-Executive Summary-

• The markets pause.  Intel Corp. (Ticker: INTC) reveals excellent earnings after the close. See below…

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– 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 Trends –

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

– Market Perspectives –

For your added perspective, we’ve included these two different views of the broader market –

1. SMC SP-500 ETF Daily Chart (Click to open helpful chart in a separate browser window).

2. SMC SP-500 Weekly Chart (Spanning back through 2007)

– Today’s Highlights –

Overall, the equities markets paused their advance today.  Thursday’s offer the Bureau of Labor’s initial jobless claims data for the previous week.  445,000 claims were reported – which did not inspire the market with ideas that somehow the unemployment rate was diminishing.  OK.  In our humble estimation, as long as things don’t get worse the equities market has already priced-in the current approx. 9.5% unemployment rate.  Please remember, this is the “official” unemployment rate.  We are not conspiracy theorists here at the Stock Market Companion – but we do recognize that the real unemployment rate is significantly higher – when factoring in those who have given up participating in the workforce … etc…

The equities markets are focused on earnings, but ARE constantly keeping an eye on the horizon for changes in the current economic climate…. which would impact earnings.

Adding to today’s mix was news out of Europe that Italy and Spain had successfully sold some of their debt at auction.  This bolstered the euro and the U.S. dollar “jumped” lower.  Interestingly – both crude oil and gold did not increase in value today.

After the close today, Intel Corporation (Ticker: INTC) reported excellent earnings, increasing margins, and guided Q1 2011 revenues +$300 million to possibly +$1 billion higher than the originally estimated $10.8 billion.

– Story-Stock Investing –

Zagg Inc. (Ticker: ZAGG) moved nicely higher today.  IF we wanted to add shares, we would have to give ourselves a stop down to $9/share.

Yesterday we wrote, “Stock Market Companion stock “runner” for December – “SHZ” or China Shen Zhou Mining Inc. turned higher today after a week of selling off.  We exited well over a week ago at approx. $8/share for a +54% return in a little over a day.  If this stock begins looking closely at $10/share we will consider a renewed investment – even if it is just for another day of strong gains.”

Today, subscriber “Jed” posted this question – “Can you help me explain why you would consider renewed investment once it reaches $10?  Is the $10 value a key milestone indicating momentum, or …  can you explain why its not a good investment today?”

You are right, Jed.  $10 is a key milestone relative to MOMENTUM.  Currently, SHZ falls into the category of an unusual momentum stock.  It was priced at $1/share back in October and cruised rather suddenly higher in December from $2.50 to above $10/share, before sinking back down into the high “$7’s” and stabilizing in the $8/share range.  So it has come a long way in a short period of time and this means –

1. There are still probably “early adopters” who got the stock in the lower single digits – before the big move in December – who would like to see if the stock pushes $10 again.  They are holding out for approx. $10 again.

2. There are “late adopters” who bought the stock on momentum near $10/share – who are now underwater on the stock – and would love to simply “get their money back” at approx. $10/share.

$10/share is essentially where the momentum stalled out.  Between today’s price of approx. $8.80 and $10/share the shareholders mentioned in points #1 and #2 sit and hope – as momentum possibly continues to dry up.

If the stock can attract fresh investors – in addition to existing shareholders who are hoping for more than $10/share, then it will be evident by the ability of the stock to move higher than $10 and CLOSE above it’s Jan 5th close of $10.24/share.

If we were to purchase SHZ today at approx. $8.8/share, we would be hoping for an increase in share price on a stock that is already UP approx. 780% in less than 6 months, WHICH HAS PERHAPS LOST ITS MOMENTUM and that has a minuscule number of shares available to the public and therefore can fall VERY HARD if further interest is lost in the stock.  In October the stock rose to approx. $4.60/share and sank back down to approx. $2.50/share.  In this particular case, the stock “came back” and roared higher, but most stocks of this type don’t do so… they simply stay down.  That is – stocks that remain in the MOMENTUM category.

If there is a REAL STORY behind this SHZ stock, then we will see buyers and sellers engage the stock here and gradually or maybe not so gradually fulfill the supply requirements of investors from #1 and #2 above, before moving higher.  The math on earnings that we did on December 29th suggest that the stock CAN go higher – IF the stock is not simply a flash in the pan momentum stock.

Here’s what we wrote then –

Shazam! for SHZ = China Shen Zhou Mining and Resources, Inc. (Ticker: SHZ).  The stock is now up over +40% from it’s close yesterday at $5.50/share!  That is a HUGE move in an extremely short period of time.  That’s a lot of fun for those SMC subscribers who own the stock.  The important question now is … Now what?

Let’s start with the numbers that we know –

1. The company is tiny.  This year’s revenue is expected to be $14.5 million; next year’s revenue expectation = $38 million.
2. The company has BIG growth.  $14.5 to $38 million growth in revenue = +162%.  In other words, this year’s revenue MAY almost triple by the end of next year.
3. Net income for 2011 is expected to be approx. $11 million.
4. There are approx. 28 million shares outstanding, of which 89% are not available for the public.  Shares available to the public may only be 2.5 million shares.  Friends, that falls in the extremely scarce category.  Of course this number can change dramatically at any time based on what the insider shareholders do.
5. Let’s take next year’s expected net income of $11 million and for simplicity sake call it net earnings.  Therefore $11 million / 28 million shares = $0.39/share earnings.  At yesterday’s closing price of $5.50/share, this company was selling at $5.50/0.39 = 14.1 times earnings.   In other words, its price/earnings ratio (P/E) based on these numbers that we have to work with appears to be 14.1 (yesterday).  The market average here in America is approx. a P/E of 16.  Therefore the stock was selling yesterday at a good discount to the market.  At today’s momentary price of $7.60/share, the P/E has now advanced to 19.5 = a premium to the market.
6. Companies that have +162% revenue growth rates are “allowed” to sell at a premium to the market.  Sometimes this premium can be huge.  As a rule of thumb, some investors say that as long as the growth rate exceeds the P/E ratio, then the stock price may be ok.  Obviously in this case, this is a bit absurd.  To be more realistic, let’s look at what the price of the stock would have to be if it had a P/E of 30.  30×0.39= $11.70/share.  If for some reason the P/E went to 50, then the stock price would be $19.50.
7. At the beginning of January this year, the stock closed at $0.94/share.  As we write this, the stock is currently at $7.67/share.  That’s a 715% return for some shareholders in this one year.  Some people are going to soon want to capture these profits by selling their stock. From a different perspective, from our data it appears that this stock opened on approx. 2/25/2008 on the AMEX and closed that day at $9.04/share.  At $7.67/share, the stock is still -15% off its highs in 2008 and has another +17.8% more to go before it comes to that value.
8. Here are some points that make this stock unusual…
   Unusual in this case is the fact that such few shares are available to purchase.  Additionally unusual is the fact that this company is so tiny and doing business in such a remote corner of the world, yet available for sale to the investing public on the American Stock Exchange.  As an American Stock Exchange company, we have no other choice than to rely on the company’s financials and consider that they must be at least reasonably accurate.

Let’s add into the mix the idea that China is ratcheting down mining output.  Prices – in this case for fluorite have recently doubled.  Let’s add the idea that we are at the end of the year and very occasionally there are stocks that go “silly” in the absence of the normal checks and balances of a marketplace with full attendance of the investors and traders.

All of these things point to a convergence of unusual conditions that is resulting in this stock going ballistic.

1. Strategically and from a matter of principle it’s important for the SMC as a shareholder to make sure that we set stops along the way that allow us to capture gains, yet give the stock room to breathe.  For us personally, we are willing to give this stock down to $6.50/share. We have our stop set just below that number.  As an common stock investor, one of our primary objectives is to do all we can to make sure that we avoid turning a profitable position into a loss.  That’s why we use stops.
2. So far today, we like how the stock has shot higher, AND there hasn’t yet been a huge number of sellers immediately driving the stock below $7/share.  This could change at any time.  Yesterday we wrote, “It’s shares outstanding at approx. 28 million puts it in our experience in a categorical “sweet spot”.  It can really move UP when investors get behind it AND it can sink like the Titanic when investors decide to cash in their profits.”.  When sellers do come to take their profits, on this stock it will feel like the sky is falling.

We hope that this Stock Market Companion Intra-Day UPDATE helps you understand how we are viewing this stock and the unusually profitable situation that has so quickly arrived.

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 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 counsel of a broker or other licensed investment professional for accurate pricing and concerning the suitability of all investments that you may be considering. Disclosure : 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.

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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 counsel 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 may hold positions in the above mentioned securities.  Based on market related or personal events these positions may change without notice.

– Stock Market Companion – Current Holdings –

– Stock Market Companion – Performance –

Please click on this chart to see the Stock Market Companion 15MinuteStocks stock performance versus the SP-500.  It will open in a separate browser window.
* Gains (losses) do not include brokerage fees.   Our returns are very strong … BUT …  WE have to remind everyone just like all other financial sites in America – Past Performance is No Guarantee of Future Returns.  Unlike others however, our objective is to teach you to be able to make these types of strong returns On Your Own.

All of the investments – stocks, entries, and exits are listed on our Stock Market Companion Watchlist at the bottom of the spreadsheet, in the section labelled Former Holdings.

– Benchmarks “At a Glance” –

Data Source : Financial Visualizations Inc.

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.