– Stock Market Companion – Current Holdings –

Nr.	Co.	Ticker	Action	Entry Date	Current Gain (Loss)
1	Gentiva Health	GTIV	Holding	11/15/2011	+25%
2	Boeing, Co.	BA	Holding	12/22/2011	+/-0%
3	DEX-One Corp.	DEXO	Holding	12/29/2011	+36%
4	Alcoa, Inc.	AA	Holding	1/3/2012	+2%

– 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	1,280.70	Index	Flat = +2.89 points
DOW-30	12,392.69	Index	UP = +32.77 points
NASDAQ	2,676.56	Index	Flat = +2.34 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 see a bigger, easy to read chart on a separate browser tab window).

 

– Today’s Highlights –

The most important catalyst behind the markets latent strength since December 20th is the idea that the U.S. economy is showing subtle signs of strength.  Sure, “Main Street” doesn’t look improved and old real estate “For Sale” signs are everywhere with precious few having “Sold” signs on them, but manufacturing surveys around the Chicago and New York City areas have shown strength and labor numbers are showing increased hiring in combination with diminishing initial jobless claims (initial jobless claims for unemployment insurance is measured weekly and reported on Thursday’s for the previous week).

This latent strength has brought the broader market (S&P 500) up, very close to the October highs for the market.  The market appears coiled like a spring, ready to spring possibly higher.  And it just may do so.

While things can often be that simple, there are some big clouds on the horizon that we need to keep an eye on – while we look for opportunities for good investments.

European politicians have taken their long Christmas break and are now re-appearing to deal with the trouble in Greece and other European Monetary Union countries that have high levels of debt.  We are reading more signs that there may be an increasing likelihood of Greece being removed from the Euro.  On the surface, the markets would probably not really know what to do with such a situation, beside head DOWN – until the mechanisms for such a change, and the impact on sovereign bond holders (namely European banks) were made clear.

Additionally, we have trouble brewing in Iran.  Today we read of an American / Iranian dual citizen who has been arrested for espionage and given the death penalty.

We are in-tune with the improving nature of the underlying forward indicators for the markets that we have mentioned above.  We like very much what we see there.  But we are careful at this time NOT to overexpose ourselves to the market – unless the situation is extremely compelling.  Our investments in Gentiva Health (GTIV $7.35) and Dex-One Corporation (DEXO) have yielded +26% and +36% returns in a short period of time, and the investments that we made on October 5th and held into November also yielded healthy returns.

The market has been given room to move higher since December 20th, with this current rally having started on October 5th.  We suspect that troubles in Europe and in the Middle East (IRAN) will perhaps crowd-out the good news for a while.  All that we can do is simply wait and see.

– Story-Stock Investing –

Apple, Inc. (AAPL $421.73)  cruised UP to all-time high territory today, but closed DOWN for the day on almost the strongest volume in a month.  This signals a high probability pull-back to come in the share price as investors who grabbed hold of the shares on 11/25 at the 200 day moving average at approx. $368/share have enjoyed a +14.5% run.  Today, the investment bank Goldman Sachs gave Apple shares a target of approx. $550.   Doing the math, this upgrade gives Apple shares a target of approx. +30.4% over today’s close : ($550-$421.73)/421.73 = +30.4%.

Now 30.4% is certainly NOT chump-change in the land of investment returns when the return on a 1-year CD in the bank yields +1.08 percent on a minimum deposit of $25K.  But notice that the shares of Apple, Inc. were NOT able to hold onto today’s positive gains, but instead closed into the red for the day, on high volume.  That is NEVER A GOOD SIGN – at least short term.  If a leading investment bank gives a strong upgrade and the stock closes down for the day on high volume, even though the overall market closes flat/positive – that’s a sign that some investors used today’s good news (the upgrade) to sell their shares on strength.  In the investment world this is called, “Selling the news”.

In all likelihood (as we mentioned above), this marks a “reversal day” for the stock, which means that it will likely retrace some of the recent strong gains that it has made.  That’s fine for us, because we are not invested in the shares and we would like to get another chance at purchasing the shares at a lower price than today’s close.  Something down near $408/share or so would be more to our liking, provided we haven’t had any blow-ups in the international arena related to European sovereign debt or Iran or North Korea or anything else that may crop up.  We remain watchful.  We missed our chance to buy the stock on January 4th.

SMC holding Gentiva Health also put in a bit of a late day reversal, with the shares selling off from their intra-day highs and closing down, below today’s open.  Volume here too was very high compared to volume over the past few months.  Those subscriber friends who have taken their profits today have netted a very nice gain.  Intra-day, the stock was as high as +34% above our buy-point from November 15th.  We are still holding our shares.

We sent out this SMC Intra-Day Alert relative to our Alcoa investment – Informing everyone that Alcoa would be presenting their earnings after the close today…and what we were anticipating –

Dear Subscriber-Friend,

When we make an investment at Stock Market Companion, we hope to have timed the market, chosen our company of focus, and our entry in the company of our focus in such a manner that we do NOT experience much of a draw-down in the share price, before we begin to benefit from favorable market conditions and improvements in the share price of the stock that we have purchased.

We look first at the overall market and determine if the underlying trends – short and intermediate – are in our favor, and then we look for key catalysts (earnings, new management, new products …) for favorable change at the company we are investing in and look at the share price development and determine if the risk/reward is in our favor…

Recently we have invested in Alcoa, Inc. (AA $9.42) based on recent improved conditions in the U.S. industrial complex and global economy, good forecasts for the U.S. automotive industry, and strong orders at Boeing, Inc.  Alcoa’s share price is in the basement, yet their earnings are positive and expectations for growth in aluminum demand is strong.

We purchased our shares of Alcoa on January 3, 2012 at a price of approx. $9.24.  Today the shares are trading at approx. $9.43, which represents a very modest +2% gain in our investment.  Tonight – after the market closes – Alcoa will announce their 4th quarter earnings results for last quarter and make some forecasts for the months ahead.  We want to bring this earnings timing to your attention.

We are careful about owning stocks when they report earnings.  We don’t like to lose money if the stock all of a sudden tanks because some “new” news exposes weaknesses or concerns that we are unaware of.  In the case of Alcoa, this is no different AND on January 5th, we already had to accept a stock analyst DOWNGRADE of the stock.  Here’s what we are thinking now –

Alcoa shares haven’t gone very far since our entry and are at near multi year and decade lows.  The downgrade in the stock did not result in much weakness in the shares.  In fact, the stock has proceeded to basically ignore the recent downgrade.  This is possibly a favorable development, because it means to us that the price of Alcoa is not so high that investors are getting shaken too easily out of their positions.  They may have longer term improvements in the shareprice in their minds, just like we have.

This morning, Schnitzer Steel, Corp. announced quarterly earnings that revealed a weakening in recent orders BUT still firm prices.  Alcoa participates in a related industry and we believe that the current management at Alcoa is taking appropriate action in the face of global market insecurity by shutting down smelting capacity.  This will help Alcoa in two ways –

1. Alcoa is able to continue to reduce operational costs and thereby improve its operating margins.
2. Alcoa is doing what it can to reduce aluminum supply on the market, and thereby do what they can to improve pricing for the metal.

Because the stock hasn’t moved much since our entry, we are going to take half of our position off and keep a 5% holding into earnings.  We will then see if the case becomes clearer for owning a larger position in the shares.

At Stock Market Companion we like to keep our risks LOW, while participating in as much growth as we reasonably can.  We are currently optimistic, but cautious.  Missed opportunties are easier to overcome than real financial losses.

Each investor is on their own.  We are simply communicating our position in the market place.  For more details, please see our disclaimer below.

Your – Stock Market Companion

Alcoa came through with their quarterly earnings after the close and – excluding special costs related to reducing smelting capacity – the company LOST $0.03/share.  This is the company’s first quarterly loss in at least 8 quarters, and is NOT a good sign – fundamentally.   BUT Alcoa has taken action to cut aluminum production, there have been announcements that China may also CUT aluminum production AND Alcoa announced expectations for a +7%  growth in Aluminum demand in 2012.   If aluminum supply is cut and demand increases, then prices may increase for the base metal and put a shine on the share price at Alcoa.  Technically – from a share price perspective – the shares are already very near multi-year and decade lows.  So we will simply have to see what institutional investors do with this information tomorrow.  If the stock price looks like it wants to move higher in the face of this tepid earnings report, in the hope of a brighter future ahead and institutional investors start buying the shares, we will add-to our position.  It is when all the bad-news is baked-into the share price that you can really enjoy a strong run higher in the stock price in anticipation of better times ahead.  We’ll see.  Right now, the shares have NOT sold off in the after hours market.

Here are some bullet-points from Alcoa’s Investor Relations web-page related to today’s earnings release –

4Q 2011 Highlights

• Loss from continuing operations of $193 million, or $0.18 per share; excluding special items, loss from continuing operations of $34 million, or $0.03 per share
• Revenue of $6 billion, down 7 percent sequentially, up 6 percent from 4Q 2010
• Cash from operations of $1.14 billion, up $653 million from 3Q 2011
• Record low days working capital
• Free cash flow of $656 million
• Cash on hand of $1.9 billion
• 531,000 metric tons of capacity closed or curtailed to improve competitive position
• Forecasting 7 percent growth in global aluminum demand and a global aluminum supply deficit in 2012

2011 Full-Year Highlights

• Revenue of $25 billion, up 19 percent over 2010
• Income from continuing operations of $614 million, or $0.55 per share, more than double 2010 results; excluding special items, income from continuing operations of $812 million, or $0.72 per share
• Cash from operations of $2.2 billion
• Free cash flow of $906 million
• Debt-to-capital ratio 35 percent

 

– Benchmarks “At a Glance” –

 

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