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Showing posts from 2007

Durable Goods report shows mixed picture for tech sector

The Durable Goods report for November was released on December 27 and markets were somewhat disappointed. Last month I wrote a post where I took a look at the implications for tech stocks based on the October numbers. I'd like to take the same approach here.

The primary category I look at is Computers and Electronic Products and the three sub-categories Computers and Related Products, Communications Equipment and Semiconductors.

First, I was surprised to see how the annual numbers stacked up. On a year-to-date basis, 2007 has barely kept pace with 2006. The Computers and Electronic Products category shows shipments up only 0.6% and new orders flat. In all three sub-categories, both shipments and new orders were down anywhere from 1.4% to 4.5% (note that new orders are not available for the semiconductor industry.)

This data seems in conflict with one of the major investing themes of 2007: tech stocks were strong while financials were weak. Hence the outperformance of the NASDAQ in co…

The case for SanDisk revisited

With SanDisk (SNDK) getting ready to announce earnings on January 28, this is a good time to review the investment case for company.

Back in November I wrote a post titled "SIA Forecast strengthens case for SanDisk." The main points were that the stock had fallen to a level from which it has twice rallied in the past and that semiconductor growth over the next few years was on the rise with the most growth by far in the flash memory category. With the stock at a depressed level and growth for its main product expected to be robust, it seemed like the stock could be a buy for patient investors.

Then, as now, the company's growth potential in terms of unit sales was not the problem. Memory chip oversupply and pricing issues were driving the company's shares lower as margins became increasingly squeezed. This concern continues to plague the company.

According to TradingMarkets.com, up until October, tight supplies had kept a floor under prices. But leading NAND flash manuf…

Weekly Market Update, Part 2 - a look at the S&P 500

I'd like to look at the chart of the S&P 500 again this week and see if we can once again take the temperature of the markets.

Looking at the chart below we can see that SPX had a very good move on Friday, gapping up at the open and finishing strongly.


Moving Averages: As strong as this move was, it failed to clear the 200-day simple moving average. That level will in all likelihood provide some resistance to SPX as it tries to build on this week's gains. Note also that despite Friday's gain the 50-day simple moving average is just starting to cross below the 200-day SMA. This is often considered to be a seriously bearish indication.

MACD: Looking at the MACD, however, we are on the verge of a bullish signal but it has not quite made it yet.

RSI: In terms of relative strength, the RSI is neither oversold nor overbought but is at least moving in a positive direction on a short-term basis.

Resistance: 1490 on the SPX was previously a support level; now that we are below it, i…

Weekly Market Update - Santa comes to Wall Street, will he stay?

Major averages finished the week on an extremely positive note and some analysts are talking Santa Claus rally. Related ETFs shared in the holiday spirit. For example, after gapping down recently, we see SPY gapping up on Friday.

Still, there are questions to be answered.

If the S&P 500 gained 1.67% on Friday, why did SPY only gain 0.91%? Was it because SPY was in the top spot on the money flow list for Selling on Strength? With much of the selling in block trades, does that mean that institutions (the "smart money", perhaps) might be betting against this rally?

If the SPDR Financial ETF (XLF) gained only 0.93% on Friday why did the UltraShort Financial (SKF) fall 3.62%?

Three major Wall St firms reported earnings this week. Why did the ones that lost billions (Morgan Stanley and Bear Stearns) see their share prices increase while the one that executed well and turned a profit (Goldman Sachs) saw its share price fall?

Why isn't it a sign of weakness when so many financial…

Proposed Online Behavioral Advertising Policy - what are the impacts?

Yesterday the FTC released a set of proposed guidelines related to online behavioral advertising and how it impacts consumer privacy. Here are the major points as listed in the FTC release:

Concern: greater transparency and consumer control regarding privacy issues

Proposal: Every Web site where data is collected for behavioral advertising should provide a clear, consumer-friendly, and prominent statement that data is being collected to provide ads targeted to the consumer and give consumers the ability to choose whether or not to have their information collected for such purpose.

Concern: data collected for behavioral advertising may find its way into the hands of criminals or other wrongdoers, and concerns about the length of time companies are retaining consumer data

Proposal: Any company that collects or stores consumer data for behavioral advertising should provide reasonable security for that data and should retain data only as long as is necessary to fulfill a legitimate business o…

One good quarter and NetSuite IPO soars

So NetSuite (N) went public today at $26 and the shares moved sharply as some IPOs tend to do, closing at $35.50. This is in spite of the fact that the price had already been adjusted upward twice before the stock came to market. The company is in a hot sector and Oracle Corp. (ORCL) CEO Larry Ellison controls a majority stake and this has contributed to the buzz around the stock.

So at $35.50, is the stock a buy?

Company Background

NetSuite operates in the Software-as-a-Service (SaaS) sector. It provides business applications over the Internet so that customers do not need to install the software in their own datacenters. NetSuite offers an all-in-one solution that integrates accounting, sales, payroll, order fulfillment, purchasing, inventory, billing, CRM and more. It provides features that support eBay and offers a facility for users to create web sites that integrate tightly with the underlying accounting and inventory functions. Much like SalesForce.com, NetSuite has sales force au…

Will Citigroup ever learn?

In a credit environment where CDO values are dropping like rocks and write-downs are sprouting all over Wall Street, one would think that Citigroup (C) would tread carefully when it comes to rolling out new debt products.

That, apparently, is not the case. The following is from Bloomberg:

"Citigroup has announced a new $165M CDO backed by 30 microfinance loans to entrepreneurs in 13 countries including Bosnia, Tajikistan, Mexico and El Salvador.

Citi will also invest in the lowest ranking, or equity, portion of the CDO along with International Finance Corp., a unit of the World Bank, according to Fitch Inc. Microlenders make loans to low-income borrowers in developing countries who may struggle to get credit from local banks.

The CDO will consist of six portions of debt, the highest is rated AA."

What the heck is Citi doing rolling out CDOs based on loans to people who wouldn't qualify for a sub-prime loan in this day and age? Is there a significant risk of default among the …

S&P 500 gaps down - confirms bearish outlook

Yesterday I wrote a post describing my opinion on the direction of the markets. I focused on the S&P 500 and, after reviewing the chart situation, came to the conclusion that the most likely direction was down.

Today we opened with gap to the downside and the index never recovered. The gap is clearly visible in the chart below which shows what happened to the S&P 500 SPDRS (SPY) ETF.

Shortly after I saw the gap, I decided it was time to nibble on a few shares of the ProShares UltraShort S&P500 (SDS) ETF. Purchased at $55.13, SDS closed today at $56.08 for a quick little 1.7% gain.

The chart now looks worse than it did Friday. Today's sell-off came on decent volume but not extraordinary volume. This implies we have not yet seen the kind of capitulation that marks a bottom. Note also how the MACD on the chart above is on the verge of confirming the bearish direction. It looks like SPY might have a bit further to fall.

Disclosure: author is long SDS

Weekly Market Update - Market Reverses Course

After three good weeks, markets reversed course and closed significantly lower this week. Expectations of a Santa rally are looking less likely and skepticism seems to be the order of the day. This week the Fed cut rates and announced a lending facility to inject liquidity into the credit market. Investors were less than impressed. Inflation reared its head in the PPI numbers as price increases were larger than expected. In spite of good news on retail sales and jobs, all the major averages finished the week down over 2% with the Russell 2000 down a whopping 4%.

For a while now, Treasury bond prices have been going up every time stocks have gone down. This week we saw a turnaround in the bond market, with the smell of inflation causing bonds to sell off in lock-step with stocks. Seems like there was no place for an investor to hide this week.

Comments on the S&P 500

In trying to gauge the market direction, it is hard to ignore the fact that the S&P 500 closed down 2.4% this week …

VMWare sees new competition

On December 13, Microsoft (MSFT) provided a press release, with a nod to the holidays, entitled "Microsoft Unwraps Virtualization Surprise."

The surprise is that the long-awaited virtualization solution from Microsoft is going into public beta. It is available as part of the download of certain versions of Windows Server 2008. The new product, now named Hyper-V, provides some of the same server virtualization functionality currently offered by VMWare and XenSource which is now owned by Citrix Systems (CTXS).

Some notable features are that Linux integration is available in beta today with other operating systems coming in future releases. This means that the Microsoft solution is not limited to running only Windows as a virtual environment. This takes away some of the advantages of VMWare (VMW) and XenSource which can virtualize Windows, Linux and Unix.

Hyper-V is now included by default in Windows Server manager, which means enabling virtualization is as easy as installing any…

Merrill Lynch sees opportunities in Muni's

As the credit crunch has unfolded, we have seen municipal bonds fall in value as bond insurers have weakened and concern mounts that mortgage problems will impact the ability of municipalities to collect tax assessment revenues.

Merrill believes this is somewhat overdone and that the entire municipal bond sector has been tarnished though only isolated instances of problems are likely to occur. Without more precise risk assessment to identify those municipalities that will or will not suffer, investors will be throwing out the baby with the bath water. This implies that national muni closed-end bond funds are selling at deeper than average discounts to their net asset values.

The chart below shows the yield ratio between AAA-rated municipal bonds and 10-year Treasuries. The ratio is currently at a multi-year high. Merrill expects the 10-year Treasury yield to fall to 3.5% by mid-2008, supporting an expectation that the relative yield of munis will remain at a higher than average level.



Ot…

Tech stock outlook increasingly fragmented

As the title of this post says, the tech stock outlook is becoming increasingly fragmented. For much of 2007, a simple investment in a couple of broad-based ETFs such as the QQQQ or XLK would have brought an investor double-digit gains. Now, as we get later in the cycle and the economic backdrop becomes somewhat questionable, doubts emerge in some tech sub-sectors.

The following illustrates the "hot and cold" nature of the current tech environment.

IT spending slowing

From IDC, we have the following prediction: "Worldwide IT spending will grow at a slower pace in 2008. Economic uncertainties and downside risk will dampen IT spending growth in the U.S. and elsewhere. As a result, worldwide IT market growth will be a moderate 5.5-6.0%, down from 6.9% in 2007."

From InformationWeek, we have the following quote: "In the most recent survey by the Society for Information Management, less than half of 130 CIOs and IT managers who responded (49%) predict their IT budgets …

Financials hit bottom yet? RSS Indicator provides one clue

A contrary stock market indicator that has been humorously written about is the "magazine cover" indicator. For example, when a mainstream magazine writes about a big bull market in stocks, you can bet a correction is coming.

A few days ago I was catching up on reading some RSS feeds that I subscribe too and I was struck by the list of bad news in the Financial feed from MarketWatch. It just seemed like one after another item described some negative development for one financial firm or another. A rough tally indicated that fully three fourths of the news items were negative. It gave the definite impression that financial stocks are still in a tailspin.

It occurred to me that when the number of news items start skewing more toward the positive, maybe then we can say the bottom in financial stocks is behind us. With tongue in cheek, I call it the "RSS News Indicator" and it can give a quick sentiment indicator based on a snapshot of the recent news stream for the sect…

Weekly Market Update - data just OK, markets rally anyway

Market Comments

Markets staged a strong rally on Thursday that accounted for most of the gains seen this week. Interestingly, part of the impetus for the rally was an employment report from ADP that most analysts felt was largely overstated. The other incentive for investors was the announcement of the rescue plan for sub-prime homeowners by President Bush and Treasury Secretary Paulson. I am not sure why this was such a strong catalyst for a rally when nothing that wasn't already known was presented. Markets took off anyway and we now have two weeks in a row where the major averages achieved gains.

In other news that had an unexpected effect, OPEC held production steady and the US government reported a large draw-down in crude stocks. Instead of rallying, oil actually fell and finished the week down slightly.

The anxiously awaited Labor Dept. payrolls number was announced Friday. Expected to be market-moving news, especially in light of the ADP number, the actual numbers indicated …

Nielson - new cop on the block

Back in July I wrote a post that investigated whether companies with the most patents ended up with the best stock performance. It turned out that the answer was "no" but in looking at some of the companies in our sample set, we came across Digimarc (DMRC). The company is in the news again today as Nielson announced a partnership with Digimarc to implement what amounts to a DRM system on Internet video.

An excerpt from the announcement Nielson made today follows:

"The Nielsen Company and Digimarc Corporation (NASDAQ: DMRC) today announced a new service - Nielsen Digital Media Manager - that will enable media companies, social networks, peer-to-peer services and user generated content sites to monitor and manage the distribution of media content across the Internet.

Nielsen Digital Media Manager will use digital watermarking and fingerprinting to establish an industry-wide rules-based solution to copyright security and to assure copyright compliance. By providing a more r…

Generex Biotech - can the stock add to recent gains?

Starting in November, Generex Biotechnology (GNBT) has been quite volatile. That's about the time the company announced that its Oral-Lyn product had been licensed for commercial use in India. In October, a similar license was obtained in South Africa. The company is in the process of securing approvals to market the product in various Middle Eastern countries, as well.

In mid-November, Wall Street Strategies, an independent stock market research company, published a report on the company. They pointed out that the India news was a distinct positive for GNBT and that the stock is a buy. In addition, their analyst provided a further opinion as follows: "Currently, Oral-lyn is in phase III testing in North America. We expect that approval would automatically make this a $5.00 stock, but once sales begin we think the stock could move even higher." This sounds good but investors should be aware that Generex has retained Wall Street Strategies to provide investor relation serv…

More Charts - XLF, IYR, XLK

I just wrote a post looking at the charts of the ETFs that track the major averages. In this post I'd like to look at the ETFs that track REITs, financials and technology using the TradeRadar software and traditional technical analysis.

iShares Dow Jones US Real Estate ETF (IYR)
Daily Chart / Sell Signal: with the Window Start set way back at the low made back around 5/23/06 we still have a clear TradeRadar SELL signal. There is no hint of it moving out of the SELL zone yet
Daily Chart / Buy Signal: with the Window Start set at 2/7/07 there is a BUY signal almost formed but the peak has not yet made it into the BUY zone. With the Window Start set at 10/7/07 and the filter set to 4 days there is a better BUY signal that is just moving into the BUY zone though with somewhat weak signal strength.Weekly Chart / Sell Signal: with the Window Start set back in June of 2006 the SELL signal is still strong and solidWeekly Chart / Buy Signal: with the Window Start set at 2/12/07, this ETF'…

Trying to make sense of this market

I'm looking at the charts and also trying to use the TradeRadar software to make sense of what this market is doing. Here is what I am seeing in the ETFs used to track the major averages.

Examining the Diamonds Trust Dow 30 ETF (DIA), what can we say about the Dow Jones Industrials?
Daily Chart / Sell Signal: with the Window Start set to 3/2/07, TradeRadar still shows DIA deep in the SELL zoneDaily Chart / Buy Signal: with the Window Start set to October 9, the most recent high prior to the current downturn, we actually get a BUY signal on this short term chart. With the filter set to 4 days, the signal strength is still a little weak but otherwise the indicators look pretty good.
Weekly Chart / Sell Signal: with the Window Start set to the week of March 5, a moderate SELL signal is flashingWeekly Chart / Buy Signal: not enough data points to generate a signal based on a Window Start set to the week including October 9Moving Average Analysis: for three days now, DIA has managed to cl…

Does the Durable Goods report cast a shadow over tech stocks?

The Commerce Department reported on Durable Goods today while the markets were engaged in a powerful rally. For the Computers and Electronic Products category, new orders in October fell at a surprising rate, down more than 8%, from the level established in September.

Two of three sub-categories were considerably worse:
Computers and related products: -15.2%
Communications equipment: -22.6%

These declines were the largest of any sub-category in the entire report. The next closest was a 10.6% decline in Defense aircraft and parts. (The third sub-category under Computers and Electronic Products is Semiconductors. New orders data is not available for Semiconductors.)

What does this say about a recovery in tech stocks?

Moreover, given that tech as an industry has the largest over-seas sales exposure, what does that say about the concept of "decoupling"? At least some of this fall-off in orders has to be from foreign customers postponing purchases.

As noted above, the markets rallied st…

Citi takes the money and runs

Today we heard about the "investment" in Citigroup by an entity controlled by the government of Abu Dhabi. Citi will receive a $7.5 billion cash injection by selling a stake in the firm to the Abu Dhabi Investment Authority, the sovereign wealth fund that acts as the investment arm of the Abu Dhabi government.

The Investment Authority will receive equity units that pay an 11 percent annual yield until they are converted into Citigroup common shares at a price of up to $37.24 a share between March 15, 2010, and Sept. 15, 2011.

I was reminded of a post I recently read at the Information Arbitrage blog. (Read the post here) It was titled "Looking Overseas for a U.S. Financial Sector Bail-Out: It'll Cost You."

The author, Roger Ehrenberg (who also quotes Thorold Barker, a writer for the Financial Times), points out that the sovereign funds have "lots of investable cash at a time when relative bargains might become available. And given the scarcity value of their …

AGCO -- is there any upside left?

The agricultural equipment sector has been strong this year and appears to be one of the sectors that may provide some relief for stressed investors in this difficult market.

The John Deere Company (DE) recently reported strong earnings that gave the whole market a boost on the day the numbers were announced. Sales in agricultural equipment were very strong though construction equipment sales were somewhat under pressure. Deere provided solid forward guidance despite the risk of a falloff in the market for building construction equipment.

Everyone is familiar with Deere but a lesser known player is AGCO (AG).

AGCO company background --

Here are a few excerpts from the AGCO company profile at Yahoo Finance:

"AGCO Corporation manufactures and distributes agricultural equipment and related replacement parts worldwide. The company's products include tractors, combines, self-propelled sprayers, hay tools, forage equipment, and implements, as well as a line of diesel engines. ...the com…

Weekly Market Update and TradeRadar portfolio round-up

The week started off poorly with a Goldman downgrade of Citigroup. Things went further downhill from there. Lowe's, Target and Freddie Mac added to negative tone. We got a little positive blip in October housing starts but the housing market remains far underwater. The Fed released the minutes from their last FOMC meeting and surprised investors by revealing the decision to lower rates was "close". They also provided an economic forecast for 2008 that predicted slower growth due to continued financial market turmoil.

All in all, this week was pretty much like the last few weeks: volatile and in the end, depressing for investors.

Against this backdrop, there has been a higher level of trading in the TradeRadar portfolio and the holdings have changed quite a bit. There were a number of disappointments delivered by TradeRadar stock picks, stops were hit and we have ended up with a more bearish set of investments. Let's look at what happened to these stocks, why we sold or…

Business Intelligence consolidation - who's next?

We have seen a consolidation wave begin in the Business Intelligence space. IBM just bought Cognos and Oracle recently bought Hyperion. SAP just announced they are buying Business Objects after barely having time to digest their recent acquisition of Pilot Software.

There are three major database vendors at this time: IBM with their DB2 product, Oracle with their flagship Oracle database and Microsoft with their SQL Server database. IBM and Oracle now have premier, industrial-strength data analysis and reporting products in their product portfolios that complement their core database products. Microsoft has what, Excel?

Actually, Microsoft, like IBM and Oracle, has a suite of proprietary tools that do happen to integrate very well with Excel and SQL Server. Still, IT departments are not deploying the Microsoft tools for heavy-duty corporate use. Microsoft is unique among the big three by their lack of a premier reporting product. It seems safe to assume that Microsoft will be the next …

Lending tightest since 1990 - can the Fed make a difference?

The focus was on the Fed today after they released minutes of the last FOMC meeting and provided their economic forecast for the next several years.

Their expectation for slowing growth has Wall Street holding its breath waiting for more rate cuts. Yet the minutes reveal that the decision to lower rates at the last meeting was a "close call".

It is worth considering what power the Fed has to resolve current market problems with rates alone.

As everyone knows, one the primary problems facing the economy is the "credit crunch." The term "credit crunch" appears in so many articles and blog posts that it sometimes seems to be in danger of losing its impact on investors. That is, until the next financial blow-up that is the result of credit not being easily available or loans or debt offerings being rebuffed. Just look at some of today's examples. It was reported that the $4 billion sale of loans stemming from Cerberus Capital Management's acquisition of …