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Wednesday, October 26, 2011

Durable Goods report for Sept just so-so but Computer segment is on fire

The Durable Goods advanced report for September 2011 was released on Wednesday.

I like to dig into the Durable Goods report because it can be useful for seeing how tech in aggregate is performing and how the sector may perform in the future. I always focus on two particular measures: shipments and new orders. Let's see how it played out last month.

Shipments -- 

I generally give less importance to Shipments since this is a backward looking measure reflecting orders that have been confirmed, manufactured and shipped. It's similar to earnings reports -- it's good to know but the data is in the past and we're more interested in the future. The following chart shows how September shipments looked for the overall tech sector:


Results for the overall tech sector were a bit weak but take a look at the next chart which tracks the Computers and related products segment:


Results here were actually quite good and, to make things even better, the previous month was revised upward.

New Orders --

This is the category that gets the most attention as it provides a glimpse of what might unfold in the future. Looking at the sector summary we see some small improvement in new orders.


The moving average is still heading down but both August and September are showing slow but steady improvement. This is a hopeful sign.

The next chart shows the Computers and related products segment:


Here again the results are very good. Indeed, this is 6% improvement over the previous month.

Conclusion --

It's no wonder Intel recently reported good earnings and forecast further growth. The Computers and related products segment has been doing quite well and, if you trust trust the new orders numbers, the segment looks like it will continue to do well. This also helps explain why tech held up so much better than other sectors during the recent downturn.

Unfortunately, it is hard to find an ETF that focuses precisely on this segment. They either have a broad combination of companies from across the tech spectrum (XLK or IWY, for example) or they concentrate on a segment like networking  like IGN, for example, which seems to be struggling in comparison to the broad-based ETFs or even when compared to Cisco Systems.

The best advice then is to put on your stock picker hat and start sifting through the tech sector using a good stock screener such as the ones at TradingStockAlerts.com that allow you to screen for both bullish trends and solid fundamentals within sectors and/or industries.

Disclosure: no positions in any stocks or ETFs mentioned in this article

Sunday, October 23, 2011

SPY - breakout confirmed?

Since August, the market has been in a funk, plunging at the end of July and then range-bound, more or less moving sideways for two months. The top of the range is notated in the chart below by the horizontal magenta line in the daily chart of SPY, the S&P 500 ETF. On Friday, however, we finally got a decisive move out of the range and above the magenta line.


The question on everyone's minds is: does this breakout have staying power?

Activity in Europe is still the wildcard and is pretty much unpredictable so in this post we'll just stick to the the technicals as we see them.

The view from Alert HQ --

For those readers who are new to TradeRadar or who don't remember what this is all about, the data for the following charts is generated from our weekly Alert HQ process. We scan roughly 6200 stocks and ETFs each weekend and gather the statistics presented below. In this first chart below we count the number of stocks above various exponential moving averages and count the number of moving average crossovers, as well. We then plot the results against a weekly chart of the SPDR S&P 500 ETF (SPY).


This chart reinforces the fact that a reversal has taken place and that a breakout is underway. Three weeks ago, after making some pretty extreme lows, this chart showed a very modest turning up of the yellow and magenta lines. In contrast, last week's charts showed strongly accelerating bullish momentum. Now, this week's chart shows the improvement in the number of stocks above their 50-EMA slowing noticeably while the number of stocks whose 20-day EMA are above their 50-day EMA is still increasing solidly.

This suggests a pause in this recent up-trend is very possible. Note also that the absolute levels of the yellow and magenta lines clearly indicate the market is not yet over-bought and that the newly established up-trend has more room to run.

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.


This chart tells the same story as the previous chart. The number of stocks in down-trends (red line) has dropped to an extreme low but the number of stocks in solid up-trends (yellow line) is no where near any kind of over-bought extreme. Here we also see a moderation in the bullish action this week as the yellow line registered only a small increase over the previous week's bigger move.

Again, the expectation is for further gains in the market but with a pause very likely.

Conclusion --

The up-trend being discussed in this post should still be considered a short-term trend. It has really only been three weeks since SPY hit a bottom and established a reversal pattern. Clearing the top of the recent range is a positive sign as is the fact that the 50-day moving average has turned up. The fact that there was at least a modest pick up in volume is also a good sign considering that much of the recent rally has been on lower volume. Nevertheless, a powerful trend needs to manifest itself over more than a few weeks. And investors should note that resistance in the form of the 200-day moving average and the June lows will soon come into play. That being said, it is certainly easier to be optimistic about stocks now but equally hard to shake off an attitude of caution.

What else might keep stocks moving in a positive direction? With Europe drowning out most other topics, it is almost easy to forget we are in the middle of earnings season! The good news is that most companies are reporting pretty decent results and, though some forward guidance has been rather less than confident, there are very few companies that are outright bearish in their expectations for the next quarter or two. This suggests the economy will continue to muddle along in slow-growth mode rather than fall off a cliff.

So as long as the politicians in Europe or the U.S. don't mess up too badly, the outlook for stocks over the next few months is starting to look better.

Disclosure: no positions

Friday, September 30, 2011

5 profitable tech stocks with 50-DMA turning bullish

Stocks went on another wild on Thursday (window-dressing?) and in an interesting turn of events the Dow finished up over 1% while the NASDAQ 100 finished down 1%. This was surprising to me since tech has been trading in a much more positive way than most other sectors or indexes.

This could mean there is a buying opportunity coming up for the following stocks. These five companies are all profitable and their 50-day exponential moving averages are in the process of turning up. (Note that we found these stocks using a freely available preset for the Premium Stock Screener at TradingStockAlerts.com)

Here are the five stocks, all of which were trading above their 50-day EMA as of the close on Thursday. I have included a quick take on their financial status, current valuation and technical outlook.
  • CommVault Systems, Inc. (CVLT) -- This company has solid financials but is somewhat over-priced. Nevertheless, the stock is in an up-trend. It could be a buy on a pullback if you are comfortable with the elevated valuation. CommVault is a player in the virtualization space, which remains one of the hottest sectors within tech.
  • FactSet Research Systems Inc.(FDS) -- This company has solid financials and it is fairly priced. In terms of the chart, the stock is more or less going sideways. We consider it a BUY on a breakout and with the 50-DMA turning up, the breakout may be at hand. FactSet, a provider of financial information, recently released good earnings, has been buying back stock and continues to grow internationally.
  • Jabil Circuit, Inc.(JBL) -- This company also has solid financials and it is considered to be deep value. In terms of the chart, it has been more or less going sideways for the last month. We consider it a BUY on a breakout and with the 50-DMA turning up and a big up-day on Wednesday, the breakout looks to be happening right now. There is a risk a market downturn could drag it back into its channel which wouldn't be altogether bad news as it would provide a cheaper entry point. Jabil recently beat earnings expectations and delivered positive forward guidance and that is the primary reason behind the excellent action this week.
  • Oracle Corporation (ORCL) -- This company also has solid financials and it is considered to be reasonable value. This stock has also been more or less going sideways but has shown much more positive behavior in the last few weeks. Unfortunately it was just rejected at its 200-day EMA. Oracle just came out with a great earnings report so the stock is getting some favorable attention lately. We consider it a BUY on a breakout and with the 50-DMA turning up, the breakout would be confirmed if it eventually moves above that 200-EMA.
  • Teradata Corporation (TDC) -- This company has solid financials and it is fairly priced. In terms of the chart, the stock has started a nice up-trend. We consider it a BUY on a pullback and with tech weakening perhaps the pullback looks to be here sooner rather than later. Teradata is a major player in "big data", another hot tech sector, and provides one of the database platforms often used in enterprises for data warehousing and analytics.
Another note: the ratings on financial status, current valuation and technical outlook were all obtained by using the Stock Search function found at the top of every page on TradingStockAlerts.com, our sister site. Try it out by clicking on any of the stock symbols of the five stocks above.

Disclosure: no positions in any stocks mentioned in this post

Sunday, September 25, 2011

SPY -- at best still bottoming, worse to come?

Here we go again.

At the beginning of August SPY crossed below its 200-day moving average and made brutal downward move. Since that time, the ETF and many other indices and their associated ETFs have been tracing out what is know as a "bear flag" on their daily charts. This week SPY and the rest broke below the bottom line of the flag pattern. Here's what it looks like:


The blue lines show the flag. The black oval shows where we ended the week. Despite a rally on Friday, SPY is clearly on bearish side of this pattern. Furthermore, a sizable gap was opened up on the way down. In addition, the bottom line of the flag pattern, formerly support, now becomes resistance. The expectation now that the breakdown has occurred is that SPY could fall another 10 to 15 points.

With SPY about to test the low for 2011, we should see what some of our Trade-Radar market measures are telling us.

The view from Alert HQ --

For those readers who are new to TradeRadar or who don't remember what this is all about, the data for the following charts is generated from our weekly Alert HQ process. We scan roughly 6200 stocks and ETFs each weekend and gather the statistics presented below.

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


The number of stocks above their 50-day EMA (yellow line) has dropped into the low range originally established in the beginning of August. The number of stocks whose 20-day EMA is above their 50-day EMA (magenta line) is drooping once more and the yellow line has dropped below it again. These are not bullish developments. At best, it looks like we continue to be stuck in a multi-week bottoming phase.

To put things in perspective, the number of stocks above their 50-day EMA is reaching another extreme low while the number of stocks whose 20-day EMA is above their 50-day EMA is getting to a low but, unfortunately, might still have a way to go.

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.


After hitting real bearish extremes (red line at a high, yellow line at a low) in early August stocks swung positive but breadth has not been great. Note how the yellow line, representing stocks in an up-trend, never hit much of a peak while the red line, representing stocks in down trends did actually reach a fairly low level. This indicates that many stocks stopped declining but their recoveries were not strong enough to actually qualify as a strong up-trend.

Now we see large numbers of stocks resuming their down-trends but we are not at an extreme yet. You know what that means, right? More room for stocks to fall.

Conclusion --

All in all, I can't imagine stocks suddenly rallying from here unless there are dramatic moves to support the markets either from Europe or Washington or both.

The charts presented here suggest weakness will be with us for a while. Plan accordingly...

Thursday, September 15, 2011

Standex International -- this rally only the beginning?

As I was poking through the Alert HQ results of the last few days, one company’s name seemed to keep popping up: Standex International Corporation (SXI).

Standex showed up on the following screens/reports at TradingStockAlerts.com:
Furthermore, if you enter the symbol into the Stock Search function on TradingStockAlerts.com, you will see that Standex comes up as a BUY there, too

Background --

Standex International Corporation is a small-cap diversified manufacturing company with the following five divisions:
  1. Food Service Equipment Group - manufactures commercial food service equipment for restaurants, convenience stores, quick-service restaurants, supermarkets, drug stores, hotels, casinos, and corporate and school cafeterias, as well as serves health science and medical markets. 
  2. Air Distribution Products Group - manufactures metal ducts and fittings for residential heating, ventilating, and air conditioning applications. 
  3. Engraving Group - offers texturizing molds used in the production of plastic components and embossed and engraved rolls and plates, as well as process tooling and machinery serving the automotive, plastics, building products, synthetic materials, converting, textile and paper, computer, houseware, and construction industries. 
  4. Engineering Technologies Group - provides solutions in the fabrication and machining of engineered components. 
  5. Electronics and Hydraulics Group - provides single and double acting telescopic and piston rod hydraulic cylinders to manufacturers of dump truck and dump trailers, and other material handling applications, as well as offers switches, electrical connectors, sensors, toroids and relays, inductors and electronic assemblies, fluid sensors, and magnetic components for various industries. 
The company has operations in the United States, Europe, Canada, Australia, Singapore, Mexico, Brazil, Turkey, South Africa, India and China

Financials -- 

The reason the company is showing up on the growth-related report mentioned above is easily seen by looking at the history of revenue and earnings. The following is from Google Finance:


Note the most recent data point where revenue powered higher (14.9% y-o-y and 19% sequentially), earnings increased (22.7% y-o-y and 85% sequentially) and margins improved as well.

Valuation -- 

The market does seem to be discovering this stock but it is not yet over-priced. According to Yahoo Finance, its trailing PE is under 13 but it’s forward PE is barely over 10, PEG is only 0.86, Price-to-Sales is a mere 0.69 and Enterprise Value/EBITDA is a quite reasonable 7.32. Price to Free Cash Flow is 9.28, less than half the industry average.

Return-on-Equity is over 16 which is pretty is decent. Debt-to-Equity is not insignificant at 21 but is still better than the industry average.

The company recently declared its 188th quarterly dividend and offers a yield of 0.70%, not huge but a reassuring sign of a steady company.

The Chart -- 

The stock has taken off over the last couple of weeks as the following chart shows:



Not only has it zoomed above its 50-day MA and its 200-day MA, but it has eclipsed the high set back in July. In addition, those moving averages are now both pointing upward, implying the company is coming out of its tailspin. 

Conclusion --

Standex has good fundamentals, qualifies as a “reasonable value” investment candidate and the chart suggests the recent downturn has come to an end.

The company is benefiting from cost reductions implemented in 2009 and 2010 and from a careful acquisition strategy (four companies purchased in 2011 which increased product, technology, customer and geographic footprint). Though consistently profitable, Standex seems to be growing earnings again and has turned the focus from cost containment to top-line growth. Initiatives include new product introductions, expansion of product offerings through private labeling and sourcing agreements, geographic expansion of sales coverage and the use of new channels of sales, leveraging strategic customer relationships, development of energy efficient products, new applications for existing products and technology and next generation products and services. The company has also been able to raise prices in response to commodity inflation.

Being a small cap, the company doesn’t get a lot of attention in the financial press (though Zacks singled it out earlier this year as a strong buy) but it is clear that investors are really hopping on board lately. After the recent steep price run-up (over 30% in the last couple of weeks!!), buyers might want to wait for a pullback. Watch for it to fall back into the range between the June peak around $35 and the 200-day MA around $32.

Disclosure: no position

Thursday, September 1, 2011

6 value stocks breaking above their trend lines

Here is a quick list of value stocks that are breaking out in a bullish direction over their downward sloping trend lines.

Symbol Name Sector Industry PE Ratio Price
to Sales
Price
to Book
PEG Ratio Enterprise
Value to EBITDA
CPX Complete Production Services, Inc. Energy Oilfield
Services/
Equipment
13.92 1.19 2.46 0.66 5.24
FLL Full House Resorts, Inc. Consumer Services Services-Misc. Amusement & Recreation 8.52 1.13 1.26 0.43 3.07
HELE Helen of Troy Limited Consumer Durables Home
Furnishings
9.47 1.04 1.3 0.84 8.38
HRS Harris Corporation Capital Goods Industrial
Machinery/ Components
8.77 0.84 1.99 0.87 5.18
SUTR Sutor Technology Group Limited Capital Goods Steel/Iron Ore 3.81 0.12 0.27 0.22 4.73
TSTC Telestone Technologies Corp. Consumer Durables Tele-
communications Equipment
2.33 0.53 0.59 0.09 1.41

This list is derived from the Free Stock Screener over at sister site TradingStockAlerts.com. It was set up by simply choosing the Value preset and then selecting a Bullish Reversal in the Simple Trend Reversal drop-down.

All are profitable. All are seeing increasing sales. Basic valuation measures range from reasonable to deep value. Sutor Technology Group and Telestone Technologies, being Chinese micro-cap companies, are heavily out of favor these days, thus the extremely low valuation levels. Sutor is doing well enough that they have announced they are buying back stock. Telestone announced good earnings a couple of weeks ago. Could be something attractive for a brave investor in one of these stocks.

More traditional is Complete Production Services who recently turned in a stellar earnings report. This energy-related company displays solid fundamentals across the board and was listed as a Zacks #1 rank (strong buy) back in the middle of August. With the market and the price of oil recovering in the last week or so, Complete Production Services could attract more buying interest. Keep an eye on this one.

Disclosure: no positions in any stocks mentioned in this post

Thursday, August 25, 2011

Despite beating expectations, July Durable Goods report has me worried

The Durable Goods advanced report for July was released on Wednesday and the headline number surprised to the upside. This helped the market tack on some further gains beyond Tuesday's big advance.

Besides its effect on a day's action in the stock market, the Durable Goods report is useful for seeing how tech in aggregate is performing. As of this report, the situation is mixed. I always focus on two particular measures: shipments and new orders. In July, the two measures were not consistent and this is worrisome. Let's see how it played out in July.

Shipments --

I generally give less importance to Shipments since this is a backward looking measure reflecting orders that have been confirmed, manufactured and shipped. It's similar to earnings reports -- it's good to know but the data is in the past and we're more interested in the future. The following chart shows how July shipments looked for the overall tech sector:

Results were actually quite good and, to make things even better, the previous two months were revised upward. This indicates that the fears of a "slow patch" in July were overblown.

New Orders --

This is the category that gets the most attention as it provides a glimpse of what might unfold in the future. Looking at the sector summary we see that there was actually a significant drop in new orders.

This is not a good thing. Note how new orders have fallen roughly to levels last seen back in March. Note also that the trend is decidedly not up.

Conclusion --

Shipments in the tech sector have continued to show strength through July. This is good but the question is always whether that kind of performance can continue.

New orders are one of the better indicators we have to forecast future shipments and the level of business activity in an industry or sector. July's dismal result suggests that weakness in tech is indeed impending.

As economists and analysts reduce their estimates of GDP growth, it appears that tech is firmly in the same boat. Optimists will point out that seasonality is due to come into play and  provide support for the tech sector. As the economy in general struggles, though, it becomes harder to believe that tech can escape the downward pull of a slowing economy and cautious consumer.

Besides Apple, which tends to be a special case these days, can other tech companies prosper in this environment? It looks like it's going to be a tough row to hoe for most other companies in the tech sector.

Disclosure: none

Thursday, August 18, 2011

What theme is emerging from this market carnage?

With the market practically crashing again I wondered if there were any industries hiding stocks with strength.

Poking around in the Industry Inspector at our sister site TradingStockAlerts.com actually did yield a little theme in an unexpected area.

I sorted the list of industries according to percentage of stocks above their 50-day moving average. At the top of the list was the Consumer Services/Automotive Aftermarket industry which contains only one stock: Monro Muffler and Brake (MNRO).

Re-sorting to look for industries with stocks showing bullish MACD and up near the top was the Consumer Services/Motor Vehicles industry. Among the three stocks in this segment is Midas, Inc. (MDS), otherwise known as Midas Muffler.

These stocks seem barely affected by the recent downturn but the simple reason is strong earnings. Both companies rolled up increases in sequential revenues and earnings. On a year-over-year basis, Midas disappointed a bit on revenue but shined on earnings while Monro did well in both revenue and earnings.

The theme that may be emerging here is that consumers, impacted by falling markets, disarray in Washington and Europe and a stagnant job market, are getting increasingly skittish and are restricting their expenditures. Rather than risking getting financially extended in an uncertain economy by taking on an auto loan, many are fixing their current car. Truth be told, this is looking increasingly like the more prudent move.

This kind of caution about making large purchases due to fears of a potential recession can be a self-fulfilling prophecy. For investors, however, it does suggest that certain companies that help consumers extend the life of big-ticket items, or other companies that offer rock-bottom prices for consumers forced into frugality, will be the beneficiaries of this situation.

What industries or sectors do you think might fit this theme?

Disclosure: no positions in any stocks mentioned in this article

Sunday, August 14, 2011

Stocks dig a deeper hole -- when do we come up for air?

After a week of epic volatility, stocks ended the week on a positive note; nevertheless, it wasn't enough to turn a loss into a gain. The S&P 500, for example, still ended the week down 1.63%.

Last week I reviewed the moving average and trend analysis charts and declared that we were at bearish extremes not seen since the March 2009 market lows. Let's see what they say this week.

The view from Alert HQ --

For those readers who are new to TradeRadar or who don't remember what this is all about, the data for the following charts is generated from our weekly Alert HQ process. We scan roughly 6200 stocks and ETFs each weekend and gather the statistics presented below.

In this first chart below we count the number of stocks above various exponential 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 number of stocks above their 50-day EMA (yellow line) has improved so little the change is pretty much imperceptible in the chart above. In the meantime, the number of stocks whose 20-day EMA is above their 50-day EMA (magenta line) has continued to fall, reaching another post-2009 extreme.

With the over-sold situation getting even more over-sold, it is hard not be looking for a snapback rally while being terrified that another leg down might just as well be in store.

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.


On this chart we have another post-2009 record being set: the number of stocks in strong up-trends (yellow line) has dropped to a new low. Having set a record for number of stocks in strong down-trends the previous week, we see that measure has thankfully declined this week though it remains at a very elevated level.

Conclusion --

Chart damage has been so severe it is questionable whether one can use technical analysis at all to gauge this market. Still, we have to work with the tools that we have.

Last week we felt that the depths to which stocks were over-sold implied we wouldn't go much lower. Actually, we do go lower, over 5% lower. A strong rebound on Thursday and a more modest gain on Friday allowed stocks to come back part of the way.

The question investors will have this weekend is whether the two good days at the end of last week portend an improving tone for the market. Can the two-day rally continue or will it run into a brick wall?

Among the brick walls that we have to worry about are the following:

  1. Former support levels now look like resistance. For the S&P 500, it means that a rally could easily stall at the 1250 to 1260 range.
  2. For all major indices, the 50-day moving average has rolled over and the 200-day moving average either has done so or is on the verge of doing so. Bearish crossovers have occurred for the S&P 500, the NASDAQ Composite and the Russell 2000.
  3. European sovereign debt woes remain unresolved and European banks are under pressure
  4. Soft economic numbers, stagnant job growth and downbeat sentiment cast doubt on the ability of the U.S. to avoid recession or at least an even softer patch than we are currently experiencing
  5. The political will to impose austerity while the economy struggles does not bode well for GDP, jobs or corporate profits

Not to be completely negative, it is important to point out that there are still some positives at work:

  1. The soft economic numbers we have seen lately, though disappointing, still reflect growth at a slow pace. That is clearly better than numbers that reflect contraction. 
  2. There are many analysts who say stocks are now bargains and perhaps they are if the economy doesn't deteriorate further.
  3. In the vein of "don't fight the Fed" we still have low interest rates (and will through the middle of 2013 according to the latest Fed statement) and a commitment by the Fed to use what tools it has to support the economy. 
  4. To his credit, Obama is finally trying to turn the conversation to jobs and we can only hope that something beneficial comes out of that (though Americans have now been trained by their leaders to be cynical of all such efforts emanating from Washington).


All in all, this is a tough time to make predictions. Just be careful out there.

Disclosure: none

Sunday, August 7, 2011

Hello down there! Is there a bottom in sight yet?

Last week I looked at the Trending Analysis chart (I have the updated version below) and said there was further room for stocks to fall before the next rally could begin. Even though I expected a further pullback, I was wholly unprepared for what actually happened: the market fell with a vengeance.

Looking at the S&P 500, for example, it took out the trendline extending all the way back to March of 2009, blew threw the lower support at the bottom of a 6-month consolidation pattern (those who are more pessimistic are saying this was the neckline of a head-and-shoulders), and to put the icing on the cake, dropped decisively below the 200-day moving average. Many of the other indices look pretty much the same.

The moving average and trending analysis charts I often present on the weekend certainly reflect the damage. Let's see what they say this week.

The view from Alert HQ --

For those readers who are new to TradeRadar or who don't remember what this is all about, the data for the following charts is generated from our weekly Alert HQ process. We scan roughly 6200 stocks and ETFs each weekend and gather the statistics presented below.

In this first chart below we count the number of stocks above various exponential 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 yellow line on the chart above shows that the number of stocks above their 50-day exponential moving average has dropped to a lower level than during the March 2009 lows. Now that is an extreme! In addition, it is an extreme that suggests investors are totally bearish on both the economy and stocks and are throwing in the towel.

I keep thinking it's good sign when the yellow line on the chart crosses above the magenta line and a bad sign when the yellow line crosses below the magenta. You can see that for SPY, at least, there hasn't been a sustained move of that sort in over a year. As soon as stocks move up, weakness hits again. Indeed, the fact that the number of stocks above their 50-day EMA has set a series of lower highs all year long should, in retrospect, have been looked at as a warning signal for a week like this one.

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.


This chart is another study in extremes. Though the time scale doesn't go all the way back to March 2009, I can tell you that the number of stocks in up-trends (yellow line) now is as low as it was back then. The number of stocks in down-trends (red line) hasn't quite reached the level we saw in 2009 but it's pretty close.

Conclusion --

Well, it certainly looks like bears are ascendant. And they have their reasons: lackluster ISM, GDP and employment reports in the U.S., emerging markets raising rates to fight inflation, Europe struggling with sovereign debt, etc. All that could definitely be reason enough to lighten up on stocks. But to this extent?

Bears have pushed stocks to extremes last seen when the global financial system was melting down and a horrific once in a generation recession had taken hold. Though stock prices are not yet as low as they were in 2009, market breadth and internals are equally bad.

Here, however, is where I have to point out that the economy is nowhere near as bad today as it was back in 2009. To me, it calls into question how long this extreme situation can last.

As painful as it may seem, the employment situation is oh-so-slowly improving. Retail sales have not stalled out. The aforementioned ISM reports have been soft but still show (just barely) that expansion is still taking place. Manufacturers are still hiring even though the last couple of Durable Goods reports were not especially inspiring. In 2009, all these indicators were still in free fall; now they are at least on an upward path.

In any case, at least some investors are looking at the glass as half full. At the close on Friday, the NASDAQ 100 (and its associated ETF, the QQQ) managed to close just above the bottom line of its consolidation pattern. This is pretty much the only index that managed to salvage some shred of support last week though it must be said that stocks did fight back from deeper lows on Friday. So with the NASDAQ 100 hanging on by a thread, it could be said that large cap tech appears to be one of the stronger market sectors. Since tech is often a leader coming out of downturns, this is one small sign of hope for this market.

On the other hand, I am writing this on Sunday night and the Nikkei is down 1.39% and the Hang Seng is down 2.37%. If that negativity makes its ways to Monday's session in the U.S. (our futures at this time show further declines in store on the order of 1.5%) we could see the other shoe drop and take the QQQ down with everything else.

The bottom line here is that charts are a mess and the economy is less than inspiring. Seems like a good time to be out of the market, right? But I can't help thinking the charts above suggest stocks can't stay at these levels for long. When the rally comes, it will probably be as surprising as this past week's decline. I hope you all have a good watch list of stocks you would like to pick up at discount. It seems stocks will be even cheaper over the next few days.

Disclosure: none

Sunday, July 31, 2011

Range-bound in an ugly market

Was it just a couple of weeks ago that the market was shooting upward and all was right with the world? Putting it mildly, it appears we've done a bit of an about-face.

It's regrettable but all those reversals and swing signals we identified recently that were screaming BUY! are now looking a little worse for wear. Before tossing in the towel, though, let's take a look at where we stand from the perspective of the overall stock market's performance. Our moving average and trending analysis charts should provide some useful insights.

The view from Alert HQ --

For those readers who are new to TradeRadar or who don't remember what this is all about, the data for the following charts is generated from our weekly Alert HQ process. We scan roughly 6200 stocks and ETFs each weekend and gather the statistics presented below.

In this first chart below we count the number of stocks above various exponential 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).


After what I called a "melt-up rally" a couple of weeks ago, we have gone from roughly two thirds of all stocks above their 50-day exponential moving averages (EMA) right back down to only one third being above their 50-day EMA.

We also see the number of stocks whose 20-day EMA is above the 50-day EMA has started to decline again.

All in all, this chart seems to say that we're back to the bottom of the range we've been in for the last few 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.


I have shortened the timeline on this chart because it was just getting too messy. Instead of going all the way back to January of 2009, I now start the chart in March 2010. This makes it easier to see the cyclic nature of the trending numbers.

In particular, you can see how the number of stocks in bearish trends (red line) hit a significant peak in mid-June of this year. This was immediately followed by a steep rally that allowed the number of stocks in bullish trends (yellow line) to hit another significant peak in early July. This over-bought condition was quickly remedied as stocks began to sink on economic worries, sovereign debt fears and the debt limit crisis.

As you can see, there is room for stocks to sink still further before we hit the typical over-sold levels from which the next rally will be born. And that should take SPY right back down to the lows established in January, March and June in the $127 range.

Conclusion --

For better or worse, the black comedy playing out in Washington, also known as the debt limit negotiations, should come to a head this week, possibly even this weekend. The politicians will either fail to come to agreement or will end up passing a disappointing bill. Either way, it will probably  weigh on the market and we could see stocks fall to the expected lows discussed above.

The concern everyone has is whether stocks will fall right through the bottom of the range. I'm not fond of making outright predictions so let's call this an opinion. I have to think that earnings season wasn't so bad and there are still many voices (including various economists, Fed officials and certain company CEOs) calling for improved economic activity in the second half of the year. My expectation, therefore, is that stocks should bounce. How high? Perhaps you would like to venture an opinion on that...

Disclosure: none

Wednesday, July 27, 2011

Durable Goods for June -- tech keeps muddling along

The Durable Goods advanced report for June was just released and we can now see how tech in aggregate is performing. I have been of the opinion that tech is under-valued and this could help determine whether the sector deserves better or whether it tech stocks should remain in the doghouse.

I always focus on two particular measures: shipments and new orders.

Shipments --

I generally give less importance to Shipments since this is a backward looking measure reflecting orders that have been confirmed, manufactured and shipped. It's similar to earnings reports -- it's good to know but the data is in the past and we're more interested in the future. The following chart shows how June shipments looked for the overall tech sector:

This next chart shows just the sub-category of Computers and related products.


This chart is for the Information Technology Industry. Unfortunately, the numbers for this sector are not broken out in the advance report but I thought it might be interesting to see since I have never presented it before in one of my Durable Goods posts and IT is a part of the tech sector. Anyway, this chart only goes through May.

h

New Orders --

This is the category that gets the most attention as it provides a glimpse of what might unfold in the future. Starting with the sector summary we see that there was actually a small improvement in new orders.

On the other hand, in the Computers and Related Products sub-sector there was a small month-over-month decrease. Note that the moving average has not yet turned down.

Looking at new orders for IT, there have been a couple of months of improvement. I sure wish we had the numbers for June.

Conclusion --

Shipments in the tech sector have indeed been weaker over the last few months. However, it is worth noting that the volatility in the shipment numbers is no greater than when the economy was at its peak. In other words, a clear, strong up-trend would be nice but the current slight down-trend in shipments may very well be only a sign of temporary weakness.

New orders are somewhat stronger than shipments which bodes well for next month. In addition, we are heading into the time of year when tech earnings tend to pick up.

In summary, tech shipments and new orders have been muddling along. While it is clear that there has been some definite weakness, it is also apparent that the bottom isn't falling out either. To me, it supports the thesis that we could soon see a rebound in the tech sector, hopefully by the end of this year. With stocks under pressure again, the buying opportunity might just be improving.

Disclosure: none

7 Profitable Tech Stocks with 50-DMA turning Bullish

Lately tech has been coming out of the doldrums. That's good news for tech investors and the market as a whole since tech is often the sector that leads the market out of a downturn.

Here is a list of seven tech stocks that are both profitable and whose 50-day exponential moving average (EMA) is just turning bullish. Note that this is the result of Tuesday's action (7/26).

Symbol Name Industry PE Ratio Price to Sales PEG Ratio Cash Flow Yield Enterprise Value to EBITDA
BRCM Broadcom Corporation Semiconductors 17.61 2.69 0.81 6.08% 15.33
ININ Interactive Intelligence Group, Inc. Computer Software: Prepackaged Software 43.36 3.77 1.37 2.79% 19.08
KFRC Kforce, Inc. Professional Services 26.3 0.57 0.52 (3.57%) 11.17
SFN SFN Group, Inc Professional Services 36.88 0.34 1.04 2.72% 10.16
SIMO Silicon Motion Technology Corporation Semiconductors 95.08 2.15 0.66 N/A 12.03
SSYS Stratasys, Inc. Computer peripheral equipment 56.6 6.38 1.8 -0.11% 25.46
YNDX Yandex N.V. Computer Software: Programming, Data Processing 76.17 23.17 1.83 4.99% 45.94

As someone who looks for some indication of value, this list seems to be tilted toward expensive, overvalued stocks. As they say, however, growth doesn't come cheap. Though PEs range from moderate to quite high for these stocks, the PEG ratios for most of them are fairly reasonable. One can argue whether PEG is ever a reliable or useful number as an indicator of growth, since it is based on analyst predictions, but that is a topic for another post.

It is best, therefore, to look at several valuation numbers in combination. For example, Broadcom certainly doesn't look cheap but on the whole it is not especially over-priced for a tech sector growth stock if the company can deliver even partially on the expectations set by the rather low PEG of 0.81. The company just reported earnings that beat expectations with improved margins and stronger cash flow. More importantly, management indicates that they expect double-digit growth in sales of chips for smartphones and tablet computers in the current quarter as more of its communications technology is used in popular consumer electronics, including Apple's iPhones and iPads, Android smartphones and the Nintendo Wii. The company is hedging its bets by focusing not only on high-end smartphones but also on lower-end Android phones, many of which are expected to be selling in China soon, still a big market for new technology. Further addressing the China market, the company now has chips tailored to Chinese networking standards that are making their appearance in broadband applications.

While Broadcom seems to be the star of this list, it is notable that there seems to be a small trend toward tech outsourcing here. Kforce and SFN Group (also known as Spherion) are both involved in supplying tech workers on a temp or contract basis. These businesses are both benefiting from employers reluctance to hire as the jobless recovery drags on.

Another interesting candidate here is Yandex. Missed getting in early on Google or Bidu? Though Yahoo says the company is based in the Netherlands, Yandex operates a Russian Internet search site from their headquarters in Moscow and they just went public in the U.S. in May of this year. The site is much more than just a search engine and offers a number of other Internet-based services and products including an online payment system analogous to PayPal as well as sites that are similar to LinkedIn and Flickr. Yandex is the most popular site in Russia and has a search market share in that country that is three times greater than Google's.

These stocks may not be for the faint of heart, especially as the market sags under the weight of the debt ceiling debate, but there are definitely a few interesting watch list candidates here.

Disclosure:  no positions in any stocks mentioned in this post

Wednesday, July 20, 2011

A fix for the Trade-Radar software is available now -- Download it right away!

You may know that Trade-Radar Stock Inspector uses financial data from Yahoo! Well, just this past weekend Yahoo! started having an intermittent problem transmitting some of the data that our software uses. You've probably noticed the effect: Stock Inspector just quits, blows up, goes away...

Download the fix right away!

We've built in a way to get around this problem and the new version of Trade-Radar Stock Inspector is now working as it should. Plus we've fixed a couple of minor bugs while we were at it.

Just go to this special download page and get the newest version now.

Some readers who are signed up for the Trade-Radar Software Users Group will be receiving an email with this same information. This update is so important I wanted to cover all possible channels to get the word out.

As always, this update is free for all users.

Monday, July 18, 2011

Trade-Radar is back on the air

Most of the issues we encountered over the weekend have been corrected now. Trade-Radar.com and TradingStockAlerts.com are both reflecting the latest data.

There are still some anomalies here and there that you will see in some of the reports and alert pages. In particular, Exchange, Market Cap, PEG, Price-to-Sales and sometimes even Price seem to be the fields that are randomly messed up.

The database in many cases was been corrected after the HTML pages were generated and deployed to the web sites. The results in the TradingStockAlerts.com Free Screener and Premium Screener should be much more correct.

Once again, I apologize for the delays and any inconvenience this may have caused. I will be working diligently to prevent a recurrence.

Sunday, July 17, 2011

Trade-Radar weekly data running late

We're running late at Trade-Radar.com and at TradingStockAlerts.com, too.

Usually we have our weekend screens and alerts available by sometime on Saturday morning. This weekend, however, I was out of town and just came back to find that the software hit some kind of glitch and aborted. The end result is that the web sites have not yet been updated with the latest info.

The process is running now and should be complete sometime this evening (East coast time).

I apologize for the delay and any inconvenience this may have caused.

Stay tuned. We should be back on the air soon.

Friday, July 15, 2011

From the doghouse to under-the-radar market leaders

In poking around through the various stock screens on my site I came across the following interesting situation. Let me take you through my journey...

I started out looking at the Sector and Style Scorecard here at Trade-Radar. I noticed there were two Consumer related ETFs in the top eight: the iShares Dow Jones U.S. Consumer Index Fund (IYC) and the iShares Dow Jones U.S. Consumer Goods Index Fund (IYK). Interesting factoid but so far no clear investment ideas.

I popped over to the Industry Inspector at sister site TradingStockAlerts.com and set up the screener to look for industries where more than 50% of the stocks in an industry were above their 50-day EMAs and had bullish MACD. This resulted in a modest sized list of industries. Toward the top were some of the industries that have been quite popular lately including Precious Metals and Pharmaceuticals. Down the list a ways, in the Consumer Services sector (and with a less than descriptive title) was the "Other Consumer Services" industry.

Taking a quick look at the charts (by hovering over the symbols in the list of companies making up the "Other Consumer Services" industry group) revealed that many of the stocks have been steadily moving higher; however, since there are 67 stocks in this particular industry, I realized I needed a better way to sift through them before deciding which ones might be worth putting on a watch list.

So I popped over to the Premium Stock Screener and selected the "Other Consumer Services" industry as one of the screener criteria. Then I started adding more criteria, trying to whittle the list down to something manageable. Looking for only those stocks above their 50-day EMA, bullish MACD, a bullish Trend Performance Score and ROE over 15% yielded the following list:

Symbol Name
APEI American Public Education, Inc.
APOL Apollo Group, Inc.
ASPS Altisource Portfolio Solutions S.A.
BPI Bridgepoint Education
CECO Career Education Corporation
CSTR Coinstar, Inc.
DV DeVry Inc.
EDU New Oriental Education & Technology Group, Inc.
ESI ITT Educational Services, Inc.
IT Gartner, Inc.
LINC Lincoln Educational Services Corporation
LOPE Grand Canyon Education, Inc.
NAUH National American University Holdings, Inc.
STNR Steiner Leisure Limited
STRA Strayer Education, Inc.
UTI Universal Technical Institute Inc

It was more than interesting to see that almost all of these companies are involved in the for-profit education sector. Barely a year ago these stocks were shunned. It looked like government regulation was about to cut them off from lucrative government backed student loans if the schools couldn't show that their graduates were actually able to obtain decent enough jobs to repay the loans. The schools cried that this would decimate their earnings potential and sent an army of lobbyists to Washington. The rules were watered down and now these stocks have quietly regained favor. As the market has swung suddenly from one extreme to another, these companies have for the most part put in solid, much less volatile performances.

A couple of other notes: not all of these stocks are for-profit education companies. Also on the list is Coinstar, owner of the ubiquitous Redbox DVD vending machines. There is Gartner, the technology sector analysis and consulting firm. Steiner Leisure, purveyors of spa products. Finally, there is Altisource Portfolio Solutions which provides services and software for the real estate industry.

By the way, you may be interested to know that Strayer pays a nearly 3% dividend.

In conclusion, if you are looking for stocks that have sidestepped some of the recent volatility and are quietly proceeding on nice bullish trends, the list above should provide some good material for your watch list.

Disclosure: no positions in any stocks mentioned in this post

Thursday, July 7, 2011

15 more value stocks breaking out

Here's another batch of interesting looking stocks that we found using the Premium Stock Screener at our sister site TradingStockAlerts.com

This is one of my favorite screens because it tends to highlight solid profitable companies that appear to be starting sustainable bullish moves. This screen starts out by looking for those stocks that I refer to as "Reasonable Value." In other words, they are profitable, PE is not too high, Price-to-Sales ratio is low and Enterprise Value to EBITDA ratio is also fairly low. We are also looking for low Debt-to-Equity ratios.

To these criteria we add a set of technical analysis indicators. The stocks need to be above their 50-day exponential moving average. They also need to have Trend Performance Scores that are only somewhat bullish but have just recently registered a strong improvement in Trend Performance Score. This combination of technical criteria tends to find those stocks that are just beginning to move so you will not find yourself in the position of chasing a stock.

So here's the list:

Symbol Name Sector Industry PE Ratio Price
to Sales
Enterprise
Value to EBITDA
ACM Aecom Technology Corporation Consumer Services Military/
Government/
Technical
13.16 0.45 9.18
APAC APAC Customer Services, Inc. Miscellaneous Business Services 12.65 0.85 4.64
BORN China New Borun Corporation Consumer Non-Durables Beverages (Production/
Distribution)
4.07 0.68 2.45
BRKS Brooks
Automation,
Inc.
Technology Industrial
Machinery/
Components
7.84 1.01 5.61
CMRG Casual Male Retail Group, Inc. Consumer Services Clothing/Shoe/
Accessory Stores
14.06 0.54 6.39
CPHI China Pharma Holdings, Inc. Consumer Durables Major
Pharmaceuticals
4.42 1.36 3.59
CVVT China Valves Technology, Inc. Capital Goods Metal Fabrications 2.92 0.66 1.71
GLDD Great Lakes Dredge & Dock
Corporation
Basic Industries Military/
Government/
Technical
12.11 0.49 4.58
GM General Motors
Company
Capital Goods Auto
Manufacturing
7.47 0.33 2.3
KEM Kemet Corporation Capital Goods Electrical Products 11.93 0.53 3.43
KND Kindred
Healthcare, Inc.
Health Care Hospital/Nursing Management 14.18 0.2 4.95
KSS Kohl's Corporation Consumer Services Department/
Specialty Retail Stores
13.88 0.79 5.48
ONP Orient Paper, Inc. Consumer Durables Containers/
Packaging
4.42 0.58 1.98
SXI Standex
International Corporation
Technology Industrial Machinery/
Components
12.17 0.65 7.31
VSH Vishay
Intertechnology, Inc.
Capital Goods Electrical Products 7.6 0.95 2.87

It is worth noting that eight of these stocks have Return-on-Equity over 20%. Of the remainder, only one has an ROE that is less than ten. High ROE is one of my favorite criteria for identifying growth stocks so it encouraging to see that almost all of these stocks have decent to very good ROE.

With the overall market showing strength lately and earnings season coming, some of these stocks will surely follow through on the bullish moves we see here today. Do some deeper research and add a few of these to your watchlist.

Disclosure: no positions in any stocks mentioned in this post

Monday, July 4, 2011

Weekly Market Update -- where did all the bears go?

Two months of pessimism almost completely erased in one week!

That's what a melt-up rally can do. When I wrote my last Weekly Market Update a couple of weeks ago I said that hints of a bottom were accumulating. I anticipated a basing process before a significant rally would take place. I guess I was too pessimistic myself. Let's see where we are now...

The view from Alert HQ --

For those readers who are new to TradeRadar or who don't remember what this is all about, the data for the following charts is generated from our weekly Alert HQ process. We scan roughly 6200 stocks and ETFs each weekend and gather the statistics presented below.

In this first chart below we count the number of stocks above various exponential 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).


What is so surprising here is that we now see roughly two thirds of all stocks are now above their 50-day exponential moving averages (EMA). It was less than 1/3 just a couple of weeks ago.

We also see the number of stocks whose 20-day EMA is above the 50-day EMA has begun to decisively turn up but not explosively. This suggests this rally has room to run though it may not be a straight line up.

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.


It's a little hard to see at the right side of this chart, but the number of stocks that are showing bullish trends (the yellow line) has jumped up to roughly 35% of all the stocks we track. It was recently less than 1/6 of all stocks. Given that Aroon is a somewhat slow-changing indicator, the speed at which this has happened is surprising.

It is easier to see the red line on the right side of the chart which indicates that the number of stocks in well-defined bearish trends has now fallen drastically and could soon approach the typical cycle lows where it could bounce around a bit if the market continues to move higher.

Conclusion --

There are many people commenting on blogs who say this rally was just short-covering and that soon major averages will fall decisively below their 200-day moving averages.

I don't agree.

Though we are likely to see pullbacks along the way (next week's jobs and payroll data could be a downer and we still have the dramas in Greece and Washington continuing to play out against their respective deadlines), it looks to me like the market has started another bullish UP cycle. Furthermore, we have earnings season starting in a week or so. If companies are able to post halfway decent numbers despite the recent economic soft patch, investors could breathe a sigh of relief and continue to push stocks higher.

"Buy the dips" is an overused phrase but this may the time when it might actually pay to do so.

Disclosure: none

Thursday, June 30, 2011

20 growth stocks with improving moving averages

The market is firming these days and what was out of favor is now meeting demand.

Growth stocks had certainly been weak while investors fled to defensive sectors. That is beginning to change now. Using the Premium Stock Screener at out sister site TradingStockAlerts.com, we have identified a list of growth stocks whose 50-day exponential moving average (EMA) has, within the last few days, started to turn up in a bullish direction.

SymbolNameSectorIndustry
ACN Accenture plc. Miscellaneous Business Services
AGP AMERIGROUP Corporation Health Care Hospital And Medical Service Plans
ALV Autoliv, Inc. Capital Goods Auto Parts:O.E.M.
BKI Buckeye Technologies, Inc. Basic Industries Paper
CPSI Computer Programs and Systems, Inc. Technology EDP Services
CYOU Changyou.com Limited Technology Computer Software: Prepackaged Software
DCI Donaldson Company, Inc. Capital Goods Pollution Control Equipment
ENTR Entropic Communications, Inc. Technology Semiconductors
FN Fabrinet Public Utilities Telecommunications Equipment
IPGP IPG Photonics Corporation Technology Semiconductors
KRO Kronos Worldwide Inc Basic Industries Major Chemicals
LEA Lear Corporation Capital Goods Auto Parts:O.E.M.
MA Mastercard Incorporated Miscellaneous Business Services
MMS Maximus, Inc. Miscellaneous Business Services
NDSN Nordson Corporation Capital Goods Industrial Machinery/Components
NEU NewMarket Corporation Basic Industries Major Chemicals
NEWP Newport Corporation Capital Goods Medical Specialities
SNHY Sun Hydraulics Corporation Capital Goods Metal Fabrications
TRW TRW Automotive Holdings Corporation Capital Goods Auto Parts:O.E.M.
XLNX Xilinx, Inc. Technology Semiconductors

Our criteria for growth stocks is as follows:
  • Company must be profitable
  • Year-over-year quarterly revenue increase 
  • Year-over-year quarterly earnings increase
  • ROE over 20%
  • Debt-to-Equity less than 1
Five out of the twenty stocks are Technology stocks and that's a good sign for the recent rally -- tech often leads the stock market out of bottoms and into a bullish trend. Seven of the twenty are Capital Goods stocks -- these stocks tend to follow the economic cycle and this suggests investors are much more comfortable with global growth picking up as we enter the second half of the year. I might also note that one of the stocks is Mastercard -- that's a vote for the consumer.

With earnings season coming up soon, we could see a real resurgence in those growth stocks that manage to put up decent numbers despite the last few months of economic softness. There's a good chance that today's list contains some of those future growth leaders.


Disclosure: no positions in any stocks mentioned in this post

Thursday, June 23, 2011

Seven Profitable, Dividend-paying Bollinger Band Breakouts

We've been presenting our Bollinger Band Breakouts at Alert HQ for quite a while now. What's nice is being able to use the stock screeners at our sister site TradingStockAlerts.com to refine the selection.

Accordingly, I started with bullish Bollinger Band Breakouts (those whose price exceeded the upper Bollinger Band) and selected those stocks that were profitable and offered a dividend. The following seven stocks popped out.

Symbol Name Last Price Sector Industry
AVD American Vanguard Corporation $13.38 Basic Industries Agricultural Chemicals
FUL H. B. Fuller Company $23.64 Basic Industries Home Furnishings
MLHR Herman Miller, Inc. $26.75 Consumer Durables Office Equipment/Supplies/Services
NYMT New York Mortgage Trust, Inc. $7.82 Consumer Services Real Estate Investment Trusts
RBN Robbins & Myers, Inc. $49.03 Capital Goods Fluid Controls
WAC Walter Investment Management Corp. $19.95 Consumer Services Real Estate Investment Trusts
WSCI WSI Industries Inc. $5.70 Technology Industrial Machinery/Components

These stocks range from micro-caps to small caps. All have charts that show bullish moves upward within the last couple of days.

For those of you who are interested in the dividend aspect, there are two real standouts on this list. First, we have New York Mortgage Trust, Inc. (NYMT) with a generous yield of 12.8%. The second is Walter Investment Management Corp. (WAC) which offers a yield of 11.1%. Note that both of these are Real Estate Investment Trusts.

Neither is without risk. For example, this is the description of Walter Investment Management: "Walter Investment Management Corp. is an asset manager, mortgage servicer and mortgage portfolio owner specializing in non-conforming, less-than-prime, and other credit-challenged mortgage assets." What is giving WAC a boost is that the company was able to successfully float a new securitization of residential mortgages, building and installment sale contracts, promissory notes, related mortgages and other security agreements. The proceeds will be used to compete an acquisition.

As for New York Mortgage Trust, Inc., there have been a number of bloggers and analysts highlighting the stock and its substantial dividend.

One more stock I'd like to highlight is Robbins & Myers, Inc. (RBN). This stock has an extreme chart. The big jump appears to be due to an enthusiastic analyst upgrade. R.W. Baird raised its price target on Robbins & Myers following solid Q3 results citing better than expected demand, strong execution, and raised guidance. The company is an illustration of the resurgence in U.S. manufacturing. They provide fluid management systems for energy, waste water processing and related industries and packaging solutions for pharmaceutical, food and cosmetic industries. Not as sexy as an iPad but profitability can come from some unlikely sources.

One thing I'd like to mention before closing. There is a saying among investors: "don't buy the breakout". Some of these stocks appear to be breaking out sharply. As such, you may want to be patient. Keep an eye on them and see what happens next. There may be a better entry price in the offing.

Disclosure: no positions in any stocks mentioned in this article

Sunday, June 19, 2011

Hints of a bottom continue to accumulate

This is another installment of our weekly market update where we look at the state of the market and try to divine where stocks might be headed.

Last week we opined that the technicals of the market suggested a bottom was imminent as we were getting very close to the extremes that in past downturns signaled a rally. The market cooperated somewhat by breaking its six week losing streak. Read on to see how this call is working out...

The view from Alert HQ -- 

For those readers who are new to TradeRadar or who don't remember what this is all about, the data for the following charts is generated from our weekly Alert HQ process. We scan roughly 6200 stocks and ETFs each weekend and gather the statistics presented below.

In this first chart below we count the number of stocks above various exponential 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).




With SPY just barely turning in a gain this week, the number of stocks above their 50-day EMA stopped dropping. The number of stocks whose 20-day EMA is above their 50-day EMA, however, dropped a little further. Last week I said we could expect to see a bit of further weakness as well as some choppiness before this downturn resolved itself. So far, there is nothing that negates that outlook.Things continue to look "bottomish".

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.


This chart also reinforces the expectation of a bottom. The count of stocks in up-trends has stopped falling and the count of stocks in down-trends has  stopped rising.

As I mentioned last week, the turn-around will likely take weeks. And that assumes that Europe (and the rest of the global financial system) doesn't fall into disarray over a Greek default.

A few other observations --

There are many contrarians who take the position that when the ProShares inverse ETFs are leading the market, it signals a bottom. That is certainly the case today. Take a look at our ETF Scorecard based on daily data. The top 28 positions are taken by 2X inverse ETFs, 3x inverse ETFs and short ETFs.

Another interesting development at Alert HQ this week is shown in the Swing Signals list. This weekend we have 86 stocks on the list, easily two or three times the usual number and every single one is a BUY signal. That almost never happens so, to me, it seems to suggest there is a hint of bullishness creeping into the market. Not a lot, just a hint.

Conclusion --

So far there is nothing that suggests we are not in the process of painfully carving out a bottom.

Yet event risk remains strong. All eyes are on Greece and whether the European Union can muster a consensus to follow through on a bailout.A Greek default and all bets are off, including my expectation of a bottom.

Disclosure: none

Tuesday, June 14, 2011

A turn in the bond market? Six reasons to avoid TLT

Bonds got clobbered today, going in the opposite direction as stocks.

I've been watching the iShares Barclay's 20+ Year Bond Fund (TLT) for a while and wondering if the rally was getting tired. Today's action suggests TLT is really pooped and that perhaps the rally is over for now. Let's go through the chart:


Here are six reasons that suggest the rally may have run its course:
  1. Big gap down today on decent though not extraordinary volume
  2. Over the last couple of weeks, Slow Stochastics have been trending down while TLT was trending up. This implies TLT was running out of steam. Slow Stochastics have broken down in a bearish manner now with the value dropping below 50.
  3. MACD has also been trending down slightly while TLT was trending up. MACD has now failed to climb above its signal line (the red line) for a couple of weeks and, after today, is noticeably pointed downward.
  4. Wilder's DMI just showed a crossover where the -DM (bearish Directional Movement) indicator moved above the +DM (bullish Directional Movement)
  5. They aren't shown on the chart above but Money Flow Index and Relative Strength are both looking very much like the Slow Stochastics
  6. Also not shown, Williams %R has dropped like a rock and is actually showing an oversold condition already!
So from a technical point of view, it appears that  the steep up-trend has been interrupted. The indicators discussed above suggest there is further downside.

From a fundamental perspective has anything changed? No nothing has changed except, perhaps, perceptions. Investors may have changed their attitudes about the following:
  1. The end of QE2 - losing the Fed as a buyer of bonds is something the bond market seemed to have shrugged off. Now that the date is drawing closer maybe bond investors are getting nervous.
  2. The game of chicken being played in Washington regarding raising the debt limit - no one seemed to be concerned about this either but now, as the the weeks pass and progress seems to be minimal, this could be another reason for Treasury bond investor skittishness.
  3. Economic data out of China today was upbeat, suggesting that the global economy may have a few breaths of life left in it after all. Similarly, retail sales data today for the U.S. were not horrible, as the bears expected, but were actually decent ex autos. In the face of what might turn out to be a resurgent economy, the puny yields on bonds (and perceived safety of Treasuries) are perhaps not worth the price of missing a rally in equities.
Some might say that we simply saw another simple Risk On/Risk Off knee-jerk reaction today like we have seen so often during the last year where stocks rally and bonds falter and vice versa. On the other hand, there are signs that maybe something more is at work here.

Disclosure: long TBT

Sunday, June 12, 2011

A sinking market has to hit bottom sometime -- will it be soon?

It's been roughly six months since I've done one of these weekly market analysis posts but with stocks grinding lower for six straight weeks I thought this would be a good time to pull out the charts and see where we stand.

The view from Alert HQ --

For those readers who are new to TradeRadar or who don't remember what this is all about (and I don't blame you if you've forgotten), the data for the following charts is generated from our weekly Alert HQ process. We scan roughly 6200 stocks and ETFs each weekend and gather the statistics presented below.

In this first chart below we count the number of stocks above various exponential 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).


This chart makes it clear we are reaching the extremes of last May and June. One could say that our "summer swoon" is right on schedule. Notice, however, that during the last sell-off, while our moving average indicators began hitting their extreme lows in May, SPY didn't bottom out until over a month later.

In the current situation, we are just barely approaching what might turn out to be a low for this downturn. If things proceed as they did last summer, we will likely need to work through a bottoming process before the market can move solidly higher again. That means several weeks of choppiness before the up-trend resumes.

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.



Here, too, we see the chart reaching extremes. Though this is a messy looking chart, there is some interesting data hidden in there. For example, for the last year or so, the Aroon data has oscillated between roughly 500 at the low end and 3500 at the high end. Comparing the latest data to that range, you could make the argument that we can't get much more oversold than this. Look especially at the red line showing how many stocks are  now in downtrends - it's just about reached the worst level that was hit during last year's significant downturn.

Conclusion --

I would submit that stocks are pretty close to a bottom. I base this expectation on two things. First, the charts presented above suggest that, as our indicators reach extreme levels, the sell-off doesn't have much further go. Second, economic growth may be anemic but it is growth nonetheless which, in turn, implies that the current negativity is overdone. The Old  Professor explains this well in [ this post ] at his site A Dash of Insight.

I'd also like to point out that the chart of SPY shown above is based on weekly data and is displayed on a non-logarithmic scale. Note that a trend line can be drawn connecting the lows in 2009 and 2010 and you will see that the latest price is just about on it. Will the trend line hold? Given how oversold the market is and the passable (though not great) economic backdrop, I believe it will (see previous paragraph). I wouldn't be surprised to see a temporary break below it, perhaps a big capitulation day, but I think a rebound is likely. We shall see if I'm right.

This week provides some data that has only a so-so chance of shaking the market out of its doldrums: Retail sales, the Producer Price Index (PPI) and Business Inventories.

So as the next few weeks unfold, let's see if the grip of the bears begins to weaken.

Disclosure: none

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