Sunday, December 18, 2011

Looking for a place to settle out

Welcome back, it’s been a while since I’ve written here so let’s look at what has happened since then.

The S&P 500 has been on the trek down and has broken a key resistance 1,220 level on Wednesday, after Ben Bernanke said that there will be no immediate monetary easing, though interest rates will continue to stay low through mid 2013, which we have already known. With no fed intervention, we will see the US dollar strengthen, and the market weaken a bit, which is what has happened since Bernanke’s speech Tuesday afternoon. This combined with continued European uncertainty, and possible Euro printing, we could be in for the start of a rough 2012. Though a strong US dollar is not a bad thing; to make a country grow, we need GDP growth. Macroeconomics 101 says that GDP = C+I+G+NX. 70% of that equation is the C which is consumer spending. With a stronger US dollar, consumers’ money goes further. Oil prices also come down, like we have seen; off of the $100 dollar mark and making its way down to $90. With a stronger dollar and lower oil prices, consumers now have more $$ to spend.

I estimate that the broader market (S&P 500) will close out the year roughly unchanged (my range is 1,245-1,270 which is 1% above and below flat on year 1,257). Between now and then, I don’t anticipate on anything being solved, but be aware of false rumors, which seem to run this market day by day.

Above the S&P 500 and my ranges

As I also discussed, the US dollar index, which is a measure of the strength of the US dollar compared to a basket of six of the most used currencies in the world, is another important indicator to watch for economic strength/weakness. More than half of the weight to compose the index is from the Euro (58%) and the rest is from the Japanese Yen (JPY) 12.6%, Pound Sterling (GBP), 11.9%, Canadian dollar (CAD), 9.1% Swedish krona (SEK), 4.2% weight Swiss franc (CHF) 3.6%. Recently, we have seen a big push up above the 80 level, one not seen in quite some time. This index tends to inversely relate to the S&P 500.

As you can see there has been a quite nice U shaped recovery in our currency, up 5 pennies since the beginning of last month to relatively flat for the year. It is in a bullish pattern now, with long-term resistance looking to be 75 ish, I see the US dollar holding strong through the beginning of 2012, given no easing tactics.

This week I want to focus in on my long positions. Currently, I have $1,500 for my long fund ($700 in $FTR and $800 in $IVR.) I bought $FTR at $7.00 a little over 2 years ago and $IVR at 19.70 early this summer. On Monday, I came across an article with a nice picture showing a technical breakdown in both charts. This analyst had a very negative sentiment on both names, so it looked like I missed the boat on pulling the trigger here. This past week, Frontier broke below $5 for the first time going back to the 1980’s. The bad news of lower revenues and having to continue to payout a large dividend has hurt their bottom line, and weary investors can see that. My take is that the bad news has been priced in, seeing the stock has dropped roughly 50% this year alone. Invesco Mortgage Retail has also suffered after the August collapse, though not as bad, and slowly but surely crawling back to respectable levels. They will be paying out a smaller dividend than their last, so this could possibly be good for some share growth.

Above the technical breakdown in both names this year, remaining optimistic for ’12.

Above Frontier Communications Corporation, RSI, VWAP and BBands

Made one trade on Dec 8th, bot 300 $THQI on a big move under a dollar, on headlines looks like the company will be reporting not so good sales on their next report, guided down. Saw moves like this from ERTS couple yrs ago, they have come back and I think that a move below a dollar is overdone. I want to protect myself though and limit my losses to .70 and upside to a minimal gain @ .98.

Above $THQI

Not so much in the way of earnings reports this week, with it being very slow and before the holidays, don’t expect the market to move much, but look out for ConAgra Foods. I actually have a sell on this name based on valuations. Their profit margin has decreased since the beginning, of the year, Cash flow/share is down, Debt to EBITDA is up, and EBITDA/share is roughly flat. These are a few warning lights for the company, even though it is trading at a respectable 13 P/E ratio.

Above these 4 charts show what I’m saying, the stock is up about 15% for the year, so it has beaten the broad market, but in comparison to other names in the related space, like General Mills, who also report this week, are at all-time highs. CAG’s problem appears to be larger expenses with decreased revenue. Notice in the picture below the drop off in income q/q from their last report, that is huge.

Expect the broad market to not do much this week, volume will be very thin. (or could we get another rumor?)

Have a good week everyone, catch me on twitter @peter_eller10 for updates!

Sunday, December 4, 2011

Has Europe been saved?

What a week it was indeed, seems like everything is back to normal, right? We saw all of the broader market in the green: SP500 +7.4%, Nasdaq +7.6%, Russell +10.4% Oil +3.3%, Gold +3.7%, Copper +9.1%. The Volatility index saw a huge drop -20.2%. Year to date we are still in the red, but not by much: SP500 -1.1%, Nasdaq -1.0%, Russell -6.2%.

To me, for the fed to intervene like this and basically stimulate the world, what does this say about the stability of the global monetary system? Clearly something was going wrong and something was bound to SNAP any second. From the close the previous Friday to this Friday at the open in the AM, we saw a 100pt S&P rally, we saw this before in the beginning of October, which that rally lasted 3 weeks. Then again, we did sell off pretty hard last week, so on a fundamental/technical basis, we were due for a correction up.

As we saw Friday, unemployment is still weak, anyone who reads the headline will get all high and jittery, but the reason we dropped .4% off the unemployment rate was due to discouraged workers leaving trying to find a job, 300,000+ of them infact. Do you think that is a good thing? It seemed that this news was almost ignored due to the fed intervention earlier on, and by Friday, the buying programs were out of juice.

Above the S&P 3 week chart, I have 1,260 as short-term resistance now. We could not break above that barrier on Fri morning before we slowly chugged down 20 handles to close the day flat. We need a 3-4 day hold above this level to be long, then 1,289 would be the next level, seen at the end of October. As Evan McDaniel said (@sellputs) “Interventions and headlines regarding the Fed or hand of God like tactics can nullify tech analysis on smaller time frames” With that said, watch out and position correctly.

This past week I lost about a $100 on a pretty stupid trade on my part. I really don’t know what I was thinking when I bought $FTWR after it dropped from $1.00 to .30 about 2 weeks ago. I have lost 50% of my position this week, did not read into it that much to see just how bad off this thing is. I will sell my position on the open Monday and learn from my mistake.

Above $FTWR huge downturn this week.

This week going to highlight a few names to trade off from earnings reports. First is Dollar General. Looking at their internals, they continue to do very well, with a q/q increase in revenue and profit by 10%. Notice also how they have been compared to the broader market in terms of outperformance. Since the downturn in August, they are up roughly 30%, this could be due to the number of people still unemployed who need cheap items. Dollar stores will continue to do well in a weak economy. At the close on Friday, they are a little over a dollar off of their all-time highs that were seen last week. I’m sure there has been some buying into the report, nevertheless I have a buy on it, and would expect a selloff from the report, that would be when you get in. The last report has the stock sell off about 8%, since then it has rallied 15%. They do not pay a dividend, but would not be surprised if they instated one soon.

Above Dollar General, notice the tight range it has held the last 2 months compared to large gyrations in broader market. The report will be coming out Monday.

Next name on my list is National Beverage Corporation $FIZZ. This is also another name that will be reporting Monday and quite an interesting one infact. They are the makers of Shasta and Faygo products. I remember years ago my grandfather a huge fan of Faygo, he probably drank a 2 liter a day, was eager to find out the maker of the product and assumed they were doing well, and they are. Between the beginning of this yr and June, they have managed to almost double their income from 7.4M to 13.4M. with a p/e of 18 it is a bit on the expensive sign, but an incentive long term is their special dividend with started in 2009. It has increased from $1.35 to $2.30 in 2010, I expect them to pay out more from the great year they have had, up over 20% and trading near all-time highs.

Above $FIZZ I anticipate a slight selloff in the name, but I would buy, company looks very strong, and as stated above, large yearly dividend helps.

Last one is one I first reported to here on their prior report, AutoZone. This name is another good one for long-term growth. A good percentage of the time, it tends to selloff a good amount, usually 5-10%, then run it right back up to all time highs. This year, they have more than doubled their income from 148M to 301M, the do-it-yourself auto repair still looks to be the space to be in, as people do not have enough $$ or do not want to spend to buy a new or used car and will squeeze as much out of the one that they have using these products. The only thing concerning is the large price of the shares. To make the company more attractive to invest in, In my opinion they need to do a 10x split do lower price to 30ish bucks.

Above AZO showing the continued move up

My thoughts this week are that we will see some profit taking from the huge run up we saw last week, we need to hold a key 1,200 this whole week to continue the bullish momentum, break below and in for more trouble. After this week, we usually see the low volume melt-up prior to Christmas and after, so beware of that any of you who short (probably already know this).

That is all for this week, will for sure not be posting next week, final exams are here ugh, but home in 11 Days could not be more excited. I’ll keep you all updated as much as I can via twitter (@peter_eller10) on any moves I make this week. Good luck to everyone.