– The Stock Market Companion –
15MinuteStocks
Market Update
May 17, 2010
——- Stock Market Investing since the 1980’s ——-
Published all Market Days
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 Today’s SMC Watchlist

– Executive Summary – 

May we have a drum roll please …. the markets closed …. UP.  The euro – in this case represented by the CurrencyShares Euro Trust ETF (Ticker: FXE) – closed UP by a penny.   The markets may well bounce here.  They are technically, “oversold”.  In other words, the markets have come down pretty hard, pretty quickly.  Of course, markets can remain oversold for a long time.  Please remember Mr. Keynes conclusion about market rationality – “Markets can remain irrational (in this case, oversold) longer than you can remain solvent.”

If the euro can catch its breath and break the selling “panic” that has surrounded it for the last two weeks, the stock markets will catch their breath too.  With the FXE closing positive – even by a penny – it may be that the euro can catch its breath here.  Investors will then have an opportunity to evaluate if their selling over the last weeks has accounted for the current uncertainty in the euro. 

This doesn’t mean however that new money will be put to work in stocks.  It simply means that the markets will bounce and probably wait for further clarity on the euro.  There are other significant concerns for our markets too, than simply the euro.  See our list here from Friday’s SMC 15MinuteStocks Market Update and Watchlist.

(For our concise market assessments, market details, stock ideas, and SMC return on investments – see below)   

 

– Markets “At a Glance” –

(Please scroll down to the end of the report to see your favorite benchmarks – Dollar, Oil, Gold … closing prices and daily direction.)

Market	Price (Today’s Close)	Unit of Measure	Today’s Direction
SP-500	1,136.94	Index	UP = +1.26 points
DOW-30	10,625.83	Index	UP = +5.67 points
NASDAQ	2,354.23	Index	UP = +7.38 points
NASDAQ 100	1,915.45	Index	UP = +8.35 points

 

– Market Trends –

Trend	SP-500	DJ-30	NASDAQ	NASDAQ 100
Short Term	Down	Down	Down	Down
Intermediate	Down	Down	Down	Down
Long Term	DOWN	DOWN	DOWN	DOWN

*Summary of terms from Trader Vic II-Principles of Professional Speculation (pg. 140-141)
*_________* Represents a change in trend rating.

– Today’s Highlights –

While this is a bit of an over-simplification, the world’s stock markets have been held hostage recently by the developments in Europe and the perceived risks associated with European currency – the euro.  Greece, Ireland, Portugal, and Spain (and to a lesser extent Italy…) have large account deficits that need to be funded.  Funding has become prohibitively expensive for these countries as their costs of borrowing through the issuance of bonds has increased. 

For example, Greece went to investors to sell a 7 year, 5 billion euro bond at the end of March 2010.  In order to attract buyers, Greece had to offer a yield of 6%.  That is twice as much as what Germany must offer to sell its bonds.  These borrowing costs and the uncertainty of finding interested investors has caused the financial community of large currency investors (sovereign nations and funds) to begin strongly discounting the value of the euro against the U.S. dollar. 

The financial community’s reasoning is straight forward.  If one of these nations default on their debt, then the resulting strain on the euro would be very significant.  In fact, the euro has never been tested to this degree.  The uncertainty gets very large as these types of questions move from the realm of theory and become real ones, which demand hard answers and ACTION –

– Will European citizens from wealthier European nations (Germany…) agree to lend Greece and other nations money, when the financial community deems it too risky?

– Are European politicians strong enough to convince their electorates that the survival of the Euro is really in their best interest?

– Will Greece and the other heavily indebted nations accept austerity measures that they have previously rejected?  If they don’t accept such measures from their own politicians and institutions, how will they accept such measures imposed on them from external institutions such as the European Central Bank or the IMF?

– If $140 billion is needed for Greece alone, how much more will be needed for the others?  Where will the money come from?

– Is the euro really a necessity for these nations?  Most importantly, do their citizen’s think so?  Or has the euro been more or less imposed on them by visionary politicians who are no longer present?

– Do European bureaucrats really have the strength to identify the key actions necessary to be taken, and make these hard decisions?  (Friends, there is a reason why the war in the Balkans (Serbia / Kosovo…) in the 1990’s was finally resolved by a “Dayton” agreement – hammered out in Dayton, Ohio under immense pressure from the U.S.) 

As real and perceived risk increases, investors move their money QUICKLY from riskier, liquid, growth environments (stocks) to less liquid, lower risk (lower yielding) investments (U.S. Treasuries or gold).  This is why the yield on U.S. Treasuries has been dropping hard.  U.S. Treasuries have been going up in price as investors seek refuge there.   There is a silver lining in all of this.   As U.S. Treasury yields drop, so too do the 30 year fixed mortgage rates in America – which aids the selling prices of homes in America.  Home values are by far the most important asset for many Americans.

– Stock Investing Specifics and Strategies –

At the SMC – pending any significant overnight event that could further derail the markets – we are expecting a bounce in the markets here.

Stocks that may perform well for a few days include –

AK Steel Holdings Inc. (Ticker: AKS).  AKS had excellent earnings but have been pounded down approximately -41% on concerns surrounding the trade weighted cost of steel in an international environment where the U.S. dollar is on a tear.  If you are a foreign company, if all things are equal, why buy steel in America and pay in U.S. dollars when you can buy Japanese steel cheaper?  AKS is also lower in share price because there are increasing concerns of a global slowdown in demand as China ratchets up costs of borrowing to slow down their inflation.  Australia too has been increasing its interest rate since last summer. 

For those of you interested in something like AKS, we suggest placing a stop just below today’s low of $14.26.  At the SMC, we have not yet put money to work with AKS.  We may tomorrow.

Semi-conductor manufacturers have posted excellent earnings in the last quarter.  Intel Corporation (INTC) may be worth a shot here, again with a stop at today’s low ($21.41).

These are not your typical, high probability, “fairway shot” investments.  These investments (INTC or AKS) would be for nimble investors looking to take advantage of an oversold condition in the market. (Because we will never know the suitability of such investments for you or your risk tolerance, at the SMC we never give investment advice or suggest that our investments are suitable for you.  Please see our disclaimer below.)

British Petroleum (Ticker: BP) has been absolutely wrecked due to their gigantic liability in the Gulf of Mexico.  We’d like to be able to say that there is a good entry here, but we can’t.  As long as that oil well is not capped and they don’t really know how much is flowing, there may simply be too much risk here.  We are going to keep an eye on it.  The whole thing is tragic and we are very concerned about the long term environmental impact of this disaster.  But – when we put our “investor’s hat” on – we need to realize this –

• BP has 3.3 billion shares outstanding.  Each dollar the stock loses in value, 3.3 billion is wiped off the market capitalization of the company.  At today’s close of $46.57/share, approx. $46 billion of market capitalization has been removed from the co, since their early April 2010 close of $60.5/share.  That’s a lot of money.
• BP is a global giant and they have a current dividend yield of approx. 7.2% at this share price.  Assuming that they can continue paying the dividend while they pay to clean up the problem, that is a strong yield. (This however may be not be a prudent assumption.)  Smart investors have been making these calculations since this whole event occurred, and so far the early adopters of this thinking have been run over.
  

VVUS – from our SMC Watchlist – had a strong day today.  It is now at 52 week highs.  Pretty good.  They have a weight loss drug pending FDA approval and other drugs in the pipeline, and have received recent broker upgrades with targets in the mid-teens.  VVUS closed today at $12.47.  The SMC may take a small position tomorrow.

Please remember – at the Stock Market Companion we do not and cannot give individual investment advice. According to the State of Washington RCW 21.20.005 the Stock Market Companion is not a Registered Financial Advisor and we do not render any advice on the basis of the specific investment situation of a particular individual. This information is for a wide readership and is not intended for any particular individual,  and under no circumstances should our SMC Intraday Update, SMC 15MinuteStocks Market Update or Watchlist be considered an investment recommendation or plan for any specific individual.  By accessing this material, you agree that the Stock Market Companion will not be held liable for any actions taken by a subscriber or other parties.  Please seek the council of a broker or other licensed investment professional for accurate pricing and concerning the suitability of all investments that you may be considering. Disclosure : Please understand that the Stock Market Companion holds positions in the above mentioned securities.  Based on market related or personal events these positions may change without notice.           

– Stock Market Companion – Current Holdings –

Nr.	Co.	Ticker	Action	Entry Date	Current Gain (Loss)

If there was a company with a ticker labeled “100% CASH”, we would have to report our holdings in the above table.

– Stock Market Companion – Performance –

Please click on this chart to see the Stock Market Companion 15MinuteStocks stock performance verses the SP-500.

* Gains (losses) do not include brokerage fees

– Benchmarks “At a Glance” –

US Dollar	1.2365 USD = 1 Euro	USD / EUR	Dollar = Flat
Gold	$1,226.70	Ounce	Gold = Down
Oil	$70.57	Barrel (West Texas Crude)	Oil = Down
30 Yr. Fixed Mortgage	4.97	Percent	Down (just below 5%)
30 Yr. Bond Yield	4.34	Percent	UP just a little.
1 Yr. CD	1.38	Percent	Flat

(Data Source : Finviz.com Financial Visualizations)
 

Many of you know that we sing as a family at a nursing home on Monday nights.  Gideon (8) and Mikelle (6) play violin, I back them up on guitar and Dalene and the others sing heartily.  The eyes of the residents light up when we sing and there are “smiles all around”.   We all love it.  Tonight we are going to add one more activity to our visit.  Mikelle has studied hard at making balloon animals.  She makes wonderful “Wiener Dogs” and hats …  She’s offered to make some tonight and hand them out.  It should be a big hit. We’ll post a picture as soon as we can.

We wish you all a fine evening.

Remember to invest on your own, but not alone.

Signing off for today, your –

Stock Market Companion

** Stock Market Companion Disclaimer **

The Stock Market Companion (SMC) Market Update and Watchlist are published documents to subscribers that show how we (SMC) are viewing the markets and what we are watching, investing in or selling today.  This information is for a wide readership and is not intended for any particular individual,  and under no circumstances should this Market Update or Watchlist be considered an investment recommendation or plan for any specific individual.  By accessing this material, you agree that the Stock Market Companion will not be held liable for any actions taken by a subscriber or other parties.  You understand that the Stock Market Companion holds positions in the above mentioned securities.  Based on market related or personal events these positions may change without notice.

Furthermore, the Stock Market Companion, Inc. is a content provider and publisher and not a registered broker-dealer or licensed investment professional.  Our intent is to publish very accurate market information for an audience of subscribers (1000+ subscribers).  By accessing the Stock Market Companion website and/or using the Stock Market Companion products and services such as this Market Update and accompanying Watchlist, you understand and agree that the material provided in the Stock Market Companion products and services is for informational and educational purposes only, and that no mention of a particular security in a Stock Market Companion product or service constitutes a recommendation to buy, sell, or hold that or any other security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.  To the extent any of the information contained in any Stock Market Companion product or service may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.  Before selling or buying any stock or other investment you should consult with a qualified broker or other financial professional to verify pricing information and to solicit advice as to the appropriateness of a given transaction or investment.<

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