Saturday, January 31, 2009

Free stock alerts, Trend Leaders, Bollinger Band Breakouts and Cash Flow Kings for Jan 30, 2009

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 7400 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.

Wait, there's more...

We also use the Alert HQ process to generate more free lists of stocks and ETFs

The first byproduct of the Alert HQ process is the Trend Leaders list, our collection of stocks in strong up-trends. These stocks are registering strong signals using Aroon analysis, DMI and MACD. They are also above their 50-day exponential moving average. This week's list is now available at the TradeRadar site on the Trend Leaders page.

As another byproduct of the Alert HQ process we have generated a list of stocks that have broken either above their upper Bollinger Band or below their lower Bollinger Band. Those that closed 1% above the upper band are labeled "Bullish Breakout." Conversely, those that closed 1% below the lower band are labeled "Bearish Breakout." This week's list of Breakouts is also now available at the TradeRadar site on the Trend Leaders page.

Cash Flow Kings are our newest feature. We calculate the free cash flow yield of all the stocks we scan and pick the ones whose yield is 50% or greater. This list is also available on the Trend Leaders page.

Here is what we have this week --

For the fourth week in a row, stocks declined. Consumer confidence hit a record low and continuing claims for jobless benefits hit a record high. Earnings did little to help stocks as most companies provided weak guidance and most of those who beat expectations had previously lowered those expectations. GDP was the worst since the 1980's and layoff announcements continued to pour forth. News of the government planning a "bad bank" was only able to provide one day of positive sentiment. Against all this negativity, the number of new BUY signals continues at very low level. Interestingly, the numbers of Trend Leaders has increased while the number of Breakouts and Cash Flow Kings have held steady. Here is the breakdown for this week:

  • based on daily data, we have 7 Alert HQ BUY signals and 16 SELL signals
  • based on weekly data, we have 6 Alert HQ BUY signals and 7 SELL signals
  • based on daily data, we have 203 Trend Leaders (up 27% from what we had last week)
  • based on daily data, we have 263 Bollinger Band Breakouts. This week we add 170 Breakouts based on weekly data. Unfortunately, a large number of them are bearish.
  • finally, we have 420 Cash Flow Kings
Visit Alert HQ and download your free lists of stock alerts. 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.

Don't forget to download the free lists of Trend Leaders, Bollinger Band Breakouts and Cash Flow Kings at the TradeRadar Trend Leaders page. If you have no faith in technical analysis, the Cash Flow Kings may be just what you are looking for!



Thursday, January 29, 2009

December Durable Goods - no tech recovery in sight

The advanced numbers for December 2008 Durable Goods were released today and they were considerably worse than expected. The headline numbers were as follows:

  • New orders for manufactured durable goods in December decreased $4.7 billion or 2.6 percent to $176.8 billion.
  • Shipments of manufactured durable goods in December, down five consecutive months, decreased $1.4 billion or 0.7 percent to $191.3 billion.
  • Unfilled orders for manufactured durable goods in December, down three consecutive months, decreased $10.3 billion or 1.3 percent to $803.2 billion.
  • Inventories of manufactured durable goods in December, up seventeen of the last eighteen months, increased $1.3 billion or 0.4 percent to $343.5 billion. This was at the highest level since the series was first stated on a NAICS basis in 1992.
As we always do, we will focus on the tech sector, looking at the summary category of Computers and Electronic Products and updating our charts with the December data.

The following chart shows how Shipments have been trending ever lower. Note that despite shipments of consumer electronics increasing for the holiday selling season, it wasn't nearly enough to affect the rapidly declining trend.

advanced report Durable Goods Shipments for Dec-08
This next chart looks at New Orders. Another plunging trendline.

advanced report Durable New Orders for Dec-08
New Orders fell over 7% from November to December which seemed like rather brutal drop. This prompted me to recast the chart above into one that tracks the percent change from month to month.

advanced report Durable New Orders percent change for Dec-08It is easier to see now that December's move was one of the biggest in percentage terms since the middle of 2007. Unfortunately, that move was down and serves to more than negate the positive move seen in the previous month.

The next chart shows total inventories. The increase in inventories has been inexorable and has reached the highest level in three years.

advanced report Durable Inventories for Dec-08
Conclusion --

Tech is still in a tough situation. Summarizing what we have seen in the charts we have the following points:
  • Shipments continue to fall though not so much as the previous month. The trend, however, remains clearly down.
  • New Orders plunged in December. The trend here is also down.
  • The buildup in Inventories continues unabated
These charts show that the downturn in tech hasn't showed any evidence of a bottom yet. Shipments and New Orders continue to decline in tandem.

The rise in inventories is another troubling sign. By the time demand begins to return, there will be high levels of inventories to be worked through before the tech industry can begin to really ramp up production. In the meantime, the industry will continue to run at low capacity, depressing margins.

The conclusion is that a recovery in tech is unlikely in the near term. Given the continued drumbeat of layoff announcements, it appears that tech industry management feels the same way.



Tuesday, January 27, 2009

Google AdSense revenue flat - what does it mean?

Google just released earnings. As usual, search advertising showed strong growth year-over-year as well as sequentially. Things were not nearly so good for AdSense.

From the earnings release, Google had this to say:

Google’s partner sites generated revenues, through AdSense programs, of $1.69 billion, or 30% of total revenues, in the fourth quarter of 2008. This represents a 4% increase over fourth quarter 2007 network revenues of $1.64 billion and a 1% increase over third quarter 2008 network revenues of $1.68 billion.
Only 1% over the previous quarter? That seems pretty light for Google. But look at the chart below (courtesy of HowToNotMakeMoneyOnline.com). AdSense revenue has not been growing significantly since the end of 2007. Yet it is also clear that AdSense makes up a big chunk of Google revenue: 30% as of the most recent quarter.

Google Share Of AdSense Revenue 4Q08
So what has caused AdSense revenue to stagnate?

Certainly there is no lack of opportunity. With the continued proliferation of blogs and web sites that are willing to host AdSense ads, the inventory of ad slots keeps increasing. Furthermore, Google has mentioned in its most recent conference call that as some advertisers reduce their ad buys in the current tough economy, those ad slots on affected web sites are willing to accept AdSense ads.

Google has referenced their effort to clean up "MFA" sites. These are Made for AdSense sites that have very little real content and feature AdSense ads disguised as menus and content to fool unsuspecting users into clicking them. These sites are combined with an AdWords campaign to drive traffic to these MFA sites (sometimes referred to as AdWords/AdSense "arbitrage"). Google feels that they "pollute" search results and has made a serious effort to ban them. During the conference call, the company indicated they had made so much progress that it may have had a noticeable impact on AdSense revenue. Still, it is unlikely this has caused a year's worth of stagnation in AdSense revenue

So if there are plenty of ad slots then either there are less clicks or each click is worth less. But here is what Google just said in the earnings release:
Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 18% over the fourth quarter of 2007 and increased approximately 10% over the third quarter of 2008.
So it seems like the number of clicks is not the problem. That leads us to how much money Google is making per click. This is composed of two parts: there is what Google gets from the advertiser and what Google pays to the publisher or owner of the web site hosting the ads. The payout to the publishers is known as Traffic Acquisition Cost or TAC. Google keeps the difference. This amount has also stayed the same for the last year. You can see it as the red area in the chart above.

That implies that what advertisers have been willing to pay for keyword-based advertising like AdSense has been stagnant or declining. This is in contrast to the keyword inflation that has been seen in AdWords, at least before the economic downturn got into full swing. The reason may be due to the maturity of the AdSense product.

Many of the biggest, most popular sites don't run AdSense. They work with ad networks and run text ads, display ads and affiliate-style ads. Some bloggers advise that getting rid of AdSense is necessary to convince visitors the site is run by professionals.

There is a movement toward cost-per-action (CPA) advertising where publishers are paid not merely for clicks but for buyers actually taking an action on the advertiser's site - buying a product, signing up for a demo or a newsletter, etc.

"Smart pricing" is a Google process that has been discussed in SEO circles. This is an attempt by Google to acknowledge differences in traffic quality and to begin to accommodate the CPA concept.

Google describes smart pricing this way: "Google's smart pricing feature automatically adjusts the cost of a keyword-targeted content click based on its effectiveness compared to a search click. So if our data shows that a click from a content page is less likely to turn into actionable business results -- such as online sales, registrations, phone calls, or newsletter signups -- we reduce the price you pay for that click."

So it appears that Google's own systems may be helping reduce AdSense revenue. The contention that AdSense doesn't provide the best traffic for advertisers may indeed be true. Acquiring more ad slots on higher quality web sites may help but when the economy improves, will those sites keep AdSense or go back to accepting more lucrative ads from higher quality, higher paying advertisers? AdSense may only see a temporary bump and then go back to its current flat level of revenues. Luckily, that is still a pretty good chunk of change. In terms of growth, though, it's a good thing search ad revenues are still increasing strongly for Google.



Monday, January 26, 2009

UltraShort ETFs - they work if you follow the rules

Bashing the ProShares UltraShort ETFs seems to be a favorite blog topic these days but it has also incited a few defenders of these ETFs to respond.

To review, those who dislike these ETFs have pointed to the fact that they do not seem to have come anywhere near delivering the expected result of double the inverse of the underlying index. Indeed, they might not have shown any gain at all even if the underlying index lost significant value.

Evaluating the arguments --

Let's take a look at the following scenario: buy an UltraShort ETF when the corresponding long index ETF falls below its 200-day simple moving average.

We looked at four pairs of ETFs as described in the following tables. The Start Date corresponds to when the index ETF fell below its 200-day MA. Standard Deviation is included as a measure of volatility.

This first table shows the results using ETFs that correspond to two major market averages.


QQQQQIDSPYSDS
Start Date1/9/08
1/7/08
End Date1/16/09
1/16/09
Initial Price47.7537.01137.8747.48
Recent Price28.9058.9583.1181.11
Gain/Loss-18.8521.94-54.7633.63
Percent change-39.48%59.28%-39.72%70.83%
Standard Deviation7.3011.5719.2813.83

This next table shows the results of using ETFs that track two individual sectors: real estate and financials.


IYRSRSIYFSKF
Start Date6/18/07
7/23/07
End Date1/16/09
1/16/09
Initial Price76.3077.93109.2775.94
Recent Price32.2259.3233.86158.78
Gain/Loss-44.08-18.61-75.4182.84
Percent change-57.77%-18.61-75.4182.84
Standard Deviation12.6321.6920.6827.35

The outcome --

What we found was that one of the sector UltraShorts, SRS, the UltraShort Real Estate ETF, did indeed perform horribly over the long haul. The other ETFs we examined didn't do too badly. They may have lagged the hoped for 2X inverse of the underlying index but they did way better than the underlying indexes did as stocks plunged this year.

At this point it is important to reiterate what ProShares says about these ETFs: they are meant to double the inverse of the underlying index on a daily basis, not over extended periods of time.

Others have written how compounding over time can affect these kinds of leveraged ETFs so I won't go into detail here; suffice to say that they are correct and that it tends to keep the gains less than the expected 2X.

Use the right tool for the right job --

What is important to point out is that indulging in these ETFs is essentially a commitment to, at the least, market timing or even active trading. This by itself implies that the intent is probably not long-term hedging.

So if you are willing to actively trade the UltraShort ETFs, then they will work quite well. This does not necessarily mean day trading. Handsome gains were had in SKF, for example, if an investor bought this ETF each time it fell back to around its 200-day MA, held it for a few weeks or months and sold each time it spiked. For most folks, of course, this is easier said than done but if you were good at determining stops, it was still quite possible.

What is more noticeable (and useful) from the data presented above is that a bearish investor, betting against a major market average like the S&P 500 or the NASDAQ 100, could indeed have held the corresponding UltraShort ETF and realized a quite reasonable gain over the course of the last 12 months.

Sour grapes?

So in my opinion, it seems that those who are railing against these ETFs are not using them as they were intended and are judging them by criteria they were not intended to be judged by. In addition, this attitude that the UltraShorts are awful investments is very much a result of what end date is used. A few months ago, when SRS on two occasions rose to over $175, I don't think anyone would have been complaining about this ETF. Furthermore, it is clear that the volatility of this ETF is very high and wild price swings are to be expected. Lesson: be careful, pay attention and take profits when you can. Otherwise, don't complain.

Major market averages do pay off --

Playing individual sectors, especially the highly volatile financial and real estate sectors, may yield unpredictable results.

In a cyclical bear market, however, using the UltraShorts that correspond to the major market averages has actually worked out quite well, even if holding these ETFs for longer periods than recommended. I have provided the details for the S&P 500 and the NASDAQ 100 but the results are the same for the Dow 30 Industrials (comparing DIA and DXD) and the Russell 2000 (comparing IWM and TWM).

The rules of the game --

It seems there are four rules for using the ProShares UltraShorts:
  1. Pay attention. When an ETF jumps 20 or 30 points in a day, it is probably a good idea to take some profits.
  2. Some of the most volatile sector ETFs should only be used as trading vehicles over shorter periods of time. This should be evaluated on a case by case basis. Also, see rule #1.
  3. The ETFs that correspond to major market averages (referred to by ProShares as "short market cap" ETFs) can be considered "dual purpose": use them for longer bets on cyclic bear markets or as trading vehicles if you are nimble enough.
  4. Have an exit strategy. Set a point at which "enough is enough" and have the discipline to take profits. Don't assume a 2X return over longer periods of time.
Are there any other rules you think should be added?

Disclosure: small positions in SDS and QID



Sunday, January 25, 2009

Two custom screens yield picks from the oil patch

This post looks at the results of combining several of the stock screens that we ran this weekend at TradeRadar.

We executed the usual weekend Alert HQ process (read about this weeks results) and generated several lists of stocks based on our special screens including: Bollinger Band Breakouts, Trend Leaders and Cash Flow Kings (you can download these lists at the Trend Leaders page).

Trend Leaders represents a collection of stocks in strong up-trends. These stocks are registering strong signals using Aroon analysis, DMI and MACD. They are also above their 50-day exponential moving average. To obtain the list of Cash Flow Kings we calculate the free cash flow yield of all the stocks we scan and pick the ones whose yield is 50% or greater.

The "Leadership Screen"

All these screens generate big lists since we run them against essentially the entire stock market. Combining the Trend Leaders and the Cash Flow Kings results in what I think of as the "Leadership Screen" as it brings together those stocks with price momentum and exceptional cash flow yield.

With the market down, this list is quite reduced from what we saw last week - only two stocks made the grade. The list is as follows:

SymbolNameExchangeLast PriceMarket Cap
SUAISpecialty UnderwritersNGM3.6456.7M
WNRWESTERN REFINING
NYSE10.55721.4M

It seems refiners are doing well lately as last week we had Tesoro (TSO) on the list. This week it is Western Refining (WNR). Looking at this stock's financial ratios, one would not say this stock is particularly undervalued; however, the chart is extremely attractive (looking at it over a two period it looks like a nice bottom has formed and it has now jumped over its 200-day moving average) and it is comforting to see that it's one of our Cash Flow Kings.

Chart of WNR, 01-23-2009
Micro-cap stock Specialty Underwriters (SUAI) is the only repeat from last week and rounds out our short list. This brevity reflects the decline in the number of stocks on the Trend Leaders list as major stock averages fell anywhere from 2.1% to 4.7%

The "Contrarian Screen"

The next table shows the results of combining Cash Flow Kings with this week's Alert HQ SELL signals based on daily data. I think of this as the "contrarian screen" as it combines stocks with strong cash flow and falling prices. Here we have three stocks:

SymbolNameExchangeLast PriceMarket Cap
ICTGICT Group, Inc.NGM4.0664.6M
LIONFidelity SouthernNasdaqNM3.0028.5M
TGETGC Industries, Inc.NasdaqNM2.2138.4M

The best of this bunch is probably TGC Industries (TGE) which is in the oil and gas exploration services business. They have little debt and their financial ratios are all pretty favorable. This could be a nice longer-term value play. The chart below shows that the stock has fallen back to its 50-day moving average. It could get cheaper from here.

Chart of TGE, 01-23-2009
If you'd like to download the whole list with added fundamental data you can use this link. There could be a few stocks here that you will want to add to your watch list.

Disclosure: none



Saturday, January 24, 2009

Weekly Review - technicals dicey, will earnings save us or bury us?

Well, there was no Obama rally last week despite all the hooplah over the inauguration. On the contrary, markets dived several more percent.

Interestingly, the U.S. market was somewhat spooked by international happenings this week. The situation with banks and their need for bail-outs in the U.K. sent chills down the backs of U.S. investors. Nationalization became a hot blog topic and U.S. financial stocks went into a tailspin. The fact that most U.S. banks reporting earnings this week revealed still more writedowns and ever higher loan loss reserves certainly didn't help sentiment in the financial sector which dropped another 7%. Other international developments included major declines in GDP in both the U.K. and China. South Korea saying maybe U.S. treasuries were no longer a buy helped put pressure on our bond market.

News was mixed in the tech sector though it tilted mostly negative. Apple beat, Google did well but investors focused on Microsoft who missed expectations, withdrew all guidance and announced layoffs. A myriad of smaller tech companies did pretty much the same.

In the world of economic reports the news continued to be grim. Housing starts fell to the lowest level since 1959. Every bottom in housing seems to be followed by a lower bottom. Initial jobless claims jumped up to 589K, higher than expected. After two light holiday weeks, it appears that companies have gone back to slashing payrolls.

With all this going on, it's no wonder that the TradeRadar statistics are taking a more bearish stance.

TradeRadar Alert HQ Stock Market Statistics --

Each week our Alert HQ process scans over 7400 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, 1-23-2009
This chart is alarming. In just two weeks, the number of stocks over their 50-day MA dropped from over 3500 to just barely over 2000. The trend of the magenta line showing the number of stocks whose 20-day MA is above their 50-day MA has turned negative. The yellow line has crossed below the majenta line. 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 is indicated by the red line and the number of stocks in up-trends is indicated by the yellow line.

SPY versus the market - Trend Analysis, 1-23-2009
The number of stocks in down-trends now clearly exceeds the number of stocks in up-trends. Both still have room to run before they hit an extreme. Implication: bearish

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, 1-23-2009
For those of you who saw the same chart in last week's post, you will see that all the indicators have declined even further for almost all the sectors. The only exception is the Energy sector which showed a little life this week as the price of oil perked up on Friday.

As we've compared our indicators to SPY, the S&P 500 SPDR ETF, it is worth taking a look at its chart.

Chart of SPY - technical analysis, 01-23-2009
It appears that SPY is at a crucial juncture here. The horizontal blue line indicates support-resistance. SPY has fallen below the line but recovered by end of week to just barely above. The blue downward sloping trend line is also in play. The decline in SPY has slowed and the price is now bumping up against this trend line. MACD is bearish but it is also slowing its descent. Failure to move above the levels indicated here could easily mean revisiting the lows established in November.

Conclusion --

The technical picture as described above ranges from outright bearish to "could go either way". What could provide the spark the would ignite a strong move upward? Probably the only impetus for a serious rally would be some kind of market-friendly announcement from Washington. In the meantime, stocks are due for a bounce and a few good earnings reports might do the trick and get the market moving for a few days. Still, the overall outlook is not positive for the near term.

On the economic front, there are a ton of reports being released this week: existing home sales, leading indicators, consumer confidence, durable goods orders, new home sales, advance GDP for Q4-2008, Chicago PMI and Michigan consumer sentiment. None are expected to signal a significant turn for the better.

Finally, we are in the thick of earnings season. With a bunch of banks already done reporting, perhaps this week won't suffer from the negativity that the financials always bring to the party.



Free stock alerts, Trend Leaders, Bollinger Band Breakouts and Cash Flow Kings for Jan 23, 2009

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 7400 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.

Wait, there's more...

We also use the Alert HQ process to generate more free lists of stocks and ETFs

The first byproduct of the Alert HQ process is the Trend Leaders list, our collection of stocks in strong up-trends. These stocks are registering strong signals using Aroon analysis, DMI and MACD. They are also above their 50-day exponential moving average. This week's list is now available at the TradeRadar site on the Trend Leaders page.

As another byproduct of the Alert HQ process we have generated a list of stocks that have broken either above their upper Bollinger Band or below their lower Bollinger Band. Those that closed 1% above the upper band are labeled "Bullish Breakout." Conversely, those that closed 1% below the lower band are labeled "Bearish Breakout." This week's list of Breakouts is also now available at the TradeRadar site on the Trend Leaders page.

Cash Flow Kings are our newest feature. We calculate the free cash flow yield of all the stocks we scan and pick the ones whose yield is 50% or greater. This list is also available on the Trend Leaders page.

Here is what we have this week --

For the third week in a row, stocks declined. Jobless claims jumped again, more than expected. Turmoil in the British banking system saw its counterpart in the U.S. matched with State Street reporting large paper losses and loan loss reserves moving ever higher for all the banks reporting earnings so far. A few tech companies came in with good earnings, the rest didn't even come close Against this backdrop, we see the number of new BUY signals dwindling to practically nothing. Similarly, the numbers of Trend Leaders has decreased while the number of Breakouts and Cash Flow Kings have held steady. Here is the breakdown for this week:

  • based on daily data, we have 6 Alert HQ BUY signals and 58 SELL signals
  • based on weekly data, we have 6 Alert HQ BUY signals and 7 SELL signals
  • based on daily data, we have 160 Trend Leaders (down 40% from what we had last week)
  • based on daily data, we have 261 Bollinger Band Breakouts (nearly all of them bearish)
  • finally, we have 418 Cash Flow Kings
Visit Alert HQ and download your free lists of stock alerts. 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.

Don't forget to download the free lists of Trend Leaders, Bollinger Band Breakouts and Cash Flow Kings at the TradeRadar Trend Leaders page. If you have no faith in technical analysis, the Cash Flow Kings may be just what you are looking for!



Friday, January 23, 2009

Tech Bellwether Earnings Scorecard

To get a measure of this earnings season, I've been keeping track of some of the tech bellwethers. There have been a few winners but, for the most part, the results aren't encouraging.

The following table is our tech scorecard for the week ending Jan 23, 2009. Three out of fourteen companies on our list of bellwethers have beat earnings expectations thus far in this earnings season.

CompanyEarnings ResultsComments
IBMbeat by $0.25good guidance
Apple (AAPL)beats by $0.32
conservative guidance (as usual)
Intel (INTC)
miss (rev -23%)conservative guidance
eBayprofits down 31%
weak guidance
Nokia (NOK)
miss by $0.02weak guidance
Sony (SNE)
miss, first annual loss in 14 yearsguidance revised downward
Microsoft (MSFT)missed by $0.02announced layoffs, not providing guidance
Google (GOOG)beats by $0.15AdSense (30% of revenue) flat, $1B charge to write down AOL and Clearwire. Search ads, aggregate clicks doing well. Somewhat conservative guidance offered.
MEMC (WFR)earnings down almost 80% from prior year
very weak guidance
Taiwan Semiconductor (TSMC)in line but down severely year-over-yearvery weak guidance
Samsungfirst ever quarterly loss
restructuring, expects loss next quarter
AMDmiss by $0.14weak guidance

It is true that earnings can be considered old news so I have provided a column that lists the outlook for each company based on management's forward guidance. It is rather distressing that guidance ranges from "conservative" to "very weak" with only IBM being fairly upbeat about the prospects for 2009.

We have only seen a couple of weeks of earnings so there is a possibility that others in the tech industry can do better. Still, given how many companies have announced layoffs and guided downward, I would not be too hopeful.

Disclosure: none



Thursday, January 22, 2009

State Street props up stable value funds - another crack in the foundation?

There is good news and bad news. The good news is that State Street (STT) decided to provide support to their stable value funds in the face of potential losses. The bad news is that they had to.

Here is what they said in their 8-K and referred to in their recent conference call:

"In some very limited circumstances, and consistent with applicable regulatory requirements, we may compensate investment pools for all or a portion of the pool’s losses even though we are not statutorily or contractually obligated to do so. For example, during the fourth quarter of 2008, we elected to provide support to stable value accounts managed by SSgA."
They go on to provide a little detail:
"...we elected to purchase approximately $2.5 billion of securities from these accounts that had been identified as presenting increased risk in the current market environment and to contribute an aggregate of $450 million to the accounts to improve the ratio of the market value of the accounts’ portfolio holdings to the book value of the accounts. This resulted in a fourth quarter net charge of $450 million. In addition, in January 2008, we contributed $160 million to the accounts."
So that would be a total of $610 million that State Street pumped into their stable value funds.

Stable value funds generally invest in conservative instruments and guarantee principal as well as a modest rate of return. In the event the underlying investments decline in value such that it would reduce the value of the fund below the guaranteed amount, the shortfall is generally covered by insurance contracts ("wrappers") held by various third parties. Some of the investments held by the State Street funds must have had a toxic odor to them as some of the insurers opted to (legally) bail on their obligations. To quote the 8-K again:
"These financial institutions have the right, under certain circumstances, to terminate this guarantee with respect to future investments in the account. During 2008, the liquidity and pricing issues in the fixed-income markets adversely impacted the market value of the securities in these accounts to the point that the third-party guarantors considered terminating their financial guarantees with the accounts."
That's right, the guarantors can demand that the fund hold higher quality investments or they will decline to continue insurance. I sincerely hope this serves to restrain stable value fund managers and discourage them from reaching for yield at the expense of taking on too much risk.

I applaud State Street for making their stable value fund investors whole. Another firm may not be so generous and concerned with maintaining their reputation.

Has anyone run into problems with their stable value fund yet? Let us know in the comments.

Disclosure: none

Other posts by TradeRadar on stable value funds and 401k plans:




Tuesday, January 20, 2009

What is the ratio of inventories to sales telling us?

If you weren't sure how bad sales in the U.S. have been lately, take a look at the chart below.

Last week the Census Bureau released the Manufacturing and Trade Inventories and Sales report for November 2008. At this point, November seems like ancient history but the chart seemed dramatic enough to me that I wanted to share it with readers.


This chart tracks the ratio of inventories to sales. What we are seeing is the effect of sales falling at a much faster rate than inventories. Here are the underlying numbers:

  • Sales were down 5.1% from October to November while inventories were down 0.7%. These are the adjusted numbers. The unadjusted numbers were much worse: sales down 12.5% with inventories down only 0.5%.
  • Year-over-year, adjusted sales were down 8.9% while inventories were up 3.3%. Unadjusted sales were down 12.2% and inventories up 3.1%.
Note that we are just about at the worst level realized during the recession following the bursting of the dot-com bubble. In the years since, inventory management software has become much more sophisticated yet it has not been able to keep up with the way sales have fallen off a cliff.

What's next?

We have also recently received preliminary retail sales results for December. This number didn't include the wholesale and manufacturing sales that are part of the Census Bureau's report; nevertheless, the 2.7% drop in December implies this chart will look even worse when we get the next iteration. If this plays out as it did back in 2001 it could take an entire year for sales to pick up to the point where it allows our ratio to decline to more normal levels.

Is there a way to benefit?

It may not be too late to take advantage of falling sales by using an inverse ETF. I notice that the ProShares UltraShort Consumer Services ETF (SCC) has already gone from under $80 to around $98 in the course of the last two weeks so we have clearly missed the bottom of this ETF's recent trajectory. Still, it's most recent high was up around $145 so it may have room to run again.

Disclosure: none



Monday, January 19, 2009

TradeRadar SuperList - the best of our weekly picks for Jan 16, 2009

This post looks at the results of combining two stock screens that we ran this weekend at TradeRadar.

We executed the usual weekend Alert HQ process (read about this weeks results) and generated several lists of stocks based on our special screens including: Bollinger Band Breakouts, Trend Leaders and Cash Flow Kings (you can download these lists at the Trend Leaders page).

Trend Leaders represents a collection of stocks in strong up-trends. These stocks are registering strong signals using Aroon analysis, DMI and MACD. They are also above their 50-day exponential moving average. To obtain the list of Cash Flow Kings we calculate the free cash flow yield of all the stocks we scan and pick the ones whose yield is 50% or greater.

All these screens generate big lists since we run them against essentially the entire stock market. It occurred to me that combining the Trend Leaders and the Cash Flow Kings might provide an interesting outcome.

So what did we get when we combined these two scans? A bunch of little-known small caps and one mid-cap that you might not have expected. The list is as follows:

SymbolNameExchangeLast PriceMarket Cap
CVPCENTERPLATE INC IAMEX2.0643.2M
FNSCFirst National BankNGM3.1519.8M
ICTGICT Group, Inc.NGM6.2599.5M
LCAPALiberty Media Corp NewNasdaqNM5.48610.8M
LIONFidelity SouthernNasdaqNM4.0538.5M
PULBPulaski FinancialNasdaqNM7.5276.8M
SUAISpecialty UnderwritersNGM3.5755.6M
TSOTESORO CORPNYSE15.91 2.203B
ZRBAZareba Systems, IncNCM2.74996.8M

With oil prices in decline again I was surprised to see Tesoro (TSO) on the list but then I read that the company provided upbeat guidance with its most recent quarterly results. In addition, the refining business seems to be doing better as its most important raw material - oil - drops in price. Tesoro, whose primary business is refining, is therefore benefiting from the rout in the oil market.

Another surprise is that four entries are in the financial sector. First National Bank (FNSC), Fidelity Southern (LION) and Pulaski Financial (PULB) are small-cap regional banks. The latter two are participating in the TARP program but are pretty small potatoes compared to the money-center banks. All three have seen share appreciation as investors are apparently considering them to be a lot less risky than most other financial institutions. Specialty Underwriters Alliance (SUAI) is an insurance company and their most recent quarter was nothing to brag about but the shares have been advancing relentlessly. As financials, the price-to-book ratio may be more important than cash flow. This measure is also pretty attractive for all four of these stocks.

Another interesting candidate is Liberty Media Corp. Capital Group (LCAPA). This is one of the segments of John Malone's conglomeration of companies and stock holdings. Did you ever want to own a baseball team? Here's your chance. This company owns the Atlanta Braves as well as a couple of television stations, a unit that provides location-based services to mobile phone users (E-911, for example) and various other niche businesses.

There are a few more companies on the list that I won't go into at this time. If you'd like to download the entire list with added fundamental data you can use this link. There could be a few stocks here that you will want to add to your watch list.



Saturday, January 17, 2009

Weekly Review - financials take down the market, again

It was all about the financials again this week.

Citigroup reported over $8 billion in losses for the most recent quarter and announced it was splitting up into two entities: one to concentrate on core investment and banking activities, credit cards and high net worth individuals and another to hold all "non-core" businesses like real estate lending, private branded credit cards, various kinds of consumer lending (CitiFinancial, Primerica, student loan and auto lending) and most of the toxic waste currently dragging down the balance sheet. In addition, Citi did a deal to sell majority interest in its brokerage unit Smith Barney to Morgan Stanley. There was a whiff of desperation there as Smith Barney was actually one of Citi's profitable businesses.

As if that wasn't exciting enough, we had Bank of America receiving another 11th hour bailout from the Treasury. BofA claimed that without it they wouldn't be able to complete the acquisition of Merrill Lynch. BofA then announced a $1.79 billion 4th quarter loss and that didn't even include an approximately $15 billion loss at Merrill. Looks like buying both Countrywide Financial and Merrill Lynch might not have been such great ideas after all.

Before we leave the financials, which as a group fell 16% this week, we should note that JP Morgan-Chase announced disappointing earnings and downbeat guidance. This, from the strongest player in the financial sector.

There were a few other things going on this week. Intel reported a 90% drop in earnings including a huge writedown on their Clearwire investment. Management indicated that there was no visibility for near-term revenue but that eventually things would improve. That slight wisp of hopefulness was enough to give the shares a boost.

With respect to the economic reports for the week, December retail sales were about twice as bad as expected. Initial jobless claims jumped again this week. Our trade deficit narrowed, revealing an $8.7 billion drop in exports - no wonder our manufacturing reports have been so awful lately.

In any case, stocks fell several percent this week and our TradeRadar indicators, for the most part, reflect this current fragility in the market.

TradeRadar Alert HQ Stock Market Statistics --

Each week our Alert HQ process scans over 7400 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, 1-16-2009This week saw roughly 1000 stocks finally fall below their 50-day MA. I am a bit surprised to see that the number of stocks whose 20-day MA is above their 50-day MA has held steady; however, this may not be so bullish. If you skip down to the last chart presented, you will see that SPY is in exactly that situation but now both the 20-day MA and the 50-day MA are both pointing downward. That is not particularly encouraging. Implication: fading bullishness

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 is indicated by the red line and the number of stocks in up-trends is indicated by the yellow line.

SPY versus the market - Trend Analysis, 1-16-2009
This week's Aroon analysis shows a clear weakening in the market. The number of stocks in up-trends has declined while the number of stocks in down-trends has increased until it is now higher than its counterpart. Interestingly, nearly one half of the stocks we evaluated indicate no trend at all. Implication: increasing bearishness

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, 01-16-2008
If you compare this chart to last week's chart, you will notice that pretty much all the indicators for all the sectors have receded in a big way. Though financials may have been the worst sector this week, the weakness was broad-based.

Our last chart shows SPY with a couple of annotations. The blue trend line sloping upward from left to right shows a clear violation to the downside. The horizontal blue line shows support in the area around $82.50 and, happily, SPY seems to be bouncing upward from this range.

Chart of SPY, 01-16-2008Note also that SPY has not quite closed below its lower Bollinger Band yet. This is a positive. On the other hand, we can see that the Aroon indicator is looking rather bearish for SPY. Implication: if support doesn't hold, we will most likely see the retest of the November lows

Conclusion --

So we've had another down week. Technical analysts might point out that SPY, for example, is a bit oversold and appears to be bouncing up from its lower Bollinger Band and the support level described above. That is all well and good but stocks now seem to be reacting to the less than bright economic situation.

It is unlikely that the economy will turn around on a dime but the government is doing what it can. The Wall Street Journal reported this weekend that the Obama team is crafting a plan to help banks by either guaranteeing or buying up their toxic assets. This will no doubt find a favorable reaction from investors when trading resumes.

On the other hand, earnings season is picking up momentum. There will be plenty of financial and tech companies reporting and the numbers for most will no doubt be bad. Investors will be straining to hear an encouraging word during conference calls.

Finally, there will be very little in the way of economic news being reported this week: building permits, housing starts, initial jobless claims and crude inventories.

With the inauguration and the leaking news of a potential solution for the toxic waste clogging up the banking system, it's quite possible we will get an Obama bounce this week. The optimism may be short-lived, however, unless earnings season turns out to be better than expected.



Free stock alerts, Trend Leaders, Bollinger Band Breakouts and Cash Flow Kings for Jan 16, 2009

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 7400 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.

Wait, there's more...

We also use the Alert HQ process to generate more free lists of stocks and ETFs

The first byproduct of the Alert HQ process is the Trend Leaders list, our collection of stocks in strong up-trends. These stocks are registering strong signals using Aroon analysis, DMI and MACD. They are also above their 50-day exponential moving average. This week's list is now available at the TradeRadar site on the Trend Leaders page.

As another byproduct of the Alert HQ process we have generated a list of stocks that have broken either above their upper Bollinger Band or below their lower Bollinger Band. Those that closed 1% above the upper band are labeled "Bullish Breakout." Conversely, those that closed 1% below the lower band are labeled "Bearish Breakout." This week's list of Breakouts is also now available at the TradeRadar site on the Trend Leaders page.

Cash Flow Kings are our newest feature. We calculate the free cash flow yield of all the stocks we scan and pick the ones whose yield is 50% or greater. This list is also available on the Trend Leaders page.

Here is what we have this week --

For the second week in a row, stocks declined. Jobless claims jumped again, December retail sales were surprisingly bad, Bank of America needed and received another government bailout and Citigroup reported an over $8 billion loss and split in two. Against this backdrop, we again see the number of new BUY signals decreasing and daily SELL signals increasing. Similarly, the numbers of Trend Leaders and Breakouts have fallen back significantly. Here is the breakdown for this week:

  • based on daily data, we have 73 Alert HQ BUY signals and 96 SELL signals
  • based on weekly data, we have 19 Alert HQ BUY signals and 2 SELL signals
  • based on daily data, we have 290 Trend Leaders (less than half of what we had last week)
  • based on daily data, we have 262 Bollinger Band Breakouts (many of them bearish)
  • finally, we have 383 Cash Flow Kings
Visit Alert HQ and download your free lists of stock alerts. 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.

Don't forget to download the free lists of Trend Leaders, Bollinger Band Breakouts and Cash Flow Kings at the TradeRadar Trend Leaders page. If you have no faith in technical analysis, the Cash Flow Kings may be just what you are looking for!



Thursday, January 15, 2009

Charts are a mess - using cash flow yield to find strong stocks

Cash Flow Yield - the higher the number, the more cash per share is being generated by the business that is available to shareholders.

That's the definition of the Cash Flow Yield indicator calculated by the Alert HQ software and the TradeRadar software. The indicator is based on a Free Cash Flow determination that starts with Cash Flow from Operations and then subtracts any Capital Expenses. The intention is identify how much cash the company is generating over and above what it takes to pay the bills of the ongoing operations as well to pay for the cap ex investments intended to grow the company in the future. Data from the most recent quarter is used and then annualized so as not to penalize companies that are recovering from bad quarters in the past.

This overall Free Cash Flow number is then divided by the Market Capitalization to generate a percentage which actually equates to cash flow per share divided by the share price.

This is a favored indicator used by many managers (Bruce Berkowitz of the Fairholme Fund, for example) to pick stocks that are generating excess cash rather than burning through cash. In other words, it helps answer the question of whether (excluding from consideration various accounting issues, good will, one time events, etc.) is the basic business profitable?

Getting down to the fundamentals --

At Trade-Radar and Alert HQ, we tend to focus on technical analysis since computers are so good at crunching through price data. With most charts in disarray lately, it seemed a good time to turn to the fundamentals.

It is clear that some very good companies are seeing their stock prices hammered despite the fact that they remain in very strong financial shape. At Alert HQ we are trying to identify those companies by running a screen on cash flow yield. We call the stocks that make the list the Cash Flow Kings.

Besides using this indicator to compare one stock to another, an investor could compare a stock's free cash flow yield to the yield on the 10-year Treasury, for example, to see whether the stock offers sufficient compensation for its additional risk. We set the threshold of our screen way, way above Treasury yields, however, so we think we have a pretty good list of stocks that are worth investigating.

As part of the data we provide we have also included a number of popular value measures such as PE ratio, PEG ratio, price-to-book, price-to-sales and the more common price-to-cash flow ratio. Taken together these indicators provide a good picture of whether the company is profitable, whether its price fully reflects its growth rate and whether it is generating enough cash to run the business. You can sort the data according to your preference and see which stocks rise to the top.

You can download our new list of Cash Flow Kings right here. There are 379 stocks on the list whose cash flow yield is greater than 50%.

Yep, it's free.



Tuesday, January 13, 2009

The big "if"

Last week markets received some pretty ugly news related to employment, or the lack thereof. ADP came out with their estimate of nearly 700,000 jobs lost in December. The Bureaus of Labor Statistics released their non-farm payrolls report which included job losses of 524,000 and an unemployment rate hitting 7.2%.

Big numbers but what do they mean? And how do they compare to unemployment in previous downturns? I'd like to share with readers the following two charts from Citi's "Comments on Credit" that provide some interesting comparisons.

Citi has looked at job losses over time starting at the cyclical peak of the stock market prior to each recession. They have plotted this data for the current recession and compared it to the same data for several earlier recessions. The have further differentiated between "mild" recessions and "deep" recessions.

Job losses --

This first chart shows job losses. Our current recession is the blue line. Note that it is showing more job losses than the previous "deep" recessions. On the other hand, it seems right on schedule in terms of hitting an extreme level about 13 months after the peak.

Change in Employment during recessions
An optimist might look at this chart and determine that we should be on schedule to see job gains soon, much as we experienced in previous "deep" recessions. Unfortunately, most observers are expecting job losses to continue through the rest of this year, causing the blue line to drive deeper to the downside. Employment is only anticipated to begin to recover much later in 2009 or in 2010.

Unemployment --

This next chart shows how the unemployment rate changed from its starting level at the peak of the stock market over the course recession. Again, our current recession is the blue line.

Unemployment in recessions
In comparison to the line designating a "deep" recession, we see that unemployment had already starting slowly increasing a full year prior to our most recent stock market peak and has been accelerating for the last six months. Extrapolating from what we see in this chart, if our current recession is only as bad as previous "deep" recessions, we could expect to see unemployment top out just shy of 9%. That is in the ballpark of what many observers are predicting: peak unemployment of 9% to 10% during this cycle.

The big "if" --

It is unlikely that a new bull market can start until investors see that the unemployment rate is stabilizing and beginning to decline and that monthly job losses are moderating. If this current recession can be considered to be similar to past "deep" recessions, we may only have a few more months of extreme pain. The big "if" is whether this recession will be worse than other "deep" recessions.

Unfortunately, the consensus seems to be that this recession, by most measures, will be deeper than the previous "deep" recessions. The global nature of the downturn, the collapse in housing and manufacturing, the devastation in the financial sector and, as described here, the growing problem with unemployment, all point to a recession that promises to be worse than what Citi considered as "deep" in their analysis.

So the big "if" is looking more like the big "long shot" at this point. Better keep your fingers crossed.



Monday, January 12, 2009

Stable value funds - the controversy continues

As markets began to tumble early last year I wrote a couple of posts advocating that workers put a sizable percentage of 401k investments into stable value funds.

This generated some debate as stable value funds are somewhat murky investments. It is difficult to find out exactly what investments are held within the funds and there was some fear regarding the fact that it had been common for these funds to hold Fannie Mae and Freddie Mac bonds, for example. Adding to the apprehension, AIG was one of the companies that was well known for providing insurance (known as a "wrap") for these funds in the event they are not able to generate promised returns and needed to make up the difference. Most investors remember when these companies were in the spotlight and eventually required government bailouts.

Despite all the worry, stable value funds have been quite stable during all the market turmoil of the last year or so. Except for one.

The Wall Street Journal recently wrote about an Invesco stable value fund that lost 1.7% of its value in December. The fund was managed on behalf of Lehman Brothers. This particular fund was hit by falling bond prices. The problem was that some of the insurance coverage or "wrap" ended after Lehman's abrupt mid-September bankruptcy filing. Apparently two of the seven arrangements were discontinued in the confusion surrounding the hurried collapse of Lehman.

So how bad was this? The investors in this stable value fund lost 1.7% of their returns but still received about 2% in gains. The loss, therefore, was minor compared to how much they might have lost in most any stock fund over the course of the last year.

Regardless of the limited amount of the loss, it has generated jitters among stable value fund investors. A few bloggers, like David Merkel of the Aleph Blog, suggest that this might be the "first crack in the foundation" and recommend that investors may want to consider switching to Treasury bond funds if those choices are available in their 401k. Merkel adds, however, that his purpose is not to scare investors out of stable value funds.

I came across an interesting item today that in a way supports stable value funds. In a press release from writer Barry J Dyke, he contends that 69.7% of funds in the $4.5 billion 401(k) Thrift Plan for the 22,000 Employees of the Federal Reserve System is invested in its Fixed Income Fund. This fund is exclusively invested in stable-value group annuity contracts from major U.S. life insurance companies. The fund has returned 5.8% while major stock averages have lost roughly 30%.

So if stable value is good enough for the Fed, is it good enough for the rest of us? I think it is indeed good enough but if you are looking for ultimate safety it won't hurt to allocate some of your 401k funds into Treasuries as well. I know I have.



Sunday, January 11, 2009

Weekly Review - stocks follow sentiment down

Markets declined this week on bad jobs numbers, bad retail numbers, bad auto sales numbers and downbeat announcements from bellwethers Intel and Wal-Mart.

To add some detail, On Wednesday ADP released their December job loss results calculated according to their new methodology and the numbers were way worse than anyone expected, coming in at 693,000. The market fell hard that day and left investors prepared for the worst with respect to the BLS non-farm payrolls report which hit on Friday. In this case, December layoffs were in line at 524,000 while the unemployment hit 7.2%, somewhat above expectations. Markets spent Friday in the red and finished the last hour of the week falling further.

As for company announcements, Alcoa announced major layoffs and a suspension of capital investments, Intel surprised with the second projection of falling revenue within three months and even Wal-Mart reported unexpected weakness in same-store-sales.

Wal-Mart was not alone, as a substantial number of other retailers also reported poor December results and poor expectations for the coming months. To add icing to the cake, GM and Ford also reported sales down over 30%.

On the whole, major averages gave up roughly 4% but are still (just barely) above several important moving averages.

TradeRadar Alert HQ Stock Market Statistics --

Each week our Alert HQ process scans over 7400 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, 1-9-2009
Even though markets fell this week, this chart implies that many stocks have not yet violated their 50-day moving average and indeed the number of stocks whose 20-day MAs is above their 50-day MA even increased a bit. Implication: positive thus far though another week of falling prices could turn this indicator negative

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 is indicated by the red line and the number of stocks in up-trends is indicated by the yellow line.

SPY versus the market - Trend Analysis, 1-9-2009
In this case also, though markets weakened the number of stocks exhibiting postive trends has not collapsed. The number of stocks in down-trends fell slightly again. Implication: so far so good. As stated above, though, another bad week and we could see these indicators begin to turn around. One needs to keep in mind that these indicators will tend to lag the actual movement of stock prices and it takes a while for a decline to reverse the trend.

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, 1-9-2009Of notable aspects this week, the chart shows positive action in Energy stocks even as oil prices gave up recent gains this week. Otherwise, the remaining sectors didn't undergo much change over the last week. The take-away for this chart is that there isn't really clear-cut leadership from any particular sector and improvements in the indicators appear to be stalling.

Below is the chart for SPY with a trend line added (the blue line angling upward from left to right). Adding the blue horizontal line to the chart forms a triangle. Since the last time I presented this chart SPY fell below this trend line after failing to move above the upper Bollinger Band and the 50-day moving average and then recovered to move above all these lines. This week, however, the market weakened and SPY has now fallen below the trend line, the horizontal line and the upper Bollinger Band. On the positive side, SPY managed to close above its 50-day MA and more or less right at its 20-day MA. Implication: if we don't get another quick recovery, this is near-term bearish

Chart of SPY, 01-09-2008

Conclusion --

So with major averages up roughly 20% from their November lows a poor week like we just experienced is not enough to set off major alarms in our indicators. Nevertheless, I get the impression that for many investors it is sinking in now that there is more negative news in store and that the eventual recovery is further out than hoped. There is a good chance this could provide further pressure on stock prices.

To add to the negative tone, it appears that the stimulus plan will be running into resistance from Republicans who have suddenly after eight years gotten frugal about spending taxpayer money. Then there is the concept of making tax cuts a big part of the package which many economists feel won't do anything to create jobs in the near term.

In the meantime while we wait for the stimulus package, we can chew on the following expansive list of economic reports this week: chain store sales, retail sales, the Fed Beige Book, weekly initial jobless claims, the Producer Price Index, the Empire State and Philly Fed manufacturing surveys, the Consumer Price Index, industrial production and consumer sentiment. There are a number of market-moving reports among this group and it could be volatile week in the markets as a result.

In summary, sentiment seems less positive and stocks are showing weakness. Layoffs are reaching a level that makes it difficult to maintain optimism and also makes appear that the economy will worsen before it gets better. Stocks may be cheap but it seems there is no hurry to jump in on the long side.



Saturday, January 10, 2009

Free stock alerts, Trend Leaders and Bollinger Band Breakouts for Jan 9, 2009

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 7400 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.

And there's more...

We also use the Alert HQ process to generate more free lists of stocks and ETFs

The first byproduct of the Alert HQ process is the Trend Leaders list, our collection of stocks in strong up-trends. These stocks are registering strong signals using Aroon analysis, DMI and MACD. They are also above their 50-day exponential moving average. This week's list is now available at the TradeRadar site on the Trend Leaders page.

As another byproduct of the Alert HQ process we have generated a list of stocks that have broken either above their upper Bollinger Band or below their lower Bollinger Band. Those that closed above the upper band are labeled "Bullish Breakout." Conversely, those that closed below the lower band are labeled "Bearish Breakout." This week's list of Breakouts is also now available at the TradeRadar site on the Trend Leaders page.

Here is what we have this week --

The markets weakened on bad jobs numbers, bad retail numbers, bad auto sales numbers and downbeat announcements from bellwethers Intel and Wal-Mart. On the whole, it was a down week but major averages are still (barely) above several important moving averages. Against this backdrop, we see the number of new BUY signals decreasing and daily SELL signals increasing. Similarly, the numbers of Trend Leaders and Breakouts have fallen back. Here is the breakdown for this week:

  • based on daily data, we have 73 Alert HQ BUY signals and 96 SELL signals
  • based on weekly data, we have 19 Alert HQ BUY signals and 2 SELL signals
  • based on daily data, we have 675 Trend Leaders
  • based on daily data, we have 601 Bollinger Band Breakouts
Visit Alert HQ and download your free lists of stock alerts. 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.

You can also download the free lists of Trend Leaders and Bollinger Band Breakouts at the TradeRadar Trend Leaders page.



Friday, January 9, 2009

Goldman slaps software stocks

Lately I have parsing the Durable Goods reports (read latest post) to more precisely identify what is going on with technology hardware manufacturing.

Today Goldman Sachs released a report that focuses on the other big part of the hi-tech picture: software. Suffice to say, it wasn't pretty.

Here is a quote from the report:

"The worst of the IT-spending slowdown likely remains in front of us, as we start the clock on slashed 2009 budgets. We forecast 0 percent revenue growth for our group, below consensus at 5 percent, and 1 percent earnings growth, below Street at 2 percent."
Goldman presents a recommended list of big-name IT software stocks that they consider to be "safe" choices in the current environment. Microsoft (MSFT) and Oracle (ORCL) are on the list, as well as companies that suggest "strong cost-cutting discipline and mission-critical product sets" like BMC (BMC), CA (CA), and Symantec (SYMC). BMC and CA are big in system management and support functions while Symantec is, of course, focused on system and information security. The needs for these kinds of functionality doesn't go away.

There has been much discussion in the blogosphere about open source software and how it will see a surge of adoption do to its lower cost. Goldman quite rightly says this will not be the case. I have written that CIOs will hunker down and stick with the tried and true (which is not open source in most large-sized enterprises) and Goldman is in agreement, seeing a consolidation of functionality with big, established vendors and a moving away from the concept of seeking best-of-breed point solutions regardless of vendor.

Surprisingly, Goldman doesn't expect Salesforce.com (CRM) to prosper particularly in the current environment. Goldman doesn't see Salesforce as one of the heavyweights who will benefit from the "consolidation" mentioned previously. On this point, I would disagree. Salesforce.com and SAAS in general allows certain IT functions to be brought online with lower initial cost and that should remain an attractive proposition going forward no matter what the economic environment. Of course, it is always cheapest to do nothing and some enterprises will do exactly that, so Salesforce.com will not escape this downturn altogether.

So in terms of non-defense technology companies we are batting two for two: neither hardware not software will be spared over the next several quarters as the outlook remains dim for both.

Disclosure: none

Sources: Goldman Sachs: IT-spending growth to halt



Wednesday, January 7, 2009

PC business down the tubes

Yesterday I wrote that investors should not be fooled by the increase in New Orders for Computers & Electronic Products in the most recent manufacturing report (read that post).

Prompt confirmation was provided today:

  • Lenovo surprised by indicating they are now expecting a quarterly loss. They further indicated that they will be cutting 2500 employees or 11% of the workforce. The company pointed to lower demand in the commercial sector and slowing sales in China, one of its main markets.
  • Intel revealed that Q4 revenue will now be below expectations: down 20% from the last quarter and down 23% year-over-year. This is lower than its previous guidance which was provided only on November 12. The company said it was impacted by slowing demand from end users and a build-up of inventory in the supply chain.
This goes to show that the PC industry is caving in. Intel was surprised by a drop in revenue over the course of less than two months. Intel is usually pretty good at predicting its quarterly numbers. This implies that December was even weaker than many thought.

It looks like a cold, hard winter for the PC industry. Maybe Intel should apply to be a bank holding company.

Disclosure: none



Tuesday, January 6, 2009

Manufacturing report - is tech finally looking up?

The preliminary numbers for November 2008 manufacturing were released today. Headline numbers on factory orders were terrible - twice as bad expected: down four consecutive quarters and falling by 4.6% month-over-month.

Focus on tech --

We previously wrote on the advance number for November and focused on the tech sector (to read it, click this link to that post).

As our proxy for tech, we'll again look specifically at the Computers and Electronic Products category. This segment includes computers and related products, communications equipment and semiconductors.

In today's release there were some small downward revisions for Shipments but some small upward revisions for New Orders.

The following chart shows the situation with Shipments:

Computer & Electronic Products Shipments, Nov-2008 prelim
At a summary level, Shipments were down 4.5% month-over-month from October to November but down only 1% year-over-year.

Some of the most hard-hit sub-categories were as follows:

  • Computers: down 12.4% month-over-month and down 11.1% year-over-year
  • Audio & Video Equipment: down 9.8% month-over-month and down 17.3% year-over-year as consumer electronics cratered
  • Semiconductors: down 22.5% month-over-month and down 8.8% year-over-year
  • Computer Storage Devices: down 7.8% month-over-month and down 3.8% year-over-year
Defense, communication and medical equipment managed to increase Shipments modestly which helped keep the summary number from being even worse.

The following chart shows New Orders:

Computer & Electronic Products New Orders, Nov-2008 prelim
At a summary level, New Orders were actually up 6% month-over-month from October to November and down only 0.5% year-over-year.

Looking at some of the sub-categories there is more good news than bad:
  • Computers: show surprising improvement with New Orders up 22.4% month-over-month. Tempering this positive development, however, we see New Orders are actually down 10.1% year-over-year
  • Non-defense Search and Navigation Equipment: orders up a whopping 95.4% month-over-month and up a quite respectable 5.6% year-over-year
  • Defense Search and Navigation Equipment: orders up 19.1% month-over-month and up 1.2% year-over-year
In the previous post we presented the equation used to calculate New Orders:

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

Note that Unfilled Orders are an important component in the calculation. To provide some insight into how Unfilled Orders impacts tech stock performance, we have plotted Unfilled Orders against the monthly closing price of the Technology SPDR ETF XLK.

Computer & Electronic Products Unfilled Orders, Nov-2008 prelim
It can be seen that Unfilled Orders have been moving steadily upward while tech stock performance as exhibited by XLK has moved rapidly downward.

The government also provides data on the ratio of Unfilled Orders to Shipments. We have presented this data compared to XLK.

Computer & Electronic Products, Ratio Unfilled Orders to Shipments, Nov-2008 prelim
During the last few months this ratio has been accelerating upward as the numerator, Unfilled Orders, has increased gently and the denominator, Shipments, has decreased sharply.

Conclusion --

The headline number had New Orders down 4.6% but we find the Computers and Electronic Products category is boasting a 6% increase in New Orders. Is technology bucking the trend here?

I mentioned in the last post that in the normal course of business some orders are inevitably canceled and thus do not directly convert to future shipments.

What I think these charts demonstrate is that orders are indeed being canceled. Each month New Orders and Unfilled Orders, as measured here by the manufacturing survey administered by the U.S. Census Bureau, are slowing but not nearly as rapidly as shipments have slowed. In other words, these orders do not seem to be turning into shipments. And tech stocks have plunged as a result.

In conclusion, it is good that orders are up but that is not enough to signal the "all clear" for the tech sector. Until we can see a trend of increasing shipments or at least a chart where shipments are no longer dropping, it is best for tech investors to stay on the sidelines.




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