Saturday, February 28, 2009

Alert HQ stock alerts and Trend Leaders will be late today

I wanted to let everyone know that the stock alerts we usually post Saturday mornings will be delayed today.

Our Internet service provider has had intermittent problems last night and today.

We hope to have our usual offerings up and available later today or tomorrow.

Thanks for your patience.



Thursday, February 26, 2009

Durable Goods report - tough times for tech just got tougher

The Durable Goods report for January 2009 was released by the U.S. Census Bureau today. Everyone anticipated it would be bad but it managed to solidly exceed expectations on the downside.

Headline numbers were as follows: New Orders down 5.2%, Shipments down 3.7%, Unfilled Orders down 1.9%

We'll focus as we usually do on the tech sector. The Durable Goods report bundles a number of technology sub-sectors into the Computers and Electronic Products category. Here are the numbers for that category:

  • New Orders: down month-over-month 5%, down year-over-year 14.6% (wow!)
  • Shipments: down month-over-month 3.7%, down year-over-year 15.6% (wow again!)
  • Unfilled Orders: down month-over-month 1%, up year-over-year 1.8%
The following chart shows Shipments and New Orders. Note how both are still accelerating downward.

Durable Goods - Shipments and NewOrders, 02-26-2009
Buried within the Shipments results are some startling numbers. Computer and Related Products shipments down 10.7% month-over-month and down 29.8% year-over-year. Semiconductor shipments down 15.3% month-over-month and down 28.5% year-over-year.

This next chart shows Unfilled Orders contrasted with the monthly closing prices of the SPDR Tech ETF (XLK). Note how Unfilled Orders generally kept increasing despite the onset of the global recession. That is, until now.

Durable Goods - UnfilledOrders and XLK, 02-26-2009
Conclusion --

In a previous post I noted how New Orders and Unfilled Orders continued at higher levels than actual Shipments. I attributed the discrepancy to the fact that orders can be canceled before they ever turn into a shipment, especially in times of economic stress as we are experiencing today.

Now we see both measures of orders declining, especially New Orders. Since orders tend to be a forward-looking measure, this can't bode well for the tech sector.

So in general these numbers show that technology has been in free-fall for the last six months. Worse, these numbers indicate that the rate of decline is not slowing noticeably yet. The recent run-up in the NASDAQ is looking more and more like a bear market rally. With this latest Durable Goods report it is not surprising to see the NASDAQ giving up the last month's gains. Will the index join the Dow by making new lows? I wouldn't be surprised.



Tuesday, February 24, 2009

ProShares ETFs - with volume through the roof, who are the new leaders?

Last summer (June 2008) I wrote a post titled "ProShares ETFs - Why trading volume makes a difference."

Since then, there have been two situations that suggest it might be a good time to look at trading volume again: ProShares has created a half dozen new ETFs that weren't in our previous analysis and market conditions have taken a further turn for the worse with the S&P 500, for example, going from roughly 1325 to under 800.

Below we present a table contrasting average daily volume in the year leading up to June 25, 2008 with average daily volume in the eight months since June 25, 2008. It is sorted in descending order based on the latest volume numbers.

SymbolNameAvg Daily Volume prior to 6-25-08Avg Daily Volume since 6-25-08
UYGUltra Financials3,778,258112,176,547
SSOUltra S&P5002,368,34756,212,929
SDSUltraShort S&P50010,640,28643,730,513
QIDUltraShort QQQ20,042,46538,670,681
QLDUltra QQQ4,171,17931,438,395
SKFUltraShort Financials3,778,87630,151,740
DUGUltraShort Oil & Gas3,703,70020,425,378
DIGUltra Oil & Gas162,92413,143,336
DDMUltra Dow30528,77412,160,807
DXDUltraShort Dow302,454,75311,606,795
SRSUltraShort Real Estate892,85611,143,286
UREUltra Real Estate81,6899,003,131
TWMUltraShort Russell20004,337,6207,580,650
UCOUltra DJ-AIG Crude Oil 7,238,102
UWMUltra Russell2000475,8944,743,293
UYMUltra Basic Materials27,5504,714,658
SMNUltraShort Basic Materials390,4313,192,335
FXPUltraShort FTSE/Xinhua China 252,260,8732,635,880
EEVUltraShort MSCI Emerging Markets563,8812,516,679
TBTUltraShort Lehman 20+ Year Treasury156,3221,953,684
SHShort S&P500174,9241,137,686
MZZUltraShort MidCap400451,9191,064,628
MVVUltra MidCap400123,4511,059,239
DOGShort Dow30157,933776,583
USDUltra Semiconductors65,585389,699
PSQShort QQQ100,591316,107
EFUUltraShort MSCI EAFE104,662276,254
ROMUltra Technology52,511253,786
UGLUltra Gold 213,400
RWMShort Russell200043,922198,642
SCCUltraShort Consumer Services27,736149,963
REWUltraShort Technology37,704139,168
SAAUltra SmallCap60014,532112,946
PSTUltraShort Lehman 7-10 Year Treasury40,535104,673
SSGUltraShort Semiconductors24,42390,478
SDDUltraShort SmallCap60060,77787,470
SIJUltraShort Industrials17,81871,930
AGQUltra Silver 69,143
UKKUltra Russell2000 Growth11,17362,808
RXLUltra Health Care6,50754,273
UVTUltra Russell2000 Value7,34951,201
EUMShort MSCI Emerging Markets33,83748,629
MYYShort MidCap40064,64647,522
UVGUltra Russell1000 Value4,66546,306
SDPUltraShort Utilities28,31344,947
SZKUltraShort Consumer Goods13,97243,940
SKKUltraShort Russell2000 Growth39,43441,554
UPWUltra Utilities10,04341,375
SJHUltraShort Russell2000 Value40,35640,062
EFZShort MSCI EAFE12,42339,222
UKFUltra Russell1000 Growth17,31237,990
UXIUltra Industrials6,77536,765
UKWUltra Russell MidCap Growth6,86332,999
SFKUltraShort Russell1000 Growth8,40327,882
EWVUltraShort MSCI Japan24,81126,478
SDKUltraShort Russell MidCap Growth9,10424,653
UVUUltra Russell MidCap Value3,43321,522
UCCUltra Consumer Services4,26421,220
SJFUltraShort Russell1000 Value6,66719,651
UCDUltra DJ-AIG Commodities 16,787
UGEUltra Consumer Goods4,85315,250
YCLUltra Yen 14,143
SBBShort SmallCap6007,39213,601
ULEUltra Euro 12,610
LTLUltra Telecommunications1,5969,038
SJLUltraShort Russell MidCap Value7,6397,957
RXDUltraShort Health Care4,8226,953

The first thing that jumps out is that acceptance of these ETFs has really skyrocketed. For the more popular ETFs, average daily trading volume is up orders of magnitude higher compared to last summer.

Look who's on top of the list: Ultra Financials (UYG). Wow, people have been trading the heck out of this ETF! Its UltraShort equivalent (SKF) has only half the volume though it seems to get twice the publicity. With volume in the bullish ETF double the volume in the bearish ETF, should we assume the bottom for financial stocks has been reached?

The UltraShort QQQ (QID) was by far the ETF with the highest average daily volume in our last survey. This ETF has now dropped to fourth place and its bullish Ultra counterpart, SDS, has become popular enough to boast volume nearly as high as QID.

Some of the new ETFs have also made a big splash. The Ultra DJ-AIG Crude Oil ETF (UCO) didn't even exist last summer but is now trading over 7M shares per day. And this is despite the fact that oil is clearly not in a bull market at the moment. Interestingly, the Ultra DJ-AIG Commodities ETF (UCD), which is comprised of up to 15% of oil futures, is pretty much being neglected, trading less that 17,000 shares a day. Also in the commodities sector and a new entry since our first post, the Ultra Gold ETF (UGL) is now trading a respectable 200,000 shares per day.

I am also struck by the fact that there is so much volume for the Ultra (bullish) ETFs in the top half of our list. With so much doom and gloom hanging over the markets since last summer, I had expected to see the UltraShort (bearish) ETFs become the volume leaders. In some cases, the opposite occurred as we pointed out when discussing UYG and SKF above. In many cases, however, volume is running more or less even between the Ultra and UltraShort ETFs.

In our last post, we made a few generic points about these ETFs and the impacts of trading volume: that higher volume generally leads to narrower bid/ask spreads, higher volume often results in tracking of the underlying index more closely and that higher volume can allow fees to be spread across more shares thus reducing expenses for individual holders. All these still hold true. Back then, I suggested investors should limit themselves to the top third of the list. As volume has grown, though, it now appears that the entire top half of the list looks pretty safe to trade.



Monday, February 23, 2009

Could the devastation in the DRAM industry lead to a resurgence?

We have written here before on the problems in the semiconductor sector and especially among manufacturers of memory chips.

IC Insights has come out with a report that contends that the stage is set for strong growth in DRAM.

The way the industry is shrinking could actually be a positive. Several DRAM vendors, including Micron, are eliminating their 200mm wafer fab capacity. Qimonda and possibly other DRAM vendors are filing for bankruptcy. The Taiwanese government is consolidating and bailing out a group of their DRAM manufacturers.

What is the outcome of all this destruction and devastation? IC Insights thinks that DRAM supplies will tighten and more closely align with demand as the year progresses.

After a tough 1Q2009, the company expects demand will increase sharply (see chart below). IC Insights forecasts quarterly growth to $4.9 billion (17%), $5.9 billion (21%), and $6.8 billion (15%) to finish the year.


IC-Insights-bulletin20090223, DRAM Quarterly Forecasts
This sounds good but even if this positive scenario does play out as expected, DRAM sales for 2009 will still be 12% lower than in 2008. And keep in mind that 2008 finished on a low note.

IC Insights believes that the first quarter of 2009 will be the bottom for the DRAM industry. I can see how the reduction in worldwide production capacity can help stabilize chip prices but I find it difficult to accept that demand will increase sufficiently to make the numbers illustrated in the chart above. IC Insights points to strong increases in spot prices for some versions of 512Mb and 1Gb DRAM chips since the beginning of 2009 as reason to believe these sales numbers could actually come to pass.

With DRAM sales driven mostly by consumer electronics demand and general PC demand, though, it still seems that expectations for a rebound in the DRAM industry this soon is a stretch. On the other hand, IC Insights contention that the bottom is 1Q2009 may not be too far off the mark. So how do you feel about timing the bottom, even for just one sector?



Saturday, February 21, 2009

Weekly Review - are we left in a new lower trading range now?

Well, this week sure belonged to the bears.

Here's the tally for the major averages: Dow down 6.2% for a new low, the S&P 500 down 6.9%, the NASDAQ down 6.1% and the Russell 2000 down 8.3%. Sheesh! Looking at charts, the averages are all at or below their lower Bollinger Band despite a late day rally on Friday.

Some, in looking on the bright side, have pointed to the fact that the Dow is the only average to have hit a new low and that this divergence may signal a bounce. On the other hand, when looking at weekly charts, it can be seen that the S&P 500 has hit a new low based on weekly closing prices. This is illustrated in our two charts below where we compare some of the TradeRadar statistics to SPY, the S&P 500 SPDR ETF. On a weekly basis, the Russell 2000 is only a few points above its November low while the NASDAQ is really the only index that has not quite broken down to November levels. Bottom line is that all the averages showed a lot of weakness and it remains to be seen whether the usual "stocks are cheap" attitude will be enough to rejuvenate prices beyond what a short-term oversold bounce can provide.

So what was different this week that prompted such a drop in stock prices? The usual toxic combination of banks and economic reports. As the U.K. government moved closer to nationalizing several banks, the discussion of nationalization of the worst banks in the U.S. began to grow in volume with various talking heads, pundits and bloggers taking up the topic. This struck fear into investors who proceeded to sell shares of Citi and Bank of America as well as most other stocks. Finally, on Friday afternoon, a White House spokesperson reiterated the administration position that they would prefer the banking system to remain in private hands.

On Wednesday, the president announced a plan to aid homeowners facing foreclosure and, surprisingly, the market pretty much ignored it. The plan seemed reasonable, had a decent amount of detail and even included some incentive for banks. Wall Street, always looking for some reason to quibble, must have focused on the fact that jumbo mortgages will not be addressed.

On the economic front, the New York Empire State manufacturing survey hit a new record low, showing manufacturing is still in free-fall. The news from the Philadelphia Fed was no better. Another record was set in the announcement of New Home Starts which fell to an annualized rate of 466K units in January, below the 529K consensus estimate. This is a 16.8% decline from December and is 56.2% below the year-ago level. Initial jobless claims came in above 600,000 again and continuing claims hit another record high.

With the constant drip of bad economic news and the ongoing trainwreck in the financials, stocks didn't stand a chance. As you'll see below, our TradeRadar statistics are reflecting quite a bit of negativity this week.

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, 02-20-2009
As mentioned above, SPY hit a new low in terms of weekly closing prices. Note that over the last two weeks the number of stocks above their 20-day MA has plunged to around 1200. This means that nearly 84% of stocks are now trading below their 20-day MA. That implies a lot of pessimism for stocks. It also implies that it won't be long before we see a lot more stocks trading below their 50-day MA, as well.

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, 02-20-2009
Here we see the number of stocks in up-trends dropping from an already low number. More seriously, though, we also see the number of stocks in down-trends jumping up to 4000. That means that about 54% of all stocks we evaluated are in confirmed down-trends now. This is not exactly a signal of market strength.

We've mentioned how SPY has hit a new closing low on the weekly chart. Below we have SPY on a daily chart.

Chart of SPY, 02-20-2009
We have been drawing that triangle on the charts for weeks now. Well, we finally have a resolution of the pattern and it is a clear breakdown on decent volume. Generally, chartists will tell you that a break out of a pattern will yield a move that is about the size of the original pattern itself. If that plays out, we will see SPY down quite a bit more before we are done. Given that symmetrical triangles like we have here tend to be considered "continuation" patterns, this implies that there is more bearishness in store. To add fuel to the fire, the 20-day MA has crossed below the 50-day MA again.

Conclusion --

Talk of nationalization of the banks certainly spooked investors this week. Given that the FDIC does something similar when they take over insolvent banks, it is a little odd that the nationalization debate caused so much angst for investors.

In the meantime, the drumbeat of poor economic reports continues. Thus far there has been little indication that the economy has bottomed and that likely helped drive this week's negative sentiment.

Then there is the issue of price momentum which was definitely in the downward direction last week. There isn't one positive indicator on the chart of SPY above unless one wants to focus on RSI which indicates an oversold bounce could be in store this coming week. There is a good chance, however, that any bounce in SPY could stall out at $80, the former support level that has now become resistance.

We have a modest number of economic reports this week: we'll see Consumer Confidence on Monday, Existing Home Sales on Wednesday, the Durable Goods Orders report on Thursday, and the revised Q4 GDP report on Friday as well as Chicago PMI. Investors will also be looking to Fed Chairman Bernanke's semi-annual monetary policy report on Tuesday for clues on what the Fed might be planning.

As we have been so often lately, we're left looking to Washington for stock market stimulus in the form of new plans, announcements or bailouts or further denials that they will nationalize the banks. With earnings season drawing to a close, I can't see much on the horizon that would support investor enthusiasm for buying stocks.

Could we be stuck in a new, lower trading range now? Time will tell.



Free stock alerts, Trend Leaders, Bollinger Band Breakouts and Cash Flow Kings for Feb 20, 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 at least 1% above their 50-day exponential moving average. This week's list is now available at the TradeRadar site on the Trend Leaders page.

To generate our 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 25% or greater. This list is also available on the Trend Leaders page.

Finally, we also have our lists of Bollinger Band Breakouts. These are stocks or ETFs that have moved at least 1% above their upper Bollinger Band or at least 1% below their lower Bollinger Band.

Here is what we have this week --


Even though there were only four trading days this week, the damage done to the major stock market averages was significant. The Dow, the S&P 500 and the NASDAQ all lost over 6% while the Russell 2000 lost over 8%. It looks like the bears are out in force again. We see their footprints all over our indicators and alert lists. Bearish moves are far outweighing bullish moves.

Here is the breakdown:

  • based on daily data, we have 5 Alert HQ BUY signals and 87 SELL signals. This represents four times as many SELL signals as last week.
  • based on weekly data, we have 2 Alert HQ BUY signals and 2 SELL signals. Looks like the weekly data is showing stocks going into hibernation.
  • based on daily data, we have 95 Trend Leaders. This is only half of what we had last week and this time a good proportion are ultra short ETFs.
  • based on daily data, we have 1607 Bollinger Band Breakouts, over four times what we had last week and almost all of them are bearish. We also have 647 Breakouts based on weekly data, triple last week's total and, again, most are bearish.
  • finally, we have 981 Cash Flow Kings. As stock prices sink, we have more stocks whose cash flow yield is increasing, allowing to cross our 25% hurdle.
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're a momentum trader, the TrendLeaders list is a good place to go shopping. If you have no faith in technical analysis, the Cash Flow Kings may be just what you are looking for!



Friday, February 20, 2009

More gloom for semiconductor industry?

The NASDAQ has been outperforming on a relative basis lately, due to optimism over tech. The last few days has seen a weakening in the NASDAQ but it is still in much better shape than the S&P 500 or the DOW.

Is the optimism justified? Has tech reached a bottom?

It has been my contention that, with respect to hardware, tech can't make a recovery until the semiconductor industry recovers. The two aspects of the semiconductor industry that really count are the semiconductor manufacturers and the semiconductor equipment manufacturers.

Today the SEMI trade group released the January 2009 Book-to-Bill Report for North America-based manufacturers of semiconductor equipment. Rather than list the numbers in detail, I would just like to draw your attention to the charts below (values in millions of dollars, January numbers are preliminary).

This first chart shows that billings in dollar terms are decreasing and, of course, that is bad. What is worse, however, is that bookings are decreasing even faster. Bookings comprise the forward-looking aspect for the industry, similar to new orders, and the indication is that in the near term things will be going from bad to worse.

Semiconductor Equipment, Bookings and Billings, 02-20-2009

This next chart shows the book-to-bill ratio. The rapid drop-off shows how the decrease in bookings is outpacing the decrease in billings. Whereas billings are 54% below January 2008 levels, bookings are now at their lowest level since 1991.

Semi Equipment, Book-To-Bill Ratio, 02-20-2009
So, it looks like the semiconductor equipment industry is toast and will be for some time to come. How about the semiconductor manufacturers themselves?

I will just offer the latest anecdote from a chip maker. According to DigiTimes, Taiwan Semiconductor (TSM), one of the largest contract fabs in the world, has announced that they are reducing foundry prices by 10% to 15%. The move is aimed at boosting its utilization rate, which has declined to less than 40%, down from about 50% in the fourth quarter of 2008. In other words, the place is more than half-empty. For the first quarter of 2009, the company has estimated its revenues may fall up to 50% sequentially, with a gross margin of 1-5% and a profit margin of negative 15-19%. Having just started to trade below its 50-day moving average, it would not be a surprise to see this stock drop even further.

All in all, it would seem the recent optimism for chips is premature.



Tuesday, February 17, 2009

Bailouts for tech, too?

Thus far in this economic downturn, we have only seen financials and automakers receive bailout funds.

I have been thinking about writing a post on how the technology sector is not begging for bailouts and how that is a sign of better management and more resilient business models.

Now comes word that DRAM producers are asking the Taiwan government to help consolidate the local industry and bailout the major players. It appears Korea is thinking of doing something similar.

Trouble in memory chips --

Things are so bad for the DRAM vendors that Gartner estimates that they lose money on every PC that is shipped. They say it amounts to a $27.40 loss per PC, leading ultimately to a total loss among major vendors on the order of $2.8 billion in the fourth quarter of 2008 alone. According to iSuppli Corp., DRAM vendors lost a combined $7 billion in 2008 and are expecting to see a further 15% revenue decline in 2009.

So it's clear that things are pretty bad in the commodity semiconductor sector and it looks like the affected companies are taking a page from the playbooks of the bank and auto CEO's. Here are the prime examples as described by EETimes:

"In Taiwan, DRAM maker Powerchip Semiconductor Corp. is pleading for a bailout from the Taiwanese government, while ProMos Technology Corp. and Nanya Technology Corp. are reportedly seeking similar measures. Powerchip's partner, Elpida Memory Inc., may end up rescuing the company via an acquisition.

In Korea, Hynix Semiconductor Corp. is seeking help from its creditors, but there are conflicting reports that the company is seeking a bail-out from the government. And in Germany, Qimonda AG could ask for help."
A bad precedent?

The technology sector has been known for its Darwinian characteristics. Companies rise and fall and come and go according to the dictates of the market. Waves of technology innovations create new winners and consign those companies who can no longer compete to the dustbin of history.

The success of the U.S. technology industry can be attributed to this rough and tumble environment where creativity and invention are rewarded, capital is allowed to quickly move to the places where it can do the most good and companies in trouble don't hang around too long.

Asking for a bailout overturns the whole notion that when it comes to tech, the market knows best. Propping up unprofitable companies would be a radical step in the technology industry. And in the case of the DRAM vendors, it's something not everyone thinks would be welcome.

"Widespread government support for the industry would be a disaster: It would just prolong the current downturn rather than forcing the vendors to further reduce production or causing consolidation," said Andrew Norwood, research vice president at Gartner Inc., in a report.

Almost sounds like he's talking about banks and their toxic assets...

Disclosure: none



Monday, February 16, 2009

i2 Technologies - surprise in the software sector

We're always looking for new ways to sort and filter our stock indicators. 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). It's always interesting to combine the screens and see what stocks are common across the board.

For today's featured stock I combined the following three screens: the Trend Leaders (stocks registering strong signals using Aroon analysis, DMI and MACD and at least 1% above their 50-day exponential moving average), the Cash Flow Kings (stocks exhibiting a cash flow yield of 25% or more) and the Cash Flow to Debt Coverage above 0.7 screen.

One of the stocks that popped out of this combined screen is i2 Technologies (ITWO). The company provides supply chain management software for manufacturing and planning; transportation and distribution management; merchandising, assortment, and allocation planning; execution, collaboration, and visibility; supplier relationship management; and data management and business analytics.

In terms of selected fundamentals that we looked at in our screens the cash flow yield is 33%, the Cash Flow to Debt Coverage came out at 0.71 and the technical indicators are definitely showing plenty of positive momentum (see the chart below).

Chart of ITWO, 02-13-2009
In addition to the Aroon, DMI and MACD indicators looking bullish, we see the 20-day MA has just crossed above the 50-day MA. Note, however, that RSI is showing the stock to be over-bought.

Despite the momentum indicated by the trajectory of the stock price, ITWO is not really over-valued. The PE is a measly 2, PEG is a moderate 1.37 and the Price-to-Sales ratio is only 0.7, a quite reasonable number. Considering this is a tech stock, these numbers seem all the more attractive from a value perspective.

So what's driving ITWO?

In a word - earnings. According to Yahoo! Financial, the year-over-year quarterly earnings growth is 282%. Not too shabby! The company's 4th quarter earnings beat expectations, rising more than fourfold, helped by a $20 million termination fee they received after ending a deal to be purchased by JDA Software Group Inc. Excluding all one-time items, the company earned $0.31 per share compared to $0.19 in the year before. Analysts had been expecting only $0.22.

Can they keep it up? The following factors provide a hopeful outlook:

  • Management thinks that there is some pent up demand out there. Some customers had held off whle waiting to see how the acquisition by JDA worked out. Now that this situation is clear, management expects certain customers to move forward.
  • The company has the benefit of a steady stream of maintenance fees, much as Oracle does, though it did decrease a bit during this quarter.
  • Management feels that the benefits provided by i2 software in terms of efficiencies and cost savings are just what many companies are looking for in these tough economic times.
  • The company is doing a good job of managing and reducing expenses.
  • The balance sheet is stronger. There is a better cash position and the company may return a dividend to holders or elect to buy back stock.
  • The company is reducing debt.
So i2 Technologies is doing pretty well, having signed a major new customer and extending agreements with several others during this last quarter. The wild card, of course, is the macro-economic situation. The company's products are not cheap nor are they simple to implement. As economic pressure builds on potential customers, it may become more difficult for i2 to sign new customers. Still, the company is healthier financially and is currently building some momentum, both in terms of stock price and in terms of customer acceptance.

i2 Technologies has bucked the trend by posting solid numbers while most other tech companies are showing major year-over-year short-falls. The company is still priced for value and has a decent shot at continuing to grow though probably not as sharply as the most recent quarter. All in all, i2 Technologies seems to be a pretty attractive stock at this time though it would not be unexpected to see the stock pull back a bit after its recent run-up. The company looks like a good candidate for anyone seeking to allocate funds to the enterprise software sector.

Disclosure: none



Sunday, February 15, 2009

Weekly Review - hope fades and stocks slide

Last week markets rose on hope - hope that the new Treasury secretary had a plan that would save the banking system and put a floor under stock prices. The plan was announced on Tuesday and the markets gave it the big raspberry. There was a lack of detail, a failure to advance any radically new concepts and, as Barry Ritholtz said, no free gifts for Wall Street. Washington tried to lift markets again on Thursday by leaking word that a new plan was being considered that would subsidize mortgage payments for those in danger of foreclosure. This resulted in a big rally that erased a 3% drop and allowed markets to more or less finish flat. Nevertheless, when all was said and done, stocks lurched lower as major averages fell between 3% to 5% on the week.

On the economic front, there were some mixed messages this week on Thursday. Jobless claims came in above 600,000 again (yikes!) but there was a better than expected retail sales report. There was some debate on just what the retail report signified. Some said it showed that consumers were still willing to spend, albeit at a rather modest rate. Others said it merely showed that retailers were taking a beating by selling at deep discounts. Some pointed to the fact that year-over-year, spending was down over 9% so a slight month-over-month increase is nothing to get excited about. In any case, investors pretty much ignored the report and went about the business of selling stocks until the news came from Washington on the mortgage subsidies.

A big non-event this week was the appearance of the big bank CEOs appearing before the House Finance Committee. The Wall Street Journal's Deal Journal blog had a hilarious take on this as they live-blogged the proceedings. I encourage you to read it. It takes away any confidence you may have had that Washington is up to the task of fixing our economy.

As a result, it is no wonder that our TradeRadar statistics sagged a bit this week.

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.


This week shows the number of stocks above their 20-day moving average has drooped again. The good news is that stocks haven't fallen enough to reduce the number of stocks above their 50-day MA. So while there is clearly weakness in the markets (see how SPY is continuing to rack up lower highs) at least there isn't wholesale panic selling. Indeed, the NASDAQ has held up much better than the S&P 500 and indicates there are pockets of strength out there even as stocks overall end the week on a lower note.

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.



Here we also see a slight improvement, I must emphasize "very" slight improvement in the indicators. A few more stocks are exhibiting up-trends and a few less are exhibiting down-trends. The take-away here is that the number of stocks in down-trends is not at a high level but the number of stocks in up-trends is pretty dismal, too. Stocks just seem to be gyrating around and going nowhere.

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


We've been drawing triangles on the chart of SPY for weeks now but the ETF just can't seem to break out one way or the other. Things are certainly looking pretty sketchy now as prices are hugging the bottom line of the triangle. One good shock and we could easily see a breakout to the downside. Note that the Aroon indication is firmly bearish and the 20-day MA has again crossed below the 50-day MA. This is not a very encouraging chart.

On the other hand, it is only fair to include a chart of QQQQ, the Powershares NASDAQ 100 ETF. This chart looks like a nice recovery is under way. Note how Aroon is almost the opposite of what we saw on the chart of SPY; ie, in the case of QQQQ it is looking bullish.


Conclusion --

Washington continues to prop up the stock market by announcing what seems like a plan a week. At some point, investors will stop reacting to plans and begin to wait for results. This seems to be happening with the stimulus package. It passes votes in Congress but the market just shrugs.

It was another big week for earnings but they were not particularly encouraging as many companies continue to provide reduced guidance and a good number announce layoffs.

I mentioned above that we are one good shock away from a breakout to the downside. What kinds of shocks might there be in the pipeline? Could it be Ireland defaulting on its debt? Could it be GM declaring bankruptcy? Sirius XM declaring bankruptcy? Is there another surprise coming from a major bank?

Or will it be an economic report? This week we have some big ones coming up: Empire State Manufacturing survey, housing starts, building permits, capacity utilization, industrial production, PPI, initial jobless claims, leading indicators, Philadelphia Fed regional manufacturing survey, crude inventories and CPI.

We also have another reasonably busy earnings week. Notable companies include Wal-Mart, Comcast, Deere, Hewlett-Packard, GM, Brocade and a selection of energy companies and gold miners.

So what surprises does this shortened week hold in store? It seems that the market lurches from event to event. I am thinking no one needs economics or technical or fundamental analysis anymore; investors would do just as well with a crystal ball. Certainly, looking at charts doesn't help. SPY is down and QQQQ is up. Which will prevail?



Saturday, February 14, 2009

Free stock alerts, Trend Leaders, Bollinger Band Breakouts and Cash Flow Kings for Feb 13, 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 at least 1% above their 50-day exponential moving average. This week's list is now available at the TradeRadar site on the Trend Leaders page.

To generate our 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 25% or greater. This list is also available on the Trend Leaders page.

Finally, we also have our lists of Bollinger Band Breakouts. These are stocks or ETFs that have moved at least 1% above their upper Bollinger Band or at least 1% below their lower Bollinger Band.

Here is what we have this week --

We had four down weeks in a row, one up week and now another week in which major averages finished on the downside. Despite Washington's best efforts at announcing plans or leaking potential plans, stocks could not muster a gain. We see the effect in our indicators this week as SELL signals outnumber BUY signals and the list of Trend Leaders shirinks.

Here is the breakdown:

  • based on daily data, we have 9 Alert HQ BUY signals and 22 SELL signals
  • based on weekly data, we have 5 Alert HQ BUY signals and 6 SELL signals
  • based on daily data, we have 185 Trend Leaders
  • based on daily data, we have 324 Bollinger Band Breakouts. We also have 215 Breakouts based on weekly data.
  • finally, we have 896 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're a momentum trader, the TrendLeaders list is a good place to go shopping. If you have no faith in technical analysis, the Cash Flow Kings may be just what you are looking for!



Thursday, February 12, 2009

Why is Cisco moving into servers?

The server business has lost its luster. Sun (JAVA) is in a tailspin. Dell's profits are flagging. IBM and H-P continue to provide industry leadership but the server segments are probably not the profit leaders in these diversified companies.

So why is Cisco moving into servers?

Certainly it's not because the margins are great. Cisco has reported gross profit margins of close to 65 percent. Companies selling basic servers have typical gross margins in the vicinity of 25 percent.

The competition in servers is stiff. The companies mentioned above are not only competitors of Cisco but IBM and H-P have often been partners with Cisco when specifying the architecture and components of data centers and networks for clients. Cisco would provide the networking gear while the other companies would supply the servers, storage and software.

So why is Cisco moving into servers? Because it's the logical next step.

Cisco has talked about their concept of "Unified Computing." According then-CTO Padmasree Warrior, this leads to the "next generation data center that links all resources together in a common architecture to reduce the barrier to entry for data center virtualization.... In other words, the compute and storage platform is architecturally 'unified' with the network and the virtualization platform."

More simply put, Cisco wants to own the whole data center.

The basis of Cisco's strategy was put in place last year with the introduction of the Nexus data-center switching platform. The Nexus is a unified switch that spans storage and computing in data centers and has security built in. The Nexus breaks new ground with its lossless switching fabric, a departure from traditional Ethernet -- though backward compatible with it. The Nexus is a monster. A single Nexus chassis will be able to handle more than 15Tbps of traffic, up from just 2Tbps for a current Catalyst 6500 switch. It could copy the entire searchable Internet in 7.5 minutes.

Cisco is moving to virtualization in a big way. The Nexus will have Cisco's first operating system that can be fully virtualized, called NX-OS. Cisco has recently introduced the Nexus 1000V distributed virtual software switch, intended to "simplify the operations of both physical and virtual networking infrastructures to help server, virtualization and networking administration managers accelerate data center virtualization. The Nexus 1000V will extend Cisco's security, policy enforcement, automated provisioning and diagnostics features into dynamic VMware environments that will be able to scale to thousands of live virtual machines." Cisco has established a deep relationship with VMware and indeed owns a stake in the virtualization company.

Cisco virutal domain
So let's add it up thus far. The Nexus integrates networking, storage and virtualization. What's the missing piece? Compute power, better known as servers.

The expectation is that Cisco will be introducing a blade server that is optimized for virtualization. As the last piece in the data center puzzle, it is an important part of Cisco's strategy to control every aspect of the data center. This allows Cisco to expand from being a networking vendor to a broad-line IT vendor. With the company looking for new areas of growth, having a complete data center package allows Cisco to bid on contracts as lead vendor instead of merely the sub-contractor for networking gear.

To differentiate themselves from other server vendors, Cisco is pushing the integration and virtualization aspects as well as management of resources. The company has said the following: "Right now, we have virtualized local area networks, virtualized storage and virtualized servers. The challenge is integrating the management of those systems so they all work seamlessly. We think the network is the logical place to solve that challenge."

It is said that the new Cisco data-center blade servers will run BMC software that is key to Cisco's unified-computing concept of tightly integrating computing and network resources. Specifically, the software will reprovision network resources when virtual machine workloads are moved around. BMC is also known for asset management, service level management, change management and identity management as well as service assurance solutions that enable event management, service impact management, capacity management, and end user experience management. BMC also offers service automation solutions that manage the automation and execution of configuration changes, and IT process and task orchestration. This software suite applied the the Cisco Nexus and server solution provides an integrated methodology for managing every part of the data center. Cisco believes seamless and straightforward management is the next frontier for data centers and automating those management functions will be a strong differentiator.

With Cisco recently completing a big bond offering, they are flush with cash and have indicated they are looking for acquisitions. It is no stretch of the imagination to see Cisco buying BMC or even VMware.

Conclusion --

Critics are probably correct to say that servers are a low margin business and from that narrow point of view it would seem Cisco is making a mistake. Taking the wider view, however, it is clear that Cisco is establishing a strategy and a technology stack that allows the company to move in the direction of being a prime contractor and primary hardware/software vendor for entire data centers. Servers are merely a necessary piece of that strategy. Cisco is known to plan carefully and exercise patience as they develop markets. They have a tendency toward steady growth and have shown an ability to consistently beat earnings estimates. Say what you will about these new servers but it is not generally a good idea to bet against Cisco.

Disclosure: none



Tuesday, February 10, 2009

Coverage ratio - what stocks can we uncover in the S&P 500?

Credit markets are still fairly frozen and making it difficult for companies to issue new debt. With earnings estimates seemingly in free fall, I thought it might be interesting to run a screen that identifies those companies who are expected to be well positioned to avoid problems related to carrying their current total debt load.

This screen is based on the Cash Flow to Debt Coverage Ratio. This compares a company's operating cash flow to its total debt, which, for purposes of this ratio, is defined as the sum of short-term borrowings, the current portion of long-term debt and long-term debt. This ratio provides an indication of a company's ability to cover total debt with its yearly cash flow from operations. The higher the percentage ratio, the better the company's ability to carry its total debt.

In our screen, we looked for companies whose debt coverage ratio is 0.75 or more. In scanning 7400 stocks, we came up with a list of 251 companies. We then cross-referenced this list with the S&P 500. The result is the following list of 23 stocks (prices as of the close on 2/10/09):


Symbol Name Sector Last Price
AFL AFLAC Inc. Financials $22.13
BCR Bard (C.R.) Inc. Health Care $85.00
CF CF Industries Holdings Inc Materials $53.60
COH Coach Inc. Consumer Discretionary $14.31
GPS Gap (The) Consumer Discretionary $11.50
JEC Jacobs Engineering Group Industrials $40.68
MO Altria Group Inc. Consumer Staples $16.47
OXY Occidental Petroleum Energy $55.44
RHI Robert Half International Industrials $17.38
SWN Southwestern Energy Energy $32.18
SYK Stryker Corp. Health Care $41.33
TIE Titanium Metals Corp Materials $7.68
WFR MEMC Electronic Materials Information Technology $14.57
XOM Exxon Mobil Corp. Energy $76.14
ADBE Adobe Systems Information Technology $20.48
AMZN Amazon Corp. Consumer Discretionary $63.31
APOL Apollo Group Consumer Discretionary $81.57
ADSK Autodesk Inc. Information Technology $17.20
CTXS Citrix Systems Information Technology $22.88
JNPR Juniper Networks Information Technology $15.65
MSFT Microsoft Corp. Information Technology $18.80
QCOM QUALCOMM Inc. Information Technology $35.02
YHOO Yahoo Inc. Information Technology $12.75

It's no surprise that the Financial sector has few representatives on this list as companies in this sector tend to issue large quantities of debt as a matter of course.

It's interesting to see that the majority of stocks in this list are tech stocks (ie: in the Information Technology sector). I am surprised to see Yahoo, though; there must be more value in the company than meets the eye. Or maybe they are smart enough to manage their debt load well and lucky enough to maintain reasonable cash flow despite the fall-off in earnings the company has experienced recently.

Another surprise is the presence of some of the beaten down retail stocks like Coach and Gap in the Consumer Discretionary sector. I wouldn't have expected to see them in this strong a financial situation given how consumers seem to have gone on strike lately. On the other hand, Amazon is firing on all cylinders lately and this is a confirmation of that company's health. Note that Amazon is one of the stocks that was recently identified as a BUY in our Alert HQ.

In any case, an investor can use this list as a guide to companies that are not only conservative in taking on debt but that are also cash flow positive. Those are two characteristics that are always valuable in any investment.

Disclosure: none



Monday, February 9, 2009

'Leadership Screen' - focus on large-cap stocks this week

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).

Again I'd like to share the results of the "Leadership Screen". This is where I combine the results of the Cash Flow Kings and the Trend Leaders to find that set of stocks that is common to both screens. The following chart presents this week's results (prices are as of Friday, Feb 9, 2009).


Symbol Name ExchangeLast PriceMarket Cap
CI CIGNA CP NYSE 21.73 5.905B
CLDX Celldex Therapeut NGM 11.16 176.2M
DIT AMCON DISTRIBUTING AMEX 26 14.8M
DK DELEK US HOLDINGS NYSE 7.71 413.9M
HUM HUMANA INC NYSE 44.55 7.521B
MS MORGAN STANLEY NYSE 22.87 24.574B
NVTL Novatel Wireless, NasdaqNM 6.79 205.9M
PDGI PharmaNet Develop NasdaqNM 4.82 94.1M
SCKT Socket Mobile, In NCM 3.27 10.6M
TNH TERRA NITR CO COM NYSE 120.61 2.254B
TRMA Trico Marine Serv NGM 6.59 97.7M
TSO TESORO CORP NYSE 17.71 2.452B
TTO TORTOISE CAPITAL NYSE 6.86 61.2M
WNR WESTERN REFINING NYSE 12.45 851.3M
WPZ WILLIAMS PARTNERS NYSE 15.7 828.6M

Those who follow this blog will recognize a few stocks from previous lists including AMCON Distributing (DIT), Morgan Stanley (MS), Tesoro Petroleum (TSO) and Western Refining (WNR).

Very often, we see small-caps and micro-caps on the lists. Their volatility sometimes generates quick moves up that land these stocks on the Trend Leaders list.

Focus on the large-caps and mid-caps this week --

Among the new arrivals on this "super" list we have several large-caps and mid-caps.

The first is Cigna (CI), the insurance company. There was talk today that more insurance companies may get access to TARP funds and Cigna continued its breakout above its upper Bollinger Band. The stock is looking very strong, having more than doubled since hitting its low in November.

CI, 02-09-2009
Another is Humana (HUM), the big healthcare company. Here's another company that has just about doubled since the November lows and is now comfortably above its 200-day moving average.

HUM, 02-09-2009
We briefly mentioned Morgan Stanley (MS) in a previous post but it worth noting that the stock has stayed on this list for several weeks now. It is rare to see stocks doubling in this miserable market but to see a financial stock registering consistent, strong performance is quite surprising these days. It appears that investors have no fear that Morgan Stanley will be nationalized.

MS, 02-09-2009
Finally, I thought all the fertilizer companies had tanked and fallen out of favor. This week, however, we see Terra Nitrogen (TNH) on the list. This company makes nitrogen-based fertilizer products and they were up over 5% today.

TNH, 02-09-2009
So if you feel small-caps and micro-caps are too much of a crap shoot, these large-caps and mid-caps offer strong price momentum combined with strong cash flow and a proven history. Put 'em on your watch list.

Disclosure: none



Sunday, February 8, 2009

Weekly Review - hopes so high, can stocks still fly?

Hope springs eternal in the hearts of investors and this week hope spread its wings and moved the markets. It didn't hurt that after four down weeks in a row, the market was ready for a bounce. With gains ranging from 3.5% to 7.8%, each of the major averages staged a strong rally this week.

With all eyes on Washington, the news that the Obama stimulus plan was near a vote was all that was needed to raise the hopes of investors that the benefits of the plan would soon turn the economy around. To further elevate everyones hopes there was news that Tim Geithner, the new Treasury secretary, would deliver a speech on Monday, February 9 that would detail the administration's plan to save the banking sector. At last, a plan and the hopes it would resolve credit crisis.

While investors wallowed in hope and bid up stocks giddily, the economy resolutely refused to cooperate with the feel-good mood.

Retail sales were reported by a number of large chain stores and except, of course, for WalMart, the results were uniformly bad. Investors seized on the fact that results were merely bad, not shockingly bad, and shrugged it off as a sign the bottom was in.

Non-farm payrolls provided a negative surprise which was also shrugged off. What did it matter that almost 600,000 people lost their jobs last month and that unemployment was now at 7.6%? Help is on the way from Washington!

Continuing the "less bad is good" theme, we had the ISM manufacturing index and the ISM services index both come in better than expected though still firmly the region indicating contraction. Many seized on the 6.3% uptick in pending home sales as a positive but looking deeper into the numbers it turns out all the gains were in the states with the most foreclosures. The numbers continue to sag in most other places.

All of this gave our indicators a good bounce this week and our TradeRadar statistics now show two weeks of improvement!

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 vs the stock market - Moving Average Analysis, 02-06-2009
Over the last three weeks, this chart initially showed weakness, then indecision and now a resurgence in bullishness. Dare I say it - it almost looks like a bottom in the making. That is, if stocks can hold their ground.

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 vs the stock market - Trend Analysis, 02-06-2009
Over the last few weeks this chart has shown a return to moderate weakness but certainly not a complete breakdown. This week's action nudged it in a positive direction but it takes more than a few up days to really move the needle here.

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, 2-6-2009
It looks like SPY has finally started to break out of the triangle it has been in for the last couple of months and it's breaking out to the upside. Not to throw water on the parade but the breakout is not dramatic; SPY is just barely moving above that downward trend line.

Whereas the move in SPY barely qualifies as a breakout, things look much better over on the NASDAQ. The following chart of the NASDAQ 100 ETF QQQQ shows a clearer breakout over both the longer term blue trend line and the shorter term green trend line.

Chart of QQQQ, 2-6-2009
So the confirmation of the NASDAQ allows one to be a little more optimistic about the S&P 500 and perhaps the rest of the market.

Conclusion --

So there was a sense this week that the pace of economic deterioration was slowing. Add to this the surge of hope that Washington was finally getting its act together and stocks were off to the races.

Still, it's clear that any plan enacted by Washington will not have an overnight effect. Indeed, it is not a foregone conclusion the plan will even be enacted any time soon. It seems there is a delay of a few days every time a vote is close. As I write this, it seems the much anticipated speech by Geithner has now been postponed in order to allow legislators to focus on the stimulus bill.

It is also clear that the economy is still in a downward trend, even if a few indicators for a single week imply the rate of change has diminished somewhat. So many companies are still announcing layoffs and providing weak forward guidance. Earnings estimates continue to come down.

The week's upcoming economic reports may not have the potential to move the market as much as last week's but there are still a few worth watching. There will be wholesale inventories and business inventories and the Michigan Consumer Sentiment Index. Probably the biggest report will be retail sales as investors look to see whether the consumer has again returned to the mall or not. Then there are the usual weekly initial claims and crude inventories. This is also another busy week for earnings reports.

So this past week's rally was welcome but I can't help but think it was based on a flimsy foundation: economic news that was less awful than feared and a big dollop of hope that Washington will soon fix everything in sight. Investors should remember: hope can be fleeting.



Saturday, February 7, 2009

Free stock alerts, Trend Leaders, Bollinger Band Breakouts and Cash Flow Kings for Feb 6, 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 but we've made a change this week. We used to calculate the free cash flow yield of all the stocks we scan and pick the ones whose yield is 50% or greater. We've now modified this scan so it picks up any that yield 25% or greater. This way we think we'll pick up more stocks that are truly Cash Flow Kings so you can ignore those stocks that show up on the list with super high yields due to some quirk in their business model or a sudden plunge in their stock price. This list is also available on the Trend Leaders page.

Here is what we have this week --

After four down weeks in a row, stocks finally climbed. While I was sick in bed, the markets had a party! The S&P 500 jumped over 5% and the NASDAQ advanced almost 8%. The major motivation for the market this week was simply hope. Hope that the government's stimulus program would be passed in the coming week and hope that the new Treasury secretary's speech on Monday will reveal the salvation of the banking sector. Economic news was resolutely downbeat but hope triumphed in the end. The effect of this outpouring of hope was that many stocks that we evaluated jumped like crazy, bouncing above their upper Bollinger Band. It's no surprise that our lists of stocks are a little more populated with good news this week. Here is the breakdown:

  • based on daily data, we have 21 Alert HQ BUY signals and 18 SELL signals
  • based on weekly data, we have 12 Alert HQ BUY signals and 5 SELL signals
  • based on daily data, we have 217 Trend Leaders
  • based on daily data, we have 581 Bollinger Band Breakouts. We also have 168 Breakouts based on weekly data.
  • finally, we have 867 Cash Flow Kings, roughly double last week's number now that me made the change referenced above
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're a momentum trader, the TrendLeaders list is a good place to go shopping. If you have no faith in technical analysis, the Cash Flow Kings may be just what you are looking for!



Tuesday, February 3, 2009

Update - Tech Bellwether Earnings Scorecard

It's been about a week and a half since I wrote the first Tech Bellwether Earnings Scorecard post. Since we are still in the midst of a busy earnings season, I thought it was time for an update.

Below I have listed some of the big names in the tech world along with comments on whether they beat expectations, posted losses or gains and whether they provided positive forward guidance.

CompanyEarningsComments
VMWare (VMW) revs up 42%, earnings beat by $0.10 weak guidance
Texas Instruments (TXN) beats by $0.09 guides well below consensus, announces layoffs
EMC profits down 40% year-over-year no guidance offered
Altera (ALTR) down 12% sequentially but beats by $0.01, guidance: next Q earnings down 15-25%
Sun (JAVA) beats lowered expectations (non-GAAP positive earnings of $0.10 vs GAAP loss of $0.28) provides no guidance
Yahoo (YHOO) posts loss, revenue down a bit y-o-y but beats on non-GAAP basis Q1 guidance light, no full year guidance offered
Qualcomm (QCOM) beats on revenues and misses on pro forma earnings by $0.16 reduces guidance
Citrix (CTXS) misses by $0.14weak guidance and announced layoffs of 10% of workforce
Teradyne (TER) miss weak outlook, laying off 14% of workforce
Lam Research (LRCX) missguides next quarter down 38%, shutdowns and salary reductions
Symantec (SYMC) beats top and bottom lineno info on guidance
Broadcom (BRCM) misses by $0.19offers weak Q1 guidance, announces job cuts of 3% of workforce
KLA-Tencor (KLAC) miss, non-GAAP loss twice as bad as expectedno guidance offered
CA beats by $0.05 on non-GAAP basisguidance flat
Juniper (JNPR) meets on EPS, revs lightno guidance offered
Amazon (AMZN)beats by $0.13good guidance
Applied Material (AMAT) miss: projects sales down 35%, $0.09 lossreduces Q1 outlook, considers cost-cutting, shutdowns
Sandisk (SNDK) revs beat, earnings miss by wide marginpoor guidance
Motorola (MOT) misses by a lot: revs down, earnings down moresuspends dividend,offers weak guidance


As in the first post, the majority of companies are not doing to well and have low expectations. Whereas the last post could point to a few companies that provided good guidance, this week's sampling has only one - Amazon. The other companies either withdrew guidance entirely or offered weak guidance.

So does that mean tech stocks are plunging? Far from it.

Below is the chart of XLK, the Technology Select Sector SPDR ETF. Rather that showing a serious decline, it is more or less muddling along in a trading range and even closed above its 50-day MA today.

Chart of XLK, 2-3-2009
Even more startling is the following chart. This shows XLK in relation to SPY, the S&P 500 SPDR ETF.

Chart of XLK/SPY, 2-3-2009
It can be seen that tech is clearly outperforming the S&P 500. Given that the S&P 500 is weighed down with banks, I checked the performance of XLK relative to the Russell 3000 (using IWV, the iShares Russell 3000 Index ETF that attempts to capture the performance of the broad U.S. equity market) and the out-performance of XLK is even more pronounced. In IWV, tech is the second largest sector, comprising 14.6% of the ETF's holdings and yet tech by itself is still out-performing.

So it appears we are in a mode here where the bad news is being ignored and tech is turning into the "go to" sector. This kind of thing always makes me uncomfortable. I tend to like to see a bit of logic at work in the cause and effect of market movements. Here, though, the logic escapes me. Is it just the "tech stocks are cheap" thesis? Given what management is saying about the prospects for their businesses, it seems to me that tech stocks will soon get cheaper.

Disclosure: none




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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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