Monday, April 30, 2007

So Busy Lately

For those of you who read this blog to find investment ideas and commentary, I would like to apologize for my lack of posting lately.

Have you noticed the underlined stock symbols in my posts lately? I have been working hard to develop the software used to create the pop-up menus you see when you hover over these highlighted stock symbols.

I have extended the capabilities to provide targeted sets of links for technology and general news. I am hoping other bloggers will find my little pop-up menu useful. You can read about it on the OpenLinkz.com website where I explain what it is and how to use it.

As soon as I get OpenLinkz launched properly, I will be accelerating my posting on this site and investigating improvements to the TradeRadar software. Stay tuned!




Saturday, April 28, 2007

Weekly Market Update - can new highs continue?

Weekly Market Call

All the averages continued to power upward this week as earnings reports continued to flood the market. There was good news from Amazon, Apple and Microsoft that energized the tech sector. The energy stocks reported decent earnings with oil, ending the week up over $66 a barrel, still off its highs but turning up. We had a late week rally in industrials in spite of poor economic news as big-caps like Cummins reported good earnings.

The government provided their advance read on first quarter GDP on Friday and it was uninspiring at best. Coming in at a weaker than expected 1.3% the bears are standing up and asking how the market can continue to move up with underlying economic strength deteriorating. Indeed, the market's momentum slowed Friday but the DOW and NASDAQ still managed to post small gains.

The questions at this point are: has the market become disconnected from economic reality (and consequently headed for a decline)? Or is the market acting as a leading indicator (implying the economic picture will start to improve)?

It will take a while before the answers to these questions become clear; however, in the short term, we can expect to see the market's upward momentum begin to slow as the excitement over this earnings season ends and investors go back to worrying about the next earnings season. We are already seeing weakness in the advance-decline line so be be prepared for the averages to ease up a bit.

ETF Comments

Indexes: another fairly impressive week for index ETFs with DIA up over 1% and QQQQ up over 2%. Small caps, however, are looking a little tired. IWM, the iShares:Russell 2000 Index ETF was up only a few cents over the previous week. And SPY only managed to gain 0.6%

Real Estate: REITs and home builders came under pressure. By the time we reached the end of the week, IYR had lost nearly everything it had gained earlier in the week. IYR remains clearly in the TradeRadar SELL zone. As for the homebuilders, investors seem to have thrown caution to the wind in their belief we have seen the bottom in the housing market. XHB had moved up strongly on Thursday and gave most of it back on Friday. Still, XHB remains over 9% above its early April lows.

Financials: XLF was up less than half a percent this week but they are now within a couple of percent of their previous high. XLF has finally poked its nose out of the TradeRadar SELL zone. KBE, the streetTracks KBW Bank index ETF is not nearly so lucky. It has made multiple runs at a resistance level just under $58.50 without being able to break through. KBE remains deep in the SELL zone.

TradeRadar Stock Picks

Generex (GNBT) was up only a penny this week despite announcing a deal to distribute its oral insulin spray in the Middle East. It now stands at $1.62, leaving us with a loss of 4.1%. I grumble and continue to hold.

No particular news on Cisco Systems (CSCO) this week. They finished up a few cents at $27.03, yielding us a gain of 4.8% thus far.

BigBand Networks (BBND) had a good week and closed $20.44. I'm pretty happy here as our gain now stands at 17.1%. Next week they announce earnings. Wonder what will happen then?

SanDisk (SNDK) moved up strongly this week only to falter after announcing very weak 1st quarter earnings and cautious guidance. We still manage to hold a slim 1% gain. HOwever, Goldman Sachs just raised their target to $53 based on expectations that royalty income will offset margin weakness. Dell has also announced they are offering SanDisk flash hardrives as an option in their notepook PCs. Flash prices are expected to firm and inventory levels to drop later in the summer. These factors should be benefical to SNDK. I remain confident SNDK will provide rewards to the patient investor.

Millicom (MICC) added half a buck and, despite falling on Friday, it finished the week at $84.48 for a 5.8% gain. MICC announced blow-out earnings this week but it was widely anticipated so no dramatic moves ensued. That's OK; a nice steady increase in share price is fine with me.

Our latest pick is QLD, the ProShares Ultra QQQ ETF that offers twice the performance of the NASDAQ 100. Once I gave up on QID, the inverse ETF, because the market seemed to be clearly entering another leg up, it seemed only reasonable to put a few dollars in the opposite leveraged ETF and look to ride the wave of bullishness. So on 4/20/07 I bought QLD at the open for $87.94. It closed this week at $91.85 for a 4.4% gain.



Wednesday, April 25, 2007

Experience with Ultra funds - QID and QLD

I have written about the ProShares Ultra funds in previous posts. I would like to recount some of my observations on using these funds to capture gains on swings in the market.

My premise has been that with reasonable market timing, an investor should be able to jump in and out of these funds and capture a reasonable portion of profits in both market downswings and upturns.

I chose to experiment initially with the ProShares UltraShort QQQ (QID). The NASDAQ seemed weak back in January and February so I loaded up on QID. Sure enough we got a market break in late February. As the market tanked, QID gained at twice the rate the PowerShares NASDAQ 100 ETF (QQQQ) declined. So far so good.

After the initial break in the market, the NASDAQ took a couple of weeks establishing a bottom and then began rising. I watched as my profit disappeared. I held on because economic readings led me to believe that the market would move lower rather than rise to new highs. I, and many others with a bearish opinion, were proved wrong.

What do we make of this? My first reaction is to say that ETFs like QID and its cousin the ProShares Ultra QQQ (QLD) should be used for short term situations. Due to their volatility (they attempt to capture twice the performance of the underlying index) one needs to be especially careful in choosing entrance and exit points. These ETFs are for traders, not the buy-and-hold investor.

So I finally gave in and sold my shares of QID. At one point I had a gain of over 8% after four weeks but I managed to fritter that gain away and end with a loss of 5.3%.

Still interested in experimenting with these Ultra funds I decided that if QID was not performing then perhaps I should be thinking about investing in QLD. And so I did. On April 20, I purchased QLD at $87.94. As of April 25, it is up to $90.80, for a 3.25% gain in three days.

Now what? Are we in a new leg in the bull market? should I maintain a short-term outlook on QLD and pull the plug at the first sign of a market decline? As always, market timing is extremely difficult. For now, it seems that the bulls are in charge and the focus is on the positive. We'll hang on but we will be keeping a sharp eye on things and a ready trigger finger.



Saturday, April 21, 2007

Weekly Market Update - what slowdown?

Weekly Market Call

Earnings season got into high gear this week and the market was off to the races. With about 25% of companies reporting, most are beating their forecasts. Though earnings surprises for the most part are not dramatic, it is clear that most companies had a solid quarter.

With the markets looking for good news, a good first week of earnings season was the excuse needed to set some new 52-week highs in the major averages.

This leaves me with one question. The macro-economic news thus far in 2007 has been anything but upbeat. This led analysts to forecast lower growth and then revise their forecasts even lower. We were supposed to be entering a slowdown. Then companies report good earnings. What's going on here? What slowdown?

It seems that most analysts and economists either missed the signs of growth or the economic reports themselves were not accurate. I'm looking forward to someone publishing the answer to this riddle.

ETF Comments

Indexes: I have been saying for a couple of weeks that the S&P 500 and its associated ETF, SPY, had turned the corner and gone from the TradeRadar SELL zone all the way into the BUY zone. It had seemed to me that the other averages were lagging a bit and I was worried that the poor economic news we had been hearing was waiting to knock them back. It seems that the S&P was a leading indicator here. The DOW and its associated ETF, DIA, and the NASDAQ and its associated ETF, QQQQ, set new highs this week. The Russell 2000 is a few cents short of a new high. It appears that the market is ready for another leg up. All the major indexes are already up over 4% on the year.

Housing - the iShares REIT ETF (IYR) didn't do much this week while the rest of the market was going up. IYR is still deeply in the TradeRadar SELL zone. The SPDR Home Builders ETF (XHB), on the other hand, benefited from what in my opinion is misplaced enthusiasm. It blew through resistance at $33 and, spite of the chief executives of the home building companies predicting a lousy year, investors seem to want to call a bottom here. I can't say I agree.

Financials - the SPDR Financial ETF (XLF) had a good run this week but has not nearly gotten back to where it was in mid-February. The large investment banks have gotten plenty of headlines as they announced stellar earnings derived from the current leveraged buyout craze. Smaller banks, however, are being impacted by mortgage problems and interest rates that are eating into profit margins. This group still looks weak and remains in the TradeRadar SELL zone.

TradeRadar Stock Picks

Generex Biotechnology (GNBT) had a bad week in spite of announcing that patents were granted in Canada and Mexico. GNBT lost a nickel and now stands at $1.61, leaving us with a loss of 4.7%. I continue to hold reluctantly.

The NASDAQ 100 was up strongly this past week so the ProShares UltraShort QQQ (QID) got hit again and closed the week down under $50 at $49.95. I have finally thrown in the towel and sold it at the open on Friday at $49.89. We ended up with a 5.3% loss. The poorly received earnings season has not materialized and things are looking fairly positive for the market so I felt it was best to exit this trade before losses mounted any further. Of course, now I'm worried that the markets have reached the top of a trading range...

Cisco Systems (CSCO) was up again and closed the week at $26.99 for a 4.7% gain. Though CSCO didn't particpate fully in the market's rally this week, it is still looking pretty good here.

BigBand Networks (BBND) had another wild week. It zoomed up to over $20 on news it would merely be holding an earnings call in May. It dropped from there to close the week at $18.77, still up a bit from the previous week. Our gain has been increased to a respectable 7.6%.

SanDisk (SNDK) continued its weak performance and fell from last week's $43.35 down to $42.53. Our earlier gain has turned to a 2% loss but it remains solidly in the TradeRadar BUY zone so we will continue to hold.

Millicom International (MICC) tacked on a few more cents and finished the week at $83.88 for a 5.8% gain. It looks like MICC's momentum is slowing. It had a couple of down days this week from which it managed to recover but it is clearly looking a little tired here.



Friday, April 20, 2007

What's up with the Banks?

The market has recovered nicely since the late February sell-off. It took awhile but the financial stocks have finally awakened and joined the party. Or have they?

Let's take a look at two ETFs. First we have XLF, the SPDR Financials ETF, and then KBE, the streetTracks KBW Bank Index ETF.



What's going on with this chart? Why the divergence? The chart above shows over a 4% difference in performance between XLF and KBE.

We have a few themes playing out here: mergers and acquisitions, interest rates and the problems with sub-prime mortgages.

In the case of XLF, we have an ETF that is riding high based largely on the biggest investment bank/broker/dealer stocks. These stocks have been benefiting from the fact that the world is awash in liquidity and interest rates are at a manageable level. It is a perfect environment for leveraged buyouts and every day we hear about a new multi-billion dollar deal. The fees generated by these deals go straight to bottom line of the investment banks. By market value, these stocks are the largest ones in XLF and their investment banking profits are overwhelming any problems they are having in other areas. As an example, Merrill Lynch just reported earnings. They bought a mortgage lender, First Franklin, at the top of the market. Were Merrill's earnings negatively impacted by having this albatross around its neck? Not at all. Merrill was busy doing deals and racking up profits in its investment bank while packaging up all those mortgages into securities to be sold to someone else.

KBE, on the other hand, is comprised almost exclusively of banks. You'll see Citigroup and JP Morgan Chase in their top-10 holdings but you won't see Merrill. Banks are not exactly enjoying a day in the sun. Interest rates are not especially high at the moment but they are not as low as they once were. As a result, we have seen a reduction in the margins banks earn on lending. We have not seen the sub-prime mortgage problems spill over into the general economy but there is no doubt it is affecting the regional banks. Loan loss reserves are being increased across the board; large banks and small banks have all started taking charges for increasing reserves and this has been affecting earnings reports. Credit policy is tightening. Washington Mutual, also one of KBE's top-10 holdings, has taken a hit recently for all the above reasons.

So what we are seeing is that there is a stratification in the financials. There is a segment of large broker/dealer/investment banks that are grabbing the headlines but, for the most part, the world of financial stocks is largely composed of regional banks and other lenders involved in commercial lending, mortgages, auto lending, etc. The financial sector comprises one of the largest sectors in the major market indexes. Will we see a sustained rally when there are signs the majority of financial institutions are lagging?



Saturday, April 14, 2007

Weekly Market Update - on the brink of earnings season

Weekly Market Call

A recurring theme for the last five weeks or so has been the fact that the economic news has ranged from fair to bad and yet the market continues to rise. This week was no different.

Fed meeting minutes were released and confirmed that those who said the Fed remains hawkish on inflation were right. New claims for unemployment jumped for the week ended April 7 to 342,000 from 323,000 the week before. This might reflect a softening in the labor market, but the weekly numbers can be very volatile. The March core PPI was weaker than expected at unchanged, but the total PPI surged 1.0%. The flat core was good news, but also may not reflect a trend. Expectations for first quarter real GDP have dropped to 2%. Interest rate forecasts were raised to reflect the lower probability of Fed easing. Inflation forecasts inched higher. And home price forecasts were lowered.

As the week ends we are on the brink of the first quarter earnings season. Will earnings reflect the somewhat bearish trends evident in recent economic news or will they surprise to the upside and reward what has, in my opinion, been an overly optimistic market? We'll find out over the course of the next few weeks.

ETF Comments

Indexes - all of them (and their associated ETFs: DIA, SPY, QQQQ, IWM) were up again this week. As reported last week, they are all clawing their way out of the TradeRadar SELL zone where they have been stuck for the last month or so. IWM and SPY have now moved strongly out of the SELL zone, DIA and QQQQ are above the line but not by much. All of these ETFs as well as those discussed below will see near term performance affected by earnings reports on the horizon.

Commodities - Oil didn't do much this week, closing at $63.60 a barrel, pretty much where it was last week. The US Oil ETF (USO) continues to flash a short-term SELL signal but on a longer term chart, it still seems to be in an up-trend. The Energy SPDR (XLE) remains in a solid up-trend and surged to a new 52-week high last week. It probably has a bit further to go before hitting its usual over-sold point. There will probably be another buying opportunity for those who have made a practice of buying whenever XLE gets down around its 200-day moving average.

Technology - Unlike the similarly tech-heavy QQQQ, the SPDR Tech ETF (XLK) has moved strongly out of the TradeRadar SELL zone.

Housing - the SPDR Home Builders ETF (XHB) barely budged this week. It may be trying to establish a bottom but there is resistance at $33 that may prove difficult to overcome. The iShares REIT ETF (IYR) had a couple of bad days this week but managed to finish a tiny bit up from the previous week. IYR is still deeply in the TradeRadar SELL zone. SRS still looks like it could be another short idea here.

Biotech - XBI, the Biotech SPDR, had another strong week and I was incorrect when I said last week that it was probably over-bought on a short-term basis. XBI has reversed the intermediate down-trend that has been in place since last November.

Financials - the SPDR Financial ETF (XLF) gained a bit this week but not nearly as much as the rest of the market. As I have said for the last couple of weeks, XLF continues to display one of the strongest TradeRadar SELL signals though it manages to stay above its 200-day MA. SKF still looks like a good short idea.

TradeRadar Stock Picks

Generex Biotechnology (GNBT) is pretty much doing nothing so we continue to hold. This week it drooped a few cents to $1.66 for a 1.8% loss.

The NASDAQ 100 was up again this past week so the ProShares UltraShort QQQ (QID) lost a bit more and closed the week down at $51.45. We are hanging in with a 2.3% loss. As painful as it is, we will continue to hold QID a little longer as a hedge against a poorly received earnings season.

Cisco Systems (CSCO) was up again and closed the week at $26.68 for a 3.5% gain. Cisco's chart is looking pretty good here.

BigBand Networks (BBND) struggled this week and dropped from $18.51 to close the week at $17.89. Our gain has been reduced to 2.5%.

SanDisk (SNDK) resumed its weak ways and fell from last week's $44.50 down to $43.35. I was surprised that it couldn't capitalize on the news it was in a partnership with Yahoo to produce a wireless MP3 player that would be integrated with Yahoo's music service. Our gain has been wiped out but it remains solidly in the TradeRadar BUY zone so we will continue to hold.

Millicom International (MICC) tacked on a few more cents and finished the week at $83.73 for a 5.6% gain.



Saturday, April 7, 2007

Weekly Market Update - New quarter off to a good start

Weekly Market Call

In spite of there only being four trading days this week, the market made the most of them, tacking on a good 1.5% and nearly erasing the losses that began in late February.

Major drivers this week included: falling oil prices when Iran released the British hostages, more M&A activity with Kerkorian bidding for Chrysler and a reported .7% increase in February pending home sales.

On the other side of the ledger, the ISM services index number indicated that services were joining manufacturing and housing in this year's slowdown. Indeed, weak factory orders were also reported this week.

On Friday, March payrolls came in with a gain of 180,000, a bigger than expected gain. This will add fuel to the bullish fire as it supports the notion that the consumer will continue to support the economy even if business spending continues to slow. Along with payrolls, it was reported that hourly earnings were up another .3% in March. This coupled with a recently reported decrease in productivity has inflationary potential. In general, the positive data for workers means that it can be assumed that there will be no interest rate cuts anytime soon.

Nothing has occurred since February to change my opinion that the economy is slowing. Why the market has returned nearly to its 52-week highs is beyond me. It is true that the economy is not falling off a cliff but do we deserve the rising valuations we see today?

ETF Comments

Indexes - all of them (and their associated ETFs: DIA, SPY, QQQQ, IWM) were up this week. They are all clawing their way out of the TradeRadar SELL zone where they have been stuck for the last month or so. IWM and SPY are the strongest, DIA is the weakest and the QQQQ is the messiest but they have all turned in strong performances in two of the last three weeks.

Commodities - Oil fell to $64.28 after the British military personnel were released by Iran and the US Oil ETF (USO) fell accordingly. USO is now flashing a short-term SELL signal but on a longer term chart, it still seems to be in an up-trend. The Energy SPDR (XLB) remains in a solid up-trend and tacked on more gains since last week.

Technology - The SPDR Tech ETF (XLK) peeked out of the TradeRadar SELL zone last week and this week completed a strong move out that positions it back in the box where it had been trading sideways in much the same manner as the QQQQ.

Housing - the SPDR Home Builders ETF (XHB) at least stopped falling this week. Saying that there had been strength would be going too far. The iShares REIT ETF (IYR) was up over a point from the previous week but is still in the TradeRadar SELL zone. IYR is still below its 65-day moving average and after this week we have now seen a lower high develop. The trend here is still down as IYR failed to recover to anywhere near its pre-downturn level. As mentioned last week, it may not be too late to do a little hedging with SRS, the ProShares inverse real estate ETF.

Biotech - XBI, the Biotech SPDR, had a strong week and is probably over-bought on a short-term basis. XBI is now positioned to reversed the intermediate down-trend that has been in place since last November.

Financials - the SPDR Financial ETF (XLF) gained only a few cents and, as I said last week, continues to display one of the strongest TradeRadar SELL signals though it manages to stay above its 200-day MA. I can't tell if XLF is over-sold or ripe for another downdraft. In week when the market was strong, XLF barely budged - not exactly a ringing endorsement for the financial sector. Could be another hedging opportunity here; putting a few bucks into SKF might be a good idea.

TradeRadar Stock Picks

Generex Biotechnology (GNBT) is pretty much doing nothing so we continue to hold. This week it closed at exactly the same price at which it was recommended.

The NASDAQ 100 was up nicely this past week so the ProShares UltraShort QQQ (QID) got slammed and closed the week down at $51.55. Our short-side pick swung from a 2% gain last week to a 2% loss this week. The QQQQ is looking stronger lately but is just barely peeking out of the TradeRadar SELL zone. With another earnings season coming up in a week or two and expectations being low, it would not surprise me to see QQQQ slide solidly back in the SELL zone soon. And so we will continue to hold QID a little longer to see how this plays out.

Cisco Systems (CSCO) was up and closed the week at $26.06 so we are back in the black again with a 1% gain.

BigBand Networks (BBND) was up half a buck to close the week at $18.51. We are now sitting on a 6% gain.

SanDisk (SNDK) came back a bit from last week's weakness and managed to close at $44.50. Our gain has increased from 1% to 2.6% and it remains solidly in the BUY zone.

Our latest pick is Millicom International (MICC). They were recommended at $79.30 on Tuesday of this week and finished the week at $83.30 for a 5% gain. I usually try to pick cheaper stocks that are undergoing a reversal in trend. This one was picked as a suggestion for the CNBC Million Dollar Portfolio contest and exhibits a strong intermediate up-trend, a large market cap and a high beta. Read about it in a prior post.



Friday, April 6, 2007

Looking for a Short Play in Real Estate with ETFs

Back in December, when problems in the real estate market were beginning to hit the news, I wrote a post about the situation and pointed out that if you wanted exposure to real estate in your portfolio, REITs were the place to be and homebuilders were to be avoided.

Since that time, the news from the real estate sector has gotten both worse and more publicized. Having written another post on using inverse sector funds, I find that many searches to the TradeRadar blog are looking for simple ways to use the concept to play the problems in real estate via ETFs.

It would seem that the two places where real estate would have the most impact would be real estate ETFs, obviously, and financial ETFs.

Zeroing in on homebuilders, there is the SPDR Homebuilders ETF (XHB) which, since early February, has been enduring a bumpy ride downward with a few blips up every time some pundit proclaims we have seen the bottom. Is there an inverse ETF that corresponds to this one? Unfortunately no.

Expanding our horizons somewhat, we can look at the real estate ETFs like the iShares US Real Estate ETF (IYR), the iShares Cohen & Steers Realty Majors Index (ICF), the streetTracks Wilshire REIT Index (RWR) and the Vanguard REIT Vipers (VNQ). There are inverse ETFs that move in the opposite direction such as the ProShares UltraShort Real Estate ETF (SRS). At first glance, it would seem that holding SRS would have paid off over the last few months. Once again the answer is no. ETFs like IYR, ICF, et al. primarily hold REITs and the majority or REITs are not focused on mortgages but are oriented toward commercial property. These REITs have taken a hit like the overall market since late February but since then have held up fairly well and regained much of what was lost.

Next up are the financials. When mortgages go bad, banks feel the pain. What ETFs hold banks and is there an inverse fund we can buy? There are two well known ETFs that track financials, the iShares Dow Jones Financial Sector ETF (IYF) and the S&P Financial Sector SPDR (XLF) and one that tracks banks, the streetTRACKS Bank ETF (KBW). Here again ProShares offers an inverse ETF, the UltraShort Financials (SKF). Would an investor have benefited by buying SKF in the last few months? The answer here is a qualified yes. There have been some wild swings in SKF but if you had bought in February when the fund started trading and held through today you would be up around 10%. XHB, however, has fallen 17% during that time so the inverse sector ETF has not captured as much of the price action as might have been expected. Looking at the core holdings of IYF and XLF, for example, it is clear that mortgages, and especially sub-prime mortgages, make up only a small part of the overall portfolios of the underlying companies in these ETFs. The financials may be impacted by real estate but their performance is not as tied to real estate as much as to interest rates, merger activity and the state of the overall economy.

What conclusions can be drawn? One, it is imperative that investors understand the holdings of any ETF they consider investing in. It is true that using ETFs an investor can take a diversified position in an industry sector and profit from an industry specific trend. Most ETFs, however, are skewed toward the largest participants in an industry. Be sure that the trend you are hoping to profit from will truly impact those holdings in the selected ETF.

The other conclusion is that that the real estate mess is not yet spilling over into the general economy. If we can't find significant impact in the ETFs most closely associated with real estate then we are probably not going to see real estate as the cause of the next recession.

Finally, using various shorting strategies with XHB since the beginning of February would have yielded the best return. Directly shorting the ETF or using options would both have produced winning trades. Unfortunately, these are not the easiest techniques for the individual investor but I'm sure the marketing departments at the major ETF vendors are cooking something up as we speak.



Monday, April 2, 2007

Millicom (MICC) - more growth on the way

Millicom International Cellular S.A. (MICC) provides cell phone service worldwide, especially in developing countries. Headquartered in Luxembourg, Millicom focuses on offering prepaid cell phone services across 15 countries including El Salvador in Central America; Paraguay in South America; Chad, Ghana, and Tanzania in Africa; Sri Lanka in south Asia; and Cambodia and Laos in Southeast Asia. These may not be on the top of your list of vacation spots but they are rapidly growing markets for cell phones. Rather than spending millions to deploy land lines, why not install some towers and sell prepaid cards and cell phones? Millicom has developed a sweet business model.

How good is their business model? How about quarterly revenue growth of 85% year-over-year, gross margin at 72.5% and operating margin at 27.8% and return on equity of 61%? This kind of growth is only available in emerging markets and that is the specialty of Millicom. Whereas cell phone penetration in places like the US and Europe ranges from 70% to 100%, only three out of ten people in developing countries has a cell phone. Clearly, there is room for further growth.

So is there a down side? Well, Millicom has a high trailing PE ratio, over 48; however, the forward PE is only about 16 so strong growth is expected. It can be a volatile stock: it sports a beta of about 5.25, good for traders but nerve wracking for buy-and-hold investors. On the other hand, there has been a solid up-trend in place since last July and, though the stock has bounced around some, it has basically stayed above its 20, 50 and 200 day moving averages pretty much the the whole time. Take a look at the chart below.




Click chart to view larger image


In summary, Millicom is taking advantage of a red-hot global trend. The rapid adoption of mobile phones in developing markets is aided by favorable demographics. These markets teem with teenagers and no age group has taken to mobile phones more than those who are under 25. Millicom's competitors are justifiably jealous. China Mobile attempted to buy them out last year but the deal fell through because China Mobile wouldn't offer what Millicom's management felt was a reasonable price. Last quarter's blowout numbers prove that premium valuation was well deserved. Look for Millicom to continue its winning ways.

Note: In looking for a stock that would qualify for the CNBC Million Dollar Portfolio contest I turned to the Zacks stock screener (find links to this and other screeners on the Trade Radar Investor Toolbox page). I set up a simple search for stocks with a market cap over $500M and a beta over 5. The high beta was chosen in the hopes that the corresponding volatility will be on the upside. Of the half dozen stocks that popped out I felt that the one with the most potential was Millicom.



Tips for TradeRadar Users - in the Zone

I would like to introduce a new concept for TradeRadar users: the Zone.

The area below the green line on TradeRadar charts is "the zone".

Following the normal TradeRadar analysis process, you would use the trailing (rightmost) edge of peaks to identify reversal points. When the red signal peak falls well below the green line, a reversal in trend has been identified.

Example: you are tracking a stock and you get a signal peak indicating BUY. The stock has now entered the BUY zone.

After a peak has occurred, continue to review the path traced by the TradeRadar signal. If it remains below the green line, it can be considered to be confirming and continuing the trend identified by the peak - it is still within the zone.

Example: if a peak indicated a BUY signal and subsequently the path of the red signal line stays below the green line, this stock is still within the "BUY zone" and can be presumed to be continuing an upward
trend.

When the signal comes out of the zone, it definitely signals the end of the previous trend; however, it may or may not signal a tradable reversal. The new trend may be sideways or the opposite of the previous trend. Avoid trading into a sideways trend. Use the TradeRadar signal to test for a reversal using the last peak as a start point. The reversal would provide a tradable signal.

On the other hand, you may find a stock you like but you missed the reversal point. If the upward trend is still intact and the stock is still within the BUY zone it may still be well worth establishing a position.



Sunday, April 1, 2007

Weekly Market Update - first quarter ends on a down note

Weekly Market Call

The first quarter is in the books and it was lackluster at best. The DOW failed to show a gain and the S&P 500 and NASDAQ Composite barely broke even. Many money managers have been talking about buying defensive large cap stocks; nevertheless, the Russell 2000 came through with a 1.7% gain.

As for the past week, the news was mostly bad. Oil prices were up strongly again as Iran and Britain continue their face off. Fed chief Bernanke testified before the Joint Economic Committee of Congress and indicated his major concern is still inflation. Translation: no rate cuts soon. A favorite Fed inflation indicator, the personal consumption expenditure (PCE) price deflator, came in with a bearish 0.3% increase for February.

Housing continues to preoccupy and disturb the markets. New home sales for February were down 3.9% after experiencing a sharp drop in January. Manufacturing is now becoming another source of worry. We had a rotten durable goods report with new orders up a smaller than expected 2.5% after a 9.3% plunge in January. In both cases, a bearish trend is is being established.

There were a few items on the positive side. Reports showing that consumer spending and the labor market remain strong met with investor approval. The March Chicago PMI index jumped to 61.7 from 47.9 in February, raising hopes of a manufacturing rebound.

So this past week was troubling from an economic point of view. Rather than plunging, the markets merely deteriorated. Next week, will we get back to climbing the "wall of worry"?

ETF Comments

Indexes - all of them (and their associated ETFs: DIA, SPY, QQQQ, IWM) were down about 1% this past week. It remains tough making a call here. They are all still in the TradeRadar SELL zone though it looks like SPY and QQQQ tried to rise above it but failed. Given the negative economic news discussed above, the next leg will be down unless corporate earnings, due to begin arriving in the next couple of weeks, provide some upside surprise.

Commodities - Oil was up strongly again this week, closing over $66 per barrel. The TradeRadar BUY signal for the US Oil ETF (USO) remains in place but resolution of the Iran-Britain crisis could see oil fall back rapidly. The SPDR Energy ETF (XLE) closed over $60 again and nearly hit a 52-week high. It once again is above its 200-day moving average, as it has been for most of the last four years. Basic Materials (XLB) remains outside the TradeRadar SELL zone and has pretty much completed a rebound after the February market break.

Technology - The SPDR Tech ETF (XLK) peeked out of the TradeRadar SELL zone but has dropped back in. The charts are very choppy for XLK. If business investment doesn't pick up, the direction for XLK could become clearer: down. As we said last week, however, there are pockets of strength in technology might provide some support.

Housing - the SPDR Home Builders ETF (XHB) just continues to get clobbered as the sub-prime mortgage mess festers. The iShares REIT ETF (IYR) was down a couple of points from the previous week and is still in the TradeRadar SELL zone. I keep waiting for the homebuilder problems to affect IYR more but, apparently due to the emphasis on commercial property in the constituent REITs, it manages to avoid plunging. Interestingly though, it has failed twice at trying to rise above its 65-day moving average. It may not be too late to do a little hedging with SRS, the ProShares inverse real estate ETF.

Biotech - XBI, the Biotech SPDR, bucked the trend this week and managed to close the week up a buck or so. It looks like it's trying to rebound but I wouldn't want to call it yet.

Financials - the SPDR Financial ETF (XLF) continues to display one of the strongest TradeRadar SELL signals though it manages to stay above its 200-day MA. This one is for bottom-fishers only.

TradeRadar Stock Picks

Back in mid-February I wrote that all the TradeRadar picks were in positive territory. Since then it's been a train wreck. As the first quarter of 2007 comes to a close, we have seen the market downturn make a mess of many of the charts of the stocks written about here. We have been forced to sell at a loss PacificNet (PACT) and Tarragon (TARR) and we have seen increased volatility in other holdings. With the market in uncertain territory, we continue to maintain positions on both the long and the short side.

Generex Biotechnology (GNBT) managed to close up a few cents more this week at $1.71 so a big two cents above the price at which we recommended it. The product pipeline seems strong and the chart is essentially flat so we continue to hold.

The NASDAQ 100 was down a bit this past week so we got a little recovery in our ProShares UltraShort QQQ (QID) which closed the week at $53.71. Our short-side pick has now swung back to a 2% gain. The QQQQ still looks weak and remains well within the TradeRadar SELL zone so we will continue to hold QID.

Cisco Systems (CSCO) was down over a buck this week. At $25.34 it has now swung to a loss of 1.7% from our recommended price. Having bought based on market position and industry expectations rather than a TradeRadar BUY signal, I am worried to be facing a loss already. As they often say, following any system consistently, even a bad one, is better than not following a system at all.

BigBand Networks (BBND) recovered this week based on news of equipment sales to six major Chinese cable operators and a Cramer reiteration to buy the stock. BBND closed the week at $18.01 so we're now a up little over 3%.

SanDisk (SNDK) had a tough week with rumors of weakness in flash memory cards sending the stock down. Could it be that the analysts who said flash prices were firming are wrong? I sure hope not. SNDK ended the week at $43.82 shaving our gain to a slim 1%.




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Disclaimer: This site may include market analysis. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.




 
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