Big week for macro data

Hope you all had a great long weekend, but its time to get back to work, and what a week this is going to be; 3 jam packed days of macro data that could throw markets anywhere.

Lets look at what has happened so far in the last couple weeks:

We saw the starting of a downward trend at 1,360; since then we have lost nearly 60 handles, and the pattern looks to continue for some time. We had a big explosion to the upside to start off 2012 and in my opinion that plethora of buying will probably continue after a slight pause, I’m just not sure when or how much we can regain.

Looking at Earnings reports from last week, Home Depot reported a surprisingly good quarter; margins looked pretty solid, with operating income at its highest since Q2 last year. Same with Deere, which doubled its net income from last quarter, but the rally was stalled by the overall market. Going forward after this report, DE could be well into the 90’s the fundamentals are getting cheap now and surprised me.

On the other hand, AAP reported what I thought would happen. This quarter was great, but their comments on the second quarter were very bleak. Shares plunged over $20, but have since recovered about $7 of that back. I would look to buying AZO instead.

As I previously stated, this is going to be a huge week, here is what is going on, all EST:

      Tuesday:

·        9:00AM Case Shiller 20-City Index   Prev: -3.5% Exp: -2.8%

·        10:30AM Dallas Fed Manufacturing Prev: -3.4 Consensus: 3.0

      Wednesday:

·        7:00AM MBA Mortgage Index  Prev: 3.8%

·        10:00AM Pending Home Sales   Prev: 4.1% Exp: -1.0%

      Thursday:

·        7:30AM Challenger Job Cuts Exp: 11.2%

·        8:15AM ADP Unemployment Report  Prev: 119K Exp: 145K Forecast: 165K

·        8:30AM Jobless Claims  Exp: 370K  Forecast: 365K

·        8:30AM Continuing Claims Exp: 3.265M  Forecast 3.25M

·        8:30AM GDP 2^nd estimate Q1  Prev: 2.2% Exp: 1.9% Forecast: 1.9%

·        8:30AM GDP Deflator 2^nd estimate Q1 Prev: 1.5% Exp: 1.5% Forecast: 1.5%

·        9:45AM Chicago PMI Prev: 56.2 Exp: 57.5 Forecast: 55.0

·        11:00AM Crude Oil inventories Prev: .883M barrels

      Friday

·         8:30AM Non-Farm Payrolls Prev: 115K Exp:155K Forecast: 175K

·         8:30AM Non-Farm Private Payrolls Prev: 130K Exp:172K Forecast: 185K

·         8:30AM Unemployment Rate Prev: 8.1% Exp: 8.1% Forecast 8.0%

·         8:30AM Hourly Earnings Prev: 0.0% Exp: 0.2% Forecast 0.1%

·        8:30AM Average Workweek Prev: 34.5 Exp: 34.5 Forecast 34.5

·        8:30AM Personal Income Prev: 0.4% Exp: 0.3% Forecast: 0.2%

·        8:30AM Personal Spending Prev: 0.3% Exp: 0.3% Forecast: 0.2%

·        8:30AM PCE Prices-Core Prev: 0.2% Exp: 0.2% Forecast: 0.2%

·        10:00AM ISM Index Prev: 54.8 Exp: 54.0 Forecast: 53.0

·        10:00AM Construction Spending Prev: 0.1% Exp: 0.5% Forecast 0.0%

·        2:00PM Auto Sales Exp: 5.0M

·        2:00PM Truck Sales Exp: 6.0

Here is how the week will shape up with earnings reports, not much going on:

Tuedsay: DryShips (Which I still own and will go into detail on)

Thrsday: Canadian Imperial Bank

               Ciena

               Joy Global

               Vera Bradley

   

DryShips is one of the names I have been long now for about 6 months basically on a bargin hunt at 2.00. After announcing the backlog of orders from their substantial stake in OceanRig the stock has done rather nicely, but pulled back. I still believe that the growth is there, they are back to making money, while increasing their cash and accounts receivables to respectable levels.

Last quarter, they reported a small loss, after a very nice net income of 25M. I am expecting another beat here, but could just break even or be a smaller than anticipated loss. I will continue to hold this as a long position for now. Trading at 3x sales, this is a bargin to me. I am a big believer in dry bulk shipping to be the 1^st thing to rebound when we do get a substantial recovery, and while I wait, as I have said above, they have a sizable stake in an oil driller.

Solely based on technical analysis, I will possibly put on a trade for Coldwater Creek $CWTR this week ahead of its earnings report. Looking at 200 shares if I can get them under .85 that would be my target. I know it is a very small position, but I have had luck with this name in the past; last August buying before the move up above a dollar in September, made about $40. Right now, I am eyeing the .84-1.12 level for a very short term trading range.

Above CWTR

Next name I want to look at on a fundamental/technical basis is Vera Bradley. They are a designer, producer, marketer, and retailer of functional accessories for women. Their products include handbags, accessories, and travel and leisure items. As of January 28, 2012, they have Vera Bradley products through its 48 full-price stores, its eight outlet stores in the United States, seven stores in Japan, the website verabradley.com They also sell their products to 3,300 specialty retail stores.

I used to be bearish on these high end retail names, especially VRA when they went public in to ’10 moving in to the mid 40’s price range for the stock. They were trading at a huge premium compared to their sales and earnings, and after a couple bleak quarters, their stock has dropped more than 50% from its peak. In reviewing their last 2 quarters, they were very good and we could be in for a surprise to the upside here. In one year they have doubled their net income, which is one of the main things I look at, another is revenue increase by 30%, always good to see more sales=growth.

They have also cut their long-term borrowings by more than 50% in one year, liabilities are down substantially, so it is always good to see a company that can pay off debt. Cash/receivables are also increasing, another good sign.

Technical analysis shows a breakout above top level of resistance, along with trends and MACD. I have 0 on MACD around 31.5 so we could potentially see a pop toward there in the near term.

I will also be looking at Frontline (FRO) for a potential trade next week or before their report, also Teekay Tankers under 4.00 looks attractive for a trade. I will also be watching, not for a trade but a probable move up in Joy Global. Doing a quick chart comparison to their largest competitor Caterpillar, they are down 30% compared to CAT down 10%. Joy is also trading below October 3^rd 2011 lows right at a key support level of 60.00. Follow @peter_eller10 on twitter for updates I should be on all week.

Previewing the upcoming week

Welcome back everyone, it’s been over a month since my last post, been busy finishing up the last month of school, semester was good overall but not quite exceeding my expectations, win some, lose some. Let’s get down to business. We have been seeing this pattern of equities selling off and the dollar rallying after Fed interventions for the last 3 years now, and it seems like we are currently in that rut. Within the last month Operation Twist/QE3 ended and we have been seeing a bit of pressure on equities. The Euro this week broke below 1.30 and traded down near a 1.28 handle. We still have to remember that nothing in Europe is fixed and the US is not surrounded by a bubble; whatever happens overseas DOES affect us here.

This is what I foresee happening the rest of this month/this summer:

•         With corporate earnings relatively in line to beating estimates recently, the Fed probably believes that we are back in somewhat of a recovery
•         No more rounds of QE
•         We will see equities weaken and the Dollar rally, Euro could go below 1.25
•         Europe will continue to be a problem with yields still very high, Greece could leave Euro Zone as early as sometime this summer, worst case scenario

What got me a bit concerned was about two months ago when McDonald’s came out with their comps and mentioned slowing global growth, especially China. MCD stock is off about 10 dollars since this, took a huge hit this week, and will be interesting to watch under 90.00 if we get there. MCD is down 8.4% YTD and is one of the worst performing Dow 30 stocks thus far.

 Above (via ZeroHedge) is what I was talking about. Notice equities get a bit uneasy after the Fed stops intervening.

We have a slew of Macro data out next week, some of which will be market moving.

·        Tuesday, May 15^th:

o   8:30AM Retail Sales Exp 0.2% Prev. 0.8%

o   8:30AM CPI Exp. 0.0% Prev. 0.3%

o   8:30AM Core CPI Exp. 0.2% Prev. 0.2%

o   8:30AM Empire Manufacturing Exp. 8.4 Prev. 6.6

o   10:00AM Business Inventories Exp. 0.3% Prev. 0.6%

o   10:00AM NAHB Housing Market Index Exp. 26 Prev. 25

·        Wednesday, May 16^th:

o   7:00AM MBA Mortgage Index

o   8:30AM Housing Starts Exp. 680K Prev. 654K

o   8:30AM Building Permits Exp. 730K Prev. 747K

o   9:15AM Industrial Production Exp. 0.5% Prev. 0.0%

o   9:15AM Capacity Utilization Exp. 79.0% Prev. 78.6%

o   10:30 Crude Inventories Prev. 3.652M

o   2:00PM FOMC Minutes ßBig event

·        Thursday May 17^th

o   8:30AM Initial Jobless Claims Exp. 365K Prev. 367K

o   8:30AM Continuing Claims Exp. 3.25M Prev. 3.229M

o   10:00AM Philadelphia Fed Exp. 8.8 Prev. 8.5

o   10:00AM Leading Indicators Exp. 0.2% Prev. 0.3%

We also have a few earnings reports out this week, biggest ones to watch for:

·        Monday

o   Silver Wheaton

·        Tuesday

o   Home Depot

o   JC Penny

o   Pan American Silver

o   Saks Fifth Avenue

o   Valspar

·        Wednesday

o   Abercrombie&Fitch

o   Chico’s FAS

o   Deere

o   Limited Brands

o   Target

·        Thursday

o   Advanced Auto Parts

o   AutoDesk

o   Bon-Ton

o   Dollar Tree

o   The Gap

o   Ross Stores

o   Sears

o   Teekay Tankers

o   Wal-Mart

Looking at Home Depot before they report, I’m seeing a big sell here. They have performed very well in the past year, especially compared to Lowes.

Above, HD is up more than double, 36% compared to Lowes, 15%. Since people are not buying new homes but fixing them up, I can see why both have done well, but I am still not convinced this rally can continue, especially nearing ’07 levels. What I am most concerned about is their margins. Looking on a q/q basis, we have been seeing declining margins as shown below:

 Going forward, I still think they can be a very profitable business, but am worried investors might sell this off on just a slight miss. They have cut their costs drastically, but revenue has been declining since mid last year.

Next, looking at Deere, I can also see the same thing happening here. If it is true global growth is slowing, this is a name that will be directly affected. Revenue and income took a huge hit in Q1 ’12 down from 8.44B to 6.63B and 669M to 532M respectively.

Technical analysis shows DE as a sell

I also spotted a Death Cross (50day crossing below 100day) in this chart, could have the potential to cross under the 50% retracement 52wk hi-lo which is 75.26.

Next, looking at Target and Wal-Mart. WMT has been in the news recently with some bribery scandals in Mexico, seemed to be a one and done event, stock is up $2 from its low since then, but still more than $3 off it’s 52wk high. I’m a bit cautious here, and want to look more into buying TGT instead. TGT have performed about the same and has a strong chance to get toward 58-60 on a solid report. I like both names, but the potential for WMT going up here is lower, in my opinion. WMT is flirting with all-time highs, wile TGT at 60.00 was last seen in ’10 and still more than $10 off all-time highs from there. Below is a YTD performance of both names.

Last, looking at one of the stronger names for the last few years, but spotting some slowing growth is Advanced Auto Parts (AAP).  We all know the whole story here, less people buying cars, more fixing them up. In my previous posts, I have been a big fan of AutoZone from around 300, has done very nicely since last fall, but I’m seeing some red flags for both. Once again the issue is shrinking margins.

As shown above, there are 2 quarters in a row of revenue decline with net income almost being cut in half, while stock continued to rally. Would not be surprised to see a slight guidance cut for ’12; the stock has had a great run in the last 3 years, time to take some off the table.

Also, putting a big sell rating on Sears before their report; 4 quarters of negative growth and the last one losing 2.4B, not good at all.

That’s all for this week, catch me on twitter @peter_eller10 for more updates.

Friendship, College, Jobs

If you enjoy college, have a lot of friends and do well, don’t bother reading this. I just finished my 2nd year of college and I can say that I have to sit here for a while and think about what I actually learned. It is sad that some people actually have to pay close to $35,000/year to go to an institution and think they are learning something they could just go on the internet and read about. Don’t get me wrong, I think this will change next year when I start to get into my major classes, but honestly who is going to use skills they “learned” in their core intro classes the first 2 years later in life? The stuff is so boring, adding to the fact that the professors jam their views down your throat for 150 minutes a week. That could possibly be why people fail them and just don’t care. Me being a perfectionist, or something close to it, struggles in these courses which leaves me frustrated beyond all belief. There is no point to reading the Bible if you are a Finance major. I would rather be doing things to help me become better at my future career, like writing up blogs/tweets on equity analysis or just some fun finance facts that I enjoy. Same goes for any other major out there, I’m sure I can vouch for the GW bio students who work endless hours. Also, in the 2 years I have been here, though it is a small place of about 2,000 students, I still cannot seem to find anyone who likes things I do. There are a few who are very smart Finance majors, have outstanding gpa’s, tons of friends, but spend their weekends getting drunk. I don’t have anything against them, but I just want to be that person to, you know sip on a glass of wine on the weekends discussing some finance; relaxing. As many might know, I don’t have a lot of close friends because I fully believe that we are all acting out of selfish interests, so we need someone there to “help us out” to get to our final goal, being known, popular. There are a majority of people who care about their friends, and that is good too, but I just have different views on it. Think about this for a second, you could have all of the “friends” in the world, but what if you had no money, no job? Well then you would be just like the rest of the American scum on welfare. We have a very small percentage of Americans who work hard to carry the weight for others who are too lazy. “There are no jobs” is no excuse. Educate yourself. Find something. Your job is to look for a job, it is not handed to you on a silver platter. Read news stories at the public library if you are homeless, see where employment is sparking up, sign up, you may get lucky, you may not. Keep going. We can keep pretending or we can plow through it. Hard work is rewarding and don’t let anyone tell you different.

Two years later: Is investor confidence back?

Is investor confidence back? Some may think yes, but from what I am seeing is that people are still continuing to sit on the sidelines. After May 6th 2010, we saw what happens when humans are not on the other side of the trade and the computers take over. How are we supposed to trust the system? I am no expert in this, but from what I see day to day, events like this are still occurring, at a much smaller level, but this could make it worse, singling out investors. The 10% rule on the NASDAQ and NYSE have helped alleviate the situation to a point, but when they open back up a few minutes later, same thing happens again. Not only does this happen with equity, but commodity names as well. Remember last year this week, silver, gold, oil, all took a huge hit? That for sure was not retail getting out. I stand to stay skeptical and think this could happen again at any moment. I myself as a long term investor and part-time day trader was directly affected by erroneous prints that day. SEC Chairman Mary Schapiro four months later spoke out about this event saying, “high frequency trading firms have a tremendous capacity to affect the stability and integrity of the equity markets. Currently, however, high frequency trading firms are subject to very little in the way of obligations either to protect that stability by promoting reasonable price continuity in tough times, or to refrain from exacerbating price volatility” Another topic of concern is flash trading where participants can see orders fractions of a second before the other side. This is clearly unfair, even if it is 30 milliseconds, this could be a few pennies or a few million dollars, and it usually is the latter. The main issue here is money and not morals, the participants who see the orders early are paying a fee. The exchanges who still use it today say that it is necessary “to provide liquidity”. Looking at where we are today and how unstable the macroeconomic outlook is already, liquidity is certainly not needed. These firms want more liquidity, or volume for that matter to churn for profits. They want to keep collecting those fees, while hurting the retail investor in turn by getting them erroneous prices on trades. What I think will happen in a couple of years is that there will be no more human interaction on the exchanges, and that scares me. Watching CNBC, it seems like the NYSE floor gets quieter and less populated every day, except on IPO days. These exchanges rely on HFT to give them revenue, which is still very much active today, in asset classes other than equities. What I think happened is that HFT got the investors scared, they left equities, stocks basically trade on holiday volume or less daily, now HFT has taken over commodities and whatever else is left. This past week oil was down almost 10%, some of the trades 1.00 at a time, not human. The exchanges will go out of business and trading will all be done on computers. We are already seeing this in Chicago with the only open-outcry pits left are Cattle. A good piece-by-piece documentary called Floored explains from veteran traders’ point of view how electronic trading is taking over and causing price manipulation with the removal of open outcry. Some people down there for 20+ years are now out of a job or have now gone to the screens. It is not the same. It’s scary to think this is all happening right now, with little regulation, and for some people this is their net income, their wealth, and their jobs being affected. We cannot keep continuing to sit on our hands like the US Government/foreign government and their debt problems, it has been two years, and something needs to get done now.

Take profits; don't be greedy.

Hello everyone, it’s been a couple weeks since the last update so let’s get started..

-In the last 3 weeks, we have bounced around in a 20pt range in the S&P 500, proving that 1,400 is still a key resistance level we cannot hold above right now.
-With 4 closes above and below 1,400 in 3 weeks, the broad market seems to be getting a bit stalled out here and is waiting for the next catalyst.
-This past week and a half, we have also seen some not as good economic data as the markets would have like to have seen. On top of that, just this past Friday, the Non-Farm payroll number missed expectations by over 80K, coming in at 120K.
-At the FOMC minutes Tuesday, Bernanke hinted at no more liquidity needing to be pumped into the system. The US Dollar rallied on this news as well as the selloff of commodities and equities.

Here is a look at the S&P 500:

Notice how it cannot sustain 1,400 like it sustained 1,300? My viewings are that it is about time for a correction, well overdue.

The S&P mini sold off about 17 handles after the jobs report; coming close to some key support levels I will be watching next week.

Here is a look at the US Dollar Index:

Notice slight run-up after FOMC speech.

In my opinion, to continue the bullish momentum, we need to start off 2nd quarter earnings with a bang, but there could be some issues. Reporting 1st on Tuesday is Alcoa, and I’m going to point out some red flags, even though this stock might look cheap. Looking at their income statement q/q for comparison, 4th Q ’11 was pretty much a disaster, with a net loss. The market demand for aluminum continues to look weak, and Alcoa is going to feel the brunt of this pain.

We saw an initial upward movement in the stock in the beginning of the year due to the broad market rallying. Since this report in January, it has flat lined and looks to go nowhere. Any rally in this name on better than expected reports (better than a loss) may shoot the stock toward 11, but could face resistance. I would stay away.

A look at more fundamentals of Alcoa; Notice also how Profit margins drastically declined, EBITDA/share declined and debt increased. Shares are also down 40%+ since the beginning of last year.

A technical look At Alcoa shows neutral to slight biased to the buy side, though this could be off a bit.

My recommendation would be to not buy this ahead of earnings, or if you want to short, I’d buy long puts, this stock could bounce but then fade and become range-bound under 10 dollars.

Friday we get earnings from Wells Fargo, in looking at Wells and how they have performed just the first three months of this year, you wouldn’t even know that anything happened last year and it was bound to test some new lows. We have seen a nice run and it’s time to take some off of the table. At levels we are at now, being just shy of 35 dollars, those are numbers last seen PRE 2008 crisis. I’m the most bearish on banks and especially large banks because they have a high correlation for the unemployment report and our economic recovery.

Seeing as how the gov’t may want to stop easing (which in my opinion is good for the long run) equity markets do not like that, the majority of Americans base the economy on the stock market and jobs, ultimately what will probably propel Obama to a 2nd term, though rally was due to easy $ for the last three years. I’m really not sure what to expect for the future, meaning next couple years. Will the fed continue to ease? Are we too addicted to narcotics and once they go away, we can’t handle the pain?

I would like to think that at eventually some point we have to suck it up and go through without more rounds of easy fed money and low interest rates. I am not sure when that will occur, but in the meantime that is another reason why I am bearish on banks. We need rates to increase so banks can make $ to lend more $.

Aside from that, Wells Fargo, as I said, had a great ’12 so far gaining 22% and up 40% from November ’11 lows.

Looking at their income statement, profit margin dropped off a bit from the last report, but revenue growth is growing slowly but steadily. If you are looking for robust growth, don’t bother looking into banks right now. Buy and hold in banks still a bit risky as well since they have to go through Basel reserve requirements before anything can be returned to shareholders. If you own any of the large banks right now, I’d take some money off the table, they had a nice run, so don’t get too greedy.

Some more in-depth fundamental analysis on Wells shows that, yes, gross margins and profit margins are up substantially, but cash flows and cash are down..banks are going to need all of the cash/capital they have if the government tightens their reserve requirements again.

Technical analysis on WFC shows sell on both MACD and RSI


The only positive news I saw coming out of the large banks was a few weeks ago when Jamie Dimon, CEO of JP Morgan declared a stock buyback, said his company was very strong. Being a strong supporter of Dimon, and how he carried his company through the crisis very well, whenever he has something to say, usually it means a lot. JP Morgan is the only large bank I might think about buying, but none of the others.

For the week ahead, I do expect to see some selling pressure. The jobs number being the main reason, as well as some other misses throughout last week which investors/traders had plenty of time to digest through this weekend. Remember, it never hurt taking a profit, and we are already up some 20% in the first 3 months of this year: Don’t be greedy. The entire market is not Apple, but at times it may seem like it.

Everyone have a good 1st week starting off the second quarter, and STAY CAUTIOUS. Follow me @peter_eller10 for any updates throughout the day.

1,400 accomplished, now where?

From the last few times I wrote, I have emphasized the 1400 level on the S&P 500 being key in keeping this upward momentum going. This past week we did just that, and my thoughts are as long as we can hold 1,388 then 1,421 is our next target to the upside. There has been some fairly positive news on the US front, some concerns over China’s growth, but it seems like the buy and hold value investor is back.

The screenshot above of the S&P 500 1 year chart shows that the 1,400 level has been broken through, but I am a bit cautious very short term here. On a technical standpoint, we broke hard through the upper Bollinger band, the many times this has happened before, we saw a slight correction, usually a couple of percentage points, but not to worry because it seems upward bias is still going.

Also, this past week and a half, we saw some inverse correlation between the Euro/Dollar and the S&P. this is the first time in years I have seen this, especially with the S&P breaking some key resistance levels, with the Euro holding flat to slightly negative along with oil stabilizing. The only thing I can think of is that if Americans really do believe that the US is recovering, they will flock more toward the dollar, it could be something to look at this year.

Upcoming this week, I want to look at DSW, Inc. reporting on Tuesday and FedEx Thursday. Both of these names will give us a better indication of the global growth and US consumer.

DSW Inc. offers a range of assortment of better-branded dress, casual and athletic footwear for men and women, as well as handbags and accessories. We have been seeing a slight move out of high end retail to mark down retail in the past few months (notice TJX Companies and how well they have done). I went into a DSW this past summer and many of the items in the store are brand name mark downs, there were also quite a few people buying as well (Buffalo, NY area).

Fundamentally, they look solid for long term growth. Notice the only reason their profit margin bounced in the previous quarter was because of a tax deduction, which was a one-time only occurrence. Revenue continues to grow at a sustained rate, so I don’t foresee any problems. Middle aged female shoppers will continue to buy these discounted items.

Some graphs on DSW also show how they are fundamentally sound. Profit and Gross margins continue to increase along with cash per share.

I probably will not be buying this, but I would rate it as a long-term buy on this fundamental analysis.
FedEx is next and they report their quarterly earnings this Thursday. This is going to be very important to look at; on a technical standpoint, we have not seen FDX above 100 since 2007, which is also where the broad market index (S&P 500) is right now. Below is a look at their income statement and how well they have done the past year. Net income more than doubled in one year and revenue was up more than 10%. As more people move to online shopping outlets, phone shopping and Amazon, this will definitely benefit companies like FedEx.

Below a screenshot of fundamental graphs showing huge growth in profit and gross margin this past year.

This comparison to the S&P 500 and UPS below shows how FedEx tends to underperform, at least in the past year

I will not be buying this, do not have the funds right now, but would recommend it, thinking it could make a run to one hundred dollars.

That’s all for this week, I’ll be on twitter as much as I can (@peter_eller10) covering these reports and others as they come up, have a good week everyone.

Crude reality of oil, how can it positively impact Apache

Welcome back everyone, it has been a good week break, but time to get back on the school grind once again. While I was home I was doing some analysis, basically noting that we are in a continued uptrend with equities and crude oil. Many economists, analysts and people I follow on Twitter have noticed some interesting patterns. The last time we had the forst two months of the year where we did not close down 1% or more on the day was 1995. That year, the S&P rallied 34%. Not saying this is what is GOING to happen, but something to look at.

Here is the S&P so far for ’12

Notice solid vertical bars denote performance in January and February respectively

Now look at 1995 YTD, similarities?

My take is as I have been saying for a bit now, we may have continued problems short term, it looks as if people investing today are looking far long-term and ignoring what is going on today. They either figure stocks are cheap now and are a value play into the future, or something will happen and they will miss the run-up. My target is sill 1,400 then I think we see some profit taking; correction 5-10%, after that we will probably stabilize, unless there is more unrest in Europe.

As this is happening, we are also seeing crude rally, though demand is decreasing and supply is increasing in the US, one would think gas prices here would decrease, no one can change that but the pattern continues to be up. I will explain later why I think oil companies today are cheap and can really go up from here on this increase in the price of oil.

This week I am looking at a couple of names: Bank of Nova Scotia (Tuesday) and Apache (not till May)

Bank of Nova Scotia (BNS), per Google Finance has 18.6 million customers in more than 50 countries around the world. The Bank has four business lines: Canadian Banking, International Banking, Scotia Capital and Global Wealth Management. In a macro perspective, the Canadian banks are monsters compared to US financial institutions due to one simple event: they did not participate in the buying of Mortgage-backed securities which caused the 2008 financial crisis in the US. These banks are highly regulated by the Canadian Government, so shareholders should not have to worry about much. With equities rebounding this year and the jobs picture beginning to look a bit better than the prior few years, I can expect interest rates to rise in Canada in the near future, in turn garnering in more profits for the banks. This is strictly long term though.

Fundamental analysis of BNS shows that indeed they are pretty solid. Having generated almost 800mm in cash last year along with income being stable around 1.2 Billion, this looks like a pretty safe place to park some money. Their profit margin has gone down from 32 to 27% this year, but they do look to continue to pay a nice 3.75% dividend while you wait.

Fundamental look at BNS:

Technical analysis BNS:

Both above show strong hold/slight buy recommendations.

Comparing BNS to 2 of its mail competitors in Canada, Toronto Dominion and Bank of Montreal, we can see significant underperformance the last year.

Personally, doubtful I will buy but from my perspective looks attractive to own, especially as we approach a strong $56 resistance level not tested since last summer. A break above there on this report will propel this stock forward north of 60, in my opinion.

Next company I want to look at, though the report is not for a couple of months, is Apache. Apache Corporation (Apache) is an “independent energy company, which explores for, develops and produces natural gas, crude oil and natural gas liquids” What got me interested in this company is 1. The recent spike in oil and 2. The bullish look at the charts I have been seeing this past week.

Looking at how closely correlated Apache is with Crude oil and my bullishness on Crude, this chart can really breakout above 120 and they have the fundamentals to do it.
Their profit margin is up from 23 to 27% from their last quarters report, mainly on crude oil prices, they still have a good amount of cash and A/R for financing and new investments, dividend hike could be in the works with share prices approaching highs, and cutting costs. It does seem like this company is on the path to make a good run this year.

Above some valuation trends for Apache, notice how profit margin and gross margin have both increased this past year, also EBITDA/share increased along with decreasing Debt to EBITDA. All positive signs so far.

Notice also P/E very low compared to S&P which is roughly 13, this industry is right now at a discount price/earnings wise relative to the broader market.

Technical analysis on RSI and MACD show a slight bearish case in the sense of this past weeks impact on Crude being down 5%

Here is a look at their competition and how they have underperformed their peers in the past year. Notice how tightly correlated they were with Anadarko Petroleum, even after they have been under fire previously with the oil spill in 2010.

I will also this week look to make a trade in DYN if I can get it at the right price.

Have a good week all! Get at me on twitter @peter_eller10 for more updates!