Monday, January 31, 2005

2/1/2005 High Performance

On the last day of January the S&P500 and nasdaq composite broke through their overhead resistance of 1175 and 2050 respectfully. There is room for the market to move higher but technically speaking yesterday's move lacks conviction; probably due to the FOMC meeting this week. I am staying the course, see my website for the details on my positions.

HIGH PERFORMANCE - My Focus13 up 5.5% for January

I have struggled to come up with a way to best report my performance. Privacy as well as other issues keep getting in the way. Although it seems simple to report progress it turns out to be extremely complex. As an example when you read a mutual fund's prospectus it is dotted with footnotes explaining all sorts of items. Rather than have to come up with such a scheme I have included a simplified version of the performance of my Focus13. Follow this link to see a table outline my performance for the first month of the year.

Focus13 - January return +5.5% (annualized 66%)
S&P500 - January return -3%
Nasdaq Comp - January return -5.8%

By the way I have omitted any dividends and their effects.

Sunday, January 30, 2005

1/31/2005 Godzilla vs. King Kong (January Effect vs. The End Digit 5)

The two heavy weights of irrational logic are pitted against each other in a rare contradiction of randomness. No doubt the profundity of the situation could only be explained by Victor Niederhoffer; and no Niederhoffer didn't write this, rather I wrote it about Niederhoffer. As you must have guessed by now I am writing about the January effect and the decennial property "the end digit 5". Are you confused? so am I, so what no one said investing was easy, or did they (buy and hold right?). Its all about luck, no its about superstition and hard work. Wait, let me try to explain. Better yet, let me use Niederhoffer to explain.

As goes January so goes the rest of the year. Laid out by Niederhoffer in his best seller, "The Education of a Speculator" the correlation between January's percentage change in the market and the next 11 months' percentage change was 0.15. Niederhoffer tested this theory and found that between the period of 1935 and 1995 the Dow Jones Industrial Average (DJIA) when down in January was up just 2.3% the next 11 months, with a decline in the following 11 months happening 50% of the time. However, when the DJIA was up in January the average was up 8.7% the ensuing 11 months and up for the year 80% of the time.

Ironically, Niederhoffer addresses "the end digit 5" phenomenon in the next paragraph of his book. The author diligently tested the theorem using exhaustive statistical analysis, doing more than just looking at years that ended in 5 (read the book if you want more of an explanation). His conclusion was that you can buy, with 99.6% confidence, stocks and they will go up an average of 27% in a year that ends in 5. By the way, according to Niederhoffer you can be 89.9% confident that the market will go down in years that end in 7.

Alright now, all I have to do is figure out which theorem is going to win out this year and put all my capital to work in that direction. That said, my money is on King Kong.

Thursday, January 27, 2005

1/28/2005 Selling is Met By Buying and Visa Versa

The market vacillated yesterday but when all was said and done it ended unchanged. The S&P500 and nasdaq both closed against their current levels of resistance yet again. At this time it seems that selling was met by buying and visa versa. One positive sign has been the overall good earnings news and current economic data. 4th quarter GDP figures released today where 3.1%, 4.4% on an annualized basis, not as expected but growing ahead of other global economies (ex-China). I am staying the course with my positions. See my Focus13 table on the home page of my website for the details about my positions.

Lingering uncertainty, which has help to drag down stocks, will become clearer next week. First, the Iraqi elections have begun for expatriates and will be held in Iraq on Sunday. The market has discounted these elections as a relative success and will start the valuing process to discount what will happen next. Initially political wrangling will make for caustic headlines. I think that this will be a negative for the market. However, if peace somehow comes out of the election process it will be very positive for the market. Second, interest rates are likely to rise next week as the Fed moves rates at the expected measured pace. In the past, the market has reacted negatively to the increase as it starts to speculate on the next meeting. However, at some point the market realizes that rates are still relatively low and the negativity will be quelled. I view interest rates as a neutral to positive for the market. Next, the dollar is stable for now but is widely expected to fall. The G-7 meeting in Switzerland did not incite a fiscal renaissance this week. I do not expect much of a change in the dollar policy from the Treasury Department or Asian central bankers. The Europeans will continue to cry out as their economies are shut out of growing global markets and their structural weaknesses are exposed. This is going to be negative for the market until there is a change and its impact can grow if left unchecked. Finally, earnings have been a net positive for the 4th quarter. 2006 earnings growth projections, tougher by 2005 comparisons, are still rising above historic norms for many companies. I believe 2006 earnings are starting to be priced into stock prices and will continue over the next couple of weeks. I view this as a positive for those stocks that will benefit from the changing economic climate and a negative for the ones who will not.

What does this all mean? It means that stocks which benefit from a lower dollar, rising interest rates and that can withstand a hostile political environment will be the ones to be in. HA! it will not be that simple it never is. Global forces and the effects of structural change have to be factored in as well. And don't forget about surprises. Stay tuned as I maneuver my assets into situations that continue to be profitable.

  • FRBK - Republic First Bancorp was up on much higher volume this week. Investors are adding shares as earnings growth is expected to continue. I am lightly accumulating shares based on my targets, but since FRBK is lightly traded I am not taking a proportionately large position.
  • MATR - Matria Healthcare continues to do well. I am adding shares and am likely to rotated some shares out of AMHC and into MATR as AMHC looks technically weak. More on this in a later posting.

Wednesday, January 26, 2005

1/27/2005 Financial Groundhog Day

Investors sunned themselves yesterday as the markets rose to mark the first two day rise on decent volume all winter. Stocks were bought in earnest as earnings news and consumer sediment were on the positive side. Will this recent bright spot cause investors to see their shadows and scare them into their holes for 8 more months; or will spring come early this year and put some bounce into this bounce? The S&P500 closed at 1174.63, right up against its resistance level as the nasdaq did the same, closing at 2046 just below its weighted ceiling of 2050. There seems to be a tug of war between buyers and sellers at this level, time will tell who wins out.

I completed my monthly short interest (SI) study last night. See my website for the details (click on the "Focus13 fundamental and technical characteristics page" on the right side bar). The results were somewhat surprising given the recent decline in global stocks; yet if you follow my blog you are aware that fear is not yet in this market. For the most part SI has trended lower for most stocks. Some highlights include PortalPlayer (play) whose SI was up 501% and Symantec (symc), which increased 123%. Interestingly, Sierra Wireless's SI increased 71% and yet the stock fell over 30% on an earnings miss. Does this mean that the contrarian stance has turned into a "I know you know that SI is high and I know that you think its time to buy so I am going to sell" (please forgive me for that sentence); or was it just one of those cases where smart money knew something and acted on it.

What all this means to me is that the market is sorting itself out. I believe that we are at a point where investors are positioning themselves into new sectors that will benefit from changes in the business cycle. Most old leaders are not likely to perform as well as before. SI is trending lower and the VIX is at levels indicative of a complacent field. I am less sanguine on the market than before but I believe that there are opportunities. Stay tuned as I adapt to this climate.
  • NIKU - Niku as started to break out today on an announcement that Computer Associates will resell its products. Niku has held its value through the correction and has been a 20% riser while others have drop 20% or more. I am staying with my present targets (see my website).
  • RIO - Comp Vale Do Rio continues to see additional investment. The growth of Asia is driving mineral prices up and benefiting RIO. I am staying with my targets on RIO.

Change is on the only constant and making money in this market will take effort. Risk is above average and I am maintaining a high level of cash. The media is starting to say that investors are becoming bearish, I am not yet seeing it in their actions.

Tuesday, January 25, 2005

1/26/2005 Peer to Peer

Resistance at 1174 for the S&P500 proved too much and the market retreated closing below its highs on above avgerage volume yesterday. Although there was a serious attempt to move higher I am concerned that it was just a temporary bounce. Stocks may move up from here, however, there will likely be much resistance along the way. The nasdaq was met with similar resistance. Although it was up it closed near its low for the day; again a negative for the market. I have several short positions that have returned good profits and have been accumulating selected stocks. See my website for details.

The hypothesis I made on 11/19/2004 (see archives November 2004: entitled "Hypothesis") regarding the lower dollar and yuan peg is playing out to perfection. To recap: It was my assertion that the Chinese yuan, which is peg to the dollar, was a net positive for the United States and a negative for Europe, Japan and ultimately China.

As other countries' currencies rise their goods become more expensive, thus less attractive to the Chinese consumer, whose economy is grow at over 9.5% a year. It is like the US and China are trading "peer to peer" locking out the other competitors. The US is benefiting from China's demand and China is buying lower priced US goods and services. Normally, this would cause intense inflation for the US. However, productivity is high in this country. Interest rates and inflation have stayed low allowing the US to bolster its economy, cut its deficit and enhance its global marketing strength. That said, there is a catch: All that is yesterday's news and is partially what drove the market higher at the end of 2004. What concerns me now is the aftermath.

Part of my hypothesis involved the over heating of the Chinese economy. Several warning signs are already present. First, why has the Chinese stock market continued to plunge while its economy grows so fast? I think that the Chinese smart money is preparing for a correction. Next, if there is a correction, what is going to happen to the Chinese banking system. I am not sure how well they can handle it. Theirs is not as liquid or efficient as ours, remember they are still communists. Lastly, I believe there is a speculative bubble building in many portions of China. Bubble bursting is part of the business cycle in a "Capitalist" society. The outcome of a correction will depend on how well China's communist leadership handles the situation. A situation that is uncertain at best and likely painful and only amplified the longer it is kept under the rug. This is not good for global capital markets.

I am staying clear of Chinese stocks for now but continue to monitor the situation for opportunities. Similarly, I am investing in short positions as the market unwinds and moving into selected stocks that will shine in the coming market climate. See my website for the details. The Focus13 table on the home page allows viewers to see my current positions.

1/25/2005 intraday

The indices are up but nasdaq leaders continue to fall on higher volume, generally a negative for the market. Large investors are using today's strength to sell and there is evidence of some rotation, a theme played out over the past few weeks. My indicator LIBM (large investor buying momentum) has been trending lower for most of the stocks that I cover in the Focus13. See my website for details. I believe that this trend will continue in the near term.

Fear is absent. Although the markets' have shed 3-6% and some stocks are down 20% or more the VIX has hardly moved, hovering around 14. In addition, recently released short interest (SI) figures are showing a decline in SI among investors. I would expect the opposite in a bull market. I am expanding my short positions where appropriate, although I have taken some profits as investments meet my targets.

  • EBAY - Ebay continues to experience much selling. The stock has continued down on higher volume reaching my near term target of $81.5 from short sales above $85. My longer term target is $71.5. I am moving my targets. See my website for the details.
  • RIMM - I am also moving my short sale targets for Research in Motion. I am working positions in short sales above $67.5 with a stop at $70.3. My near term target is $64.5 and longer term goal is $53. Formally, I had shorted RIMM above $86 and finally closed out at $68, however, a more recent break down in technical characteristics and the realization by the market that RIMM has competition motivated me to open these new positions.
  • MATR - I have noticed a rotation into Matria Healthcare. I am looking to add the company to my Focus13 with a buy target of $40.5. IV=$121/share and earnings growth is above 25%. Short term my target is $45 and $60 longer term. Earnings are expected to be released in mid-February. I am likely to take a smaller position until then as I want to see if 2006 earnings growth estimates will continue to expand.
  • FRBK - Republic First Bancorp continues to hold gains during the recent down turn. I believe the stock is under valued and worth investment. I am accumulating shares according to the figures on my website. The PE for FRBK is 16. One of its peers FRBG, a Southern California Bank of like size and business model has a PE of 24. If that multiple holds FRBK could be worth $25.

I feel that the factors of uncertainty are weighing on the minds of large investors. I think that before this correction ends we will see greater fear and more selling. Stay tuned to see if I am right. I have been correct so far this year.

Monday, January 24, 2005

1/24/2005 Freedom is Not Free

The market looks flatish, but the leaders continue to retreat. The S&P500 and nasdaq composite are currently stable however below their recent trend channel lows (RTCl). In a predictable play where large investors dump stocks and others try to pick a bottom the market stays flat; but leaders such as Ebay (ebay), Google (goog) and Research in Motion (rimm) are down on volume. My Focus13 continues to do well as stand out Comp Vale Do Rio (rio) is up again yielding a 20%+ gain for me as the market has fallen. I am taking some profits in RIO, but still hold shares. I have trimmed weak shares and increased cash over the past month. My universe is positive for the year. See my website for the details of the stocks in my Focus13. I am shorting new situations and will post them on my website.

To me the market looks pretty unstable. The markets' four major issues of uncertainty are trending toward the negative as a whole. As a side note fear is still not in the market. The VIX is stable at about 14.3. I would like to see the VIX nearer to 20 before I would be bullish on this indicator.

  1. Iraqi elections - Although it looks like the elections will be held. The aftermath is uncertain and very unstable. Propaganda, especially on the anti-American side, is attempting to influence public opinion in Iraq, (Links removed to as many have expired). I feel that in the ensuing months the Iraqi situation will weigh on the market. Freedom is not free.
  2. Earnings - Earnings are above expectations for the most part, a fact that was built into the price of shares. Earnings for 2006 and beyond are under scrutiny and the resulting uncertainty is what has investors selling. I expect the selling to continue with some stock picking in selected sectors taking place.
  3. Interest rates - Interest rates are stable for the moment. I expect them to remain flat to down as global economies slow down in large part to the dollar's decline. Corporate debt is declining in value and rising rates are in the high yield sector will pressure stocks though.
  4. The US Dollar - The dollar has stabilized yet is widely expected to fall further. It seems that the negative sediment is serving to support the dollar. Also, I am intrigued that the Chinese stock market performed the worst against its global peers, yet the Chinese economy is among the fastest growing. This disconnect has me concerned that something brewing. I am aware of much corruption in China. It will be interesting to see how it surfaces.

1975 on the S&P500 and 2050 on the nasdaq are likely to serve as near term resistance in the market. If stocks stay below these levels I am likely to increase shorting activity. On the other hand, if the market breaks out above these levels I would likely accumulate more shares in my selective sected sectors. I am working on a tool that will identify breaking out sectors. Stay tuned as I update my site and show you more about my investment moves.

Thursday, January 20, 2005

1/21/2005 Change is the Only Constant

The S&P500 and Nasdaq composite have now dipped below their recent trend channels (RTC, see my website for a definition of terms). The move confirms that we are in a correction (as I asserted weeks ago). Now it is a matter of how low the market will go.

I have noticed a marked change in trading. Selling is snowballing among the leaders as rotational buying has slowed. I am more cautious now than ever yet I am looking for opportunities in this time of danger. Certain companies will excel this year and my Focus13 shows investments that are growing even as the market slides. I have updated intrinsic values on the website to reflect 2006 earnings estimates for most stocks in my universe and have adjusted LIBM trend figures; two key parameters that I track.

In the near term the market will be driven by four main issues of uncertainty. Below I examine the Iraqi elections, the US dollar, interest rates and most importantly earnings. I will adapt my positions to changes in these issues as part of my overall investment strategy.
  1. Iraq elections - violence is stepping up as expected. The election moves on. The next question will be: If the elections happen how long will it take for the new administration to take hold? I think that a successful election is 75% priced into the market. What is not priced in is my biggest fear. How will the new Iraqi administration be received (at home and abroad) and will they be effective in bringing a semblance of society to their country. If Iraq turns into an US occupation we are in for some big problems.
  2. The Dollar - Asia continues to support the dollar and keep their currencies pegged to it. The dollar has stabilized and the Asians' have expressed their intentions to support American borrowing for now. How long can that go on? One concern, now top of mind awareness, is the strength of the Asian banking system. It might turn out that their leaders, being pre-occupied with the dollar are not minding their own store. If there is a problem the question will be can the trading surplus built by these governments be enough to clean up any mess. If not, are global financial markets flexible enough to handle its magnitude. Look out for gross speculation, which has already started to occur; does large short positions in the oil market ring a bell?
  3. Interest rates - inflation is in check for the near term and the fed is highly likely to keep rate hikes on track with respect to the measured pace. As Asians continue to buy our treasuries our borrowing rates should remain low. Besides, corporations are flush with cash and are not likely to contribute to borrowing costs in the near future, a move that should support the consumer. This scenario is a positive for the economy.
  4. Earnings - Earnings are turning out to be negatively received and are probably the greatest reason for the markets' short term decline. Investors are nervous about 2006 growth, which at this time serves to reduce stock prices. At some point investors will over do the selling and give way to buying opportunities. My view is that some of those opportunities will come in new sectors. Stay tuned as I sort out the changes and offer new long and short positions.
  • DNA - Genentech has turned technically negative as LIBM has trended down recently. I am considering reducing my shares ahead of a stop at $48. Given the growing rate of selling and the lack of fear DNA may be the baby thrown out with the bath water.
  • RIMM - Research in Motion has seen a flattening in LIBM after a 30% sell off. I am not saying that I am going to run out and buy the stock, rather, a basing period is likely.
  • EBAY - After doing a bit more research into the Ebay situation I am concerned about the recent price hikes. I am monitoring the situation to determine if there is going to be a major shift in users habits. So far, I have identified a problem, how big, I will know soon.

I still have my largest cash position in almost two years. I avoided any loss, in fact had a nice gain, in the recent Ebay earnings miss due to my protective puts. Although I am not yet at a 40% return on my capital for the year (its still early), I am way ahead of the market being flat to slightly positive. Keep watching as I grow my capital.

Wednesday, January 19, 2005

1/19/2005 Earnings Season (fear factor)

Earnings Season (fear factor)

The greatest gains in the market come when cash rushes in from under invested investors. This is one reason the contrarian theory works. One way to measure the minds of investors is to use the Volatility Index or VIX. The VIX is based on the implied volatility of eight OEX options that are near the money and have exactly one month to expiration. Since the VIX reverses from extreme directions, it's a good tool to help determine likely future market directions. The trend of the VIX has been down over the past couple of years and yet the market has moved more or less higher. My take on this phenomenon is that the proliferation of hedge funds, going both long and short, has served to polarize the index, reduce option premiums (good for hedging) and flatten VIX movements. That said, the VIX still blips up and down against the market and can be used as a sediment measuring tool.

During the recent sell off I would expect to have seen a greater increase in the VIX then what has actually happened. The last couple of good rallies came when the VIX exceeded 20, it is currently around 12.5. I do not live and buy as the VIX moves but I do keep and eye on it. From a technical perspective I do not like the recent level of down volume or the level of the VIX. I am cautious and have hedged many of my positions using protective puts. My hope is that these technical characteristics firm up through earnings season and open the door for more buying. If not, I am going to look into going deeper on the short side.

  • EBAY - Ebay missed estimates and the stock has been punished in the after hours. I was able to sell above my stop loss price of $100. I had protective puts in place and should actually make a return of about 1000% on the options, after I use the hedge to cut my loss. Fundamentally I still believe in the stock, technically, large investors are rotating out of the shares. It is my experience that it is not wise to get in the way of large money, you will get over run. I am going to dig into Ebay's new pricing policy and keep and eye on the stock for a good entry point in the future.

I should have run this post this morning but I wanted to get some extra mileage out of my previous post as serves as the basis for my next series. Obviously, I could not have run the Ebay post then, even I am not that good, although...Stay tuned I as I adapt my stock universe into profitable positions of least resistance.

Monday, January 17, 2005

Sweet Baby Moses in a Basket Market Down Volume Highest in Years

Sweet Baby Moses in a Basket Market Down Volume Highest in Years

In the past two weeks nasdaq down volume spiked to the highest level in many years reaching 226B shares while dropping 104 points in the same time. The closest period for comparison was in July 2002, which had a 162 point fall on 222B shares and marked the first stage bottom of a long bear market. Does all this volume signal a future disaster or compitulation; or is this just an anomaly? For sure volume of this magnitude is meaningful. At this point what I need to do is intelligently speculate and then postulate. Fierce down volume, especially at a market top, mostly spells "DANGER", for sure it means change and that means opportunity.

Head winds generated by economic structural change are starting to flow against the market. A falling dollar and rising interest rates will press against the economy. That said, fundamentally strong companies, reinvented by a global recession and government stimulus, are on their respective flight paths. The stocks that rise in the next market run will be the ones whose engines can drive them against or align them with the opposing structural forces. Managers who manage for change will better adapt to the new environment. In addition, a future terrorist event on US soil will likely anchor investors. Never before in history could so much damage be done to so many by so few. Investors will do well to be prepared for a terrorist event, who like rolling sevens in a game of chance has the effect of clearing the board. But in this case payment is in both human and financial terms. I am not sure that there is a way to completely protect yourself against terrorism. One thing is for sure when you least expect it, expect it.

One driver of the global economy are its hot and cold spots. Europe, a victim of long term socialism and an entrepreneur adverse financial systems is weakening. I expect the region to continue to slow and lag other regions indefinitely. On the other hand, as 300 million urban Chinese will soon become 600 million, then 1.2 billion. Asia will drive global economic growth. The United States, whose, "everyone is an immigrant" population has lead global innovation for decades and will continue to expand as it serves more or less as a model to emerging markets and feeds them with its innovation. However, the US will not be without its problems as it races to rebalance its economy before penance must be paid for any financially inefficient sins. The key to profitable investment will be to define the new paths of least resistance and position capital within those circuits ahead of the crowds. Timely investing into well positioned companies who can keenly adapt to the profound changes the world will face will define my profitability.

The cash that came out of the recent sell off will find its place in other investments. I have been writing about investment rotation since the 3rd quarter of last year. I expect that this change in sediment will intensify as investors become aware of the changes to the economic environment. Some stocks will move higher as for others it will be time for a hair cut.

One obvious area to postulate are commodities. Emerging economies are building the infrastructure they need to urbanism their populations. They need raw materials. Steel makers, chemical companies and miners are all likely to do well at various times during the markets' next run. I favor the miners as they own the materials in the ground and are unlikely to be pushed out of business by cheap labor competition. If you follow my blog you know that I am an investor in Comp Vale Do Rio (RIO), the Brazilian mining stock. The stock has performed well, bouncing quickly from the recent sell off and is up over 17% for me in several weeks. RIO's peers have also performed well supporting my decision, and a 3.5% dividend is a plus.

Another area I have notice more investment lately has been healthcare. Down over 8% the last three years much is being done to make these businesses more profitable and attractive to investors. Customers (and Government) are not willing or able to pay for what has been on offer by many of these companies. Healthcare companies who wanted to survive had to adapt their business models. The fast easy money is gone and investors are demanding earnings growth, much like what happened to the internet business in 2001. The strong have survived and leaders will start to emerge as the weak struggle through the cleansing period. One company that has adapted is American Healthways (AMHC). The company provides managed healthcare and has found a way to increase service while reducing costs. Further, the company sees earnings growth of 31% for 2006. I have a position in the stock and have accumulated more shares during the down turn. Oh yeah, there is a short position of 4.9M shares on AMHC whose daily volume is around 500K (10 days), which I view as a positive sign. My eyes are peeled in this sector as more leaders break out.

Technology always has subsectors of growth whether tech is viewed positively or negatively by the investors, the main issue is which subsector(s). The more I look at "search" the more opportunities I see. I so want to invest in Google, but it does not meet the intrinsic value (IV) parameter of my investment model. Instead I am waiting for a correction or a complimentary/substitute business to pull out of the ashes to invest in. In the mean time I have done extremely well investing in Ebay, which still meets my IV requirement even at $105/shr. Long term I have earned over 100% on my capital with Ebay, for the purpose of this blog I made over 30%. Ebay is a well managed cash machine whose paradigm shifting business model is putting an end to classified advertising as we know it and building a financial processing empire on a global basis. This week is an earnings reporting week for Ebay. The recent technical weakness may spell correction thus I have purchased protective puts on my investment. There are many new technologies coming of age, just look at what Bit Torrent has done for peer to peer and the iPod for entertainment.

For the last couple of weeks I have listed the uncertainties that have recently encapsulated the market. We are at an inflection point. I am sure that the recent sell off was driven in part by this uncertainty. The dollar, Iraq elections, fourth quarter earnings, energy costs and interest rates play to polarize investors and force them to rethink their positions. I did well in the down turn from Jan 2004-Aug 2004 and even better in the bull market run after that. I am working to better my 40%+ return from last year. I hope that you enjoy watching what I come up with, stay tuned.

Thursday, January 13, 2005

1/13/2005 after the bell

Being mostly in cash has paid off

I am not surprised with the performance of the market today. Part of the reason I moved to a mainly cash position over the past few weeks was the complete breakdown in the technical characteristics of the market. Bounces like yesterday are common as a market corrects. The fact remains that large investors are mostly selling not buying. The S&P500 and nasdaq composite moved closer to their long term support levels of 1170 and 2050 respectfully. The fear is still not in the market. The VIX remains muted at 12.84. It seems that most talking heads are still touting this as a round of profit taking. I feel this is a full fledge correction. However, amid the selling there are pockets of buying. Investors are rotating into other areas. Check out my website for the details to my 13 stock universe. Also, watch the website for new features that I am adding shortly.

  • RIO - Comp Vale Do Rio moved higher today going against the grain of the market. As emerging economies such as China and Brazil build their infrastructures (including the 2008 Olympics) they will require the materials that RIO provides. Also, as the dollar weakens the materials that RIO own hold their value giving rise to prices. I kept my whole position in RIO and opted for protective puts. RIO remains a profitable holding.
  • NIKU - Niku has held up during the recent down turn in the market. Niku is benefiting from the Sarbanes-Oxley compliance as its software enables companies to adhere to the new rules. Further, the company is expanding its product offering as it increases its installed base. Niku is selling software on a global basis. I have continued to hold shares in Niku.
  • EBAY - I initiated a small position in Ebay yesterday as the stock firmed up technically. Investors know that the company is likely to exceed expectation. The question is can the company continue to grow at such a high rate as in the past. I continued to hold my shares through today's weakness. I am paying strict attention to my stops at this point.

I believe that large investors are becoming increasingly concerned with the global economy. Europe and Japan have reported strains in their economies and worries that the blight will spill over to other areas is starting. As the dollar falls investors may be building cash positions instead of investing into these weakening economies. Further uncertainty (as listed in my previous posts) and fear of other unknown will soon take hold on the market. Stay tuned for when that happens I will be their to profit, watch me.

Wednesday, January 12, 2005

1/13/2005 before the bell

The fact that the S&P500 and nasdaq composite both moved higher in the last hour of trading on accelerated volume and negative trade balance news marks the first positive for the market in three weeks. However, given the viciousness of the recent decline I still remain very cautious. Over sold conditions and short squeezes are the norm in a correction and yesterday's bounce was likely one of those.

One bright issue was Ebay. If all stocks acted like Ebay yesterday, down in the morning and up later in the day on impressive volume, I would be a bit more bullish; but Ebay was the exception to the rule. I did close my short positions and did accumulate small amounts of shares where my targets were met. See my website for the details. The questions of uncertainty I wrote about yesterday need to become evident before things can get better. Also, I think that this market lacks fear. The VIX dropped like a rock as the market rallied. It stands around 12.5, I would like to see the volatility index move closer toward 20.

  • EBAY - Ebay's move today was impressive. I am going to add to my positions shares below $105, however I will have a tight reign on the stop around $100 with an upside target of $117. Earnings are due out 1/21 and I expect that the stock will be volatile going into that period. I will not hesitate to ditch shares if technicals break down.
  • AMHC - American Healthways has held at its current level on lower volume, which is a bit of a positive for the stock. HCA, the large hospital operator, posted stellar earnings today. Expect this sector to see some investors rotate cash toward it. Fundamentals and technical characteristics look very good for AMHC.

The fact that the US economy is strong and others are weakening may attract foreign investors back into equities. In addition, I believe that 2005 will be quite different than 2004 where leading stocks are concerned. I am adding a new feature to my website that will track the leading sectors as investors rotate positions. Stay tuned to see what I come up with.

1/12/2005 intraday

After some initial weakness the market has bounced back on seemingly negative news (trade balance). In a bull market this is a positive sign, in the current market it may just be a knee jerk reaction. I am cautious however, I am closing my RIMM short positions. I still need to get a sense how the current bout of uncertainty is going to play out.
  1. Oil is down today and likely not to go to record levels for this winter as weather has been relatively mild, a positive for the market.
  2. 4th quarter earnings for the most part have been as expected thus far, although it still very early in the season. The key, of course, is how will profits look for the next year. Until I have a good sense of where earnings are going I am going to remain cautious. Earnings is the single most important unknown at this time. Once this uncertainty becomes more clear I will make (or not make) bigger moves. (Uncertainty)
  3. Iraq elections are nearing and the government seems to be doing a reasonably good job of managing expectations. It will be a positive if these elections go off more or less as expected. This is an uncertainty that will be resolved in the near term. (Uncertain to Positive)
  4. The dollar is widely expected to continue to fall. In my mind at least part of the strength of the recent decline in stocks is due to worries around the weak dollar. Global economies are starting to weaken a bit with Europe and Japan taking the biggest hit. History shows that an initial drop in the dollar is a positive for US companies, however, over time the country must paid for its fiscal sins. To the extent that those "sins" are (mis)managed will determine the extent of a market reaction. I expect the dollar to be an issue for the foreseeable future. (Uncertain to Negative)
  • RIMM - Research in Motion is bouncing ahead of its 200 dma. I am not sure if this is a head fake or real bounce however I have taken the profits in my short position given the high volume. I am now closed out of the short.
  • SNDA - Shanda sold off today on big volume. I closed out my position as the stock showed weak technicals. I held SNDA for almost a year and enjoyed solid profits. For the purpose of this blog my earnings were over 20%, however, they were much more if I count my positions before I started this blog last July.
  • NIKU - Niku Corp. Continues to have a bid under it as investors have kept the price above the $18.75 level. NIKU has held above its breakout level and its fundamentals are strong. NIKU's 2006 earnings forecast exceeds my eps growth requirement by 4%, at 29%. I am accumulating shares on target.
  • EBAY - Ebay sold off again today. Although I have been out of this stock for some time I continue to watch it. It will be interesting to see what happens with shares during earnings reporting season. EBAY is expected to report earnings on 1/21.
  • GOOG - From both a fundamental and technical standpoint Google has been strong and the stock price has reflected that strength. I am watching Google for a buy point, although the comapny's IV is lower than I would like to see.

Stay tuned for more changes to my universe of stocks. For details see my website

Tuesday, January 11, 2005

1/12/2005 before the bell

Profit taking or correction?

The main stream media is starting to call the market's recent decline a correction, something I have expressed in this blog for over a week now. The S&P500 and nasdaq composite fell to hover just above their respective long term support at 1170 and 2050. We may see a bounce as early as tomorrow but I will be cautious in adding to positions near term. I am likely to continue to look for new longs and shorts and stay the course in my current positions. See my website for details about my investments.

  • RIMM - Research in Motion held today above its $72 support level, however, after being up early in the day the stock sank to just above yesterday's close on below average volume. RIMM is at an inflection point, in my opinion, as the market decides whether or not to sell the stock below the $72 support level. Given the relatively small short sale levels and weak technical characteristics I believe the stock is likely to visit its 200 dma. That said, a straight move down is not likely making short selling difficult. I am holding the last of my RIMM short position with a target of $68.
  • AMHC - American Healthways has been a bit bumpy lately but I have held my positions. The stock has a very high 10 day+ short position (Dec 15) and strong fundamentals. The short position may be technical in nature, meaning it may be brought about by bankers' terms, however I am not sure. The short position has been slowly unwound and the stock has had bouts of fast up side, yet many short shares still exist. It will be interesting to see how this plays out as investors rotate positions in the first quarter of the year. As a side note volume has been tapering off along with volatility, often a sign of pent up demand.

1/11/2005 before the bell

Although major indices ended higher it was amid late day selling, a negative for the market given the recent correction. The S&P500 ended above its 50 dma and the nasdaq composite below with both indices closing above major support levels. There seems to be a bid in the market and I think that some investors are positioning themselves, however, just as stocks start to take flight they have been met by selling.

The action of the market is as I would expect for pre-earnings season. Given the near term uncertainty pertaining to 4th quarter earnings, Iraq elections, interest rates, oil and the dollar I expect a volatile market with limited up side until the questions are answered and issues are sorted out. I do see evidence of investors rotating positions. See my website for details on my new positions.

  • SNDA - Shanda Interactive has held during the recent down turn and moved higher today on solid volume. One article I read (check out my website) told the story about the popularity of Shanda's games in China. It reported a that the game is so addictive to some people one 31 year old man dropped dead after 20 hours of straight play. The game "The Legend of Mir II" is so popular that some are calling for limits to its obsessive play. SNDA is highly valued, but it is also heavily shorted. I am staying the course and keeping my targets in accord with my website.
  • RIMM - Research in Motion continued it sell-off today but is holding above $72, a major support level for the stock. I am still holding my short position from $86-$88 levels, although I did take some profits. I am reluctant to add to positions here, but will consider adding to them if there is a good bounce, or if the stock closes below the $72 level on solid volume. Competition, legal uncertainty and tough comparisons are giving long side investors a lot to consider.
  • RIO - Comp Vale Do Rio has corrected with the market on solid volume. But, fundamentals remain solid and technical characteristics are not that bad. I did take some profits (15%+) and I do have protective puts, yet I will likely add softly to positions if my buy targets are met (provided fundamentals or technicals do not materially change).
  • NIKU - Niku corporation has also held well during the recent down turn in the market. Niku is going more global and benefiting from the weaker dollar. The company's CEO and CFO are going to present at an investors conference on Thursday. Look for the stock to move around that time. I am staying to course with NIKU.
  • FRBK - Republic Bancorp continues to hold its own as well. I am buying below $15.5 in small quantites as the stock is thinly traded. Investors are holding on to shares and the company's fundamentals are strong. It was reported today that the bank will spin off its DE units. I am trying to get more details. When I do I will present them here. I am staying the course with FRBK.

If this period is like other earnings periods bounces will occur and then be met with more selling a day or two later. Until near term uncertainties are made clear expect the volatility. I would like to see more fear and the VIX begin to rise. Until that happens it is my expectation the the market will trend lower. Stay tuned as I find new opportunities that present themselves as the market changes.

Sunday, January 09, 2005

1/10/2005 before the bell

First, to let everyone know this is now my official blog site and can be used in concert with my website I have recently moved from The mission is still the same, to showcase my investments to viewers who care to watch me make returns of 40%+ each year. To check my archives please see the site for "Archive" posts dating back to March 2004. To learn more about what this site is about please see the smart money investor website listed above. I hope that you enjoy watching what I do as I invest profitably in nasdaq and global stocks.

Now on with the show.

Last weeks' market performance was undoubtably a correction and not merely about profit taking. The deep cut in all the major indices was technical in nature showing a drop 7 out of the last 10 days, 3 days in a row down on heavy volume. Most the averages stopped at or just below their 50 dma. I believe that there is support around 117o on the S&P500 and 1990 for the nasdaq composite. I would not be surprise if the market corrected further, in fact a slight downward trend just below the aforementioned levels on fleeting volume would be a positive for the market longer term. That said, further downside (below the 1170 and 1990 levels) on increasing volume would be a negative.

First and fundamentally foremost the market must deal with 4th quarter earnings. As with past releases it will not be the numbers but the projections and comments to drive the markets. I think volatility will pick up as investors adjust postitions and rotate into promising new issues. Expect investors to look closely at comments directed to 2006 earnings as expectations for the future are still in unclear. The Iraq elections offer further uncertainty and will keep some from jumping into the market. And oil is still a bit volatile to be counted as a given. The dollar has bounce, but will it stablize? Interest rates are expected to rise, but that has been the case since 2002. All this uncertainty is mounting, as it often does this time of year, to cause jitters in the minds of investors. As the answers to these questions become clear investors will act accordingly.

As of last week I have my largest cash position in over a year. I took profits before year end and continued to do so during the last couple of weeks. I have both long and short positions and have made some recent changes to my investments. See my website for specifics on my current positions. Now, I have started to taper the short positions and expand the long positions. For now I have tightened my buy and sell limits. In other words I am taking quicker profits and less loss until the trend presents itself. Stay tuned as I discover the new trends to this market in flux.

Thursday, January 06, 2005

1/6/2004 intraday

Weakness continues even though the market averages are up. The rotation into healthcare continues and away from tech and US stocks in general. It is looking a lot more to me like foreign investors are repatriating their dollars into more global investments.

Fear has not come into this market like I would expect as the VIX is still below 14. In recent times the market has become less volatile, due to in part of the growth of hedge funds who trade both the long and the short side. The lower the measure on the VIX the less fear there is in the market the high the more fear. Recent short term rallies happened when the VIX was around 19-20. Given the uncertain 4th quarter and the recent heavy sell off I would expect a higher reading. During the last rally I saw drops in the VIX below 9.

  • EBAY - Ebay sold off hard today and I closed my position. Fundamentals remain strong but the technicals became to weak and I am holding on to my more than 30% gain. I sold off my position in recent weeks. EBAY was a good run, I will look for an entry point in the future.
  • RIO - Comp Vale Do Rio has been selling off on inflation fears. Mostly because investors believe that interest rates are going to rise and slow global economies. I have protective puts on RIO as I believe that growth will continue for the material companies. However, in case investors continue to sell I took advantage of some low cost 25 puts to protect my profits.

I am in my largest cash position since last year. I did very well in 2004 mostly because I was in the right stocks at the right time. I am looking for new leaders who will ultimately emerge as the dust settles on this correction. If we get a bounce I am likely to add to short positions but I will probably add to some longs as well. Stay tuned as I profitably adapt to the change.

Wednesday, January 05, 2005

1/5/2005 after the closing bell

Selling ensued again today with the S&P and the nasdaq composite trading lower on higher volume. I am not hearing what amounts to fear in the voice of investors yet, although the VIX was up a little today. I think that everyone would like to believe that this is a stiff bout of profit taking. For sure that would be nice, however, the volume is heavy and drops are deep. I could be wrong but from a technical perspective all the warning signs of a correction are there. I continue to lighten my shares and building my cash position. I have also protected some of my profits with put options. Amid all the selling there where some signs of early buying perhaps a tell that a bounce is coming. See my website at for specific details on my stock positions.

The main stream media is all about inflation fears this week, but I think there are other issues. First, 4th quarter earnings are going to be challenging and investors are getting out ahead of any disasters. Stocks that surprise to the up side will do well as some investors will rush back in, however, longer term growth (1st-4th quarter next year) is going to matter more. This is one reason I am looking at various rotations that started late last year, namely healthcare, select banks and select capital equipment and cyclical issues. Secondly, there is Iraq and its elections. I am sure that at least some of the election outcome fears are built into the market and global stocks, however, I am also sure that some is not. Investors are likely to become more nervous as Jan. 30 gets closer. As for inflation it is mostly an interest rate issue at this point. I watch the 10 yr. Treasury as a guide to interest rates. They are still historically low and were made lower a bit today. Unless there is evidence of out of control structural inflation I think that business will invest. As energy prices have stabilized for now and world economies are still growing at a goodly clip the stock market should fair well. If earnings flop and interest rates rise and Iraq goes to hell in a hand bag; I will just have to be in the right instruments to find profitability.

Stay tuned for what I do as the market expresses itself.

Tuesday, January 04, 2005

1/4/2005 after the closing bell

The market continued to sell off today as yesterday's round of profit taking turned into today's near term correction. Fear crept into the market for the first time in a while as the VIX climbed above 14.3 intraday (about 20% higher than last week). The volatility index did pull back to close at 13.93, which leads me to believe that investors don't believe this sell off is real. When the market is going up in full rally mode making money is easy. It is times like this where profits are lost or kept and the mettle of investors is tested.

I think that the sell off is too deep and fear to little to be ignored. I continued to reduce positions today taking profits before they became losses. I am still holding shares in all the positions listed on my website ( but at reduced levels. The trick will be what to do when the bounce comes, do I short or buy long at sale prices; it is likely that I will do both. I have increased my cash position and actually have faired well during the sell off since I was short ahead of the crowd.

  • ERTS - I opened a small short position in Electronic Arts. IV=$68, which is low by my criteria. In addition, ERTS's eps growth rate is roughly 7%, not usually enough to draw many investors. The company is adding positions in Ubi Soft, and rumors of a hostile take over bid are out there. The stock ran up quickly and has stated to pull back, down 4 out of the last 6 days. I love the story and the potential, however, the competition is fierce and its peers are not leading the market. MSFT is stealing a lot of EA's thunder. EA would like to buy Ubi soft for splinter Cell, among other titles, but since MSFT's Halo has become so popular I don't see Splitter Cell being the franchise everyone thinks it is (I am a bit of a gamer). Also, Socom III for the Sony playstation will likely be out in a year or so, and that title has a very large following. The sports titles are what really make EA tick, with Madden football and others, but kids today are loosing interest in apple pie sports, they want EXTREME Sports! My short is above $59.75 (above $60 is better) with a stop at $62. My first target is $55 near term and $50 down the road. One negative to the short is that SI (see the website for definitions) rose 3% last month. I am not betting the farm on this one, but a small position can be profitable.
  • FRBK - I opened a long position in Republic First Bancorp. The stock is thinly traded but has solid fundamentals and is technically well positioned even in this down market. It has reasonable institutional ownership and I see a small rotation into its shares. I am only building a small position with shares below $15.5 and a target of $21, longer term $30. IV=$50.8 using an eps growth rate of 15% for 2006, 2005 is suppose to be 22%. Smaller banks are doing well as low interest rates and a heated economy are building profits, even if interest rates rise they should do well provided the economy continues to grow.

The nasdaq and S&P did not waste time challenging investors this year. Stay tuned as I navigate profitably through global stocks, the nasdaq and the rest of the market.

Monday, January 03, 2005

1/4/2005 before the bell

The first day of trading in 2005 was like a bad hair day. The S&P500 and nasdaq composite combed through their recent trend channel (RTC) support on above average volume(see my website for the definitions to terms I use in this blog). The market was as volatile as I expected. The last few days of 2004 showed signs that a sell off was coming. A round of profit taking after the end of the year could be expected given the year end run up and pause in the last few days of December.

The fervor with which the selling took place today and other signals of technical weakness have me lightening positions ahead of some targets. A day that starts higher then sells off amid good news is a negative for the market. I reduced EBAY and SNDA to my lowest levels since mid last year locking in profits along side the institutional money. I also sold a small portion of RIO and DNA to lock in 20% and 7% profits respectfully, but still hold good positions. My RIMM short almost made it to my $78 target but stopped just above $79. I am staying short and sticking to my targets. Other shorts I am considering are ACH and LFC. Days like today are disheartening and often signal a change in trend. Stay tuned to see what I do to stay profitable in the New Year.

I am still working on upgrading the site and updates are down. Please be patient as I will have the new features up soon. I am away from the office and doing the tech stuff is difficult at best.

  • NIKU - Niku was a bright star in today's trading moving up 3% in above average trade. Investors continue to accumulate shares and today's movement is a positive for the stock. I am likely to move my target up but for now I am staying the course with an upside of $24.
  • VLCCF - Knightsbridge Tankers sold off again today on serious volume. I had been looking to reenter the stock but given the technicals I am hesitant. The fundamentals still look good although there is a softening in fixture rates. Stay tuned as a proper buy in this global stock may yield me above average returns.

2005 will bring on its share of uncertainty. The elections in Iraq, 4th quarter earnings season, interest rates and the dollar are in investors sites for the near term. I still see rotations into selected healthcare stocks and now small localized banks. I think that the market will be subject to profit taking in very short term, however, that can change on a dime as new money may flow into post holiday stock sales. That said, if news turns negative and sediment remains too positive a move to the down side is likely to give investors a fresh hair cut.

Sunday, January 02, 2005

1/3/2004 before the bell

In general the beginning of the year (first few weeks) is positive for stocks. Money has been on the side lines as investors have positioned themselves for the year end weeks ago. Now its back to business and investors generally are net buyers as they reposition themselves for the new year. Also, fresh money is put to work from IRAs and tax planning procrastinators. I expect the market to be somewhat volatile as large investors rotate cash into fresh positions. I have been an early buyer of healthcare stocks, but some capital equipment companies are also seeing new money. See my website for the details on what I am doing now. Also, please read my previous post as it covers much of my current thinking.

I apologize for the missing and slightly out dated information on my website. I am currently updating software and network capabilities. Please be patient as I believe the new format and features will be worth the wait. I have not seen a website that executes a 40%+ return on investment and shares the experience with its viewers.

  • SYMC - Symantec has tumbled recently and may be under valued. I am currently doing a work up on the stock to see if it will be a worth while buy. Stay tuned as I publish my thoughts.
  • FRBK - I am also looking at a small northeastern back called Republic First Bancorp. The fundamentals and technicals look attractive. The daily volume is low, which is a negative. I am considering putting it in my universe in the future, for now it is one I am watching.

I wish everyone a happy healthy and profitable 2005.