-Executive Summary-

• Yesterday’s “Pause” turned into a modest retreat for the DOW (DJ-30), and a flat close for the SP-500 and NASDAQ.  See more below.
• Healthy “Differentiation” is occurring in the marketplace.  See more below.
• Cisco Systems Inc. (Ticker: CSCO) was disassembled today in the market.  The stock is down -14% on their forward earnings guidance (Read: government contracts are drying up a bit and margins are getting a bit slimmer).  At the Stock Market Companion we made approx. +4.7% on our Cisco Systems investment from December 13th, 2010 through January 19th, 2011.  If we hadn’t sold, not only would we have missed the gains, but we would now be staring at a loss of approx. -4.8%.
• EBAY (EBAY) announced that PayPal revenue is going to soar as an open commerce platform emerges.  Smart-phones are going to allow shoppers to pay using PayPal and avoid expensive VISA or MasterCard platforms.  Ebay may become a must-own stock due to this development with PayPal.  The impact of such changes to commerce are vast. See more below.

This Stock Market Companion 15MinuteStocks Market Update is a powerful tool designed to help you make money in the stock market.  It’s web-based, therefore available wherever and whenever you are.  It is your essential link to the markets, delivers a broad to narrow summary of important market and company specific conditions and events, and prepares you to be ready for actionable ideas.  We show you when/where we put our own money to work… and when/where we take our profits/losses.  Please see our short (2 minute) website videos for more information.

– 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 this chart of the broader market (Successful stock investors develop and start with a minds-eye view of the broader market and keep it clear) –

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

– Today’s Highlights –

Today, short-sellers attempting to short the broader market must be feeling something like emboldened Somali pirates boarding a freighter, only to find that the freighter’s crew has been replaced with hardened Navy Seal commando’s armed to the teeth and hungry for a fight.  The pirates got beat-up and are relieved if they can leap over the side of the ship and reach their inflatables before catching a bullet.

So far, this market isn’t going down without a fight.

Here are is a brief overview of what shorting is all about and a couple of intrinsic problems with it.

Short sellers are those investors who borrow shares (such as from their brokerage’s stock holdings), sell them when they feel that prices are high and buy them back when the prices have gone down in value (sell high, buy back low).  This Sounds great … in theory.  There are some tremendously successful short-sellers out there, but by and large those who short the market do not perform as well as those investors who invest on the “long side” (buying low and selling higher).  Here are a couple of problems with shorting individual stocks –

1. The maximum gain from shorting a stock is less than 100% (less than 100% due to commissions).  The stock would have to go bankrupt for the short-seller to get maximum returns.

On the long side, stocks routinely – when the market is right – may go up from +5% to over +1000% (less routinely, but possible) AND investors have the intrinsic benefit of everyone whose working at the company whose stock they purchased to make it a better place.  While there are exceptions, by and large people are working hard to help their enterprises become more profitable.  There are limits to this argument, but you get the picture.

2.  Being right on the short-side, when a stock is falling off a cliff is exciting.  The old adage, “Bulls go up the stairs, and bears go out the window”, makes for a short term pleasurable time when an investor gets it right.  Consider those who shorted Cisco Systems (CSCO) this week going into earnings.  Right now they are up approx. 14% on their investment… overnight.  Great, BUT … it’s best to sell into that weakness and take the quick gains.  Unfortunately, most novice short investors hold on for a long period of time and the stock eventually may rip right back up higher and cut those quick gains in half and make holding onto the position very uncomfortable.  In other words, sharp swings in a stock make it hard to hold onto a stock on the short-side.

Consider this – At this moment approximately 25% of the stock in Netflix (NFLX) is sold “short”, but the stock is going UP.  Those who shorted the stock when the stock first crossed $200/share and fell back to $180/share were wise to have taken their good profit.  Unfortunately reality speaks differently – The stock is now UP at $223/share and 25% of the stock is still sold short.

O.K.  That was a brief intro to the idea of short selling and some key characteristics.

There are plenty of short-sellers today in the market.  The markets are up strongly over a 2 year period of time and the memory of the stock market falling apart is still fresh in many people’s minds (ours too … that’s why we are careful).  Sometimes they are getting rewarded = Cisco Systems destruction in share price today is a good example.

While we are prepared to announce some short ideas for our subscribers, we prefer to look for new stories of new growth companies, or changing conditions in existing companies that is going to cause multiplication in the underlying value of the company stock – new leadership, new products, new marketing / distribution efforts, new markets, acquisition targets …

We primarily use market pullbacks as an opportunity to see which stocks of companies that we like are getting quiet or only sold modestly.  For instance today, Intel Corporation (INTC) moved nicely higher.

– Story-Stock Investing –

Differentiation.  The market is now well off its 2009 lows and acting strong.  But the “rising-tide” is NOT lifting all boats.  Today’s situation with Cisco Systems is an excellent example.  The broader market (SP-500) closed higher for the day (barely), but Cisco marched steadily lower over -14%.

A positive example of differentiation is Intel Corp. moving higher today in the face of overall market tentativeness.

As long as the broader market stays within a certain range, differentiation helps us find the stocks that may become excellent investments.

When the market is in such a firm uptrend however and the uptrend has been proceeding for a long time, we are cautious about putting ANY money to work in individual stocks because when the market takes an abrupt turn – even if it means that the market is going to stay reasonably level within a certain range – the first days of the end of a strong uptrend can shake up many stocks.  We’re waiting for a signal that we can put a foot into the water by seeing the market first start into a more sustainable lateral consolidation and then see which stocks are strong enough to proceed higher during the lateral consolidation of the broader market.

Hence our statement yesterday about SHZ.  We like the overall pattern of SHZ, but if the market takes an abrupt turn south, small cap growth stocks like SHZ will almost invariably take a hit.  SHZ is down -4.48% today, and the broader market is still trying to decide if it will exit its strong uptrend.

The Bank of Ireland too is in some form of a holding pattern that is defined by the broader market AND the upcoming elections this month and an almost guaranteed change in political leadership.

Intel Corp. announced a negative development with a secondary chip for lap-tops over a week ago and the stock has now recovered from the momentary losses resulting from that news.  Remember, they are proceeding with a strong stock repurchase plan, their sales and earnings are fantastic, and their bottom line is soon going to have added benefits of the McAfee acquisition (although one can say that in terms of Intel’s overall sales, the McAfee component is small).

Ebay (EBAY) announced today that their annual revenue is going to increase +63% by 2013, due largely to revenue from Paypal.  WHY?  Because smart phones are going to enable an entirely new platform of open commerce (read – away from Visa, Mastercard, and Amercan Express)!  People are going to be able to pay for goods in stores using Paypal and avoid the costly fees of the closed commerce systems.   This is going to be a huge shake-up.  We want to be in EBAY and you will notice that they are at the top of our stocks that we are watching on our SMC Watchlist, but again – we are cautious about entering the market in the face of a significant turn in the broader marketplace from a strong uptrend to a more lateral condition.  Today Ebay shot-UP approx. +6% on this news of their revenue increase released during an “analyst day” at their company.

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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.

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