All posts by Tate Dwinnell

Weekly/After Stock Market Review Archives

Bulls/Bears Battle Resistance; Hot IPO – Lululemon Athletica (LULU)

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Following last weeks breakout move of the market, there were all kinds of earnings reports, economic data  and fed speak to sway the market big either way.  I was looking for some kind of confirmation of the breakout move (ie. a convincing move above Dow 14,000 and all time highs of the S&P around 1555), especially considering that the breakout move itself was suspicious, occurring with lackluster volume. Outside of some good ‘ol fashioned jubilee on CNBC when the Dow closed a hair above 14000, the bulls weren’t strapping on the party hats this week.  With the exception of the move on Friday, it was for the most part, a stalemate (despite some big intraday swings) and I still await a confirmation move.. I think that move may have to wait awhile. The downside momentum on Friday sets up a test of new support levels in the indices and probably more volatile sideways action.
 
 For the week, I’m calling the action just a bit bearish based on Friday’s move (volume as skewed higher due to double witching). Over the next few weeks I’m straddling neutrality..

 ::: Model Portfolio Update :::

I didn’t do a whole lot with the Model Portfolio this week which is fairly typical during earnings season because I rarely hold a stock through the earnings report.  This eliminates many opportunities from consideration in the coming weeks.  One company I do hold through earnings season is Google which I have been building a position in for some time and it represents the backbone of the portfolio.  Needless to say, I took a bit of a hit after the earnings miss, but as I wrote up over at the blog, I’m satisfied enough with the earnings report and believe the miss was an aberration due to one time costs associated with over hiring and a modification of accounting.  I’m holding on and may add to my position in the coming weeks.  I didn’t hold on with NVEC and dumped the position ahead of earnings for a 12% gain which saved me from further earnings report damage.  Also closed during the week were small positions in HANS (-4%) and AMZN (+1).  Both stocks look OK, but have stalled out for the time being and probably need more time to base.  With earnings coming up, the right thing to do was get out and wait for better entries.  On the addition side, two new Quick Strike Profit plays were added.  For the week, the portfolio took a 3% hit bringing the YTD performance to 5.3%.  Obviously, I’ve got my work cut out for me if I’m going to whoop the S&P again this year.  I’m up for the challenge!

::: Best/Worst Performers :::

– Top 10 Performing Industries For the Week –

1. Manufactured Housing: 8.45%
2. Data Storage Devices: 4.50%
3. Semiconductor – Equipment & Materials: 4.40%
4. Railroads: 3.85%
5. Diversified Computer Systems: 3.45%
6. Medical Appliances & Equipment: 3.35%
7. Gold:  3.15%
8. Home Furnishing Stores: 2.90%
9. Application Software: 2.85%
10. Specialty Chemicals: 2.80%

– Top 10 Worst Performing Industries For the Week –

1. Recreational Goods: -8.30%
2. Drug Delivery: -8.10%
3. Investment Brokerage National: -6.65%
4. Residential Construction: -6.50%
5. Toy & Hobby Stores: -6.30%
6. Long Distance Carriers: -5.70%
7. Sporting Goods: -5.70%
8. Internet Info Providers: -5.30%
9. REIT – Healthcare Facilities: -5.20%
10. Surety & Title Insurance: -5.00%

– Top 5 Best Performing ETFs For the Week –
 
1. Indonesia (IF)  23.00%
2. Gold Miners (GDX) 4.20%
3. Turkish Investment Fund (TKF) 4.20%
4. HLDRS Internet Architecture (IAH) 2.85%
5. Ishares Oil Equipment & Services (IEZ) 2.80%

– Worst 5 Performing ETF’s –

1. Japan Small Cap (JOF)  -5.25%
2. Ishares Broker Dealer (IAI) -5.20%
3. Proshares Agriculture (4.30) -4.30%
4. Ishares Home Construction (ITB) -4.20%
5. US Natural Gas (UNG) -4.15%

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

1. Lululemon Athletica (LULU): The company designs and sells lululemon athletica and oqoqo branded apparel for the athletically hip in nearly 60 franchised and company-owned stores. lululemon athletica specializes in women’s clothing designed for yoga, dance, and running, and is expanding its accessories, undergarments, and outerwear lines and growing its men’s business. Nearly three-quarters of its shops are in Canada, with some 15 in the US, three in Japan, and one in Australia. Third-party, mostly Taiwanese, vendors manufacture its apparel, which is distributed from facilities in Vancouver and Washington.  The company is growing quickly and profitable making it the hot IPO of the week!  Trading set to begin on Friday.

2.  Perfect World (PWRD): Perfect World offers multiplayer online role-playing games (MMORPGs) to the masses. Popular titles include Perfect World, Legend of Martial Arts, Perfect World II, and Zhu Xian. With Perfect World, the company generates revenue using a time-based revenue model; players are charged based on the time they spend playing the game. The remaining games derive revenue based on an item-based model; players play games for free but pay for in-game item purchases (such as performance-enhancing products, clothing, and related accessories).   Trading set to begin on Thursday.

3.  Rex Energy (REXX):  The oil and gas exploration and production company has estimated proved reserves of 14.5 million barrels of oil equivalent, primarily from three regions: the Illinois Basin (in Illinois and Indiana); the Appalachian Basin (Pennsylvania and West Virginia); and the southwestern US (New Mexico and Texas). The company’s Lawrence Field ASP (alkaline-surfactant-polymer) Flood Project utilizes ASP technology, which washes residual oil from reservoir rock, thereby improving the existing waterflow’s ability to sweep the residual oil and increasing ultimate oil recoveries.    Trading set to begin on Wednesday.

4. Voltaire (VOLT): The company designs and develops server and storage switching hardware and software for high-performance grid computing. Voltaire’s products allow end customers to manage the growth of their data center’s through scalable high performance switching hardware and dynamic management and provisioning software. Outsourcing the manufacturing work, Voltaire relies on its two contract manufacturers to churn out its switching components. The company also relies on server original equipment manufacturers (OEMs) to incorporate the Voltaire Grid Backbone into their products as its primary sales channel. Trading set to begin on Thursday.

5.  BladeLogic (BLOG): The company offers data center automation software to clients such as General Electric, Microsoft, priceline.com, and Sprint. BladeLogic also offers a variety of professional services including consulting, support, training, installation, and maintenance.  Trading set to begin on Wednesday.

6.  Monotype Imaging Holdings (TYPE):  The company’s software offers scaling, compression, and lay out programs for formatting text on laser printers, digital copiers, mobile phones, digital televisions, and digital cameras. It allows customers to access more than 9,000 typefaces. Monotype also licenses its fonts on four Web sites frequented by creative and business users though most of its revenue comes from OEM sales. Major customers include Nokia, JVC, Sony, Hewlett-Packard, and Microsoft.  Trading set to begin on Wednesday.

::: Upcoming Economic Reports (7/23/07 – 7/27/07) :::

Monday:        None
Tuesday:       None
Wednesday:  Existing Home Sales, Crude Inventories, Fed Beige Book
Thursday:      Durable Orders, Initial Claims, New Home Sales
Friday:           GDP (adv), Chain Deflator (adv), Mich. Sentiment (rev)

::: Notable Upcoming Earnings Reports I’ll Be Watching This Week :::

Monday:

Woodward Governor (WGOV), Steel Dynamics (STLD), Atheros Communications (ATHR), Grupo Aeroportuario Del Paci (PAC)

Tuesday:

Smith International (SII), Robert Half (RHI), Legg Mason (LM), Jacobs Engineering (JEC), Complete Production Services (CPX), Ladish (LDSH), Portfolio Recovery Associates (PRAA), ENSCO Intl (ESV), Ceradyne (CRDN), Burlington Northern (BNI), Cerner (CERN), New Oriental Education (EDU), EMC (EMC), America Movil (AMX), Homex
Development (HXM), Lam Research (LRCX), Double Take (DBTK), Precision Castparts (PCP), Anixter International (AXE), Phase Forward (PFWD), Chicago Mercantile (CME), Vocus (VOCS), Paccar (PCAR)

Wednesday:

Apple (AAPL), Lifecell (LIFC), National Oilwell (NOV), Alcon (ACL), Grant Prideco (GRP), F5 Networks (FFIV), Core Laboratories (CLB), MEMC Electronic Materials (WFR), Akamai (AKAM), Baidu.com (BIDU), Allegheny Technologies (ATI), Mellanox Technologies (MLNX), RPC (RES)

Thursday:

Rediff.com (REDF), VASCO Data Security (VDSI), Falconstor Software (FALC), The Ultimate Software Group (ULTI), Celgene (CELG), Strayer Education (STRA), Stericycle (SRCL), Diamond Offshore (DO), Comcast (CMCSA), W-H Energy Services (WHQ), NII Holdings (NIHD), Tidewater (TDW), Intercontinental Exchange (ICE), Franklin Resources (BEN), Life Time Fitness (LTM), LKQ Corp (LKQX), Netgear (NTGR), Riverbed Technology (RVBD)
                 
Friday:

Baker Hughes (BHI)

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

1. Trade of the Day – Tucows (TCX), Breakout to New Multi Year Highs
https://selfinvestors.com/tradingstocks/stock-trade-of-the-day/trade-of-the-day-tucows-tcx-breakout-to-new-multi-year-highs/

2. Trade of the Day – Iconix Brand Group (ICON) Attempts Cup With Handle Breakout
https://selfinvestors.com/tradingstocks/stock-trade-of-the-day/trade-of-the-day-iconix-brand-group-icon-attempts-cup-with-handle-breakout/

3. Sunpower (SPWR) & NVE Corp (NVEC) Dive After Earnings But Still Have Support
https://selfinvestors.com/tradingstocks/company-earnings/sunpower-spwr-nve-corp-nvec-dive-after-earnings-but-still-have-support/

4. Google (GOOG) Reports Earnings After Bell, Holding Again
https://selfinvestors.com/tradingstocks/company-earnings/google-goog-reports-earnings-after-bell-holding-again/

5. Trade of the Day – Cup with Handle Breakout in PRG Schultz (PRGX)
https://selfinvestors.com/tradingstocks/stock-trade-of-the-day/trade-of-the-day-cup-with-handle-breakout-in-prg-schultz-prgx/

6. Google (GOOG) Sell Off Offers Opportunity; Strong Technical Support at 500
https://selfinvestors.com/tradingstocks/company-earnings/google/google-goog-sell-off-offers-opportunity-strong-technical-support-at-500/

7. Intuitive Surgical (ISRG) Soars; Google (GOOG) & Caterpillar (CAT) Hold Up After Earnings https://selfinvestors.com/tradingstocks/company-earnings/intuitive-surgical-isrg-soars-google-goog-caterpillar-cat-hold-up-after-earnings/

ETF Movers

ETF Review – Indonesia, Thailand, Software Breakout; Financials Breakdown

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Running through the charts of the ETF’s provides a great look at where in the market the money is moving which can reveal not only rotations but the health of the overall market..  I thought I’d throw up the charts of ETF’s breaking out and breaking down which indicate emerging strength in southeast Asia (Thailand, Indonesia) and Software.  Clearly breaking down are the Financials.

Breakouts

thailand ttf etf

indonesia if etf chart

central europe cee etf stock chart

software etf swh stock chart

The Breakdowns

financials etf xlf stock chart

broker dealer etf iai stock chart

insurance etf kie stock chart

Company Earnings

Intuitive Surgical (ISRG) Soars; Google (GOOG) & Caterpillar (CAT) Hold Up After Earnings

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Today’s Growth Stock Big Earnings Movers: 

UP

• Intuitive Surgical (ISRG) Medical Appliances & Equipment, fundamental rank [24/30],  up 32%, adding to gains from a recent breakout in a big way, but hitting 200 which could be resistance for some time

• Kinetic Concepts (ASML) Medical Appliances & Equipment, fundamental rank [26/30],  up 13%, also adding to  gains after recent breakout and approaching all time highs around 80

• Omnicell (OMCL) Computer Based Systems, fundamental rank [24/30],  up 12%, surging off 200 day moving average and approaching new all time highs

• Schlumberger (SLB) Oil & Gas Equipment/Services, fundamental rank [28/30],  up 4%, just keeps on marching to new all time highs

DOWN

• Cybersource (CYBS) Business Software & Services, fundamental rank [26/30],  down 13%, close to failure of recent breakout – stll has support of the 200 day moving average

• Caterpillar (CAT), Farm & Construction Machinery, fundamental rank [24/30],  down 6%, nice bounce off 50 day moving average, still looks good technically

• Google (GOOG) Internet Service Providers, fundamental rank [27/30],  down 5%, held up at support of 50 day moving average and point of previous breakout.. still in fine shape technically

Google

Google (GOOG) Sell Off Offers Opportunity; Strong Technical Support at 500

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Google surprised everyone last night when they missed earnings estimates for just the second time in the 12 quarters since going public by posting earnings of 3.56/share (when you take out costs for employee stock compensation).  That was 3 cents shy of analyst estimates and well below the whisper number of 3.75.  Call it a case of not meeting lofty expectations from perhaps the most admired company in the world as well as higher one time costs which I’ll go into below.  So, just as traders did after the bell, time to head for the exits right? No!! Maybe I’m a glass half full kind of guy but after reading through the reports and the entire transcript (thank you Seeking Alpha) I still feel good about Google and see this sell off as opportunity, not as a reason to head for the exits.  Let’s run through the highlights of the quarter:

First the good….

– Revenue came in at a 58% increase over the year ago period which beat analyst estimates.  No problem here. 

– Revenue generated from Google.com properties grew an impressive 74% year over year and 9% sequentially.  It was driven by global traffic growth and higher quality advertising. 

– Adsense revenue increased 36% year over year but was flat sequentially due in part to seasonal trends but also due to the company cancelling accounts of unfavorable publishers (ie. made for adsense spam sites). 

– International growth fueled by Europe now makes up 48% of revenues

– Traffic acquisitions costs decreased to 30% of total revenue, down from 31% in the first quarter

.. and the not so good…

You can see on the revenue side it was a great quarter.  The problem was in the earnings per share number which was driven down below expectations due in part to much higher than anticipated costs associated with rampant hiring and what appears to be a higher one time cost associated with a revision of the employee bonus accrual methodology which led to a higher bonus accrual for this quarter.

Rampant Hiring

The number of new hires increased to 1548  this quarter compared to 1152 in the year ago quarter.  That’s a whole lot of additional on site hair cuts, catered meals, oil changes, dry cleaning and whatever else it is that the company famously provides… not to mention stock options and bonuses.  A few quotes:

"A second factor driving expenses was headcount growth, which led to higher payroll expenses. We added 1,548 employees in Q2, the majority in sales and marketing and engineering," said CFO George Reyes.

CEO Eric Schmidt acknowledged they will be more careful about hiring in the future:

"From a Google perspective, when we look at the quarter, one area we exceeded over our expense plan was headcount. We are very pleased with the talent that we’ve brought on board, but going forward we will watch this area very closely."

Higher Bonues Accrual

This is the one part of the transcript that in my opinion stood out the most and a big reason why I feel that the earnings miss this quarter was an aberration and not the beginning of a trend.  If you read the transcript, you’ll see that analysts were keying on this as well.  Some quotes…..

"One of the larger drivers of payroll expense was the company bonus plan. This was due in part to a revision of our bonus accrual methodology that will allow us to more proportionately recognize the related expenses each quarter. This all led to a higher bonus accrual in Q2, which includes a catch-up from Q1, and affected all expense line items…going forward it should be a more normalized bonus accrual process. This was just sort of a one-time inflection that we tried to do to true-up the bonus , " said CFO George Reyes.

CEO Eric Schmidt:

"In general, we don’t break out all the puts and takes on the changes in the accrual. What I would tell you is that we overspent against our own plan in the area of headcount, and some of it was related to this bonus accrual that I talked about; and some, because we hired a little faster than we had planned.   In looking at it we thought, was this a mistake or not? We decided it was not a mistake, that in fact the kind of people we brought in are so good that we’re happy we did this. As I said earlier, we will continue to watch this very carefully in the future. "

Conclusion

Google is a company that has seen a deceleration of its growth every quarter for over 2 years now, so that trend continuing is no surpirse given the billions upon billions this company now generates every year. It’s just flat out difficult to maintain the kind of growth they were achieving.   At some point, and I think that is beginning to happen, the company will settle into quarter over quarter growth of 30 – 40% which is outstanding for a company of this size.  Yes, it’s time for Wall Street to lower expectations a bit and this quarter miss should go a long ways in achieving that.  All in all, it was another great quarter tarnished a bit by what appear to be one time costs.  This sell off in my opinion will offer opportunity.

Technicals

What can we expect in trading today?  After hours the stock flirted with key support around 500 and this will remain a key area of support as I highlight below. 

Here’s a look at the weekly chart, which reveals strong support around 500 at the 2 year upward trend line.  Despite the headlines that a 40 point drop in Google creates, realize that it’s just a 7 – 8% drop and key support levels remain in place for now.

 google goog stock chart weekly

The daily chart reveals support levels on a more granular level – first level of support around where the previous breakout point and the 50 day moving average converge (lets call it 510 – 513).  The last level of support for this stock is in the area of 480 – 490 which is an area where the 200 day moving average and the upward trend line converge.

google goog stock chart daily

I personally held my long term position in Google through this earnings report and will look at this dip as a buy opportunity.  However, I won’t jump into it right away.  It’s going to take some time for traders to sort out this report and for analyst to issue their reports.  Once trading volume subsides to more normal levels and we get a clear idea of where exactly this stock will find support, I will be looking to add shares in this outstanding company.

Stock Trade of the Day

Trade of the Day – Cup with Handle Breakout in PRG Schultz (PRGX)

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prgx stock chart breakoutYesterday I highlighted a cup with handle breakout in Iconix Brands (ICON) and today I’ve got another cup with handle breakout for you in PRGX.  While this is an excellent looking base showing significant demand and profit opportunity it should be noted that it isn’t a high quality company like Iconix is.  This is a trade and nothing more.  I’ve initiated a small position in this myself and am looking for a quick 15 – 20% gain over the next couple weeks.

 

Company Earnings

Google (GOOG) Reports Earnings After Bell, Holding Again

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As you probably know Google will report after the bell today and I think expectations are reasonable.   When I say expectations I’m referring to the whisper number of 3.75/share and not the consensus analysis estimates of 3.59/share.  At 3.75/share that gives the company 51% quarter over year ago quarter growth which would continue the decelerating growth trend of the for the last couple years.  Obviously a company this big can’t continue to post the growth it had previously.  As usual, the company will have to meet or exceed that 3.75 a share earnings number to avoid selling off after earnings and I fully expect that the company will at least match the whisper number.  If they do not it won’t be much of a concern because I have a long term view of the company and am looking for opportunities to add to my position.  Should the stock sell off and drop to support of the 50 day moving it would just offer another opportunity to add shares.  Companies like Google don’t come around very often so either way, it will be a win win situation.

Company Earnings

Sunpower (SPWR) & NVE Corp (NVEC) Dive After Earnings But Still Have Support

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Today’s Growth Stock Big Earnings Movers: 

UP

• Nasdaq Stock Market (NDAQ) Business & Management Services, fundamental rank [23/30],  up 4%, now pushing above the 200 day moving average and carving out the right side of a large base

• ASML Holding (ASML) Semiconductors – Equipment & Materials, fundamental rank [24/30],  up 4%, continuing solid trend along the 200 day moving average

DOWN

• NVE Corp (NVEC) Semiconductor – Specialized, fundamental rank [26/30],  down 9%, technically it still looks OK despite the big drop today.. still has support of the 50 day moving average

• Knoll Inc  (KNL), Business Equipment, fundamental rank [24/30],  down 9%, took out support of 200dma.. this is done for quite awhile

• Sunpower Corp (SPWR) Scientific & Technical Instruments, fundamental rank [26/30],  down 6%, still well above support levels.. today’s selling probably sets up a healthy consolidation

• Manpower (MAN) Staffing & Outsourcing Service, fundamental rank [22/30],  down 5%, recent flat base breakout is failing; taking out support of 50 day moving average

::::::::::::::: Billboard::::::::::::::::

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Stock Trade of the Day

Trade of the Day – Iconix Brand Group (ICON) Attempts Cup With Handle Breakout

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Cup with handle breakouts can often be successful chart patterns in a bullish market and today I highlight a breakout from a cup with handle base in Iconix Brand Group (ICON).  It’s long been a highly rated retailer in my database and today it broke out from the downward trend of the handle formation with heavy volume and went on to briefly touch all time highs before pulling back.  The stock is currently continuing to digest gains and looks poised to begin moving again soon.

icon iconix cup with handle breakout stock chart

 

Stock Trade of the Day

Trade of the Day – Tucows (TCX), Breakout to New Multi Year Highs

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Today I highlight a trade in a low priced stock which won’t be typical but I think the company is interesting enough and the chart bullish enough to warrant a mention.  The company is Tucows.com and they are probably one of the the largest owners of virtual real estate (ie. domain names) in addition to providing internet services and downloadable software.  Of the past several weeks, buyers have been stepping in with increasing vigor pusing the stock to its current levels which is right around resistance of the March 2005 highs.  With the stock breaking out of a bullish triangle pattern today with volume that will come in at roughly 5x the daily average, it looks poised to ultimately break through to new multi year highs above 1.32.

Here’s a shorter term view:

tucows tcx breakout stock chart

..and the longer term view