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Showing posts from September, 2008

Another industry in transformation?

It is well publicized that the financial industry is undergoing cataclysmic changes in terms of survival of companies, industry leadership, etc. Is there is another industry that is undergoing a similar transformation?

iSuppli, the market research firm, thinks so. They recently released a report indicating that major changes have been taking place in the semiconductor industry. Granted that the changes have been quieter and less dramatic.
Margins decrease --They begin by saying that over time semiconductor industry profitably has shrunk. They point to a downtrend in margins and provide the following graph:

The surprising quote from the article, written byDerek Lidow, president and chief executive officer of iSuppli, is as follows:
"The semiconductor industry now is less profitable as a percentage of revenue than the notoriously low-margin PC business... the long-term trend indicates that the semiconductor industry—which historically has been good at capturing profits in the electro…

SKF regaining its old form?

The ProShares UltraShort Financial ETF (SKF) had a big day today as the market plunged. The ETF didn't do a bad job of tracking the double inverse of its underlying index, the Dow Jones U.S. Financials Index.

It is appropriate to contrast the performance of SKF with the performance of IYF, the iShares Financial ETF which also uses the DJ Financials index as its underlying. Today IYF fell more than 9% and SKF gained less than 19%. The two ETFs seemed to track each other pretty well.
Short selling ban having an effect?As you may know, when the SEC instituted the ban on short sales of financial stocks on September 18, ProShares made a decision to stop creating new shares of SKF. The company explained it on their web site as follows:
"...we thought there was the potential for extraordinary demand to create new shares of these ETFs. We were concerned there might be limitations in getting sufficient short investment exposure to cover any new shares of SKF or SEF. So we decided it woul…

Weekly Review - the hits keep coming

The hits just keep coming.

This has been yet another week of wild action in the markets. This week's financial victim was Washington Mutual. It's getting so that we don't even flinch any more when titans of the industry collapse. Congress also did its part to keep investors on edge, managing to disagree amongst themselves as well as with the administration.

Markets attempted to rally in the latter part of the week as it seemed that the dissolution of WaMu was handled in an orderly manner and the politicians began to seek points of consensus. Still, it was too little too late with all the major averages declining significantly: a 2.2% loss on the Dow, a 3.3% loss on the S&P 500 and big 6.5% declines on both the S&P Midcap 400 and the Russell 2000.

With respect to fundamentals, there were terrible numbers related to home sales, durable goods and jobless claims. Even as it looks like the bank bailout may allow us to dodge a bullet in the credit markets, it appears that a…

Free Stock Alerts - Alert HQ for Sept 26, 2008

This post is to announce that the latest list of free stock alerts is up and available at Alert HQ. Each week we scan over 7200 stocks and ETFs looking for fresh BUY and SELL signals. We apply a combination of proprietary and standard technical analysis techniques to identify those stocks that are beginning to move. Our goal is to identify those stocks undergoing reversals, either to the upside or to the downside.

Well, Congress didn't get the bailout plan passed but the president assures us it will pass eventually. Another "mission accomplished"? We shall see. In any case, the uncertainty surrounding the bailout, compounded by terrible numbers related to home sales, durable goods and jobless claims served to push the markets down again. Losses on the week for the major averages ranged from 2.2% on the Dow to a whopping 6.5% on both the S&P Midcap 400 and Russell 2000.

Damage to our Alert HQ technical indicators continues. Against this backdrop, we see SELL signals out…

APT, AOL - alphabet soup for Yahoo!

There were two interesting news items about Yahoo! today and I thought I'd pass them on and provide my opinion.
Talks with Time Warner?The Yahoo! board has reportedly approved moving forward with talks with Time Warner (TWX) to buy AOL.

This is certainly good for Time Warner. AOL is a premier web property but, much like Yahoo!, its potential seems to remain unfulfilled. It is unlikely Time Warner can unload the Internet access business on Yahoo! so that millstone will remain around CEO Jeff Bewkes neck for the time being.

The more interesting question is whether Time Warner would be willing to sell Platform-A, their online advertising network. This is also unlikely as that division is one of the largest ad networks on the web and is profitable as well.

My fear is that the new board will drive Yahoo! into a bad deal. AOL is a virtual duplicate of Yahoo! only, in my opinion, not quite as good and not quite as deep in terms of what it offers. What possible benefit would Yahoo! derive fro…

ProShares Ultra Short Financial ETF staggers and recovers

I recently wrote a post ("Who benefits from new short selling rules?") discussing the impact of the new rules that ban "naked" shorting. My position was that this would probably increase the trading volume in the ProShares ultra short ETFs.

Since then we have seen the imposition of yet another rule. In an attempt to protect financial stocks, the SEC has prohibited short sales of shares of certain financial companies. The list of protected financial companies has now expanded to over 900.

While many of the ProShares ultra short ETFs continued to trade in a manner that is decently tracking the action in the underlying index they are shorting, the Ultra Short Financial ETF (SKF) ran into huge problems.

After getting hammered on Thursday and Friday of last week, SKF barely opened on Monday. It was almost noon before it started trading in earnest. Remember, Monday was the day when the well-known Financial Select Sector SPDR ETF (XLF) fell over 8%. SKF should have jumped 16…

Don't hold your breath for the Paulson plan - 16 reasons progress will be slow

The men who hold high places must be the ones to start, to mold a new reality, closer to the heart. - Rush, Closer To The Heart
And so Reality now sets in...

Markets rallied last week on the announcement the Treasury and the Fed had developed a plan address the problems at U.S. financial institutions.

Now, the reality of how things are done in Washington takes over and the momentum is bound to slow. If there was complete agreement on the Paulson plan, perhaps we could be hopeful for a quick adoption of the legislation required to put it into law. As we see below, there may be agreement on the broad necessity of doing something but there is anything but agreement on the details.

We will look at the major groups of protagonists and list the issues that will be points of contention. By our count there are 16 issues that will have to be resolved before the plan becomes law.


The legislators --

The Wall Street Journal reports that legislators are working to put their own stamps on the rescue bill…

Weekly Review - Markets go from hopeless to hopeful

Wow, what a week we have just been through! It looked like the wheels were really coming off before the government rode in to the rescue and the markets turned on a dime.

Barrels of ink and gigabytes of pixels have been expended writing about Lehman declaring bankruptcy, Merrill selling itself, the near demise of AIG, the announcement of a systemic bailout plan and the other events of the week so I won't repeat them here in any detail. Suffice to say, all the major averages save the Dow Industrials managed to end the week higher. Mid-caps notched a 2.1% gain over the prior week and small-caps zoomed up 4.6%.

I will limit myself to presenting a few of the market statistics that we track. Each week our Alert HQ process scans over 7200 stocks and ETFs and records their technical characteristics. The following chart based on daily data summarizes the state of our technical indicators:


Moving Average Analysis --

Despite the strong rallies on Thursday and Friday, our indicators continue to …

Free Stock Alerts - Alert HQ for Sept 19, 2008

This post is to announce that the latest list of free stock alerts is up and available at Alert HQ. Each week we scan over 7200 stocks and ETFs looking for fresh BUY and SELL signals. We apply a combination of proprietary and standard technical analysis techniques to identify those stocks that are beginning to move.

Just when you think the market couldn't get any crazier, we have a week like this one! Panic, fear and loathing followed by euphoria. Blame the innocent, reward the incompetent. Shoot the short sellers! Bail out everyone!

Stocks were all over the place this week though they finished the week strongly. I had no idea what the Alert HQ software would make of the gyrations we have seen over the last two weeks. To my amazement, we have tons of BUY signals! The number of SELL signals, however, seems to be holding steady. And so, here is the breakdown for this week:
based on daily data, we have 41 BUY signals and 29 SELL signalsbased on weekly data, we 59 BUY signals and 28 SELL…

Part 3 - Time to be conservative with your 401K

Worried about your 401K? Should you be?

I have written two previous posts focused on being conservative in your 401K during these turbulent days in the stock market (read Part 1 or Part 2). The basic concept was that you should lighten up on stocks and allocate a larger percentage, as much as 50%, to a stable value fund. In this manner, you would be obtain somewhat higher interest rates than would be available from a money market fund or Treasury bond fund while preserving capital.

Now we have stories in the news about money market funds "breaking the buck" and it is causing many investors to wonder, not only about their money market funds, but also about how stable their stable value funds actually are. The concern is well-placed given that:
Fannie Mae and Freddie Mac bonds (known as agency debt) are often found in stable value fundsAIG is a major player in stable value funds and provides "wrap" contracts that protect against loss of principal for some 10% of all sta…

Who benefits from new short selling rules?

Certainly the investors in financial institutions will benefit from new rules to prevent naked short selling and other to-be-announced variations on the short selling theme. Essentially, their stocks will be protected from particularly aggressive short sellers.

Another beneficiary is likely to be ProShares. The company offers a selection of inverse ETFs that allow investors to short various market sectors (financials, tech, semiconductors, for example) or market styles (mid-cap value, small cap value, small cap growth, etc.) or indexes (the Dow, the S&P 500, the NASDAQ).

There are always investors who will want to short stocks, especially in an investment environment like we are experiencing these days. The ProShares ETFs may offer a simple way around the rules. And the potential increase in volume will serve to reduce the bid/ask spread, making trading these ETFs more efficient.

For more detail on this topic, I suggest you read the following post by John Spence at MarketWatch: New s…

VMware faces pressure from all sides

The squeeze is on.

VMware (VMW) has been hammered lately as its CEO was replaced and the chief scientist walked out. The company was once the undisputed leader in server and desktop virtualization but competitors are making inroads.

We have seen the repeatedly delayed Microsoft Hyper-V virtualization product finally come to market. Several improvements are in the works to make it more robust for enterprise markets (adding the ability to move virtual machines with no downtime, for example) but the product is certainly usable right now. Its integration into Windows Server 2008 makes it a cheap and easy alternative for IT shops using the Microsoft platform.

We have seen Citrix purchase VMware rival Xen. Citrix is throwing its marketing and financial muscle behind Xen to establish the product as serious competition to VMware and the perfect complement to the standard Citrix presentation server implementation.

It is no surprise that IBM is also playing in VMware's sandbox. IBM is large eno…

Industrial Production - tech caught in the downdraft too

Nearly lost in the din surrounding the failure of Lehman Bros and the take-over of Merrill Lynch was the industrial production and capacity utilization report.

The Federal Reserve released the numbers for August today. The results were below economists expectations and did nothing to help the tone of the market.

As I have been trying to focus my writing on the technology and Internet sectors, in my review of the Fed's report I'll provide a little overview and then concentrate on the results in high-tech.

What it is --

The index of Industrial Production is a fixed-weight measure of the physical output of the nation's factories, mines, and utilities. Manufacturing production, the largest component of the total, can be accurately predicted using total manufacturing hours worked from the employment report. 2002 is used as a reference and corresponds to 100%.

August results --

Industrial production decreased 1.1 percent in August and was revised down in June and July to show smaller …

Weekly Review - all about the financials

Are you wondering, as I am, why the markets rallied toward the end of last week?

The only conclusion to draw is that turmoil in the financials must be good for investors. Earlier in the week we had the takeover of Fannie Mae and Freddie Mac. Their stocks are so wasted they were dropped from the S&P 500. Then we had the accelerating slide in Lehman Bros. Heading into the weekend, the government is hosting meetings trying to find someone to buy the company, whole or in pieces. Take-overs, take-unders: I guess it's all bullish.

For those who actually pay attention to fundamentals, the news this past week was not particularly good. Retails sales were weak despite lower gas prices. Growth in Europe is projected to be lower which will help the buck appreciate and decrease the cost of goods imported into the U.S. (consumer gets a break, exporters take a hit). The Producer Price Index (PPI) came in hotter than expected as did core PPI. On the bright side, the University of Michigan Cons…

Free Stock Alerts - Alert HQ for Sept 12, 2008

This post is to announce that the latest list of free stock alerts is up and available at Alert HQ. Each week we scan over 7200 stocks and ETFs looking for fresh BUY and SELL signals. We apply a combination of proprietary and standard technical analysis techniques to identify those stocks that are beginning to move.

It was a wild week with Fannie and Freddie being taken over, Lehman nearly going under, soft retail sales and jobs numbers being reported, falling oil prices, etc. The markets surged and plunged yet, when the dust settled, the major averages ended the week with small gains.

Against this backdrop, Alert HQ managed to find a good number of both BUY and SELL signals. We have 8 BUY signals and and 27 SELL signals based on daily data. There are also 32 BUY signals and 28 SELL signals based on weekly data.

Stop by Alert HQ and download your free lists. The lists based on weekly data show those stocks that have exhibited some good follow-through after a recent trend reversal. If you…

ProShares Links - the list for 9-11-2008

Today we have another list of links to posts by other bloggers that are writing about ProShares ETFs. As usual, this week's list is comprised of posts from Seeking Alpha. I recommend that you click through to the authors own sites after reading these posts on the Seeking Alpha site.

Thu, Sep 11EUMEmerging Market ETFs Experience Major OutflowsThu, Sep 11SDKCummings and Donaldson: Sharply Falling Growth StocksThu, Sep 11UCC,UGEWill the Energy Exodus Fuel a Consumer Stock Frenzy?Wed, Sep 10USDDesjardins Analyst: Be Wary of Hiding in U.S. Dollars or TreasuriesTue, Sep 9SKF,UYGMonday's Top Traded Equities: XLF Sandwiched Between Fannie and FreddieMon, Sep 8QLD,SSO,
USD,UWMMaking Cents of this Bear MarketMon, Sep 8SKFOptions Trader Monday Outlook: What a Way To Start the WeekMon, Sep 8SDSElection Speculation: Steaks and Strip JointsMon, Sep 8SEF,SKFShort Financial ETFs: Watch Out for the Fannie/Freddie EffectSun, Sep7SDSRoyalty Trusts: Maintaining Income in a Volatile MarketFri, Sep 5

Chip manufacturing equipment sales slip - is it a bottom yet?

If you were thinking it might be time to bottom-fish among the semiconductor equipment stocks, you might want to restrain that impulse.

SEMI (Semiconductor Equipment and Materials International, a global industry association) reported yesterday that worldwide semiconductor manufacturing equipment billings were $7.83 billion in the second quarter of 2008. That is 26 percent less than the first quarter of 2008 and 29 percent less than the same quarter a year ago.

Surprisingly, China and Taiwan saw the largest drops in percentage terms. Given how much semiconductor manufacturing has moved offshore to these two countries, it is a clear indication that demand for semiconductors is lagging the capacity available to produce them. If there is excess capacity, it is a sure bet that the semiconductor manufacturing equipment sector will remain in the doldrums for the foreseeable future.

Fab build-outs grinding to a halt?

I have written previously (read it here) on the trend of chip makers "goin…

How bad are things at SanDisk?

Things seem to be going from bad to worse at SanDisk (SNDK).

Last Friday, the stock jumped on news that Samsung might be interested in acquiring the company. Enthusiasm then began to wane when SanDisk's chief executive said the company did not need to be acquired.

Today, SanDisk suffered a downgrade when a Lazard analyst offered the following comment on the potential acquisition:

"...this move is highly unlikely and is aimed at putting pressure on SanDisk in its royalty negotiations."
He also thinks the NAND sector is doing worse than most analysts acknowledge.

Furthermore, word in the Taiwan memory industry indicates that SanDisk is approaching customers for possible sales of NAND flash in wafer or die form. This is unusual in that SanDisk typically sells finished chips and flash modules. The takeaway here is that SanDisk's inventory levels are unusually swollen and the company is trying to move product any way it can. Another way of putting it is that SanDisk's capa…

Weekly Review - investors left with a question mark

A short but volatile week ends with a question mark.

For most of the week the bears were in control. Thursday saw rampant pessimism drive the Dow down 344 points. Earnings warnings from a couple of tech stocks, a dismal picture painted by the Fed Beige book, lackluster retail sales numbers and rumors of hedge funds in trouble all conspired to take the major averages back into bear market territory.

Friday started out looking like more of the same. The Non-Farm Payrolls report came out in the morning with a decline of 84,000 jobs. The unemployment rate spiked up to 6.1%. Predictably, markets sold off on the news. Mid-day, however, rumors that KKR and Blackstone were interested in buying pieces of Lehman started stocks moving upward. This was followed by talk of an impending federal government bail-out of Fannie Mae and Freddie Mac.

By the end of the day on Friday, stocks had more or less recouped the day's losses, led by a rally in bank stocks. The Dow and the S&P 500 managed to f…

Free Stock Alerts - Alert HQ for Sept 5, 2008

This post is to announce that the latest list of free stock alerts is up and available at Alert HQ. Each week we scan over 7200 stocks and ETFs looking for fresh BUY and SELL signals. We apply a combination of proprietary and standard technical analysis techniques to identify those stocks that are beginning to move.

And plenty of stocks sure moved this week! Unfortunately, the move was mostly downhill. Volume picked up this week and economic news was not comforting to the bulls. Retailers reported lackluster same store sales. Employment was down again and the unemployment rate jumped to 6.1%, surprising most analysts and economists. Talk of hedge funds getting shaky due to bad commodity bets didn't help the atmosphere on Wall St either. It was no surprise to see the major averages turn in losses ranging from 2.8% to 4.7%

Against this backdrop, Alert HQ still managed to find some BUY signals: 10 based on daily data and 15 based on weekly data. In an indication of how the pendulum is …

Charts gone wild!

In case you haven't noticed, the last couple of days in the market have caused some serious chart damage. As recently as last week, bloggers and analysts were suggesting that the bottom was in and major averages were in rally mode.

Looking at the charts after today's action, the question might more accurately be: how low will we go? Take a look at the following chart of the S&P 500. The index failed to make a serious push above its 50-day moving average. All of a sudden, it has fallen, or more accurately plunged, below the lows of January and March. Those lows now become serious resistance levels. It's no stretch of the imagination to think we'll soon be down in the area of the July lows or worse.

The chart of the Dow Industrials is very similar to that of that of the S&P 500 so we won't present it here.


Whereas we recently wondered whether there was a "stealth rally" playing out on the NASDAQ, it is now clear that there wasn't. The chart below s…

Two more nails in the NAND coffin?

As if there wasn't enough bad news circulating around NAND chip pricing, we have the following two items of note:
ThinkPanmure analyst Vijay Rakesh released a research note today. He indicates NAND spot pricing for 8Gb and 16Gb chips, among the most common types, are down more than 35% for the quarter so far. He specifically mentions SanDisk (SNDK) and the prospect that the company's margins may be squeezed into negative territory. To add insult to injury, he also points to rising inventory levels at SanDisk and other OEMs.As if there wasn't already a glut of NAND supply available in the market, Hynix Semiconductor just announced the grand opening of its new NAND fab in Korea. Samsung, Toshiba (a SanDisk partner) and the Intel-Micron joint venture have also been ramping up new NAND fabs. Whereas the aforementioned suppliers seem to be showing some restraint in terms of flooding the market with product, it is not known what Hynix plans to do. As the third largest NAND suppli…

Alert HQ rocket stock - Sanmina up again despite down market

For those of you have downloaded the Alert HQ BUY and SELL signals recently, you may have noticed that Sanmina-SCI Corporation (SANM) was on the alert list based on weekly data back on August 16 and again this past weekend

I have been eyeing this stock since it popped up on the list the first time. It had a beaten down share price whose recent rally generated the TradeRadar BUY signal. Apparently, many other investors are also taking notice and buying with enthusiasm. It has attracted the attention of Barron's Tech Trader Daily blog. Writer Eric Savitz had the following to say (I include the entire post as it is rather brief):

"There sure are a lot of people piling into Sanmina-SCI (SANM) shares. But there’s still no obvious reason for the move.

A I noted last week, the contract electronics manufacturer’s shares have been on an absolute tear.

To review: On July 14, the stock his a 14-year low at $1.07, and has been climbing relentlessly ever since. The initial spur for the stock …

Weekly Review - a tale of two markets

This past week the major averages for the most part turned in poor performances. The S&P 500 and the Dow both lost 0.7% and the NASDAQ lost a full 2%. As it turns out, that was not the whole story. There was actually some decent action in the small and mid-cap arenas. The Russell 2000 was up 0.3% and the S&P Midcap 400 Index was up 0.1%.

Our Alert HQ process bears this out. Each week we scan over 7200 stocks and ETFs and record their technical characteristics. Rather than seeing a continuation of the previous week’s downturn, we actually saw a bit of an uptick.

The following chart based on daily data summarizes the state of our technical indicators.


Moving Average Analysis –

All the moving average indicators moved up in unison this week. This means that the number of stocks above their 20-day moving average increased, the number of stocks above their 50-day moving average increased and the number of stocks whose 20-day MA is above their 50-day MA also increased. The increases were…