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!

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