Monday, March 30, 2009

Turnaround in the the DRAM sector? What might that imply?

As I often do, I was looking through the Digitimes web site to see what was going on in the semiconductor industry. To my surprise, there were a number of articles that imply the DRAM sector is in the process of turning around.

Let's just list the headlines as quoted from Digitimes:

  • Rising chip prices may undermine Taiwan Memory - Taiwan downstream DRAM makers are saying that the leading DRAM vendors, Samsung Electronics, Hynix Semiconductor, Micron Technology and Elpida Memory, are no longer tolerating low chip quotes, and will aim to push chip prices upward soon... Data compiled by DRAMeXchange showed that sport prices for mainstream 1Gb DDR2 chips soared 4% to US$0.88 on March 24 and then hiked over 13% to US$1 on March 26... industry sources have commented that the higher DRAM chip prices are, the lower the chances that the Taiwan government will go ahead with its proposal to establish Taiwan Memory Company.
  • DRAM suppliers may increase quotes due to rising demand, sources say - Samsung Electronics, Hynix Semiconductor and Elpida Memory may raise DRAM quotes as demand from major memory module makers is increasing significantly
  • DRAM spot prices surge on fab shutdown speculation, says inSpectrum
  • PSC chairman says DRAM shortage will occur in 3Q - during a press conference held yesterday (March 25) Frank Huang, chairman of Powerchip Semiconductor Corporation, said that the DRAM chip sector will experience a substantial shortage in the third quarter of 2009 at the earliest, due to suppliers' production cutbacks as well as a warming up of demand
The DRAM sector has been probably the most beaten down area in the semiconductor industry. Suppliers insisted on adding capacity even as prices dropped, causing a glut of product and a decline in margins. Companies like Micron Technology (MU) have gone quarter after quarter without posting a profit. DRAM chips have become simple commodities despite the fact that they are important building blocks for PCs, cell phones, mobile Internet devices and various other consumer and enterprise electronic products.

So if this sector that couldn't seem to do anything right is surging, what does that imply for the overall hardware sector?

If DRAM chips are in demand, someone must be building products to put them in. Is this merely a replenishment of depleted inventory or are we seeing the stirrings of a recovery in the hardware sector?

I've said in the past that tech would be first to recover from this recession. Let's hope this is the real thing and not a head fake. All we can do for now, though, is keep an eye on this and see if these early stirrings lead to something more.

Disclosure: none



Sunday, March 29, 2009

Weekly Review - rally looking extended, time for a pause?

Major averages added over 6% this week despite the fact that there were only a couple of days when stock prices actually rose. Still, that was all markets needed to show yet another big weekly gain as this rally continues to drive stock prices steeply higher.

The biggest catalyst occurred on Monday when the Treasury provided details on the plan to remove toxic assets from bank balance sheets. Investors loved it, stocks rocketed upward and that positive sentiment helped carry stocks most of the week.

In terms of economic reports, investors accepted the 6.3% decline in GDP as better than expected and the usual 650,000 jobless claims as "in line". There was debate over whether housing is improving as seasonal factors and plunging prices are beginning to generate a few purchases here and there. Specifically, existing home sales in February rose 5.1% month-over-month and February new home sales increased 4.7% month-over-month. As many commentators, including Barry Ritholtz, often point out, the month-over-month numbers are seldom instructive; it is the year-over-year numbers that are important because the housing market is susceptible to such deep seasonality. Looked at from the year-over-year point of view housing is still deep in the doldrums with new home sales, for example, still down over 40% from February 2008. Furthermore, there remains more that 12 months of outstanding inventory that will continue to pressure new home sales. By no means are we out of the woods in the housing sector but investors are beginning to think things won't get much worse and indeed may only improve from here.

The Durable Goods report was another example of low expectations being exceeded to the up side. There was a decent new orders number reported and that was the major focus. Shipments and unfilled orders, however, continued to show declines but investors shrugged off those numbers as not sufficently forward-looking. With new orders registering the first improvement in any measure in the Durable Goods report for months, investors were happy to accept it as a sign that things are improving.

And so the rally continued further into short-term over-bought territory. This had the effect of boosting many of the indicators that we track and report as TradeRadar statistics. Let's take a look at this week's results.

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, 03-27-2009
OK, I would like to interpret this chart as unabashedly bullish but I'm afraid that there are extremes being reached that suggest a pullback is close. With more than 60% of all the stocks we evaluated above their 20-day moving averages we are now at the highest level since summer of 2008. The number of stocks above their 50-day MA is also rapidly increasing though it hasn't hit an extreme level yet; nevertheless, it would appear that prudence and caution are the appropriate watch words after such a quick run-up.

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, 03-27-2009
Here again the readings are elevated. Though the number of stocks in up-trends hasn't quite exceeded the previous highest level, the number of stocks in down-trends has fallen to the lowest level we have seen since we began tracking these statistics over year ago. Once more, the interpretation is that a pullback is becoming more likely.

Conclusion --

Though the economy is still in recession, the feeling among investors for the last few weeks has been that we have reached a trough. I hope that's true but so far, most economic reports have only confirmed that the decline in indicators of economic health is slowing, not bottoming or improving. It may be easier to catch the falling knife now but for most longer-term investors, there is no good reason the chase this rally.

This coming week, we'll have a good number of new economic reports which might help confirm whether a bottom is being formed. We start off with Consumer Confidence, then the Case-Shiller Home Price Index, Chicago PMI, the ADP employment report, ISM Index, pending home sales, auto and truck sales, the weekly initial jobless claims number, factory orders, hourly earnings, the Nonfarm Payrolls and Unemployment reports and finally ISM Services.

In other words, we'll get the latest readings on housing, manufacturing, services and employment - pretty much everything that is economically important. If the majority of these reports come in better than expected we could see caution thrown to the wind and further stock price gains.

And don't forget, the G-20 are meeting this week. Discord and disagreement could be unsettling to the markets. On the other hand, it could all be dismissed as political posturing. Given how much the actions of Washington have impacted stock prices lately, though, this meeting could have greater influence than usual.

In the meantime, be careful about rallies inspired by end of month window dressing. There will be better buying opportunities soon enough.



Saturday, March 28, 2009

New Swing Trading Signals for March 27, 2009

Last week we introduced our first list of TradeRadar Swing Trading Signals and this week we've done some work to refine how those signals are generated.

Our TradeRadar Swing Signals are based on Bollinger Band breakouts combined with a reversal. Here is our updated methodology:

  • For a SELL signal we now look for price to climb 2% above the upper band, then fall below the upper band within a time frame comprising 10 days. We look for the price to fall into a range between 0.25 Standard Deviation and 1.5 Standard Deviations below the upper band but still above the 20-day moving average before designating it a SELL signal. (Remember that Bollinger Bands are typically defined as the levels two standard deviations above and below the 20-day moving average.)
  • For a BUY signal we look for the opposite setup: price falls 2% below the lower band and recovers upward into a range 0.25 Standard Deviation and 1.5 Standard Deviations above the lower band.

This week's results --

This week we have a total of 317 stocks and ETFs on our list of Swing Signals. Refining our selection criteria has reduced the total number of signals generated and hopefully eliminated the majority of false signals that might lead to whipsaws.

Similar to last week, stock price gains in the first part of the week were followed by a decline. Once again as we crunch the week's data, the SELL signals outnumber the BUY signals.

Here is the final breakdown: 251 SELL signals and 66 BUY signals.

Last week I asked whether it might be time to put on a few short positions. Well, last week was certainly too early as major indexes added over 6%. With our refined algorithm and the market seemingly getting ahead of itself, this week's emphasis on SELL signals may be a bit more accurate. We shall see...

Get the free data --

To see this week's list you can check out the TradeRadar Swing Signals page. All 317 stocks are listed, plus we provide a free download in the form of a CSV text file which can be easily opened in Excel or any text editor. In addition to the signal and the stock symbol, we also provide some basic fundamental data to help you select the stocks that are of most interest to you.

Future Improvements --

I am planning to eliminate any stocks trading for less than $1.50 in next week's list. At these levels, a few pennies can translate into enough volatility to generate false signals. If you have any objections or suggestions, please leave a comment.



Free stock alerts, Trend Leaders, Bollinger Band Breakouts and Cash Flow Kings for March 27, 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 about 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.

In addition to alerts, we also have our lists of Trend Leaders, a collection of stocks in strong up-trends, Cash Flow Kings whose free cash flow yield is 25% or greater and Bollinger Band Breakouts, stocks or ETFs that have moved at least 3% above their upper Bollinger Band or at least 3% below their lower Bollinger Band. These lists are all available at Alert HQ.

Note that our navigation has changed, so if you have the old pages bookmarked, you will need to update them. Many of the new pages now present the data in tabular form so you can browse the lists before downloading.

Here is what we have this week --

Despite a weak Friday, major averages still added over 6% this week. Investors welcomed the latest Treasury plan to remove toxic assets from bank balance sheets and that positive sentiment carried stocks most of the week, even overcoming the 6.3% decline in GDP and the usual 650,000 jobless claims. There was debate over whether housing is improving as seasonal factors and plunging prices are beginning to generate a few purchases here and there. There was a decent new orders number in the Durable Goods report. It was enough for investors to consider the week's reports as better than expected. And so the rally continued further into short-term over-bought territory. This had the salutary effect of juicing many indicators that are slowed down by moving averages to finally generate buy signals; hence, the positive tone of our signals this week.

Here is the breakdown:

  • based on daily data, we have 225 Alert HQ BUY signals and only 3 SELL signals.
  • based on weekly data, we have 61 Alert HQ BUY signals, a nice jump from last week, and 5 SELL signals.
  • based on daily data, we have 914 Trend Leaders, almost three times the number from last week.
  • based on daily data, we have 165 Bollinger Band Breakouts using the new requirement to exceed the band by 3%. We also have 217 Breakouts based on weekly data.
  • finally, we have 933 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, also at Alert HQ. 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.



Wednesday, March 25, 2009

Durable Goods - tech sector still under pressure?

The Advanced Durable Goods report for February 2009 was released today. The headline number was positive and the market took off though gains were moderated by the close.

The headline number for New Orders registered a gain of 3.4% where most analysts expected another decline. Much was made of the improvement but things were not all that great when digging into some individual sectors.

As we always do, we will focus on tech and once again the news is dismal. The following chart shows the Shipments data for the entire tech sector as represented by the Computers and electronic equipment category. January data was revised downward and the February shipments number showed another decline though of only 2%.

Computers - Shipments for Feb-2009
This next chart looks a little deeper into this category at the Semiconductor sub-category. Chip ETFs were screaming higher earlier in the day then someone must have realized the data in the Durable Goods report didn't actually support a rally in chip stocks. January shipments were revised downward and February shipments were down a whopping 21% lower than January's.

Semiconductor - Shipments for Feb-2009
Our third chart shows Unfilled Orders for the whole category of Computers and electronic equipment. Here we have another decline but at least the decline is a modest 0.5%.

Computers - Unfilled Orders for Feb 2009
We've saved the best for last. New Orders is the only measure that showed an increase for the tech sector, rising 5.6%. Effectively offsetting declines in other sub-sectors (Communications equipment and Semiconductors) the Computers and related products sub-sector was up over 10%.

Computers - New Orders for Feb-2009
Conclusion --

Today's enthusiasm resulting from the rise in the headline New Orders number should be tempered with caution. New Orders have a tendency to be canceled or delayed during economic downturns. Note that Unfilled Orders again showed no improvement. Likewise, shipments continue to decline and in the case of Semiconductors broke to a new low.

Seasonally, this is typically a slow time of the year for the tech sector so weakness is not unexpected. It would be nice, however, to see at least a month or two of increased shipments that prove that orders are not being canceled.

Meanwhile, the market is rallying strongly and a rising tide is lifting the tech sector boat regardless of the underlying economic situation. It's hard to advise holding off on tech but the numbers still don't add up.



Tuesday, March 24, 2009

Are tech stocks expensive?

This weekend we ran the Alert HQ process and generated the list of Trend Leaders. These stocks and ETFs are distinguished by strong recent performance. Using daily data, we look for stocks that are over their 50-day moving average. We then use three different technical indicators to determine trend: Aroon, DMI and MACD. All three indicators must be registering strong readings in order for a stock or ETF to make the list of Trend Leaders.

Below we present those stocks from the Tech sector that made this week's list. Data is as of the close on Friday, 3/20/09.

SymbolName Last Price Market Cap PE Ratio Price to Sales Price to Book PEG Ratio
BMC BMC SOFTWARE, INC. 30.78 $5,683,000,000 24.19 3.14 6.02 1.18
IRM IRON MOUNTAIN INC. 21.16 $4,274,000,000 53.69 1.43 2.43 1.41
KEI KEITHLEY INSTRUMENTS 3.19 $49,800,000 N/A 0.32 0.66 N/A
NZ NETEZZA CORPORATION 6.55 $390,900,000 13.43 2.14 2.28 1.53
PER PEROT SYSTEMS CORPORATION 12.68 $1,515,000,000 13.34 0.55 1.17 0.89
RAX RACKSPACE HOSTING, INC. 6.25 $734,800,000 36.49 1.52 2.98 2.02
SY SYBASE, INC.
29.61 $2,399,000,000 18.23 2.14 2.87 0.91
AMZN Amazon.com, Inc. 69.96 $29,984,000,000 46.95 1.57 11.23 2.11
BBOX Black Box Corporation 22.98 $402,900,000 8.64 0.39 0.61 N/A
CAVM Cavium Networks, Inc. 11.77 $485,100,000 336.86 5.61 3.78 13.97
CERN Cerner Corporation 42.97 $3,452,000,000 19.66 2.13 2.72 0.96
CIEN CIENA Corporation 6.75 $612,000,000 N/A 0.78 0.67 N/A
CREE Cree, Inc. 22.98 $2,034,000,000 70.46 3.92 1.82 2.06
DIOD Diodes Incorporated 10.16 $420,600,000 11.5 1.01 1.17 N/A
EPIC Epicor Software Corporation 3.52 $210,400,000 215.29 0.45 0.79 0.54
MCHP Microchip Technology Incorporated 20.18 $3,675,000,000 12.87 3.83 3.72 2.17
NOVL Novell, Inc. 4.12 $1,419,000,000 N/A 1.59 1.36 1.24
QLGC QLogic Corporation 11.22 $1,360,000,000 13.22 2.06 2.17 0.9
QSFT Quest Software, Inc. 12.14 $1,149,000,000 19.52 1.61 1.35 0.96
RADS Radiant Systems, Inc. 3.63 $117,800,000 11.97 0.42 0.91 0.46
SWKS Skyworks Solutions, Inc. 7.69 $1,273,000,000 11.84 1.57 1.39 1.07
SMSI Smith Micro Software, Inc. 4.99 $156,700,000 N/A 1.67 0.99 0.34
TATTF TAT Technologies Ltd. 5.44 $35,600,000 8.22 0.34 0.46 N/A
PANL Universal Display Corporation 7.51 $272,700,000 N/A 25.05 3.6 N/A
UEIC Universal Electronics Inc. 16.58 $225,600,000 15.72 0.81 1.53 1.3

All of these stocks have been rolling up some very nice gains for a number of weeks now. In looking at this list, however, I get the impression we are seeing some froth. What does that say about the current rally?

We already know that the technical signs indicate strong up-trends for these stocks. It's the fundamentals that are worrisome. The PE ratios range from fair to excessive and some of the stocks do not have positive earnings at all. Price-to-Sales, Price-to-Book and PEG ratios also range from fair to excessive.

Looking at a few of the stocks on this list, we can see there are certainly some good companies. BMC, for example, is benefiting from the recently announced partnership with Cisco Systems as Cisco begins to make its move into data center servers and data center management. Still, with a PE in the 20's, Price-to-Sales over 3 and Price-to-Book over 6, the stock is not cheap.

The situation with Iron Mountain is similar. The firm benefits because, by law, many companies are required to retain data for seven years or more. Under this scenario, Iron Mountain earnings could be expected to hold up reasonably well during a downturn. But a PE over 50? This stock is no bargain.

As we go down the list, we see Perot Systems looking reasonably attractive on a valuation basis but it is immediately followed by Rackspace Hosting at a PE over 36. In general, this pattern repeats with stocks showing decent value alternating with rather speculative and seemingly quite expensive stocks.

Many analysts have been saying stocks are cheap. Based on this evaluation, they are saying it is safe to buy again. Reviewing this list of favored stocks doesn't confirm the "stocks are cheap" thesis. Given that we are still much closer to the 52-week lows than we are to 52-week highs, I would think that more of these stocks would be exhibiting financial ratios that would indicate more attractive valuations.

If these stocks comprise the tech leadership, this rally may need to pause and wait for earnings to catch up with stock prices.

Disclosure: none



Sunday, March 22, 2009

Introducing TradeRadar Swing Signals - signs the market is due for a fall?

This weekend I've added another function to the Alert HQ process. We can now provide free swing trading signals based on use of Bollinger Bands.

Previously, we began offering lists of stocks and ETFs that had broken through their Bollinger Bands, either above the upper band (bullish signal) or below the lower band (bearish signal). We call these our Bollinger Band Breakouts. We've taken these breakouts a step further.

Swing Trading Signals --

Our TradeRadar Swing Signals are based on the same kind of breakout combined with a reversal. For a SELL signal, for example, we look for price to climb above the upper band, then fall below the upper band within a time frame comprising 10 days. We look for the price to fall into a range between 2% and 5% below the upper band but still above the 20-day moving average before designating it a SELL signal.

For a BUY signal we look for the opposite setup: price falls below the lower band and recovers upward into a range 2% to 5% above the lower band.

This week's results --

This week we have a total of 509 stocks and ETFs on our list of Swing Signals. After this recent quite rapid run-up in stock prices followed by two days of declines it can be expected that SELL signals might outnumber the BUY signals. It was surprising, however, to see the final tally: 486 SELL signals and only 23 BUY signals. Is it time to put on a few short positions? It sure seems like it. Is it an indication the whole market is poised for a pullback? Well, this situation seems to confirm a few other technical indicators such as the S&P 500 failing to break through above its 50-day moving average again.

Get the free data --

To see this week's list you can check out the TradeRadar Swing Signals page. All 509 stocks are listed, plus we provide a free download in the form of an Excel spreadsheet. In addition to the signal and the stock symbol, we also provide some basic fundamental data to help you select the stocks that are of most interest to you.

This is our first release of the Swing Signals list and I suspect there will be additional improvements as we carry out further backtesting and track the performance of our lists of signals over time. In the meantime, take advantage of our free signals and add a few to your watch list. Let us know in the comments how your trades work out or how you might like to see the process change.



Saturday, March 21, 2009

Free stock alerts, Trend Leaders, Bollinger Band Breakouts and Cash Flow Kings for March 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 about 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.

In addition to alerts, we also have our lists of Trend Leaders, a collection of stocks in strong up-trends, Cash Flow Kings whose free cash flow yield is 25% or greater and Bollinger Band Breakouts, stocks or ETFs that have moved at least 1% above their upper Bollinger Band or at least 1% below their lower Bollinger Band. These lists are all available on the Trend Leaders page.

Here is what we have this week --

After big gains a week ago, stocks eased off this week but still managed to show a modest increase over the previous week's prices. Despite the two down days at the end of the week, the trending indicators we apply in our Alert HQ scan process is registering positive movement in more and more stocks. As a result, our BUY list based on daily data has nearly quadrupled over the previous week. A note of warning, however - we are also seeing a big increase in the number of stocks at the top of their Bollinger Bands. Is a pullback in store? Will it be healthy profit-taking followed by a continuation of the recently instituted up-trend? Time will tell.

Here is the breakdown for this week:

  • based on daily data, we have 165 Alert HQ BUY signals and only 1 SELL signal.
  • based on weekly data, we have 13 Alert HQ BUY signals and 6 SELL signals.
  • based on daily data, we have 315 Trend Leaders, almost three times the number from last week.
  • based on daily data, we have 279 Bollinger Band Breakouts. We also have 215 Breakouts based on weekly data.
  • finally, we have 950 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!



Friday, March 20, 2009

Semiconductor Equipment Manufacturers - what does this month's Book-to-Bill signify?

The SEMI trade group released the February 2009 Book-to-Bill Report for North America-based manufacturers of semiconductor equipment. Rather than list the numbers in detail, we'll just present the charts below (values in millions of dollars, February numbers are preliminary).

Before digging into the numbers, I expected to write another post on how the semiconductor equipment sector was crashing even further. But maybe we can say there's light at the end of the tunnel.

This first chart shows that billings in dollar terms are decreasing and, of course, that is bad. Bookings, however, now seem to be decreasing at a much slower rate; they are down only 5% month-over-month. This might not sound that great but from November to December 2008 bookings dropped 26% and from December 2008 to January 2009, they dropped over 52% so this is very welcome reduction in the rate of decline.

Bookings comprise the forward-looking aspect for the industry, similar to new orders. The indication now, after the huge drops seen in previous months, is that in the near term maybe things won't be getting too much worse.

SEMI Bookings and Billings, 03-20-2009
This is not to make light of the fact that both bookings and billings are at historic low levels, the worst since SEMI started keeping records. Furthermore, the numbers for January have been revised downward and February 2009 is 78% worse than the previous year. Still, the downward momentum has begun to slow and that is good news for the industry.

Further suggesting that a bottom might be in sight is the Book-to-Bill ratio. The following chart shows that Book-to-Bill stopped falling in February and actually moved up though only very slightly. After the devastation registered thus far in this sector, even a slight positive becomes a welcome sign.

SEMI - Book-To-Bill Ratio, 03-20-2009
Conclusion --

There's no great rush to go out and buy the big names in this sector such as Applied Materials (AMAT), KLA-Tencor (KLAC) or Lam Research (LRCX). Capacity utilization is low, margins are compressed, sales are at multi-year lows.

Nevertheless, February's numbers might show that the sector is engaged in a "bottoming process". Could things get worse? Possibly. Do two months make a trend? Possibly not. But this is the best news the sector has had in months. Given the current levels of bookings and billings, that is somewhat of a sad statement. But for tech investors, this may represent a whiff of hope.

Disclosure: no positions in any stocks mentioned



Wednesday, March 18, 2009

Fed goes for "shock and awe"

The FOMC met this week and released their statement today. As expected, they held rates steady between 0 and 1/4 percent. The interesting and unexpected part of the statement is as follows:

"To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months."
The Fed has alluded to buying Treasuries in the past but this is the first time they have come out and said it was something that was definitely going to happen. The market was also completely unprepared for the commitment to buy billions more mortgage-backed securities and agency debt.

The new TALF program was also mentioned:
"The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets."
The phrase "likely to be expanded" seems to confirm the story reported on Bloomberg today that the TALF would be used to help clean up bank balance sheets. Apparently, the TALF would provide loans to investors and agree to take frozen, illiquid (toxic) debt as collateral.

Two comments on the Fed action today:
  1. These actions imply the Fed is more worried about the state of the economy than all the recent "happy talk" would suggest. Otherwise, why come out with three major announcements totaling over a trillion dollars plus the expansion of the TALF which has not even gotten off the ground yet.
  2. Now that they have announced all these actions, it begs the question of whether the Fed is running out of ammunition.
In any case, it's clear market participants liked this announcement. Let's hope these actions actually work and we don't need any further drastic measures. After all, if a trillion dollars can't buy some prosperity we're really in trouble.



Tuesday, March 17, 2009

Industrial Production - when "less bad" is good enough

On Monday the Fed released the Industrial Production and Capacity Utilization report for February. The headline number, a decline of only 1.4%, was not bad enough to cause stocks to give up the prior week's gains. Indeed, stocks rallied strongly today, led by the NASDAQ with over a 4% gain.

Is the gain in the NASDAQ justified?

The following chart tracks the month-over-month percent changes in production in the three tech sectors tracked by the Fed. The numbers are seasonally adjusted.

Industrial Production (percent change) - Tech, 03-2009
There is a real combination of good news and bad news here.

First the good news:

  • Production in the Computers and peripheral equipment sector, though still declining, is not declining as fast as it did last year.
  • Semiconductor production, while still showing negative growth, has at least bounced strongly from last November's deep low.
Now the bad news:
  • Communication equipment, which had shown positive growth in production has joined the other sectors and has now begun to show a decline.
  • Production for both Semiconductors and Computers continues to decline. While the amount of decline has steadily diminished for Computers, for Semiconductors the decline began to pick up speed again in February.
Semiconductors as a leading indicator --

Semiconductors can be considered a leading indicator since pretty much all tech hardware equipment has semiconductors as a large proportion of the required components. It's not a good sign that the decline in semiconductor production increased in February - this could have a negative impact on the other tech sectors in coming months.

Capacity utilization --

Finally, it is worth considering the capacity utilization numbers that were also released on Monday. It is alarming to see that the Computers and peripheral equipment sector is running at a utilization rate of only 51.8%, way below historical mean levels. Semiconductors aren't much better at 52.8% while Communications equipment is doing the best at 79%, still within spitting distance of the sector long-term mean level.

The following chart from the Fed shows how production for Computers and Semiconductors is down roughly 25% over the last year. The drop-off in capacity utilization for the tech sector as shown here is pretty scary.

Industrial Production and Capacity Utilization - Tech, 03-2009
Conclusion --

If you consider the NASDAQ to represent the state of the technology sector, it is clear investors are looking past near-term problems and bidding up the stocks in the index.

Above, I asked if the current rally in the NASDAQ is justified. It is hard to say "yes" to this question when looking at the state of the tech hardware sector.

Though the headline industrial production number indicated a decline of only 1.4%, the decline in the tech sector was nearly three times worse. The capacity utilization rates for Computers and Semiconductors are among the lowest in the Fed's report. And with the semiconductors beginning to sag again, it is hard to have confidence that the tech hardware sector is poised for recovery.

Nevertheless, the numbers reviewed above kind of qualify as "less bad" and that is often enough to stimulate a rally. Continuation of the rally will depend on the continuation of the "less bad" trend in these numbers. So far, only the Computer sector is moving in a good direction. Right now, sentiment is positive and anything better than horrific is considered to indicate a bottom. I hope a bottom is what we have now but the Fed's February report makes that call questionable.



Monday, March 16, 2009

Do Charge-off Rates impact the UltraShort Real Estate ETF?

You may have noticed today that the ProShares UltraShort Real Estate ETF (SRS) was up strongly Monday (3/16/09), tacking on almost 16%. This is far in excess of the 4% that the UltraShort Financial ETF (SKF) rose.

What gives?

It could be that investors are beginning to realize that the situation in commercial real estate is becoming worse than what we have seen in residential real estate. The Fed provides the data from which we constructed the following chart. It contrasts the charge-off rates for residential real estate loans and commercial real estate loans.

Real Estate Charge-off Rates
Whereas it looks like charge-offs in the residential sector are beginning to moderate, it appears that charge-offs in the commercial sector are really taking off, increasing rapidly and surpassing the rate for residential loans. As of the end of the 2008-Q4 there was no moderation at all in the slope of commercial loan charge-offs.

Many financial institutions have seen their stock prices decimated when mortgage-backed securities (MBS) imploded, typically due to the underlying residential mortgages going through delinquency, foreclosure and the charge-off process. It stands to reason that banks facing these levels of charge-offs for commercial real estate will be under further pressure. Banks will be running into problems not only with the actual loans but also due to the decline in value of commercial mortgage-backed securities (CMBS).

With all this turmoil in the commercial real estate sector, it is quite reasonable to assume that real estate investment trusts (REITs), which almost universally are concentrated in commercial real estate, not residential, are feeling the impact in a big way. Projects are left incomplete, properties go into receivership, write-downs occur, etc. This is bad for investors in REITs but good for anyone who owns an inverse real estate ETF like SRS.

Chart of SRS, 03-16-2009
This rally we have seen over the past week drove SRS down from over $100 to almost $60. This may turn out to be a pretty good buying opportunity for SRS. It appears the bear has further to run in the commercial real estate sector.

Disclosure: small position in SRS



Sunday, March 15, 2009

Weekly Review - can bulls make it two weeks in a row?

I said in last week's review that our charts looked like things could hardly get any worse. Indeed, Monday provided a bottom and was followed by an explosive rally. Our charts are now looking a little better.

Major averages gained roughly 10% and the former laggard, the Russell 2000, became the leader with a 12% gain. The Financial sector tacked on 34% this week, mostly based on the fact that Citi, Bank of America and JPMorgan Chase all declared they were profitable in the first two months of the year though no details were provided (like what further write-downs might be in store). It was still welcome news and better than we are used to receiving from many banks, and so stocks were off and running. As the debate over mark-to-market accounting picked up volume in Washington and in the financial press, investors took heart that the rules might be eased, further supporting the skyrocketing financials.

It is clear that sentiment has turned 180 degrees and bad news is once again good news. For example, GE lost its AAA rating but the stock went up because the downgrade could have been worse. Retails sales declined but not as bad as expected so the data was ignored. Initial jobless claims increased yet again but, hey, when there's a rally underway, who cares about employment?

Last week I mentioned that stocks would have a lot of work to do to get our charts looking bullish again. Well, a lot of work was done and there is definite improvement but can we say things are bullish? Let's take a look at this week's TradeRadar statistics

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, 03-013-2009
We got a nice jump this week in the number of stocks above their 50-day moving average. As I said, though, stocks have a lot of work to do. The number of stocks whose 20-day MA has crossed above their 50-day MA has barely changed. So, far things appear to be looking up but it might be hard to go all out bullish based on this chart. Still, the journey to higher prices has to start somewhere and it looks like we made a decent start this week.

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, 03-013-2009
Similarly to the chart above, this chart shows that stocks are improving but still have a long way to go. It takes more than a few days of gains for the Aroon indicators to begin signaling a change in trend from down to up; hence, we see only modest improvements in this chart despite the strong gains we saw this week. Follow-through in the next weeks will be very important.

Below is a daily chart of the S&P 500 that shows the nature of this week's rally. Note how the index broke through to the upside right through previous resistance in the area of $740 (the green horizontal line).

Chart of S&P 500, 03-13-2009
On the other hand, note how volume was strong the first day of the rally and has diminished each day since. The slopes of the price action and the volume are drawn in blue. This is known as a divergence and it is not a good sign.

Conclusion --

The TradeRadar charts above are indicating the technical situation is definitely improving but there is still a ways to go before the "all clear" signal can be given.

As much as I would like to jump on the "bottom is in" bandwagon, there are still indications that all is not well with the economy or this rally. I'll list a few:
  • The unemployment rate continues to climb to new multi-decade records. Weekly initial jobless claims have stopped increasing rapidly but continue to come in steadily at an uncomfortably high level. It is my impression that until the employment situation becomes less terrifying to the average person it will be hard for this consumer-based economy to mount a serious recovery.
  • Gold, a safe haven, rallied with stocks in the last half of the week (though some said it was because another safe haven, the Swiss France, was devalued)
  • The auction of 30-year Treasuries this week met with an enthusiastic reception despite the fact the yield was practically nothing. This shows the continued attraction of the safe-haven trade.
  • The volume during this rally has been less than the volume during the most recent decline. As described above, volume has declined as prices have risen. This implies the rally does not have strong underpinnings.
In summary, the safe haven trade is still a strong alternative to risk acceptance and volume doesn't confirm the breakout despite the strength of the breakout. It's true that bear markets often end before employment bottoms. Today's bear market, however, follows a period where employment did not grow as fast as it usually does during boom times. The years since the bursting of the Internet bubble are often referred to a "jobless recovery". To me, this suggests the employment situation could keep pressure on stocks longer than usual as markets struggle to establish a bottom.

This past week's rally took place against a backdrop that had very little in the way of economic reports the could discourage investor sentiment. Coming up this week, however, there is a full roster of reports that could influence the markets including the Empire State manufacturing index, Capacity Utilization, Industrial Production, building permits and housing starts, PPI and CPI, weekly initial jobless claims, the Conference Board's index of leading indicators and the Philadelphia Fed manufacturing survey.

So is this rally tired? As I write this, the Nikkei is up strongly on hopes that government action will stimulate the world economy. The G-20 released a statement indicating they would focus on cleaning up bank balance sheets and restoring lending. Nothing goes up, or down, in a straight line so a bit of a pullback could be expected; nevertheless, it seems the path of least resistance is going to be up for another week or so. Sentiment seems to be much more positive now; investors may show the confidence to shrug off more bad economic reports. Stocks have already moved above the November 2008 and March 2009 lows so the most immediate resistance levels have been surpassed. The earnings season has pretty much finished so we have a few calm weeks before the next batch of potentially bad company results can derail this rally. It seems we are in at least a temporary sweet spot and the baton has been passed to the bulls.



Saturday, March 14, 2009

Free stock alerts, Trend Leaders, Bollinger Band Breakouts and Cash Flow Kings for March 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 about 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.

In addition to alerts, we also have our lists of Trend Leaders, a collection of stocks in strong up-trends, Cash Flow Kings whose free cash flow yield is 25% or greater and Bollinger Band Breakouts, stocks or ETFs that have moved at least 1% above their upper Bollinger Band or at least 1% below their lower Bollinger Band. These lists are all available on the Trend Leaders page.

Here is what we have this week --

Stocks staged quite a turnaround this week, prompting a resumption of the debate over whether this is "A Bottom" or "THE Bottom". Whatever it is, major averages rose roughly 10% this week despite more awful employment numbers and GE losing its AAA rating. Bulls were happy to hear that Citigroup actually had two profitable months and that retail sales slipped a mere 0.1% in February. There was discussion in Washington of the uptick rule and mark-to-market accounting (Wall Street likes the former and hates the latter). No decisions were made but just knowing these issues were on the table was enough to help propel stocks upward this week.

So this week, we see more cheerful results at Alert HQ. The number of BUY-signal Alerts are up. The number of TrendLeaders held steady. Inverse ETFs are now on the SELL lists. Here is the breakdown for this week:

  • based on daily data, we have 47 Alert HQ BUY signals and 6 SELL signals.
  • based on weekly data, we have 6 Alert HQ BUY signals and 10 SELL signals.
  • based on daily data, we have 58 Trend Leaders.
  • based on daily data, we have 239 Bollinger Band Breakouts. We also have 300 Breakouts based on weekly data.
  • finally, we have 984 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!



Wednesday, March 11, 2009

Announcing release of TradeRadar software version 4.0

This post is to announce the release of the newest version of the TradeRadar software. Version 4.0 is now available on the TradeRadar Download page in two flavors: a full install and a simple upgrade. We feel this version has some really serious improvements that should make the software more helpful and easier to use.

New Features in version 4.0 --

The major new features in this version include the addition of new indicators on the Dashboard screen, Fibonacci retracement lines on the Chart screen and use of intra-day data. You can check out screen shots and read the help file on our Features page.

New indicators:
  • MACD – technical analysis indicator that shows whether a stock or ETF is trending up or down.
  • 50-period moving average confirmation – For a BUY signal, this indicator shows whether the closing price is more than 1% above the 50-period exponential moving average. For a SELL signal, it shows whether the closing price is more than 1% below the 50-period exponential moving average.
  • A bundle of new fundamental indicators have been added – Annualized Cash Flow Yield, Price-to-Book ratio, Debt-to-Equity ratio, Free Cash Flow to Debt Coverage and Survivability. Simple explanations of what they mean are displayed on the Dashboard screen.
As you can see, the new indicators are intended to both help with trend and technical analysis as well as determining whether the stock is a bargain, is over-priced or is risky because it is drowning in debt.

As always, all indicators come with the green/red/yellow LEDs signifying Go/No-Go/Caution. You can tell at a glance which criteria a stock is meeting.

Other Improvements:
  • Added Fibonacci Retracement lines on the chart screen. It is now easy to see whether a pullback has reached one of the Fibonacci levels.
  • Added ability to retrieve intra-day prices. You no longer need to wait until Yahoo updates their historical data (usually after 10:00PM eastern time) before you can get the latest price information. During the day while markets are open, TradeRadar will retrieve the latest price (with 20-minute delay). After the market closes, you will have the final data for the day available for your analysis.
  • Added a big ol' button to the main program screen that launches the Chart screen. No need to pull down a menu any more.

Improved install process --

When performing the full install of the TradeRadar software, some users received the dreaded error message related to replacing files and having to to reboot. This often led to a vicious cycle of running the install and rebooting and running the install and rebooting and so on.

This problem should no longer occur. Just run the "install.bat" batch file and the process should go smoothly with no reboots required.

Feedback welcome --

Try the new version of TradeRadar. Let us know how it works for you. Feel free to leave your opinions in the comments or email TradeRadarOperator directly (see the Contact Me box in the left sidebar). I am always happy to respond to questions on the install process or any other issues you may encounter.

I hope you enjoy using TradeRadar version 4.0!



Tuesday, March 10, 2009

Starent Networks - in the sweet spot

This past weekend we ran our Alert HQ process and once again found a slew of inverse ETFs on the Trend Leaders list (hopefully that may change by this coming weekend). One of the few tech stocks on the list is Starent Networks (STAR). Not being familiar with the company I wondered why it's doing so well while so many other companies are sinking.

Background --

Starent Networks was founded in August of 2000, with the intent of providing mobile operators with the systems required to deliver a multimedia communications environment to their subscribers. The company supplies high-performance solutions that act as the subscriber-management gateway between radio networks and the IP network, such as the Internet. The solutions are access independent allowing them to serve a wide variety of mobile broadband radio technologies, such as, UMTS/HSPA, CDMA2000, WiFi, WiMAX and Femto networks. Over the past 8 years, the company has deployed its solutions in over 85 mobile operator networks in more than 35 countries. Customers include Verizon Wireless in North America, KDDI in Japan, SK Telecom in Korea, China Unicom and many others in all major regions of the world.

What this means is that Starent is in the sweet spot for mobile communications today. The company provides IMS or IP Multimedia Subsystems that allow cell phone users to connect to the Internet and browse the web, watch movies, listen to music, check email, etc. These systems act as the gateway between the Internet and the wireless world.

With the surge in smart phone usage and the increasing adoption of data plans by cell phone customers of all kinds, Starent finds its products in demand. Telecom system providers need to be able to provide a robust, high-speed Internet experience to their customers and increasingly Starent is being selected as the preferred solution.

The stock has nearly doubled so far this year and technically speaking, it is in a clear up-trend with all moving averages looking very positive.

Chart of Starent Networks (STAR), 03-10-2009
Financials --

Starent has a market cap over $1B. Net income grew 42% over both the last two quarters. The company has no long term debt. According to Reuters, the company has a 5-year sales growth rate of 325%. Gross margin is higher than the industry average. The PEG ratio is a mere 0.66 and return on assets is significantly better than the industry and sector average. This explains why the stock has been performing so well.

Unfortunately, the stock cannot be considered to be a bargain any more. With a PE of 20, Price-to-Sales of 4.37 and a Price-to-Cash Flow ratio way above industry average, the stock is getting a little expensive when compared to the beaten down numbers associated with most of the other companies in the sector.

Still, growth stories are seldom cheap for long and it appears Starent is currently in a serious growth phase. This looks to me like one of those situations where buying the dips is the right strategy.

Disclosure: none



Monday, March 9, 2009

Is Qualcomm going up against Intel?

It's been months and months since I last wrote about Qualcomm (QCOM). The company has had a resurgence of sorts. The stock is actually showing a gain so far in 2009. They just increased their dividend at a time when so many other companies are slashing theirs.

So the question is, can they keep it up?

The company provided guidance during their last earnings conference call that indicated shipments would be down but not drastically, as sales of cell phones were expected to be weaker on a year-over-year basis. Still, the company expects to be a prime beneficiary of the roll-out of 3G in China. And they are feeling optimistic after resolving their legal problems with Nokia (NOK) and booking $2.5B to renew the license agreement.

Qualcomm may be acting a bit over-confident but, on the whole, there is little doubt that they will be one of the companies that will come out of this recession as a survivor.

What is interesting, however, is where the company's strategy seems to taking it. I'm talking about Snapdragon.

Snapdragon is Qualcomm's attempt to create a platform for mobile computing devices. They seem to have all the parts in place: 1GHz processor, digital signal processor, Wi-Fi, GPS, camera, high resolution graphics and TV, multiple audio formats and various wireless technologies including Bluetooth. The platform is optimized for low power usage and can be combined with different RF solutions such as Qualcomm's CDMA or the European standard GSM, as in the Toshiba TG01. That's right, Qualcomm already has a design win in the Toshiba device which is somewhat of an iPhone clone.

The Snapdragon platform is meant to run either Linux or Windows Mobile. Qualcomm demonstrated a prototype that runs Google's Android operating system, as well. The CPU is the ubiquitous ARM processor. With high quality graphics, the platform has the potential to be a hand-held gaming device. The company also suggests the platform as the basis for netbooks.

What does this remind me of? I recently wrote about the recent agreement between Intel (INTC) and Taiwan Semiconductor (TSM). This agreement signifies Intel's aspiration to become a serious player in mobile computing devices or, as Intel calls them, mobile Internet devices.

Whereas Intel is looking to provide the processing power and allow Taiwan Semiconductor to build the system components around the processor, Qualcomm is offering the platform as an integrated multifunction unit.

In both cases, the companies are looking out long-term. Except for smart phone applications, there really are no killer apps that are crying out for the devices being offered. Are they solutions in search of a problem?

It appears that both companies are looking at a trend that is becoming more and more prevalent. Design wins are becoming a function of how much integration can be offered by a vendor. By saving their customers the effort of designing and integrating multiple functions, these companies can offer greater value and a solution that is easier for the customer to mold into a finished product. This is the same story we heard from Skyworks Solutions (SWKS), for example.

In this competition, it looks like Qualcomm has a lead on Intel with respect to integration. Qualcomm is also a prime vendor in the cell phone industry whereas Intel is just scratching surface there. Still, Intel is already a major player in netbooks while Qualcomm has yet to see a Snapdragon-based netbook hit store shelves.

It will be interesting to see how this plays out as these two companies, leaders in their respective industries, increasingly find themselves competing with each other.



Sunday, March 8, 2009

Weekly Review - a very consistent market: all bad news and falling stock prices

Alright, let's just get the bad news out of the way.

The week started with a thud as AIG reported the biggest quarterly loss ever, over $60B. Not to be outdone, HSBC reported a big drop in profits and announced it is shrinking its U.S. operations, adding another 6100 people to the unemployment rolls. Then U.S. Bancorp and Wells Fargo announced big divident cuts. You get the idea: financials under pressure yet again. The one day when the market did rally this week, the financial sector still lost ground.

Economic reports provided no relief. February job losses came in at 650,000 which was inline. It is a sad comment that an atrocious number like that is considered less than shocking. To add insult to injury, the unemployment rate jumped from 7.6% to 8.1%. This was definitely worse than expectations. The Fed Beige Book painted a consistent picture of economic weakness. January pending home sales dropped 7.7%, which was twice as bad as the expected decline of 3.5%. In the meantime, mortgage delinquencies continued their inexorable climb.

In company specific news, retail sales were awful for almost everyone except Wal-Mart. Auto sales were similarly terrible, further feeding fears of a GM bankruptcy filing.

Now for the good news. Oh, there wasn't any. Sigh...

It goes without saying that this market action is killing our TradeRadar statistics. Our charts are getting pretty close to the point where they can't get much worse. Read on for the details...

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, 03-06-2009
First, note that I had to expand the scale on the right to accommodate the drop in the price of SPY - not a good sign. The number of stocks whose 20-day MA is above their 50-day MA has dropped precipitously. Proving that the market is anything but logical, the number of stocks above their 20-day MA dropped well below one thousand while, as the chart shows, the number of stocks above their 50-day MA actually increased very slightly for the second week in a row. This implies that stocks will have a lot of work to do to get this chart looking bullish again.

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, 03-06-2009
As can be seen, we are reaching extremes on this chart, too. The number of stocks in up-trends is getting perilously close to zero while the number of stocks in down-trends has exceeded all other readings except for the peak registered last October.

Conclusion --

The last few weeks stocks have moved relentlessly downward. Every indicator reflects the exceedingly oversold nature of the current market situation. Our charts show that things can hardly get any worse. Yet the state of the economy offers nothing much to improve investor sentiment.

There are only two themes that provide hope for the markets lately. The first is the "stocks are cheap" thesis. The other is government support. We await the benefits of the stimulus package, the TALF, the TARP, the further bailouts of Citi, AIG and BofA and so on. Ben Bernanke stated the Fed will do whatever it can. The bank stress tests are underway. At some point, investors are looking for all this to start turning the economy around. But when?

This coming week, there is a modest roster of economic reports: wholesale inventories, crude oil inventories, retail sales, business inventories, weekly jobless claims and Michigan sentiment.

What is most anticipated is the discussion in Congress this week of the mark-to-market rule. If the government can't save the banks by pumping money in, the hope is that banks will be given the opportunity to ignore the losses on their illiquid securities.

I can't help but think that we are way overdue for a bounce but, as I write this, I see that the Nikkei has now gone negative after an initial run-up. Is there another week of grinding losses coming up?



Saturday, March 7, 2009

Free stock alerts, Trend Leaders, Bollinger Band Breakouts and Cash Flow Kings for March 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 about 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.

More than just alerts...

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 --

Another rotten week resulted in major averages dropping 6% to 7%. The Russell 2000 dropped almost 10%. How much worse can things get?

To get the week started on a sour note, AIG reported the biggest quarterly loss ever. Economic reports were again poor, especially related to employment, or the lack thereof. As auto sales plummeted, bankruptcy was described as a real possibility for GM and it was GM who was saying it. The only bright spot was if you were a shareholder of Wal-Mart, who again reported better than expected same store sales. All else was gloom and sadness.

As you might guess, we continue to see the pressure at Alert HQ. The number of Alerts are down. The number of TrendLeaders continues to dwindle and so on. Here is the breakdown for this week:

  • based on daily data, we have 4 Alert HQ BUY signals and 8 SELL signals.
  • based on weekly data, we have 1 Alert HQ BUY signal and 13 SELL signals. This week we have modified the criteria. Whereas we used to require a stock be above its 50-week moving average in order to generate a BUY signal we now only require it to be above its 20-week MA.
  • based on daily data, we have 59 Trend Leaders.
  • based on daily data, we have 510 Bollinger Band Breakouts. We also have 1854 Breakouts based on weekly data.
  • finally, we have 1095 Cash Flow Kings. As stock prices continue to sink, we have more and more stocks whose cash flow yield is increasing, allowing them 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!



Thursday, March 5, 2009

ProShares ETF links - the big list for Mar 5, 2009

It has been over two months since the last time we presented a links post focused on ProShares ETFs. With markets plunging, the inverse ETFs are certainly prompting a lot of discussion, both pro and con.

As usual, today's list is comprised mostly of posts from Seeking Alpha but we also have some from the Wall Street Journal, Forbes, MarketWatch, TradingMarkets.com, and CNBC. As always, I recommend that you click through to the authors own sites after reading the posts on the Seeking Alpha site.

Thu,
Mar 5
TBT
Street Skids; Jobs Report Looms
Thu,
Mar 5
SKF
AT&T, ProShares UltraShort Financials: Money Flow Leaders (T, SKF)
Thu,
Mar 5
YCL
YCS
Japanese Scandals Inadvertently Intervene to Soften Yen
Thu,
Mar 5
SKF
Citigroup Breaks $1: 'We Need a Bolder Plan' to Fix Banks, Sonders Says
Thu,
Mar 5
SIJ
SKF
TradingMarkets 7 ETFs You Need to Know for Friday
Thu,
Mar 5
SKF
Leveraged inverse ETFs for financials gorge on sell-off
Thu,
Mar 5
SKF
Options Trader: Outlook for a Thrill-Ride Thursday
Thu,
Mar 5
SCO
Crack Spread Calculations Demystified
Thu,
Mar 5
DUG
SMN
SSG
Short Covering and ETFs: Profiting from Materials, Energy, Chip Sectors
Wed,
Mar 4
SDS
CORRECTION: Are ETFs Distorting The Market?
Wed,
Mar 4
SKF
Options Trader: Wednesday Outlook
Wed,
Mar 4
SSO
Where Leverage Will Help You in This Market
Wed,
Mar 4
SRS
Triple A-Rated CMBS and ABS Securities a Good Bet
Tue,
Mar 3
SKF
UYG
Two Financial ETFs to Watch This Week
Tue,
Mar 3
QID
Options Trader: Outlook for TALF Tuesday
Tue,
Mar 3
DOG
DXD
EFU
Portrait of a Bear: Inverse ETFs Rule
Tue,
Mar 3
SSO
Are We Seeing Market Capitulation?
Mon,
Mar 2
UCO
Options Boil on Oil & Gas
Mon,
Mar 2
DXD
EFU
MZZ
PSQ
QID
REW
How to Trade in a Crisis
Mon,
Mar 2
SH
Market Summary: Good Riddance to the Worst February on Record
Mon,
Mar 2
TBT
Where Jim Rogers, Marc Faber and Doug Casey Investing Their Money in This Market?
Mon,
Mar 2
EUO
Will the Euro Survive?
Mon,
Mar 2
DOG
ETF Update: Absolutely Nothing to Love
Sun,
Mar 1
DOG
SDS
SH
Complacency and Lack of Support Highlight Need for Risk Management
Fri,
Feb 27
SDS
Are ETFs Distorting The Market?
Fri,
Feb 27
SRS
S&P Lowers Insurers Ratings, What About Banks' $400B CMBS Losses?

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



Tuesday, March 3, 2009

Who else benefits from Intel - TSMC partnership?

Intel (INTC) and Taiwan Semiconductor (TSM) announced an agreement this week where TSMC would gain the rights to use Intel Atom processors as part of custom "system-on-a-chip" devices. These devices would be customized by TSMC according to individual customers requirements. The expectation is that the chips would be used in everything from netbooks to handheld gadgets. This is a good deal for both companies. TSMC has a new solution to offer its customers and Intel will more easily be able to get its processors in new devices such as smartphones.

This seems to be an extension of Intel's strategy of moving into new markets. The company has been trying to push into "mobile Internet devices" or MIDs. These MIDs are intended to be based on the Atom chip and Intel is working on a smaller, lower-powered version tailored to use in cellphones, smartphones, automotive systems and other yet to be determined devices.

Intel's work is cut out for it. ARM processors, made by the British company ARM Holdings Plc (ARMH), are currently the market leaders and are used in many well-known devices made by Apple, Palm and others. They have attained this status by being highly customizable and by being very power efficient. And also because small, lightweight operating systems can run on them.

Apparently, Intel is looking to use Linux as their lightweight operating system on MIDs and the company has been hiring top Linux developers to jumpstart the programming effort.

So if the various versions of the Atom processor find their way into popular devices, and that is a big "if" given Intel's less than stellar performance in the mobile space thus far, the next battle will be over software. Intel is committing to Linux but what about long-time partner Microsoft?

Microsoft's Windows operating system already runs on Atom chips. I can't imagine Microsoft not trying to push Windows Mobile or some stripped down version of the upcoming Windows 7 onto some of these devices. As much as Microsoft must be irritated that Intel is committing to Linux, I suspect that Microsoft is hoping Intel's push into new markets will be wildly successful. Where the Atom goes, Microsoft can follow.

Disclosure: none



Monday, March 2, 2009

Picture of the bear

Every week we scan and test all the stocks on the major exchanges as part of our Alert HQ process. A 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.

TrendLeaders paint depressing picture of a bear market --

This week we have 61 stocks and ETFs on the list. The total number has been declining steadily over the last few weeks. The nature of the securities comprising this week's list show how badly stocks in general are performing - more than half of our Trend Leaders are inverse ETFs.

Not only do we have a bunch of the usual ProShares ETFs on the list but we see that the Direxion Bear 3X ETFs are well represented as are a number of Rydex Inverse 2X ETFs.

Here is the list of inverse ETFs. Prices are as of the close last Friday; I suspect they are all up nicely after today's market rout.

SymbolETF NameLastPrice
BGZDirexion Large Cap Bear 3X Shares90.58
DOGProShares Short Dow3083.03
DPKDeveloped Markets Bear 3x Shares106.53
DXDProShares UltraShort Dow3077.09
EFUProShares UltraShort MSCI EAFE135.18
EFZProShares Short MSCI EAFE105.7
EWVProShares UltraShort MSCI Japan105.716
MWNDirexion Mid Cap Bear 3X Shares94.01
MYYProShares Short MidCap40079.145
MZZProShares UltraShort MidCap40075.46
PSQProShares Short QQQ77.34
QIDProShares UltraShort QQQ62.65
RFNRydex Inverse 2x S&P Select Sector Financial58.331
RHORydex Inverse 2x S&P Select Sector Health69.97
RRZRydex Inverse 2x Russell 2000131.06
RSWRydex Inverse 2x S&P 500158.97
RWMProShares Short Russell200080.73
RXDProShares UltraShort Health Care74.04
SCCProShares UltraShort Consumer Services108.68
SDDProShares UltraShort SmallCap60095.26
SDKProShares UltraShort Russell MidCap Growth93.22
SDSProShares UltraShort S&P50098.72
SFKProShares UltraShort Russell1000 Growth97.77
SHProShares Short S&P50085.95
SIJProShares UltraShort Industrials89.55
SJFProShares UltraShort Russell1000 Value160.73
SJHProShares UltraShort Russell2000 Value104.46
SJLProShares UltraShort Russell MidCap Value117.71
SKFProShares UltraShort Financials177.85
SKKProShares UltraShort Russell2000 Growth84.21
SZKProShares UltraShort Consumer Goods99.07
TWMProShares UltraShort Russell200091.91
TZADirexion Small Cap Bear 3X Shares80.5


A few stocks still fight the bear --

What other stocks complete this picture of the bear?

Well, there are several gold stocks, for example: Gammon Gold (GRS), Central Gold Trust (GTU) and Seabridge Gold (SA). With the whole stock market and gold itself down today, these stocks all took a hit; nevertheless, their charts are still looking a lot more attractive than most.

There has been much written about people "trading down" and shopping at Walmart. It appears the same thing is taking place with respect to food. Dinner at fancy restaurants is out but pizza is in. Take a look at Papa John's (PZZA) - they were one of the few stocks to register a gain today.

Italians have always known that pasta helps stretch the food budget. Perhaps that explains why American Italian Pasta Company (AIPC) is doing well lately.

Finally, special situations always get investor attention. As a result, Genentech (DNA), the object of a takeover bid, is on the list. Unfortunately, the stock plunged 4.6% today and fell below its 50-day and 200-day moving averages. Perhaps investors were betting that Roche will not be able to accomplish their buyout of DNA.

Conclusion --

The bear, it seems, is firmly charge again. Our TrendLeaders list started out with a couple of hundred stocks and only a few ETFs. Now the list is dominated by inverse ETFs and a dwindling number of stocks that fit the recessionary mood.

There have been a number of blog posts that suggested that when inverse ETFs become especially popular it is a sign of a market bottom. Lately, though, the market looks bottomless. This is a situation only a contrarian could love.




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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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