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Showing posts from March, 2008

Market internals continue to improve despite down week

This week market statistics are again positive. This is despite the fact that two of four major averages finished the week on a downbeat note. With the Dow and the S&P 500 losing 1.2% and 1% respectively we have apparently been saved by the NASDAQ, which gained a slim 0.1%, and the Russell 2000, which gained 0.3%. It was enough to keep the market internals on an up trend for the week as a whole.


Looking at the chart above, we see that over the course of the last six weeks there has been significant weakness followed by recovery.

This week we have the highest number of stocks above their 20-day moving average that we have seen since we started gathering these statistics. That's the good news. The bad news is that it is still less than half of all stocks that we test (each week we look at about 7200 stocks).

The number of stocks above their 50-day moving average also improved compared to last week and has finally gotten back up to the level we saw when we started collecting these …

Alert HQ for the week ending March 28, 2008

This post is to announce that the latest list of stock alerts is up and available at Alert HQ.

The week on Wall Street started out OK but ended with several days of losses. It appears that the major averages are falling back after the recent Fed-led rally. A retracement is under way; how far it goes remains to be seen.

Despite the weakness in evidence in the last half of the week, market internals showed a continued slow improvement from the very depressed levels of a few weeks ago.

As a result, this week we have an alert list of 23 BUY signals and 4 SELL signals.

Later this weekend I will be writing another post to describe my analysis of the market statistics the Alert HQ software has generated and hopefully I'll get around to discussing the performance of some of the picks from past weeks.

Durable Goods report supports cautious stance on Communications Equipment

Goldman Sachs just came out with a call indicating they have turned cautious on the communications equipment sector.

With this sector comprising one of the buckets of data available in the U.S. Census Durable Goods report (M3 Survey), I thought I'd take a look at the government data that came out yesterday and see if it was consistent with Goldman's view.

In particular, I looked at New Orders and Shipments for the communications equipment category including both defense and non-defense manufacturing.

In yesterday's Durable Goods report, it appears that January's New Orders number was revised down slightly to $5.106 billion from the previously released $5.186 billion. This has the effect of making the January to February increase in New Orders 6% rather than 4.3%. Similarly, January's Shipments number was revised downward from $5.376 billion to $5.341 billion. This has the effect of making the January to February increase in Shipments go -0.3% rather than -0.9%.

In gene…

Durable goods - the case for shorting industrials strengthens

I recently wrote a post describing what I saw as a weakness in manufacturing. That weakness, I felt, justified taking a position in the ProShares UltraShort Industrials ETF (SIJ). My timing for this trade was astonishingly bad as markets immediately staged a strong rally, driving this ultra short ETF into the ground.

What about the premise of the post mentioned above? It seems that today's February Durable Goods report from the U.S. Census Bureau bears out the original analysis. All is not well in the manufacturing sector.

My previous post talked about a string of reports showing slowing growth or outright contraction. Sources included the Federal Reserve, the Philadelphia Fed, the New York Fed and the ISM.

Today the Census Bureau weighed in and it wasn't pretty. Many headlines indicated the bad number was a surprise. To me, it seems to continue a trend.

Here is the summary statement on New Orders from the Census Bureau's web site:

"New orders for manufactured durable good…

Money left on the table - a cautionary tale

Yesterday I was stopped out of my position in the ProShares UltraShort FTSE/Xinhua China 25 ETF (FXP).

I managed to obtain an 18% gain on the trade in FXP but this is actually a pretty lousy result because there were other opportunities to sell at a much better price. Why didn't I? Because I ignored my rules for trading.

Trading is not like buying and holding for the long term. Nevertheless, both types of investing should be pursued with a set of rules, a discipline if you will, that guides your decisions. The rules may be different in these two cases but you should define your rules and stick with them. Unless, of course, they seem to get you into trouble on a regular basis in which case perhaps they should be revised.

First, let's talk a little about the rules I try to follow. They're pretty simple and not particularly original but they are what I use. Here they are:

Stops should be employed at all times. Support and resistance levels should be looked at in order to determin…

Alert HQ - first list of stock picks based on weekly data

As many readers may know, I have been running a scan of about 7200 stocks each weekend looking for TradeRadar BUY and SELL signals based on daily data. I have been making these signals available on the Alert HQ page of this site.

Today, I ran the first scan based on weekly data. As this is still in a beta stage of development, i.e., working but with potential for further improvement, I thought I would make this first list available for free. Here goes.

This first table is a list of all BUY signals:

SymbolNameLast PriceSignal StrengthAroon IndicatorABFSArkansas Best Corporation$35.20 60%Strong Up trend -Up: 100Down: 45Osc: 55MKSIMKS Instruments, Inc.$21.84 76%Strong Up trend -Up: 100Down: 55Osc: 45PRAAPortfolio Recovery Associates, Inc.$47.82 77%Strong Up trend -Up: 100Down: 55Osc: 45WRLDWorld Acceptance Corporation$34.09 61%Strong Up trend -Up: 100Down: 55Osc: 45

This next table lists the SELL signals:

SymbolNameLast PriceSignal StrengthAroon IndicatorBIODBiodel Inc.$10.59 85%Strong Down t…

IT makes a difference - look at Level 3

Information technology is generally a function that is hidden behind corporate walls. This is true even for technology companies. But IT is too important to be ignored.

OK, I have worked in IT in various stages of my career so perhaps I am predisposed to blowing the IT horn. Sometimes, the horn rings out loud and clear. Other times, however, it sounds with a whimper.

Typcially, it seems like the good news from IT is not widely broadcast but the failures are more well known. Look at Citigroup (C). They announced ambitious plans to reap cost cutting and new efficiencies from major IT simplification and reorganization. So far, IT costs have risen 20% and have stayed at that level. Citi seems to have a ways to go before realizing their IT goals.

Then there is Level 3 (LVLT). Here is a company that has assembled, from a series of acquisitions, one of the largest Internet backbone telecommunication systems in the world. Yet they can't turn a profit. In 2007, the company lost $1.1 billion …

Market internals improving - still not out of the woods

This week we can see what looks like a bottoming out in the markets but the indicators still signal caution. The chart below summarizes data from the last five weeks obtained by scanning about 7200 stocks each weekend using our Alert HQ process.



The fastest moving indicator is the number of stocks above their 20-day moving average. We have now seen an improvement in this number for two straight weeks though it is still a bit below where we were five weeks ago. Unfortunately, despite the rallies this week, less than half of the stocks we tested are above their 20-day MAs.

The situation is similar when it comes to the number of stocks above their 50-day moving average. Two weeks of improvement but it hasn't even gotten us back to where we were at the end of February.

The Aroon indicators tell a mixed story, as well. For the first time in five weeks we see the number of stocks that are signaling an up-trend has increased. And we have now seen two straight weeks where the number that are…

Alert HQ for the week ending March 20, 2008

This post is to announce that the latest list of stock alerts is up and available at Alert HQ.

It was another volatile week on Wall Street with major averages showing solid gains. This time the financial sector outperformed and the rest of market managed to follow along. All this action was good for generating TradeRadar signals.

As a result, this week we have an alert list of 20 BUY signals and 9 SELL signals.

Later this weekend I will be writing another post to describe my analysis of the market statistics the Alert HQ software has generated and to discuss the performance of some of the picks from past weeks.

Has the Fed ended the recession?

Markets heaved a huge sigh of relief today and rallied strongly.

So much of today's euphoria was due to the recent hyperactivity of the Fed and Secretary of the Treasury.

This past week saw the collapse and eventual takeover of Bear Stearns. The Fed was a major player in that drama as was Henry Paulson (The Wall Street Journal had a fine article on the how it all went down. It is also available on online here). I can only say that it certainly appears to have been the right thing to do. All concerned deserve kudos from the investing public for the urgency shown and hard work performed to pull things together in such a short time.

Goldman Sachs and Lehman Brothers both beat severely reduced expectations when announcing earnings today. This was another huge relief for the markets and got today's rally off to a good start.

Later during the day the Fed cut interest rates 75 basis points. Markets were looking for a whole percentage point but three quarters was deemed good enough and st…

Manufacturing - another area of weakness

In a post written over the weekend, I described why I thought the financials sector is now close to a bottom.

What was implied but not fully elaborated on is the idea that different sectors will bottom at different times. This concept is certainly nothing that most investors don't already know. We always see market leadership rotate from one group of stocks to another. The group may be based on market-cap or it may be based on business sector.

The question for investors today is: what sector rotation is taking place at the moment?

If the financials have bottomed, does this mean we should go long financials immediately? The conventional wisdom is that it will be a long hard road for the financials to battle back to a point where they would be worth buying. The issue here is patience. Values are compelling now but there may be a long wait to truly reap the rewards.

For those with a shorter term horizon, perhaps it would be interesting to look in another direction.

Just today we got two r…

Market Statistics - indecision

This week our Alert HQ market scan process has provided a set of mixed signals. Is this evidence of investor indecision or consolidation or just a brief stop before the next big move? We now have four weeks worth of data, as seen in the chart below, and all in all, it is hard to interpret this data in a bullish manner.


For those of you who are new to this weekly post, here is the background: We scan about 7200 stocks and ETFs each week after Friday's close. We apply a number of tests to each stock. The chart below shows how many stocks fell into which buckets. The following items are measured and tracked each week: number of stocks above their 20-day moving average, number of stocks above their 50-day moving average and number of stocks having a 20-day moving average above their 50-day moving average. In addition, an Aroon evaluation is performed to identify if each stock is in a down-trend or and up-trend.

Our first three weeks of data showed all positive indicators trending down, …

Alert HQ for the week ending March 14, 2008

This post is to announce that the latest list of stock alerts is up and available at Alert HQ.

It was an eventful week on Wall Street with major averages finishing more or less where they started despite significant volatility. The financial sector fell again but the rest of market managed to at least tread water. Tuesday's huge rally was undone by Friday's decline after news of the Bear Stearns bailout. Still, there were a few signs of hope as the market has still not broken below the January lows.

We had less negativity in the overall market this week so thankfully we didn't have a repeat of last week when we had no BUY signals at all.

As a result, this week we have an alert list of four BUY signals and one SELL signal.

Later this weekend I will be writing another post to describe my analysis of the market statistics the Alert HQ software has generated and to discuss the performance of some of the picks from past weeks.

Bear Stearns situation is bad - will things get worse?

Bear Stearns (BSC) needed a bailout and the Fed accommodated. A big-name financial company was so wounded that JPMorgan Chase (JPM) and the New York Fed had to arrange to provide funding. At first, I thought this is really bad. And it certainly is. By the end of the day, however, I began to think that this signals that we are close to the bottom for financial stocks. There are a number of reasons.

First, though the Bear Stearns situation is a real negative for the markets, it did demonstrate that the government is willing to step in to insure that our most important financial companies survive this downturn. Say what you will about moral hazard and what have you, the bottom line is that the Fed will not let major financial institutions go down the drain. From the point of view of investors in financial stocks, that is a positive.

Second, there have been a number of bloggers and analysts who have pointed out that the bottom won't be reached until institutions that are sitting on exce…

Flash memory prices pressure chip manufacturers

In an article presented today at DigiTimes, there was more bad news for manufacturers of NAND flash memory. And perhaps another negative for Apple (AAPL) was revealed.

The reporters announced that Apple has not yet started making big procurements of NAND flash memory thus far in 2008. With NAND already selling below cost, according to sources at Taiwan memory makers, this lack of demand from a major customer could make a bad situation worse for NAND manufacturers. We have already had an announcement from Intel (INTC) that their margins are being hurt by the persistent pricing problems in NAND flash. It can only be a matter of time before we hear the same tune from SanDisk (SNDK), Micron (MU), Samsung and others.

As for Apple, a number of their new product announcements have involved flash, such as the solid state drive in the MacBook Air. Many existing products are heavily dependent on flash including the iPod and iPhone. Having purchased approximately $1.2 billion worth of flash in 200…

Why Yahoo is worth buying

It's the data, stupid!

Instead of simply measuring numbers of visitors or pageviews, comScore, at the request of the New York Times, developed a different approach to analyzing the ability of the major media web sites to gather data about users.

The new method is based on "data collection events" or opportunities for web site operators or marketers to gather a data point about a user. Four of these events are actions that occur on the sites that the online companies run: pages displayed, search queries executed, videos played, and advertising displayed. Each time one of those four things occurs there is an interaction between the user's computer and the server of the company that owns the site or serves the ad. That creates an opportunity for that server to store the bit of information just collected in a database.

comScore also looked at ads served on pages anywhere on the Web by advertising networks owned by the media companies. These include text ads provided by Goog…

Market Statistics - more deterioration

This week our Alert HQ market scan process has provided further evidence of a deterioration in market internals. Since we now have three weeks worth of data, I have chosen to present the latest data in chart form.

We scan about 7200 stocks and ETFs each week after Friday's close. We apply a number of tests to each stock. The chart below shows how many stocks fell into which buckets. The following items are measured and tracked each week: number of stocks above their 20-day moving average, number of stocks above their 50-day moving average and number of stocks having a 20-day moving average above their 50-day moving average. In addition, an Aroon evaluation is performed to identify if each stock is in a down-trend or and up-trend.

As can be seen, all the positive types of indicators are trending down. The only thing that is trending up is the Aroon Down indicator that is used to identify stocks in a down-trend and that one jumped sharply.


It appears that the deterioration picked up …

Alert HQ for the week ending March 7, 2008

This post is to announce that the latest list of stock alerts is up and available at Alert HQ.

It was another awful week on Wall Street with major averages falling between 2.6% and 3.0%. The financial sector fell 6%. This kind of action is grinding down many of the picks that generated BUY signals in past weeks.

With such negativity in the overall market, I shouldn't be surprised that this week we have absolutely no BUY signals at all. The list of BUY signals has been shrinking over the last few weeks and now we are down to none.

We do, however, have an alert list of five SELL signals this week. As mentioned in last week's post, it appears that many stocks currently in the SELL zone generated their initial SELL signal weeks or months ago. This week we got another batch that are finally throwing in the towel.

Later this weekend I will be writing another post to describe my analysis of the market statistics the Alert HQ software has generated and to discuss the performance of some o…

Citi's Levkovich - buy banks now!

Tobias Levkovich, Citi's chief U.S. stock market strategist, was recently interviewed by the Swiss financial publication Finanz und Wirtschaft.

He is currently bullish on banks. Yes, the financials are currently the most out-of-favor sector out there but Levkovich is not alone in declaring that value is available today.

Levkovich makes a number of good points, some from a historical perspective and some from a contrarian perspective.

Despite his feeling that we are already in a recession, he feels it is already priced into certain market sectors. Overall, he points out, recessions have typically resulted in market drops in the 15% to 20% range with the exception of the deeper bear markets in 1974 and 2001. 1974 and 2001 had extreme circumstances that cause Levkovich to exclude them from his analysis. With markets having already declined into this 15% to 20% range, Levkovich feels that the bottom will be established very soon.

At this point, readers may want to point out that the curre…

Allis-Chalmers post-earnings update

Allis-Chalmers Energy (ALY) formally announced their Q4 and full year earnings. Things were pretty much as they said they would be back on January 31 when they presented their preliminary unaudited results for 2007.

Here are the final numbers:
For the fourth quarter of 2007, the company earned $5.8 million, or 16 cents a share, compared with $10.4 million, or 40 cents a share, a year earlier.Revenue in the quarter rose 25 percent to $143.8 million compared to $114,898 million a year earlier.
On an annual basis, the company earned $50.4 million versus $35.6 million in 2006Revenue in 2007 came in at $571 million compared to 2006's $311 million.Management's message on Q4 is as follows: "as we reported in our January 31, 2008 press release, our results in the fourth quarter were affected primarily by weakness in demand for drill pipe in the Gulf of Mexico due to the hurricane season and the departure of rigs to the international market, start up costs and low utilization of our …

Last minute rally but breadth is weak, support just barely holds

Last night I wrote a post about Merrill Lynch's concept of a weakening or reduction in leadership being a result of a slowdown in profit growth.

This morning it occurred to me that yesterday's rally into the close showed the principle at work. The image below from the Wall Street Journal Online shows the advancers and decliners in yesterday's trade.

Yesterday the major averages were down well over 1% for most of the day. At the last minute, there was a rally based on more rumors of a recapitalization for Ambac, Cisco's CEO saying long term growth is on track (which he also said when Cisco earnings were released) and Apple saying they are sticking to their guidance on iPhone sales.

Should we take heart from this rally or regard it with skepticism? On the NYSE, which finished with a small loss, losers outpaced gainers two to one. On the NASDAQ, which actually managed to eke out a gain, only 39% of stocks managed to end the day in positive territory, let alone exceed the gai…

Merrill Lynch - profits decelerate as market leadership weakens

I enjoy reading the monthly Merrill Lynch Research Investment Committee report, known as the RIC Report. There is always some concept that is new to me and sheds some light on current market conditions.

February's report had an interesting chart detailing the percentage of stocks that outperformed the S&P 500 index in a given calendar year.


Merrill contends we are currently experiencing a serious slowdown in global corporate profit growth. Merrill further contends that "historically, leadership in the financial markets tends to narrow (i.e., fewer and fewer investments tend to outperform) when the profits cycle decelerates because growth becomes a scarce resource".

As can be seen in the chart, prior to the Internet bubble, the percentage of companies outperforming the S&P 500 stayed within a modest range under 50%.

In the 1998-1999 timeframe, with the tech bubble in full swing, fewer and fewer stocks outperformed the S&P 500 despite profit acceleration.

Post-Inter…

My solution to the mortgage mess

Ben Bernanke spoke today before a group of community bankers in Orlando, Fla. He encouraged bankers to find creative ways to address the problems in the mortgage market. Preventing foreclosures, he implied, should be a priority as it would "help not only stressed borrowers but also their communities and, indeed, the broader economy."

Mr. Bernanke, here is my suggestion. Instead of banks reducing principal or instituting artificially low interest rates, why not have borrowers move into homes they can actually afford. If done in a coordinated manner, the process could cascade down from the most expensive homes to the least expensive. Essentially, everyone moves down a notch to a more reasonably sized home with a more affordable mortgage.

Those at the lowest end of the spectrum who, based on their financial condition, should never have become homeowners in the first place would be expected to return to the rental market.

This would keep the majority of troubled homeowners in a ho…

Weekly Market Update and comments on Alert HQ stock picks

Markets this week --

Earlier this past week, much was made of how it looked like the S&P 500 and the Dow were breaking upward out of triangle chart patterns. By end of day Friday they had broken out, alright. Unfortunately they broke out to the downside.

This week we had the third regional manufacturing survey come in well below expectations. This time the Chicago PMI delivered the bad news with numbers indicating contraction. Like the Fed's New York and Philadelphia surveys, Chicago's report quickly deflated the markets.

More bad news came in reports on the producer price index, consumer confidence, durable goods orders and weekly initial claims. PPI showed clear signs of commodity inflation, consumer confidence hit a 19-year low, etc., etc.

About the best news available was that personal income and spending were flat in real terms. This indicates an economy that is clearly slowing but at least flat is better than declining. Maybe we're not in a recession yet. Still, thes…

Alert HQ for the week ending Feb 29, 2008

This post is to announce that the latest list of stock alerts is up and available at Alert HQ.

It was an awful week on Wall Street with a big sell-off on Friday. As can be expected, this made it difficult for last week's alerts to hang on to profits and it also made it difficult to unearth good BUY signals for this week's alerts. This week our list contains only 10 BUY signals, one less than last week.

To my great surprise, this week we have absolutely no SELL signals at all. With the downdraft in the market I had expected to see a hefty list of SELL signals. In digging through the data, however, it appears that many of the stocks currently in the SELL zone, and there are plenty of them out there, generated the initial SELL signal weeks or months ago. Many other stocks are stuck in consolidation patterns with no clear trend apparent.

Later this weekend I will be writing another post to describe my analysis of the market statistics the Alert HQ software has generated and to discus…