Tuesday, December 30, 2008

10 Predictions for the Internet for 2009

As 2008 draws to a close, many bloggers are offering a list of predictions for the coming year. This is always a great opportunity for a writer to risk making a fool of himself. Not being one to avoid appearing foolish, I offer my predictions for what developments will occur on the Internet next year.

  1. More blogs! As the unemployment rate increases, expect a good number of jobless folks to begin writing blogs to rip on their former employers, to discuss their job search or to try to make money.
  2. Google will continue to dominate (no surprise here but it's worth mentioning). Their search share will continue to increase though slowly. Search ads will hold their own but a tight-fisted consumer will be clicking less. AdSense will grow due to the increase in number of blogs (see item #1). Nevertheless, look for Google revenue to stagnate in the first half of 2009 as bids for search terms decrease, marketing budgets decline and unemployed users click on ads more infrequently.
  3. Linked-In will soar as waves of unemployed try to bolster their personal networks. My expectation is that Linked-In will be bought by Microsoft (would have been a good acquisition for Yahoo! if Yahoo! wasn't so distracted trying to solve its own problems).
  4. Amazon will take its place beside Google as one of the two technology leaders on the Internet. The company just announced it had its best holiday shopping season ever as most other retailers turned in dismal performances. The company's cloud computing initiatives are actually leading Google's. Where I have always considered Amazon more of a retailing play, the company is proving it deserves to be considered a bellwether by tech investors, as well.
  5. Facebook will surpass MySpace in unique traffic and begin to pull away. If MySpace doesn't provide more applications like games and various kinds of communications widgets, they will be surpassed by Facebook which is capitalizing and benefiting from their developer program. Facebook is capturing ever younger users who now use the site as their primary platform on the web. The add-ons, extras and applications concocted by the thousands of developers working on the Facebook platform are a huge advantage for the site as they have the potential to keep the site continually fresh. This could help keep those younger users coming back for a long time.
  6. E*Trade will be acquired. A leading candidate has been Goldman Sachs. What about Amazon? With a market cap barely above $600 million, E*Trade is certainly affordable. Now that Amazon has become the category killer in online retailing it wouldn't be a stretch to see the company set its sights on the online banking and brokerage sector.
  7. Advertisers will push publishers to accept CPA versus CPC. CPA or cost-per-action advertising results in publishers getting paid only if a users clicks through to an advertiser's site and actually takes an action like subscribing or purchasing. CPA or cost-per-click is when publishers are paid when a user merely clicks on an ad. Advertisers will push the CPA approach because it will be cheaper for them and will also tend to reward the publishers that provide the best traffic. Small publishers will hate it and it could impact Google's AdSense and search ad business which is mostly CPC.
  8. With location awareness becoming ubiquitous, anonymity on the web will be degraded. Some online crazy or stalker will use this functionality to do something bad. There will be a backlash and resurgence of privacy that will impact social networking sites.
  9. Monetization of certain popular sites will stall. YouTube, MySpace and Facebook will make no headway on customer targeting but will benefit marginally by increased traffic.
  10. Last but not least, what prediction list would be complete without some reference to Yahoo! and Microsoft? Yahoo! will sell its search capability to Microsoft and Google will buy what's left of Yahoo! after the Justice department decides that combining Google's ad network (based on the Doubleclick acquisition) with Yahoo's ad network doesn't violate any anti-trust rules. The cultures of Google and Yahoo! will mesh much better than those of Yahoo! and Microsoft. Yahoo! will add their web content to the Google empire and fill a hole in Google's suite of online properties. AOL will be left at the alter.
So there you have it. We'll have to check back next year and see if any of these came to pass. For now, have a happy and safe New Year. If you have any predictions you would like to share, please leave a comment!



Monday, December 29, 2008

Free list of Bollinger Band Breakouts for Dec 26, 2008

As another byproduct of the Alert HQ process (read about Alert HQ) we have generated a list of stocks that have broken above either their upper Bollinger Band or below their lower Bollinger Band.

Bollinger Bands are a technical analysis tool invented by John Bollinger in the 1980s. They are an indicator that allows users to compare volatility and relative price levels over a period time. The indicator consists of three bands designed to encompass the majority of a security's price action.

  1. A simple moving average in the middle (we use a 20-day MA)
  2. An upper band (SMA plus 2 standard deviations)
  3. A lower band (SMA minus 2 standard deviations)
Many traders use them primarily to determine overbought and oversold levels, selling when price touches the upper Bollinger band and buying when it hits the lower Bollinger band. In range-bound markets, this technique works well, as prices travel between the two bands like balls bouncing off the walls of a racquetball court. This approach is supported by Bollinger himself, who also suggests using other indicators in combination with Bollinger Bands in order to confirm buy and sell decisions.

Bollinger also discusses another way of using the bands for trading. Closes outside the Bollinger Bands can be interpreted as continuation signals, not reversal signals. This approach has been the basis of some very successful volatility-breakout systems.

Today we offer a list of those stocks that closed above or below their respective upper or lower bands on Friday, Dec 26. Right click on the following link and save to your computer: TradeRadar Bollnger Band Breakouts

Those that closed above the upper band are labeled "Bullish Breakout." Conversely, those that closed below the lower band are labeled "Bearish Breakout."

As John Bollinger recommends, it is important to use other indicators to confirm whether the breakout is a continuation move or not. Or, as I always suggest with respect to Alert HQ signals, add a few of these to a watch list and see what happens.



Saturday, December 27, 2008

Weekly Review - economy provides no holiday cheer for stocks

It almost felt like old times with the Fed rescuing another sinking institution this week. This time the Fed made an emergency decision that GMAC can be categorized as a bank holding company and is thus eligible for TARP funds.

Also familiar was another week's worth of negative economic news. Initial jobless claims hit a 26 year high at 586,000. The housing market proved it is still able to surprise with worse than expected news as existing home sales plunged 8.6% from October and new home sales fell to their lowest level on an annualized basis in 17 years. Consumer spending in the holiday period was reported to be down 4% according to MasterCard. Final Q3 GDP numbers were reported and they confirmed a decline of 0.5% including personal consumption expenditures (PCE) down 3.8%.

As we have been seeing for several weeks now, the bad economic news may have kept the market from advancing but it didn't cause the market to plunge either. When the dust settled on the week we saw all the major averages down modestly.

From a technical point of view, it was a definite positive that the markets have not sunk to test previous lows in the face of more or less continuous bad economic reports. It is a negative that the major averages, with the exception of the Russell 2000, have all fallen back from their 50-day moving averages and finished the week slightly below their 20-day moving averages.
Given the low volume registered during this holiday-shortened week, bulls will look on the bright side and discount this drop in the market.

TradeRadar Alert HQ Stock Market Statistics --

Each week our Alert HQ process scans over 6400 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, 12-26-2008
Though SPY appears to be drooping, there are apparently some stocks that are firming. The number of stocks over their 50-day MA only dropped slightly while the number of stocks whose 20-day MA is above their 50-day MA actually increased. This could be the result of small-caps and mid-caps showing strength as they often do in early stages of recoveries from bear markets. Implication: cautious optimism.

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) declined slightly this week to under 900. Considering this number was over 6000 in October, this is a tremendous improvement. The number of stocks in up-trends (the yellow line) saw a slight increase to almost 2500 after having bottomed in early October. So far, roughly 30% of stocks we examined can be considered to be in strong up-trends. This week was a holiday shortened week with low volume so outcomes should be taken with a grain of salt. Nevertheless, there is a definite slowing down in the number of stocks that were able to establish strong up-trends. Implication: cautious optimism as these indicators are at least still moving in the right direction.

SPY versus the market - Trend Analysis, 12-26-2008
The next chart applies some standard technical indicators to the stocks in the S&P 500 and summarizes the result by sector.

S&P 500 Sector Analysis, 12-26-2008
The Aroon analysis is showing that most sectors have a good percentage of stocks exhibiting recent up-trends. DMI, however, is showing most sectors remain weak. Weakness is confirmed by the small percentage of stocks in each sector whose 20-day MA is above their 50-day MA. I have added MACD analysis this week but the results fall in the middle. Implication: technical indicators do not agree, either within sectors or across all sectors so the interpretation is that there is no clear trend at this time.

Below is the chart for SPY with a trend line added (the blue line angling upward from left to right). Note that SPY has broken below this trend line after failing to move above the upper Bollinger Band and the 50-day moving average. Adding the blue horizontal line to the chart forms a triangle. SPY has now fallen out of the triangle to the downside. Implication: if we don't get a quick recovery, this is bearish

Chart of SPY with trend line, 12-26-2008

Conclusion --

The urge to call a bottom has been strong and many analysts have made the argument that stocks are cheap enough to begin building positions whether the bottom is in or not. This makes some sense because it is not dependent on determining the exact bottom.

Based on all the technical indicators discussed above, the trend is unclear. What seemed like an up-trend in the major averages has dissipated while small stocks have held on for modest gains.

What is not unclear is that the economy continues to show weakness. This week we saw some reports that indicated the damage was getting worse, not better. Until the economic reports begin to show a decrease in the magnitude of the problems in retail, manufacturing, housing and unemployment, I suspect the market will continue to struggle.

Looking ahead, we have another holiday shortened week coming up and there will only be a few reports for investors to absorb: Chicago PMI, consumer confidence, initial jobless claims and the ISM index.

According to one article I read, we are now in the official Santa Claus rally period. With volume low, the trend uncertain and the economy in the doldrums it would be a surprise indeed if Santa were to provide a present for investors. I suppose we will need to begin looking forward to the January effect as the next event to provide hope for the markets.



Free Stock Alerts - Alert HQ for Dec 26, 2008 - 49 BUY signals

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 6400 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 market didn't give us much to work with. Volume was low, markets were closed for a day and a half for Christmas and investors didn't seem to want to move stocks too far one way or the other. With the exception of the Russell 2000, all the other major averages failed to move above their 50-day moving averages and indeed fell below their 20-day moving averages. Still, the declines were quite modest despite another pile of bad economic news: a jump in initial jobless claims, a plunge in home sales and confirmation the consumer went AWOL during this holiday shopping season.

Against the backdrop of a market that won't go down too far but won't go up either, we see the number of new BUY signals hanging in at a decent level. Here is the breakdown for this week:

  • based on daily data, we have 34 BUY signals and 13 SELL signals
  • based on weekly data, we have 15 BUY signals and 1 SELL signal
Visit 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 Dec 26, 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 6400 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 exponential moving average.

This week we have 251 stocks that made the cut.

With the week shortened by the holiday and with volume running at very low levels, some stocks fell back a bit, enough to reduce the size of our list of Trend Leaders as compared to last week. Still 251 stocks is a good number and is likely to provide fertile ground for those looking for the current crop of winners.

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.



Friday, December 26, 2008

Durable Goods - a glimmer of hope for tech but only a glimmer

The Durable Goods report was published just before Christmas. It presents the advanced numbers for the month of November 2008.

The headline numbers were bad but not as bad as feared:

New Orders: This was the fourth consecutive monthly decrease and followed an 8.4 percent October decrease. Excluding transportation, new orders increased 1.2 percent. Excluding defense, new orders decreased 0.9 percent.

Shipments: Shipments of manufactured durable goods in November, down four consecutive months, decreased 2.6 percent. This followed a 3.4 percent October decrease.

Focus on the technology sector --

As always, we'll focus on tech and look for any signs of improvement.

As our proxy for tech, we'll look specifically at the Computers and Electronic Products category. This segment includes computers and related products, communications equipment and semiconductors. First, we'll look in the rear view mirror and see what happened with Shipments.

Durable Goods - Tech Shipments, 11-2008Shipments were down sequentially 4.6% from October to November and down 1% year-over-year. Semiconductors were down 22.4% month-over-month and 8% year-over-year. Computers were down 8% sequentially month-over-month and 7.9% year-over-year. The only bright spot was in the area of communications equipment which actually showed gains of 4.9% month-over-month and 1% year-over-year.

The next chart presents New Orders data. If you are wondering how they calculate New Orders, the formula is as follows:

NewOrders (current) = Shipments (current) + UnfilledOrders (current) - UnfilledOrders (prior)

This explains why new orders aren't provided for semiconductors as most orders are filled with the month of receiving the order.

Durable Goods - Tech New Orders, 11-2008
We actually see a glimmer of hope here. New orders overall were up 5.9% month-over-month and down only 0.5% year-over-year. November's new orders for computers and related products were up a big 12% month-over-month but unfortunately this still represented a decline of 7.3% year-over-year. New orders for communications equipment were flat on a month-over-month basis and up 0.3% year-over-year.

Conclusion --

The big drop-off in shipments may have created an opportunity where a bit of decent demand could yield an increase in new orders.

On the other hand, inventories are higher year-over-year, so some new orders will not result in increased production though they may translate to more shipments.

A pessimist would also point out that in the normal course of business some new orders are inevitably canceled and thus do not directly convert to future shipments. During uncertain economic times, however, it would not be surprising to see an even higher percentage of new orders canceled, further depressing the level of future shipments.

So tech is facing grim and uncertain times but this month provided a glimmer of hope. October's numbers for both shipments and new orders were revised slightly upward and that was good news. Though shipments continue at depressed levels, November's new orders are better than might have been expected given the economic backdrop. Still, one month is not a trend nor does it confirm a bottom. All we can do is watch and wait for a stronger indication that tech is in recovery mode. That indication is not here yet.



Tuesday, December 23, 2008

ProShares surprises investors today

A big selection of ProShares ETFs went ex-dividend today. The surprise in the announcement was that a short term capital gain was also declared for these ETFs and it many cases it was a whopper.

The chart below shows the dividend, the capital gain and the impact it had on the price of each ETF. I have chosen to use just a few ETFs as an illustration of the general situation though there was a total of 35 ETFs that went ex today (see the full list at the ProShares site).

Fund Name Ticker Dividend S.T. Cap Gain Closing price 12/22/2008 ex-dividend price percent change
UltraShort QQQ QID 0.005739 9.49928 68.82 59.31 14%
UltraShort Dow30 DXD 0.027612 16.0274 73.12 57.06 22%
UltraShort S&P500 SDS 0.028553 11.46188 87.44 75.95 13%
UltraShort MidCap400 MZZ 0.007783 23.84952 88.39 64.53 27%
UltraShort Russell2000 TWM 0.066508 25.00731 94.22 69.15 27%
UltraShort Basic Materials SMN 0.008847 26.57907 69.48 42.89 38%
UltraShort Consumer Services SCC 0.008631 33.91358 124.92 91.00 27%
UltraShort Real Estate SRS 0.023996 4.56656 61.03 56.44 8%

You can see that the combination of the dividend and the short term capital gain had a large effect on the price of each ETF. Reductions in price ranged from 8% to 38%.

It's true that investors receive the income from this action. The problem is that the money is taxable and ProShares gave little warning that today was the ex-dividend date. They made the announcement last night and today it took effect. For those who were holding the ETFs for just a few days or as a quick overnight trade there was no opportunity to sell the ETFs beforehand - they are now stuck paying taxes on the capital gains.

Why are the distributions so big? As it says on the ProShares site, all ETFs are required by the IRS to distribute substantially all of their income and capital gains to shareholders at least annually.

So here is another aspect of the ProShares ETFs that investors need to be cautious about. As if these ETFs weren't volatile enough already.



Monday, December 22, 2008

How bad will 2009 be for the semiconductor industry?

So how bad will it be? iSuppli says let me count the ways.

Dale Ford, senior vice president for iSuppli is quoted as follows:

"The semiconductor industry's growth cycle is shaped by six primary, interrelated forces—global economic health, electronic equipment production, chip supply/demand balance, capital investment, industry and individual company profitability and competition... All six of these areas will present challenges for the semiconductor industry in 2009."
Let's take a look at a few of these.

Global Economic Health --

The recession that began in the U.S. has become a global phenomena. This is impacting both consumer electronics and enterprise equipment suppliers. With declines in OEM factory revenues projected, semiconductors will feel the knock-on effect. iSuppli expects the result for semiconductors will be excess inventory, declining sales and downward pressure on prices. Indeed, they fear inventories at the end of Q4 2008 will expand by 268% over the Q3 level.

OEMs will continue to struggle to eliminate costs and conserve cash. Consumers are expected to exhibit the same behavior as the OEMs in terms of tightening up their finances. Both developments will cause the semiconductor manufacturers to see a decline in sales in 2009.

In terms of sectors, the situation in 2009 will range from bad to lack luster. iSuppli expects mobile PCs and LCD TVs to show low single-digit growth while other segments such as handsets and automotive electronics could suffer notable declines. Optoelectronics may show minor growth based on usuage of LEDs. Microprocessors and DRAM may do better than other sectors due to marginal growth in PCs though iSuppli is projecting a decline of 4% in 2009 compared to 2008.

iSuppli now expects unit shipments of 1G and 2G mobile handsets to drop more substantially in 2009 than previously thought. Shipments will fall by approximately 14% compared to an earlier forecast of a 1% decline. Desktop PC shipments are expected to decline by about 5% in 2009 compared to 2% growth expected before. Mobile PCs remain somewhat of a bright spot although the forecast increase of 15% has been pulled back from prior expectations of a 25% jump. Preliminary iSuppli forecasts show unit shipments of rigid disk drives in 2009 falling by about 11 million units compared to 2008. These declines in shipments will have the effect of depressing production of application specific standard products (ASSPs), application specific ICs (ASICs) and programmable logic devices (PLDs). Companies like Skyworks and RF Micro Devices fall into the first category, Altera and Xilinx fall into the last two categories.

Inventory Issues --

Returning to the inventory issue, many industries have reset their inventory target levels in anticipation of a long economic downturn. Any inventory that is now considered "excess" will have to be used before the semiconductor companies see any new orders. This is aggravated by the fact that business deteriorated much quicker than expected at the end of Q3, leaving Q4 production schedules set too high. This is compounded by the fact that many OEMs were unable to cut production as fast as they would have liked. The outcome is a big overhang of excess semiconductors further up the supply chain as we move into 2009.

iSuppli samples 180 electronics companies, representing more than 80% of the revenues of the industry. They now estimate that there will be $10.4 billion of excess semiconductor inventory at the end of Q4 2008. Much of this will need to be consumed before the semiconductor industry overall sees a resurgence in new orders. Putting the $10.4 billion into perspective, at the beginning of the dot.com bust, iSuppli measured US$13.4 billion in excess inventory, which took two years to work down to manageable levels.

Adding their two cents, Gartner chimes in with their own prediction. They are forecasting that semiconductor revenues will total US$219.2 billion, a 16.3% decline from 2008. They are a little more optimistic than iSuppli on Q1 2009. Having seen such a steep decline in inventories in Q4 of 2008, they think sales might turn out to be a bit better than seasonally expected as some inventories need to be replenished.

Industry managers downbeat --

We've heard what the analysts think, how about the people who run the semiconductor companies? Well, they're not too cheerful either.

A global survey of semiconductor company executives was conducted by KPMG LLP, the U.S. consulting firm. Semiconductor executives anticipate a steep decline in profitability over the next 12 to 18 months. They see R&D and capital expenditure investment decreasing significantly next year, and see significant workforce contraction, according to the survey.

"Executives are clearly telling us that the negative industry trends we began to see in September are expected to deteriorate further, and these companies will need to become more efficient in managing costs — especially with tight credit markets," said Gary Matuszak, leader of KPMG's global Information, Communications, and Entertainment practice.

Fifty-two percent of those surveyed in November said they expect revenue to decline, including 39 percent who see a decline of greater than six percent. Respondents also said they expect the negative profitability trend to extend beyond the short-term. Forty-seven percent of overall respondents said they see global semiconductor profitability as volatile, unpredictable or declining over the next three years

Semiconductor equipment companies impacted --

If managers are expecting R&D to decline and sales to trend lower, it is a certainty that semiconductor equipment companies are in for a bad time, as well. Companies like Lam Research, KLA-Tencor and Applied Materials are already suffering. Applied Materials has been relying on the solar sector for growth in 2008 but solar doesn't look too exciting as we move into 2009.

Conclusion --

With semiconductor funds like the SPDR S&P Semiconductor ETF (XSD) moving up strongly from their November lows it seems investors were willing to bet the worst had been seen. After hearing from the analysts and managers quoted above it is not surprising to see XSD has given up much of its gains.

On the positive side, both Gartner and iSuppli are confident that semiconductor sales will bounce back in 2010 with Gartner expecting double-digit gains over 2009. iSuppli is more circumspect. They are projecting the industry will grow by 6.4% in 2010 and that this will be followed by growth of 10.8% in 2011, the first year to show a double-digit gain since 2004.

So, as a tech investor, there is no particular hurry to commit to semiconductors in the near term. The industry has work to do just to get through 2009. Long-term however, the industry still has potential and from a stock price perspective, it may be better to get in too early rather than too late.

Disclosure: none



Sunday, December 21, 2008

Weekly Review - still waiting for the Santa Claus rally

Go figure. Things were less bad this week but the market didn't really respond.

The Fed eased aggressively and signaled it would do whatever it takes to ensure orderly functioning of the financial markets including buying long-dated treasuries. The White House and Treasury got together and bailed out the automakers with three-month bridge loans and Canada chipped in, too. Tech bellwethers Oracle and Research in Motion brought some cheer to the NASDAQ as they announced decent earnings and didn't slash forward guidance and Best Buy met recently lowered expectations.

Economic reports were again bad this week with industrial production down 0.6% and jobless claims continuing at elevated levels over 500,000 though they were down a bit from the previous week. Both manufacturing surveys, the New York Empire State index and the Philadelphia Fed index both came in at numbers signifying contraction but didn't fall as much as expected. Leading indicators were as poor as anticipated. Still, there was a sense that these numbers could have been a lot worse and there was relief when they weren't.

Nevertheless, major averages were not able to mount a significant rally and break solidly above their 50-day moving averages.

TradeRadar Alert HQ Stock Market Statistics --

Each week our Alert HQ process scans over 6400 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, 12-19-2008
This week the improvement continues. In the chart above we see that SPY actually fell a bit last week. Our moving average indicators, however, moved ahead nicely. This reflects the fact that the Russell 2000 was up more strongly than the S&P 500 and indicates broader strength in the market than may actually be implied by the performance of the narrower averages. Specifically, nearly one third of all stocks we examined are now above their 50-day exponential moving average. This is the highest number we've had since mid-September. In turn, the number of stocks whose 20-day MA is above their 50-day MA is showing a sustained increase. Implication: looking pretty bullish (providing no new shoes drop).

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 again this week to under 1000. Considering this number was over 6000 in October, this is a tremendous improvement. The number of stocks in up-trends (the yellow line) saw a very nicet increase to just over 2000 from 800 last week after having bottomed at 346 a month ago. So far, about 30% of stocks we examined can be considered to be in strong up-trends versus only 12% as of last week. Implication: many more stocks are establishing up-trends while the number or stocks in down-trends diminishes - this also looks pretty bullish.

SPY versus the market, Trend Analysis, 12-19-2008
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, 12-19-2008
Compared to last week, I have had to expand the scale on this chart to the full maximum of 100% from only 35%. This means that the number of stocks in the S&P 500 exhibiting bullish characteristics is growing strongly, at least according to one of our indicators. We are seeing that
Aroon analysis is picking up a greater number of stocks swinging into up-trends. The other indicators we track, DMI up-trend and 20-day MA over 50-day MA are still at very modest levels and improving only slowly.

Conclusion --

Again this week our stock market statistics based on daily data are reflecting a firming in the market. There has been a definite bullish tone; however, we are at a make or break point now.

Major averages are at the top of their Bollinger bands and have so far failed to decisively break above their 50-day moving averages. All our indicators as discussed above are at the best levels we have seen in a month or more. Is there a stimulus that provide that final push to get stocks up to the next level?

We've already had much of the good news that the market was looking for: the automakers got their bailout (billions of dollars from both the U.S. and Canada) and the Fed went all in in terms of rate reduction and a clear cut commitment to quantitative easing. The Obama stimulus plan keeps getting bigger. With Oracle and Research in Motion, we even had a few stocks report decent earnings.

What else is there for investors during this holiday week? The economic calendar has the following: revised numbers on Q3 GDP, existing home sales and new home sales, University of Michigan Consumer Sentiment Index, durable goods orders for November, initial jobless claims, personal income and personal spending for November.

We've only got a few days left for the Santa Claus rally investors have been hoping for and we have already received a couple of big presents from the Fed and the White House. Think we will find a rally under the Christmas tree this week?



Saturday, December 20, 2008

Free Stock Alerts - Alert HQ for Dec 19, 2008 - 83 BUY signals

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 6800 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 fact that major stock market averages again failed to move decisively above their 50-day moving average shows that investors are still in a cautious mode. There were several developments that should have provided ammunition for a significant move but it just didn't happen. The Fed eased aggressively and signaled it would use all tools available to support markets including buying long-dated treasuries. The White House and Treasury got together and bailed out the automakers with three-month bridge loans. Tech bellwethers Oracle and Research in Motion brought some cheer to the NASDAQ as they announced decent earnings and didn't slash forward guidance. Economic reports were again bad this week with industrial production down and jobless claims continuing at elevated levels though a bit less than the previous week. There was a sense that these numbers could have been a lot worse and there was relief when they weren't.

Against the backdrop of a market that won't go down but won't go up either, we see the number of new BUY signals hanging in at a fairly substantial level. Here is the breakdown for this week:

  • based on daily data, we have 66 BUY signals and 10 SELL signals
  • based on weekly data, we have 17 BUY signals and 2 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 Dec 19, 2008 - free list of chart-busting stocks gets bigger

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 6800 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 exponential moving average.

This week we have 299 stocks that made the cut. This is nearly three times the number we had last week.

On the economic front, news continued to be bad but there was a sense it was not as bad as expected. The Fed helped by cutting rates to practically zero and committing to "quantitative easing" by directly buying Treasury securities. Two tech bellwethers, software giant Oracle (ORCL) and Blackberry producer Research in Motion (RIMM), both managed to deliver in line earnings and passable forward guidance. The automakers got their bailout, at a least a short-term bailout which is better than nothing. Major averages registered modest gains led by small caps, mid caps and the NASDAQ, enough to give our list of Trend Leaders a big boost.

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.



Thursday, December 18, 2008

ProShares ETF Links - the list for Dec 18, 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 mostly 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.

In order to go beyond what Seeking Alpha has to offer, I am also providing this link to the Google "Search Blogs" feature that will return any blog post that includes the symbol for one of the ProShares ETFs that was written in the last month. Bookmark this post and come back to use this link at any time. There may be some overlap with the content from Seeking Alpha.



Wednesday, December 17, 2008

Five signs tech slump no where near over

Markets reacted with euphoria to the Fed's announcement after yesterday's FOMC meeting.

Still, it is difficult to get too excited about the immediate prospects for the tech industry. Here are five signs that the tech downturn will not end quickly.

  • Tech companies are cutting their workforces. If there were any chance that the tech downturn was drawing to a close and that demand was going to rebound, companies would be holding on to their experienced employees. They are not. Every day there are new announcements of layoffs in all sectors worldwide. Today it is RF Micro in the US. Yesterday it was Taiwanese IC distributors. Last week AT&T announced plans to cut 12000. There are expectations AMD will announced more layoffs next month. Even Google is reducing staff. The list goes on.
  • Tech companies are cutting production. Companies always adjust production in response to changes in demand. The production cuts being announced lately are so large that they merit announcement to the media. RF Micro is in the spotlight today with a production cut. Yesterday Toshiba and SanDisk announced two week shutdowns and cuts in production of approximately 30%. DRAM vendors have already cut production.
  • Tech companies are cutting prices in order to shed inventory amid weakening demand. Margins are becoming a secondary concern. There are reports that spot prices for polysilicon and solar cells are plunging as producers in China try to unload product at any price. We have already seen plunging prices for memory chips.
  • Insider buying is dwarfed by selling. This past weekend the Wall Street Journal had some interesting information in their Insider Trading Spotlight section. They provided a breakdown by sector. For tech, there were 1,070,544 shares purchased versus 72,158,381 shares sold in the previous week. If the tech slump was close to a bottom, there should be a lot more insiders buying their stock. The fact that so much selling is still going on is alarming.
  • Semiconductors sales are projected to endure a sharp decline in 2009. Semiconductors are the canary in the coal mine. With the exception of the software and services sectors, the rest of the technology industry is dependent on semiconductors in order to make the hardware work. If semiconductors are not in demand, it is a sure bet the hardware further up the tech food chain isn't in demand either.
The five signs listed above are an indication that tech company CEO's do not see a quick end in sight for the current downturn. The corporate strategies of reducing headcount and production are typically utilized as demand is recognized to be falling, not when things are perceived to be about to improve. Proving the negative outlook of company managers is the lack of insider buying despite the fact that share prices are already beaten down.

Enjoy the current rally while you can. The problems in tech are far from over.

Disclosure: none



Monday, December 15, 2008

Industrial Production - tech worse than we thought

Today, the Fed released the Industrial Production report for November. The market generally considered the headline number, which registered a decline of 06%, to be not as bad feared.

We always dig into the report to see how the technology industry fared. The news is not good. Below we show two sets of charts of Industrial Production: one set for the sub-category of Computers and Peripheral Equipment and one set for the sub-category of Semiconductors.

Computers and Peripheral Equipment --

The first chart below the presents data from February through October. This report was released in November. Starting in spring of 2008, growth virtually came to a halt. Production just managed to hit a minor peak in June and then started to fall off slowly. Clearly not a good thing but not exactly a disaster for the industry.

Industrial Production, Oct 2008 - Computers
This next chart presents the data from February through November and was released today. This time we display revised data for the June through September months. It can be seen that June wasn't a peak after all. Indeed, production for this sub-sector dropped off rapidly after May with the revised data 1% to 2% worse than the numbers that were initially released. If there is anything hopeful in the chart below, it is that the decline in production seems to be slowing down a little.

Industrial Production, Nov 2008 - Computers
Semiconductors --

The next two charts look at Semiconductors. In this first one, the data from February to October is presented. This was reported in November. Production hit a clear peak in July and began sliding.

Industrial Production, Nov 2008 - Semiconductors
This next chart, based on today's report, displays the data from February to November and presents revised data for the June through September months. Production was revised down approximately 1% from the month earlier report which can be seen in the steeper fall-off in the data.

Industrial Production, Oct 2008 - Semiconductors
Conclusion --

It is no wonder many tech companies are lowering guidance and announcing layoffs. With production dropping like this it is understandable that management has begun to hunker down. The size of the downward revisions is especially surprising and alarming.

The question is whether this is as bad as it gets. Though the rate of decline in both sub-categories slowed in November according to today's preliminary numbers, there is no assurance yet that Industrial Production in the tech sector has hit bottom. We may look at next month's report and see November's numbers revised downward, too.



Sunday, December 14, 2008

Weekly Review - bulls hang on

OK, this is getting monotonous. Another week of reports indicating the economy is spiraling downward yet stocks manage to gain.

We had a major bankruptcy (Tribune Company), another bank failure, earnings warnings from a number of bellwether stocks (3M, FedEx, Texas Instruments, Kroger, Nucor, and Electronic Arts), announcements of major layoffs (Bank of America, Dow Chemical, Rio Tinto), initial jobless claims and continuing claims continuing their climb upward and a decline in retail sales that was awful but was not quite as bad as feared.

Then there were the bizarre developments on the far side of the law. The Illinois governor caught on tape trying to sell the Senate seat vacated by Barack Obama. Bernard Madoff, former chairman of the NASDAQ, arrested for admitting his investment operation was basically a Ponzi scheme and that $50 billion had been lost.

Finally, we had the Senate rejecting the bailout of the auto companies and George W Bush and the Treasury department rushing to reverse their previous opinions and commit to providing some kind of backstop.

So this was a week that showed no lack of excitement, gloom and surprise. All the ingredients for a rally, right? It sure looks like it. Stocks did slow their ascent but major averages (except the Dow) still managed to tack on another per cent or two.

TradeRadar Alert HQ Stock Market Statistics --

Each week our Alert HQ process scans over 6500 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, 12-12-12008
This week we see some definite improvement. I would like to declare the bottom's in and it's rally time but some weeks ago the little improvement we saw turned to naught. So for now we will say that things are looking positive now that the number of stocks whose 20-day MA is above their 50-day MA has finally moved above 500. This is a definite improvement but we must keep in mind that it is less than 8% of all stocks we examined, not exactly a huge number. It is encouraging to see that the number of stocks above their 50-day MA has also moved to a new multi-month high. Implication: stocks are beginning to show strength and they may have the momentum to continue on the upward path.

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 slightly this week to under 1300. The number of stocks in up-trends (the yellow line) saw another modest increase to just over 800 after having bottomed at 346 a month ago. So far, only 12% of stocks we examined can be considered to be in strong up-trends. Implication: no major change from last week as this data implies most stocks are moving sideways rather than exhibiting strong trends one way or the other.

SPY versus the market, Trend Analysis, 12-12-12008
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, 12-12-12008
Compared to last week, I have expanded the scale on this chart to a maximum of 35% from 25%. This is a good sign. It means that the number of stocks exhibiting bullish characteristics is growing. First, let's get Telecom out of the way. There are only 9 stocks in that sector in the S&P 500 so it only takes a few to start moving up in order to see that sector's indicators jump. So we won't assign too much significance to Telecom at this time. Information Technology, however, has definitely begun to exhibit better health. Consumer Discretionary has backed off a bit and Financials have weakened. In general, though, all sectors are doing noticeably better but there is perhaps a little more reality underpinning the improved behavior. To me is seems that Consumer Discretionary and Financials are the two sectors whose rallies were built on the most dubious foundations so it it seems right that they are beginning to come down to earth while the other sectors begin to see some interest.

Conclusion --

Our stock market statistics based on daily data are definitely reflecting a firming in the market. Nevertheless, I am still struggling to believe the continued waves of bad economic news can be shrugged off with a "it can't get any worse" comment. The suggestion that we can have a V-shaped recovery when the unemployment rate is this bad and companies are constantly laying off workers and forecasting weaker earnings strikes me as wishful thinking.

Technically speaking, stocks are hanging in there. Looking at the major indexes, the 50-day moving average seems to be providing serious resistance while the 20-day moving average is providing support. This coming week should tell us whether we can escape this range.

The continued flight to quality that is pushing Treasury bond prices up and yields down shows that all investors are not so bullish on stocks as it would appear at first glance. It is clear that bond investors are not taking the economic situation lightly.

This coming week, we have a full slate of economic reports and we have another opportunity to see whether the sheer weight of dismal news can finally cast a negative shadow on stocks. We will see the New York Empire State Index, capacity utilization, industrial production, building permits and housing starts, CPI, initial jobless claims, leading indicators and the Philadelphia Fed Index of manufacturing activity.

So with the technicals looking better though not great, and the expectation that the week's economic reports may again be preponderantly negative, it is hard to assume stocks are beginning a new bull market. Certainly there is a new upward trend in place but I suspect it will eventually be recognized as a bear market rally. In the meantime, let's see if the major indexes can move above their 50-day moving averages. Let's take it one step at a time...



Saturday, December 13, 2008

Free Stock Alerts - Alert HQ for Dec 12, 2008 - 64 BUY signals

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 6800 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.

We had another run of consistently bad economic data this week combined with a number of bellwether stocks in a wide range of industries that reduced forward guidance. Jobless claims continued at recession levels, bonds continued to receive a flight to quality trade driving yields to record lows and retail sales were bad but not as bad as feared. Tribune Company declared bankruptcy and Bernie Madoff admitted $50 billion had evaporated as his investment company turned out to be a Ponzi scheme. These shocks to the system couldn't derail stocks to any great extent and rather that plunging, stocks engaged in a little back and forth action and finished the week with modest gains.

Against the backdrop of a market that won't go down, we see the number of new BUY signals hanging in at a fairly substantial level. Here is the breakdown for this week:

  • based on daily data, we have 56 BUY signals and only 4 SELL signals
  • based on weekly data, we have 8 BUY signals and 2 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 Dec 12, 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 6800 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 exponential moving average.

This week we have 111 stocks that made the cut. This is more that twice the number we had last week. On the economic front, news continued in a bad vein while a number of bellwether companies announced layoffs and reduced their outlook. Then we had the bizarre case of Bernie Madoff and his $50 billion Ponzi scheme. Major averages still managed to avoid a major sell-off and even registered modest gains sufficient to expand our list of Trend Leaders.

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.



Thursday, December 11, 2008

Who needs tech in a recession?

Back in the days when the Internet bubble burst, the technology industry had clearly gotten ahead of itself. There were so many routers deployed and so much fiber optic cable laid that significant network capacity remained unused for years to come.

Since then supply and demand has come into closer balance and the tech industry was able to resume its winning ways though with more restraint than during the Internet bubble days.

Now we are faced with a severe recession. How well is tech positioned this time? To understand the answer, we need to consider two markets: consumer and enterprise.

The Consumer --

Electronic gadgets tend to fall into the "nice to have" category when compared to buying food for the family or making mortgage payments. As such, the consumer market can be impacted by layoffs or fear of layoffs and the desire to keep credit card debt to a minimum when the economy seems to be crumbling around you.

Where many consumers often lined up to get the latest thing, that enthusiasm may now run into headwinds. Millions of iPods and cell phones, for example, have already been sold and North American and European markets are considered saturated. If you already have a cell phone, why do you need a different one? You don't, unless you want to move up to a smart phone and are willing to begin paying your telecom company for data services above and beyond what you are already paying for voice services. Last year's PC is still good enough for the average citizen as is last year's flat screen TV or GPS device.

This leaves some of the best opportunities for growth in emerging markets. Yet, with the failure of the decoupling thesis, we now find emerging markets reducing their imports as their own economies feel the negative impacts of global recession.

Luckily, not everyone in the world is out of work; nevertheless, consumer electronics is in for a period of muddling along at best or painful contraction at worst. In order to move product, manufacturers will be forced to lower prices and endure skimpy margins. After all, much of what they produce is not actually "needed" as much as it is merely "desired".

The Enterprise --

Some tech CEOs, like Jonathan Schwartz of Sun Microsystems (JAVA), are saying that the economic crisis will prompt enterprise CIOs to experiment with new technologies with the potential to lower costs - open source software, for example. It is more likely that enterprise CIOs will get out the same old playbook that says to cancel non-essential projects, reduce headcount, outsource to India where possible and delay new equipment purchases.

The business schools all say that strong companies will invest when economic times are bad so as to come out of the bad times stronger than competitors. Certainly there are some companies that will do so but it may be harder during the current downturn because financing is so difficult to obtain. The IPO market is dead, corporate bonds and especially junk bonds are out of favor and thus must offer significantly higher yields than usual, banks are reluctant to lend, etc. Many companies that want to invest in tech in order to increase efficiencies, productivity and competitiveness will find themselves stymied by the credit markets.

Much of the installed tech base can be characterized as "good enough". Many enterprises have programs where equipment is retired when warranties end, not when the equipment is inadequate. This often means that there is constant turnover of equipment over rolling three year time periods. How many three year old PCs are underpowered considering the use they are seeing? Probably very few. We can expect to see companies stretch out the replacement cycle which will serve to depress demand in the tech sector.

On the other hand, there are always some companies that are bumping up against capacity limits due to growth, acquisitions, aging infrastructure or what have you. Others will need new equipment because they are consolidating business units and/or data centers. Many companies will need to purchase data storage since data needs don't stop just because the economy slows (EMC and NTAP could be beneficiaries). Some companies running out of bandwidth will see the need to update networks with Cisco the obvious pick but Juniper and others in the running. As I always point out, none of this stuff works without the chips inside, so companies that make semiconductors for disk drives and networking equipment could see some demand, too.

Growth might also be expected to increase the number of software licenses for enterprise applications but this will be tempered by the situations where layoffs result in unused licenses. Separately, the growth in data storage may support demand for more database software licenses.

Those companies that receive a steady stream of maintenance revenue (enterprise software companies like Oracle, Microsoft and all the lesser players) are fortunate to have a base income and should hold up well relative to companies that are in sectors that typically don't support that kind of business model.

Conclusion --

Tech is again the victim of its own success. It has developed and sold great products with good reliability and in many cases there is just no rush to replace them.

This realization has hit certain parts of the tech supply chain more than others. The semiconductor companies have been quite forthcoming with reductions in earnings estimates and not a few layoff announcements. If these companies are predicting weak growth it is a sure bet their primary customers, the equipment and gadget manufacturers, are in the same boat.

Clearly, all the earnings estimate reductions, job losses and demand destruction in tech signal that the industry is experiencing a real slowdown. This is not a bump in the road. The fact that so many tech companies are guiding downward shows that the problems are too pervasive and are not limited to just a handful tech sub-sectors. Recovery will occur but it will take several quarters rather than several months. The new administration's stimulus plan, while friendly to tech, will mostly provide just job preservation rather than a real boost to the tech industry as a whole (read "How does the Obama stimulus plan help tech?")

As investors, though, don't give up yet. Recently we have seen reports of inventories declining in the tech supply chain (read "Remember JIT?"). While we "muddle along" through this recession one would do well to scrape along the bottom and accumulate some tech stocks. When the economy does begin to recover, tech stocks should take off explosively as companies ramp up in order to fill depleted inventories and meet pent up demand.

Disclosure: none



Wednesday, December 10, 2008

How does the Obama stimulus plan help tech?

Much has been written about the infrastructure aspects of Obama's stimulus plan. Clearly, fixing roads, federal buildings and schools will provide much needed work for construction workers suffering through a crash in the housing market.

The Obama team has, however, been shrewd enough to understand that a stimulus package for the nation needs to help a broad swath of industries. As a result, they have added a bit of high tech to their plans.

There are four main areas where tech is involved:

  • improve efficiency of the health care industry
  • modernize schools
  • develop a green economy
  • ease congested traffic
Let's look at each in turn and see how it benefits tech.

Improve efficiency of the health care industry --

This means software - software for creation and sharing of medical records between doctors, hospitals and insurance companies, software for managing prescriptions, software for tracking treatment regimens, etc.

At the heart of these systems there will be databases. That will favor companies like Oracle (ORCL), Microsoft (MSFT) and IBM. Software development could involve the same companies just listed as well a selection of companies more focused on the health care vertical such as Cerner (CERN), Eclisys (ECLP), McKesson (MCK), etc.

Modernize schools --

Installing high speed networks, broadband connections to the Internet and hanging more PCs and servers on these new networks will certainly generate business for companies like Cisco Systems (CSCO) as well as the PC companies like DELL and HP (HPQ). Going further back into the supply chain, this will also generate business for the semiconductor firms that supply these manufacturers. Software will be needed for all these PCs and servers and Microsoft (MSFT) is a likely beneficiary. Finally, there will be work for the local technicians who develop the system designs and perform the installation.

Develop a green economy --

Make public buildings more energy efficient - this mostly benefits the building trades and building materials industries but there may very well be engineering opportunities in improving on current materials and practices.

Develop, refine and deploy alternative energy sources - opportunities in this area range from deployment of wind farms to refinement of fuel cell and battery technologies to basic research on alternative energy sources we haven't even thought of yet. There is a range of companies that might benefit from these kinds of initiatives ranging from large caps like General Electric (GE) to smaller players like Fuel Cell Energy (FCEL) or even the currently out of favor solar stocks.

Ease Congested Traffic --

Creating “smart” highways that alert motorists to congestion and help re-route automobiles to keep traffic flow smooth will require sensors, computers, networks (most likely wireless) and electronic displays. This should create work for electronics and software engineers as well as the technicians responsible installation and testing.

There are suggestions that light rail mass transit could play a part. This would benefit workers ranging from steel company employees to software engineers.

Conclusion --

The goals embodied in the objectives of the Obama team will help support a reasonable cross section of tech companies at a time when they need it. And the goals are worthwhile and beneficial to the U.S.

Whether these initiatives will be enough to absorb all the tech workers being laid off by Hewlett Packard, for example, or all the IT workers losing their jobs at financial companies remains to be seen. Nevertheless, it appears that government support should translate into some new jobs but also into preservation of many existing tech jobs that might easily be at risk. Preventing job losses is no small benefit in the current economy.

As long as politics don't derail these initiatives and as long as the funds are available, tech should enjoy some support in the Obama administration.

Disclosure: none



Tuesday, December 9, 2008

All that glitters -- four new ProShares ETFs

Last week ProFunds debuted four new ETFs that provide short or leveraged exposure to gold or silver. Here are the details:

  • Ultra Gold (UGL) - tracks the Gold Bullion price, London p.m. fix, 200% daily objective
  • Ultra Short Gold (GLL) - tracks the Gold Bullion price, London p.m. fix, -200% daily objective
  • Ultra Silver (AGQ) - tracks the Silver Bullion price, London fix, 200% daily objective
  • Ultra Short Silver (ZSL) - tracks the Silver Bullion price, London fix, -200% daily objective
These ETFs use futures and forward contracts to deliver twice the daily performance of the underlying for the Ultra ETFs and twice the inverse of the underlying for the Ultra Short ETFs on a daily basis.

As was the case with the recent introduction of the Ultra Crude Oil (UCO) and the Ultra Short Crude Oil (SCO), these new ETFs are a bit late in being introduced. The weekly chart below shows that gold peaked way back in March of 2008. Investors would have been glad to have had that Ultra Short Gold ETF around to play that move.

On the other hand, there are many commentators and bloggers who are expecting gold to rocket higher as the U.S. government prints money and issues billions in Treasury bonds to support all the bailouts and stimulus packages. At that point, the Ultra Gold ETF will come in handy.

Weekly Chart of GOLD, 12-09-2008
Below we see a similar picture with respect to silver. It also peaked in March and it is unfortunate the Ultra Short Silver ETF was not available at that time.

Weekly Chart of SILVER, 12-09-2008
It would seem that the Ultra Gold ETF (UGL) is being embraced by investors as volume seems to be growing nicely in the few days since the ETF was introduced. Given the economic backdrop, this particular ETF may indeed turn out to be a real winner.

Disclosure: none



Monday, December 8, 2008

Remember JIT?

Back in the 80's, the acronym "JIT" became popular. This stood for Just-in-Time. The term was used to describe an inventory strategy whereby companies maintained on hand only enough material for immediate production and carefully monitored inventory levels to trigger re-ordering of parts. The goal was to not waste money on the carrying costs associated with excessive stocking up on large amounts of parts and raw materials.

This approach has become much more ingrained in industry over the years as business-to-business communication has improved and robust supply chain software has made its appearance.

Driven by recessionary caution, however, tech companies are taking things a bit further. It suggests they are driving the good old JIT concept to new levels.

Integrated circuit distributors now say that inventory levels are down to 2-3 weeks at many of their customers and may not recover until February 2009. These levels are roughly half of what is typically seen.

There are reports from Taiwan suppliers that several top PC vendors are cutting order volumes for 1Q09 by 50% year-over-year. Dell and HP are among the vendors mentioned.

These two reports reinforce each other. Tech companies are cutting it very close to the bone with respect to inventory and orders for components. Their fears of shriveling demand are driving these companies to prepare for the worst.

Luckily, the years of practicing JIT are now allowing these companies to cut back significantly on order volumes without totally giving up responsiveness to unexpected customer demand.

As a side note, the reports described above make the recent IDC forecast for slower PC growth seem rather optimistic. (read "IDC forecasts slower PC growth - how bad will it be?")

In any case, it seems tech companies expect to be in the doldrums for at least another quarter or two. It makes one wonder whether we can we trust the recent rally in the NASDAQ. Time will tell.



Sunday, December 7, 2008

Weekly Review - indecision or a bottom?

Is it a bottom when horrific news results in a rally?

Friday, the non-farm payrolls report was released and it indicated 533,000 jobs were lost in November, the worst monthly decline since 1974. After initially moving lower the markets turned around and rallied, trimming the week's losses to a range of 2% to 3% for the major averages. Some analysts indicated the rally was based on "good" news from Hartford Financial, that the company wouldn't have to raise new capital and that earnings would "only" be down about 50%. Sounds great to me...

Other news during the week was equally lack luster. The ISM Index, a survey of national manufacturing conditions, registered a drop to 36.2, well under the 50 that would indicate contraction in the manufacturing sector. The NBER officially declared that we have been in a recession since December 2007 (no surprise there). Ben Bernanke remarked the Fed may use some unconventional methods such as buying Treasuries in the open market. This further stoked the bond market which made new highs all week but also showed investors that the economy is far from out of the woods and the Fed may be running out of ammunition. Auto sales were worse than expected and expectations had already been extremely low. The Fed's Beige Book confirmed that the economy stinks. Retail sales were the worst in nearly a decade. Continuing claims for jobless benefits reached a 26-year high. The percentage of loans in the foreclosure process (2.97%) hit a new record in the third quarter.

Whew! What a litany of doom and gloom. Yet stocks rallied on Friday. This is why I don't try to predict the direction of stocks...

TradeRadar Alert HQ Stock Market Statistics --

Each week our Alert HQ process scans over 6500 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 vs. the market, Moving Average Analysis, 12-05-2008In terms of closing prices, the chart above shows the S&P 500 making what looks like another lower high. In terms of how many stocks are above their various moving averages, the data continues to bounce around the lows. Last week I asked: Is this what a bottom looks like? It could be but it is clearly a market that can't go down and won't go up. Implication: implies many stocks keep running into resistance at their moving averages

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 again this week to under 1500. The number of stocks in up-trends (the yellow line) another modest increase from a very low number of 472 up to a still low 559, only 8.6% of stocks we examined. Implication: implies most stocks are moving sideways rather than exhibiting strong trends one way or the other

SPY vs. the market, Trend Analysis, 12-05-2008
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, 12-5-2008
As the chart above shows, things are getting a little better in some of the sectors. Note that the chart's maximum is again at only 25% this week so what we are seeing isn't all that impressive; nevertheless, as we pointed out last week, things are looking noticeably better than they were recently. In particular, Financials are perking up a bit. Consumer Staples and Utilities continue to hold up better than many other sectors and the chart reflects that. It is totally mystifying to me that the Consumer Discretionary sector is performing so well in the face of big job losses and and a documented plunge in consumer spending. Nevertheless, there it is.

Conclusion --

Our stock market statistics based on daily data seem to be reflecting indecision and it is no wonder. Once again we had a week with economic reports that continued consistently negative. Once again stocks had a big one-day decline, the kind that only happens during bear markets. Jobs (or the lack of them), industrial numbers and consumer spending numbers continued to portray an economy in disarray yet stocks rallied on Friday.

Stocks are caught in a tug of war between Bears who point to economic news that continues to get worse rather showing any kind of bottom, and Bulls who feel that stock prices already reflect all the bad news (which some are saying can't get any worse) and that government actions will inevitably lead to a firming in the economy.

It seems sentiment is leaning toward the positive side. That, combined with a potential bailout for automakers, the announcement of the outlines of a huge stimulus package by president-elect Obama and the efforts of governments around the world to reduce interest rates and spend billions to prop up local economies support the case for a very cautious bullishness in the short term.

To provide more insight into where our economy is going, this week we will see the following economic reports: pending home sales, wholesale inventories, export prices, import prices, initial jobless claims, Trade Balance, Producer Price Index, retail sales, business inventories and the University of Michigan Consumer Sentiment Index. Many of these are not typically market moving so the ones to watch will be initial jobless claims, retail sales and possibly the U of M Consumer Sentiment.

From a technical analysis perspective, the bulls seem to have a slight edge. Major averages are just peeking over their 20-day moving averages and are hanging on a bit above recent resistance.

With only a modest amount of data being released this week, will bulls be able to maintain the positive sentiment and positive momentum that appeared last Friday afternoon? Or will doubts begin to gnaw at investors and cause stocks to resume their downward trend? Data thus far argues that we may be stuck in a range. What do you think?




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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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