Monday, August 31, 2009

Q2 Growth Report - Part 1

Today's Wall Street Journal had an article that asked the question "Can Rally Run without Revenue?" Is the revenue situation really that bad?

Let's take a quick look at some the data compiled through the Alert HQ process.

After each quarter's earnings season, I try to pull together what I am now calling the Growth Report. Part 1 compiles the list of stocks that have shown a year-over-year increase in both revenue and earnings AND a sequential quarter-over-quarter increase in both revenue and earnings. Given the severity of the economic downturn, very few companies have been able to to pull off this trick.

The following table presents a comparison of the last two quarters:


Q1-2009Q2-2009
In S&P 5002741
All stocks
218312

The number of stocks in the S&P 500 that qualify as growth leaders and have made it onto the Q2 Growth Report has grown by 50%.

Similarly, looking at the entire stock market, the number of growth leaders has almost doubled in Q2 as compared to Q1.

The following chart shows the S&P 500 over the course of the last couple of years. This chart shows that in a year-over-year comparison stock prices, as well as revenues and earnings, were considerably higher than they are currently. This indicates what an accomplishment it is to have made it onto our Growth Report.


Repeat winners --

Note that there are 66 stocks that made the list in both quarters. These guys are the real growth leaders so I feel compelled to list them all here:

SymbolName
AFAMAlmost Family Inc
AIRMAir Methods Corporation
AMEDAmedisys Inc
APTALPHA PRO TECH, LTD.
ASIAAsiaInfo Holdings, Inc.
BUCYBucyrus International, Inc.
CACCCredit Acceptance Corporation
CACICACI INTERNATIONAL CLA
CFSGChina Fire & Security Group, Inc.
CMCSAComcast Corporation
CMCSKComcast Corporation
CMGCHIPOTLE MEXICAN GRILL, INC.
CNQRConcur Technologies, Inc.
CNUCONTINUCARE CORPORATION
COCOCorinthian Colleges, Inc.
CRMSALESFORCE.COM, INC.
CRNCORNELL COMPANIES, INC.
CTFOChina TransInfo Technology Corp.
CUBCUBIC CORPORATION
CYHCOMMUNITY HEALTH S. (NEW)
DGXQUEST DIAGNOSTICS INC.
DLMDEL MONTE FOODS COMPANY
EBIXEbix Inc
EBSEMERGENT BIOSOLUTIONS, INC.
EMSEMERGENCY MEDICAL SERVICES CORPORATION
ESLTElbit Systems Ltd.
FCNFTI CONSULTING, INC.
FMRFIRST MERCURY FINANCIAL CORPORATION
GTSTRIPLE-S MANAGEMENT CORP.
GXDXGenoptix, Inc.
HGRDHealth Grades, Inc.
HTSHATTERAS FINANCIAL CORP.
IDCCInterDigital, Inc.
INMDIntegraMed America, Inc.
JJSFJ & J Snack Foods Corp.
LHLABORATORY CORP. OF AMER.
LINCLincoln Educational Services Corporation
MEDMEDIFAST, INC.
MHSMEDCO HEALTH SOLUTIONS, INC.
MTRMESA ROYALTY TRUST
NHCNATIONAL HEALTHCARE CORP.
ORLYO'Reilly Automotive, Inc.
PEGAPegasystems Inc.
PSYSPsychiatric Solutions, Inc.
RAXRACKSPACE HOSTING, INC.
RGRSTURM, RUGER & COMPANY, INC.
RMDRESMED INC.
ROSTRoss Stores, Inc.
SEPSPECTRA ENERGY PARTNERS, LP
SFSTIFEL FINANCIAL CORP.
SNAKThe Inventure Group, Inc.
SQMSOCIEDAD QUIMICA Y MINERA DE CHILE SA
SRCLStericycle, Inc.
SVTSERVOTRONICS, INC.
TNDMNeutral Tandem, Inc.
TRCRTranscend Services, Inc.
TRUTORCH ENERGY ROYALTY TRUST
TSTCTelestone Technologies Corp.
TTEKTetra Tech, Inc.
TYLTYLER TECHNOLOGIES, INC.
UHTUNIVERSAL HEALTH REALTY INCOME TRUST
VITVANCEINFO TECHNOLOGIES INC
VRVALIDUS HOLDINGS, LTD.
WMSWMS INDS, INC.
WOOFVCA Antech, Inc.
YORWThe York Water Company


Conclusion --

So the Wall Street Journal has a point. It's true that cost cutting can't support rising stock prices for long; however, it's clear that slowly but surely revenues and earnings are indeed improving. There has been a significant increase in the number of stocks that are making our rather exclusive club of growth leaders. That can't be bad for the market outlook.

Click this link to download a spreadsheet that lists all the individual stocks that qualified for the Q2 Growth Report.

You may also be interested in Part 2 of the Q2 Growth Report listing those stocks that have found a way to raise their dividends despite the challenging economic backdrop.

Disclosure: no positions in stocks mentioned in this post



Saturday, August 29, 2009

So why shouldn't stocks continue to rise?

It's been a month since I last posted charts of the statistics we track at Alert HQ. Are there any new insights we can gather from a review of these charts?

In the last month, the major averages have doggedly managed to climb a few percent, while all the while bears have been saying stocks are over-priced and heading for a fall.

Fundamentally, economic reports have been rather benign though stubbornly high levels of unemployment remain a worrisome factor.

Earnings season continued through the month and is pretty much over now. Many stocks beat lowered expectations and a good number also provided decent forward guidance.

So why shouldn't stocks continue to rise?

The two main weapons in the bears arsenal are:

  • Stocks have outrun their fundamentals. Both trailing and forward PEs are way too high compared to historical norms
  • Stocks are over-bought. The rally from the March lows has been virtually uninterrupted. A pullback is due.
My answer to the bears would be: "Yeah, maybe."

Here's why:
  • Formulating forward PE ratios is notoriously difficult. Bears could just as easily be wrong as right.
  • If you give export demand due to recovering emerging economies greater weight in your analysis, perhaps forward PEs may not be that high after all.
  • Economic indicators are slowly (sometimes very slowly) improving. Virtually none are appreciably worse than they were a few months ago.
  • Sure, stocks appear to be over-bought. But given that we have emerged from a generational bear market low and the economy is clearly on more solid footing, should it be any surprise that the market is rising steadily and could continue to rise? Right now, volume is low and there are not many signs of the kind of widespread speculation that marks a top (though there is some evidence of it happening among the financials).
  • Interest rates will not go up anytime soon.
  • We will of course have minor pullbacks along the way but the return to the March lows seems to become less likely every day. So why not be bullish?
Well, those are my opinions. So where are the markets today and where might they be going? We look for clues in some of the charts that follow.

The view from Alert HQ --

Charts of some of the statistics we track at Alert HQ are presented below:

SPY vs the market, Moving Average Analysis, 08-28-2009
The above chart, illustrating our moving average analysis, is at a bullish level but is indicating caution. Note that the number of stocks above their 50-day MA is slightly below the number of stocks whose 20-DMA is over their 50-DMA. This does indicate that, in the short term, this rally could be running out of steam and pullback could occur in perhaps a couple of weeks. This chart is an example of the over-bought thesis where roughly 80% of stocks are above their 50-DMA and, to many market observers, that seems like too many.

In a bull market, however, this chart takes on the characteristics of an oscillator. In other words, with each rally, the levels will reach where we are today. Each pullback will reduce the levels somewhat and then each subsequent rally will push the levels up again. I suspect that the 80% to 85% range can be considered a maximum bullish level and that's about where we are now.

The next chart provides our trending analysis. It looks at the number of stocks in strong up-trends or down-trends based on Aroon analysis.

SPY vs the market, Trend-Analysis, 08-28-2009
Here we see the number of stocks in down-trends sitting at a pretty low level while the number of stocks in up-trends hit a peak, then weakened and is now in the middle range.

According to this chart, stocks are not particularly frothy or over-bought. Strong up-trends have been broken as stocks have moved sideways over the last week. Could the number of stocks in up-trends surge higher? Well, there is plenty of room for that to happen since we are not at an extreme level.

The interesting anomaly in this chart is that while the number of stocks in up-trends has dipped there has been no corresponding rise in the number of stocks in down-trends. Stocks are essentially treading water. I would interpret that to mean there is an underlying strength in this market.

Conclusion --

The two charts presented today do not paint a picture of a severely over-bought market that is ready to plunge.

It is likely that a pullback will occur within a week or two but I see nothing that would suggest that the pullback will be anything but minor.

So pick out a few stocks you would like to own (I'd suggest looking around at Alert HQ, maybe on the Trend Leaders list). There should be an opportunity soon to pick them up at prices 5% to 10% lower than they are today.



What does CMF say about the stock market this week?

Does this rally have any gas left? Don't know what CMF means? Hopefully, we can shed some light on both topics.

After a week of consolidation, where every day stocks struggled to close with a gain, I thought it might be a good idea to look at one of the indicators that takes into account the closing price relative to the high and low.

That indicator is Chaikin Money Flow. Developed by Marc Chaikin, the Chaikin Money Flow oscillator is calculated from the daily readings of the Accumulation/Distribution Line. The basic premise behind the Accumulation Distribution Line is that the degree of buying or selling pressure can be determined by the location of the Close relative to the High and Low for the corresponding period (Closing Location Value). There is buying pressure when a stock closes in the upper half of a period's range and there is selling pressure when a stock closes in the lower half of the period's trading range.

In this chart of the S&P 500, we can see the tails on the candlesticks have been rather long for the last five trading days while the closing prices have shown little gain or loss. As shown by Aroon, however, the primary trend is still very strongly up for this index.

We have used the Chaikin Money Flow indicator to evaluate whether the trend may be about to change. As can be seen at the bottom of the chart, CMF has been trending downward for most of August. This divergence with the main price trend is generally considered a warning signal that the current trend may be close to being exhausted.


The next chart shows the same indicators applied to the NASDAQ 100.


In this case we get nearly the opposite result!

Here again Aroon shows the primary trend is up but it appears to be weakening. Though the green Aroon UP line is still at its maximum value (this is very bullish), the red Aroon Down line has made a significant turn upward (a bearish development). All during the month of August, CMF has shown a divergence with the primary trend until the last two days when CMF finally started turning up.

Conclusion --

With respect to the S&P500, Chaikin Money Flow would seem to be telling us that the index is about to drop. We are getting a similar signal for the NASDAQ, that is, if you can ignore the last couple of days where CMF gained.

My interpretation is not that we are going to get a significant drop but that there is about to be another rotation in market leadership. The NASDAQ has recently shown the most weakness with CMF nearly going negative this week and the Aroon Down indicator strengthening. It may seem counter-intuitive but I think this recent negativity paves the way for the NASDAQ to again take the leadership role in this market.

Here's where I have to pull in some fundamental data in order to make the argument. With good numbers for tech in the Durable Goods report this week (read our post about it here) and Intel's bright outlook (read about it at Barron's), I think we will see investors begin to gravitate away from financials and back to tech. Indeed, the frothy action in financials recently is causing many observers to predict the market, or at least the financial sector, is ripe for a fall (see this post from Peridot Capitalist as one of several examples).

I suspect this rotation in leadership will pressure the S&P 500, allowing its CMF to get down to a more over-sold level. In the meantime, this rotation should support further gains in the NASDAQ and we could see its primary trend continue upward, confirmed by an increasing CMF.

Disclosure: none



Weekend Winners and Losers - Alert HQ BUY and SELL signals for August 28, 2009

This post is to announce that the weekend's stock signals are available from Alert HQ.

Each week we scan about 7300 stocks and ETFs, checking fundamentals, performing technical analysis and looking for fresh BUY and SELL signals. Out of this process we generate the following lists:

  • Alert HQ stock alerts - based on a combination of proprietary and standard technical analysis techniques, we identify stocks or ETFs that are undergoing reversals, either to the upside or to the downside
  • Trend Leaders - a collection of stocks in strong up-trends
  • Cash Flow Kings whose free cash flow yield is 25% or greater
  • 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
  • Swing Signals - stocks that have bounced off a higher or lower Bollinger Band
  • Trend Busters - stocks or ETFs that have violated a current trend.
The view from Alert HQ --

It was a pretty ho-hum week in the stock market. The three major averages finished the week with fractional gains while the Russell 2000 finished with a fractional loss. Financials and tech led the gainers and I have to say it was good to see tech get its mojo back.

None of the economic reports had much of an effect on investors as most of them, despite being pretty decent, were reasonably within the range of expectations. This included home sales, personal income and spending, weekly initial jobless claims, Durable Goods, Consumer confidence and preliminary Q2 GDP.

Company specific news that reverberated most with me included Dell's better than expected earnings report and positive outlook which was followed by Intel also raising their outlook, increasing guidance for the coming quarter and indicating a continued firming in demand. These items lit a fire under tech in general and semiconductors in particular.

Though stocks finished mostly with small gains, it hides the fact that every day this week was a struggle to avoid a loss. This uncertainty is reflected in our signals at Alert HQ. We see a shrinkage in BUY signals, for example. Though our list of Trend Leaders has grown compared to a week ago, it hit its peak mid-week. On the other hand, Swing Signals and Trend Busters continue to lean to the bullish side.

So the market has spent a week consolidating. Earnings season is pretty much over. "Less bad" economic reports are losing their ability to move the market significantly. Volume is low. Are we in the summer doldrums?

This week's results --

Here is the detailed breakdown for Alert HQ for this weekend:
  • Based on daily data, we have 4 Alert HQ BUY signals and 9 SELL signals
  • Based on weekly data, we have 5 Alert HQ BUY signals and 22 SELL signals
  • Based on daily data, we have 491 Trend Leaders. 62 new stocks joined the list since Thursday and 100 fell off the list since Thursday.
  • Based on daily data, we have 101 Bollinger Band Breakouts but we also have 309 Breakouts based on weekly data.
  • We have 798 Cash Flow Kings
  • Based on daily data we have 40 Swing Signals of which 26 are BUY signals and 14 are SELL signals.
  • Finally, we have Trend Busters with 15 signals based on daily data (10 BUY signals and 5 SELL signals) and 32 based on weekly data (21 BUY signals and 11 SELL signals).
Using our signals --

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.

If you're a momentum trader, the Trend Leaders 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. If you do favor technical analysis, check out the Trend Busters. And if you are a short-term trader or even a day trader, our Swing Signals may provide some good trading ideas. See them all at Alert HQ.

Remember, we also provide our latest updated Swing Signals, Trend Leaders and Trend Busters on Tuesday and Thursday nights.



Thursday, August 27, 2009

Thursday Swing Signals, Trend Busters and Trend Leaders for August 27, 2009

This is a quick post to announce that Thursday's Swing Signals, Trend Leaders and Trend Busters are now available at Alert HQ. All are based on daily data.

Today we have the following:

  • 30 Swing Signals -- 21 BUY signals and 9 SELL Signals.
  • 529 Trend Leaders, all in strong up-trends according to Aroon, MACD and DMI. We have 159 stocks that are new additions to the list and 97 that fell off the previous list.
  • 16 Trend Busters of which 10 are BUY signals and 6 are SELL signals.
The view from Alert HQ --

Thursday's signals always coincide with the release of initial jobless claims. This week, claims decreased a tiny bit and continuing claims did likewise. This was not enough to incite a rally and stocks dropped, only managing to struggle back and finish the day with the smallest of gains. Advance GDP for the second quarter was also released today and came in at -1%, better than consensus, but received no reaction from investors.

With respect to Alert HQ, we can make the following observation: Swing Signals down, Trend Leaders up. A week ago, we had a ton of Swing Signals but less than 200 Trend Leaders. It's good to see the number of stocks on the Trend Leaders list increase and it seems we are still in the range where we could see even more Trend Leaders before stocks get really overbought.

Though we have fewer Swing Signals, they again reflects bullishness as BUY signals outnumber SELL signals. We see the same situation in our Trend Busters.

It seems that each day gains in the major averages are exceedingly hard fought but, nevertheless, it's gains that we are seeing. Though it certainly feels like stocks are about to drop, our signals are not really showing much weakness. As I've said before, a sidewise market seems the most likely outcome in the very near term.

Using our signals --

If you're a momentum trader, the Trend Leaders list is a good place to go shopping. If you practice technical analysis, check out the Trend Busters. And if you are a short-term trader or even a day trader, our Swing Signals may provide some good trading ideas.



Wednesday, August 26, 2009

Finally! Tech turns the corner - Durable Goods report for July-09

The Durable Goods report for July was released today. Should tech sector investors be happy?

OK, the answer was revealed in the title of this post. Yes, it's looking like tech has truly established a bottom and has begun to carve out a new trend to the upside.

Shipments --

First, we'll take a look in the rear-view mirror and review the Shipments data. The following chart shows the summary data for the tech hardware sector as a whole. Month-over-month, shipments increased 7.4% and it sure looks like the downtrend has finally been broken.


This next chart focuses just on those hardware manufactures involved in computers and related products. The gain here, 2.7%, is less dramatic but again it looks like a durable bottom has been put in and improvement is underway.


This third chart is focused on Semiconductors. Here we have the star of the tech sector. Semis just put in a 43% increase in shipments month-over-month.


New Orders --

Looking to the future, let's review the New Orders data.

In the following chart, we again look at the tech sector as a whole. New Orders are up a modest 1.6%. For the last few months now, New Orders have been increasing in a slow but sure manner and the resulting up-trend seems ever more secure.


This last chart focuses on computers and this is the only disappointing news we have. New Orders fell 2.8%, confirming that this category in the tech sector is still a little shaky. Nevertheless, the overall look of this chart suggests a bottom has been established here, as well.


Conclusion --

The common factor in all these charts today is that tech sure seems to have established a solid bottom and that a trend reversal is underway with the new trend being clearly to the up-side. Though we didn't show the charts, the Communications Equipment category also participated in the growth seen in July with Shipments increasing 6.8% and New Orders increasing 9,4%. So pretty much across the board, tech turned in some decent numbers.

Another positive factor in today's report is that Semiconductors had a great month in July. All those chips have to go somewhere and I suspect that we will see nice growth reflected in the other tech sector categories as manufacturers build the products that use those semiconductors.

Now if end user demand from businesses and consumers can ramp up sufficiently to absorb what is being manufactured, then we can expect to see these charts continue to head in the right direction.

How to play it --

Given that these charts don't single out any particular company, the way to play the tech recovery could be through ETFs. There is a good selection of ETFs that give investors exposure to the whole sector and others that carve the tech sector into separate categories such as networking, semiconductors, etc. Pick your vehicle and settle in for the ride.

Disclosure: long ROM, USD and IGN



Tuesday, August 25, 2009

New version of TradeRadar stock analysis software now available for download

I am pleased to announce that version 4.2 of the TradeRadar software is now available. As always, it is being offered for free on our Download page.

New Features --

The major new features in this version include the following:

  • New charting look - instead of a simple red line for closing price we now display open-high-low-close bars. Up-days are colored green and down-days are colored red. Right click on the price series and you'll be able to switch to candlesticks. Can't emphasize this enough - charts look much more professional now and are so much easier to read.
  • Made the SELL signal processing a bit more responsive. This addresses an anomaly in the calculations that sometimes made SELL signals weaker than they should have been.
  • Integrated a statistical component: when closing price exceeds one standard deviation from the Slope (the orange line based on linear regression), the Signal Strength is boosted by 10%. If the closing price is still within one standard deviation, the Signal Strength is decreased by 10%. This helps avoid false reversal signals while make the signal generation more dynamic.
  • If the price exceeds the classic Trend Line by 3% then the Signal Strength is increased by 5%. The classic Trend line is the line that can be drawn by touching the cyclical extremes of the high prices or the low prices.
  • Made it easier to pick Start and End points with a simple click. On the top chart, you no longer need to hold the left mouse button down until the dialog box pops up; it now takes just a single click.
  • Added dates to Window Start and Window End displays - this makes it easier to be aware of the time frame you are analyzing.
Bug Fixes --

Yes, we always have a few bug fixes:
  • Trend Diff indicator works correctly - no longer flashing yellow (caution) in most situations
  • Labels on Fibonacci lines are set properly based on whether SELL signal or BUY signal is chosen
  • Adjusted the orange Slope line so it passes through the middle of the price variations. It now reflects the true linear regression of the closing prices in terms of value, not only in terms of angle.
The bottom line --

I think this is the slickest looking version we have released so far and the signal generation is more dynamic and sophisticated.

Those who have used the TradeRadar software before will easily be able to use the new version. Other than the new look on the chart, most of the changes are under the hood. The Dashboard screen is still the place where all the calculated indicators can be reviewed and they still have red-green-yellow lights that show how well the test for that indicator has been satisfied.

Keep in mind, though, an investor needs to carefully review ALL the indicators on the Dashboard screen. If the there are mostly green lights, that's good. But if Strength, AOA and the "Signal in the Zone" indicators are not all green, beware! You probably don't have a valid signal.

So check out the new chart look on the Features page of the TradeRadar web site. Then go download the latest version of the software on the Download page. As always, we have a full install for those of you who are new to the application and a simpler upgrade for those who have an earlier version already installed. Note that it only runs on Windows.

If you would like to let me and others know what you think about the TradeRadar software, please leave a comment below.



Fall back Tuesday - Swing Signals, Trend Busters and Trend Leaders for August 25, 2009

This is a quick post to announce that Tuesday's Swing Signals, Trend Leaders and Trend Busters are now available at Alert HQ. All are based on daily data.

Today we have the following:

  • 25 Swing Signals -- 12 BUY signals and 12 SELL Signals. We also have one Strong BUY.
  • 467 Trend Leaders, all in strong up-trends according to Aroon, MACD and DMI. We have only 261 stocks that are new additions to the list and 46 that fell off the previous list.
  • 15 Trend Busters of which 5 are BUY signals and 10 are SELL signals.
The view from Alert HQ --

Two days of trading this week and the story has been the same. Stocks work their way higher and then fall back in the last hour or two. That's the bad news. The good news is that stocks haven't really broken down below recent highs.

Looking for clues in our signals today, we see some underlying strength continuing to build.
  • Trend Leaders: over the weekend we had 252 stocks and ETFs on the Trend Leaders list. Today there are 467. That's an encouraging trend and it is even better given that 261 stocks were added to the list today while only a few fell off the list. Though major averages have only muddled along the last couple of days, a good number of stocks are still developing strong up-trends. Outlook: bullish
  • Swing Signals: we had a big list over the weekend but a pretty modest sized list today. With signals more or less evenly split between BUYs and SELLs, it would appear that we are in a consolidating market. Outlook: uncertain
So Alert HQ signals seem to be pointing to a bit of a sideways market. Perhaps its my innate optimism but I believe this market is still trading with an upward bias.

Using our signals --

If you're a momentum trader, the Trend Leaders list is a good place to go shopping. If you practice technical analysis, check out the Trend Busters. And if you are a short-term trader or even a day trader, our Swing Signals may provide some good trading ideas.



Sunday, August 23, 2009

Netscout - mystery breakout

Many stocks just peek above their upper Bollinger Band. Then there are other stocks that explode above their upper Bollinger Band. We've got one the latter kind for you today.

Netscout Systems (NTCT) exhibited a powerful move on Friday and showed up this weekend on our list of Bollinger Band Breakouts. You can see that breakout clearly on the chart below:

A month ago the company announced Q1-2010 earnings and missed analyst expectations by a penny. The company retained some investor goodwill, however, by reaffirming forward guidance and reinstating plans for a stock buyback.

Background --

NetScout Systems, Inc. designs, develops, manufactures, markets, sells, and supports application and network performance management solutions worldwide. The company's primary product suite monitors, collects, and publishes information on the behavior of individual applications and services, such as voice over Internet protocol, streaming media, electronic trading, supply chain management, interactive smart phone applications, and customer relationship management; and the performance of the underlying network, such as routers, switches, and communication links, as well as the level of activity by end-users or subscribers.

The company recently acquired Network General and the integration seems to moving along well. The company has partnered with Cisco and HP.

The company is in a field that is attracting more attention: monitoring quality of service (QoS) for networks. It is also in the growing niche of monitoring application performance. An added benefit is that the level of detail provided by Netscout products enables customers to dig into problem areas and devise solutions.

Financially speaking, looking at the numbers on an annual basis there a pronounced growth trend in place. Looking at things on a quarterly basis, the company has experienced some weakness over the last two quarters (who hasn't during this downturn) but has managed to remain profitable. The chart below shows a snapshot of the income statement:

Explore more NTCT Data on Wikinvest

Unfortunately it doesn't have data for the most recent quarter. but the quarter-over-quarter decline was very modest so you can get the idea of the company's performance. Click on the "5Y" button to see the strong growth over the last two years.

Bottom line, we have here a company in a growing niche that has remained profitable during a time when many companies have seen negative results. The company is certainly doing better than one of its main competitors, Opnet.

After a 7% move on Friday, it is easy to assume the company is overbought. On a short term basis, there is probably room for a pullback but with a PEG of 0.88, a trailing PE of 19 and forward PE of 12, the company doesn't actually look especially overvalued.

So what drove Netscout's big move on Friday? I wish I knew. Was it an analyst upgrade? A new contract announcement? I couldn't find a thing searching the web this weekend. I wonder if we'll hear news of a buyout offer this week? IDC has written that further consolidation in the network performance management market can be expected. Indeed, the Network General acquisition was used as an example. So we'll just have to watch the news and see if Netscout shows up as the next Cisco acquistion.

Disclosure: no positions



Saturday, August 22, 2009

Weekend Winners and Losers - Alert HQ BUY and SELL signals for August 21, 2009

This post is to announce that the weekend's stock signals are available from Alert HQ.

Each week we scan about 7300 stocks and ETFs, checking fundamentals, performing technical analysis and looking for fresh BUY and SELL signals. Out of this process we generate the following lists:

  • Alert HQ stock alerts - based on a combination of proprietary and standard technical analysis techniques, we identify stocks or ETFs that are undergoing reversals, either to the upside or to the downside
  • Trend Leaders - a collection of stocks in strong up-trends
  • Cash Flow Kings whose free cash flow yield is 25% or greater
  • 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
  • Swing Signals - stocks that have bounced off a higher or lower Bollinger Band
  • Trend Busters - stocks or ETFs that have violated a current trend.
The view from Alert HQ --

All three major averages finished the week at 2009 closing highs. A big decline on Monday had the bears licking their lips but bulls came back in force and a buy-the-dip mentality started things moving to the upside again.

Economic data was mixed this week with July housing starts and building permits coming in below expectations while existing home sales beat expectations. The Philadelphia Fed actually reported a positive number which was much better than most anticipated and the Index of Leading Indicators registered improvement for the fourth week in a row.

So stocks finished the week on a high note albeit on weak volume. The uncertainty of the two previous weeks, though seemingly resolved to the upside this week, has taken a toll on many of our indicators at Alert HQ. Our list of Trend Leaders, after topping out in the 1200 range, is at an anemic 252 this weekend. To me, this means this rally has room for more gains. Furthermore, we are seeing a good deal of activity in our Swing Trading Signals where BUY signals are greatly outnumbering SELL signals and indicating stocks are bouncing back. Our Weekly Alert HQ signals are also predominately BUYs. All in all, a pretty good performance this week and I see signs the gains in stocks could continue.

This week's results --

Here is the detailed breakdown for Alert HQ for this weekend:
  • Based on daily data, we have 10 Alert HQ BUY signals and 29 SELL signals
  • Based on weekly data, we have 66 Alert HQ BUY signals and 17 SELL signals
  • Based on daily data, we have 252 Trend Leaders. 95 new stocks joined the list since Thursday and only 11 fell off the list since Thursday.
  • Based on daily data, we have 118 Bollinger Band Breakouts but we also have 323 Breakouts based on weekly data.
  • We have 773 Cash Flow Kings
  • Based on daily data we have 89 Swing Signals of which 80 are BUY signals and only 7 are SELL signals. In addition, we have 2 Strong BUYs.
  • Finally, we have Trend Busters with 12 signals based on daily data (6 BUY signals and 6 SELL signals) and 21 based on weekly data (16 BUY signals and 5 SELL signals).
Using our signals --

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.

If you're a momentum trader, the Trend Leaders 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. If you do favor technical analysis, check out the Trend Busters. And if you are a short-term trader or even a day trader, our Swing Signals may provide some good trading ideas. See them all at Alert HQ.

Remember, we also provide our latest updated Swing Signals, Trend Leaders and Trend Busters on Tuesday and Thursday nights.



Friday, August 21, 2009

Baidu - primed for a trade?

Interested in an e-commerce stock with a Strong Buy rating?

Thursday night Alert HQ identified a well known stock that is often the target of fast traders. It looks like it might be poised for a quick gain again. Baidu (BIDU) appeared as a Strong BUY on our list of Swing Trading Signals. The chart follows:


Note how the stock fell almost to its 50-day moving average without penetrating it. It did, however, drop below its lower Bollinger Band and then rebounded nicely. Williams %R also shows it moving rapidly out of the over-sold area. As I write this morning, the stock is just kind of peeking over its 20-day MA, having tacked on another 2% since Thursday's close.

With the stock already up roughly 2% today, the short-term target would easily be another 4% or 5% above this level. Further gains would depend on, you guessed it, the fundamentals.

So how are the Fundamentals?

Baidu, Inc. provides Chinese language Internet search services primarily in the People's Republic of China and Japan. The company provides all services that we see behemoths like Google offering: besides search (including paid search) they offer general news, local news, Instant Messaging, social networking, personal pages similar to MySpace and Internet TV. The company also supports a strong e-commerce platform and provides anti-virus software.

Baidu has a forward PE of over 38 and a PEG of 1.5 so, once again, this is no value stock. The company, however, has shown steady and impressive growth as it has been one of the main beneficiaries of China's increasing Internet usage. The income statement snapshot below shows the growth in revenue and earnings clearly:

Explore more BIDU Data on Wikinvest

As a quick trade, Baidu looks pretty good and, as the Google of China, its long term prospects don't look too bad either.



Thursday, August 20, 2009

Optimistic Thursday - Swing Signals, Trend Busters and Trend Leaders for August 20, 2009

This is a quick post to announce that Thursday's Swing Signals, Trend Leaders and Trend Busters are now available at Alert HQ. All are based on daily data.

Today we have the following:

  • 111 Swing Signals -- 105 BUY signals and 5 SELL Signals. Plus, we have 2 Strong BUY signals.
  • 168 Trend Leaders, all in strong up-trends according to Aroon, MACD and DMI. We have 43 stocks that are new additions to the list and 91 that fell off the previous list.
  • 12 Trend Busters of which 2 are BUY signals and 10 are SELL signals.
The view from Alert HQ --

This is the second week when initial jobless claims were higher than expected and the previous week's numbers were revised upward. Nevertheless, the U.S. market optimistically took its cue from Asia and Europe and finished with a roughly 1% gain. Stocks today were helped by a positive result from the Fed's Philadelphia manufacturing survey which, in tandem with the NY Empire State index, shows that manufacturing is in the healing process.

Providing further support to stocks, the Index of Leading Indicators turned in a decent performance for the fourth week in a row. Investors were able to shrug off more poor results from retailers and stocks managed to struggle their way to a gain led by financials, materials and tech.

In a repeat of our Tuesday results, our Swing Signals again reflect serious bullishness as BUY signals overwhelmingly outnumber SELL signals. The only troubling sign coming from Alert HQ is that we see yet another decrease in the number of stocks on the Trend Leaders list. On Tuesday we had 218 stocks and ETFs on the list. Today we are down to only168. This divergence shows that it is proving difficult to truly get this rally back in gear and that investors are not overly exuberant.

In the meantime, I'm happy to see the major averages continue to grind out gains despite mixed signals from the economy. I'll take a day like today any day.

Using our signals --

If you're a momentum trader, the Trend Leaders list is a good place to go shopping. If you practice technical analysis, check out the Trend Busters. And if you are a short-term trader or even a day trader, our Swing Signals may provide some good trading ideas.



Wednesday, August 19, 2009

Interactive Intelligence - a smart investment?

Looking for a tech stock with a strong BUY rating?

Tuesay night Alert HQ identified a small cap stock that appears poised for a quick gain. Interactive Intelligence (ININ) appeared as a Strong BUY on our list of Swing Trading Signals. The chart follows:


Note how the stock barely touched its 50-day moving average on an intra-day basis and is now bouncing up off its lower Bollinger Band. You can see the strong reaction of the Williams %R indicator as it moves steeply up from an over-sold value. In addition, that 50-day MA is heading nicely upward while the stock has already regained its 20-day MA.

So technically the stock was a good trade today, gaining 3.86%, and showing a potential for a good 5% or 6% more over the next few days and perhaps more over the longer term as long as the overall market doesn't plunge.

What about the fundamentals?

Interactive Intelligence is a small cap stock that is involved in IP telephony. The buzz word best describing the company's business is "unified communication." This is something that Cisco Systems, for example, is also pursuing. Essentially, it means an integration of real-time communication services such as instant messaging (chat), presence information, IP telephony, video conferencing, call control and speech control with non real-time communication services such as unified messaging (integrated voicemail, e-mail, SMS and fax). Interactive Intelligence packages these services for small and mid-sized businesses.

The most recent quarter's results were reasonably good with revenues increasing 7.5% y-o-y and EPS of $0.12 versus only $0.04 in the year ago quarter. The following chart provides a snapshot of the income statement:

Explore more ININ Data on Wikinvest


And this next chart shows that the company is doing very well with respect to cash flow lately:

Explore more ININ Data on Wikinvest


It is noteworthy that the company was able to show growth in the current difficult economic environment; however, this is by no means a cheap company. As an investor you are going to have to pay for the growth this company may offer. It has a sky-high trailing PE of 53, a forward PE of 20 (not too bad), a PEG of 1.28 (kind of high for a value investor), price-to-sales of nearly 2.25 and price-to-book over 5.

Nevertheless, with these kinds of stocks growth is the name of the game and Interactive Intelligence just might be able to deliver.

Disclosure: no position



Tuesday, August 18, 2009

Rebound Tuesday - Swing Signals, Trend Busters and Trend Leaders for August 18, 2009

This is a quick post to announce that Tuesday's Swing Signals, Trend Leaders and Trend Busters are now available at Alert HQ. All are based on daily data.

Today we have the following:

  • 81 Swing Signals -- 63 BUY signals and 7 SELL Signals. Not only that, we also have 12 Strong BUYs.
  • 216 Trend Leaders, all in strong up-trends according to Aroon, MACD and DMI. We have only 19 stocks that are new additions to the list and a substantial 457 that fell off the previous list.
  • 12 Trend Busters of which 4 are BUY signals and 8 are SELL signals.
The view from Alert HQ --

After two days of declines (and Monday's decline was a doozy) it was a relief to see stocks rebound today. Of course, everyone is wondering if the rebound will continue or whether stocks will resume their losing ways.

Looking for clues in our signals today, we see two wildly divergent developments.
  • Trend Leaders: a week ago we had 989 stocks and ETFs on the Trend Leaders list. Now there are only 216 with a mere 19 new ones added to the list today while a whopping 457 fell off the list. This means that a sizable number of stocks are no longer in their strong up-trends. Outlook: bearish
  • Swing Signals: today's rebound generated a flurry of BUYs on our list of Swing Trading Signals. We even have a nice selection of Strong BUYs. This means that a bunch of stocks bounced nicely off their Bollinger Band. Outlook: bullish
I generally consider the Trend Leaders to be somewhat of a lagging indicator while the Swing Signals are a leading indicator. If this is true, then I hope you bought some stocks this morning.

Using our signals --

If you're a momentum trader, the Trend Leaders list is a good place to go shopping. If you practice technical analysis, check out the Trend Busters. And if you are a short-term trader or even a day trader, our Swing Signals may provide some good trading ideas.



Monday, August 17, 2009

Time to sell your stocks?

The stock market took a body punch today. Should you sell everything?

Let's take a look at two representative indexes.

First up is the S&P 500. Check the red ellipse drawn on the chart.


This ellipse highlights the area where there is a convergence of the 50-day moving average, the lower Bollinger Band and a short term support level established in June. In other words, this range from 945 to 955 should provide serious support for this important index.

This next chart shows the NASDAQ 100. Here we have drawn a red circle and a blue ellipse.


The red circle highlights the convergence of the 50-day moving average and the short term support level established in June, much as we saw above in the chart of the S&P 500. In the case of the NASDAQ, however, the lower Bollinger Band is higher than the previously mentioned indicators and the index has already slid pretty close to it. So the NASDAQ 100 has two support areas: the range from 1510 to 1520 and that range around the lower Bollinger Band at 1563.

Conclusion --

The following points suggest that selling now is not the right move:

  • Volume on today's move was not particularly heavy. In fact it was less than on many of the days when the markets rallied and bears said the volume wasn't sufficient to confirm a real rally.
  • As described above, there are significant areas of support that can be expected to limit the declines in the indexes we examined. This implies that losses will not be significant. Indeed, this could very well be a healthy pullback.
  • Up-trends starting at the March lows have not been violated.
  • With the enthusiasm of earnings season clearly waning, investors are looking to economic reports. Unfortunately, all we are getting are mixed signals: retail sales are declining while manufacturing is improving, job losses are declining but remaining stubbornly high, real estate hitting bottom but far from full recovery and so on. Say what you will, what we are seeing is not by any stretch the indicators of Armageddon. With respect to fundamentals, then, I would tend to give the benefit of the doubt to the bulls.
So hang on to your stocks. Indeed, if the major averages respect the support levels described above, it would be a signal to buy.



Saturday, August 15, 2009

Weekend Winners and Losers - Alert HQ BUY and SELL signals for August 14, 2009

This post is to announce that the weekend's stocks signals are available from Alert HQ.

Each week we scan about 7300 stocks and ETFs, checking fundamentals, performing technical analysis and looking for fresh BUY and SELL signals. Out of this process we generate the following lists:

  • Alert HQ stock alerts - based on a combination of proprietary and standard technical analysis techniques, we identify stocks or ETFs that are undergoing reversals, either to the upside or to the downside
  • Trend Leaders - a collection of stocks in strong up-trends
  • Cash Flow Kings whose free cash flow yield is 25% or greater
  • 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
  • Swing Signals - stocks that have bounced off a higher or lower Bollinger Band
  • Trend Busters - stocks or ETFs that have violated a current trend.
The view from Alert HQ --

Major averages finished the week with losses following four straight weeks of gains. The culprits for the decline would be poor economic reports, most specifically retail sales and consumer sentiment. The gloomy outlooks embodied in those two reports overwhelmed the positives of a better than expected industrial production report and an inline CPI report.

The Fed met this week and the market rallied in response though there was nothing particularly new in the Fed statement. Go figure...

Our signals at Alert HQ show the continued tug of war between bullishness and caution. What we said last week is still true: though we have no dearth of BUY signals, we have plenty of SELL signals to counterbalance the bullishness. We also see the number of stocks on the Trend Leaders list cut almost in half over the course of this week, showing the strength of the rally waning.

As stocks continue their over-bought ways, however, the major averages aren't showing many technical indicators that would indicate they are in the process of rolling over. This week's losses were quite modest and major averages haven't even fallen below their 20-day moving averages yet. So while it may be scary to be a buyer at these levels it is also hard to be a seller as the market seems to be simply moving sideways.

This week's results --

Here is the detailed breakdown for Alert HQ for this weekend:
  • Based on daily data, we have 8 Alert HQ BUY signals and 52 SELL signals
  • Based on weekly data, we have 63 Alert HQ BUY signals and 23 SELL signals
  • Based on daily data, we have 654 Trend Leaders. 31 new stocks joined the list since Thursday and 222 fell off the list since Thursday.
  • Based on daily data, we have 89 Bollinger Band Breakouts but we also have 354 Breakouts based on weekly data.
  • We have 758 Cash Flow Kings
  • Based on daily data we have 51 Swing Signals of which 17 are BUY signals and 34 are SELL signals.
  • Finally, we have Trend Busters with 17 signals based on daily data (6 BUY signals and 11 SELL signals) and 34 based on weekly data (18 BUY signals and 16 SELL signals).
Using our signals --

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.

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. If you do favor technical analysis, check out the Trend Busters. And if you are a short-term trader or even a day trader, our Swing Signals may provide some good trading ideas. See them all at Alert HQ.

Remember, we also provide our latest updated Swing Signals, Trend Leaders and Trend Busters on Tuesday and Thursday nights.



Thursday, August 13, 2009

Zig zag Thursday - Swing Signals, Trend Busters and Trend Leaders for August 6, 2009

This is a quick post to announce that Thursday's Swing Signals, Trend Leaders and Trend Busters are now available at Alert HQ. All are based on daily data.

Today we have the following:

  • 46 Swing Signals -- 26 BUY signals and 20 SELL Signals.
  • 845 Trend Leaders, all in strong up-trends according to Aroon, MACD and DMI. We have only 92 stocks that are new additions to the list and a substantial 234 that fell off the previous list.
  • 20 Trend Busters of which 8 are BUY signals and 12 are SELL signals.
The view from Alert HQ --

Hard to believe that stocks turned in another good performance despite a couple of dismal economic reports. Retail sales for July were pretty much a disappointment, with sales declining from June's levels and significantly below expectations. Initial jobless claims were up compared to last week and, indeed, last week's numbers were revised upward.

Providing some support to stocks, a bond auction went off well today and news that hedge fund manager Paulson had built a big position in Bank of America gave financials a boost.

In the end, a zig zag day ended with gains and financials and tech led the way. Our Swing Signals reflect the new found bullishness of the last two days as BUY signals outnumber SELL signals. On the other hand, we see another decrease in the number of stocks on the Trend Leaders list. This divergence signals caution.

Using our signals --

If you're a momentum trader, the Trend Leaders list is a good place to go shopping. If you practice technical analysis, check out the Trend Busters. And if you are a short-term trader or even a day trader, our Swing Signals may provide some good trading ideas.



Saturday, August 8, 2009

Tuesday signals caution - Swing Signals, Trend Busters and Trend Leaders for August 11, 2009

I'm back from New York City and the annual boys night out at Yankee Stadium with three generations of my family. The weather was hot but when I looked at the results in the market today, it looks like the rally is turning cold.

In any case, I am back in time to generate another list of Swing Signals, Trend Leaders and Trend Busters for Tuesday. They are now available at Alert HQ. All are based on daily data.

Today we have the following:

  • 53 Swing Signals -- 13 BUY signals and 40 SELL Signals.
  • 989 Trend Leaders, all in strong up-trends according to Aroon, MACD and DMI. We have only 72 stocks that are new additions to the list and a substantial 313 that fell off the previous list.
  • 19 Trend Busters of which 7 are BUY signals and 12 are SELL signals.
The view from Alert HQ --

After two back-to-back days of declines following a couple of weeks of treading water, we are starting to see real signs of weakness in our Alert HQ signals.

Last week the number of stocks on our list of Trend leaders hit a high of around 1300 but as of today we are back below 1000. Not a good sign. The number of SELL signals is outnumbering BUY signals on our list of Trend Buster and, more significantly, on our list of Swing Signals.

When we see major changes in the results of our Swing Signals screen, it has on more than one occasion presaged a change in trend in the markets.

Over the past weekend, our Alert HQ processes generated the following charts.


The chart above shows that the number of stocks looking bullish according to our moving average analysis hit an extreme in June. It then shows performance falling back and rallying but without establishing a new high. This is enough to flash the caution signal.


The second chart shows our trending analysis. Here the story is all about excessive levels. Roughly two thirds of all stocks are in strong up trends and less that 10% of stocks are in strong down trends. At these kinds of levels we have previously seen markets reverse.

So in looking at the most recent signals and the charts from the weekend, it is difficult to be anything but cautious. Performance weakening and extreme over-bought levels coming into play imply that stocks are about to become cheaper.

If you are long term bullish, you can interpret this as an imminent buying opportunity soon coming your way. If you are just trading the market, we might very well be seeing the signal to take profits.

Using our signals --

If you're a momentum trader, the Trend Leaders list is a good place to go shopping. If you practice technical analysis, check out the Trend Busters. And if you are a short-term trader or even a day trader, our Swing Signals may provide some good trading ideas.



Weekend Winners and Losers - Alert HQ BUY and SELL signals for August 7, 2009

This post is to announce that the weekend's stocks signals are available from Alert HQ.

Each week we scan about 7300 stocks and ETFs, checking fundamentals, performing technical analysis and looking for fresh BUY and SELL signals. Out of this process we generate the following lists:

  • Alert HQ stock alerts - based on a combination of proprietary and standard technical analysis techniques, we identify stocks or ETFs that are undergoing reversals, either to the upside or to the downside
  • Trend Leaders - a collection of stocks in strong up-trends
  • Cash Flow Kings whose free cash flow yield is 25% or greater
  • 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
  • Swing Signals - stocks that have bounced off a higher or lower Bollinger Band
  • Trend Busters - stocks or ETFs that have violated a current trend.
The view from Alert HQ --

Major averages finished the week with solid gains of well over 2% with the exception of the NASDAQ which only managed a 1.1% gain. What's happening to my favorite index? Again this week, the tech sector lagged financials which were up a whopping 10% and even the beaten down industrials which put in a 5% advance on the week. Things would probably have been even worse for tech if Cisco hadn't come through with a small earnings beat and positive forward guidance.

In other news, manufacturing showed improvement (better than expected ISM) while retail sales didn't. Weekly initial jobless claims showed improvement while continuing claims didn't. Construction spending beat expectations as did pending home sales. The monthly non-farm payroll report showed "only" 247,000 jobs lost which was at least much better than the expected 345,000. More unexpected was the fact that unemployment declined to 9.4% when most economists had anticipated a slight increase.

So on the whole, economic and earnings news were fairly benign this week and though stocks still appeared extremely overbought, investors were willing to push prices up again. Our signals at Alert HQ show the tug of war between bullishness and caution. Though we have no dearth of BUY signals, we have plenty of SELL signals to counterbalance the bullishness.

This week's results --

Here is the detailed breakdown for Alert HQ for this weekend:
  • Based on daily data, we have 21 Alert HQ BUY signals and 42 SELL signals
  • Based on weekly data, we have 61 Alert HQ BUY signals and 22 SELL signals
  • Based on daily data, we have 1230 Trend Leaders. 103 new stocks joined the list since Thursday and 111 fell off the list since Thursday.
  • Based on daily data, we have 261 Bollinger Band Breakouts but we also have 653 Breakouts based on weekly data.
  • We have 757 Cash Flow Kings
  • Based on daily data we have 44 Swing Signals of which 23 are BUY signals and 20 are SELL signals. There is one Strong SELL signal today.
  • Finally, we have Trend Busters with 9 signals based on daily data (4 BUY signals and 3 SELL signals) and 32 based on weekly data (24 BUY signals and 8 SELL signals).
Using our signals --

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.

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. If you do favor technical analysis, check out the Trend Busters. And if you are a short-term trader or even a day trader, our Swing Signals may provide some good trading ideas. See them all at Alert HQ.

Remember, we also provide our latest updated Swing Signals, Trend Leaders and Trend Busters on Tuesday and Thursday nights.



Thursday, August 6, 2009

SKF versus the VIX

In my semi-rant about leveraged ETFs from Monday, I mentioned that the 2X ETFs can be held for longer than one day, especially when volatility is moderate to low. This post takes a closer look at this proposition.

I decided to take the worst case situation and look at the most maligned of the ProShares ETFs: SKF, the UltraShort Financial and its corresponding bullish ETF, the Ultra Financial, UYG.

To compare results to the underlying index, I also included IYF, the iShares Financial ETF.

To investigate performance in the presence of volatility I brought the VIX into the analysis. The following table shows how the performance of each ETF is related to the VIX by calculating the correlation factor. The closer the correlation gets to 1, the more closely the ETF tracks the VIX. The closer the correlation gets to -1, the more the ETF tracks the opposite moves of the VIX.



VIX SKF
IYF
UYG

Period Gain
(Loss)
Cor-
relation
Gain
(Loss)
Cor-
relation
Gain
(Loss)
Cor-
relation
Gain
(Loss)
VIX below 40 4/8/2009 to 8/5/2009 -36% 0.857 -67% -0.768 46% -0.658 89%
VIX above 40 1/7/2009 to 4/7/2009 -7% 0.763 -19% -0.474 -21% -0.305 -50%
VIX above 40 9/29/2008 to 12/31/2008 -14% 0.778 -10% -0.386 -30% -0.309 -63%
VIX below 40 and above 20
6/6/2008 to 9/26/2008 47% 0.007 -21% -0.342 -6% -0.466 -23%
VIX below 20 2/1/2007 to 6/5/2008 81% 0.768 66% -0.724 -31% -0.739 -58%

One of the takeaways from the table above is that when the VIX trends upward strongly, as it did in the 3rd quarter of 2008, SKF becomes unpredictable. Indeed, SKF's correlation to the VIX essentially went to zero.

In the fourth quarter of 2008, the VIX was above 40 and swinging wildly (eventually peaking at 90) but it was not trending upward. This is when SKF endured some of its biggest spikes in price and volume. This period comprises one of the examples when IYF went down and, by the end of the period, SKF also registered a loss. You can see in the chart below how SKF's moves are an extreme exaggeration of the moves in the VIX.


In the first quarter of 2009, the VIX remained high but no longer swung so wildly. In the second quarter of 2009, March saw a peak in SKF but as the VIX drifted lower and investors began to think the worst of the market downturn was over, SKF plunged from its March high.

This next chart shows how things looked with the other (non-short) ETFs when the VIX was high. It shows how the Ultra Financial (UYG) severely underperformed the underlying index. This, however, is as it should be during a time when the financial sector was severly underperforming the rest of the market.


This next chart shows how things look when the VIX is trending lower as it has been so far this year. It shows how the Ultra Financial (UYG) has been comfortably outperforming the underlying index for more than four months now.


You might also notice in the first chart above that SKF is performing much more sedately now as the VIX has trended downward.

Conclusion --

One of the odd results of this analysis is that UYG seems much more well behaved than its opposite, SKF. It more closely tracked its underlying index and maintained its expected inverse correlation to the VIX in a range that was reasonable.

SKF was indeed much more unpredictable and volatile. It's correlation to the VIX varied surprisingly and its inverse relationship to the underlying index was also exaggerated.

The only conclusion one can make is that SKF's performance was distorted due to the extreme volatility in the market and the extreme volume that drove the ETF compounded by waves of panic buying followed by frenzied profit taking. SKF was the ETF that corresponded to the sector at the heart of the plunge in world markets and became the vehicle through which everyone attempted to play the epic moves in financial stocks. This one ETF received an inordinate amount of trading which distorted its performance, caused it to suffer discounts and premiums to its true NAV and made settlement difficult at the end of the trading day. Even as volume in IYF spiked during the worst of the downturn, volume in SKF still remained 5 and 6 times that of IYF.

There are several points I am trying to make here:
  • SKF is often held up as an example of why you can't hold 2X ETFs for longer than a day
  • SKF is the exception, not the rule
  • Leveraged ETFs shouldn't be held for the long term but they can safely be held for weeks or months, especially when volatility is moderate or trending downward
  • It is reasonable to say that during periods of high volatility, leveraged ETFs are prone to exaggerated swings and are appropriate only for active traders. Holding periods should be reduced accordingly and stops should be used (always a good idea with leveraged ETFs). In other words, be prudent.
The bottom line is that you can't say all leveraged ETFs should be outlawed because SKF performed unpredictably over investment horizons for which it was not intended.

You can say that leveraged ETFs are appropriate trading vehicles for investors who understand them. Hopefully, this analysis will help that understanding.

Disclosure: long UYG



All fall down Thursday - Swing Signals, Trend Busters and Trend Leaders for August 6, 2009

This time, Cisco didn't help the market one bit.

After a positive start, the major averages just continued to work their way downward, closing moderately lower. Cisco's beat the night before and relatively positive guidance wasn't positive enough to convince investors that stocks, already overextended, deserved to rally further.

Recent leaders Financials and Materials also gave ground today. Technically speaking, it looks like the highly anticipated pullback is underway. Stocks are falling.

The view from Alert HQ --

Our list of Trend Leaders is hanging in at a level comfortably over 1000. This is a good indication of the bullish sentiment in the market but if a pullback is underway there will be a bit of a lag before we see it in the Trend Leaders list.

The signals with the least lag are the Swing Signals. For the last week or so, we have been seeing more SELL signals than BUY signals. Today we see more of the same. Way more of the same.

Our Trend Busters list is expanding and, in concert with our Swing Signals, we see significantly more SELL signals than BUY signals.

Unfortunately, our signals now reflect waning bullishness.

Friday we get the big Non-Farm Payrolls report. This is always a market-mover. Unless the report significantly surprises on the bullish side, we should be prepared to see stocks drift lower over the near term. I'm thinking at least another 5% on the downside. What do your think? Am I being optimistic or pessimistic?

Thursday's Signals --

Today we have the following:

  • 50 Swing Signals -- consisting of 10 BUY signals and 39 SELL Signals amd one Strong SELL.
  • 1239 Trend Leaders, all in strong up-trends according to Aroon, MACD and DMI. There are 154 new stocks that made today's list and 201 that fell off Tuesday's list.
  • 27 Trend Busters of which 7 are BUY signals and 20 are SELL signals
Using the signals --

As a humble practitioner of technical analysis, I admit that every signal can't be correct. Alert HQ can, however, provide a filtered selection of likely candidates from which investors can choose. Remember, if you're a momentum trader, the Trend Leaders list is a good place to go shopping. If you practice technical analysis, check out the Trend Busters. And if you are a short-term trader or even a day trader, our Swing Signals may provide some good trading ideas.



Tuesday, August 4, 2009

Saved by the bell Tuesday - Swing Signals, Trend Busters and Trend Leaders for August 4, 2009

This is a quick post to announce that Tuesday's Swing Signals, Trend Leaders and Trend Busters are now available at Alert HQ. All are based on daily data.

Today we have the following:

  • 33 Swing Signals -- 13 BUY signals and 20 SELL Signals.
  • 1286 Trend Leaders, all in strong up-trends according to Aroon, MACD and DMI. We have 358 stocks that are new additions to the list and 120 that fell off the previous list.
  • 13 Trend Busters of which 8 are BUY signals and 5 are SELL signals.
Saved by the bell on an up-down-up Tuesday --

Major averages managed to end in the green today after starting the day with weakness, rallying to show strength through mid-day and then swooning only to exhibit a "stick-save" in the last half hour of trading. It looks like investors are expecting a pullback but are still feeling bullish. In other words, we have a market of two minds.

The results at Alert HQ are equally schizophrenic. The number of stocks on our list of Trend Leaders just keeps pushing higher and now sits at almost 1300. Yet our Swing Signals are tilting slightly to the bearish side as SELL signals outnumber BUY signals. As seems to usually be the case, our Trend Busters straddle the fence though today they show a small bias to the bullish side.

Again we are seeing a combination of bullishness and hesitation in our signals. Volume is certainly less than overwhelming though stocks continue to climb. By typical measures, most sectors and many stocks are over-bought. In my heart I know stocks are due for a correction but I keep wondering if they will defy conventional expectations as they have so often during the last year and a half. I look to the Swing Signals as the early warning system. When that list grows and SELL signals clearly outnumber BUY signals, we'll know the pull-back has arrived. For now, though, the list is somewhat short and I'm not sure we should read too much into it. Traders can hang onto those long positions for a few days more...

Using our signals --

If you're a momentum trader, the Trend Leaders list is a good place to go shopping. If you practice technical analysis, check out the Trend Busters. And if you are a short-term trader or even a day trader, our Swing Signals may provide some good trading ideas.




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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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