Stock Specific: ABI – deeply oversold with a support level at $28.
Other names to consider: DNA- multi-month trading range behavior – but given the positive group bias worth a shot.
TECH – strong volume as price increases. Buyers stepping in , worth a look on pullbacks.
Quick Idea Summary:
Looking for further shorting opportunities in financials as a theme outlined for the first half of 2007. Specifically, focusing in REITs as a vulnerable area in the sector. This is in conjunction with high credit risks with fed speak, housing and extended pricings.
Biotech –emerging and worth looking at few names. Technology mixed but few noteworthy ideas in communication and networking related areas. Alternative energy ideas revealed and few stock specific ideas listed below.
Clearly, this past week fed’s comment paint the headlines and explain the upside moves. Especially strength in emerging markets which stood out (MSCI Emerging Markets 116.62 +5.14%). Coinciding with strength in emerging markets, commodities were the top performing leaders during the week. Notably, commodity related steel and energy showed strength. (more energy below).
Investors beating to the same beat:
Put/Call ratio coming down along with volatility (VIX) – this suggests that we are back to compliancy. Therefore my goal this week is to think ahead and avoid “compliancy” risk.
Not seeking value in Housing:
Quick Note:
Fed view on housing: “Recent indicators have been mixed and the adjustment in the housing sector is ongoing.”
Important to note that the Federal Reserve has recognized recent signs of weakness in housing. Although, let us not forget homebuilder Index peaked in 2005 therefore sub prime is the follow up to weakness in the financial sector.
Next vulnerable area in financials looks like REIT’s and keeping a close watch. In Financials looking to rotate into banks. For example, shorting ICE a rewarding call from weeks ago. Few short covering in lending space resulted in upside move but rather sell that news. Again, in the near-term looking for little upside move but looking to stay neutral or short stock specific names.
Energy stocks showing strength after a rough open to the year. Notably, in the last three months energy has led the broader market. In the near-term, looking for consolidation. Technical’s setting up positively, and maintain my neutral view in the overall sector but undeniable strength emerging.
Crude: Following an 8+ month correction from summer 2006 highs, tight range in the $58-62 range. News flows this week critical to move prices as key resistance at $62.
MOT – Despite weak numbers and poor performance stock is worth a look at these levels. First, analysts were expecting bad numbers and weak sales. Of course, below expectation is the headline observation Stock is down from $26 -17 range, with bad news factored in and with surfacing rumors on PALM buy out. Therefore, add to the watch list name for an attractive entry point. Sticking to the discipline, outside of the headline risk look for stabilization at current levels.
Tech Favorites to watch: HTCH, ELX, BRCD,NTGR, and FFIV.
Media: looking for pullbacks in the near-term w/ PBS ETF stretched. Similarly, food related stocks are overdone as well. That tells me that defensive themes are overplayed here and chasing beta in the right sector might be rewarding. (ex. Broad market risk).
Stock specific story: SSCC: The homebuilders and housing related stocks are not my favorite place to seek value plays. But I do like lagging names in home furnishing. There are few attractive consumer ideas which are not streched. Also, analyst ratings are too negative in this name with positive growth potential.
Group Review:
Powershares Clean Energy ETF looks attractive at current levels given its consolidation. Specific names to consider. BLDP- shares a similar pattern with $5.50 support and attempting to stabilize at current levels. A risky bet given negative earnings and showcased by analysts’ estimates with one buy rating. Similarly, strength in the sector among some names like ZOLT and AMSC developing high-tech ways to upgrade the nation's strained power grid.. Momentum name in the group ELON – looks very strong less timely. EMKR- looking for upside catalyst, CPST- deeply oversold FCEL- 5.84 support.
After completing a 1/3 correction from recent highs markets are trying to find a bottom. Upon completing the first phase of the correction; the support levels for the S&P are at 1373 followed by 1363. NDX – is closer to 200 day mva, with an oversold momentum and recent lows of 1710. That places us back to Q3 lows.
Sentiment: Also, put/call ratio retraced from highs of 1.70 – suggesting that overly bearish/fear indicators have corrected. In other words, this should build optimism for trading longs in the near-term. Although, a dramatic downside move can shrug many shorts, there is additional downside left in the marketplace.
Therefore, the bulls are warming up to “buy the dips”. Sector selection for a recovery bounce is key. In select areas some sectors are due for further correction. In my opinion, as previously stated Financials and Energy need further down/sideway trading action. Near-term indicators are pointing to oversold levels, and that presents a buying window.
Rate-Sensitive themes: Financial weakness continues on the surface and REITS are vulnerable since from a long-term perspective, stocks appear extended.
Drivers of similar themes are caused by various headlines. Continue adding to shorts in select names: FED, BKUNA and ICE. Despite, oversold levels, I am looking for one more downside opportunity.
Crude: Friday’s close on Oil showed the strength of overhead around the $60 level. There is a downside pressure from a cycle perspective and further stabilization ahead. This reflects in the behavior of energy stocks, which should struggle to provide market leadership. Beyond OPEC’s news, chart suggests a trading range behavior with $55 next support.
Further signs of strength in technology. Stocks in CSCO’s group are attractive and worth a look for bargains. CSCO acquiring Webex sign of growth and works well for other competitors in related areas. Again focus in this sector is on stock picking, identifying timely entry points. Waiting for one more downside move in the broad market to accumulate.
Additional Wisom:
How are we able to make money by following trends year in and year out? I think it’s because markets react to news, but ultimately major change takes place over time. Trends develop because there’s an accumulating consensus on future prices...So price adjustments take time as they fluctuate and a new consensus is formed in the face of changing market conditions and new facts. For some changes this consensus is easy to reach, but there are other events that take time to formulate a market view. It’s those events that take time that form the basis of our profits.
John W. Henry
Patience on existing themes:
Rate sensitive themes remain at further downside risk particularly in the market correction. In addition, market psychology is picking up in regards to currency/liquidity. These growing fears persist after solid global stock performance in the past four years. Stock market declines is long anticipated and I am looking for further downside in the near-term while seeking discounted buy ideas. At this junction of the cycle, markets should see emergence of new themes.
Clearly, the sub-prime news is becoming accepted among media and general business observers.. (NEW- New Century). That said there are few short ideas on the table as discussed in previous weeks. And the bet is lower rather than a turnaround bargain attempt. Trimming exposure in those areas can protect portfolio performance.
Especially, not news for some who jumped on shorts early a year + ago.
Actionable Ideas:
Seeking shorts in housing, rate-sensitive, and REITS.
BKUNA – Bank United: Part of the real-estate short, with defined trading range. $26 resistance (exit level). Add closer to those levels. In addition, trim on strength on FED and ICE – (part of trading shorts).
In addressing, weakness in rate-sensitive area – In the next few days there is an opportunist task of finding additional shorts in REITS.
Liquidity is the engine.
Rising Yen/Carry trade: Issue has layers of matters and the general takeaway focuses on adjusting to days of rising yen. Therefore, transition periods cause concern for some and difficulty in adjustment for others. Regardless, the perception of “fear” can have a negative outlook and behavior on global markets. This is a major trigger of liquidity in the marketplace and a gauge which can generate additional noise. As for trend and macro impact – continue to sort out myth vs impact in the next few weeks.
Finally, looking ahead beyond pessimism and weakness in rate-sensitive themes. I comeback to my technology/media/communication groups. It is worth tracking the following powershare etf. Dynamic Networking Portfolio. I am not a big fan of solely owning etf’s for those willing to accept the challenge of stock picking. This group is an area of interest and the etf can offer positive returns by year end. In maximizing returns, will continue to seek opportunities among the names below.
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Last week the following points were addressed.
Semi’s and previously underperforming Technology – Nearing some bottom
Gold: holding above recent trading range
Financial stocks at further risk. Specifically Brokers.
Market waiting for bad news or looking for excuse to sell.
Few of these points materialized especially the broad market theme of looking for excuses to sell. As far as Semi’s are concerned I would begin to distinguish quality names and accumulate “value” names on the way down. Regarding Gold – well not a favorite place and would stay neutral. At the same, time extended momentum names face further downside risk.
Financials continues to see further downside. Although, Let me add that it is hard to find names to short for a sustainable period. Once again this week will highlight two shorts FED and ICE. Please note: ICE details posted this mid-week.
Looking Ahead
Use panic to your advantage – This correction or downside move is going to create buying opportunity. The “Gloom and Doom” story will be in fashion but life goes on.
Panic time buying – I favor tech, non-biotech healthcare and Consumer related themes
Europe and select
Charts illustrate the power of facts that are stated in the market.
Click on chart
Appealing offer on the table despite missing out on today's negative action.
There is a growing risk of inflation and many writers, pros and investors are taking note. Recent CPI numbers are showing those signs. Conversely, the bulls in gold are gaining momentum, and the stocks look attractive. HUI broke out of a multi-month trading range.
The risk of inflation might deal with perceptions just as much as reality. In essence, given the strong market run up since July lows -the market participants are looking for excuses to sell. Clearly rate related theme is key topic to watch as downside catalyst. .
Fed was supposed to cut earlier this year. I continue to take a stance on a higher 10 year yield, higher dollar and gold. A story since the start of the year.
Actionable -
The rate worry glooms louder for the financial stocks. Again, few more casualties in lenders wait. Many of the discussed meltdown is worth a look. Again FED and AHM - are shorts following bounces from recent heavy selling. There might be slight buyers but heavy downside pressure from many angles.
Brokers can offer trading shorts as the rate and overbought condition increase odds for decline.
Example: XBD - broker/dealer index: The peak on Jan 19 at 259 serves as a key resistance level. Therefore, would trim in this space and look for short opportunity.
Tech/ Semi's --
If it all sounds negative - tech sector continues to be an area of interest. For many weeks, I have highlighted the communication/networking groups offering solid pricing for a rewarding upside move. Examples include - ntgr,.sons,nrtl, jdsu, and tlab.
Check out chart of the Goldman Sachs Networking Index Fund (IGN) : For detail stocks that make up the index check out this link:
http://www.ishares.com/fund_info/holdings/holdings.jhtml?period=d&symbol=IGN
Perhaps an optimistic view on many names with attractive risk/reward in the tech sector. Clearly, having a positive tech view does not exclude the semis. A sluggish group in tech just as much as the market. The group traded sideways since July and now breaking out. Stock selection is key as many scramble foe exposure.
Got in early with AMD in Q4- but now AMD is way below 20 (an exit level) and below 15 while attempting to stabilize.
Semi’s are attractive here. Check out chart below of semi etf.
Macro Outlook:
In my opinion, markets appear fully satisfied by positive economic numbers and upbeat on the Federal Reserves message. Recently, it is not surprising to hear increase in GDP growth, solid labor market and finally positive trending markets. Most data suggests that market optimism is already “baked in” the market pricings. These behaviors are demonstrated by the strong recovery in
Skepticisms does not hurt:
If one feels that markets are too content then it is appropriate to ask: What is the catalyst for a negative sentiment? Plenty and that’s the data to seek while being long. Here is
Here is one view on challenging the positive GDP data:
http://bigpicture.typepad.com/comments/2007/02/revisiting_gdp.html
Other simple takeaways:
Earnings reports resulted in a usual stock specific volatility but net positive as a whole. (as headline highlight Dow making all time highs). Macro factors are not heavily addressed as crude attempts to stabilize, dollar and 10 year yield are pausing.
Dangerous Terms:
At the same time, the following phrases are all too common:
Personally, I don’t think discussing worries increases ones intelligence or enhances market trading skills. Unfortunately, it is only human nature and we all have our moments. It is important to overcome less-refined reactions but rather accept it as a persisting challenge.
Point to consider:
Regardless, the stock market is a different story in terms of timing and positioning. Those exterior points are important in the media and politics but not necessarily in seeking significant market return. So I will continue by pointing out that impact stock and sector behavior. Eliminate the general noise and proceed with actionable ideas.
ACTIONABLE THEMES:
The bears keep on fighting especially in regards to a cooling housing market. It is my belief that timing housing downfall is not that simple. And reaching a conclusion of shorting all aspects of housing is not a wise idea either. For example, Sub-prime lending collapsed and I am waiting for further declines. Homebuilders recovered after a strong correction but a shaky risk/reward. Finally, REITS are lofty and highly loved but not attractive long and soon due for downside correction.
I prefer to address the stock specific issue first than managing positions and timing. (FED and AHM) – Two shorts offered in previous posts and maintain a negative bias at current levels.
Continue to favor technology names : such as TLAB, SONS and NT.
Previous mentioned idea NT – showing signs of strength. Continue to add on this name on any pullbacks.
Crude faces resistance at 60; similarly OSX (oil services) struggling to surpass the 200 level. Overall, looking to short on any strength. Taking a negative view for the first half. Premise based on the oversupply in the marketplace and market has not fully accepted those facts. Finally, many chasing the oversold bounce but I expect one more washout.
5 Money takers Ideas.
SWY:(Market Cap: 15.94 b) A consumer staples play specifically in the food and drug retailer industry. Like the unique exposure into organic food. Street Analysts are not overly bullish in their ratings (5 buys 5 holds and 2 sells).
Despite a strong run in 2006, stock remains attractive. Use pullbacks and trading pauses as buying opportunity. Stock underperformed the broad markets from 2000-2005. Last year SWY picked up momentum as part of a recovery story. Major resistance at $50 - which serves as an upside target. Downside risk closer to $30-32 ranges.
CRA: ( Market Cap 1.24 b) Small Cap biotech play. Recovery continues around $16 range. An attractive upside given the stocks is far removed from all-time highs of $276 in 2000. Price strength reflects Improving fundamentals. Setting up for a longer-term recovery. In the past 6 months analysts turned positive with upgrades. Long-term data suggest an attractive reward from deeply oversold levels. Although, recent rally around $16 appears stretched, given the attractiveness of healthcare themes looking to add on pullbacks. CRA stands out as an investment with a 6-9 month target.
GMST: (Market Cap 1.76 b) A media theme. Bottoming from a long-term perspective. Far removed from key support of $20 whiles stock is stabilizing. Recently, stock demonstrated strength by breaking out above $3.40 range this fall. Recently volume building positively on the upside.
Looking for further recovery and growth in the media sector. Also, recent takeout rumors floating including NWS (Newscorp).Regardless, the technical profile showcases a bottoming process and the cycle points to a favorable months ahead. Evident turnaround story taking place,
growing confidence building among investors and a strong argument for being undervalued in its sum-of-the-parts.
TLAB: (Market Cap 4.81 b) Communication Equipment Theme. The bullish argument rests on growth on carrier bandwidth. Currently holding above level $10. Analyst are mixed on the name but mainly neutral/bearish. Looking for improvement in sentiment but importantly downside tested and displayed resilience in the past 3 monthes. There is a takeover rumor as well. Unnecessary pessimism among investors especially in recent quarters. Setting up for a higher reward.
Market View:
Plenty of economic data and earnings swamped the street this past week. Overall results were positive. The economy state can be generalized as “good” and that view is shared with many. Mainly, the highlight of optimism showcased a visit from the President at the
Impact on equity markets: US 10 year yield attempting to hold near-term support of 4.80%. Noticeably, supply should remain the same on the next auction. Therefore, downside pressure awaits but I will continue to hold the view of a recovering 10 year yield for the first quarter. Declines in the near-term are possible but overall trend should depend on fed action/tone during the next meeting. Once again, rates in my view are the key macro factor serving as a catalyst for pending a corrections. Regardless, a quick price monitor does not hurt especially in financials and consumer related space.
Crude: Back to the 60 level, facing heavy resistance. Looking for further strength as opportunity to short especially in the first half of 2007. That is another macro theme of interest that points to short-term trades as opportunity to sell.
Overall, positive sentiment and a higher trending market beg the question: Are markets too expensive? First month completed with an uptrend continuation. Turbulance remains steady, violotolty and complacey appreas the same and no major change in sentiment.
A strong recovery by homebuilders and few retailers has me asking on the duration and sustainability. On the mortgage lending side we are seeing decay in NEW (previously mentioned and stock of concern) and NFI have offered a great shorting opportunity.
The New York Times reported last week that “about 2.2 million borrowers that took out sub-prime loans from 1998 to 2006 are likely to lose their homes”. That translates into about 10 million people! But that, of course, is just the beginning of the bloodbath. The real fun begins when the whole, ugly ball-o-corruption starts to unwind and we get an insider's-view of a system that is rotten to the marrow. The housing industry is saturated with fraud; the banks, the mortgage lenders, the Fed and the homeowners themselves have all played a major role in this sordid confidence game.
Investment thesis remains the same and on a weekly basis. Healthcare and Technology along with select consumer remains an area of high interest. While energy (crude) related and financials are least favored. Mortgage related themes continue to be in a downward cycle and seeking opportunity to short. The premise of the thesis relies heavily on sector rotation and a cycle shift that I feel will be reflected in the market place.
Healthcare:
Exploring stock specific names in all groups mainly pharma, med tech and biotech.
CRA: Trading between a range of $10-16 and setting up for a longer-term recovery. Several analyst upgrades recently contributing to further upside move. Long-term data suggest an attractive reward from deeply oversold levels. Stock has lose. Although, recent run up closer to $16 appears extended, I see a structural shift that should benefit the sector. Given the improving fundamentals and attractiveness of healthcare themes, CRA stands out as an attractive investment.
Other names include :BMY, LLY and KG.
These are just few names for a sector recovery bet. The S&P healthcare index has underperformed the market since mid 2003. Despite gains on an absolute basis, the overall sector has been a laggard. Most of the underperformance can be attributed to weak pharmaceuticals especially in Large Cap. There is plenty of litigation risk for the sector but the cycle shift and relative weakness should continue to turn positive.
Weekly Thoughts: {MACRO VIEW}
Intriguing times approaching in the marketplace and worth taking closer notes. This week: Econ data approaches as earnings season nearing its end. I am looking at the US10 year yield closely along with investor’s complacency. Plenty of questions on the table:
Is the sentiment too bullish or bearish for equities?
Is there too much liquidity in the market place?
Finally, what is the contrarian, consensus and least liked view in the marketplace in regards to currency, commodity and stocks?
These questions are being asked on the macro level following the start of the year. But the answer lingers post expected and of course least expected events.
SPX: Momentum appears extended from a technical standpoint. Given the strong run up since the summer of 2006 where the market returned as high as 17%. During that rally, 10 year declined from 5.25% highs, down to 4.40% by December 1st. The month of December began to show signs of 10 year yield recovery and market stabilization which can be viewed as consolidation. At the same 6 month period, Crude plunged significantly into the New Year. Crude is attempting to stable around $50 while yields are trying to recover. Rise in both oil and rates can contribute to a slowdown in the equity markets. Perhaps, a pause or slight correction is on the board. Also, VIX – volatility index also dropped further. It continues to signal market complacency.
Overall Point: Not a timely entry point for most groups in the
Investment Approach:
Investing offers plenty of literature, wisdom and excitement. It actually drives me to learn more and investigate on investments that are appealing. Most importantly talk is cheap forcing one to back up his/her best idea through capital distribution. I find myself running around, investigating for stock specific calls. Although stock picking contributes towards portfolio growth, It’s the construction of the custom index that’s truly measures wealth.. Focusing on the growth of the overall portfolio is what counts. In answering these questions, I revisit previous ideas and look into timely entry points in select area.
Sector and Stock Ideas:
At this stage, continuing to look into technology, media and telecommunication as a growth area in the broader market. NT: Nortel an interesting long-term chart. Looking for turn in fundamentals and part of the communication, Telco and media theme.
Also revisiting DuPont an idea mentioned before on this blog. Worth revisiting especially as a theme for the next 2-4 years. Monthly chart suggests a cycle shift into chemical companies pending and a good investment.
http://moneytakers.blogspot.com/2006/10/dd-attractive-basing-pattern.html
A short week, but plenty of action.
Interesting first month of 2007, speeding by as the question of sector rotation lingers among many investors.
Primary focus:
At least, the question for Tech, Media and Communication continues to be an area of high interest. In attempt to narrow the focus list, I built a list of names in groups of interest in that area. This week I am focusing on Communication Equipment.
Although an annual game plan, some names already moving others require patience. In recent days, I have continued to monitor the groups behavior.
Communication Equipment:
Have been favoring QCOM, and currently looking for earnings result as a key gauge or stocks behavior. Street too bullish at this point so watch earnings closely and next 3 month of consolidation. Long-term chart and technical’s suggest upside ahead. Fundamentals and investor sentiment is capping growth in the stock.
JDSU – great earning result and run up- looking to add on pullbacks. Positive trend developing, attractive risk/reward and justifiable upside move.
TLAB- discussed before and posted chart as an attractive bet. Revisiting this thought as well.
Here is a list of names in the group that are worth watching. These names are liquid and will track performance, news flow and momentum for the next two quarters.
| ANDW |
| BRCD |
| GLW |
| JDSU |
| JNPR |
| MOT |
| NT |
| QCOM |
| TLAB |
| BRCD |
| ANDW |
| ARRS |
| IDCC |
