according to industry executives who have seen it. It would exclude those who are delinquent on their payments — about 22 percent of all subprime borrowers, according to First American LoanPerformance, an industry research firm.

The plan is also expected to exclude any borrower whose introductory rate expires before Jan. 1. About $57 billion in subprime loans are scheduled to be reset at higher rates in the final three months of this year, according to estimates by First American LoanPerformance."

What happens when the Fed finally concedes it can’t continue cutting rates at this pace?  Then what are we left with?  As a technical trader I try not to focus on those things but rather focus on what’s in front of me.  What buyers and sellers are telling me.  Today’s move certainly sets us up for further strength into the open tomorrow but lets remember that the indices have just a bit of breathing room left before hitting very strong resistance levels and buy volume continues to subside.  With a glance at the action in leading stocks recently, I continue to see more volume on the sell side than on the buy side AND Pharma and Bonds are showing up as leading sectors right now.  Not exactly the stuff bull markets are made of is it?  If you’ve recovered much of your losses from the Oct/Nov sell off, you might want to consider locking in some of those gains soon.

Resistance in the Indices:
Nasdaq: 2725
S&P500: 1490 – 1500
Dow: 13500 – 13600
Russell 2000: 800

::: Major Indices Performance – The Numbers :::

(Note: volume averages are based on the average over the past 50 days)
Data as of 4:00EST – End of Day December 5th 2007

Nasdaq: UP 1.78% today with volume right at the average
Nasdaq ETF (QQQQ) UP 1.78%, volume 18% BELOW average
Dow: UP 1.48%, with volume 1% BELOW the average
Dow ETF (DIA): UP 1.53%, with volume 23% BELOW the average
S&P ETF (SPY): UP 1.67%,  with volume 15% BELOW the average
Russell Small Cap ETF (IWM): UP 1.92%, with volume 20% BELOW the average

::: SelflInvestors Leading Stocks :::

The Self Investors Leading Stocks Index is comprised of stocks in the Breakout Tracker, which is a database of the fastest growing companies near a breakout or having already broken out of a base.  Leading stocks were about in line with what the major indices did today, but notice the volume behind rising stocks versus declining stocks.  This has been the trend of late and is a bit of a red flag.

Summary:

* Advancers led Decliners 247 to 60
* Advancers were up an average of 2.55% today, with volume 4% BELOW average
* Decliners were down an average of 1.64% with volume 57% ABOVE average
* The total SI Leading Stocks Index was UP 1.73% today with volume 8% ABOVE average

::: Where’s the Money Flowing :::

Many investing websites provide leading industries based on price performance alone. However, without accompanying volume levels, this can sometimes be misleading.  The only way that I know of to gauge industry/sector strength WITH volume levels is through the analysis of ETF’s.  A couple years ago this was not possible, but as more traders/investors use ETF’s they become a much better tool for gauging the health of the market and seeing where the money is flowing (or not flowing).  Using the proprietary SelfInvestors Demand Indicator score which measures price and volume movements, I’m able to quickly see which sectors/industries are seeing the greatest inflows of cash.  For a detailed look at how I go about gauging sector/industry strength please see the following post: http://selfinvestors.com/si/industry_tracking/

* Current Leading Sectors/Industries (over last 30 trading days):  
Pharma, Bonds, Utilities
                                          
* Current Lagging Sectors/Industries (over last 30 trading days): 
Semis, Networking, Retail, Telecom

* Today’s Market Moving Industries/Sectors (UP):
REITs, Real Estate, Broadband, Networking, Energy

* Today’s Market Moving Industries/Sectors (DOWN):
Biotech, Oil, Commodities

::: Stocks :::

The stocks section will be an area where I highlight one stock selected from a group of stocks moving up with volume well above average and most likely breaking out of a base or consolidation.  The leading stocks that moved significantly with volume today are too extended past a proper entry point to highlight for Stock of the Day, but you might want to take a look at the list of movers for trading ideas.  Stocks are listed in order of best Total Rank (fundamentals + technicals) 

Chicago Mercantile (CME)
Vimpel Communications (VIP)
Millicom International Cellular (MICC)
Airgas (ARG)
AsiaInfo Holdings (ASIA)
Vocus (VOCS)
Versant (VSNT)
AeroVironment (AVAV)
VistaPrint (VPRT)
Darling International (DAR)
Harsco (HSC)
Rick’s Cabaret (RICK)
General Dynamics (GD)

The hotly debated estate tax issue has been in the news again recently after the Senate Finance Committee held a hearing where Chairman and Montana Democrat Max Baucus said he supports ending the estate tax along with the Iowa Republican Senator Charles Grassley who said, ""The estate tax is unjust. … Death should not be a taxable event."

Warrent Buffett weighed in on the other side saying, "In a country that prides itself on equality of opportunity, it’s becoming anything but that as the gap between the super-rich and the middle class is widening."

Below is an editorial written by Dan Ferris of DailyWealth and republished here with permission.  I completely agree with the Senators and Dan Ferris that a repeal of the estate tax is in order.  Now Buffett is obviously a smart guy who has amassed a fortune but he’s wrong on this.  In my opinion this is not an issue of equality but rather an issue of the best way to distribute wealth.  Bottom line.  Who would you rather distribute wealth?  The government or the wealthy?  With all the inefficiencies of goverment, the waste, the fraud… is this really a very difficult decision?  The United States in terms of percentage of GDP gives back more to local charities and world programs than any other nation in the world.  With a repeal of the estate tax that kind of giving will only increase.

Consider this.  Suppose the estate tax was repealed and Warren Buffett passed on all of his wealth to his children (what’s ever left over after his charitable donation to the Gates foundation).  Now his children will be given the same opportunity to direct this excessive wealth into charities that they believe strongly in just as their father did.  The alternative is allowing the goverment to decide where to allocate this wealth. 

Dan makes a great point in saying "It’s interesting to note that Buffett advocates the estate tax, and yet has deprived the government of its fair share of his own national resources by giving some $37 billion to the Bill & Melinda Gates Foundation. The shares are worth more now, too, so the taxman is further deprived as the market bids up Berkshire’s stock."

Does Warren Buffett not trust that his own children will continue his charitable ways?  Does he not trust that your children will?  What do you think?

Why Warren Buffett Is Dead Wrong About the Estate Tax
By Dan Ferris

I saw the following recently in an article at CNNMoney.com:

"’Without the estate tax, you in effect will have an aristocracy of wealth, which means you pass down the ability to command the resources of the nation based on heredity rather than merit,’ Warren Buffett told the New York Times in 2001. ‘[Repeal would be like] choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics.’"

Warren Buffett, one of the world’s richest men, is referring to the practice of leveling large taxes on your wealth after you die. Of course, the problem with Buffett’s statement is that "the resources of the nation" don’t belong to "the nation" at all. You own your wealth or, at least, you’re supposed to own it. I guess if you have a billion dollars, you think you get to say how "the nation" ought to be run. 

The wrong-headed idea that permeates our culture and allows for Buffett to advocate estate taxes is the idea of "giving back to the community." This idea is a nonstarter because there was no taking in the first place. You get rich by offering value for value. You get rich by trading, not taking. "Taking" is what the government did to Suzette Kelo when it condemned her house so Pfizer could build a parking lot (a crime that was upheld by that bastion of justice, the U.S. Supreme Court, in Kelo v. City of New London). THAT is taking. 

But traders have no need to give back anything, unless for reasons of recission due to the use of fraud or force, unless they’re guilty of a crime. Earning wealth is not a crime… at least, it’s not supposed to be one. I heard Buffett once say that he always planned to give his money "back to society." Never mind that nothing was "taken" from any "society," only wealth that was created and trading that was done. Why does he feel so guilty?

If Buffett needs to imagine a future that doesn’t rankle his idea of fairness, maybe he should remember that incapable allocators of wealth will lose their wealth to other more capable allocators. So if the inheritors aren’t the Olympians he says we’re making them out to be, the market will take care of that.

Like a man looking for a good time on a small budget, money goes where it’s treated best. People who inherit wealth and don’t treat it right will lose it. But to be quite accurate, that’s off topic. Even if the inheritors of wealth don’t lose it, it doesn’t matter. The most important point, the one Buffett doesn’t acknowledge, is that the wealth is theirs to lose or keep as they may. It absolutely, positively does not belong to "society."

It’s also a mistake to suggest that, by honoring property rights and allowing people to keep their wealth, we are somehow choosing some sort of future "Olympic team." Not true at all. We are simply acknowledging a man’s right to dispose of his property as he sees fit. There can be no such thing as the "aristocracy of wealth" Buffett fears.

The inheritable wealth Buffett wants to destroy through taxation (a euphemism for "theft") must be created and earned. An aristocracy, on the other hand, is the ruling class in a monarchy. All of the monarchy’s wealth is seized, conquered, and redistributed wealth. The term, "aristocracy of wealth," is like "military intelligence." It’s self-contradictory. That the aristocracy passes its wealth from generation to generation is a funny thing to worry about, too. The aristocracy eventually has to sell it all off to keep out of the poor house. You can’t live on unproductive inherited wealth forever, anymore than you can live on borrowed money forever. To paraphrase Robert Louis Stevenson, those who attempt to live on unproductive inherited wealth, sooner or later, sit down to a banquet of consequences.

It’s interesting to note that Buffett advocates the estate tax, and yet has deprived the government of its fair share of his own national resources by giving some $37 billion to the Bill & Melinda Gates Foundation. The shares are worth more now, too, so the taxman is further deprived as the market bids up Berkshire’s stock. 

Isn’t Buffett afraid that Bill and Melinda already have much more than their fair share of national resources to command? Isn’t he committing the wrong he alleges will be righted by the estate tax? Who cares about the Gates’ superior ability to command the resources? The playing field is decidedly other unlevel already, yet Buffett insists in unleveling it some more. Seems like Buffett thinks your estate ought to be taxed, because you don’t know what you’re doing.

According to Buffett, your children will be better people if we just steal your money before you can give it to them. They’ll have to work harder.

Buffett thinks the estate tax creates a level playing field. Ah, the level playing field, the illusive goal of the society builders and master planners. The only trouble with the level playing field is that you can’t ever have one, because it means penalizing people for their ability, for their success. It means cutting the tops off the maple trees so they don’t block the sunlight for the oak trees (or are oaks taller than maples? I don’t know).

And if we consistently chopped the tops off all the tall trees just for being tall, then the Buffetts of the world would never have the chance to amass so much to give back to society. At that point, he’d be society, waiting for someone to give him something back.

I wonder how he’d like that?

Good investing,

Dan Ferris

Thank you Carrie Lee and CNN/Money for recognizing the blog here as a Top 10 Financial blog.  It’s greatly appreciated. 

…

3. CANSLIM Investing – Yes it’s a long web address, but also worth bookmarking. This site contains many easy to read pieces on stock suggestions, chart analysis, and market commentary using the CANSLIM approach to investing. (The seven letters each stand for an investing criteria, for example, "L" represents choosing an industry leader over a laggard.)

…..

Congrats to the other fellow bloggers who were mentioned in the article as well. Here’s a link to the full article:

http://money.cnn.com/2005/10/06/markets/financial_blogs/index.htm