Sunday, November 30, 2008

Weekly review - after the rally comes the wall of worry

Well, that was a short but stunning week! Major averages finished with double digit gains, the biggest weekly gains since the 1930's. What happened?

Once again, government actions were responsible for driving the stock market upward. The bailout of Citigroup was a major factor in Monday's rally as the Fed and the Treasury came through with another Sunday night rescue.

Further supporting stocks, a government commitment to purchase $600 billion of Freddie and Fanny mortgage-backed securities reassured mortgage lenders and MBS investors and had the knock-on effect of driving down mortgage rates. Despite poor numbers being reported for new home sales and existing home sales this week, the government action provided another glimmer of hope for the housing market.

To summarize the impact of the week's rally, the Russell 2000 gained 16.4% while the Dow gained 9.7%. The S&P 500 and the Nasdaq were in between with both showing double-digit gains. These gains were all the more surprising considering they were obtained in a mere three and a half sessions and despite the consistently bad economic data that was released during the week: durable goods orders were twice as bad as expected, Q3 GDP was revised down, personal spending declined and initial jobless claims, while better than the previous week, were still alarmingly high.

So, stocks soared. How did our technical indicators react?

TradeRadar Alert HQ Stock Market Statistics --

Each week our Alert HQ process scans over 7200 stocks and ETFs and records their technical characteristics. Primarily we look for BUY and SELL signals for our free stock alerts; however, we also summarize the data in order to gain insights in the week's market action. The following charts are based on daily data and present the state of some of our technical indicators.

This first chart presents the moving average analysis for the entire market and contrasts it with the performance of the S&P 500 SPDR (SPY). When the number of stocks trading above their 50-day moving average (the yellow line) crosses the line that tracks the number of stocks whose 20-day moving average is above their 50-day moving average (the magenta line) there is an expectation that you will get a change in the trend of the S&P 500.

SPY and the market - Moving Average Analysis, 11-28-2008
In looking at the latest developments on the chart above it appears the number of stocks above their various moving averages is bouncing around the lows and vacillating within a range. Is this what a bottom looks like? It could very well be. Implication: looking bullish unless economic reality overwhelms the positive sentiment

This next chart is based on Aroon Analysis and compares our trending statistics to the performance of SPY. We use Aroon to measure whether stocks are in strong up-trends or down-trends. The number of stocks in down-trends (the red line) fell by half this week to under 2500. The number of stocks in up-trends (the yellow line) increased slightly from a very low number under 350 up to s still low 472. Implication: maybe not bullish but clearly less bad


SPY versus the market - Trend Analysis, 11-28-2008
The next chart applies some standard technical indicators to the stocks in the S&P 500 and summarized the result by sector.

S&P 500 Sector Analysis, 11-28-2008
As the chart above shows, we are starting to see a little life in some of the sectors. Note that the chart's maximum is at only 25% so what we are seeing isn't all that impressive; nevertheless, things are looking noticeably better than they were during last few weeks. In particular, Energy and Industrial stocks are perking up a bit. Consumer Staples and Utilities have held up a bit better than the other sectors and the chart reflects that. It is also apparent that investors are betting on the return of the American consumer to the mall; hence, the pick-up in the Consumer Discretionary sector.

Conclusion --

Our stock market statistics based on daily data are reflecting the robust gains notched by stocks this past week, gains that came despite economic reports that continued consistently negative. Technically speaking, it certainly looks like stocks are establishing a bottom and striving to push upward. Certainly, sentiment has improved tremendously in order to allow a rally of this magnitude.

Unfortunately, the economic backdrop has shown little if any improvement. Yes, the government continues to ride to the rescue and the credit markets are maintaining some semblance of improvement. Stocks, however, are no longer so oversold and the outlook is less than bright for employment, consumer spending and manufacturing. As a result, the rally is looking vulnerable.

This coming week, investors will be looking for any news that will continue to support the bullish case. There will be no lack of economic reports as we will see construction spending, ISM index, auto and truck sales, ADP employment, non-farm payrolls, ISM services, factory orders, hourly earnings, unemployment rate and consumer credit. Plus the Fed Beige Book will be released.

From a deeply oversold situation, stocks have bounced in reaction to more government intervention. The easy gains have been accomplished. Now, we will see if stocks can climb the wall of worry as the next batch of economic reports pours in.



Saturday, November 29, 2008

Free Stock Alerts - Alert HQ for Nov 28, 2008 - the BUY signals are back!

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 stocks or ETFs that are undergoing reversals, either to the upside or to the downside.

The rally that began Friday afternoon a week ago carried over into this week's trading. Stocks marched steadily higher helped immensely by the government bailout of Citigroup and commitment to purchase $600 billion of Freddie and Fanny mortgage-backed securities. This had the effect of driving down mortgage rates and providing hope for the housing market.

Gains were stunning considering they were obtained in a mere three and a half sessions. The Russell 2000 gained 16.4% while the Dow gained 9.7%. The S&P 500and the Nasdaq were in between with both showing double-digit gains. These gains were all the more surprising given the consistently bad economic data released during the week including bad home sales numbers and durable goods orders that were twice as bad as expected.

Against the backdrop of a suddenly resurgent market, we see the number of BUY signals increasing strongly. Here is the breakdown for this week:

  • based on daily data, we have 90 BUY signals and only 3 SELL signals
  • based on weekly data, we have 8 BUY signals and 4 SELL signals
Stop by Alert HQ and download your free lists. The alerts based on weekly data show those stocks that have exhibited some good follow-through after a recent trend reversal. If you want to be early in identifying the newest trend reversals, the lists based on daily data are for you. No matter which preference you have, there are bound to be a few stocks you will want to add to your watch list.



Trend Leaders for Nov 28, 2008 - free list of chart-busting stocks

This post is to announce that Trend Leaders, our latest list of stocks in strong up-trends, is now available at the TradeRadar site.

Readers of the TradeRadar blog are familiar with the Alert HQ free lists of stock alerts. With Alert HQ, we try to identify those stocks and ETFs that are making reversals. Every week we scan all the stocks listed on the NYSE, AMEX and NASDAQ, over 7200 securities in all, to find those stocks or ETFs that are generating actionable BUY signals or SELL signals.

As a byproduct of the Alert HQ process we are providing a list of all the stocks or ETFs that are currently in strong up-trends. We call them Trend Leaders and the list is, of course, absolutely free. These stocks are registering strong signals using Aroon analysis, DMI and MACD. They are also above their 50-day moving average.

This week we have 45 stocks that made the cut. After stocks hit new lows the previous week this most recent week's big gains allowed us to find a good number of stocks that were still able to meet every one of our criteria.

Trend Leaders presents those stocks that are bucking the bear market. If your investing style is dependent on trending and momentum, you should be able to easily find a few stocks to add to your watch list or your portfolio.

You can read more and download the free list at the TradeRadar Trend Leaders page.



Tuesday, November 25, 2008

Eight new ProShares ETFs - what they're all about

A batch of new ProShares ETFs became available today. The ProFunds company announced that 8 new ETFs began trading today and that 4 more will soon be available.

As can be expected with ProShares, there is a mix of ultra and ultra short ETFs. The ultra ETFs offer twice the performance of the underlying index on a daily basis while the ultra short ETFs offer twice the inverse performance on a daily basis.

The new ETFs fall into two categories: commodities and currency.

The new commodity ETFs --

In the commodity sector, ProShares currently offers the Short Oil & Gas ETF (DFG), the Ultra Oil & Gas ETF (DIG) and Ultra Short Oil & Gas ETF (DUG). They have now added the following four ETFs:

  • Ultra DJ-AIG Commodity (UCD) - based on the Dow Jones-AIG Commodity Index
  • Ultra Short DJ-AIG Commodity (CMD) - based on the inverse of the Dow Jones-AIG Commodity Index
  • Ultra DJ-AIG Crude Oil (UCO) - based on the Dow Jones-AIG Crude Oil Sub-Index
  • Ultra Short DJ-AIG Crude Oil (SCO) - based on the inverse of the Dow Jones-AIG Crude Oil Sub-Index
In looking at the documentation, it appears that the crude oil ETFs use futures to generate their returns. The commodity ETFs seem to use swaps.

The composition of the underlying commodity index is as follows:
  • Energy 35.09%
  • Precious Metals 10.19%
  • Industrial Metals 17.79%
  • Livestock 8.50%
  • Grains 19.15%
  • Softs 9.28%
The new currency ETFs --

Currency trades have been big in the news lately as the U.S. dollar has rallied strongly and the Euro has plunged. The following ETFs provide a leveraged way to play the currency trade and have been eagerly awaited by many investors:
  • Ultra Euro (ULE) - twice the EUR/USD daily price change
  • Ultra Short Euro (EUO) - twice the inverse of the EUR/USD daily price change
  • Ultra Yen (YCL) - twice the JPY/USD daily price change
  • Ultra Short Yen (YCS) - twice the inverse of the JPY/USD daily price change
These ETFs seem to primarily use forward contracts to generate their returns though the documentation boilerplate lists swap agreements, forward contracts, and futures and options contracts.

All of these ETFs did trade today with the Ultra Crude attracting the most volume: a meager 8,210 shares. Note that Yahoo! Finance has not yet figured out that the symbol SCO is now the Ultra Short Crude Oil ETF. I'm sure these ETFs will eventually be embraced by investors but for now, be careful of low volume (read "ProShares ETFs - why trading volume makes a difference").

Coming soon are gold ETFs and silver ETFs in the usual ultra and ultra short varieties.

Disclosure: none



Monday, November 24, 2008

Quick chart review - stocks pop, can they keep it up?

Wow! Stocks have put together two days of rip-roaring gains. The major averages have added roughly 12% in barely two sessions. So where do we stand technically?

With charts a mess and moving averages pointing steeply down, it's worth looking at resistance and support levels.

The major averages have moved up aggressively but have not yet cleared the first resistance levels. Indeed, today they began penetrating above resistance but fell back. These are the levels we are watching:

  • S&P 500: 850
  • NASDAQ 100: 1500
  • Dow Industrials: today the Dow breached first resistance at about 8250 but was not able to get past 8500
  • Russell 2000: 450
A clear push above these levels would imply the current rally has legs. Failure to break above them would bring out the caution flag again. As an example, the chart of the S&P 500 is presented below. The resistance level described above stands out plainly.

Chart of SPX 11-24-2008.
In closing, I would like to point out that none of the major averages have reached their 20-day moving averages yet. As an indication of how weak stocks have been, the last time the major averages came up against their 20-day MA, they tentatively moved above the 20-day and then promptly tumbled to new lows. Finally, looking at RSI, it appears stocks are no longer so terribly oversold. These developments are also illustrated in the chart above.

Nevertheless, sentiment is now positive, volume has been heavy on these up days and investors are hoping they see light at the end of the tunnel. Keep an eye on these levels, it might finally be time to nibble on some stocks.



Sunday, November 23, 2008

Weekly review - stocks break down, can they dig their way out?

Stocks finally broke down to new lows this week making it look like 2008 could be the worst year for the S&P 500 since 1931. What the heck happened?

Citigroup continued its death spiral, announcing 52,000 layoffs while management failed to forgo bonuses and the stock price cratered. CEO Vikram Pandit railed against short sellers and "fear-mongers" while investors sold enthusiastically. Citigroup's move to take on around $17 billion of assets from a subsidiary fund caused investor alarm. Ironically, some of the analysts who had been very negative on the stock actually came out in defense of Citi and agreed with Pandit that the company has sufficient capital and enough federal backstops through various Federal Reserve and Treasury department programs to withstand the current downturn.

In general, financial stocks were all weak. Perception of rising problems in the commercial real-estate market and the Treasury's recent decision that TARP funds would not be used to buy troubled assets from banks were considered reason enough to sell the banks given the expectation that further write-downs would be seen to in order deal with the toxic waste still stuck on balance sheets.

The automakers were unable to convince Congress they had any clue how to turn their businesses around so they got back in their private jets and regally returned to Detroit. Congress is now in the unenviable position of being prudent with taxpayer money while being criticized for not doling out aid to support jobs.

The Fed released its minutes from the last FOMC meeting and the growth projections for coming quarters were much reduced. Expectations for real GDP growth in 2009 were lowered from the range of 2.0% to 2.8% to a much weaker range of -0.2% to 1.1%. The projections for the unemployment rate, meanwhile, were raised from between 5.3% and 5.8% to 7.1% to 7.6%. Seeing the Fed's dour outlook spelled out so clearly in the FOMC minutes further alarmed investors.

Housing numbers were bad, as usual, and initial jobless claims were elevated with weekly initial jobless claims increasing 27,000 to 542,000 and continuing claims jumping to 4.0 million from 3.9 million.

Friday's trade was marked by indecision until news came that Obama had selected Timothy Geithner as his Treasury secretary. This sparked a surge in stock prices and the market finished the week on a strong note. Despite the big rally on Friday, however, the losses on the week were severe.

Was it any wonder stocks fell?

TradeRadar Alert HQ Stock Market Statistics --

Each week our Alert HQ process scans over 7200 stocks and ETFs and records their technical characteristics. Primarily we look for BUY and SELL signals for our free stock alerts; however, we also summarize the data in order to gain insights in the week's market action. The following charts are based on daily data and present the state of some of our technical indicators.

This first chart presents the moving average analysis for the entire market and contrasts it with the performance of the S&P 500 SPDR (SPY). When the number of stocks trading above their 50-day moving average (the yellow line) crosses the line that tracks the number of stocks whose 20-day moving average is above their 50-day moving average (the magenta line) there is an expectation that you will get a change in the trend of the S&P 500.

SPY versus the market - Moving Average Analysis, 11-21-2008
For the first time since we have been generating these statistics, this indicator provided a false signal. Even with the market deeply oversold, stocks were unable to follow through on what had been shaping up as relief rally. As can be seen above, the the number of stocks with positive moving average indications is declining again. Can the number go to zero? That sure looks like the next stop. Implication: bearish

This next chart is based on Aroon Analysis and compares our trending statistics to the performance of SPY. We use Aroon to measure whether stocks are in strong up-trends or down-trends. The number of stocks in down-trends (the red line) almost doubled this week to nearly 5000. The number of stocks in up-trends (the yellow line) fell by half from an already very low number to less than 350. Implication: bearish

SPY versus the market - Trend Analysis, 11-21-2008
Not shown in the charts above is our Chaikin Money Flow analysis. We use this indicator to measure buying and selling pressure. Suffice to say, these indications are as bearish as the others already discussed. The number of stocks exhibiting buying pressure has fallen to the lowest point this year. The number of stocks exhibiting selling pressure has risen strongly though it hasn't reached its highest point this year. Implication: bearish

Conclusion --

Our stock market statistics based on daily data continue to point in a bearish direction. Economic reports this past week were consistently negative.

What can get this market to follow through on Friday's rally? A perception that stocks are finally cheap enough to buy could provide some support. Further enthusiasm over Obama's activist agenda for dealing with the economic downturn might get investors looking forward to better days.

On the other hand, the upcoming week will provide some important data points and they could serve to knock this market right back to its lows. Existing home sales and new home sales will be announced and there is little expectation that these numbers will be particularly encouraging. Preliminary GDP could show further deterioration in the economy. Then we have consumer confidence and durable goods orders which, after the awful readings of the NY Empire State Index and the Philadelphia Fed manufacturing survey, can only be weak. Personal income and personal spending will probably show a consumer pulling back from the malls. Finally, there are initial jobless claims, Chicago PMI and the Michigan Consumer Sentiment index. All in a four-day week.

With markets deeply oversold and many traders on vacation this week, it would not be a surprise to see stocks tack on some gains. Still, resistance is not too far above and the economic backdrop continues to be bleak. Unless you are very nimble, there is probably no need to commit to stocks this week.



Saturday, November 22, 2008

Trend Leaders for Nov 21, 2008 - free list of chart-busting stocks

This post is to announce that Trend Leaders, our latest list of stocks in strong up-trends, is now available at the TradeRadar site.

Readers of the TradeRadar blog are familiar with the Alert HQ free lists of stock alerts. With Alert HQ, we try to identify those stocks and ETFs that are making reversals. Every week we scan all the stocks listed on the NYSE, AMEX and NASDAQ, over 7200 securities in all, to find those stocks or ETFs that are generating actionable BUY signals or SELL signals.

As a byproduct of the Alert HQ process we are providing a list of all the stocks or ETFs that are currently in strong up-trends. We call them Trend Leaders and the list is, of course, absolutely free. These stocks are registering strong signals using Aroon analysis, DMI and MACD. They are also above their 50-day moving average.

This week we have only 16 stocks that made the cut. After stocks experienced a big breakdown this week, it was difficult to find many stocks that were still able to meet every one of our criteria.

Trend Leaders presents those stocks that are bucking the bear market. If your investing style is dependent on trending and momentum, you should be able to easily find a few stocks to add to your watch list or your portfolio.

You can read more and download the free list at the TradeRadar Trend Leaders page.



Free Stock Alerts - Alert HQ for Nov 21, 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 stocks or ETFs that are undergoing reversals, either to the upside or to the downside.

Stocks broke to new lows this week and despite a big rally on Friday, the losses on the week were severe. Citigroup continued its death spiral, announcing 52,000 layoffs while management failed to forgo bonuses and the stock price cratered. The automakers were unable to convince Congress they had any clue how to turn their businesses around so they got back in their private jets and regally returned to Detroit. Forebodings of problems in commercial real estate and commercial loans caused more fears of write-downs on the way. The Fed released its minutes from the last FOMC meeting and the growth projections for coming quarters were much reduced. This further alarmed investors. Housing numbers were bad, as usual, and initial jobless claims were elevated. Was it any wonder stocks fell?

Against this uncertain and depressing backdrop, we see the number of signals in either direction dwindling still further. Here is the breakdown for this week:

  • based on daily data, we have 2 BUY signals and 15 SELL signals
  • based on weekly data, we have 9 BUY signals and 15 SELL signals
Stop by Alert HQ and download your free lists. The alerts based on weekly data show those stocks that have exhibited some good follow-through after a recent trend reversal. If you want to be early in identifying the newest trend reversals, the lists based on daily data are for you. No matter which preference you have, there are bound to be a few stocks you will want to add to your watch list.



Friday, November 21, 2008

What's up with the lowly LED?

Pretty much every sector of the market is ugly these days so I console myself by looking forward to better times and trying to determine what sectors will be ready to outperform when the economy begins to gain traction again.

Could light emitting diodes be one of those sectors?

The simple light emitting diode (LED) has been around for decades and perennially shows up in signs and signals and as indicators in numerous gadgets. This mature sector of the semiconductor industry, however, is about to get juiced up.

In December of 2007, President Bush signed into law the Energy Independence and Security Act of 2007. Among many other things, the law mandates the phase-out of inefficient, power-hungry incandescent bulbs in favor of more efficient lighting solutions such a compact fluorescent and LEDs. Specifically, the law requires roughly 25 percent greater efficiency for light bulbs, phased in from 2012 through 2014. This effectively bans the sale of most current incandescent light bulbs.

Consequently, the rush is on to develop solid state lighting solutions that provide the large amounts of light (measured in lumens, a familiar term if you read the packaging of light bulbs) that incandescent bulbs do while keeping cost and power consumption down.

Currently, as consumers we commonly see flashlights with LEDs and under-counter lighting solutions but companies are ramping up their efforts so that LED lighting will be available for all kinds of common uses. LEDs have a natural advantage in that they are rugged and energy efficient and can have lifetimes measured in decades. The challenge has been to obtain white light at high enough levels of luminosity to make LEDs a viable alternative to incandescent bulbs.

The companies that get there first will, in the near term, take advantage of the green movement and then eventually benefit from the phasing out of incandescent lighting. Some analysts expect LED lighting to claim 70% of the lighting market over the next 20 years.

For investors, there is one company that is a pure play on the fate of the LED: Cree, Inc. (CREE)

The company is active in nearly all segments of the LED sector. Cree supplies devices that are used in backlighting for mobile products, automotive interior lighting, full-color electronic displays, gaming equipment, consumer products, electronic equipment, general illumination, portable, architectural, signal, and transportation lighting, signage, etc. In addition, the company also manufactures RF components for various wireless applications including WiMAX.

Just this week Cree announced it had achieved industry-leading performance of 161 lumens per watt for a white power LED. The component is still in the R&D phase but shows the company is making strides beyond its already commercially available 100+ watt per lumen XLamp series of LEDs. These products can provide the lumen output of a streetlight in a 75% smaller package. The company claims they are already shipping millions of units.

Unfortunately, the financials for Cree are not especially enticing at the moment. Earnings over the last four quarters have not been growing. Some of the financial ratios are not particularly attractive with a PEG of 1.9, price-to-sales at 2.5 and a trailing PE of almost 48. Still, it's a billion dollar company that is cash flow positive and in this market it is getting cheaper by the day.

Conclusion --

The old light bulb as we know it is on the way out and LEDs are coming into their own. It would seem there should be an opportunity to profit as we watch this changing of the guard.

Cree has an opportunity to be a significant player when the move to LED lighting solutions gathers momentum. Until the time when the company begins to benefit from its first-mover advantage, however, it seems like Cree will remain merely a good candidate for your watch list. It won't hurt to keep an eye on them over the course of the next year or two.

Disclosure: none



Wednesday, November 19, 2008

Part 2 - ultra short ETFs at a tipping point?

Last Friday I tossed off a quick post where I mentioned that most of the ProShares ultra short ETFs were exhibiting the same chart pattern and that they seemed to be at a tipping point. More accurately, I pointed out that there were two conflicting patterns emerging and it was difficult to know which would emerge the winner.

When the post appeared in Seeking Alpha, I was taken to task for not providing an analysis of the underlying index. Many of those who commented correctly pointed out that the ultra short ETFs move in reaction to the associated index; thus, it is misleading to attempt to chart the ETFs themselves.

The ETF that was discussed in the previous post was the Ultra Short QQQ (QID). At the time (Friday, 11/14) there was a potential bearish head and shoulders developing. On the other hand, the ETF had also bounced off its 50-day moving average and was then above its 20-day moving average.

Looking at the NASDAQ 100, last Friday it was still hanging onto a support level but still appeared to be trending down. On the other hand, it was also showing a potential double bottom.

Today it looks like the chart patterns were resolved. The NAS dived and QID jumped. Though many money managers have been quoted as saying that we had seen the market lows for the year back in October, looking at the chart of the NASDAQ it was apparent that it was not bouncing back from its recent retests of those lows. The chart of QID, though, showed that jump back above its 20-day MA and it reinforced the idea that the NASDAQ should be approached with caution.

If things play out the way they did in October, we could see maybe a further 4% or 5% downside in the NASDAQ and then a 15% to 20% rally that would take the index back up to its 20-day MA.

And then we get to do the whole thing over again...

Disclosure: long QID



Monday, November 17, 2008

Industrial Production - tech rolls over, too

The Federal Reserve just released the Industrial Production numbers for October. The headline number, a 1.3% gain, was unexpectedly good due to the resumption of refining and manufacturing activities in the Gulf region after hurricanes Gustav and Hanna. But what about tech?

Below we show a chart of Industrial Production for the sub-category of Computers and Peripheral Equipment. There is a clear drop off in production. In terms of percentage change, the current down-trend is not huge. What is disturbing is that typically the months of September and October show growth as manufacturers of computers and peripherals build inventory for the holiday shopping season. Here we see the opposite effect: rather than growth we have a decline. The numbers for the semiconductor sector look pretty much the same.

Industrial Production - Computers, 11-2008
The next chart comes from the Federal Reserve. It includes Industrial Production and Capacity Utilization for high tech industries.

Industrial Production, Capacity Utilization - Tech, 11-2008There are some interesting features in this chart. For one, technology has held up quite well compared to many other industry sectors. Take a look at the chart below that presents Consumer Durables, Industrial Materials, Business Equipment and a few others. Those sectors look like they are plummeting while Tech looks like it is merely encountering a slowdown.

Tech Industrial Production, Capacity Utilization, 11-2008It is undeniable that Tech is facing a serious slowdown. Witness the downbeat guidance from Cisco. The there was the surprise announcement from Intel that they expected revenue to come in $1 billion below forecasts.

Still technology seems to be in much better shape than some other industries. Comparisons to the 2001-to-2003 tech crash do seem unwarranted. Though production is slowing, tech capacity utilization is far above what was seen after the Internet bubble burst.

As I have suggested in a prior post, large cap tech could be the sector that leads stocks out of this bear market. Tech seems to be down but not dead. As we have rotated out of the leaders of the last bull market - financial and commodity stocks - investors are likely to embrace a completely different sector. Technology's latent strength makes it a good candidate.



Saturday, November 15, 2008

Weekly review - consumers cut back and stocks get cheaper

Another wild week is now in the books. Just as it looked as if stocks were breaking to new lows Thursday, a furious rally ensued, taking the major averages up roughly 10%. Unfortunately for the bulls, that was the only up day in the entire week.

As I wrote in an earlier post this weekend, companies and economic reports were pretty consistent in declaring that the U.S. consumer is toast. Retail sales were off sharply, Best Buy and other retailers reduced their outlooks. Even Wal-Mart, one of the few companies that seems to be navigating this downturn successfully, predicted results would be slightly under previous guidance. Intel also reduced their near-term outlook and analysts rushed to reduce estimates on all the companies in the PC food chain. Dell got hammered as did Microsoft. Nokia also chimed in by announcing a softening in the cell phone market and Qualcomm and other component makers slid in sympathy. Circuit City declared bankruptcy. Jobless numbers crossed the threshold over 500,000, a number that typically is seen during recessions. Markets sold off this week, rallied strongly on Thursday in the face of the worst news and then sold off again on Friday.

The end results of all this were sizeable losses for all the major stock averages, ranging from a loss of 5% on the Dow to a loss of 9.7% on the Russell 2000. Predictably, the stock market statistics we gather every weekend reflected a second week of declining strength.

TradeRadar Alert HQ Stock Market Statistics --

Each week our Alert HQ process scans over 7200 stocks and ETFs and records their technical characteristics. Primarily we look for BUY and SELL signals for our free stock alerts; however, we also summarize the data in order to gain insights in the week's market action. The following chart is based on daily data and, messy as it is, presents the state of our technical indicators:

Stock market statistics, 11-14-2008As you can see, the indicators are a mess. I'll quickly run through them:
  • Moving averages -- the number of stocks above the 20-day MA fell by roughly 2000 this past week. The number of stocks above their 50-day MA fell noticeably as well. Implication: bearish
  • Number of stocks whose 20-day MA is above their 50-day MA -- since we started tracking this indicator we have never seen it zig-zag within just a few weeks. It has tended to move slowly and smoothly. Ominously, after starting to move up, this indicator turned back down this week. It is difficult to see in the chart above but it is much clearer in the chart below. Implication: bearish
  • Aroon Analysis -- we use Aroon to measure whether stocks are in strong up-trends or down-trends. The number of stocks in down-trends jumped up by about 1400 this week. The number of stocks in up-trends fell by several hundred from an already very low number to end up well under 1000. Implication: bearish
  • Chaiken Money Flow -- this indicator tends to stay very smooth and flat. Along with everything else, it has turned down. Implication: bearish
The next chart presents the moving average analysis for the entire market in a simpler, cleaner manner and contrasts it with the performance of the S&P 500 SPDR (SPY).

SPY versus market moving averages
When the number of stocks trading above their 50-day moving average (the yellow line) crosses the line that tracks the number of stocks whose 20-day moving average is above their 50-day moving average (the magenta line) you will get a change in the trend of the S&P 500.

Note that a cross-over in the bullish direction took place about three weeks ago and thus far it remains intact but has been weakening rapidly. We are very close to registering a clear bearish signal.

We have maintained over the last few weeks that a tradeable rally had been underway and we originally expected the S&P 500, for example, to at least approach its 50-day moving average. Instead, it penetrated the 20-day MA and promptly fell back. The 20-day MA now presents resistance. According the chart above, the rally may still be alive since we have managed to avoid making significant new lows. Still, things are looking very shaky. At best, we are making a sloppy bottom. At worst, we are setting up for a further drift downward.

Conclusion --

Looking at our stock market statistics based on daily data, pretty much everything is pointing in a bearish direction. Economic reports are doing nothing to paint a picture supporting higher stock prices. With the kind of wacky market we have seen these last few months, however, that probably means stocks are ready to rally.

So what is going on that might move investors one way or the other?

The G-20 met in Washington this weekend and so far nothing has come of it. The bailout for automakers is meeting resistance among Republicans who want to avoid throwing good money after bad. This implies one of the Big 3 might sooner of later declare bankruptcy and that would certainly cause a quake in the market.

There are a good number of economic reports due this week. We will see the NY Empire State Index, Industrial Production, PPI, building permits, CPI, housing starts, initial jobless claims, leading indicators and the Philadelphia Fed manufacturing index.

Lest we forget, earnings season grinds on though at a slower pace. As if we didn't get enough bad news this past week, we have another bunch of retailers who will report this week. Investors will probably have to hold their noses as they review these numbers, too.

So the week that is upon us has plenty of opportunity to disappoint based on economic reports. Stocks have held above recent lows but that doesn't mean they can continue to do so.

Is seems the only argument for buying stocks is that they are cheap. This begs two questions: are they cheap enough and will they get cheaper still?



Free Stock Alerts - Alert HQ for Nov 14, 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 stocks or ETFs that are undergoing reversals, either to the upside or to the downside.

This week made it tough to find winners. Companies and economic reports were pretty consistent in declaring that the U.S. consumer is toast. Retail sales were off sharply, Best Buy and other retailers reduced their outlooks (even Wal-Mart did!). Intel also reduced their near-term outlook and analysts rushed to reduce estimates on all the companies in the PC food chain. Circuit City declared bankruptcy. Jobless numbers crossed the threshold over 500,000. Markets sold off this week, rallied strongly on Thursday in the face of the worst news and then sold off again on Friday.

Against this uncertain and crazy backdrop, we see the number of signals in either direction dwindling. Here is the breakdown for this week:

  • based on daily data, we have 12 BUY signals and 3 SELL signals
  • based on weekly data, we have 9 BUY signals and 8 SELL signals
Stop by Alert HQ and download your free lists. The alerts based on weekly data show those stocks that have exhibited some good follow-through after a recent trend reversal. If you want to be early in identifying the newest trend reversals, the lists based on daily data are for you. No matter which preference you have, there are bound to be a few stocks you will want to add to your watch list.



Trend Leaders - the free list of stocks for Nov 14, 2008

This post is to announce that Trend Leaders, our latest list of stocks in strong up-trends, is now available at the TradeRadar site.

Readers of the TradeRadar blog are familiar with the Alert HQ free lists of stock alerts. With Alert HQ, we try to identify those stocks and ETFs that are making reversals. Every week we scan all the stocks listed on the NYSE, AMEX and NASDAQ, over 7200 securities in all, to find those stocks or ETFs that are generating actionable BUY signals or SELL signals.

As a byproduct of the Alert HQ process we are providing a list of all the stocks or ETFs that are currently in strong up-trends. We call them Trend Leaders and the list is, of course, absolutely free.

This is our second week offering a list of Trend Leaders. Last week there were 113 stocks on it and we were hopeful that the market was at the early stages of a tradeable rally. This week there are only 37 stocks left on the list and the potential for a rally is questionable. Still, this week we are able to list a good number of stocks that have been able to maintain strong technical characteristics.

In the spirit of constant improvement, I have also created a list of Trend Leaders based on weekly data (I have been using daily data for the other lists). To my surprise, not one stock showed up on the list! This must be what it means to be in a bear market...

In the meantime, TrendLeaders presents those stocks that are bucking the down trend. If your investing style is dependent on trending and momentum, you should be able to easily find a few stocks to add to your watch list or your portfolio.

You can read more and download the free list at the TradeRadar Trend Leaders page.



Friday, November 14, 2008

Chart review - ultra short ETFs at a tipping point?

So what's going on with the ProShares UltraShort ETFs?

Almost all of them are carving out charts with the same characteristics. I've made some rough (very rough!) notations on the chart of the Ultra Short QQQ ETF (QID) below. There are two interesting formations playing out simultaneously:

  1. A head-and-shoulders is forming. I have pointed out the head and both shoulders in the chart below with the big red sloppy letters S and H and S. This chart formation carries bearish implications for this ETF.
  2. Moving averages tell a different story. It is clear that both the 20-day and 50-day moving averages are well above the 200-day moving average. Recent action shows the ETF staying above its 20-day MA until October 27. At that point it fell below the 20-day and soon bounced off the 50-day MA and closed the week once again above the 20-day MA. I have underlined in blue where QID bounced off the 50-day. This successful test of the 50-day and retaking of the 20-day is potentially bullish.

Chart of QID, 11-14-2008
Conclusion --

Two chart formations presaging completely different outcomes.

If QID drops below its 50-day MA it completes the head-and-shoulders and the assumption is that the ETF could drop another 20 or 25 points.

On the other hand, the latest price action has kept the price of QID above the 20-day MA despite a big down day for the ETF on Thursday. Also implying further gains is MACD where the histogram has just crossed zero in the positive direction. DMI is also looking pretty decent.

As I mentioned above, nearly all of the ultra short ETFs are looking very similar. Further substantial gains in these ETFs, though, would require that stocks finally break below the October lows. Economic reports seem to be conspiring to drive stocks down but investors are hanging in there and keeping the major averages from taking another leg down.

For these ETFs, it seems we are at a turning point. Which way do you think they're going?

Disclosure: long QID



Wednesday, November 12, 2008

Is Qualcomm the best semiconductor company in the world?

IC Insights recently released their research bulletin that ranks the major semiconductor companies worldwide over the first three calendar quarters of 2008. The company provides two rankings in their free offering: a list of the top 20 by sales and a list of the top 20 by sales growth rate.

Qualcomm (QCOM) is a notable performer on both lists:

  • Qualcomm used a 27% year-over-year growth rate to jump five spots and rank as the 9th largest semiconductor supplier through the first three quarters of 2008.
  • This 27% year-over-year growth rate is good enough to place Qualcomm in the number one position in the rankings based on sales growth.
Ironically, Broadcom (BRCM), Qualcomm's rival both in the courtroom and in the cell phone industry, is close on Qualcomm's heels with a 26% growth rate that is good enough for the second spot in the growth rankings. Where Qualcomm's sales volume allowed it to move up one spot, Broadcom's sales volume allowed it to move from 23 on last year's list to 18 on this year's list.

As an aside, the companies that primarily produce memory chips saw serious slow-downs in growth. Quimonda fell 12 positions to the 30th spot and Hynix saw a growth rate of -27%, pretty much the opposite of Qualcomm. SanDisk, Elipda and Spansion no longer appear in the top 20 at all.

Conclusion --

Qualcomm and Broadcom show that some companies have the ability to maintain growth despite an industry-wide slowdown. In the near term, both of these companies are experiencing falling stock prices and they are likely to continue to do so until the overall stock market bottoms. As the growth leaders in their industry, however, they are prime candidates to bounce back first when the economy begins to recover. As such, they deserve to be on the watchlist of any long-term tech investor.


Related articles by TradeRadar: Semiconductor rankings out - roadmap to investment opportunities?

Sources: IC Insights Research Bulletin - 54-Point Growth Rate Swing Within Top 20 Supplier Ranking



Monday, November 10, 2008

Skyworks - why is this company smiling?

Amidst the gloom and doom, it was a pleasure to read a conference call transcript where the company reported good earnings and committed to a positive forecast. Skyworks Solutions (SWKS) seems to be in a sweet spot and they were happy to share the good news.

First, the company beat expectations on the just finished quarter. Sales rose 22% year over year to $233 million, beating the company’s forecast of $225 million and the average analyst estimate of $226 million. Profit of 21 cents, excluding some costs, beat estimates by a penny. Gross margins expanded to 40.8%.

Chart of Skyworks (SWKS), 11-10-2008
So much for the past. What about the future?

First, a little background is in order. Skyworks makes semiconductors for the wireless industry. This includes analog and mixed signal integrated circuits used in cell phones, base stations, aerospace-defense, wireless metering and other similar segments. The company has a market cap of about $1 billion. According to Yahoo! Finance it has a price/sales ratio of 1.29 and a PEG ration of only 0.44.

Where most companies are reducing forward guidance Skyworks is maintaining previous estimates. The company acknowledges the economic slowdown but maintains it is in a sweet spot where it will be able maintain growth.

Management points to a number of developments that are positioning the company to prosper while many competitors are finding it tough going. Here the major points as discussed in the company's conference call with analysts:

  • The company is continuing its diversification strategy by increasing its portfolio of analog components. This has already resulted in contracts with Lockheed Martin, Verizon, Sprint and Nextel. This is expected to continue to yield new opportunities in 2009.
  • Skyworks is increasing market share in the fast growing smart phone segment. Skyworks growth rate is twice that of the smart phone market overall.
  • They have extended their relationship with Cisco with a suite of new wireless access point solutions.
  • They are increasing penetration at all five top tier OEM handset makers, the top two smart phone manufacturers as well as relationships with all base band suppliers
  • The weakening industry backdrop is causing vendors to accelerate a move to consolidate on a smaller set of suppliers. Skyworks is maintaining its position as a preferred supplier and the consolidation is allowing the company to increase sales volumes with less competition.
  • Another aspect of the weakening industry backdrop is that vendors are increasingly looking for highly integrated, low cost architectures, innovative technology roadmaps, operational scale and balance sheet strength. Management feels they meet all these criteria and contend they are seeing the contract awards to prove it. The company has for years been investing heavily in the engineering required to produce integrated circuits with the complexity required to produce sub-systems on a chip. Now the demand for this type of component is increasing. They are now wielding this capability as a competitive advantage that will take many of their rivals years to match.
  • Telecom operators are seeing increasing data traffic via smart phones and other 3G devices. Data is becoming a more important means of monetizing customers for the telcos. Technically, this requires more complex circuitry that provides the ability to seamlessly handle both voice and data while roaming in multiple modes and bands. Once again, Skyworks is already there with the complex chips to handle it.
  • Higher complexity chips have higher average selling prices (ASPs) and typically higher margins. The company is increasing demand for these types of chips.
  • Skyworks has had a long time focus on continuous improvement and this helps gross margin gains via manufacturing efficiencies, yield improvements and material cost reductions.
  • Skyworks gained some new customers by stepping up earlier in the year during a time of supply shortages to provide needed components. These new customers are rewarding Skyworks with new contract awards that will ramp up into 2009.
  • The company has applied their technology expertise to expand into new markets such as energy management and wireless meter reading.
Conclusion --

Skyworks is reaping the benefits of serious investments in engineering and is now able to field the kind of complex chips phone handset vendors are currently demanding. This competitive advantage is not easily overcome.

With many of the contract awards stretching into 2009, management is confident in its prediction that the company will continue to grow.

While acknowledging that the economic backdrop is dismal, the company appears to be positioned well to make lemonade from lemons. At only around $6 per share, it is well off its summer '08 peak of $11. With a trailing PE under 13 and a forward PE under 7, Skyworks is certainly worth a look.

Sources: Skyworks Solutions, Inc. FYQ4 2008 Earnings Call Transcript



Saturday, November 8, 2008

Introducing Trend Leaders - a free list of stocks in strong up-trends

This post is to introduce a new feature of the TradeRadar site. Readers of the blog are familiar with the Alert HQ free lists of stock alerts. With Alert HQ, we try to identify those stocks and ETFs that are making reversals. Every week we scan all the stocks listed on the NYSE, AMEX and NASDAQ, over 7200 securities in all, to find those stocks or ETFs that are generating actionable BUY signals or SELL signals.

As a byproduct of the Alert HQ process we are now providing a list of all the stocks or ETFs that are currently in strong up-trends. We call them Trend Leaders.

This week we are offering our first list of Trend Leaders with 113 stocks on it and it is, of course, absolutely free.

If your investing style is dependent on trending and momentum, you should be able to easily find a few stocks to add to your watch list or your portfolio.

You can read more and download the free list at the TradeRadar Trend Leaders page.



Weekly Review - is this rally still alive?

Another notable week came to a close with politics and negative economic reports taking center stage.

This week the country participated in an historic election while stocks bounced up and down and then up again.

Major events for the week:

  • The week started off with auto sales which, as expected, were horrible.
  • Next, of course, was the election of Barack Obama, the first African-American to be elected to the nation's highest office. The stock market surged on election day.
  • After strong gains on Tuesday and in the prior week, the markets proceeded to lose 10% in the next two days after the election. It felt like yet another slow-motion crash.
  • The blame for the downturn in stock prices was assigned to the ADP employment report which indicated a continued weakening in the job market and suggested Friday's non-farm payrolls numbers would be similarly weak.
  • Then there was the bad ISM services report indicating contraction in the service sector.
  • Cisco's John Chambers delivered a downbeat assessment of the economy and of the next couple of quarters. This contributed to the mid-week sell-off.
  • Retailers, except for Wal-Mart, posted poor same-store sales, adding to Thursday's gloom.
  • The non-farm payroll report was published on Friday and it was worse than economists expected but better than a pessimistic Wall Street expected. The unemployment rate rose from 6.1% to 6.5% and payrolls declined 240,000 (consensus -200,000) and the prior month was revised to show a decline of 284,000 positions versus an originally reported loss of 159,000. There is really no way to spin a positive view on these numbers.
  • GM and Ford posted terrible earnings and now concern increases about whether they can continue as going concerns.
  • In a surprising reversal, stocks rallied on Friday though they ended the week with about a 4% loss. Small-caps and mid-caps were laggards.
Against this backdrop, I was curious to see whether our technical analysis indicators would show whether the previous week's rally was dead or whether there was still some life in it. We are presenting two chart below that, hopefully, will help answer that question. The first one is somewhat messy so be sure to check out the second chart.

TradeRadar Alert HQ Stock Market Statistics --

Each week our Alert HQ process scans over 7200 stocks and ETFs and records their technical characteristics. Primarily we look for BUY and SELL signals for our free stock alerts; however, we also summarize the data in order to gain insights in the week's market action. The following chart is based on daily data and, messy as it is, presents the state of our technical indicators:

stock market statistics, 11-07-2008
Moving Average Analysis --

We track the number of stocks that are above various moving averages. The number of stocks above their 20-day moving average fell back a bit after a strong increase the previous week. Meanwhile, the number of stocks above their 50-day moving average held steady. Though it is hard to see on the chart above, the number of stocks whose 20-day MA is above their 50-day MA managed a second small increase and that curve appears to be heading in a bullish direction. These data points strongly imply the rally is still alive.

Trend Analysis and Buying Pressure --

As for the trend indicators, we continue to see negativity diminishing and a glimmer of bullishness. We use Aroon analysis to generate our trending statistics. We see a much more noticeable increase in the number of stocks exhibiting strong up-trends. It is most encouraging to see the number of stocks exhibiting strong down-trends has decreased dramatically: four weeks ago, it was over 6000 stocks and now it is down to 1000, a drop of 2000 in just the last week.

We use Chaikin Money Flow to track buying and selling pressure. Happily we see another slight improvement in buying pressure this week.

The next chart presents the moving average analysis in a simpler, cleaner manner and contrasts it with the performance of the S&P 500 SPDR (SPY).

SPY versus TradeRadar Moving Average Analysis, 11-07-2008
When the number of stocks trading above their 50-day moving average (the yellow line) crosses the line that tracks the number of stocks whose 20-day moving average is above their 50-day moving average (the magenta line) you will get a change in the trend of the S&P 500.

Note that a cross-over in the bullish direction took place a couple of weeks ago and thus far it remains intact.

We pointed out last week that we feel there is actually a tradeable rally going on. Despite the somewhat shaky performance stocks turned in this past week, this chart seems to be saying that the rally is still quite alive. Stocks may be making a messy intermediate term bottom but it looks very much like the market wants to rise.

Conclusion --

Looking at our stock market statistics based on daily data, it looks like there is definitely some kind of bottom forming. Despite the mid-week slide in stock prices, it looks like the broad market held onto most of its strength as the charts above show continued improvement in our indicators.

Given the economic news lately, it is reasonable to assume that this will turn out to be an intermediate bottom and this bounce will end up being a bear market rally. Still, a rally is a rally, no matter whether it makes sense or not, and it seems like the market is poised to move up further.

There is a holiday next week and the economic calendar is light. Investors will only have a few reports to chew on including initial jobless claims, more retail sales, business inventories and the Michigan consumer sentiment index. The earnings calendar is also lightening up as we approach the end of earnings season.

So will investors continue the positive sentiment that drove stocks upward last Friday despite dismal unemployment numbers? I am betting they will. Is all the bad news already priced into stocks? For now, at least, I suspect it is. What do you think?



Free Stock Alerts - Alert HQ for Nov 7, 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 stocks or ETFs that are undergoing reversals, either to the upside or to the downside.

This week the country participated in an historic election and investors participated in changing their minds. After strong gains on Tuesday and in the prior week, the markets proceeded to lose 10% in the next two days after the election. The blame was assigned to the ADP employment report which indicated a continued weakening in the job market. Then we had a bad ISM services report. When Cisco's John Chambers delivered a downbeat assessment of the economy and of the next couple of quarters, the markets sold off again. The non-farm payrolls numbers were published on Friday and they were worse than economists expected but better than a pessimistic Wall Street expected. In a surprising reversal, stocks rallied on Friday though they ended the week with about a 4% loss. Small-caps and mid-caps fared even worse.

Against this backdrop, we see the signals based on daily data continuing to show some bullish change while the signals based on weekly data at least show less bearishness. Here is the breakdown for this week:

  • based on daily data, we have 39 BUY signals and 4 SELL signals
  • based on weekly data, we have 8 BUY signals and 8 SELL signals
Stop by Alert HQ and download your free lists. The alerts based on weekly data show those stocks that have exhibited some good follow-through after a recent trend reversal. If you want to be early in identifying the newest trend reversals, the lists based on daily data are for you. No matter which preference you have, there are bound to be a few stocks you will want to add to your watch list.



Tuesday, November 4, 2008

How will $200 netbooks affect the PC industry?

ASUSTek is planning on making life harder for many PC makers.

The Taiwanese manufacturer of motherboards and PCs recently announced earnings (it’s shares are publicly traded in Taiwan and on the pink sheets in the US and on several other foreign stock exchanges). CEO Jerry Shen held a conference call to discuss the financials and also spent some time covering company expectations for the world-wide notebook market and what ASUSTek’s share might be.

Shen expects his annual notebook shipments growth in 2009 to be higher than the industry's growth of 10-20%. The company also expects to grab a 30% share in the netbook market in 2009 – shipments of 6-7.5 million units out of an estimated 2009 netbook market scale of 20-25 million units.

Shen detailed that the company has adjusted its mid-range and entry-level Eee PC's pricing and market position, and expects to launch an Eee PC priced at US$200 in 2009.

Consumers may love this but other PC manufacturers will find themselves under price pressure.

Without even having to face this kind of price competition yet, we already see Dell responding to recession fears by freezing hiring and embarking on a serious cost cutting initiative. There is talk they are trying to sell their manufacturing facilities.

HP will not escape either. The casual user will be sorely tempted to pass by the high-end PCs from HP when they can get a simple netbook that will serve their basic needs at a minimal price.

Even Intel will feel the effects as netbooks tend to use less powerful microprocessors that yield smaller margins. We have already seen evidence of this in their most recent earnings report as netbooks turned out to be one of the PC segments still showing significant growth even during this economic downturn.

Dell and HP may continue to own the enterprise market where reliability is a top concern and there is more of a need for powerful PCs for various kinds of number-crunching and analysis tasks. Indeed, ASUS will need to prove their products offer the kind of quality U.S. customers have come to expect. Nevertheless, at such a low price point, there should be no shortage of consumers willing to try a product from ASUS. As a matter of fact, it seems like a good choice for Walmart to sell.

One thing is clear. It's going to be harder to make a buck in the PC business. No wonder IBM sold their PC business to Lenovo.

Disclosure: none



Sunday, November 2, 2008

Weekly Review - sentiment turns, can momentum carry this market upward?

October came to a close and it was one for the record books. Record volatility, record declines in major averages and record intervention in markets by central banks and governments worldwide.

The final week of the month, however, stood everything on its head. We had bad economic data yet stocks rallied.

Among the awful data points: real GDP declined 0.3% on an annualized basis in the third quarter, impacted by a 3.1% decline in consumer spending. With 70% of economic growth based on consumer spending, that is a worrisome statistic indeed. Consumer confidence hit record lows. Chicago PMI fell by a sizable amount. Jobless claims stayed stubbornly high.

On the positive side of the ledger, credit markets continued to improve with LIBOR extending its decline and the commercial paper market registering increased activity now that the Fed has rolled out a facility to backstop this market, too. New home sales increased a bit, more than analysts expected. The durable goods report featured a higher than expected headline number though down in the details the picture wasn't so rosy for all sectors. Finally, the Fed cut rates to 1%, a reduction of a full 50 bps. Several other central banks in Asia cut rates as well.

Against this backdrop, most of our technical analysis indicators are perking up and beginning to show real signs of better times ahead for investors.

TradeRadar Alert HQ Stock Market Statistics --

Each week our Alert HQ process scans over 7200 stocks and ETFs and records their technical characteristics. Primarily we look for BUY and SELL signals for our free stock alerts; however, we also summarize the data in order to gain insights in the week's market action. The following chart based on daily data presents the state of our technical indicators:

Stock Market Statistics based on daily data, 10-31-2008
Moving Average Analysis --

We track the number of stocks that are above various moving averages. The number of stocks above their 20-day moving average jumped by 2000. Meanwhile, the number of stocks above their 50-day moving average moved up quite noticeably and is over 1000 now from just a few hundred a week ago. Though it is hard to see on the chart above, the number of stocks whose 20-day MA is above their 50-day MA finally managed a small increase, the first in nearly two months. These data points strongly imply stocks are rising from the doldrums.

Trend Analysis and Buying Pressure --

As for the trend indicators, we continue to see negativity diminishing. We use Aroon analysis to generate our trending statistics. We again see a small increase in the number of stocks exhibiting strong up-trends though it is from an incredibly low base. It has been encouraging to see the number of stocks exhibiting strong down-trends has decreased dramatically: three weeks ago, it was over 6000 stocks and now it is down to 3000. This past week, unfortunately, the number didn't fall but at least it held steady.

We use Chaikin Money Flow to track buying and selling pressure. Happily we see another slight improvement in buying pressure this week.

The next chart shows the same indicators based on weekly data rather daily data. With these curves moving more slowly, this week's results show only the modest beginnings of similar improvements in some of the moving average indicators and the Aroon down-trend indicator.

Stock Market Statistics based on weekly data, 10-31-2008
S&P 500 sector analysis --

This week we are actually including the chart of S&P 500 sector analysis as there is finally some data to show. Whereas the percentage of stocks exhibiting positive technical characteristics has been near zero for the last few weeks, this time we are seeing the beginnings of real improvement. Though only a few sectors are able to show that more than 10% of their stocks are exhibiting bullish technical characteristics, it is still encouraging to see positive movement and implies some kind of bottom may have been reached.

S&P 500 Sector Analysis, 10-31-2008

Conclusion --

Looking at our stock market statistics based on daily data, it looks like stocks are trying to put in some kind of bottom. More than likely it will turn out to be an intermediate bottom and this bounce will end up being a bear market rally. If things play out as the indicators suggest they will, it will be a tradeable rally nonetheless. (For more color on this opinion, read my previous post: "Yes, Virginia, it's a tradeable rally!")

The change in our indicators also demonstrates how sentiment has changed. Investors are buying stocks even though economic reports are dismal at best. Momentum seems to have turned in the upward direction. Will sentiment continue to support the market? Will the new-found momentum drive the market to further gains?

The coming week will likely provide a test of investor optimism as there is a slew of data to be digested. We will see construction spending, the ISM manufacturing index and services index, auto and truck sales, factory orders, initial jobless claims and the important non-farm payrolls report. It's a safe bet that much of the data will be less than bullish.

And don't forget that there are still plenty of earnings to be reported including General Motors, Cisco Systems, Time Warner and many others. To see a good list, follow this link to Briefing.com's Earnings Calendar.

In any case, it seems that stocks are a buy right now. It's unlikely they will go up in a straight line but it is my feeling that the general direction is indeed "up", at least for a while. Do you think this rally will continue? If so, how far?

Related posts: Yes, Virginia, it's a tradeable rally!



Saturday, November 1, 2008

Yes, Virginia, it's a tradeable rally!

OK, stocks rallied this week. But does the rally have legs?

Sometimes the market rallies inexplicably. Given the bad news in economic reports this week, it looked like we might see another crash. We saw GDP come in with a 0.3% decline, a precipitous drop 3.1% drop in consumer spending, jobless claims stubbornly staying at recession-like levels, a major decline in the Chicago PMI and mixed numbers in the durable goods report.

Despite all this, stocks rose. Perhaps investors felt all the bad news was priced in and stocks were finally cheap enough to buy. I am beginning to think that we may see more buying.

Moving Average Analysis with a twist --

Below we present some statistics derived from the TradeRadar Alert HQ process. Each week we scan 7200 stocks on the NYSE, the AMEX and the NASDAQ and run a number of technical analysis screens against each one. One of the indicators I have found to be reliable this year is tracking how many stocks have their 20-day moving average above their 50-day moving average.

In the chart below, we show the results of plotting this indicator against SPY, the S&P 500 SPDR ETF.


In general, you can see that our moving average indicator follows the ups and downs of the S&P 500. In order to get more of a prediction on the direction of stock prices, let's add another moving average to the chart. When you plot the number of stocks trading above their 50-day moving average you begin to see some interesting patterns emerge.

What jumps out from the chart is that when the number of stocks trading above their 50-day moving average (the yellow line) crosses the line that tracks the number of stocks whose 20-day moving average is above their 50-day moving average (the magenta line) you will get a change in the trend of the S&P 500.

What is significant in the chart above is that the yellow line (50-day MA) has been above the magenta line (20-day MA over 50-day MA) for three weeks now. As of the most Friday, however, the yellow line made a strong move above the magenta line signaling more broad-based strength and momentum then we have seen in months.

Conclusion: the rally is real, for now --

Our moving average analysis indicates that stocks are firming and a rally seems to be in progress. Have we seen the bottom of this bear market? That is very doubtful; nevertheless, the rally that is underway seems to have enough underlying strength to be tradeable.

This combination of moving averages is reminiscent of the classic MACD (Moving Average Convergence Divergence) technical indicator and can be used in the same way.

Given that my indicator reflects action in the stock market as a whole, a way to use it is to go long index funds when the trend appears to be turning upward. For example, a week or so ago I somewhat prematurely nibbled at the ProShares Ultra S&P 500 ETF (SSO). Since then I have added a bit of the ProShares Ultra QQQ ETF (QLD).

Now that we are into November, perhaps we will be able to say "Yes, Virginia, there is a Santa Claus rally!"

Disclosure: long SSO and QLD



Free Stock Alerts - Alert HQ for Oct 31, 2008 (BUY signals galore!)

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 stocks or ETFs that are undergoing reversals, either to the upside or to the downside.

On Monday of this week stocks pretty much hit bottom and from there moved strongly up. The move was rather broad based and, as a result, we generated a good list of stocks exhibiting BUY signals based on the short-term indicators derived from daily data. This may not signal an "all clear" for investors but it does seem to show that stocks have firmed, sentiment has improved (despite a raft of awful economic data released this week) and it may be worthwhile to dip a toe into this market on the long side.

Against this backdrop, we see the signals based on daily data showing the most bullish change while the signals based on weekly data at least show less bearishness. Here is the breakdown for this week:

  • based on daily data, we have 83 BUY signals and no SELL signals at all (!)
  • based on weekly data, we have 5 BUY signals and 25 SELL signals
Stop by Alert HQ and download your free lists. The alerts based on weekly data show those stocks that have exhibited some good follow-through after a recent trend reversal. If you want to be early in identifying the newest trend reversals, the lists based on daily data are for you. No matter which preference you have, there are bound to be a few stocks you will want to add to your watch list.




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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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