All posts by Tate Dwinnell

Weekly/After Stock Market Review Archives

Will Market Wobble With Fed Wheels Off?; Stock of Day – Mastercard (MA)

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Good party today.  It all started out with a very strong GDP number (wonder how much that will get revised downward?) which keeps recession worries off the table for now, tame inflation once again (huh?) and the Fed kicked it up a notch by spiking the punch.  There’s no denying it was a strong day with all major indices rising with good volume but when you consider the perfect storm of good news across the board, I’m a bit surprised we didn’t close stronger on much higher volume.  Let’s see what tomorrow brings.  Remember that trading on the day of the Fed announcement can be a knee jerk move and isn’t a good indicator of what tomorrow will bring.  A strong day tomorrow might push me into another long trade but I’m still reluctant to get aggressively long with major resistance in both the Dow and S&P500 still looming.  Sure the Nasdaq is in another world and technically much stronger, but we have to wonder what will be the catalyst following this Fed induced rally particularly with the bulk of earnings behind us and the Fed indicating that they’re done for awhile?  I’m maintaining neutrality here.

::: 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 October 31st 2007

Nasdaq: UP 1.51% today with volume 19% ABOVE average
Nasdaq ETF (QQQQ) 1.42%, volume 20% ABOVE average
Dow: UP 1.00%, with volume 23% ABOVE the average
Dow ETF (DIA): UP .82%, volume 58% ABOVE the average
S&P ETF (SPY): UP 1.04%, volume 35% ABOVE the average
Russell Small Cap ETF (IWM): UP 1.29%, volume 37% ABOVE 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.  A very good today for leading stocks which bodes well for this market.  The Self Investors Leading Stocks Index outperformed all major indices with good volume behind it.

Summary:

* Advancers led Decliners 294 to 79
* Advancers were up an average of 2.75% today, with volume 40% ABOVE average
* Decliners were down an average of 2.39% with volume 128% ABOVE average
* The total SI Leading Stocks Index was UP 1.66% today with volume 59% 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):  
Gold, Broker/Dealers, Internet Infrastructure, Gold Miners, Software, Agriculture
                                          
* Current Lagging Sectors/Industries (over last 30 trading days): 
Retail, Consumer Discretionary, Homebuilders, Semis

* Today’s Market Moving Industries/Sectors (UP):
US Oil, Gold Miners, Commodities, Energy, Materials, Natural Resources
(as dollar continues to plunge commodities continue to skyrocket! – interesting that only commodities made it to leaderboard today)

* Today’s Market Moving Industries/Sectors (DOWN):
Home Construction (suppose  traders were pricing in a 50 point cut just a bit)

::: 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.  Today’s stock is Mastercard (MA), currently the best way to play this increasingly cashless world.

ABOUT: 

MasterCard Incorporated (MasterCard) is a global payment solutions company that provides a variety of services in support of the credit, debit and related payment programs of nearly 25,000 financial institutions. Through the Company’s three-tiered business model as franchisor, processor and advisor, it develops and markets payment solutions, process payment transactions, and provide consulting services to its customers and merchants. The Company manages a family of payment card brands, including MasterCard, MasterCard Electronic, Maestro and Cirrus, which it licenses to its customers. MasterCard’s general purpose card brands include MasterCard, Visa, American Express, JCB, Diners Club and Discover. MasterCard generate revenues from the fees that it charges its customers for providing transaction processing and other payment-related services (operations fees), and by assessing its customers based on the dollar volume of activity on the cards that carry its brands (assessments).

FUNDAMENTALS: 

Plastic payment providers such as Mastercard (MA) are a virtual money tree in that they make money on every transaction out there with very little change in the margins.  It’s not a perfect world though.  Lawsuits from large merchants are a constant threat to the profit machine as Mastercard (MA) saw in 2003 when it lost 2.90/share after large settlement costs.  However, since then the company has been able to avoid large legal costs and returned to profitability in 2004 with earnings of 1.76 share which rose 34% in ’05 to 2.35/share, 45% in ’06 to 3.41 and is expected to rise another 46% here in ’07 (but those estimates need to be revised – looks like earnings will end up being closer to 55 – 60% higher over ’06 when it’s all said and done).  So there you have it.  Three years in a row of accelerating earnings growth and over the past year revenue growth has been picking up.  With net margins (19%)and ROE (28%) spiking over the past year this is clearly a company hitting on all cylinders.

TECHNICAL:  

Mastercard (MA) was certainly the headliner today with a 20% surge out of a cup with handle base to new all time highs.  It’s too bad it couldn’t breakout like this AFTER the Fed announcement today because I decided not to initiate any new entries today so may have missed out on a good entry point in what will be a great core holding in any portfolio.  That’s OK.. nothing wrong with staying disciplined.  If you didn’t catch this one at the open and are waiting for an entry like I am I’d look to start nibbling at 185 or lower with a small position and then add to a long term position along the way. 

SELFINVESTORS RATING: With a total score of 52/60 (27/30 for fundamentals, 25/30 for technical), Mastercard (MA) is a top SelfInvestors breakout candidate.

Full Disclosure/Disclaimer: The stock of the day is by no means a buy recommendation.  Please do your own research and make a personal decision based on your own tolerance for risk.  I currently do not own a position in Mastercard (MA)

Company Earnings

Pericom (PSEM), Mastercard (MA) & Partner Communications (PTNR) Breakout on Earnings

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Today’s SelfInvestors Leading Stocks Moving on Earnings

UP

• Pericom Semiconductor (PSEM) Networking & Communication Dev, fundamental rank [23/30],  up 29%, record volume breakout to new multi year highs

• Commvault Systems (CVLT) Application Software, fundamental rank [27/30],  up 19%, approoaching breakout from first base since going public

• Iconix Brands (ICON) Apparel Clothing, fundamental rank [25/30],  up 18%, reclaiming support of both 50 and 200 day moving averages

• Mastercard (MA) Business & Management Services, fundamental rank [27/30],  up 17%, broke out of great looking cup with handle base to new all time highs

• China Petroleum (SNP) Oil & Gas – Independent, fundamental rank [24/30],  up 9%, continues to march higher following September breakout

• Partner Communications (PTNR) Telecom Services – Foreign, fundamental rank [24/30],  up 7%, breaking out to all time highs today

• Chicago Bridge & Iron (CBI) General Contractors, fundamental rank [24/30],  up 6%, adding to recent breakout and trading at all time highs

• Transocean (RIG) Oil & Gas Drilling & Exploration, fundamental rank [28/30],  up 4%, recently broke out of base now trying to break through to all time highs

DOWN

• Faro Technologies (FARO) Scientific & Technical Instruments, fundamental rank [24/30],  down 20%, that’s one ugly chart.. one bright spot – it did bounce signifcantly off morning lows

• Buffalo Wild Wings (BWLD) Restaurants, fundamental rank [25/30],  down 19%, reversed off this mornings lows and trying to hold at support around 30

• Huron Consulting (HURN) Business & Management Services, fundamental rank [26/30],  down 18%, strong support around 60 where it reversed from this morning

• ClickSoftware Technologies (CKSW) Internet Software & Services, fundamental rank [24/30],  down 12%, holding at the 50 day moving average for now; chart still looking quite bullish

• Stratasys (SSYS) Computer Peripherals, fundamental rank [25/30],  down 12%, big reversal off this morning’s lows but still below 50 day moving average

• Commscope (CTV) Communication Equip, fundamental rank [24/30],  down 9%, stick a fork in it, taking out all support levels .. nice looking short

• Garmin (GRMN) Scientific & Technical Instruments, fundamental rank [28/30],  down 7%, lots of sell volume but holding at 50 day moving average for now

Company Earnings

Atheros Communications (ATHR) & BE Aerospace (BEAV) Breakout On Earnings

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Today’s SelfInvestors Leading Stocks Moving on Earnings

UP

• Actuate (ACTU) Application Software, fundamental rank [25/30],  up 12%, continuing to surge off the 50 day moving average; too extended for proper entry

• Interactive Intelligence (ININ) Business Software & Services, fundamental rank [26/30],  up 12%, adding to yesterday’s breakout

• Atheros Communications (ATHR) Semiconductor – Integrated Circuit, fundamental rank [26/30],  up 10%, breaking out from double bottom base

• Navigators Group (NAVG) Insurance – Property/Casualty, fundamental rank [26/30],  up 7%, another new all time high, adding to recent breakout

• ShoreTel (SHOR) Diversified Communication Services, fundamental rank [26/30],  up 6%, nice trend up after breaking out on September 20th

• BEA Aerospace (BEAV) Aerospace/Defense, fundamental rank [25/30],  up 6%, great looking breakout to new all time highs in one of my favorite defense stocks

DOWN

• FMC Technologies (FTI) Oil & Gas Equip & Services, fundamental rank [23/30],  down 9%, long uptrend still intact

Options

Barry on Trading Options: All About Delta

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Below, new SelfInvestors.com contributor Barry shares some more thoughts on trading options.  For more about Barry, please see his first introductory post.  Thank again Barry, another great post!

2DIME’S INVESTOR NOTES

Monday, October 29th, 2007 www.SelfInvestors.com

 

“DELTA is not an airline or a place in Louisiana”.
 
Another week is off to a good start. We finally had some rain here in North Carolina after too many days without a trace. With every drop that fell, I kept thinking about a better place for it and the California fires kept coming to mind. I reconciled that thought with another: that we should always be thankful for what we have and compassionate with those who don’t have as much.
 
Here at home, the week was one of adjusting the items in my trading cart. I normally ask the 30 to 40 equities in my cart to provide me with a weekly paycheck. I took some items out and put others in about 14 moves in all, two stock and 12 option trades.
 
I would never recommend a set way to trade. It’s really up to the individual to develop his or her own successful technique. My personal portfolio is about 25% equity and 75% option contracts at any given time. About one third of my option plays are for the current month the rest being at least three months out or LEAPS (Long-term Equity AnticiPation Securities) of six months or more.
 
My current month option trades come from a number of different sources. One is from Selfinvestors.com. Whenever a Breakout is reported by Tate Dwinnell, I read the email and check the stock to see if the stock is a likely candidate. These short term trades are valuable in that they are normally placed on issues with modest volatility and almost no time value factored into their price. The beauty of this is that when the underlying stock moves, the value of the option moves in lock step.
 
I am not going to go any deeper into option trading fundamentals at this time because the above probably sounds like Greek to you equity traders. A pun is intended because “Greeks” are important to understand when trading options. As a matter of fact, when ever I began explaining options, one of the first things I discuss is not what an option is or how it differs from a share of stock but rather the importance of “Delta.” And I don’t mean an airline or a place in Louisiana. DELTA takes you right to the heart of an options trade. So why not go there first.
 
Before placing an option trade I always make a physical note of the options symbol, theoretical value, open interest and DELTA. My technique is to jot down a short two or three line entry in my Day-Timer/Journal. I do this as a way to cross check myself to make sure I am sticking to my personal parameters. I don’t pay much attention to historical or implied volatility because my analysis of the underlying stock both fundamentally and technically tends nicely to that. In short, if I don’t really like the prospects for a near-term move in the stock, I don’t play the option. Sites like Selfinvestors.com make my life easy. If there is good volume pushing a breakout move and there is positive institutional interest in the stock, I’m in.
 
 
The Delta of an option is a key in determining the productivity of the trade. Delta is simply a ratio, or number, that tells you how many dollars an option will move for every dollar move in its’ underlying stock. Focusing on the desired Delta eliminates the concern over whether the option is “in-the-money” (Has equity value) Has equity value)or “out-of-the-money” (Has no equity value, i.e.; all fluff…Time value and implied volatility)
 
Options hatch from stocks. They are derivatives in that they derive their value from the stock they represent. An option contract gives you the option to buy (call) or sell (put) 100 shares of a stock at a locked in price (the strike price). Some people call it a “right” for a predetermined number of days to buy or sell 100 shares of a stock at a given price. Well, that’s exactly what it is…but, it’s only an option, it is a non-material thing. No votes for the board of directors, no growth diluting dividends and no pretty certificates of ownership to hang on your wall or ferret away in your safety deposit box. One cool thing though….. If the stock splits, so does the option.
 
Back to Delta. If a stock is selling for $48, and an option to buy 100 shares of that stock (called a CALL) is purchased for $8 and that CALL has a Delta equal to 1.0, if the stock moves $2 to $50, the CALL will move 1 to 1 with it and have a new value of $10. If the CALL has a Delta equal to .50, when the stock moves $2 to $50, the CALL will move $.50 for every $1 and have a new value of $9. It’s a percentage move of the stocks move.
 
Got it? If you take a serious look at the choice to buy $48 shares of stock vs. $8 options, it says a lot about the relative value of trading options vs. shares of stock. It reveals the increased “LEVERAGE “involved when using options. Understanding DELTA is also key to understanding the different nature of the risk in an options investment vs. that in an equal dollar investment in shares of stock. That’s a subject for a later date. If you are going to make a living trading, I think you have to understand both stocks and options.
 
Let me add that Delta works the same way with PUTs. When I first started trading options, the concept of a CALL came pretty easy. PUTs took a while. I don’t know why because they are a mirror image of a CALL that can be used to make or save money off of a downtrend. Don’t worry if you are in the same boat; because increased age, with its increased dyslexia seems to help.
 
That’s enough for now. Plenty of food for thought. Whenever I feel I am running low on trading ideas or know how, I pull out and read the following quote from one of my all time favorite books, “The Power of Your Subconscious Mind” by Joseph Murphy. A copy of this book has a permanent place in my blue room and is always within reach at critical moments in my life. I first read it about 15 years ago. I have recently dusted it off and am on my third re-read. Scary stuff!
 
“The True source of wealth
Your subconscious mind is never short of ideas. There are within it an infinite number of ideas ready to flow into your conscious mind and appear as cash in your pocket in countless ways. This process will continue to go on in your mind regardless of whether the stock market goes up or down, or whether the pound sterling or dollar drops in value. Your wealth is never truly dependent on bonds, stocks, or money in the bank; these are only symbols — necessary and useful, of course, but only symbols.
 
The point I want to emphasize is that if you convince your subconscious mind that wealth is yours and that it is always circulating in your life, you will always and inevitably have it, regardless of the form it takes.” Joseph Murphy
 
It’s what’s inside that counts.
Cheers, 2Dimes / Barry Brush (email me at support@selfinvestors.com I look forward to your comments.)
Weekly/After Stock Market Review Archives

Don’t Be Lured by Rumor & Another Fed Life Preserver; Hot China IPO – Giant Interactive (GA)

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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

9.  Petmed Express (PETS) Poised for Breakout After Earnings


IPO's

Height of China IPO Mania? Peking Duck IPO

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Just about every week for the past couple of months there are new China IPO’s coming to the US Exchanges and many more listed in China.  The latest Chinese company to apply for an IPO is China Quanjude, the oldest Peking restaurant in China and doing business since 1864!  Quanjude runs 9 companies in China and 61 franchised restaurants including 5 overseas.  The state owned company netted about $7.5 million in profit last year.  They’ll kick off the road show on Monday and list on the Shenzhen Stock Exchange.

You’ll want check out two more China IPO’s being listed in the US this week – Giant Interactive (GA) begins trading Tuesday and CNinsure (CISG) begins trading Wednesday.  Both companies have strong fundamentals so they should get a big pop in the opening days.

Disclsore:  all this duck talk is making me hungry.

Stock Trade of the Day

Trade of the Day – General Moly (GMO) Cup With Handle Breakout

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Metals continue to shine as gold soars to new highs and with it comes breakouts.. lots of them.  That brings opportunity such as the one in GMO which I’ve been highlighting to Gold and Platinum members over the past few days and wanted to highlight it here as well.  This speculative gold, silver and zinc miner broke out of the handle formation of a cup with handle formation to new all time highs today with volume that is currently running at 3x the daily average.

Company Earnings

VistaPrint (VPRT), MEMC Electronic Materials (WFR) Breakout to All Time Highs

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Today’s SelfInvestors Leading Stocks Moving on Earnings

UP

• Deckers (DECK) Apparel Footwear, fundamental rank [24/30],  up 25%, reports big quarter and soaring to nose bleed levels

• VistaPrint (VPRT) Business Software & Services, fundamental rank [25/30],  up 16%, breakout today from 7 month base to new all time high, very bullish action

• MEMC Electronic Materials (WFR) Semiconductor – Integrated Circuit, fundamental rank [27/30],  up 16%, broke out of base this morning to new all time high

• Micros Systems (MCRS) Technical & System Software, fundamental rank [26/30],  up 15%, huge spike off 50 day moving average to new all time high

• Sierra Wireless (SWIR) Communication Equipment, fundamental rank [23/30],  up 14%, pushes back above 200 day moving average; working on carving out a double bottom base

• Dynamic Materials (BOOM) Steel & Iron, fundamental rank [26/30],  up 8%, gapped up off the 50 day moving average keeping the long uptrend intact

• FalconStor Software (FALC) Business Software & Services, fundamental rank [24/30],  up 7%, one of my favorites and its off the radar so to speak; holding above the 50 day moving average following its September breakout

• Double Take Software (DBTK)  Appl,ication Software, fundamental rank [26/30],  up 6%, still looking good following a breakout a few weeks ago

• Baidu.com (BIDU) Internet Info Providers, fundamental rank [29/30],  up 4%, tested all time high today, but looking increasingly weak up here

DOWN

• AXT Inc (AXTI) Semiconductor – Integrated Circuit, fundamental rank [23/30],  down 25%, took out support of the major moving averages and not coming back anytime soon

• Radiant Systems (RADS) Business Sofware & Services, fundamental rank [23/30],  down 24%, breakout from long base a couple months ago now considered a failure; took out both moving averages but has some support around 12

• Ladish (LDSH) Metal Fabrication, fundamental rank [25/30],  down 13%, well off the morning lows and reclaimed support of the 200 day moving average

• Franklin Resources (BEN), Asset Management, fundamental rank [26/30],  down 7%, still has strong support around 200 day moving average

IPO's

Profit From The Visa IPO Before It Goes Public?

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How can I get in on an IPO before it goes public?  The question always comes up when a big IPO is about to make its debut.  In this case, the Visa IPO, which is set to debut sometime in early 2008.  Unless you have friends in high places or a trading account in the millions, you can just about forget trying to score shares in a company BEFORE it goes public.   Some companies are trying to make the whole process more democratic by going the dutch auction route (see Google and Interactive Brokers) but I don’t think that will become the prevailing trend.  For us mere mortals, we must come up with the creative means to finagle a few profits from the Visa IPO before it hits the public.  I have one idea for you.  You probably won’t get rich and hey I can’t guarantee you’ll make a dime (how’s that for a disclaimer – now do your own DD!), but for grins and giggles I thought I’d throw out a back door entry into the Visa IPO bonanza.  National City Corp (NCC).  Huh?  Here’s my reasoning:  National City owns what will be a 4 – 5% stake in the new public Visa.  Considering NCC does just north of 12 billion in revenue a year, it’s won’t amount to a large slice but enough of a slice to potentially start moving the stock out of the cellar.. a deep dark cellar.  I’m not a bottom fisher and don’t recommend it as a strategy, but for you valuation junkies who like to run the numbers perhaps this trade makes some sense down here?

From a technical perspective, buyers are beginning to exert some control after the mortgage mess made mincemeat of this stock, which is off nearly 40% in just the last few months. The stock gapped down after reporting another awful earnings report on Wednesday, but finished the day at the top of the range.  Perhaps some capitulation to get the stock moving north for awhile with some Visa IPO euphoria and a Fed rate cut or two adding fuel to the fire.  A break of the downward trend above the 50 day moving average would be a key turning point.  Just remember that the market looks to the future, so any Visa IPO benefit will most likely be felt before it goes public, not after. 

[EDIT: Forgot to mention – NCC has a current dividend yield of 7% so that’s a nice cushion if you’re interested in bottom feeding down here]



Here’s what the CEO said in the conference call on Wednesday (transcript courtesy of seeking alpha):

Jill Hennessy

In the Visa perspective, National City is highlighted as having an 8% stake in Visa USA. How large of a gain do you expect to take on the Visa IPO and when do you expect to recognize that value?

Peter Raskind

As a result of our issuance activity and our former ownership with MPC we do have an unusually large stake in the newly restructured Visa. As I suspect many of you are aware, Visa restructured in early October into an independent for-profit company with the ultimate intent of taking that company public. As a result of our approximately 8% share in Visa USA, we end up with a share in the new Visa, the new worldwide Visa, somewhere between 4.5% and 5% of a good-sized entity.

There’s quite a bit of discussion going on right now between the various banks involved and the SEC as to exactly how the accounting should occur for this transaction. That is not yet fully resolved. So the restructuring has already occurred. There will be, we hope, resolution within the next several weeks by way of the SEC as to whether that restructuring creates an accounting event or not.

But even if it does not, there is an expectation that the company will go public some time next year and therefore, presumably at that time a gain would be realized. I would not at all engage in speculation as to what the size of that gain is going to be yet today, but given the size of Visa and our stake in Visa, there’s reason to believe that it will be sizable.

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My Conclusion:

Keep in mind this is a strategy for profiting before the IPO.  There will certainly be tremendous profit potential after the company IPO’s.  What I see happening is a tremendous build up to the launch of the IPO followed by some big time profit taking after the stock soars on the first day.  Once the dust settles after a week or two, the stock will offer a tremendous opportunity to get in for the long haul.  Why?  Just look at the numbers:

Visa has a 60% market share which is about as close as you can get to a monopoly in this increasingly cashless world.  Mastercard has about a 20% market share and it more than tripled in its first year of trading.  Size certainly doesn’t equate to stock price performance, but given the fact that the larger Visa will have more resources to ward off the avalanche of litigation from merchants, not to mention better economies of scale it should perform at least as well as Mastercard (MA) has.  At any rate, this will be one of the biggest IPO’s ever, so it should fun to watch it all play out.

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UPDATE 12.30.07

National City stock continues to deteriorate and has yet to clear that down trend which I highlighted in the chart above (so never provided an entry point).  The subprime exposure proved to be too great and the expected Visa benefit isn’t providing any relief.  However, bases on the price and volume action in recent days I’m going out on a limb here and calling a bottom right here right now. 

Barron’s isn’t as bullish.  Have a look at their recent downgrade.

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UPDATE 2.7.07

I was a bit early on my bottom call in NCC on Dec 30th, but now the bottoming action is firmly in place beginning with the big capitulation day on Jan 22nd which is characterized by a record volume reversal off the lows of the day and a close in the upper half of the range for the day.  12.64 will mark an all time low in NCC and I don’t think you’ll ever see that price again considering all the Fed rate cuts.  It’s a bit extended from those levels but retracement of at least half the move might offer a great entry for the long term holder.  A 50% retrace is (18.14 – 12.64)/2 = 2.25, so a move to around 15 provides a good initial entry point.  In fact this is my strategy with all financials and homebuilders.. wait for a retracement of the post Fed cut surge to initiate long term positions.