– Stock Market Companion – Current Holdings –

Nr.	Co.	Ticker	Action	Entry Date	Current Gain (Loss)
1	Gentiva Health	GTIV	Holding	11/15/2011	+/- 0%

 

– 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	1,244.28	Index	Flat = -.30 points
DOW-30	12,019.42	Index	Flat = -0.61 points
NASDAQ	2,626.93	Index	Flat = +.73 points

 

 

– Market Trends –

 

Trend	SP-500	DJ-30	NASDAQ
Short Term	Flat/UP	Flat/UP	Flat/UP
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) –

 

SMC SP-500 ETF Daily Chart

 

 

Please click on the chart to view it in a larger size.

 

 

 

– Today’s Highlights –

 

Wednesday’s huge move HIGHER in the global equities (stocks) markets was driven by the U.S. Federal Reserve’s orchestrated move with other sovereign banks to increase liquidity available to European financial institutions.  Wednesday’s move was also supported by this GOOD NEWS about the US economy –

• Chicago area Purchasing Managers Index increased unexpectedly for November (stopping the slide toward a contraction).  New orders were their strongest since April.  Stocks that we like related to this news includes Alcoa, Inc. (AA $10.02) and Ford Motor Co. (F $10.56).
• US pending home sales for October shot HIGHER by +10.4%
• ADP Employment Report – showed that private payrolls increased 205,000.

We were not interested in simply running after the market on Wednesday.  We wanted to wait and see how the market responded over the next day or so, and we communicated this in our SMC Intra-Day Alert.  For us, the increase in liquidity to European financial institutions was important, BUT we are concerned that it simply validates a huge problem that exists.  In and of itself, it doesn’t solve any problems.  The key problem is –

Some European Monetary Union members – (Greece, Spain, Portugal, Ireland, and Italy) have over-spent and over-borrowed over the last 7 years or so.  During many of those years, when the global economy was strong, those countries needed to be paying-off debt and preparing for a time when the economy would be weak and they would need reserves to stimulate their economies.  Instead, these countries (and the USA, too) continued to borrow and increase spending.  The weak global economy over the last 3+ years has caused tax revenues in these countries to fall, while spending on generous social programs (early retirement…) has continued.  In the USA, tax revenues are also very low right now.

The bond markets that have funded this deficit spending and lent these countries money have been – until recently – very accommodating (they are still very accommodating to the USA).  Politicians have had trouble saying “No” to spending.   Deficits have therefore increased to very unsustainable levels, and the bond markets that have facilitated this spending are finally saying, “We aren’t going to lend to you unless you pay very high interest rates on your  bonds”.  In the bond market, we call interest rates on bonds the “Yield”.  Yields go higher when bond prices move lower.

When the countries with debt troubles (mentioned above) now want to access the bond markets for money, their bond prices are low and the yields are high.  This means that they need to sell many more bonds, at a higher yield to get the same money that they are accustomed to.  Because they can’t afford to do this, these high yields and low bond prices are forcing political leaders in these countries to finally make difficult political decisions in the form of austerity measures, to begin lowering their spending.  Someday, this same thing may happen to the USA.  Right now it hasn’t.

In some countries, the problems are so severe (like Greece) the Greek government has been considering defaulting on their debt.  This means that they would no longer honor their bond obligations.  Because the bond holders are leading European banks, lending to these banks by other large sovereign nations like China and others has dried up.  This is the “liquidity” problem that has emerged.  This fear of sovereign nation default (like Greece) is causing the financial system to begin to freeze-up.

As the European financial system began to freeze-up and emotions (primarily fear and anger) rose, forecasts for economic growth in Europe began to drop severely.  Fear of recession has increased and the market value of equities (stocks) around the world have fallen.  The stock market rally that began on October 4th with the announcement of the European solution for Greece, was all but extinguished – until Wednesday, November 30th.

On Wednesday, the U.S. Federal Reserve’s announcement of combined action with other sovereign nation banks (Bank of Japan, England, Switzerland, European Central Bank, …)  has focused on this European liquidity problem and it offers U.S. dollars to these leading banks.

The underlying problem of too much debt at the European nations mentioned above and high yields and low prices on their bonds, and the specter of near term economic weakness for 2012 remains.

So we haven’t been too excited at Stock Market Companion to join into Wednesday euphoria, but we are very watchful.

Today, the U.S. Non-Farm Payroll Report reported what appears to be good news – The US unemployment rate has dropped to +8.6%.  It would be +8.8%, except there was a decline of 300,000 participants in the U.S. labor force.  There is an appropriate saying about statistics and lies.  Nonetheless, the US economy IS creating jobs at a rate of 120,000 in November and for October, 100,000.  Any sane individual should be excused for having this question in their mind after reading this summary – “How can net payrolls be increasing significantly in November and October, while 300,000 participants from the labor force be removed?”  The apparent answer is – Measures of payroll participants are based on statistical calculations on hard data from payroll firms while the measure of unemployment and estimates on the size of the labor force is handled completely differently and separately.  Statistics…

Before we move on, we would like to say this.  The markets could have given back a lot of Wednesday’s gains, but they haven’t.  We will see what will happen next. If the markets hold these gains and show a desire to move higher, we want to be participants in a Christmas rally.  If – on the other hand – the markets realize that the solution only addresses immediate liquidity problems, they may begin to again sag.  The U.S. Federal Reserve and these other central banks have bought European leaders’ a short amount of time to make some real progress.  German’s Chancellor Angelika Merkel and others are aware of this and they are moving.  We’ll see.

– Story-Stock Investing –

 

The share price of Boeing (BA $71.30) has shot higher by about +5% since our note on Wednesday.  We want to be buyers, but will wait a bit for the price to settle down and to see how the market holds.   Those who are on board based on our mentions here have been rewarded.  On Wednesday we wrote – Boeing (BA $68.69) received its largest order EVER over the last 3 weeks.  The shares have shot higher today to the highs of its recent range.  It wouldn’t be unreasonable for an investor to take a position here, but be willing to give the stock a full -10% scope to eventually find its way higher.  We know that the company is expanding capacity to meet very strong demand for its commercial aircraft.  One opposing argument is that we don’t know how possible future US defense spending cuts may eventually impact earnings negatively.

The shares of Deere and Co. (DE $77.69) have fallen back down and closed Wednesday’s gap higher.  A move above $80/share may get us interested.  On Wednesday we wrote – How about Deere and Co.’s (DE $79.25) impressive earnings from a week ago?  The company’s stock looks good here.

Share of Home Depot (HD $39.94) have moved higher a bit.  Quite frankly, we don’t know where to buy this one yet – except on extreme weakness. On Wednesday we wrote – We’ve repeatedly talked about how much we like Home Depot’s Mr. Frank Blake as CEO (HD $39.22) – the stock hit a 52 week high this morning and then pulled back throughout the day, much like impressive earnings announcer Nike (NKE $96.18) did.  For Home Depot, this is impressive stock performance considering how miserable the US housing market is.  A clear break higher may get us interested.

SMC small-cap holding Gentiva Health (GTIV $5.81) continues to muddle around the $6.00/share line.  On Wednesday we wrote – SMC small-cap holding Gentiva Health (small-cap = market capitalization between 300 million and 2 billion; where market capitalization is easily calculated by multiplying today’s share price by the number of shares outstanding in the company) moved higher today, but then quieted down – WITHOUT breaking out and staying above the important $6.20 level.  The chart still looks nicely constructive.

Bank of New York (BK $19.29) has settled down some.  A move back above $19.50 may have us interested?  On Wednesday we wrote – We cannot finish today’s report without talking a little bit about US Banks – specifically – the big ones like Bank of America (BAC), Wells Fargo (WFC), JP Morgan Chase (JPM)… et al.  Up until today, they looked terrible.  Today the world changed.  Bank of New York (BK $19.46) looks particularly constructive.  It wasn’t so long ago – maybe 4 – 6 weeks ago that a well known banking analyst gave BK a thumbs-up, calling it an “easy doubler” from where it was at the time (which was approximately $1/share higher than today’s close).  We know that the banks are deep in a higher regulatory environment and profits have been getting squeezed, but the shares may all be oversold.

Zoltek and Leap Wireless both continue to be interested.  Zoltek shares shot higher on Thursday on the upgrade that we mentioned, but settled back down today.  Leap is stopped “leaping around” and has quieted down. We’ll see.  On Wednesday we wrote – Here are two sub-$10 stocks that have our attention due to their powerful moves today –

• Leap Wireless (think: Cricket prepay phone plans) = LEAP $9.07 .  We’re adding this one to our SMC Watchlist.
• Zoltek (Manufactures carbon-fiber composites used in products like Wind Turbines) = ZOLT $8.21.  Zoltec received an upgrade today after reporting yesterday significant improvements in sales revenue for last quarter.  The company has lost money for two years running, but may be now on the mend.  At its peak in 2007, the shares were selling above $45/share.  Here’s a useful link to yesterday’s earnings summary.  It’s a quick 1 page read.  This one has our attention and will be added to our SMC Watchlist.

Here’s a very cheap stock that has our CLOSE attention.  You probably know this company – among other things they print and distribute the yellow page phone books that you still get at your front door.  If you are anything like us, you may often get more of them than you would like. You have also probably seen their “DEX Knows” pages on the web.   The company is called Dex One Corporation (DEXO $1.63).   Click here for more details on the company. Over the last year, we have noticed from time to time announcements of collaboration between DEXO and Google and other important news.  The company has restructured and made a very interesting 3rd quarter earnings announcement on November 3, 2011 and a very good forecast for 2012 (please notice the free cash flow guidance of $375 – $400 million next year.).  Please click here for this one page overview from the Dex One company earnings announcement and be sure to scroll all the way through it.

The company reported earnings of 0.44/share.  At $1.65/share that represents a P/E of less than 1.0, if they can hold those earnings throughout the year.  They may have what appears to be a lot of debt, but with a free cash flow forecast of approx. $400 million next year, they aren’t going to go bankrupt and they could pay their debt down RAPIDLY.  There are only approx. 50 million shares outstanding on the company.

A move above $1.80 will get us very interested, if not sooner.   The shares do move around quite a bit, so if we purchase this one at SMC we are going to put the shares in a deep drawer and not look at them too often.

 

– Benchmarks “At a Glance” –

 

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