Friday, July 30, 2010

June Durable Goods -- Tech sector at a tipping point?

The advanced report for Durable Goods for June was released Wednesday and it contributed to a drop in the market that day. Indeed, headline numbers were disappointing (especially since this is supposed to be a manufacturing led recovery):

  • New orders for manufactured durable goods in June decreased $2.0 billion or 1.0 percent to $190.5 billion
  • Shipments of manufactured durable goods in June, down two consecutive months, decreased $0.7 billion or 0.3 percent to $195.0 billion. This followed a 0.7 percent May decrease.
  •  Unfilled Orders.  Unfilled orders for manufactured durable goods in June, down following two consecutive monthly increases, decreased $0.1 billion to $802.9 billion.  This followed a 0.3 percent May increase.
  • Inventories.  Inventories of manufactured durable goods in June, up six consecutive months, increased $2.8 billion or 0.9 percent to $308.2 billion.  This followed a 1.1 percent May increase.  Transportation equipment, up six consecutive months, had the largest increase, $0.8 billion or 1.1 percent to $80.0 billion. 
  • Shipments for Computers and electronic products, down four of the last five months, had the largest decrease, $1.3 billion or 4.1 percent to $31.3 billion.
Since I usually focus on the tech sector, that last bullet point was rather alarming. Let's look at the charts and put that data point in context.

Shipments --

Many analysts give less importance to Shipments since this is a backward looking measure reflecting orders that have been confirmed, manufactured and shipped. In other words, ancient history. The following chart shows how June shipments look for the overall tech sector:


That big decrease mentioned above is clearly visible in the last data point. It's a little surprising that, despite the drop in shipments, so many tech companies are showing improved earnings and are beating earnings expectations anyway.

New Orders --

The forward looking measure that Wall Street gives the most credence to is the New Orders number. The following chart shows New Orders for the tech sector:


New Orders show a decline back to levels last seen in March of this year.

The outlook -- 


First of all, there were a couple of positives in this month's Durable Goods report
  • Capital goods -- Nondefense new orders for capital goods in June decreased $1.1 billion or 1.6 percent to $64.1 billion.  Shipments increased $0.6 billion or 1.0 percent to $63.2 billion.  Unfilled orders increased $0.9 billion or 0.2 percent to $486.6 billion. Capital goods are generally considered to be a proxy for business investment and, though new orders declined the uptick in shipments and unfilled orders shows there's still life in the capital goods category and that businesses have not yet pulled back in their investing for growth.
  • With respect to the tech sector, we also see an a 0.3% increase in unfilled orders which at least suggests some continuing strength in the sector. Inventories increased 1.9% which, hopefully, is a sign that manufacturers are preparing for increased demand.
So we now have two months of declining shipments in the tech sector which more or less continues the pattern that has been in place for the last year. This most recent decline was sizable, however, and it makes the upcoming July numbers all the more important. Without an increase in July, the tech sector may be facing a change in trend - to the downside.

Luckily, the back-to-school shopping season is coming soon and that will provide increased demand for consumer technology products and the associated components that go into them. Back-to-school is of course followed by the holiday shopping season. So the seasonality is in favor of supporting demand for tech.

So for now, I have to say the trend for the tech sector remains up but the next couple of months will be crucial. Tech could be at a tipping point.



Sunday, July 25, 2010

Earnings finally matter -- and the market recovers

Having spent the day working on renovating a bathroom I confess I don't have the energy to get too deeply into another post tonight. Still, I wanted to share the the weekly charts from Alert HQ.

The view from Alert HQ --

The data for the following charts is generated from our weekly Alert HQ process. We scan roughly 6040 stocks and ETFs each weekend and gather the statistics presented below.

In this first chart below we count the number of stocks above various moving averages and count the number of moving average crossovers, as well. We then plot the results against a chart of the SPDR S&P 500 ETF (SPY).


Last week I opined that this chart looked "bottomish." After this week's strong performance (major indexes gained more than 3% and the Russell 2000 gained 6.6%) this chart is now looking downright bullish. Do you realize that we now have roughly 50% of stocks above their 50-day moving average? That's the best level we've seen in the last two months.

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. 


Since this chart is based on Aroon analysis and Aroon is a more slow moving indicator, the results are not quite as dramatic as in the first chart. Still, improvement is clearly visible as the number of stocks in up-trends is definitely increasing.

Finally, if you haven't been browsing through the signals at Alert HQ, I would encourage you to take a look. We identified a ton of BUY signals this weekend and they are a confirmation of the strength that is returning to the market.

It looks like it's safe to be long again. But for how long?



Agriculture sector is on fire -- here's a roundup of stocks and ETFs

In case you haven't noticed, agricultural products, grains in particular, have been putting on an impressive rally. Take a look at this chart of the Dow Jones - UBS Grains Index:


If you're looking for a way to participate in this rally, I have the following list of ETFs courtesy of ETFdb.com:

Symbol Name
DBA PowerShares DB Agriculture
RJA ELEMENTS Rogers Intl Commodity
JJG iPath DJ-UBS Grains TR Sub-Idx
COW iPath DJ-UBS Livestock TR Sub-
JJA iPath DJ-UBS Agriculture TR Su
GRU ELEMENTS MLCX Grains Index TR
UBC UBS E-TRACS CMCI Livestock TR
CORN Teucrium Corn
FUD UBS E-TRACS CMCI Food TR ETN
UAG UBS E-TRACS CMCI Agriculture T
AGF PowerShares DB Agriculture Lon

Another way to play this is to look for some of the better fertilizer and agricultural chemical companies. I have written previously about CF Industries Holdings (CF) and came to the conclusion that it was undervalued and in the process of breaking out (click here to read the post). That exercise made me aware of what was going on in the sector. I did subsequently buy a few shares of CF and, so far, it has not disappointed. Note that CF has acquired Terra Industries, a company that used to appear on many lists of good ag sector investments.

Here are a few others you might want to consider. I have filtered this list to only include those companies whose stock charts are looking bullish.
  • Potash Corp of Saskatchewan (POT) - this well-known potash, feed and chemical producer boasts a chart that shows an upside reversal in the making. It has just cleared its 50-DMA and has some work to do to clear the next resistance level in the $100 range. Earnings will be reported next week and they had better be good as the stock has already moved out of the value category. Revenues and earnings have been increasing on a sequential basis over the last few quarters so investors are hopeful this positive trend will continue.
  • Agrium (AGU) - finally popping above its 200-DMA, the company is involved in nitrogen, phosphate, potash, sulphur, and micronutrients; crop protection products, such as herbicides, fungicides, adjuvants, and insecticides; and seeds. Revenues have been increasing while earnings have been decreasing. This is a play on a turnaround in the ag sector. There are two big questions: can the stock hold its 200-DMA and will its upcoming earnings report justify the rally in the stock price?
  • Monsanto (MON) - primarily offering seeds and herbicides, financial results have been uneven over the last few quarters though the company is solidly profitable. After a big decline, the stock has been rallying sharply since the beginning of July and, based on PE, Price-to-Sales and a few other measures, it is now getting expensive. Investors are apparently anticipating a strong upcoming earnings report. Citi rates the company a BUY - they had better be right on those earnings expectations.
  • Mosaic (MOS) - another potash producer, MOS beat earnings this week due to strong sales and improved margins. This is a nice continuation of the sequential quarterly trend. The stock declined for a couple of days and then rallied with the rest of the market on Friday. The chart looks like a nice upside reversal is underway.
Conclusion --

This is an interesting sector with lots of choices. Increased global demand coupled with weather issues (hot, hot, hot in the U.S. cornbelt) have allowed prices for agricultural products like corn, wheat and soybeans to firm up. This has allowed pricing for fertilizer and chemicals to firm up, as well.

Almost all of the ETFs listed above have been very strong lately. You could easily say that they are over-heated and investors, at this point, may be late to the party. On the other hand, we also see CF Industries, Potash and Mosaic as standouts among individual stocks and if earnings and guidance come in as expected, their share prices could easily accelerate.

Disclosure -- long CF, no other positions in stocks mentioned in this post



Saturday, July 24, 2010

Value stock with a growth stock chart -- RLI could be worth a look

So how can a stock be on both the Trend Leaders list and the Trend Busters list? To review, the Trend Busters lists consists of those stocks or ETFs that have simply broken a trend line while the Trend Leaders list includes those stocks that are exhibiting bullish performance according to MACD, Wilder's DMI and Aroon analysis.

After running Thursday night's Alert HQ process, I have a stock that is on both of these lists and is also passing the screen for Reasonable Value. This company is RLI Corporation (RLI). Here is the chart :


I've drawn two trend lines in blue: a longer term trend that is sloping upward and which RLI seems to be following and a shorter-term downward sloping trend that the stock has broken through to the upside. The fact that RLI has burst upward out of the wedge formed by the two trend lines is another positive which suggests the stock could hit $59 before too long. All in all, pretty bullish performance.

Why is RLI considered Reasonable Value?

Here are my criteria for the Reasonable Value screen:
  • PE between 0 and16
  • PEG between 0 and 1.2
  • Price-to-Sales less than 2
  • Debt-to-Equity less than 1
  • EV to EBITDA less than 10
Here are the stats on the company:

Market CapPE RatioPrice to SalesPrice to BookPEG RatioDebt to EquityPrice to Free Cash FlowCash Flow Yield Dividend YieldEV to EBITDA
$1.18B102.041.381.130.129.53-1.03%2.08%6.53

RLI meets all the Reasonable Value criteria, with room to spare.

Background --

RLI Corp. underwrites property and casualty insurance primarily in the United States. The company serves the commercial market almost exclusively and operates in three segments: Casualty, Property, and Surety. RLI insures things like office buildings, factories, apartment buildings, refineries, truckers and more.

The company beat earnings estimates earlier this week which allowed the stock to continue its upswing. RLI reported blow-out second-quarter 2010 operating earnings of $1.52 per share, beating the Zacks Consensus Estimate of $1.05 per share by 47 cents. These results also compare favorably with operating earnings of $1.32 per share in the year-ago period. Some of this quarter's earnings gain, however, came from reversing reserves set aside during prior years (the same trick the banks are playing this earnings season) but there were also organic gains from increased premiums and investment income. Underwriting income was $30.8 million, up 22.8% year over year, led by an increase in Property and Surety underwriting income, partially offset by a decline again in Casualty underwriting

A measure of profitability used by insurance companies to indicate how well they are performing in daily operations is the Combined Ratio. A ratio below 100% indicates that the company is making underwriting profit while a ratio above 100% means that it is paying out more money in claims than it is receiving from premiums. For RLI, combined ratio for the quarter improved 480 basis points year over year to 74.7% driven by an improvement in Casualty and Surety combined ratios, partially offset by decline in the Property combined ratio.

Because the growth picture is somewhat murky with the Casualty segment lagging in underwriting and the Property segment's combined ratio failing to improve, Zacks maintains a Neutral rating on the stock. Similarly, Stifel Nicholaus has upgraded the stock but only from SELL to HOLD.

Conclusion --

RLI is a value stock with a growth stock chart. Caveats are that it is not unusual for financial stocks to pass the Reasonable Value screen and the company is seeing uneven results in two of the three segments in which it operates. On the other hand, the company is solidly profitable, raises its dividend on a regular basis and has been able to reduce costs year over year. I'm not an expert in analyzing insurance companies but the stock could be worth a trade.

Disclosure: no positions



Friday, July 23, 2010

Earnings scorecard -- two weeks in, where's the evidence for a double-dip?

The first two weeks of earnings season are in the books so it's time to take our first look at which sectors are doing well and which ones are - uh - "underperforming".

The chart below breaks down each sector's earnings reports into five different categories and gives total stocks that have reported thus far.

Sector Earnings Beats Y-o-Y Earnings Increases Y-o-Y Revenue Increases Upside Guidance Total Providing Guidance Total Number of Stocks Reporting
Basic Industries 11 11 15 2 6 16
Capital Goods 37 34 40 7 17 47
Consumer Durables 27 28 26 6 16 33
Consumer Non-Durables 21 18 18 1 13 28
Consumer Services 33 36 43 2 30 49
Energy 9 9 12 0 2 18
Finance 48 47 20 0 3 84
Health Care 24 21 26 6 22 32
Miscellaneous 8 7 10 0 7 13
Public Utilities 9 7 8 1 2 10
Technology 63 72 75 17 47 83
Transportation 22 24 25 2 3 26
Totals 312 314 318 44 168 439

Before getting into individual sectors, let's start by looking at some of the totals and calculating the percentages.
  • Earnings beats:  71%
  • Year-over-Year Earnings Increases: 71.5%
  • Year-over-Year Revenue Increases: 72.5%
  • Upside Guidance out of those providing guidance: 26%
  • Upside Guidance out of total stocks reporting: 10%
Based on earnings and revenues, this earnings season has so far been pretty darn good. The doubt begins to creep in when we look at the guidance numbers. Company management seems to be rather reluctant to go out on a limb and declare that the upcoming quarter will result in the kind of growth we are seeing in Q2 results.

Sector results --

Just so we don't end on a downer, let's identify the worst performing sector first. That honor goes to the Financial sector. Earnings beats and Y-o-Y Earnings Increases are roughly 57%. Revenue Increases were less than 28%. There was no upside guidance whatsoever.

Also in the lower range of results, we have Energy and some of the Consumer sectors where upside guidance is very light or nonexistent.

At the high end of results, there are the Transportation and Technology sectors. Earnings beats, Y-o-Y Earnings Increases and Revenue Increases are roughly 75% for Tech and upside guidance is plentiful. Transports are doing even better with  Earnings beats, Y-o-Y Earnings Increases and Revenue Increases over 85%. Unfortunately, very few transportation companies offered guidance - only three companies went on the record with guidance but at least two of them were positive.

Conclusion --

With Technology and Transportation leading the way and solid performance from Basic Industries and Capital Goods, it's hard to believe we are headed for a double-dip. Earnings beats are all well and good but revenue increases and upside guidance would argue for continued future improvement though it is clear that some sectors will lag for a while.



Tuesday, July 20, 2010

Stocks show gains two days in a row -- is the rally back on?

This post is announcing that Tuesday's Swing Signals, Trend Leaders, Trend Busters and Gap Signals are now available at Alert HQ. All are based on daily data. It's been a while since I wrote a post highlighting the latest Alert HQ signals but I want to remind everyone that we have been putting up the Tuesday, Thursday and Saturday morning signals regularly without interruption.

Today we have the following:
  • 25 Swing Signals -- 23 BUY signals and 2 SELL signals.
  • 87 Trend Leaders, all in strong up-trends according to Aroon, MACD and DMI. We have 35 stocks that are new additions to the list and 43 that fell off the previous list.
  • 15 Trend Busters, of which 11 are BUY signals and 4 are SELL signals.
  • 125 Gap Signals -- stocks with upside or downside gaps or gaps that have been closed. 75 are bearish gaps and 50 are bullish gaps.
The view from Alert HQ --

Over the weekend I wrote that Friday's market action was so bad that it seemed the advantage had gone to the bears. Major indexes wilted just as they seemed ready to decisively move above moving averages that were presenting resistance. Over the last two days, however, the stocks seem to be gathering strength for another run at the same moving averages.

The signals at Alert HQ are in tune with this recovery in strength. BUY signals are strongly outnumbering SELL signals on the Swing Signals and Trend Busters lists. Just so you don't get carried away with optimism, though, the Trend Leaders list has more stocks falling off the list than were added today and downside gaps over the last five days still outnumber upside gaps.

So our fast moving signals are showing a resurgence in stocks and our slower moving signals (the Trend Leaders, for example) are still reflecting last week's weakness. Which do you think will dominate Wednesday's trading?

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 or Gap Signals may provide some good trading ideas.


Found a few stock picks you are interested in? If you are looking to refine your entry and exit points, you should take a look at what our friends at Hottinger's E-Zone Signals have to offer.




Monday, July 19, 2010

Bond ETF reversal alert -- but will the rally continue?

This weekend's Reversal Alerts based on weekly data turned up an interesting BUY signal for an ETF I had never heard of before.

The symbol is IGOV and the ETF is the iShares S&P/Citigroup International Treasury Bond Fund. The S&P/Citigroup International Treasury Bond Index ex-US is a market value-weighted index designed to measure the performance of treasury bonds issued in local currencies by developed market countries outside the U.S.

Holdings include bonds from Japan (fully 25% of the fund), France, Italy, Germany, Austria, Canada, Australia and even the problem children like Greece, Ireland, Spain and Portugal. Credit ratings are mostly in the AA to AAA range.

Maturities are mostly short to intermediate with roughly 75% of holdings falling into the 1 to 10 year maturity range.

Regardless of the exposure to problems in Europe, this ETF has been on a roll since early June when a  multi-month downtrend reversed to the upside. The chart of daily data follows:


This chart suggests that investors have become much more comfortable holding sovereign debt lately. As stocks have fallen out of favor, bonds have received attention and IGOV seems to be benefiting from this rotation out of equities.

A technical analyst, however, might point out that on this daily chart the ETF appears over-bought according to Williams %R and Slow Stochastics. In addition, strong resistance looms above at the 200-day moving average. A move through that 200-DMA would signal a continuation in the new bullish trend. The fact that IGOV doesn't look nearly as over-bought on the weekly chart and that it has moved above resistance in the $99 range are also positives.

Given that Europe seems to be emerging from its sovereign debt crisis (Greece and Spain have been able to issue bonds at better than expected rates, confirming investors are developing some optimism on the countries sorting out their problems), perhaps IGOV really does have the potential to keep up the bull run. And compared to similar ETFs it even has a rather low 0.35% expense ratio.

If you are looking for an international bond fund that is not focused on emerging markets then IGOV might be the right ETF for you.

Disclosure: no positions



Sunday, July 18, 2010

All it takes is one bad day and advantage goes to the bears

Friday stocks staged another retreat just when bulls were looking for upside follow-through. Instead of a nice push above the 50-day moving average, confirming the bullish trend, we got a 3% drop that wiped out more than a week's worth of gains. Now, charts are shaping to show lower highs and lower lows - the classic definition of a down trend.

The view from Alert HQ --

The data for the following charts is generated from our weekly Alert HQ process. We scan roughly 6040 stocks and ETFs each weekend and gather the statistics presented below. First, here's the two charts and  I'll summarize my interpretation at the end.

In the chart below we count the number of stocks above various moving averages and count the number of moving average crossovers, as well. We then plot the results against a chart of the SPDR S&P 500 ETF (SPY).


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.


OK, the price chart of SPY is now looking pretty awful. These two charts, however, while clearly reflecting Friday's weakness, are at the same time looking kind of "bottom-ish" if such a word exists.

The Moving Average Analysis chart shows a zig-zag of the yellow line above and below the magenta line. Neither line has established new lows recently, hence the "bottom-ish" characterization. The Trending Analysis chart shows a continued decline in the number of stocks in a down-trend. Unfortunately, it also shows that the number of stocks in up-trends has reverted to a relatively low level, and it seems it will be a struggle to increase. This is certainly not a bullish chart but it is still sort of bottom-ish.

This next chart shows SPY over the course of the last year. What is highlighted is the downward wedge that the ETF seems to be trapped in.


The bears look at this chart and see SPY continuing down this channel, fulfilling the dark promise of the "death cross" when the 50-DMA crossed below the 200-DMA. The failure to break over the top trendline is a telling sign showing that we are truly in a bear market. Many expect SPY to drop out of this channel which would probably result in a quick drop to the $92.50 range

The bulls look at this same chart and say "Hey, isn't a falling wedge a bullish formation?" Of course, the answer is Yes only if we finally break out to the upside, something that looks more challenging now that SPY has been rebuffed so soundly at that falling upper trendline shown in the chart above.

The bulls may just be biding their time and hoping for a strong reversal sign. Take a look at the chart below:


You can see a potential head-and-shoulders set up. The optimists are OK with a pullback in SPY as long as the ETF fulfills this pattern.

Could it happen as the bulls hope?

Only time will tell but I thinks earnings will have an impact. There are a good number of bellwether companies reporting this week including IBM (IBM), Texas Instruments (TXN), Johnson & Johnson (JNJ), PepsiCo (PEP), Goldman Sachs (GS), Coca-Cola (KO), Morgan Stanley (MS), AT&T (T), Caterpillar (CAT), UPS (UPS) and Amazon.com (AMZN). If we can get a consistent set of good reports combined with positive outlooks then Friday's market slide might be arrested.

In terms of economic reports, the bulls will probably be swimming against the tide. We have a bunch of housing related reports coming up and they are all likely to range from lackluster to awful. These reports include National Homebuilders Association Index, Building Permits, Housing Starts and Existing Home Sales. In addition to the usual weekly jobless claims we will also have the latest report of leading indicators from the Conference Board.

There has been a lot of attention paid recently to the ECRI weekly indicators. There is a difference between the two as well as some similarities. For example, here is what the Conference Board takes into consideration when constructing their index:

The index of leading indicators includes the ten economic statistics listed below.
  1. The interest rate spread between 10-year Treasury notes and the federal funds rate.
  2. The inflation-adjusted, M2 measure of the money supply.
  3. The average manufacturing workweek.
  4. Manufacturers' new orders for consumer goods and materials.
  5. The S&P 500 measure of stock prices.
  6. The vendor performance component of the NAPM index.
  7. The average level of weekly initial claims for unemployment insurance.
  8. Building permits.
  9. The University of Michigan index of consumer expectations.
  10. Manufacturers' new orders for nondefense capital goods.
The ECRI weekly leading indicators are composed of the following components:
  1. The Mortgage Bankers Association's home purchase index
  2. Money supply
  3. Stock prices
  4. Initial jobless claims
  5. Corporate yield spreads (inverted)
  6. Corporate bond quality spread
ECRI, in other words, doesn't directly take into consideration several aspects of manufacturing, consumer expectations or data from the NAPM purchasing manager indexes which until recently were all clearly on the mend. I'd like to think that ECRI underweighted the benefits of the improvements in the manufacturing sector but it's probably a wash now that it seems that manufacturing is showing some slowdown based on last week's Empire State index and the Philadelphia Fed index.

So it's clear the two sets of indicators will not track exactly but both will show slowing growth based on the items they have in common. And since both track stock prices, it becomes somewhat of a self fulfilling prophecy that the indicators will decline when stocks do. I'd love to see these two without the impact of stock prices given how volatile and crazy the markets have been lately.

So the battle between bulls and bears and between double-dippers and economic optimists continues. Expect the outcome to see-saw back and forth for weeks to come before we see a resolution.



Wednesday, July 14, 2010

Weekly ProShares Review -- foreign stocks grab investor interest

Some interesting things going on with ProShares ETFs this past week.

Every now and then for the last few weeks I have been presenting a list of the ProShares ETFs that have exhibited the strongest performance over the course of the last week or have registered the biggest increase in volume.  Since these ETFs are primarily short-term trading vehicles and, as such, can be viewed as indicators of short-term sentiment, looking at the leaders among them can paint a picture of those areas of the market in which short-term investors are currently most interested.

Looking back over the course of the previous week, the five ETFs with the biggest gains were:

Symbol Fund Name Group Objective Percent Change - Price Percent Change -  Avg Volume
EFO Ultra MSCI EAFE Ultra 200% of the underlying 12.7% 176.8%
EET Ultra MSCI Emerging Markets Ultra 200% of the underlying 11.5% 16.1%
XPP Ultra FTSE/Xinhua China 25 Ultra 200% of the underlying 10.9% 22.4%
UPRO UltraPro S&P500 Ultra 300% of the underlying 10.2% -44.5%
UKF Ultra Russell1000 Growth Ultra 200% of the underlying 10.0% 15.4%

The two ETFs with the biggest increase in volume (other than EFO) were:

Symbol Fund Name Group Objective Percent Change - Price Percent Change - Avg Volume
JPX UltraShort MSCI Pacific ex-Japan Short 200% of the Inverse -10.3% 310.9%
YCL Ultra Yen Ultra 200% of the underlying -1.4% 107.8%

Interestingly, the volume for all the other ProShares ETFs declined or was barely up at all.

Conclusion --

The overriding theme this week seems to be that, after suffering serious declines (China sinking to bear market lows, for example), foreign stocks are back in favor. Surprisingly, that includes European stocks which make make up a large part of the EAFE index which was our top performer. The biggest volume play was to bail out of the UltraShort MSCI Pacific ex-Japan ETF.

U.S. markets rallied last week but short-term traders seem more interested in foreign stocks. Is this a vote of confidence for improvement in the global economy? At least this week, the double dip seems like a figment of the perma-bear imagination.



An update to Trade-Radar Stock Inspector is available: version 5.2.6 is live

I'd like to notify users that a new version of Trade-Radar Stock Inspector was just made available over the weekend. The update is related to a fix for the user interface.

Some flaky things were going on when entering new stock symbols and retrieving data. It's all been resolved. Both methods now work just fine.

For your reference here are the two methods:
Method #1: Click the "Get data from Yahoo" button, enter the new symbol in the text box and all data will be retrieved and stored in the database.
Method #2: Enter the new symbol in the dropdown and click the "Search Database" button. Then click the "Get data from Yahoo" button to retrieve data.)

I also fixed a bug that is encountered when Yahoo data has non-numeric results in today's price data. Instead of blowing up, the program now just rejects the data. This usually happens only on very thinly traded stocks or ETFs.

If you'd like to take advantage of these updates, click on [ this link to our Download page ] and get version 5.2.6.

2 Week Free Trial --

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Sunday, July 11, 2010

Heads up! -- 4 Reasonable Value stocks starting to break out

Here's another "Reasonable Value" screen run against Saturday morning's Trend Busters and Trend Leaders lists. For those of you who have not see one of my previous "Reasonable Value" posts, here are the criteria for the screen (slightly tightened compared to previous posts):

  • PE between 0 and16
  • PEG between 0 and 1.2
  • Price-to-Sales less than 2
  • Debt-to-Equity less than 1
  • EV to EBITDA less than 10
Today there are four stocks that pass this screen and they're all from the Trend Busters list.
Symbol Name Industry Last Price Market Cap PEPEGPrice To SalesPrice To BookDebt To EquityEV to EBITDA
ENDP Endo Pharmaceuticals Holdings Inc. Major Pharma-ceuticals $23.47 2.729B 9.57 0.62 1.83 1.78 0.2131 4.71
TDW Tidewater Inc. Marine Transportation $41.17 2.135B 8.13 0.18 1.81 0.86 0.1116 6.25
UNF Unifirst Corporation Other Consumer Services $44.63 866M 11.37 0.99 0.85 1.25 0.2542 4.9
SPR Spirit Aerosystems Holdings, Inc. Military/ Government/ Technical $21.12 2.972B 15.83 0.87 0.69 1.81 0.5472 7.17

Given that all these stocks are from the Trend Busters list, it means that they have all broken out above a downward sloping trend line. Let's take a brief look at each.

This first chart is for Endo Pharmaceuticals Holdings Inc (ENDP).


This stock has been on our list in the past based on a shorter-term steeper trend line. Today's trend breakout is illustrated by the blue line. You can see this breakout is definitive. Endo Pharmaceuticals makes branded and generic prescription drugs and recently acquired urological products company HealthTronics.

This next chart is for Tidewater (TDW):


The breakout is not so dramatic on this chart. The company provides supply vessels and marine support services to the offshore energy industry. The company's operations are worldwide. Management expects a decent year but the company could be vulnerable to a moratorium on deep water drilling in the Gulf. Luckily, the company has the ability to move vessels to other busier areas. Tidewater is dependent on the energy industry which, in turn, is dependent on a resurgence in the global economy.

Our third stock is Unifirst (UNF) and here is the chart:


This is a pretty encouraging chart as the stock has not only broken the down-trend, it has also moved above its 50-day moving average. Unifirst sells and rents uniforms and performs laundry services, etc. The financial situation is somewhat mixed. According to its last earnings report, revenues are up but income is down due to increased costs. Nevertheless, results exceeded analyst estimates and the stock popped. If the employment finally begins to improve, Unifirst will benefit.

Finally, we have Spirit Aerosystems Holdings (SPR).


Here's another one that made a definitive move above both the trend line and the 50-day moving average. What seems to be driving this reversal is an upgrade from a UBS analyst who wrote that the aerospace supplier will benefit from production increases at Boeing Co. and stability from a new union contract.

There you have it: four stocks with promising charts and value stock characteristics.



Market turns on a dime last week -- now, fundamentals will rule

The market turned on a dime this week. Pundits struggled to find a decent reason. An increase in the IMF's GDP forecast for 2010 was modest, a drop in weekly jobless claims was welcome but still modest, retail sales reports for June were mixed (though industry experts say June is generally weak so don't worry about it) and ISM Services were actually slightly lower that expected. Nevertheless, the herd swung into buying mode and stocks jumped 5%.

The debate now switches to whether the bull is back or whether this is just a flash in the pan rally,soon to be forgotten. The blogosphere naturally provides both sides of the argument. Well known investor and hedge fund manager Doug Kass declared we have seen the bottom for 2010 and it's upward from here. On the other hand, we have people discussing the possibility of Elliot Wave theorist Robert Prechter's call for Dow 1000. No doubt things will end up somewhere in the middle.

The view from Alert HQ --

In the meantime, let's look at where we are today. The data for the following charts is generated from our weekly Alert HQ process. We scan roughly 6040 stocks and ETFs each weekend and gather the statistics presented below.

In the chart below we count the number of stocks above various moving averages and count the number of moving average crossovers, as well. We then plot the results against a chart of the SPDR S&P 500 ETF (SPY).


In the last eight weeks, the majority of stocks have been below their 20-DMA more than half the time. This week, the majority is above. Though we see improvement, the majority of stocks we tracked are still below their 50-DMA for the third week in a row. It's hard to see on the chart but the number of stocks whose 20-DMA is above their 50-DMA actually declined slightly this week despite the surge in stock prices. That shows how deep the damage from the previous week was.

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.


Barely 16% of stocks can be considered to be in an up-trend and that's after a week in which major stock market indexes rose 5% or more. More than a quarter of the stocks we track can still be considered to be in a down-trend and that is an improvement from last week when the number was close to half.

As for the stock signals at Alert HQ, the signs are very encouraging. Out of 94 Trend Busters, there was only one SELL signal. There were 220 Swing Signals, an usually high number, and every single one was a BUY signal. These are the stocks that have been first to break out and I encourage you to take a look.

The outlook --

It's all about earnings. This coming week is considered the start of second quarter earnings season with Alcoa (AA) reporting on after the close on Monday. Other big names bellwethers include Intel (INTC), JPMorgan Chase (JPM), Google (GOOG), Bank of America (BAC), Citigroup (C), and General Electric (GE). Results are generally expected to be good as year ago comparisons are relatively easy. Investors, worrying about a slowdown in the second half of this year, will be paying the most attention to forward guidance. Management statements will be analyzed with a fine tooth comb.

In addition to earnings season, there is a pretty big slate of economic reports to be released this coming week. We will see more retail sales reports, export/import prices, business inventories and minutes from the last Fed Open Market Committee meeting. Thursday is a big day with initial jobless claims, continuing claims, Empire State manufacturing index, industrial production, capacity utilization and the Philadelphia Fed manufacturing index. Finally, on Friday we get CPI and the Michigan Consumer Sentiment survey.

With earnings and data coming at us in mass quantities, perhaps the market will finally begin to be ruled by fundamentals rather than fear and computers. At least that's my hope. In any case, there's lots going on this coming week so hold on to your hats.



Monday, July 5, 2010

One bad month of data and the wheels come off -- could the technical situation be any worse?

This past week's market action seemed especially vicious with the S&P 500 dropping 5%, the NASDAQ dropping 5.9% and the Russell 2000 falling 7.2%.

I've spent the last two weeks looking at the Alert HQ data and thinking stocks might still have some strength in reserve. This past week's results show that my faith was misplaced.

To illustrate how severe this downturn has become just take a look at the following charts"

In the chart below we count the number of stocks above various moving averages and count the number of moving average crossovers, as well. We scan roughly 6400 stocks and ETFs each weekend and plot the results against a chart of the SPDR S&P 500 ETF (SPY).


What is unusual about this chart is how the yellow line, after making such a significant move above the magenta line, turned and plunged. In the two and a half years I have been doing this kind of moving average analysis, this is the most volatile this chart has ever been and this is the biggest and most radical reversal I have seen in this data.

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.


We have the same story in this chart where the indicators have turned on a dime and resumed their bearish direction.

The outlook --

With everyone pointing out head-and-shoulders patterns, death crosses and broken support levels it almost seems like there is too much bearish consensus among market observers. It's almost like things couldn't get any worse. When the mood is gloomiest, though, that's when the rebound often begins. The charts above, however, show how poor stock performance has been and suggest that any rebound, based on earnings season for example, will not happen overnight. The market will have to dig its way out of this mess and it will take some time.

From a fundamental point of view, market participants seem to be throwing in the towel on the global recovery. One bad month of data and all faith has been lost. Certainly it doesn't help that suddenly government austerity is all the rage and economists are busy calculating how much this new found religion will shave off each country's GDP.

This shortened week will provide only a small amount of data for investors to obsess over. We get ISM Services, crude inventories, initial claims, consumer credit and wholesale inventories. I would be surprised if any of these did much to move the market. The fireworks should begin in the following week when there is a big slate of economic data to be released and the number of earnings reports begins to increase.

This is probably a good week to stand aside and let Mr. Market do whatever he wants to.



Sunday, July 4, 2010

7 day losing streak for the Dow but not every stock is plunging - value stock in the Ag sector is breaking out

After running Saturday morning's Alert HQ process I checked my "Reasonable Value" screen against the day's Trend Busters and Trend Leaders. For those of you who have not see one of my previous "Reasonable Value" posts, here are the criteria for the screen:

  • PE between 0 and 20
  • PEG between 0 and 1.3
  • Price-to-Sales less than 2
  • Debt-to-Equity less than 1
Today there is just one stock that passes this screen and it's from the Trend Busters list. The company is CF Industries Holdings (CF). The following chart shows why the stock is a Trend Buster:


On Friday, the stock popped up above the bearish trend line (in green). It now sits just below its 50-day moving average. From a technical analysis point of view, the bullish breakout over the downward trend line is a positive but buyers would need to have confirmation by seeing.the stock move above that 50-DMA. Supporting the bullish case, MACD and Williams %R show a change in trend to the upside is in the making. This is further supported by Slow Stochastics (not shown above).

Background and Financials --

OK, now we know why CF is a Trend Buster. Let's look at why the company passes the "reasonable value" screen.

First of all, CF Industries is basically a producer of fertilizer, primarily nitrogen and phosphates. The company has a market cap of $4.6 billion, a trailing PE of 11 and a forward PE of less than 9. PEG is a mere 0.57 and the Enterprise Value / EBITDA ratio is less than 5. The Price-to-Sales ratio is 1.9 and Debt-to-Equity is nearly zero. All these measures suggest deep value.

I mentioned above that the company has a market cap of $4.6 billion. You might be interested to know that they are holding over $1 billion in cash. In addition, they pay an annual dividend of $0.60.

There's more good news from the point of view of fundamental analysis. Take a look at some of the measures calculated by my Trade-Radar software:
  • Annualized cash flow yield which, at 1.52%, is a little low but still positive
  • Cash flow to debt coverage is excellent
  • Survivability (debt less than 3 times EBITDA) is also excellent given that EBITDA is $731 million and debt is less than $5 million
  • Dividend is sustainable based on it being less than 60% of Diluted EPS which in the last 12 months was over $6
  • Management effectiveness is good based on the fact that Return-on-Equity and Return-on-Assets are both in the teens, 19% and 15% respectively.
  • Price-to-book is less than 2
All this points to a company that is financially quite sound and qualifies to be considered as a value stock. So why did the stock take such a hit before its recent upturn? The following chart from Google Finance has the answer:


The company has struggled during the economic downturn as demand and prices declined. Revenue, earnings and margins are all down. You may remember some of the high flying potash producer stocks from 2006 and 2007 that have since crashed. CF is not a potash producer, focusing as I mentioned above on nitrogen and phosphates, but its stock price followed the same trajectory. Driven by the big move into ethanol, planting of corn skyrocketed and the need for fertilizer followed. The growth in the market for ethanol has since slowed.

The outlook --

Back in June, the Department of Agriculture provided a bullish report on corn and soybeans. This is a positive for the fertilizer stocks because corn requires more kinds of fertilizer than many other crops. CF and others popped on the news.

Here are a few other items that suggest the recovery is real for CF.

Management's outlook during the first quarter conference call was bullish. They pointed to low costs for natural gas that conferred advantages for their nitrogen business and added they were exporting nitrogen-based fertilizers to Australia, Mexico and Chile. This is notable as their primary market is in the U.S. The negative aspect of first quarter results was the result of downward pressure on prices in both segments of the company's business.

Looking ahead, management points to reasonable prices for natural gas, increased corn planting, beneficial planting conditions and better expectations for the nitrogen business due to a pick-up in ammonia sales in April and even price increases in the ammonia business. The effects of ethanol are still being felt in the industry.Though the ramp up is not as extreme as in 2006 and 2007, ethanol production continues to slowly increase. This results in more corn planting and growing demand for fertilizer. Corn prices also seem to be in a range that are optimal for the fertilizer companies, encouraging farmers to plant corn and supporting fertilizer company margins.

CF Industries recently acquired Terra Nitrogen Company and the acquisition seems to be proceeding well with nitrogen sales in the first quarter coming in above expectations. Indeed, Terra reported improved net income despite falling prices. The combination of the two companies is also expected to yield efficiencies that will result in cost reductions.

Broadpoint AmTech reiterated a Buy rating on CF Industries on June 15, noting that "patient investors should take advantage of the pullback in fertilizer stocks." Nice call as the stock price more or less began its recovery around that time. Among others, hedge fund Passport Capital also maintains a position in CF.

If things play out as well as management projects, CF's stock price should continue the breakout that we see happening this week. Considering that the stock is well within the value range, any downside should be limited. If you are a value investor, CF appears to be an excellent candidate. If you subscribe to technical analysis, CF appears to show great potential in this case, as well. This is one stock that deserves a place on your watch list.



Friday, July 2, 2010

8 steps to simpler investing

If you invest in the stock market, you need to pick stocks. That means you need to learn about the company and make an educated decision whether to buy or sell.

How do you do stock research?

Does it go something like this?
  1. Look for an interesting stock, maybe one that was discussed at SeekingAlpha or MarketWatch or some other site that you read.
  2. Pull up a chart and start trying out different technical indicators. Try to remember how each one works and evaluate it in your head. Complain that most charting sites only allow maybe half a dozen indicators to be displayed at one time.
  3. Try to remember the results of each indicator as you move on to do some fundamental analysis
  4. Look through Yahoo! Finance or Google Finance or one of the other sites that provides stock fundamentals. Try to remember how all the financial ratios work, which items are important and what range indicates value versus over-priced.
  5. Now that you have spent an hour or so surfing the web and trying to pull together a bunch of data, you have a vague idea of whether the stock is a BUY or not. Still, you would like to compare it now to another candidate in order to ensure you are making the best choice.
  6. Go back to step #1 above, rinse and repeat…
If that sounds like you, I encourage you to take a look at the Trade-Radar Stock Inspector software.

8 steps to simpler investing --

Using Trade-Radar Stock Inspector, you can accomplish the same things much more thoroughly with way less time and effort. How about using a process like this:
  1. Select a stock (many good candidates are listed at Trade-Radar Alert HQ)
  2. Enter it into the Trade-Radar Stock Inspector software and automatically download relevant data for a total of 36 separate indicators
  3. Go to the Chartview screen and select the kind of signal you are looking for: BUY or SELL. Generate the chart and all its signals with a couple of clicks.
  4. Review the trend and moving average displays on the chart as well as the Trade-Radar signal.
  5. Go to the Dashboard and review the results of an evaluation of the 7 Trade-Radar proprietary technical indicators
  6. While in the Dashboard, review the results of an evaluation of the 11 standard technical analysis indicators
  7. Also while in the Dashboard, review the results of an evaluation of the 18 fundamental analysis indicators
  8. If you have seen that most indicators on the Dashboard are lit up in green, your selected signal has been confirmed.
Now wasn’t that a whole lot easier? Especially considering that you have put together a complete technical and fundamental picture. Even if you lose your Internet connection the data is still all there for quick review. Furthermore, much of the evaluation of indicators has been done for you so there is no more fussing with calculators and spreadsheets.

Do more analysis in less time with Trade-Radar Stock Inspector --

I am confident that once you try this software you will find it to be simple, quick and thorough and a great addition to your set of investing tools

For those of you who read this blog but have not yet tried the Trade-Radar Stock Inspector software, I encourage you to give it a try. Get the 45-day free trial: Download Now!

Have you tried the Trade-Radar Stock Inspector software already? Are you ready to buy? Download from our secure purchase page at RegNow: Buy Now!

As a bonus for those who read this blog, I would like to offer a $10 discount to anyone who purchases the Trade-Radar software before the end of July. Follow the Buy Now link above and enter the following coupon code: TRSI-159V-UGX



Thursday, July 1, 2010

After being wrong for two weeks, am I finally seeing the glimmer of a bottom?

This is a quick post announce that the Thursday Alert HQ signals are available. Predictably, SELL signals predominate. After two weeks of nearly non-stop selling that is no surprise.

What is a surprise is that the Swing Signals list is nearly all BUY signals. There are only 20 Swing Signals today but only one is a SELL signal. A preponderance of BUY signals generally suggests that the market is ready to turn up.

Should we trust this indication and bet on an upturn? Nineteen BUY signals comprise a shaky foundation for expectations for a rally. After all, today the market was merely less bad so these 19 stocks are a pretty small percentage of the 6000 or so stocks that we evaluated at Alert HQ tonight.

Given that we look at so many stocks at Alert HQ I thought I'd show a chart of the Russell 3000 which can be used as an approximation of the whole stock market.


So many analyses have focused on the emerging head and shoulders pattern and various support levels. In contrast, this chart shows the Fibonacci retracement lines.

You can see that RUA has dropped down to the first retracement line. Essentially, this represents a pullback of almost 18%. We could indeed see a bounce at this point but a failure to resume the up-trend would portend a drop to the 50% retracement line. That would be equivalent to a 23% drop from the peak in absolute terms. In other words, definite bear market territory.

Times that test self confidence --

I've been convinced that fundamentals have been slowly improving. What is apparent is that this improvement will not proceed in a straight line. The V-shaped recovery has always been an unlikely scenario after such a severe shock to the global economy. Things like the ISM index are still solidly above 50 which shows growth, company guidance is mostly optimistic (remember, earnings season is about to start) while the jobs and housing pictures remain gloomy. All in all, a muddled situation but not a doomsday scenario.

Be that as it may, the market has adopted total pessimism and has continued to sell off, regardless of any positive signs in economic reports. As I kept predicting the market was about to recover, it did the opposite. The fact that I have been dead wrong on the direction of the market these last two weeks makes it hard for me to be confident that a bounce is on the way now. Nevertheless, just when you throw in the towel is often when markets turn around. Keep an open mind and keep an eye on those company earnings. Stocks are much cheaper and this may turn out to be another buying opportunity like back in February.




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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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