All posts by Tate Dwinnell

Company Earnings

Abaxis (ABAX) Soars, VASCO Data Security (VDSI) Plunges

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Today’s SelfInvestors Leading Stocks Moving on Earnings

UP

• Abaxis (ABAX) Diagnostic Substances, fundamental rank [24/30],  up 18%, tremendous cup with handle breakout on record volume to new all time highs

• Axsys Technologies (AXYS) Scientific & Technical Instruments, fundamental rank [23/30],  up 16%, adding to September breakout in a big way

• Flir Systems (FLIR) Scientific & Technical Instruments, fundamental rank [27/30],  up 14%, continuing to trend up into new all time highs

• EMC Corp (EMC) Data Storage Devices, fundamental rank [25/30],  up 9%, beauty of a chart, broke out of another short consolidation

DOWN

• VASCO Data Security (VDSI) Security Software & Services, fundamental rank [27/30],  down 30%, high expectations already built into stock and whacked when it missed estimates, should drop more to the 200 dma where it would be a fantastic long term buy opp.

• NII Holdings (NIHD), Wireless Communications, fundamental rank [26/30],  down 20%, stick a fork in it, it’s done; long term support around 45

• FormFactor (FORM) Semiconductor – Broadline, fundamental rank [24/30],  down 18%, took out all key support levels today

• Lincoln Electric Holdings (LECO), Machine Tools & Accessories, fundamental rank [25/30],  down 11%, failed base – now testing 200 dma and upward trend line

• Synchronoss Technologies (SNCR) Application Software, fundamental rank [27/30],  down 10%, trying to hold up at 50 day moving average but momentum should carry it through eventually

• Starent Networks (STAR), Wireless Communications, fundamental rank [25/30],  down 9%, just a fairly normal sell off following a big run; has support of previous breakout point around 24

• Terex Corp (TEX) Farm & Construction Machinery, fundamental rank [25/30],  down 8%, taking out support of 200 day moving average for just the 2nd time in the last couple years

• Celgene (CELG), Biotech, fundamental rank [26/30],  down 7%, plunged all the way to the 200 day moving average this morning and bounced sharply off the that support level

Belden (BDC), Industrial Electrical Equipment, fundamental rank [24/30],  down 7%, holding above key support levels as it works on right side of a base

Weekly/After Stock Market Review Archives

Reversal Indicates Short Term Support; Stock of Day – IntercontinentalExchange (ICE)

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In perhaps one of the most volatile years of trading we have seen in a very long time, today’s action was nothing more than a microcosm.  It was a jeckyll and hyde kind of day with the market plummeting early on after a big loss from Merrill, a miss from Amazon and like clockwork.. another poor housing number.  Given the intensity of the selling volume early on, it looked as if we would end down big.. perhaps bigger than Friday.  Inexplicably, the bleeding stopped, support was found and buyers (and short covering) fueled an end of day buying frenzy that nearly wiped away all of the losses.  Perhaps the wild volatility is just another clue that major top is being put in, but in the shorter term today’s reversal indicates further strength ahead.  Remember: bull markets die hard.  I don’t think today’s reversal was strong enough to spring up to test the highs again but we could push back to Dow 14,000 and SP500 1550.  However, while short term strength is highly possible from here, I’m still highly recommending caution up here.  Do not hold stocks through earnings, do not initiate large positions and absolutely do not use margin.

::: 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 24th 2007

Nasdaq: DOWN .88% today with volume 37% ABOVE average
Nasdaq ETF (QQQQ) DOWN .76%, volume 133% ABOVE average
Dow: DOWN .01%, with volume 20% ABOVE the average
Dow ETF (DIA): UP .06%, volume 62% ABOVE the average
S&P ETF (SPY): DOWN .18%, volume 83% ABOVE the average
Russell Small Cap ETF (IWM): DOWN .65%, volume 42% 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.  Leading stocks performed about in line with what the Nasdaq did, so weaker than the broad market today.

Summary:

* Decliners led Advancers 240 to 132
* Advancers were up an average of 1.54% today, with volume 21% ABOVE average
* Decliners were down an average of 2.08% with volume 23% ABOVE average
* The total SI Leading Stocks Index was DOWN .8% today with volume 22% 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, 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):
Energy, Commodities, Utilities

* Today’s Market Moving Industries/Sectors (DOWN):
Internet, Semis, Broadband, Semis, Networking

::: 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 Intercontinentalexchange (ICE), a highly rated exchange stock (a group that is on the move once again)

ABOUT: 

IntercontinentalExchange, Inc. operates as an electronic global futures and over-the-counter (OTC) marketplace for trading an array of energy products. It also operates as a soft commodities exchange. IntercontinentalExchange offer an integrated electronic platform for side-by-side trading of energy products in both futures and OTC markets. Through its electronic trading platform, the Company’s marketplace brings together buyers and sellers of derivative and physical commodities contracts. IntercontinentalExchange also offers open-outcry trading in Board of Trade of the City of New York, Inc (NYBOT) regulated futures and options markets. The Company conducts its OTC business directly and its regulated energy futures business through its wholly owned subsidiary, ICE Futures. It operates in three segments: energy futures, OTC and market data. On January 12, 2007, it acquired NYBOT. In July 2007, the Company acquired ChemConnect, Inc.’s commodity trading business.

FUNDAMENTALS: 

IntercontinentalExchange (ICE) is a company that (with the exception of 2003) has posted exceptional growth in each of the past several years.  The company posted its first profitable year in 2001 and since that time has posted year over year earnings growth of 125%, -61%, 67%, 140% and 150%.  The company isn’t expected to continue that accelerating growth but is still expected to post growth in the 40 – 50% range both this year and next.  Not too shabby at all.  With net margins at 45% and return on equity at 25% (although has dipped in the past year), it’s clear that ICE continues to exhibit all the characteristics of what I would call a home run stock.

TECHNICAL:  

There is no better day than today to feature IntercontinentalExchange (ICE).  The stock broke out of a long double bottom base today to new all time highs with good volume behind it.  Considering this is a 2nd stage base, this is a stock that has considerable room to run.  How far will largely depend on its earnings report tomorrow morning, but I expect the company to once again report excellent results and the stock to continue moving higher even if it dips a bit after earnings.  If there is a negative (and you can usually find one!), it’s that the middle peak of the double bottom base is much too high in the formation, making it a bit more prone to failure.  To reduce the risk in these kinds of situations, I like to let the stock break out and see how it pulls back.  If it breaks out with strong volume, then pulls back with light selling volume, your entry is far less risky than buying at the initial breakout.  Sure you may miss it, but who cares.  There are plenty of other opportunities out there!  ICE is one of my favorites.  It’s near the top of my watch list and should certainly be at the top of yours!

SELFINVESTORS RATING: With a total score of 51/60 (27/30 for fundamentals, 24/30 for technical), IntercontinentalExchange (ICE) 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 ICE but will consider one after it posts earnings tomorrow.

Company Earnings

Phase Forward (PFWD) & Vocus (VOCS) Soar on Earnings

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Today’s SelfInvestors Leading Stocks Moving on Earnings

UP

• Phase Forward (PFWD) Business Software & Services, fundamental rank [25/30],  up 17%, continuing to trend up into new all time highs

• Vocus (VOCS) Internet Software & Services, fundamental rank [25/30],  up 11%, also trending up to new highs – featured as Stock of the Day here back in May

DOWN

• Riverbed Technology (RVBD) Business Software & Services, fundamental rank [24/30],  down 27%, failed breakout with major moving averages taken out – drop to 30 from here likely

• Anadigics (ANAD), Semiconductor – Integrated Circuit, fundamental rank [22/30],  down 22%, broke a tight, steady trend today with a break of the 50 day moving average

Company Earnings

Satyam (SAY) & Millicom (MICC) Break Out of Cup With Handle Bases

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SelfInvestors.com Leading Stocks moving on earnings today.


UP

• Millicom (MICC) Telecom Services – Foreign, fundamental rank [24/30],  up 21%, broke out from cup with handle base today to new all time high

• Satyam Computer (SAY) Information Technology Service, fundamental rank [27/30],  up 11%, broke out of cup with handle base to new all time high

• ICON (ICLR) Research Services, fundamental rank [25/30],  up 8%, continuing to trend higher following its breakout back in September

• Apple Computer (AAPL) Personal Computers, fundamental rank [28/30],  up 7%, expect big resistance around 200

DOWN

• Kinetic Concepts (KCI) Medical Appliances & Equip, fundamental rank [26/30],  down 8%, big reversal from this morning’s gap up indicates further deterioration to at least the 200 day moving average highly likely

• Anixter Intl (AXE), Electronics Wholesale, fundamental rank [26/30],  down 6%, cup with handle base is failing with the stock taking out support of the 50 day moving average.

Mail Bag

Big Wall Street Myth: The Self Investor Can’t Be Successful

1 Comment

The following is a portion of an email sent to me from someone looking to get into the stock market and wondering how to proceed.  I have had a few discussions with her getting her started down the right path and she sent me the following over the weekend:

"Last night I had dinner in a wine bar, and next to us (my girlfriend and myself) sat a couple, and for some reason they wanted to talk to us.  Turns out the guy is a partner in a Hedge Fund …well anyway, I mentioned I have an interest in stocks and he suggested to me to stay away from the stock market, it will take all my money!  Find a nice mutual fund!  Ha!

To that I replied (ranted is probably a better description):

"Let me first say that I absolutely don’t recommend that the beginner start with forex and/or options.  Both are highly leveraged and can get fairly complicated.  If not careful you can wipe away your cash quickly.
 
I would master trading individual stocks on the long side first, then develop a short strategy (for profiting when the market falls), then move to options and forex once you’ve had a couple years of success.  That’s my opinion.
 
Regarding your dinner discussion I wish I was there!  This hedge fund manager has the view point of most "professionals" on Wall St.  "You can’t do it successfully on your own that’s why you need a professional such as ourselves to lose.. er I mean invest your money."

To that I say.. and let me be frank – bullshit!  You should have asked him what the 5 year track record of his fund was.  I’m willing to bet it was sub par at best.  Wall Street wants the potential self investor to believe that it’s not possible to make money without their help.  If the truth got out they would be out of business.  Just as they want you to believe that mutual and hedge funds are the way to go, they want you to believe that the buy and hold strategy is the far superior strategy.  Keep your money with us, dollar cost average over many years and we’ll make you rich.  Again, BS.  All it means is more management fees for them.  If you want to go the well diversified approach and dollar cost average just use index funds with a few good exchange traded funds.  Why pay management fees for a fund that is highly likely to under perform or at best match the return of the S&P500 over the long haul?.  It’s nonsense!
 
Just look at all the so called professionals who run mutual funds and under perform the market year after year.  How about all those hedge funds that are blowing up left and right because they forgot about "the hedge" part of equation and took on too much leveraged risk.
 
You ABSOLUTELY can make money in the market on your own.  Not only that but you can blow away the performance of mutual and hedge funds.  Why?  For one, the tools available to the self investor are increasingly on par with what’s available to the big fellas and much if it is free or affordable.
 
Perhaps the biggest reason that self investors can greatly outperform is due to the fact that you can be nimble and trade quickly in and out of small growth stocks.  Big funds take on such large positions that they must build them and liquidate them over several days to several weeks.  Furthermore, many of the high growth opportunities (in stocks below $15/share) are off limits to these funds because they simply aren’t liquid enough.
 
The self investor has major advantages and armed with the right knowledge and a few tools can kill that "nice mutual fund"!
 
Company Earnings

Petmed Express (PETS) Poised for Breakout After Earnings

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With earnings season ramping up I’ll begin highlighting leading stocks moving both up and down following their earnings reports. 

UP

• PetMed Express (PETS) Specialty Retail, fundamental rank [25/30],  up 6%, still carving out handle of a large base but appears ready to make a break out move any day now

DOWN

• Astec Industries (ASTE) Farm & Construction Machinery, fundamental rank [25/30],  down 22%, taking out all levels of support today with record volume

• Schering Plough (SGP) Drug Manufacturers – Major, fundamental rank [26/30],  down 13%, took out support of 50 and 200 day moving averages but still has support of an upward trend line

Weekly/After Stock Market Review Archives

Focusing on Technical Analysis Got You Out Near the Top; Hot IPO – Longtop Financial (LFT)

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I know I’ve said all this before but paying attention to the commentary of the newspapers, the magazines and the talking heads on CNBC is enough to well.. make your head spin.  Recession talk is bantered about amidst the back drop of Jim Cramer exclaiming Dow 14500 by the end of the year.  A few weeks ago IBD hinted that a recession is unlikely based on one jobs report against a back drop of CEO’s from major corporations sounding the alarm of potential economic weakness, further housing deterioration, etc.  The contradictions of opinions and background noise can and will keep you from your goal of making money in the market.  Only technical analysis of the market can keep you focused on how strong or weak the market really is.  Anyone who dismisses technical analysis as irrelevant should, in my opinion not be making decisions to invest their own money let alone money for their clients.  The big myth on Wall Street is that you can’t time the market.  No, you won’t always get in at the bottom and out at the top but with sound technical analysis you will capture the bulk of the move a high percentage of the time. 

Why does technical analysis work?  The reason is simple supply and demand.  Spikes in price and volume reveal the demand (or lackthereof) in stocks from the big fellas (institutions like banks, mutual funds, pension funds, etc) Since 60 – 70% of the move in the mark is the result of their trading it pays to follow their moves. .. and those moves show up in the charts!  A major focus of the blog is to analyze the charts for you to help eliminate all the noise that’s out there.  Over the past few weeks I’ve been recommending to my readers to be cautious and to begin locking in profits so a move like we had on Friday should not have been all that painful.

October 1st
"…. it’s clear that institutions didn’t do a whole of participating in today’s rally.  It seemed to be more of a case of the retail side fearing missing the next move up and some short covering.  Considering that the market is being led by commodities (no, Gold shouldn’t lead the way in a bull market) along with overbought conditions quite frankly I’m becoming skeptical of this rally.  I’m continuing to play it with small long positions and added a couple more today but I’ll be vigilant about looking for more warning signs and even more vigilant about protecting my profits."

October 7th
"…until the institutional money starts pouring in, this market rise remains a house of cards.  Notice how as the Dow pushes to record highs, but volume behind the move recedes.  The market looks tired up here and at the very least needs to take a breather and spend some time sideways.  At worst, this is the end of the road and marks a double top…

October 9th
"With the Nasdaq nearing some resistance at the upper level of a wide channel, the market may be soon be looking for excuses to take profits.  Now may be a good time to find excuses to take profits of your own."

October 11th
"I think tomorrow’s action will be fairly important.  Will retail sales and PPI data on the agenda for tomorrow, will it send the the market into another tailspin and confirm the selling of today?  It’s anyone’s guess but as I’ve been saying for several days now it’s best to remain cautious up here."

October 16th
"The bottom line is that all indications point to further deterioration in the coming weeks.  Preserve that capital and consider locking in profits quicker."

I highlight my remarks on the market  over the past couple weeks not to prove I was right but rather to serve as a reminder that simple technical analysis can provide you with the skills to time the market to a certain degree.  The deterioration over the past  several days had been forecasted well before with the divergence between and volume and finally with the high volume reversal on October 11th and finally a break of key trendlines on October 16th. 

Where do we go from here?  Down is the obvious answer.  With the degree of selling momentum we had on Friday, there will be further deterioration.  Now some of the volume on Friday can be attributed to options expiration so it wasn’t as severe as it appeared at first glance but I think we have another 2% down to go before we begin bouncing.  However, based on the action over the past few weeks I think it will be very difficult to take out those October highs before the end of the year. 

::: Model Portfolio Update :::

My strategy of playing cautious with a large cash position of near 50% but initiating positions in fairly aggressive stocks continues to pay off extremely well.  Despite a week in which the S&P was off 4%, the SelfInvestors Model Portfolio continued to push higher led by a 2nd position in LULU initiated on Oct. 16th as well as long time hold Google (GOOG) which continues to defy gravity.  Also helping the portfolio to greatly outperform the market was a hedge position initiaiton in the Nasdaq Ultra Short (QID) on Oct 12th which I continue to hold along with a short position in BTH which as was added this past week.  With a year to date return of 21.8%, the Model Portfolio has now returned nearly 4x that of the S&P 500 and is in position to be one of the top performing Model Portfolios of all advisory services for the 2nd year in a row.  If you’ve been following my review of the portfolio here in 2007 you know that I struggled a bit in the middle of the year so this is a big turn around and hopefully is a good reminder to all who trade their own accounts that there will be peaks and valleys along the way.  The key is to keep emotions in check, stick with the strategies that have been successful in the past  and remain confident! 

::: Best/Worst Performers :::

– Top 10 Performing Industries For the Week –

1. Computer Peripherals: 5.85%
2. Dairy Products: 2.70%
3. Processing Systems & Products: 2.50%
4. Tobacco Products: 1.45%
5. Major Integrated Oil & Gas: 1.00%
6. Cigarrettes: .85%
7. Personal Computers:  .80%
8. Semiconductor – Equipment & Materials: .80%
9. Air Services – Other: .65%
10. Independent Oil & Gas: .50%

– Top 10 Worst Performing Industries For the Week –

1. Surety & Title Insurance: -19.35%
2. Residential Construction: -11.50%
3. Mortgage Investment: -11.20%
4. Savings & Loans: -10.25%
5. Sporting Goods Stores: -9.40%
6. Trucks & Other Vehicles: -9.20%
7. Banks – SE: -9.10%
8. Home Improvement Stores: -8.90%
9. Investment Brokerage: -8.70%
10. Recreational Goods: -8.60%

– Top 5 Best Performing ETFs For the Week –
 
1. US Oil (USO)  4.90%
2. Ishares Commodities (GSG) 3.55%
3. Powershares Commodity (DBC) 2.80%
4. Powershares Agriculture (DBA) 2.80%
5. Ishares Gold (IAU) 2.10%

– Worst 5 Performing ETF’s –

1. Herzfeld Cuba (CUBA)  -18.15%
2. HLDRS Utilities (UTH) -14.70%
3. Ishares Home Construction (ITB)  -10.70%
4. Morgan Stanley China (CAF) -10.55%
5. KBW Banking (KRE)  -10.30%

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

There are few great looking IPO’s coming this week – yet another Chinese IPO, 2 strong energy IPO’s and another srong women focused retailer (the last one, Lululemon has performed remarkably).

1.  Longtop Financial Technologies (LFT):  Longtop Financial Technologies makes software to help manage your hard cash. The firm designs both custom-built and standard software and services for financial services clients in China. Its channel-related software enables banks to interact with customers through numerous channels, including ATMs, bank tellers, call centers, and Web sites. Its business-related products help banks conduct transactions like international trade finance, payments and settlements, and credit card operations. The firm’s management-related software supports clients’ internal operations. Among its customers are several of China’s leading banks, including China Construction Bank, Agricultural Bank of China, and Bank of China.  Trading set to begin on Wednesday.

2. CVR Energy (CVI): an independent refiner and marketer of high value transportation fuels and, through a limited partnership, a producer of ammonia and urea ammonia nitrate, or UAN, fertilizers.  Trading set to begin on Tuesday.

3.  Ulta Salon, Cosmetics & Fragrance (ULTA):  operates 200-plus stores in about 25 states. More than a third of its stores are located in Illinois, Texas, and California. Ulta sells cosmetics, fragrances, skin and hair care products and appliances, and accessories. Ulta stores also offer hair salon services, as well as manicures, pedicures, massages, and other beauty and spa treatments. The company’s Web site ULTA.com is being upgraded to offer about 9,000 products and more than 400 brand names. Trading set to begin Thursday

4. Vanguard Natural Resources (VNR):  Vanguard Natural Resources is at the forefront of oil and gas exploration in the hills of the Appalacia Basin. Focusing its efforts in southeastern Kentucky and northeastern Tennessee, the company acquires and develops oil and gas properties in the region. Trading set to begin on Wednesday. 

::: Upcoming Economic Reports (10/22/07 – 10/26/07) :::

Monday:         None
Tuesday:       None
Wednesday: Existing Home Sales, Crude Inventories
Thursday:      Durable Orders, New Home Sales
Friday:            Mich Sent (rev)

::: Upcoming Notable Earnings Reports :::

Monday:  Apple (AAPL), Weathorford International (WFT), Astec Industries (ASTE)

Tuesday:  Smith International (SII), Satyam Computer (SAY), Trimble Navigation (TRMB), Precision Castparts (PCP), Anixter Intl (AXE), T Rowe Price (TROW), Riverbed Technology (RVBD), Centex (CTX), Coach (COH)

Wednesday: VMWare (VMW), Alcon (ACL), Grant Prideco (GRP), Legg Mason (LM), Complete Production Services (CPX), Freeport McMoRan (FCX), Monster Worldwide (MNST), Starent Networks (STAR), VCA Antech (WOOF), Chicago Mercantile (CME), F5 Networks (FFIV), Taser Intl (TASR)

Thursday: LifeCell (LIFC), Companhia Vale do Rio (RIO), Vasco Data Security (VDSI), Ultimate Software (ULTI), Celgene (CELG), Syntel (SYNT), Stericycle (SRCL), FLIR Systems (FLIR), Diamond Offshore (DO), EMC (EMC), MEMC Electronic Materials (WFR), Baidu.com (BIDU), Dynamic Materials (BOOM), Intercontinental Exchange (ICE), Double-Take Software (DBTK), Life Time Fitness (LTM), LKQ Corp (LKQX), Synchronoss Technologies (SNCR), Spartan Motors (SPAR), Varian Sem Equipment (VSEA), VistaPrint (VPRT)

Friday: CountryWide Financial (CFC), IDEXX Laboratories (IDXX), Tidewater (TDW), Fortune Brands (FO)

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

1. Putting the Plural in SelfInvestors – Options Trading Lessons Begin

2. Google (GOOG) Hitting On All Cylinders, Still No Reason To Sell

3. Holding Google (GOOG) Through Earnings Again

4. Trade of the Day – Score With Stripper Stocks: VCG Holdings (PTT)

5.  More Distribution & Broken Trend Lines

6.  Breakout Stocks Highlights! China, Shipping & Oil

Options

Putting the Plural in SelfInvestors – Options Trading Lessons Begin

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It has long been my desire to bring to my readers another perspective on the market as well as insight into other tools and strategies.  When I first set out to build SelfInvestors.com over 4 years ago my first choice of domain name was SelfInvestor.com but that was taken so I was left with SelfInvestors.com.  As it turns out it was the far better choice.  I am but one Self Investor.  There are many Self Investors who are trading their own accounts and making a living, allowing them to work whenever and wherever they choose.  There are others who are funding their retirement or funding the education of their children.  Trading stocks for a living is in my opinion the best job in the world and I know that those who trade for a living feel as I do.  From here on out it is my goal to bring you perspectives of other successful Self Investors and I begin today (my fault for getting this posted so late) with Barry Brush (aka 2Dimes).  I’m very pleased to have him contributing and know you will be  too.

2Dimes Investor Notes

Good morning and TGIF!  It’s 7 a.m. EDT here in Charlotte, North Carolina.  My daughter is off to high school, the cat’s fed and the dogs are sleeping.  My wife will be back in a few moments from carpool to stir things up.  It’s the last day of the options trading cycle for October and I’m excited about today’s outcome.

This is my first post for SelfInvestors.com. Your friend, Tate Dwinnell, kindly opened his door and invited me to periodically share my insights on trading as I go about making a living in the market.  My name is Barry Brush, I’m an options trader. Call me “2Dimes.”

Before I go farther, I’d just like to say one thing about options: *Please read Characteristics and Risks of Standardized Options before investing in options. Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial Gains.

I think Tate has done an excellent job putting together and managing the SelfInvestors.com site for all of us.  It is a valuable asset for any trader’s toolbox.  It has a clear crisp user interface and is full of meat and potatoes.  The equities he tracks and analyzes are mainstream and pertinent in all respects.  A ‘10’ all the way.

A little about me personally: I’m a graduate of the Vietnam era USAF. After my stint in an O-2A, (a la “Bat-24”), I joined Merrill Lynch, Pierce, Fenner and Smith as an Account Executive. That was during 1974 and 1975 when the CBOE (Chicago Board of Options Exchange) had just opened.  I knew a little about options then; but my love for flying led me back to a 32 year career as a commercial airline pilot.

I was compelled to retire medically at the age of 57, a year after 9/11. It was a two time bankrupt and bought out airline that is still in business today with a whole new Board of Directors and covey of new shareholders.

At a motivational seminar one day, a guy got up and told me how easy it was to make money in the stock market following little red and green arrows.  I said “Wow! That looks easy!”, and I was in.

That was 4 years ago. Now after a lot of trial and error, study, emotion and commissions, I make my living Trading options. I don’t have a million dollars in my trading account but working up from 10 grand to about 400K over 3years has given me the confidence to feel that I may be doing something right. The major thrust of my blog will be to help others do the same.

So here’s a preview what you will have to look forward to from me. Over the next weeks and months, we will focus on how to be successful in Options Trading. I will shed some light on topics such as: Trading Strategies, Basic Options Education, Risk, Money and Emotional Management. I plan to compare different tools, charts, programs, ect. I’ll give you my thoughts on various brokerages, Market Gurus and useful literature. My intent will be to distill for you some of the often overwhelming and voluminous amount of information out there so you can simplify your job of trading successfully.

By now you have probably asked yourself what’s the “2dimes?” Well that’s just it. What is it? 2dimes is a pair of dimes, an anagram that should bring to mind: the word PARADIGM. It’s what you look at; but can not see. What you know but do not understand. That which you don’t know because you don’t know you don’t know it. Check out the guys on the logo again. Neither one of them can see what the other sees; but they both see something. One is profit, one is loss. Which do you want to see?

I have 3 daughters from age 34 to 14 and a 24 year old son. Given the nature of the wealth creation vehicle I have built, it is imperative that I teach one or all of them how to carry on when I return to flight. So, to keep it simple I’ll always try to explain things as if you were one of them.

Let’s start with one of my favorite topics. I call it “The First Law of The Market.” Stated simply, it follows that the only constant in the Market is CHANGE; and it is Price and Volume Action that rules that change.

You already know that you want to buy or sell in the direction of a trend. So, when do you start riding that horse? And when do you dismount? The Law of the Market tells you with out any fancy signals or processor frying algorithms. 2Dime’s First Law of the Market states: “Never Ever Buy or Sell until the Volume confirms your action.” Say it three times to yourself now and once before you go to bed. STLD provided a good example on Wednesday and Yesterday. (See Below)

 


That’s all for now, I’ll leave you with a thought for the day: “Knowledge hides behind its own language”.

Cheers, 2Dimes / Barry Brush (To contact me send an email. To support@selfinvestors.com and Tate will make sure I get it.)

Google

Google (GOOG) Hitting On All Cylinders, Still No Reason To Sell

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There were very few surprises in the Google report after the bell today, unlike last quarter when there was an unexpected spike in hiring as well as a one time bonus accruals cost that resulted in a miss for just the 2nd time since the company went public.   It caused some concern and knee jerk selling, but as I mentioned in my analysis of the last earnings report, it appeared to be an aberration and the concern was overblown creating an outstanding opportunity to steal shares.   With the share price up around 25% since that report what a steal it was! 

This time around the company returned to tradition and handily beat consensus EPS of 3.77 by posting a 3.91.  Revenue growth year over year continued to decelerate incrementally and came in at 57% over the year ago quarter.  No, this was not a blow out quarter (they did not beat the whisper number of 3.95) but it was a very good quarter.  When you consider the size of this company, that kind of growth is absolutely astounding.  Throw in the fact that the company continued its hiring binge last quarter by adding an additional 1800 employees (subtracting the Postini headcount), not to mention its push into new advertising formats as well as putting together an online "office" type suite that will one day rival Microsoft and it’s no wonder the stock will be approaching $700/share soon.

Here are a few highlights from the conference call transcript (provided by Seeking Alpha)(my comments in bold):

CEO Eric Schmidt:

"Looking at it as search, ads, and apps, on the apps side, we are now seeing a massive transition to web-based cloud computing at a consumer and enterprise level. We talked about this for a while and we now see not only the progress but also the future products, both from Google and from the other folks in the industry to make this really happen.

In our case, of course, we launched the presentation product as well as closing Postini, which is central to our enterprise push.

We are really on the cusp of a world where everyone can create, share, collaborate and find their content in the cloud anytime and anywhere."

At what point do they begin monetizing these properties with advertising or do they? 

CFO George Reyes:

"We are particularly pleased with our AdSense performance, which grew 8% over the second quarter and 40% over last year to $1.5 billion. Both the AdSense for content and AdSense for search businesses were strong as we experienced continued increases in traffic and improved our ability to monetize our newer partner relationships."

People are still clicking on those text ads so there doesn’t appear to be problems with text ad blindness yet.

During the quarter, we added 2,130 employees, the majority in engineering and sales and marketing. At the end of the quarter, we had a full-time employee base of 15,916.

Consistent with previous years, a large portion of our starts in the third quarter were related to university hires. Approximately 1,000 employees had accepted offers earlier in the year but started in Q3, after the end of the academic year.

Included also are approximately 300 employees from the Postini acquisition which closed in September. As we have previously discussed, we are continuing to take a careful look at how we can more efficiently allocate resources across functions and globally.

The spike in hiring last quarter was a concern but the company explanation about university hires and the acknowledgement that they need to watch it closely should satisfy analysts until the next report

Jonathan Rosenberg:

I think TV ads could actually really be underappreciated for the reason that you mentioned, in terms of our offline efforts. This is really one of the few places where you can bring the same type of Internet level accountability to offline advertising, so with search advertising, obviously our customers see real-time how their ads performed.

The same thing is really true with the feedback mechanism that we get with set-top boxes. We are bringing the same level of granularity to the offline TV format. The trials that we have right now are with EchoStar and Astound Cable.

And what we are able to do there is we are able to show the advertisers when their spot is playing and look at the viewing levels of users actually during the course of the spot, so we are very excited about how that is playing out and we think it bodes very, very well for our progress in TV.

Google’s efforts in the offline world doesn’t get much attention but if they can make inroads into the TV market look out.  What’s interesting is that no mention was made of the radio ad initiative anywhere in the conference
call.

Larry Page:

I think we have many, many different options available to us as a company, in terms of spectrum and connectivity for people in wireless and so forth, so I don’t think we feel like there’s any desperate need for us to have to bid to win or anything like that. And again, the money is not burning a hole in our pockets.

In my opinion, making and winning a large bid for this spectrum would be the one thing that could derail Google stock so as a shareholder good to see Larry saying this.

Eric Schmidt

On the mobile side, we have talked at some length about our mobile application strategy. We are very happy with it. Mobile applications, there’s some evidence that we are becoming the leading mobile applications provider, at least in certain segments, and the mobile story is a very strong one for Google. It is also a great one for the world.

Mobile is perhaps the biggest source of potential revenue down the road.

Conclusion:

What jumps out to me as I read through the Google conference call transcript is that this is a company that hasn’t come close to peaking.  When you talk about adsense via text link ads perhaps this is a business that has matured and in a sense peaked but keep in mind that the company hasn’t yet monetized YouTube, hasn’t yet monetized its online applications, hasn’t yet capitalized on TV or radio and is just scratching the service in mobile.  Of course there are questions in all these areas but if they hit a homerun in just one or two of them and have moderate success in the others, they should continue to grow earnings and sales in the 40 – 60% range for at least a few more years.  Any hiccups along the way, just as we saw last quarter just provide buy opportunities.  Do not miss them.

Disclosure: I’m long Google (GOOG)