– The Stock Market Companion –
15Minute Market Update
November 14, 2011
—— Stock Market Investing since the 1980’s ——
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-Executive Summary-
- Markets closed DOWN today a bit. Europe is the one easiest to blame. See below.
- DOW (-0.61%); S&P500 (-0.96%); NASDAQ (-0.8%)
- Market Overview = Today’s volume was low for the overall market. The market is in a confirmed uptrend since the October 4th pivot point that we identified at its inception and profited from. We mentioned on Wednesday that the market has had 4 distribution days since the market pivot bottom on October 4th. Four such distribution day’s within a defined uptrend, within 3 or 4 weeks would normally mark the end to the rally. The market currently rests ABOVE the lateral consolidation from August – October. OK Click here for today’s SMC S&P 500 (ETF) chart.
- See our SMC – 4 “L’s” for dealing with this market and approaching investing. Below.
- We don’t want to miss an opportunity at Groupon, if there is one. See below for ideas.
- Revenue per seat mile is on the increase at United Airlines (UAL $18.22). Several airlines were upgraded today. See below for the story.
- Gentiva Health (GTIV $5.43) – On 11/7-8, the CEO, CFO, 3 VP’s and 2 Directors purchases approx. $1.2 million worth of the stock (courtesy of Briefing.com). Today the shares were downgraded from a small financial firm. The pattern in the shares still look constructive. A move back above $5.40/share in the face of this downgrade may get us interested.
- Today we caught this exciting VIDEO of the new U.S. Navy LCS vessel (the Daily.com). Don’t miss it. The vessel is made out of aluminum (we start thinking about Alcoa). Please notice the excellence of the personnel interviewed on board. If you are technically oriented this video will be quite exciting. I hope its first mission is to take out Somali pirates. With appropriate political backing and orders broad enough to get the job done, it probably wouldn’t take too long for that navy vessel team to make that area safe again for sea trade.
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– Stock Market Companion – Current Holdings –
| Nr. | Co. | Ticker | Action | Entry Date | Current Gain (Loss) |
– 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 | 1,251.78 | Index | DOWN = -12.07 points |
| DOW-30 | 12,078.98 | Index | DOWN = -74.70 points |
| NASDAQ | 2,657.22 | Index | DOWN = -21.53 points |
– Market Trends –
Trend |
SP-500 |
DJ-30 |
NASDAQ |
| Short Term | Down | Down | Down |
| Intermediate | Flat | Flat | Flat |
| Long Term | Lateral | Lateral | Lateral |
*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) –
Please click on the chart to view it in a larger size.
– Today’s Highlights –
Clear as mud. That’s the market and the opportunity for investing in stocks – at the moment. Things will NOT stay like this forever, but for the moment there is simply a lot of chop and overall there is simply very little interest in the investing community to put money on the line. Who wants to put money to work when you could wake up the next morning and find out that Greece has been severed from the European Monetary Union and that there is an emergency meeting taking place at the European Central Bank to decided how to respond to a run on the European banking system?
How did this all happen?
In a brief sentence or two, today’s problems with European sovereign debt stem from –
- countries spending too much for domestic entitlement programs, while tax revenues have fallen due to the low growth, near recessionary climate that we find ourselves.
- political leaders acting completely like politicians and not like leaders. They have not wanted to risk their political careers by saying “No” to spending.
- the USA exporting the idea over the last twenty or more years that deficit spending is o.k., and promoting the idea that politicians will not be held accountable.
- financial institutions buying bonds that offer strong rates of return from sovereign nations like Greece, betting that central bank mechanisms will bail these countries out if something happened thereby protecting these investments.
- the ever expanding idea of what government’s are supposed to provide for their citizens, and creating 1st world welfare states.
So, the action in the markets today are completely a reflection of the uncertainty of what is going to happen in Europe tomorrow.
The U.S. dollar advanced strongly against the Euro today.
In the spirit of brainstorming, here are “4-L’s” that summarize our current view of the market (L1) and what we teach about investing in general –
L1 = Lighten exposure to the equities market (at SMC we raised 100% cash last week) until this European sovereign debt issue is more predictable. Be willing to engage specific stocks that offer compelling stories.
L2 = Learn. Learn to invest in a new way. Most Americans are operating with an understanding of equities investing, promoted by a financial service industry highly motivated to generate FEE revenue, independent of performance.
L3 = Link. Link to sources with new ideas (SMC). Build a “Team” (which includes SMC) … Link up with your children, or friends, or an investment club and learn to invest together, where possible (avoid however the dangers of co-mingling funds).
L4 = Let Go. Let go of pre-conceived ideas about investing and mistakes from the past. Give yourself a break and start fresh.
– Story-Stock Investing –
Let’s talk briefly again about the company Groupon (GRPN $24.07). Here is what we are thinking today –
- GRPN makes its money selling coupons to millions of consumers using digital media tools that are powerful.
- Groupon reminds investors that they can market to 150 million consumers in seconds. That is amazing.
- There are several BIG concerns that investors should have with Groupon – one of them is the idea that Groupon pays UPFRONT to the retail merchant for the service or item offered for sale, and therefore must carry the cost of the service or item until Groupon customers pay for the items. This works out to be a low cost “loan” to merchants with a huge risk to Groupon. Many have pointed out that this type of business model FAILS if the company grows exponentially, as positive cash flow is deferred while immediate expenses go through the roof.
- Another concern is that there is a LOW threshold to entry for businesses to enter the business as competitors to Groupon. eBay is offering coupons … etc…
- Another concern is that merchants will gradually not be interested in the single-event business transaction that Groupon customers often represent. They want repeat business from customers.
- Another concern is Groupon does not make money. As of the most recent quarter they lost money.
- Groupon is starting an aggressive Christmas season program – so is everyone else (eBay et al.).
- Groupon issued approx. 30 million shares in their recent IPO. This is right in the middle of our “sweet-spot” for growth stock investing. If demand increases for shares, the share price can move dramatically higher. There was a strong demand for the IPO shares, in spite of all of the concerns that an investor must have with this company.
- We want to be FLEXIBLE about Groupon. We CAN pictures ourselves at SMC buying the shares – with the intent of holding them for a BRIEF, strong run. If Groupon made a strong run higher in price – it would NOT be the first time that a risky business model was shot into the stock market orbit on the backs of short sellers who steadily bet against what was happening, until they couldn’t take it any more.
- We are going to be watchful.
That’s it for our thoughts about Groupon for today.
Let’s talk briefly about the airline industry. Today, United Airlines, Hawaiian Airlines, and US Airways were each given a BUY rating from Maxim Group (an investment bank in New York). United Airlines stock sells for approx. $18.30/share today and Maxim gave it a target of $28/share. If the shares proceeded to make that move over time, the returns would be approx. +53%. This gets our attention. Here’s what else gets our attention about the airline industry and United Airlines specifically –
- Ever since the airlines began charging for additional bags, these companies have aggressively been finding ways to get additional revenue from flying passengers. As customers, we sure do not like it, but the companies have sure improved their financials by doing so.
- For the first time in a long time, the airline companies appear to have some pricing power. For instance – just this weekend, we were shopping airfare for a visit from my father to Portland, Oregon. Airfares are FIRM. Many Stock Market Companion subscribers have probably noticed the same.
- From United Airline’s (UAL $18.22) operations performance report from November 8th for October 2011, we read –
- Traffic decreased by 5.1% vs 2010 on a capacity DECREASE of 3.4%. So traffic fell faster than the airline could cut from capacity. Not so good. BUT the airline IS cutting capacity. If all the airlines cut capacity and do so a little too much, AND traffic holds up fairly well, then ticket prices will stay VERY FIRM.
- Revenue per available seat mile INCREASED 9.5% – 10.5% compared to the previous year. So their efforts to get more revenue per flying customer is working. That’s good.
- American Airlines (AMR $2.14) shares dropped strongly at the end of September on fears of bankruptcy at the company. The shares are at $2.14/share vs. $6.50/share in May. That’s a big drop. If AMR files for bankruptcy (they have so far denied that they are going to do so, but the share price is telling a different story), it will cause the other airline stocks to hit an “air pocket”. Caution is warranted.
- Airline stocks can move very aggressively HIGHER when big investment companies get behind them. We are keeping an eye out.
- The idea that their revenue per available seat mile increased is enough of an idea to perhaps really get these shares moving. We’ll see.
– Benchmarks “At a Glance” –
US Dollar |
1.3629 USD = 1 Euro |
USD / EUR |
Dollar = UP strongly |
Gold |
$1,781.10 |
Ounce |
Gold = Flat |
Oil |
$98.14 |
Barrel (West Texas Crude) |
Oil = Flat |
30 Yr. Fixed Mortgage |
4.33% |
Percent |
Down |
10 Yr. Bond Yield |
2.06% |
Percent |
Flat |
1 Yr. CD |
1.16 |
Percent |
Flat |
–Data Source : Financial Visualizations Inc.
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Signing-Off for Today,
Your -Stock Market Companion
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- The markets were AGAIN divergent today, just as yesterday revealing further weakness in the technology sector while the broader market (S&P 500) and the DOW (DJ-30) held POSITIVE.
- Research in Motion (Ticker: RIMM $27.75) reported earnings last night that were a major disappointment. We go through the details below. The company received 2 broker upgrades going into earnings. The stock then lost -21.45% from yesterday’s close into today. We go through our steps in handling our brief investment in the stock this last week – AND WHY, below.
- Crude oil continued to descend today, reflecting a drop in value of the U.S. dollar – BUT also concern of future demand as the global economy slows down.
- The S&P 500 is finding support at its 200 day exponential moving average. If the broader market doesn’t find strength here and begins to sink further, the next near point of support is the low it plumbed during the recent nuclear crisis in Japan. If it fails that point, then the intermediate term trend will be DOWN.
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