February 2010 Report

 

 

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Mixed economic signals continue to feed investor uncertainty and apprehensiveness. While a follow through (the technical signal for a new rally) may occur, it will be failure prone. TJX (T J X), which operates off price TJ MAXX, Marshalls, and Homegoods is profiting and staged a nice breakout, but would still be a cautious buy given the overall market.

The markets started the month falling into a ditch, then turned around, eventually ending +1.4% for the S&P500, and +3.9% on the NASDAQ. Investors remained "wishy washy", even as the the month ended in a 14 day rally attempt. The technical signal, or follow through, to start a new market uptrend is a 1.7% up day on above average volume, on one of the major indices. Follow Through's are usually reliable with a 70-80% historical track record, but this may be failure prone with a high 14 day count. The declining volume and wide price swings are secondary indicators of a weak market and translates to investor confusion and a lack of conviction. On the other hand, the market is very good a fooling investors, and it would not surprise me to see this follow through work.

While the Fed's action to raise the discount rate could be seen as a sign of recovery, it's really the Fed funds rate that needs to be watched. The discount rate is used primarily for bank to banks business, and the Fed fund's rate loans to customers. Also known as the prime rate, it impacts everything from credit card, mortgages, business loans, CD's, savings accounts. There was other economic news which did not support a recovery:

• Fitch Ratings reported that U.S, jumbo mortgages at least 60 days late reached 9.6% in January vs. 9.2% in December. It was the 32nd straight increase in "serious delinquencies."
• Wal-Mart reported that sales in stores open for a year fell in the 4Q of 2009- the first decline in history. 
• The Fed reported that the year to year change in Commercial and Industrial loans is the lowest ever, since it started tracking this in 1948

• Sovereign default may be more widespread than the PIGS countries (Portugal, Ireland, Greece, Spain) as Standard & Poor's is considering the credit rating of the UK

There are very few stocks showing on my screens, but my favorite this month is T J X (TJX), which operates TJ MAXX, Marshalls, and Homegoods. A recent article in Investor's Business Daily mentioned that their buyers are out 40 times a year looking for deals compared to other retailers' 4 times a year. The result is getting same name brand merchandise at a discount of 50% or more, and the same merchandise that may be currently available at a department stores or national retailer chain. In my store checks, I have noticed several store improvements. Customer Service on par with a department store, faster store checkout, organized and cleaner stores. All this has resulted in impressive earning and sales. Over the past 4 quarters, both have accelerated with earning at 20%, 30%, 42%, 71%; and sales at 1%, 4%, 10%, and 10%. While the stock did stage a healthy breakout on 2/25, it is still a somewhat risky buy given the current overall market environment.

January Report – New year, old action

New year, same old wild action. Holdings in SPY (SPDR S&P 500 ETF), QQQQ (Powershares QQQ Trust), and DIG (Proshrs Ultra Oil & Gas) are swinging from profit to break even. The market is in a tug-a-war as bulls and bears are still uncertain about their convictions. On the one hand, investors are returning after missing out on last year's gains, BUT; news of high unemployment, bank closures, national debt, and mortgage defaults continue to be a drag,  BUT; the rally of 2009, spurred by a $2 trillion plus injection of government "Red Bull", has brought some stability back to the economy, BUT; the government will ease off and the "Red Bull" effect will wind down, allowing a new economic cycle, "the New Normal", to birth painfully. All this uncertainty makes for a tough, risky investment environment. This is why, in addition to Gil Morales's newsletter, investment ideas will be tracked from Henry Ford's ETF Bully system and Fred Adrich's Strategic Investing newsletter. Henry uses a mechanical system to analyze the tick by tick transactions of the exchanges. It's a microscopic method of identifying true and stealth accumulation and distribution. Henry's SPY model gained 187% in 2009. A telescopic view will come from Fred, a 50 year wall street vet who turns the news of the day into actionable ideas, and the "street sense" of knowing institutional "must buys". Fred's Agressive portfolio gained 20.7% in 2009.

As a tech junkie and former Microsoft employee, I look forward to January with the Consumer Electronics Show (CES) in Las Vegas and Apple's annual conference. As the dust as settled, I see AAPL (Apple Inc), NFLX (Netflix Inc), and MSFT (Microsoft Corp) as the tech companies to watch for this year. Netflix hit a record high on 1/26 after it beat Q4 estimates. No other company can compete with $8.95/month unlimited movies. This includes mailed DVDs and thousands of on demand movies and tv shows. These shows can be watched instantly on Xbox 360 and Playstation 3 gaming consoles. The big news from CES is content availability on the Nintendo Wii and nearly every new Blu-ray player and new connected TV sold. While not as revolutionary as Steve Job's may state, the Apple iPad will be a hit. It is an oversized, and refined iphone and will ride of the coat tails of its success. The most revolutionary thing about the ipad is the price. It comes in at $499, half the cost of the lowest priced MacBook. This is the first Apple product to outprice a competing product, with Windows tablets starting at $1000. The iPad is essentially a new category of mobile device and will force Windows mobile manufacturers to catch up. So, be on the lookout for sub-$500 touch screen tablets with 10 hours of battery life. With the success of Windows 7, the best operating system in nearly a decade, and a new version of Office this year, Microsoft should do well this year. But the most exciting technology, and most likely the must have item for Christmas 2010, will be the new hands free controller for Xbox 360. It is the Wii on steriods. So instead of swinging around a wrist attached Wii remote, your entire body becomes a controller as a 3D camera captures movements for a whole new gaming experience.  The camera, code named "Project Natel", premiered during Microsoft's CES keynote speech (http://www.youtube.com/watch?v=p2qlHoxPioM).

Follow me on twitter (http://twitter.com/IBDinvestor)

I’m hooked on twitter and this is where you can find real time updates during market hours. I also post my summaries from the GilmoReport.com, GIl Morales be-weekly newsletter. This newsletter is great and full of CANSLIM and William O’Neil “secret sauce”.

 

A stock market gift?

 

I believe the market gave me a gift yesterday as GLD, SLV, and the QID all pulled back to support areas. I took this opportunity to add on to GLD and SLV, and initiate a position in QID. Surges, like yesterday’s, are common in bear markets; and usually amount to “fakeouts” before continuing lower. BUT, one must always be on guard as new rally’s start when least expected.

Crash Alert!

The markets went on crash alert yesterday as the DOW breached Nov lows. The NASDAQ seems to be tracking the same stair step pattern of the 2000-2002 dot com crash. Is this a guarantee that our current market will take the next step down? Absolutely not! Does this mean that the market is more likely to go down than up? it Absolutely!

 

My first trade in 7 months – GLD, SLV

The nice thing about disciplined investing is that it protects you. Kudos to Investors Business Daily (www.investors.com) and the Gil Morales report (www.gilmoreport.com) for successfully navigating me away from the financial tsunami and keeping my investment ship in calm, peaceful waters.

The indices are toying with previous lows. In this environment of continued forced selling (deleveraging), the markets will likely break these lows and begin another leg down

The flight to safely buy is Gold and Silver. Either the real stuff, or GLD and SLV, which are their tracking ETF’s. I was able to get into each in the Jan 28th pullback and both have been on a tear! If you’re game, wait for pullbacks into their support zones .

Whipsaw Market- be careful!

  

With wild volatility whipping stocks around, it is a very difficult environment to make any moves. The best bet for now is to wait for the market to settle down, establish a trend, and wait for leadership to strut its stuff. The charts above of failed breakouts illustrate this point well.