May 2010 Report

May 2010

Many are beginning to doubt how much impact $1 Trillion will have on saving Greece and the other PIIGS. The market response to the bailout was a broad sell off of 3.7% on the NASDAQ and 3.9% on the NYSE. This day also signalled the beginning of a market downtrend. Positions in GLD (SPDR gold trust ETF), PSQ (Proshares Inverse QQQ), SH (SPDR Short S&P500), and SEF (Proshares Short Financials) have benefited from the worst May since 1940.

Market Analysis: Downtrend since 5/4 continues

May 4th signaled a correction in the markets and positions were initiated in GLD (SPDR gold trust ETF), PSQ (Proshares Inverse QQQ), SH (SPDR Short S&P500), and SEF (Proshares Short Financials). These shorts have since benefited from the worst May since1940, and have lifted the portfolio to over 5% for the month.  The market has yet to show any signs of strength. May 27 could have marked a turnaround day with the NASDAQ up 3.7% and the NYSE up 3.9%, but this action came on below average volume, a sign that institutions continue to be reluctant to put money in the market. The major indices have been finding support at the 200 day moving average, an inflection point which could either see a continuation lower or a reversal into higher ground.

The Economy: $1 Trillion isn't worth what it used to be' at least for PIIGS

A $1 Trillion isn't worth what it used to be. This is evidenced with the widespread, 3% sell off response to the Eurozone's approval of the Greece bailout. The world is beginning to understand that it might not be enough. Even with the anticipated cuts in Greece, there would seem to be a cultural bias preventing changes to be implemented.  The financial overseers have no real plan to solve the problem and the stop-gaps only put out a small fire.  It very well may be a problem of insolvency rather than liquidity. Today, Greece is only the tip of a very large iceberg. Portugal, Spain, Italy and Ireland together owe $3.9 trillion in short- and medium-term debts, an amount larger than their combined GDP, estimated last year at $3.3 trillion. The problem directly hits US tax payers, as we are "required" to contribute 17% of the IMF's funding, or $48.6 billion to cover the debts of nations who spend more than they make.

A Vaccine for Cancer: Space age medicine finds its way back to Earth
Recently, an episode of Star Trek: Enterprise aired, called "Terra Nova". One of the inhabits of a lost colony of humans was diagnosed with lung cancer, which had spread to her lymphatic system. The good news is that she was cured...in one day! A vaccine was synthesized from her DNA to attack her specific cancer, kind of like a tailor made suit. More good news, this technology has recently been FDA approved. Provenge from DNDN (Dendreon Corp) is the first FDA approved cancer vaccine for prostate cancer. It will not cure cancer, but will prolong life in late stage cancers. The stock popped up 25% on over 3 times normal volume on April 29th and has since fallen back to it's 50 day moving average. Should a market rally resume, this is one to keep on your watchlist.

April 2010 Investment Report

The market continued to climb, but have thrown many "head fakes"  along the way. Attention has turned to Greece's bailout, but Spain is not far behind. The SEC investigation of Goldman Sachs will be a market game changer. GLD, PSQ, and SH are on the watchlist.

The March 1st follow through triggering a buy signal for the SPY (SPDR S&P 500 ETF) and QQQQ (Powershares QQQ Trust) would have led to gains of 6.4% and 8.25% respectively. This signal was confirmed on 4 reliable sources, but a decision was made to remain in cash. This market has particularly been characteristic of throwing "head fakes" and fooling the crowd, including me. But the rally is showing signs of fatigue, with 6 distribution days on the S&P500 and NYSE. SEC actions against Goldman Sachs also has the potential to drag the market down.

While everyone knows pigs can't fly, PIIGS countries are flying high in debt and are in the verge of taking financial nose dives. Greece saw its bond rating downgraded to junk and are weeks away from defaulting on loans. Yet, unions still may not accept EU and IMF terms of raising retirement age of 53 or give up bonuses equaling 2 months pay. Spain is not far behind as it reported 20% unemployment last month. But this crisis has far greater implications. Morgan Stanley has 69% Tier 1 PIIGS capital exposure and JP Morgan Chase 20%. In total, US banks have $238 billion of investments in these countries. The Euro is also threatened, as the currency shared by the 16 European nations is weakening. Which, also threatens global economic recovery.

A play on the PIIGS crisis is the flight to safety in GLD (SPDR gold trust ETF).  The yellow metal broke out of a double bottom on April 9th, found support at the 20-day moving average and broke out a second time on nearly twice its average trading volume. This can be bought as it falls back to its pivot at 114.11, or preferably at 113.03 which is the 20-day moving average. With the current rally which started on March 1st showing signs of weakness, positions in PSQ (Proshares Inverse QQQ)  and SH (SPDR Short S&P500) will be started when the market signals a Correction.

March Newsletter

A follow-through was signaled on March 1^st , carrying the markets into positive territory for the year. But the rally may be fizzling. Default risks increased for Greece and Portugal. QQQQ, SPY, and UUP are being watched as potential buys

The NASDAQ staged a "cautious" follow-through on March 1st. The signal was questionable with only the NASDAQ meeting the absolute minimum 1.6% gain on higher volume. Nevertheless, the rally pushed the indices into positive territory for the year; in a cautious and tender way. To everyone’s surprise, the market held up the day after the healthcare bill passed. This would have been a good sign, but back to back distribution, or high sell off days weakened this rally. Semiconductor and Chinese internet stocks have led the way, but have also experienced recent selling pressure. Investing in this market remains difficult. Money managers are being pressured keep their portfolios on par with market performance, but their lack of volume equates to their lack of conviction.
In financial news, 2010 will mark the change of social security outflows exceeding tax inflows, six years earlier than government forecasted. The Congressional Budget Office estimates present value of unfunded social insurance expenditures at $46 trillion. The healthcare bill may add another $562 billion to this over the next decade, according to an ex-CBO director in the The New York Times. In the article "Fantasy In, fantasy out", the bill's claim of reducing the deficit by $138 billion is nothing but a"slight of hand", applying front-end loaded revenues and back-end loaded expenses. Abroad, the PIGS continue to make a lot a noise. Portugal was Fitch downgraded from AA to AA on increased default risk, and Greece’s auction of 5.9% bonds showed lackluster support with investors.  Interestingly, this boosted US dollar; which is the "taller midget" among financially troubled countries.
With 4 recent distribution days, the rally may be fizzling out, or taking a rest before moving higher. Many of the market leaders have been under selling pressure, another negative for rallies. Buy opportunities may come from 20-day moving average pullbacks on the indices; 115.71 for the SPY (SPDR S&P 500 ETF) and 47.48 for the QQQQ (Powershares QQQ Trust). Another from the US dollar, which staged an impressive breakout on 3/27 but retraced back down.  UUP (PowerShares DB US Dollar Bullish Fund ETF) looks buyable on a move above its previous high at 24.14. Just be careful as the dollar sometimes trades with wide intraday swings.

March Newsletter

A follow-through was signaled on March 1^st , carrying the markets into positive territory for the year. But the rally may be fizzling. Default risks increased for Greece and Portugal. QQQQ, SPY, and UUP are being watched as potential buys

The NASDAQ staged a "cautious" follow-through on March 1st. The signal was questionable with only the NASDAQ meeting the absolute minimum 1.6% gain on higher volume. Nevertheless, the rally pushed the indices into positive territory for the year; in a cautious and tender way. To everyone’s surprise, the market held up the day after the healthcare bill passed. This would have been a good sign, but back to back distribution, or high sell off days weakened this rally. Semiconductor and Chinese internet stocks have led the way, but have also experienced recent selling pressure. Investing in this market remains difficult. Money managers are being pressured keep their portfolios on par with market performance, but their lack of volume equates to their lack of conviction.
In financial news, 2010 will mark the change of social security outflows exceeding tax inflows, six years earlier than government forecasted. The Congressional Budget Office estimates present value of unfunded social insurance expenditures at $46 trillion. The healthcare bill may add another $562 billion to this over the next decade, according to an ex-CBO director in the The New York Times. In the article "Fantasy In, fantasy out", the bill's claim of reducing the deficit by $138 billion is nothing but a"slight of hand", applying front-end loaded revenues and back-end loaded expenses. Abroad, the PIGS continue to make a lot a noise. Portugal was Fitch downgraded from AA to AA on increased default risk, and Greece’s auction of 5.9% bonds showed lackluster support with investors.  Interestingly, this boosted US dollar; which is the "taller midget" among financially troubled countries.
With 4 recent distribution days, the rally may be fizzling out, or taking a rest before moving higher. Many of the market leaders have been under selling pressure, another negative for rallies. Buy opportunities may come from 20-day moving average pullbacks on the indices; 115.71 for the SPY (SPDR S&P 500 ETF) and 47.48 for the QQQQ (Powershares QQQ Trust). Another from the US dollar, which staged an impressive breakout on 3/27 but retraced back down.  UUP (PowerShares DB US Dollar Bullish Fund ETF) looks buyable on a move above its previous high at 24.14. Just be careful as the dollar sometimes trades with wide intraday swings.

February 2010 Report

 

 

----
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”.