All posts by Tate Dwinnell

Stocks

Defying the Market

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After Friday’s plunge I thought it would be interesting to take a look at the top 50 or so best performing stocks for the day excluding any oil related stocks (which for the most part were all up for the day) as well as those that moved on good earnings.  I wanted to capture a list of stocks with just good old fashioned underlying strength that bucked the trend on Friday.  It stands to reason that these stocks have a great chance of doing particularly well if the market can right the ship and keep the rally intact.  Please note that these are not buy recommendations and in fact several may be too extended.  However, the charts look solid.  I’ll leave the rest up to you.  It’s getting late late and I’m exhausted, so I’m not going to bother with the charts in this post.  Here’s my list ordered according to my fundamental rank for each stock.

Tenaris (TS) [rank 27/30]
Ceradyne (CRDN) [26]
Ipsco (IPS) [26]
Schick Technologies (SCHK) [26]
Silicon Motion Tech (SIMO) [26]
Turkcell (TKC) [26]
Fording Canadian Coal (FDG) [26]
Color Kinetics (CLRK) [26]
Carters Apparel (CRI) [25]
Middleby (MIDD) [25]
Banco Santander Chile (SAN) [25]
Bright Family Solutions (BFAM) [24]
Unica (UNCA) [24]
US Global Investors (GROW) [24]
Falconbridge (FAL) [24]
First Republic Bank (FRC) [23]
Toronto Dominion Bank (TD) [22]
CPFL Energia (CPL) [22]

State of the Stock Market

Seahawks 24 – Carolina 10

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I couldn’t think of a good title for this post, so I thought I’d just throw in my prediction for today’s NFC championship.  Go Seahawks! 

Friday’s surprising sell off was reminiscent of an annoying in law that drops by for an unexpected visit.  Muddy feet up on the coffee table, half drunk on Pabst blue ribbon shouting expletives at a Jerry Springer rerun loud enough for the neighbors to hear.  Just when you think it can’t get any worse it does.  I don’t think there was a trader out there who wasn’t surprised by the action on Friday, especially considering the way the market previously bounced back from the poor results released from Intel and Yahoo two days earlier and the subsequent follow through the day after with increasing volume.  The continuation of the rally was in place, or so it seemed.  Equally disappointing results out of Citigroup and GE proved to be the back breaker on Friday, as doubts about the strength of the economy crept into the minds of investors.  Add to that worries over Iran, oil supply disruption in Nigeria, the inverted yield curve and all of a sudden you have a market on shaky ground.  Amazing how fast sentiment can change isn’t it?  I suppose that’s what makes the markets so fascinating. 

I think it’s important to remain even keeled and realize that the market isn’t as in bad a shape as the drop on Friday would have you believe.  Some of that move was surely the result of options expiration which can magnify the move.  SOME support remains in place as well.  At the same time, the move on Friday should instill some concern and cause for caution.  The technical damage done was significant and it can’t be ignored.  I for one had plans of increasingly leveraging with margin provided the healthy consolidation continued.  It’s safe to say my strategy has changed in one day from aggressive buying to a more defensive approach.

So where do we go from here?  Nobody can be sure, but looking at the charts of the major indices may provide some clues.

The Nasdaq continues to be the healthiest of the major indices.  Important to note is that it closed right at support of the 50 day moving average on Friday and volume came in lighter than the day before, so no distribution for the Nasdaq.  More encouraging is that the buy volume during the advance in the first days of January clearly overshadows the amount of sell volume of last week.  However, with support at the 50 day moving average on shaky ground, you have to look at where the next level of support may be, which in the case of the Nasdaq lies in the area of 2200.  Another 50 point drop.

The DOW which sliced through 2 major levels of support on Friday, is another story.  The big blue chips have been lagging for years and they lead the decline once again.  Look at the difference in buy and sell volume in the Nasdaq and Dow since January 1st.  That is quite a difference!  The DOW looks mighty sick right here and a drop to around 10550 looks inevitable.

The S&P in terms of price action is following a similar path to the Nasdaq, but with a more bearish tone in its buy/sell volume.  It’s also right at support of the 50 day moving average.  Next level of support is around 1250 if it can’t hold there.  I  think it’s safe to assume we will test that level in the coming days at least for a brief moment.  That may happen Monday.

Company Earnings

Earnings Movers – Celadon Group (CLDN), Supertex (SUPX)

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Here are today’s earnings movers:
Note: fundamental rank does not include latest results

UP

  • Celadon Group (CLDN), Air Delivery & Freight Service, fundamental rank [23/30] up 8%, holding on to support and poised to breakout from consolidation
  • F5 Networks (FFIV), Internet Software & Services, [26/30] up 5%, continuing to surge off support
  • Schlumberger (SLB), Oil Gas & Equip Services, [26/30] up 4%, continues its impressive run

DOWN

  • Supertex (SUPX), Semiconductor – Integrated Circuit, [24/30], down 24%, slices through support
  • Motorola (MOT), Communication Equipment, [26/30] down 6%, taking out support of 50DMA
  • Satyam (SAY), Information Technology Service, [27/30] down 5%, still has support and pulling back to breakout point
Company Earnings

Earnings Movers – Citrix System (CTXS), Logitech (LOGI)

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I’m going to try something new for this round of earnings.  IN the past I’ve tried to highlight several earnings reports in the morning and the evening, but it just got to be too much.  What I’m going to do is let the market sort out the good reports from the bad and will post those companies that are moving significantly up or down following earnings from the night before and premarket.  I’ll still highlight a few companies in detail but it certainly won’t be every day. 

Stocks highlighted are taken from the database of stocks that I cover (around 800 that meet my criteria for good fundamentals).  I’ll include my fundamental rank for each stock (a score out of 30).  The following are moving today on earnings reports:

* note: fundamental rank does not include the latest report

UP

  • Citrix Systems (CTXS) [rank 25/30] up 14%
  • Seagate (STX) [24/30] up 7%
  • Ebay (EBAY) [27/30] up 5% and bouncing off support of 50DMA

DOWN

  • United Healthcare (UNH) [rank 25/30] down 2.5% and continues to drop below support of 50DMA
  • Knight Transportation (KNX) [27/30] down 2.5% and testing support of the 50DMA
  • Apple (AAPL) [27/30] down 4.5%
  • Logitech (LOGI) [26/30] down 14% and slice through support of 50DMA, down nearly 20% in 2 days
State of the Stock Market

After Hours Tech Wreck – Market Faces Some Tests

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I don’t think too many could have predicted the kind of results that Intel and Yahoo posted after the bell.  I know I was suprised.   At the very least I thought maybe they post average results.. but they were far from average.  Intel’s results were awful and Yahoo missed analyst estimates by a penny, but wasn’t even close to the whisper number of .19/share by posting .16/share.  IBM fared a bit better, but revenue numbers missed.  It was a good ‘ol fashioned after the bell tech wreck.  Obviously the market is going to get hit at the open tomorrow, but the important thing is how it closes.  The market will face some important tests of support in the coming days.  First levels of support in both the Nasdaq and S&P should provide us with clues as to the magnitude and duration of this pull back. Lets’ have a look…

The Nasdaq has led the way to start the year and there isn’t any reason for concern up through today’s action with orderly consolidation.  Today, the selling volume wasn’t particularly intense and much of the losses were erased by the end of the day.  It may be a different story tomorrow.  In the coming days, support levels around 2278-2280 could come into play, so it will be important to see how the Nasdaq responds at that level.  If it can’t hold that level, the likelihood of a drop to the 50 day moving average becomes more likely.   Let’s see how volume comes in tomorrow .. I have a feeling we’ll get the first day of institutional selling of the new year. 

It’s a similar scenario for the S&P as it nears the first level of support around 1275.  Bouncing from there would be considered a bullish move, but if it can’t hold chances are good it will test the 50 day moving average as well.  We shall see.

The area to watch now in the Dow is 10800 at the 50 day moving average.  However it could dip below and also test the previous area of consolidation around 10700. 

Stocks

Top Breakouts – Could It Be? Oil Leads Again!

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In a complete reversal from last year, traders have been in a buying mood to start ’06 and that’s been reflected in the number of breakouts over the past 2 weeks, which have numbered 38.  The success rate was decent with more than half (20 to be exact) ending the period with a gain.  The breakouts were led by ENGlobal (ENG), which vaulted 23% afer breaking out.  You may remember that ENGlobal was highlighted in the last breakouts report on January 3rd along with PetroChina (PTR).  Just as oil related stocks led the way during the last 2 week period, well.. they did it again.  Oil led the way, with a fine supporting cast of steel and mining related issues.  With expectations that interest rate hikes are coming to an end, homebuilders and REITs fared quite well too.

The screenshot above provides a glimpse of the SelfInvestors.com database screen that returns the top breakouts of the past 2 weeks.  Yeah, I know you can’t read it.. it’s there purely for aesthetic reasons  Please go here to see a larger view of the screenshot.

The screenshot shows only those breakouts with a combined fundamental and technical score of 51/60 or above.  To see the entire list as well as many other screens you’ll need to sign up for premium membership. 

I’d like to highlight a few of the top breakouts that aren’t too extended and remain promising buy candidates.  I’ll start off with the highest ranking breakout of the past 2 weeks, Wilshire Bank (WIBC).  Personally, I’m not a big fan of investing in banks (unless they’re foreign), but Wilshire is one of the best around and its a promising looking breakout.  One to watch for sure.

Next up is LCA Vision (LCAV), a stock I highlighted in a report to premium members on October 31st (you can see the full report here).  This is a stock I purchased well below the formal pivot because I felt that purchasing after filling the gap offered a much better reward to risk trade… and actually you wouldn’t have wanted to purchase on a break above that pivot because of the severely sloping handle.  The stock has been forming a much more orderly handle over the past several weeks and broke above it.  While this outstanding company looks ready to move to all time highs soon, the sharpness of the base (see the V like pattern), gives me a bit of hesitation.  I’d probably hold off on the breakout and wait to see how it consolidates after breaking to new highs just to be on the safe side.

The breakout to all time highs in Meridian Biosciences, has given way to a classic, bullish pennant formation.  It may spend a few more days consolidating, but this one looks like its moving higher in a hurry at some point.

As mentioned above, many oil related stocks broke out again in the past couple weeks and Ultra Petroleum is fundamentally the highest rated oil stock that I track (and probably in the top 2% of all stocks that I track).  You’ll notice that the action in UPL has gotten a little on the sloppy side compared to past movement indicating that more traders have it on their radar, but as long as oil stays above 60/barrel it should hold the breakout and continue on to nice gains.  Earnings season will get under way in force in the next couple weeks and I would bet you’re going to see these oil companies smashing estimates once again, just as they did last quarter.

Techne (TECH) is a biotech supplier that grows with incredible consistency.  I really like the base in this one and technically the stock has broken out, but I’d like to see it get above 60 with volume just to make sure.

I’m a big fan of the flat base and FreightCar broke out from a great looking one last week with good volume.  Looks like a nice reward to risk trade here as transportation stocks continue to do well, especially railroads.  Have a look at Wabtec (WAB) too.. one of my favorites in the railroads industry.

Guest Author: Gary Scott

Welcome Gary Scott! – It’s Inverted

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Good morning, I’m very pleased to announce the addition of Gary Scott as a guest author here at the blog.  Beginning today, I’ll be posting selected editions of his daily newsletter in addition to some original content Gary may post from time to time.  Gary Scott is an economist and author of 36 international books and reports on investing.  For years, his World Reports newsletter was read by thousands of readers in 82 countries.  Gary began preaching the importance of global investing more than 30 years ago and wrote a monthly column under the bi-line “The Global Guru”, for “On Wall Street”, a large US circulation magazine for stockbrokers.

Ted Nicholas, one of America’s best selling self-publishers and foremost entrepreneurs, wrote “Gary Scott enjoys a worldwide reputation. He is an entrepreneur, author and investment advisor extraordinaire. While today it’s commonplace, Gary Scott was the first advisor 30+ years ago who recommended international diversification for the small investor. At first, many thought he was crazy. Of course, today the establishment advisors are on the bandwagon. Gary’s investment tips have probably helped more investors get rich than any advisor in the world!"

Gary’s “big picture” posts will prove to be a great compliment to the shorter term technical analysis of the markets and specific companies that I have provided here for the past couple years.

It’s Inverted by Gary Scott

In classical economics there is an economic cycle that normally swings from boom to bust and back again. Three different parts of the cycle create opportunity. 

One opportunity appears at the top of the cycle when the economy is at its peak. Business is booming. Everyone is getting rich. Share prices are high and racing upwards. There is rising inflation, short term interest rates are being pushed up, bond yields rise, unemployment falls and PE ratios expand. This is a good to time to sell shares and hold cash (CDs and short maturing bonds) that generally pay high interest.

Then the good times end. The economy peaks, inflation slows down, interest rates rise, there is depressed demand, rising unemployment and PE multiples contract. This offers the second opportunity as a good time to use that cash you are holding to invest in longer term bonds.

The economy slides towards recession. The yield curve inverts (short term rates are higher than long term rates) and finally reaches the bottom of the cycle. The economy has slowed way down. There is a rush for liquidity, , authorities relax monetary supply, there is high unemployment and a high level of uncertainty. Share prices have dropped and PE ratios are high. This, (when everything looks bleakest) is the third opportunity, a good time to buy shares.

Then the economy spurred by low cost labor and money picks up and works upwards into the next boom.

I share these facts because recently the yield curve on US Treasury bonds has inverted.

The yield curve measures the yield on interest-bearing instruments at various dates of maturity, from one day to 30 years. It compares the short-term rate with the long-term rate. For example right now, three-month US Treasury notes are yielding 4.35% and 6 month 4. 36% and one year notes 4.37%. This is as it should be. What is out pf place is that these rates are higher than the two-year to 8 year notes. At this stage there are only a few basis points and this could have little meaning.

However, if the trend becomes stronger it could be a warning that tougher economic times are ahead. This would suggest shifting emphasis from shares to cash.

This can also warn of a US dollar dip. Let’s keep our eye on the yield curve and enjoy good investing!

____________________________________________________________________

If you’d like to see more about Gary or sign up for his daily newsletter, check out his personal site at www.garyascott.com

Currently, Gary and his wife Merri spend summers and conduct seminars at their 250
acre farm in the Blue Ridge Mountains (www.littlehorsecreek.com)  and
winters at their 800 acre hacienda in Ecuador (http://www.garyascott.com/archives/2003/01/27/index.html)

State of the Stock Market

Springboard Off Support

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What a start to 2006.  It’s been about as good a start to 2006 as the start to 2005 was bad.. alleviating fears of another meltdown to start the new year and once again catching many off guard.  The breakout to multi year highs in the S&P and Nasdaq that occurred in November remains intact as price and volume movement in the first 4 trading days of ’06 indicate another leg up is in the works.  Clearly, the move on Friday with increasing volume indicated that the move after the releases of the Fed notes on Tuesday was much more than just a knee jerk reaction (which can often happen after Fed announcements).

All eyes will be on the Dow this week to see if it to too can join the party and maintain a breakout to multi year highs.  It will need to break above 10984 (high of the 2 year consolidation it reached in March of ’05) as well as psychological resistance of 11,000.  At this point that looks inevitable but some consolidation in the market should be expected at this point before moving higher. 

With a view of a multi year weekly chart of the Dow, you can see where a breakout needs to occur in the Dow.

   

The following charts illustrate the impressive moves off support following the release of the Fed notes on Tuesday.  There is no reason to believe at this point we can’t get another major move up (after a little consolidation)

Stocks

Top Breakouts – Oil Leads the Way.. Again

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It had been a slow couple of weeks for breakout stocks as the market worked off recent gains, consolidating to major support areas.  That is until today’s big reversal following the release of the Fed minutes, indicating rate hikes are nearing an end while inflation remains in check. Today’s move was critical in that support in the major indices were dangerously close to being violated (in fact, the Nasdaq had breached support of the 50 day moving aveage early in the trading day).

With today’s big reversal came a surge in breakouts, primarily from the oil sector.  Oil had begun surging a few weeks back when I highlighted them in the last breakout stocks report, and today a climb in crude sparked another round of breakouts in the sector.  In all, 8 stocks in the oil sector broke out, led by highly rated PetroChina (PTR) and EnGlobal (ENG).

Here’s a screenshot of stocks that have broken out over the past 2 weeks, with a total rank of 50 or higher.  For a much larger view please have at this page.

PetroChina broke out today after consolidating for a month in the right side of a decent looking base.  Expect some resistance around 85 and 90 as it approaches all time highs.

ENGlobal continues its bullish action with today’s breakout move from the short handle.  The chart below shows a couple of high volume reversals (one from 10.96 and one from 9.20, which are negative, but those are most likely data glitches since they don’t show up in charts from other services).  I like that high volume gap up in the right side.

Be sure to take a look at the charts of other highly rated breakouts in the screenshot above..