Weekly/After Stock Market Review Archives

Don’t Be Greedy

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I’m gonna keep this short and sweet.  Don’t be greedy, it’s just that easy.  The market sustained significant technical damage during the latter half of October and the first few weeks of November.  Consider the 7% retracement of that sell off over just the past 2 weeks a gift, offering a 2nd chance to lighten the load on the long side.  Bull markets die hard and offer multiple chances to get out with big profits in the bag.  I’m not saying this is a bear market just yet, but the roles have been reversed and the onus is now on the bulls to prove themselves.  Until then, I’m treating this is as a bear market in the making and the action over the past couple weeks as just a tradeable rally, nothing more.  Buy volume is waning, key resistance levels loom and the bulls are pinning their hopes on another Fed rate cut to save the day.  Perhaps the Fed cuts by 50 basis points, Jim Cramer emphatically declares  Dow 14,500 by the end of the year and we rally several hundred points.  I would have no problem missing that move knowing that I’ve already recovered all losses from the Oct/Nov sell off and if I don’t make another cent in December, had a  great year in a difficult market.  At this point, my portfolio is neutral with a sizable cash position but am watching closely to move more cash to the short side.

The Dow has cleared some very important resistance of the short downward trend and the 50 day moving average but faces another significant obstacle at resistance around 13700.  Notice the declining buy volume as traders await the Fed decision Tuesday.  If the Dow can clear 137000 with big volume I might be willing to get in the bullish camp a bit, but until then there is reason for skepticism.

The S&P has just edged up above that 50 day moving average but is right at resistance of the downward trend and has little momentum at its back.  This time around, it may take a heck of a lot more than a Fed rate cut to get above resistance with any oomph.

Like the Dow, the Nasdaq has cleared a downward trend but still faces stiff resistance around 2725.  Holding above this downward trend, then surging above 2725 with volume would be big for the bulls and could signal another lengthy rally.

 ::: Model Portfolio :::

** This section will now appear as a separate report to be published on Wednesdays.

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::: Best/Worst Performers :::

– Top 10 Performing Industries For the Week –

1. Residential Construction: 14.40%
2. Auto Parts Stores: 10.70
3. Trucking: 8.50%
4. Heavy Construction: 8.00%
5. Copper: 7.60%
6. Electronic Stores: 7.50%
7. Trucks & Other Vehicles:  7.35%
8. Technical Services: 7.10%
9. Agricultural Chemicals: 6.90%
10. Recreational Vehicles: 6.70%

– Top 10 Worst Performing Industries For the Week –

1. Business Equipment: -8.90%
2. Publishing – Books: -2.80%
3. Credit Services: -2.30%
4. CATV Systems: -2.20%
5. Textile Manufacturing: -1.90%
6. Biotechnology: -1.80%
7. Textile – Apparel Clothing: -1.40%
8. Specialty Eateries: -1.15%
9. Rental & Leasing Services: -1.05%
10. Marketing Services: -1.00%

– Top 5 Best Performing ETFs For the Week –
 
1. Ishares Home Construction (ITB) 10.80%
2. iPath India (INP) 9.30
3. Turkish Invest Fund (TKF) 9.25%
4. Morgan Stanley India (IIF) 9.15%
5. Greater China Fund (GCH) 9.15%

– Worst 5 Performing ETF’s –

1. HLDRS Biotech (BBH) -4.50%
2. Ishares Lehman 20+ Treasury (TLT) -2.80%
3. US Natural Gas (UNG)  -2.60%
4. ING Global Equity Dividend (IGD) -2.10%
5. Ishares Lehman 7-10 Yr Treasury (IEF)  -1.40%

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

This section will now appear as a separate report on Mondays.

::: Upcoming Economic Reports (12/3/07 – 12/7/07) :::

Monday:         Pending Home Sales
Tuesday:       Fed Rate Decision, Wholesale Inventories
Wednesday: Export/Import Prices, Trade Balance, Treasury Budget, Crude Inventories
Thursday:      Retail Sales, PPI, Initial Claims, Business Inventories
Friday:            CPI, Industrial Production, Capacity Utilization

::: Upcoming Notable Earnings Reports :::

None this week.

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

1. Sucker Rally or Climbing to the Peak of the Wall of Worry; Hot IPO – WSP Holdings (WH)

2. Indices Approach Key Resistance As Buy Volume Wanes

3. Home Builders Close to Bottom; Top Plays NVR and Toll Bros (TOL)

Industry Spotlight

Home Builders Close to Bottom; Top Plays NVR and Toll Bros (TOL)

7 Comments

Have home builders bottomed? That’s the million dollar question and a question that has popped up frequently recently following a two week 20 – 30% surge in shares of home builders.  I’ll tip toe half way out the limb and say yes and no.  When I’m looking for a bottom in anything, whether it be an entire sector or individual stock I’m looking at several key criteria:

FUNDAMENTALS

1. Is There a Rally On Bad News?

When a true bottom has been put in, more bad news doesn’t move the stock because it’s already been priced in.  Traders begin to trade on relief rather than fear.  It becomes, "oh, that wasn’t nearly as bad as we thought it would be".  Case in point was the Toll Brothers (TOL) earnings report this morning. 

Toll Brothers reported the first quarterly loss in 21 years (if you include the write down of 315 million) and the CEO responds by saying “fiscal 2007 was the most challenging of the 40 years that Toll Brothers has been in business” but the stock rallied more than 15% today as the company whooped analyst expectations of a .77/share loss (which typically don’t include write downs) by posting a .72/share profit (excluding the write downs).

At the top, analysts increasingly high expectations make it difficult for the company to beat leading to a sell off.  At the bottom, increasingly lowered expectations creates a situation where a stock rallies on any glimmer of hope.

2.  Insider Begin Buying

Nobody knows their company better than the guys at the top, unless of course you’re Kenneth Lay and you don’t know anything.  When insiders feel their company is a great value they begin buying shares.  Insider selling can occur for a variety of reasons so it’s difficult to place much importance on it, but insider buying particularly in large companies can often indicate a bottom in the stock price. 

Case in point, NVR Inc (NVR) CEO Dwight Schar.  He recently picked up 50 million worth of shares in his company. That’s still less then what he paid for his home in 2005,  which at the time was the most expensive house in US history (Revlon founder Ron Perleman’s home), but 50 million isn’t the kind of bet you make in your company if you feel your shares are going much lower. Not a bad investment. He’s up over 25% on the position in just one month.

At KB Homes (KBH) two VP’s dabbled a bit and picked up about $93K worth of their company stock in late October/early November.

TECHNICALS

3.  Capitulation in Stock Chart

Not all bottoms will show capitulation but it’s certainly another clue that I look for.  It’s characterized by a day or full week in which the stock closes in the upper half of a long range with volume well above average.  I haven’t seen this kind of action in the home builder stocks yet, so it’s certainly possible that we retest the lows again with one last bout of big panic selling, followed by a stampede of buyers. 

4.  Broken Downward Trend  in Stock Chart

The best of breed home builders (see below) broke out of shorter term downward trends today but still face tough resistance.  Let’s have a look.

NVR Inc (NVR) is my top home builder play because it’s technically the strongest and fundamentally the ONLY home builder to remain profitable every quarter through the housing meltdown.  It was the first to break  a downward trend back in November and busted through that resistance again in December.  Like all home builders, it’s currently overbought in the short term but if I’m a long term buyer I’m looking to add shares between 450 – 500.  I"ll have a more detailed technical analysis below

Toll Brothers (TOL) broke through its downward trend line today but doesn’t have far to go before testing the longer term trend line.  It’s up nearly 30% in the past couple weeks so I would not be chasing it.  I won’t be looking to add shares until it pulls back to 20 or lower.  I rank TOL #2 right behind NVR and will highlight the technicals in more depth below.

I don’t feature the charts of DR Horton (DHI) and Centex (CTX) in this report, but they also broke out of downward trends today but are too extended in the short term.

The Bottom Line

The home builders have surged 20 – 30% in recent days on news of the government subprime freeze and anticipation of another Fed rate cut, resulting in a breakout above shorter term downward trend lines in the best of breed home builders.  Technically, they are overbought in the short term, but there is some room to run to the upside, perhaps another 10 – 15%.  The best opportunities will come on light volume pull backs from current levels.  While there are some indications that a long term bottom is close, we’re not out of the woods just yet and the likelihood is very high that we’ll retest the lows of the home builders (anywhere from 20 – 30% below current levels), particularly if the bankruptcy of a major home builder such as Beazer Homes (BZH) becomes more likely.  If I were a long term buy and holder (which I’m not), this is an area I’d begin significantly accumulating shares of the best of breed home builders such as NVR Inc (NVR) and Toll Brothers (TOL).  Remember the stock price precedes a turn in the fundamentals.  That is, well before the home builders turn it around financially, a bottom will have been put in place.

As another indication that the home builders aren’t out of the woods just yet, both the SPDR Homebuilders ETF (XHB) and the Ishares Home Construction ETF (ITB) have not cleared downward trends.

Best of Breed

Based on a combination of fundamentals and technicals I’ve come up with a Top 6 list of best of breed home builders:

1.  NVR Inc (NVR): 

It takes the top spot because of the big CEO insider buying, best technicals and the fact that the company has remained profitable in every quarter during this housing crash and is expected to remain so.  CEO Dwight Schar has also been through a meltdown before, nearly bankrupting NVR several years ago.  I’m sure he’s smart enough to learn from those mistakes.  The second time around, Schar avoided the risky land investments and went with an approach called optioning where the builder makes a small down payment for the option of purchasing the plot of land in the future.  Only when the contract is signed on the sale does NVR purchase the land and build the home.  It’s a common practice among home builders now, but apparently NVR has done a better job of not over purchasing land.

The chart below provides a look at a longer term weekly chart to get a better sense of where it’s been and where it might be going.   A few things stand out to me.  One being the big support at level at 400, an area it has bounced from not only recently but in the summer in 2006 as well as summer of 2004.  If I can get shares around 400, you can be sure I’ll be buying, but quite frankly I don’t think NVR sees those levels again.  Depending on what the overall market is doing, what the housing market is doing and the individual action in NVR I’d be looking at shares in the 450 – 500 range.  Note the potential double bottom base outlined in blue?  If in fact this is a valid double bottom base, 400 is the bottom and we can expect a run to 850 – 950 within the next year.

2. Toll Brothers (TOL)

Like NVR, TOL recently tested an important level of support at 19 (a level it found support at back in 2004 as well) and bounced.  Yes, there is some room to run to the upside but I wouldn’t be chasing it.  Once the euphoria of the subprime rate freeze and looming Fed rate cuts wears off, home builders should pull back and offer a much better entry.  Just how much is anyone’s guess, but keep an eye on on resistance above from the long downward trend line (in blue) and support at the bottom around 19.  Price should continue to get squeezed between those two points over the next several weeks creating a big triangle formation.  This will be the moment of truth for TOL.  A break up out  this formation indicates the likelihood of a long term bottom while a break down below 19 indicates further deterioration ahead, possibly to the next level of support around 16. 

Best of the Rest……

3. DR Horton (DHI)
4. Centex (CTX)
5.  Ryland Group (RYL)
6. KB Homes (KBH)

That concludes my initial report on a potential home builder bottom.  What I plan to do is provide an update report every month for the next 6 months, so stay tuned!

Disclaimer: I currently hold no positions in any of the individual home builder stocks mentioned above or the two ETF’s.

Weekly/After Stock Market Review Archives

Indices Approach Key Resistance As Buy Volume Wanes

After two days of very orderly selling with light selling volume the bull looked ready to charge again with ferocity.  The set up was there and the bull charged but it was a half hearted, tired attempt at resistance levels of the major indices.  How could I make a statement like that on a day the Dow rose nearly 200 points with volume higher than the day before (technically accumulation)?  Volume continues to wane as we get closer to key resistance levels.  I want to see massive buying before I’m convinced the market has hit a longer term bottom rather than a short term pause point in a bear market.  I’m not there yet.

The market continues to focus on the positive news as it brushed aside the Fannie Mae dividend cut and cheered the ADP employment report as well as increased productivity and factory orders.  The market is also pricing in some kind of a Fed cut and imminent news of some government meddling into the subprime mess.  Fortunately the meddling won’t be sweeping according to the New York Times:

"The agreement, to be formally announced Thursday by President Bush, is expected to contain numerous limitations that would exclude many — if not most — subprime borrowers, according to industry executives who have seen it. It would exclude those who are delinquent on their payments — about 22 percent of all subprime borrowers, according to First American LoanPerformance, an industry research firm.

The plan is also expected to exclude any borrower whose introductory rate expires before Jan. 1. About $57 billion in subprime loans are scheduled to be reset at higher rates in the final three months of this year, according to estimates by First American LoanPerformance."

What happens when the Fed finally concedes it can’t continue cutting rates at this pace?  Then what are we left with?  As a technical trader I try not to focus on those things but rather focus on what’s in front of me.  What buyers and sellers are telling me.  Today’s move certainly sets us up for further strength into the open tomorrow but lets remember that the indices have just a bit of breathing room left before hitting very strong resistance levels and buy volume continues to subside.  With a glance at the action in leading stocks recently, I continue to see more volume on the sell side than on the buy side AND Pharma and Bonds are showing up as leading sectors right now.  Not exactly the stuff bull markets are made of is it?  If you’ve recovered much of your losses from the Oct/Nov sell off, you might want to consider locking in some of those gains soon.

Resistance in the Indices:
Nasdaq: 2725
S&P500: 1490 – 1500
Dow: 13500 – 13600
Russell 2000: 800

::: 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 December 5th 2007

Nasdaq: UP 1.78% today with volume right at the average
Nasdaq ETF (QQQQ) UP 1.78%, volume 18% BELOW average
Dow: UP 1.48%, with volume 1% BELOW the average
Dow ETF (DIA): UP 1.53%, with volume 23% BELOW the average
S&P ETF (SPY): UP 1.67%,  with volume 15% BELOW the average
Russell Small Cap ETF (IWM): UP 1.92%, with volume 20% BELOW 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 were about in line with what the major indices did today, but notice the volume behind rising stocks versus declining stocks.  This has been the trend of late and is a bit of a red flag.

Summary:

* Advancers led Decliners 247 to 60
* Advancers were up an average of 2.55% today, with volume 4% BELOW average
* Decliners were down an average of 1.64% with volume 57% ABOVE average
* The total SI Leading Stocks Index was UP 1.73% today with volume 8% 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):  
Pharma, Bonds, Utilities
                                          
* Current Lagging Sectors/Industries (over last 30 trading days): 
Semis, Networking, Retail, Telecom

* Today’s Market Moving Industries/Sectors (UP):
REITs, Real Estate, Broadband, Networking, Energy

* Today’s Market Moving Industries/Sectors (DOWN):
Biotech, Oil, Commodities

::: 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.  The leading stocks that moved significantly with volume today are too extended past a proper entry point to highlight for Stock of the Day, but you might want to take a look at the list of movers for trading ideas.  Stocks are listed in order of best Total Rank (fundamentals + technicals) 

Chicago Mercantile (CME)
Vimpel Communications (VIP)
Millicom International Cellular (MICC)
Airgas (ARG)
AsiaInfo Holdings (ASIA)
Vocus (VOCS)
Versant (VSNT)
AeroVironment (AVAV)
VistaPrint (VPRT)
Darling International (DAR)
Harsco (HSC)
Rick’s Cabaret (RICK)
General Dynamics (GD)

Weekly/After Stock Market Review Archives

Sucker Rally or Climbing to the Peak of the Wall of Worry; Hot IPO – WSP Holdings (WH)

The much anticipated oversold bounce came in with a fury as oversold bounces often do and it didn’t take much to ignite the bulls as more of the mortgage mess became priced in.  On Tuesday, news of a 1.4B Wells Fargo write down and Freddie cutting its dividend in half and raising 6B in capital failed to send the markets into a tailspin on Wednesday morning, which set the market up for a bull stampede.    The bulls may have been reaching a bit, but they found a glimmer of hope in comments made from Fed Vice Chairman Kohn who reiterated concerns about economic uncertainty saying ""These uncertainties require flexible and pragmatic policy-making .. ". The sentiment was echoed by Bernanke the following day, further cementing hopes of another rate cut at the Fed December 11th meeting.

So is this just a short lived suckers rally or something more?  Is this the beginning of another major leg up as the market climbs a monumental wall of worry?  By Investor Business Daily standards, the action on Wednesday was enough to confirm a new rally but this should not be a green light to get overly aggressive on the long side.  What is critical in my mind is how we digest the gains of last week.  A light sell volume pull back would go a long way in lending validity to this market surge and provide opportunity to slowly add long exposure.  As I mentioned in my after market report on Wednesday, the magnitude of the rise last week into key resistance levels has allowed for a decent area to put on a few short positions as a hedge, but I think the next two weeks will be critical in determining where this market is headed over the longer haul.  The government bail out plan is expected to be revealed soon and the Fed has indicated they are remaining vigilant and not afraid to take further action. 

Don’t fight the Fed (or this administration) certainly continues to be at play in this market.  It’s just more of the same.  Subprime and economic uncertainty tempered by government intervention and what will probably be a flood of overseas investment in US assets should keep the markets gyrating for many more months to come.  It still pays to be cautious and sitting on a decent sized pile of cash at this point.

::: Model Portfolio :::

Despite a tumultuous Oct/Nov in the market, the SelfInvestors Model Portfolio is getting back close to highs of the year with a 3.1% rise for the week, bringing the year to date gain to 27%.   Oversold conditions and a resulting bounce got me into a few high quality long positions in leading companies which resulted in gains of 7%, 8% and 9% but the magnitude of the bounce ran the indices right smack into key resistance levels, so I hedged the portfolio with a few short positions towards the end of the week.  With the volatility and uncertain market, I will continue to keep the portfolio sitting on a sizable cash position of around 50% (it’s currently at 46%) as well as hedge with short positions.  It’s a strategy that has worked extremely well in 2007 and I don’t anticipate deviating from it too much over the next several months.  The current allocation of the portfolio is 41% long and 13% short.

Would you like to receive buy and sell alerts within minutes of each transaction of the Model Portfolio?  You can receive these along with ALL of the tracking tools and reports with the very popular Gold membership.  Don’t delay, get started today and join me for many more highly profitable months here at SelfInvestors.com.

::: Best/Worst Performers :::

– Top 10 Performing Industries For the Week –

1. Mortgage Investment: 17.50%
2. Hospitals: 12.25%
3. Pollution & Treatment Controls: 11.60%
4. Cement: 8.90%
5. Technical & System Software: 8.50%
6. Agricultural Chemicals: 8.45%
7. Business Equipment:  8.35%
8. Building Materials Wholesale: 8.20%
9. Heavy Construction: 8.00%
10. Farm & Construction Machinery: 7.45%

– Top 10 Worst Performing Industries For the Week –

1. Jewelry Stores: -12.75%
2. Silver: -5.71%
3. Drug Stores: -2.90%
4. Housewares & Accessories: -2.20%
5. Movie Production – Theaters: -2.05%
6. Oil & Gas Refining & Marketing: -1.90%
7. Gold: -1.80%
8. Networking & Comm Devices: -1.30%
9. Oil & Gas Equipment & Services: -1.10%
10. Sporting Goods Stores: -1.05%

– Top 5 Best Performing ETFs For the Week –
 
1. PowerShares Golden Dragon (PGJ)  12.50%
2. Chile Fund (CH) 12.30%
3. Templeton Dragon Fund (TDF) 11.30%
4. India Fund (IFN) 10.30%
5. MSCI Inida (INP) 9.85%

– Worst 5 Performing ETF’s –

1. US Oil (USO) -8.90%
2. US Natural Gas (UNG)  -8.50%
3. HLDRS Oil Services (OIH) -6.00%
4. Central Fund of Canada (CEF) -5.75%
5. Ishares Commodities (GSG) -5.65%

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

1.  WSP Holdings (WH): The Chinese manufacturer, which conducts business through various subsidiaries, produces seamless casing, tubing, and drill pipes. Referred to collectively as OCTG (Oil Country Tubular Goods), its products are used by the oil industry for oil and natural gas exploration, drilling, and extraction purposes. WSP sells domestically to leading Chinese oil companies, as well as internationally, covering oilfields in North America, the Middle East, Africa, and Russia. Operating one drill pipe production line and eight threading lines, it creates approximately 572,000 tons of seamless OCTG annually. Trading set to begin on Thursday.

2.  Titan Machinery (TITN):  sells and rents new and used agricultural and construction equipment through its 33 retail locations located in North Dakota, South Dakota, Minnesota, and Iowa. Farming equipment includes excavators, seeders, tillers, and tractors; it offers such construction machinery as earthmoving equipment and cranes. Titan primarily deals in products manufactured by CNH which are sold under the Case and New Holland brands; other brands on offer include K-Tec and Grove. The company also sells parts and provides maintenance and repair services.  Trading set to begin on Wednesday.

3.  Triple S Management (GTS):  the reigning heavyweight when it comes to Puerto Rico‘s managed care. With nearly one million members, the territory’s #1 health insurance company operates under the Blue Shield name and caters to 25% of the island’s population. In addition to traditional managed care products, Triple-S offers life, accident and disability, and property and casualty insurance. Following its 2006 acquisition of Great American Life Assurance Company (GA Life), the company is also Puerto Rico‘s leading provider of life insurance policies. Triple-S’s products are sold through independent agents and brokers, as well as its internal sales team. The company was founded in 1959 by a group of doctors.  Trading set to begin on Friday.

4.  VisionChina Media (VISN):   through China Digital Mobile Television, operates an advertising network that consists of some 33,000 digital television displays located on buses in more than a dozen major Chinese cities. The displays receive mobile digital broadcasts from local TV stations of real-time content — such as news, stock quotes, weather and traffic updates, sports highlights, and public interest messages — sprinkled with paid advertisements. This location-based content and advertising reaches about 26 million consumers each day.  Trading set to begin Thursday.

::: Upcoming Economic Reports (12/3/07 – 12/7/07) :::

Monday:         ISM Index, Auto/Truck Sales
Tuesday:       None
Wednesday: Productivity (rev), Factory Orders, ISM Services, Crude Inventories
Thursday:      Initial Claims
Friday:            Nonfarm Payrolls, Unemployment Rate, Consumer Credit

::: Upcoming Notable Earnings Reports :::

Tuesday:  Versant (VSNT)

Thursday: Gildan Activewear (GIL), Verifone Holdings (PAY)

Friday:  OYO Geospace (OYOG)

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

1. Contrarian Indicators Show Tradeable Rally Imminent

2. Self-Directed Portfolio Advantages/Disadvantages

3. Accumulation Day, But No Indication of Bottom Yet; Stock of Day – Danaher (DHR)

4. Bidz.com (BIDZ), Citron Research (Stocklemon.com) Soap Opera Continues

5.  Nothing More Than An Oversold Bounce?

6.  Trade of the Day – Short Setup in Sadia (SDA)

Stock Trade of the Day

Trade of the Day – Short Setup in Sadia (SDA)

2 Comments

I suppose I should rename the Trade of the Day feature to Trade of the Week the way it’s been going lately.  I’ll try and post more of these, just been really busy with this crazy market of late. 

Today I thought I’d go against the grain of the past few days, perhaps to serve as a reminder that yes bears are still firmly in control and two days of big gains doesn’t change that at this point.  Today I highlight a short setup in Sadia (SDA), a Brazilian processor of food products.  This short setup is very characteristic of what I look for in most of shorts I look for – a high volume break down of support followed by a weak retest of what is new resistance, in this case the 50 day moving average.  One of the better looking shorts out there in my opinion.

Disclaimer: I do not have a position in SDA at the time of this writing.

Weekly/After Stock Market Review Archives

Nothing More Than An Oversold Bounce?

1 Comment

Wow, talk about tradeable rally!  Like most oversold rallies they usually spring quickly and before you can blink we get a more than 500 point rally in the Dow.  So much for bottom marking capitulation or a rush to the buy button by institutions.  Now don’t get me wrong, this was a strong rally today with enough oomfff to push us up to key resistance levels, but at this point I think that’s all this is.  The oversold conditions were there, the fear was there, the panic selling was not.  We just didn’t get the kind of panic selling where everyone throws in the towel.  For a longer term bottom, that needs to happen. 

The rally today provided some great trades on the long side, but the magnitude of the rally today just gets us that much closer to key resistance levels which I’ll discuss more below.  There is really only about another 2% left to the upside before the technicals start screaming you better short this thing.  I’m going to play this market one of two ways over the next few days.  If we bolt again soon and test those resistance levels right away, you better believe I’m putting on some shorts.  If the market finds some rationality and digests these gains in a reasonable manner I’ll look to put on another long trade or two.  From a longer term perspective, keep in mind the bottoming action over the past few days was not dramatic and not does not bode well for the long side.. but hey, it’s December, bulls have regained their footing and the foundation might just be laid for a holiday rally before the bears resume control, so keep your bias to the bull side for now and begin looking for small positions in top tier stocks.  Let’s have a look at the charts:

The tech heavy Nasdaq is by far the strongest index and where you should focus your long plays.  Tech typically does well at the end of the year and this year looks to be headed in that direction as well.  Volume was strong, but just not impressive for a move of this magnitude.  There was certainly quite a bit of short covering to this rally and considering we never got the all out panic selling to mark a good sustainable bottom I wouldn’t be making any bets that we’re going to be seeing 2007 highs anytime soon.  I think what this rally does is give us enough gusto to eventually kiss that downward trendline goodbye.  That’s how I’m playing it.  If the Nasdaq begins testing resistance around 2700 – 2725 I’m going to begin getting aggressively short.  Some digestion of these gains would provide a good opportunity to continue trading this rally on the long side.

The financial heavy S&P is of course the weakest and still has some room to run before even testing that 200 day moving average, so to declare that the bull is running again would be a big mistake.  Much technical damage needs to be repaired yet.  If we don’t digest these gains in a hurry, I’m going to start getting short.  Notice that the conviction behind the rally in August dwarfs this rally.  Think we’re going to carve out another V base and shoot to new all time again?  Think again.  There will be strong resistance in the S&P between 1480 and 1500.

Volume in the Dow was above average but again lackluster considering the price move.  It most likely marks a temporary bottom though and any pullback from here would offer additional opportunities to put on a few long trades.  There will be considerable resistance in the 13500 – 13600 range, which would be a good area to consider short positions.

::: 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 November 28th 2007

Nasdaq: UP 3.18% today with volume 12% ABOVE average
Nasdaq ETF (QQQQ) UP 3.04%, volume 30% ABOVE average
Dow: UP 2.55%, with volume 23% ABOVE the average
Dow ETF (DIA): UP 2.71%, with volume 19% ABOVE the average
S&P ETF (SPY): UP 3.2%,  with volume 29% ABOVE the average
Russell Small Cap ETF (IWM): UP 3.79%, with volume 24% 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 outstanding today as small caps led the way and performed about in line with what the Russell did.  286 Self Investors Leading Stocks were up an AVERAGE of 4.19%.. now that’s what I call leadership!

Summary:

* Advancers led Decliners 286 to 17
* Advancers were up an average of 4.19% today, with volume 12% ABOVE average
* Decliners were down an average of 1.63% with volume 120% ABOVE average
* The total SI Leading Stocks Index was UP 3.87% today with volume 18% 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):  
Dynamic Utilities, Biotech, Pharma, Bonds, Health Care  (leadership in medical/healthcare emerging!)
                                          
* Current Lagging Sectors/Industries (over last 30 trading days): 
Semis, Retail, Networking, Nuclear Energy

* Today’s Market Moving Industries/Sectors (UP):
Home Construction, Regional Banks, Materials, US Real Estate, Basic Materials

* Today’s Market Moving Industries/Sectors (DOWN):
Oil, Commodities, Gold, Bonds

::: 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.  Sorry, I’m real short on time tonight so not stock of the day, but have a look at these Self Investors Leading stocks above the 50 and 200 day moving averages that moved up with big volume today.

 In order of total rank (fundamentals + technicals)

Double Take Software (DBTK)
Shanda Interactive (SNDA)
Axsys Technologies (AXYS)
Credicorp (BAP)
SunPower (SPWR)
Kirby Corp (KEX)
GFI Group (GFIG)
Dynamic Materials (BOOM)
FCStone Group (FCSX)
Interactive Intelligence (ININ)
Banco Itau (ITU)
Chicago Bridge & Iron (CBI)

Stocks

Bidz.com (BIDZ), Citron Research (Stocklemon.com) Soap Opera Continues

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Citron Research (formerly known as StockLemon.com) is at it again.  I first became aware of this site a few years ago but it wasn’t until their profile of Home Solutions (HSOA) that I began to follow their research.  That stock has plummeted to below 2  since Citron began hounding the company.  Despite the rumored questionable past of its founder Andrew Left (there is an entire blog dedicated to it), the company does provide some incredibly in depth research highlighting the shady business practices of certain businesses.  The only problem I do have is that Andrew and certainly its employees take positions in these companies ahead of the reports and undoubtedly profit big time as the disclaimer on the site says:

"The principals of Citron Research most always hold a position in any of the securities profiled on the site.  Citron Research will not report when a position is initiated or covered. Each investor must make that decision based on his/her judgment of the market."

This kind of front running needs to be stopped immediately because it can lead to a fabrication of the facts.  Sure, there are many bloggers out there who write about stocks they own including myself, but when certain websites achieve a wide following and can impact a stock like Citron Research can, it has to be stopped. 

The latest Citron Research report highlights Bidz.com (BIDZ), a stock I recently traded in the Self Investors Model portolio and fortunately closed for a quick 30% gain before this debacle began.  Since that report was published the stock is down more than 50% in just two days and sinking another 3 bucks after hours as the company seeks to calm the nerves of investors.  More on this in a bit.  There are certainly quite a few angry investors out there looking to place blame not only on Citron for running the article, but on IBD who had the stock listed atop the the IBD 100 and recenlty profiled it with a glowing review, not to mention the Roth Capital and Think Equity buy ratings. 

The company obviously had no choice but to respond to this action and chose to hold a conference call.  Big mistake.  Have a listen to the conference call.  During the first half, the CEO just reiterates that the company is strong, reaffirms the numbers, mentions they might pursue legal action.. blah, blah.  The most interesting is the second half when the company takes questions.  Zinberg certainly stumbles a bit when asked about the inflated prices of televisions and a yellow ring currently under auction for half a milion dollars at the site.  I certainly didn’t walk away feeling tremendously confident about this company or its CEO and it’s clear that many others didn’t either as the stock tanked during the latter half of the call.  Eric Savitz of Barrons has a good rundown of the highlights of the call if you’re short on time.

As usual this is most likely a case of "not as bad or as good as it seems".  The important thing to remember is that there are a ton of great companies out there run by management with a long history of success so why look at this at a buying opportunity?  There are just too many questions to be answered.   More importantly, why were these angry traders hurt so badly?  The kind of selling volume that BIDZ was seeing on Nov 26th and a close at the lows of the day should have at the very least got you out of the stock with a small gain (had you bought at the proper breakout point above 15.19).  I personally love this kind of volatility for day trading and believe it could run up 20 – 30% within the next day or two, but to be a "buy and holder" of this stock right now is in my opinion a mistake.

It should be interesting to see how this story unfolds over the next few months.  Keep in mind that Citron Research is expected to come out with a second part to their Bidz.com (BIDZ) research detailing the bid rigging allegations  very soon which could further derail the stock. 

Disclaimer: I don’t currently have a position in Home Solutions (HSOA) or Bidz.com (BIDZ)

Weekly/After Stock Market Review Archives

Accumulation Day, But No Indication of Bottom Yet; Stock of Day – Danaher (DHR)

At this point I think it’s safe to say that the market is looking for just about any glimmer of positive news in order to rally from very oversold conditions and will probably begin brushing aside some of the bad news that has become typical such as horrible existing home sales.  News out of Citigroup that it’s getting a 7.5 billion cash infusion provided some early optimism but is this really a positive?  To think a company like Citigroup would need to raise cash in a hurry from a foreign company at 11% is in my mind a harbinger of things to come.  It’s going to get worse. 

At any rate, the market pulled itself up by its boot straps from oversold conditions today and managed to stage a significant rally with enough volume to signal accumulation.  Yes, there was good volume behind today’s rally, but this is not the kind of action that marks a bottom.  Throughout the day, I was surprised at how few opportunities there were in breakouts of leading stocks.  When the market turns, there will be a wave of high quality breakouts to choose from, but we need to see a big day of capitulation or some big time institutional buying before that can happen.  Neither occurred today, so it pays to continue to tread lightly here.  We’re close, but not quite there yet.  There will be plenty of time to profit, so the important thing is to not jump in aggressively too early.  The early bird may get the worm, but he also may find himself in the belly of a bear.

::: 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 November 27th 2007

Nasdaq: UP 1.57% today with volume 1% BELOW average
Nasdaq ETF (QQQQ) UP 2.00%, volume 29% ABOVE average
Dow: UP 1.69%, with volume 25% ABOVE the average
Dow ETF (DIA): UP 1.46%, with volume 55% ABOVE the average
S&P ETF (SPY): UP 1.15%,  with volume 49% ABOVE the average
Russell Small Cap ETF (IWM): UP 1.27%, with volume 11% BELOW 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 were about in line with what the major indices did today, but notice the volume behind rising stocks versus declining stocks.  Not exactly bullish action from the leaders today.

Summary:

* Advancers led Decliners 227 to 76
* Advancers were up an average of 2.17% today, with volume 4% BELOW average
* Decliners were down an average of 2.45% with volume 57% ABOVE average
* The total SI Leading Stocks Index was UP 1.01% today with volume 11% 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):  
Bonds, Agriculture
                                          
* Current Lagging Sectors/Industries (over last 30 trading days): 
Semis, Retail, Internet, Materials

* Today’s Market Moving Industries/Sectors (UP):
Internet, Real Estate, Biotech, Regional Banks, REIT

* Today’s Market Moving Industries/Sectors (DOWN):
Oil, Gold, Commodities, Oil Services, Natural Resources

::: 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 isn’t going to grab headlines and be bantered about in discussion boards.  Danaher (DHR) is a blue collar, large cap conglomerate that straps the hard hat on every day and delivers consistent profits quarter after quarter, year after year. 

ABOUT: 

Danaher Corporation derives its sales from the design, manufacture and marketing of professional, medical, industrial and consumer products. It operates in four segments: Professional Instrumentation, Medical Technologies, Industrial Technologies, and Tools & Components. During the year ended December 31, 2006, it acquired Sybron Dental Specialties and Vision Systems Limited, in addition to other nine companies, which are manufacturers and assemblers of environmental instrumentation, medical equipment or industrial products, in the market segments of electronic test, critical-care diagnostics, water quality, product identification, and sensors and controls. In July 2007, the Company acquired ChemTreat, Inc. In July 2007, the Company completed the sale of its power quality business to Thomas & Betts Corporation. As of November 21, 2007, the Company, through its indirect wholly owned subsidiary, Raven Acquisition Corp., had acquired over 90% interest in Tektronix, Inc.

FUNDAMENTALS: 

Danaher is far from the small cap high flyers I often highlight here, but in difficult markets it’s the big, lumbering, profit machines that will weather the storms the best and Danaher is certainly one of those.  According to Morningstar, the company has posted EPS growth in 9 out of the past 10 years and isn’t yet showing any signs of slow down.  EPS growth since 1997 has come in at 20.7%, 2.7%, 35.6%, 24.6%, (9.9%), 38.8%, 20.8%, 36.5%, 20% and 26.1% last year in 2006.  Growth for 2007 is expected to remain in line with historical growth with about a 20% rise in EPS.  Revenue growth has been equally as solid over the years but it should be noted that revenue growth has been decelerating a bit in recent quarters, dropping from 22%, to 18%, 19%, 14% and 13% in the latest quarter.  Still excellent growth for a company of this size.  Combined with a very good Return on Equity of 17%, Net Margins that continue to rise as they have over the past 5 years and strong management ownership of over 20%, Danaher is top Self Investors large cap stock.

TECHNICAL:  

The chart of DHR over the past 2 years provides a great example of how you might play a leading breakout stock, adding shares on each subsequent breakout.  The first entry point was provided on a break from a long one year base at the beginning of 2006.  It provided a 2nd entry point on a break from a new base in early October 2007 and a 3rd entry on a breakout this summer to yet another all time high.  Despite a correcting market, DHR continues its bullish ways and has come away relatively unscathed over the past month and is looking poised to breakout from a flat base it’s been working on since late September.  The stock may provide a good entry on a breakout from this flat base above 86.  Remember: the stocks that hold up the best during a correction will likely lead the market with big gains once the market gets going again.

SELFINVESTORS RATING: With a total score of 50/60 (26/30 for fundamentals, 24/30 for technical), Danaher (DHR) is a highly rated Self Investors leading stock.

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 Danaher (DHR)

News

Self-Directed Portfolio Advantages/Disadvantages

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There is much debate about whether individuals with a self-directed portfolio can outperform the major indices as well as mutual funds, which are touted by Wall Street as the only way for the average investor to accumulate wealth.  It makes sense doesn’t it?  By keeping alive the pervasive myth that a buy and hold strategy in mutual funds is the best way to go, they ensure that you’ll continue to dump your hard earned cash into their funds while they collect their exorbitant management fees.. all the while soothing your concerns of under performance by repeating the mantra "that over the long haul we will out perform the market."  Sure, there are some very good funds out there, but I believe with some solid technical analysis skills, the right tools, discipline and organization anybody can greatly exceed average returns.  I thought I’d highlight some advantages and disadvantages of a self-directed portfolio.

Advatages:

1.  Greater returns
The average actively managed stock mutual fund returns approximately 2% less per year to its shareholders than the stock market returns in general.

As time goes on, the majority of mutual funds underperform index funds

2.  Potential for reduced fees.
By using ETF’s and trading with a discount broker you can reduce investing costs.  Just remember that the larger your account the smaller your trading costs.  If you’re daytrading a small account you will get killed in commissions!  On the other hand, if you have a large account and making a few trades in stocks and ETF’s, suddenly that 2% management fee you were paying before looks real expensive doesn’t it!  The larger your account, the more it makes sense to invest for yourself.

3.  Nobody cares more about your money than you do.
You take control of your financial situation and your future!   No mutual fund manager will have you in their best interest.

4.  Mobility/Flexibility
Trading for yourself full time can yield large gains in both bear and bull markets allowing you to work anytime from anywhere in the world if you so choose.

5.  It’s Fun!
Researching the next great companies, following breaking news each day and exchanging trading ideas with others all over the world is great fun.

Disadvantages:

1.  Time
It requires more time to do this on your own but it’s your financial future, so make time.  By using just ETF’s and making a few well researched trades each month, your time is minimal and the payoff can be huge.

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Did you know that you can  use a self-directed IRA account to invest in real estate too?

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If you’re looking to get a leg up in your self-directed portfolio endeavors, how about giving the Self Investors Gold membership a look?  You’ll receive buy and sell alerts in a Model Portfolio within minutes of every transaction.  After a top tier performance  of 27.6% last year, the Model Portfolio is posting strong gains again this year of over 24% while the S&P is in the red.

ETF, IPO & Breakout Stocks Analysis, Tracking & Research