What a strange week it was.. well really just one day which set the tone for the end of the week. On Monday and Tuesday, the market played out predictably with the selling momentum continuing early Monday morning followed by a weak bounce into the close and following through on Tuesday. On Wednesday, the Merrill Lynch loss sent the market into a tailspin early with very heavy selling.
It was the kind of selling you typically don’t recover from and given the sell off of the previous Friday, this kind of action should not have been a surprise. I fully expected the indices to fall off a cliff in the last hour of trading and head straight for those important 200 day moving averages. After all, you don’t just capitulate out of the blue like that unless you have extreme oversold conditions (like we had back in August) or you have some big announcement such as more Fed action. Sure enough, inexplicably, buyers rushed in at the end of the day on Wednesday on what? A rumor of a surprise Fed rate cut to which the Fed denied. It led to a short term capitulation day which fueled short covering and a bit of retail buying and probably just delays the inevitable which is further deterioration and a test of those 200 day moving averages.
I just don’t like this market. It’s fueled by rumors which over the past several months seems to be becoming a common occurrence. Combine that with a Fed hellbent on cutting rates and it makes it very difficult to make good technical analysis reads. The fact of the matter is that this market is weakening and the onus is on the bulls. I like what was said over at Minyanville recently: "Opportunities are made up easier than losses." It sums up the current situation perfectly.
Next week earnings reports continue to pour in, the Fed makes its rate decision on Wednesday along with Construction Spending numbers and GDP. Also on tap is inflation data, pending home sales, auto/truck sales and capping off the week a read on unemployment figures. Considering the run the market has had, the deteriorating technicals, the rumors, the Fed and all the economic numbers coming this week it’s best to remain largely in cash.
::: Model Portfolio Update :::
Despite continuing to play conservatively with a nearly 50% cash position, the Self Investors Model Portfolio had another good week, out pacing the S&P by a bit and pushing the year to date return to a very good 24.4% (about 3x the return of the S&P500). My strategy continues to be to trade small positions in high momentum stocks and locking in profits fairly quickly along with holding a few core positions in Google (GOOG), Cisco (CSCO) and Diana Shipping (DSX). During the week I closed out positions in LULU (27% gain), ALTI (16% gain), FREE (4% gain) & CTEL (14% loss). I held on to a very small CTEL position much longer than I ordinarily would, but not quite long enough! It got a big burst of buying on Friday and again looks like a great swing trade here. One core position was added and 2 new Quick Strike Profit plays to replace the 3 closed positions. My current allocation is 50% long, 10% short and 40% cash.
::: Best/Worst Performers :::
– Top 10 Performing Industries For the Week –
1. Medical Practitioners: 15.75%
2. Education & Training Services: 13.35%
3. Residential Construction: 10.45%
4. Computers Wholesale: 8.25%
5. Internet Info Providers 7.95%
6. Toy & Hobby Stores: 7.80%
7. Steel & Iron: 7.55%
8. Manufactured Housing: 7.15%
9. Industrial Metals & Minerals: 6.80%
10. REIT – Healthcare Faclilities: 6.35%
– Top 10 Worst Performing Industries For the Week –
1. Surety & Title Insurance: -11.00%
2. Healthcare Plans: -4.35%
3. Security Software & Services: -4.30%
4. Confectioners: -4.05%
5. Catv Systems: -4.00%
6. Semiconductor – Equipment & Materials: -3.60%
7. Electronics Wholesale: -3.50%
8. Networking & Communication Devices -3.25%
9. Semiconductor – Specialized: -3.05%
10. Semiconductor – Memory Chips: -2.90%
– Top 5 Best Performing ETFs For the Week –
1. Herzfeld Caribbean Basin (CUBA) 13.65%
2. Morgan Stanley India (IIF) 12.40%
3. India Fund (IFN) 11.80%
4. China Fund (CHN) 11.25%
5. Ishares Home Construction (ITB) 10.90%
– Worst 5 Performing ETF’s –
1. HLDRS Semiconductors (SMH) -5.15%
2. Ishares Semis (IGW) -4.90%
3. PowerShares Dynamic Semis (PSI) -2.60%
4. HLDRS Broadband (BDH) -1.00%
5. Powershares Agriculture (DBA) -1.00%
::: IPO’s Worth Watching for This Week :::
The IPO pipe line remains very strong and once again a few great looking China IPO’s.
1. Giant Interactive (GA): The Chinese online role-playing game developer (formerly known as ZTgame) is all about the masses, creating massively multiplayer online (MMO) games, played by tens of of thousands of players through networked game servers. Its first internally developed game, ZT Online, was launched in 2006. A paid edition of ZT Online and its newest game, Giant Online, will have their commercial debut in 2007. The company has more then 140 game developers, and its prepaid game cards and game points are sold in more than 116,500 retail locations, such as bookstores, Internet cafes, and software stores. Trading set to begin on Tuesday.
2. CNinsure (CISG): The Chinese independent insurance agency and brokerage firm distributes insurance products underwritten by domestic and foreign insurance companies operating in China. It also provides certain insurance-related services (such as damage assessment and 24-hour emergency assistance in select cities) from more than 150 sales and service locations in eight provinces spread throughout China. The company began distributing individual life insurance products in 2006. It plans to continue expansion of that sector while growing its property and casualty business divisions. Trading set to begin on Wednesday.
3. Deltek (PROJ): The company provides project management software designed to meet the needs of professional services firms and project-based businesses. Its applications handle expense reporting, human resources administration, materials management, customer management, and sales force automation. Deltek integrates tools from partners such as Cognos and Microsoft with its own software, and it provides consulting and implementation services. Trading set to begin Thursday
4. Scope Metals Group (SCPE): distributes and supplies aluminum, stainless steel, brass copper, bronze, titanium, and nickel alloy products configured into sheets, coils, plates, bars, pipes, flanges, fasteners, valves, and a slew of other off-the-shelf items. With primary operations in Israel, the company’s products reach industrial manufacturers in Israel, Turkey, Greece, and the Middle East. Acquisitions and organic growth have expanded the geographical scope of the company to include the US, Europe, and China. Scope Metals Group serves clients in such industries as aerospace, chemicals, electronics, construction, and energy.. Trading set to begin on Friday.
5. Genoptix (GHDX): The biotechnology company is a specialized laboratory service provider founded in 1997. It analyzes blood and tissue samples in order to diagnose diseases and markets those services to community-based hematologists and oncologists (aka hem/oncs) treating malignancies of the blood and bone marrow, as well as other types of cancer. Its key service offerings are COMPASS (short for Comprehensive Assessment) and CHART (newer service offering introduced in 2007). Trading set to begin on Tuesday.
6. Neutral Tandem (TNDM): provides third-party interconnection services to competitive carriers via tandem switches, which allow wireline, wireless, and broadband phone providers to exchange traffic between networks without direct connections. Neutral Tandem’s services are offered in more than 45 US metropolitan markets as an alternative to using switches provided by the incumbent local exchange carrier (ILEC). The company’s customers include Sprint Nextel, Comcast Cable, and AT&T. Trading set to begin on Friday.
::: Upcoming Economic Reports (10/29/07 – 11/2/07) :::
Monday: None
Tuesday: Consumer Confidence
Wednesday: Fed Rate Decision, GDP, Chicago PMI, Construction Spending, Crude Inventories
Thursday: Personal Income/Spending, CPI, Initial Claims, Pending Home Sales, Auto/Truck Sales
Friday: Nonfarm Payrolls, Unemployment Rate, Factory Orders
::: Upcoming Notable Earnings Reports :::
Monday: Jack Henry & Associates (JKHY), Superior Energy (SPN), Atheros Communications (ATHR), ShoreTel (SHOR), Credicorp (BAP), Interactive Intelligence (ININ),
Tuesday: Ceradyne (CRDN), BE Aerospace (BEAV), Aluminum Corp of China (ACH), Chipotle Mexican Grill (CMG), Wynn Resorts (WYNN), W-H Energy (WHQ), Ritchie Bros Auctioneers (RBA), Commvault Systems (CVLT), Under Amour (UA)
Wednesday: GlobalSantaFe (GSF), Central European Distribution (CEDC), Cameco (CCJ), Huron Consulting (HURN), Natco Group (NTG), Garmin (GRMN), Manitowoc (MTW), Mastercard (MA), Transocean (RIG)
Thursday: Oceaneering (OII), Pride International (PDE), eHealth (EHTH), Cbeyond (CBEY), Atlantic Tele-Network (ATNI), Morningstar (MORN), Capella Education (CPLA), Cynosure (CYNO), Mindray Medical (MR), Diodes (DIOD), Strayer Education (STRA), DealerTrak (TRAK), Nymex Holdings (NMX), Rowan Companies (RDC), ANSYS (ANSS), Cameron Intl (CAM), Blackbaud (BLKB), GFI Group (GFIG), Flotek Industries (FTK), Harris Corp (HRS)
::: In Case You Missed It – SelfInvestors Blog Entries of the Past Week :::
1. Trade of the Day – General Moly (GMO) Cup With Handle Breakout
2. VistaPrint (VPRT), MEMC Electronic Materials (WFR) Breakout to All Time Highs
3. Profit From The Visa IPO Before It Goes Public?
4. Abaxis (ABAX) Soars, VASCO Data Security (VDSI) Plunges
5. Reversal Indicates Short Term Support; Stock of Day – IntercontinentalExchange (ICE)
6. Phase Forward (PFWD) & Vocus (VOCS) Soar on Earnings
7. Satyam (SAY) & Millicom (MICC) Break Out of Cup With Handle Bases
8. Big Wall Street Myth: The Self Investor Can’t Be Successful