– Stock Market Companion – Current Holdings –

Nr.	Co.	Ticker	Action	Entry Date	Current Gain (Loss)
1	Gentiva Health	GTIV	Sold Yesterday Sent Intra-Day Alert	11/15/2011	+16% (Final)
2	Boeing, Co.	BA	Holding	12/22/2011	+/-0%
3	DEX-One Corp.	DEXO	Holding	12/29/2011	+36%
4	Alcoa, Inc.	AA	Sold Yesterday Sent Intra-Day Alert	1/3/2012	+1.9% (Final)
5	Dendreon, Inc.	DNDN	Purchased Today	1/11/2012	+/-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	1,292.48	Index	Flat = +0.40 points
DOW-30	12,449.45	Index	Flat = -13.02 points
NASDAQ	2,710.76	Index	Flat = +8.26 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 –

One of the great dangers for investors in the markets is to be stuck in a thinking pattern defined by a previous market climate, when the climate has changed.  (According to Stock Market Companion)

Today the Federal Reserve released its Beige Book.  The Beige Book is an important survey of business conditions in each of the Federal Reserve’s 12 districts.  It gives a good overview of economic conditions – on the ground level – which is what we need.

Click here for today’s Beige Book release.  It’s an easy, important read.  It’s no surprise that a Federal Reserve member today was talking about the importance of not being hemmed-in by the calendar when considering monetary policy.  If things improve faster than is expected, the Federal Reserve will want to be pro-active to reign in some of the liquidity that has been released to stimulate the economy.

Here are the first three paragraphs from the Beige Book Summary Report –

“Contact reports from the twelve Federal Reserve Districts suggest that national economic activity

expanded at a modest to moderate pace during the reporting period of late November through the end of

December. Seven Districts characterized growth as modest; of the remaining five, New York and

Chicago noted a pickup in the pace of growth, Dallas and San Francisco reported moderate growth, and

Richmond indicated that activity flattened or improved slightly. Compared with prior summaries, the

reports on balance suggest ongoing improvement in economic conditions in recent months, with most

Districts highlighting more favorable conditions than identified in reports from the late spring through

early fall.

Consumer spending picked up in most Districts, reflecting significant gains in holiday retail sales

compared with last year’s season, and activity in the travel and tourism sector expanded in most areas.

Demand strengthened further for nonfinancial services, including professional and transportation services.

Manufacturing activity generally continued to expand, although the pace of growth has slowed for

selected subsectors such as technology products. Agricultural producers and extractors of natural

resources reported generally robust conditions. Activity stayed sluggish in residential real estate markets,

and conditions in commercial real estate markets remained somewhat soft overall but showed signs of

ongoing improvement in several Districts. Reports from financial institutions generally indicated a slight

uptick in loan demand by businesses, along with improvements in overall credit quality.

Upward price pressures and price increases remained quite limited for most categories of final

goods and services, as the effects of prior increases in the costs of selected inputs have eased. Upward

wage pressures were modest overall, although a few Districts noted substantial compensation increases

for workers with specialized skills in selected sectors and regions.” (Bold-face type = Stock Market Companion)

 

The markets had every reason to go down today, due primarily  to an opportunity for profit taking AND concerns brewing in Europe – but there wasn’t much profit taking occurring.  Instead we saw strength in materials (Read: Aluminum + Steel + Copper) and the financials.  See below.

 

– Story-Stock Investing –

We like how Alcoa, Inc. (AA $9.65) improved after yesterday’s weakness.  At Stock Market Companion, we are not opposed to getting-out of the market on signs of weakness and – if we find that the stock(s) that we like are instead holding up quite well – we find ourselves getting back on board.  This is how we have avoided tragic losses over the last decades AND participated in very strong gains.  Of course, we would prefer not to micro-manage our holdings.  It’s a balancing act.  We tend to error on the side of caution.

We held GTIV almost two months.  We hope to hold Boeing and Dex-One also as long as possible.  The real answer is – we will hold them as long as they are going UP.  If they get to a point when it looks like it is wise for us to take our money, we will do simply that.

A good example of this may be what happened today in Gentiva Health (GTIV $7.57).  Yesterday, the stock received a brutal downgrade and a target of $4/share and the stock shot right back higher today.  That’s a change from last year’s behavior in the markets.  Last year, stocks receiving that kind of negative exposure were quickly pushed out the window (An old Wall Street cliche’ = Bulls go up the stairs and Bears go out the window).  Some stocks are flying out the window this year too –  yesterday WebMD (Ticker: WBMD $26.15) was given a -30% punishment.  On January 3rd, WBMD was $39/share.  Today the stock is $26.15/share.

We won’t be surprised if we find it is wise to get back on board Alcoa.  The market has been handling their first quarterly loss in 8 quarters quite well – today.  Let’s see what tomorrow brings.  Remember, we are interested in this one because it can move quickly and favorably when moving UP out of a possible oversold condition.  If the market is able to look beyond the quarterly loss reported, that will be very favorable news indeed which we will want to capitalize on.

Our risks go down on an investment like that.  Think about it.  When a company reports a quarterly loss for the first time in over 2 years, which may signal more weakness ahead, BUT the market is willing to overlook that problem because they like the idea of possibly seeing aluminum supply contracting ahead and aluminum prices increasing – that’s a good time to invest in a stock.  The stock will at least not be so susceptible to an analyst downgrade based on weak earnings.  It may be that the investment community is thinking that Alcoa had their “kitchen sink” quarter – where all the negative news is now revealed and baked-in to the price.  We’ll see.

Bank of America (BAC $6.87) is also looking very BUFF here at $6.87, with a nice breakout occurring on the move above $6/share, 5 days ago.  The hint from the Beige book (above) about improving lending conditions is unquestionably helping BAC here.

We are also adding a new stock for us to the SMC Watchlist = A123 (AONE $2.41).  The company designs and manufactures battery systems for electric and hybrid vehicles.  They received a nice analyst comment today from Deutsche Bank.  Here is the A123 website link … It’s exciting (for those who like technology).  You can check out their investors relations area here – http://ir.a123systems.com/

Now – Here are some answers that we have given to some recent emails on specific investment questions.  Please see our disclaimer below.

Brokerage Ideas –

Hi Craig – I frequently am asked the question about what brokerages I prefer.   Thankfully, the financial crisis gave us a chance to see how good the discount brokerages are.  Most are still with us – which means that most past the test of financial horsepower and staying power.  The next question is the level of service that you would like.   I use Ameritrade because I was using Think or Swim until it was bought out by Ameritrade.  Ameritrade also offers the paper-trading format that I like.

All discount brokerages have their advantages … some offer cheaper commissions, but the customer service may then be more automated and less personal…

It’s important to keep the transaction costs low while matching your level of expectation for customer service.

Hope this helps, and welcome aboard at Stock Market Companion –

Eric

Pandora (P $12.45) –  I received this email yesterday after the close and answered it immediately.  The stock (P) gapped-up today.

 

Hi Eric,

Pandora Media ( P ) got a analyst upgrade today and it gapped higher by almost 10% to 11.48 after dropping from 15 only a month ago.  Pandora is very popular with many people I know including myself for the past few years.  It has it’s so-called Genome Project which can find songs similar to a song that you like and play them as your own personal radio station.  I do not know of any other digital radio station that does that.  Also, they now have positive earnings.

Jim

 

Jim – Pandora is very interesting.    Plus it’s Needham were talking about as the analyst .. they are generally pretty good.  P has a good back-stop as well for a decent stop.   I like Needham’s bullet point 3 secular trends = mobile ad growth; market upside disruption, bottom in music

Needham gave it a target of 13

Hmmm.

E.

Colfax (CFX $31.93) – Received this email on Monday night, while I was wrapping up in my office.  I was able to shoot an answer right away –

 

Hi Eric,

I was studying the chart pattern of CFX today and am curious if you can identify a buy signal with confirmation that signaled the recent price reversal off the $28 support level.  The stock has been trading in a $28-32 price range recently.  Do you think this is due to sector rotation?  The stock was 3% higher today on heavy volume.  Where do you think the price is headed in the next few days based on this chart pattern?

Thanks,

Gary

Hi Gary –

CFX.  This one sure has explosive power.

In September, the co announced that it was planning to buy Charter Intl. for $2.4 billion, expanding the focus of company from pumps and valves to broader engineering services.  That’s an expensive acquisition.

Float = 33 million shares = right in the sweet spot I teach about.

Earnings = .37, .32, .23, .39 over the last 4 quarters (latest to oldest qtr.) = not exactly blowing the doors off.  But revenue on the other hand is aggressively growing = 28.6%, 51.8%, 32.2%, 27.3% (Latest to oldest year over year rev. growth).

Goodwill of 172 million is a disappointment.  “Other assets” of 340 million also undefined.  528 million “other liabilities”   = these are all things that look circumspect from the balance sheet.

Cash equivalents are increasing = good.

Earnings are trending higher.

Technicals = your assessment of the chart is good. Volume the last 4 days good with the stock coming off its 50 day and pushing higher in earnest.

Because I am now more conservative towards this market (market leading stocks acting over-bought), my personal approach would be to wait to see how the stock handles the $31.50 area.  I’d make it prove itself.  This one can turn on a dime.  It certainly has explosive power.

I don’t like its balance sheet acrobatics, but if I could point to a specific catalyst that made sense to me like a market leading pump type that is being used across the board in all fracking operations …  then I would be much more enthusiastic.

Don’t let me talk you out of this one.  It has proven itself to be a real race horse.  A move above 31.5 could see it really march higher.

Do you have a specific catalyst that is interesting you about the stock?

Eric

– Benchmarks “At a Glance” –

 

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