– Stock Market Companion – Current Holdings –

(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) –

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 –

FEAR returned to the markets today, as increased uncertainty about Europe pushed the euro to Multi-year LOWS against the U.S. dollar.  The fear is being driven by the regular culprits –

• Uncertainty if Greece will remain a member of the European Monetary Union (EMU)
• Concerns of Spanish banks requiring bailout funds
• Total lack of overall European leadership in the face of this crisis.  There is no one taking the lead.

With the euro crashing down to levels last seen in 2010, and the U.S. dollar rocketing higher,  the price of a barrel of crude oil sank hard – down to $87 and change.  Equities (stocks) had no choice but to go down.

Yesterday’s strength in commodity based stocks like our SMC holding in Alcoa and short term idea of Freeport McMoran from last week, which generated some good initial returns (finally, yesterday) was a distant memory today.

– S.I.M.P.L.E. Stock Investing Method tm –

– (Where each investment begins with a Story and ends with Earnings) –

S.I.M.P.L.E. Stock Investing is built upon these core concepts –

S = Story (What is / are the key catalyst(s) behind the company of interest?)

I = Institutional Investor Interest (Is the stock chart showing investor interest = buying or share accumulation?)

M = Market (Is the background market favorable for investing at this time?  Don’t Fight the Market! We know the vast majority of stocks move in the direction of the overall market).

P = Person or Product (Is there a particular person or product that makes the story work for this investment?)

L = Leader (Is the company a leader in its industry group or is its product a leader in its market?)

E = Earnings (Are current quarterly earnings and annual earnings growing?)

At some point, Facebook (FB $28.10) will be a bargain.  The market always OVER-REACTS.  FB opened for trading 8 long days ago, moving from $38 to $45 in the first minutes of trading and then sank hard all day long.  The selling has continued, with a brief reprieve at the $31-$32 line on the 4th and 5th day, and now the shares have closed trading today at the low-end of the original Initial Public Offering (IPO) price range of $28-$35.

The problem with this entire FB – fiasco, is that it removes CONFIDENCE in the markets and those who run the markets.  While the FB sell-off is different than the sudden FLASH-CRASH from May 2010, the outcome is the same.  Less confidence and more fear.

Let’s try to look at FB quickly in terms some form of rational thinking.  We will use Google (GOOG $588)  as a comparison.  When Google had its IPO in 2004, it’s price to sales ratio (P/S) was 15, based on 2003 revenue levels.  At $38/share, FB had a P/S ratio of 22, which is 47% higher than Google P/S of 15.  If we take the FB price of 38 and reduce it by 46%, we get a price of approx. $17.73/share.  When Google IPO’d, it was growing at an annual rate above +200%.  FB grew in 2011 at a rate of 88%.  Let’s use a simple ratio regarding annual growth and P/S.  If Google’s 200% growth rate justifies a P/S of 15, then a 88% growth rate for an internet phenomenon and ultimate “buzz” stock called FB = 6.6.  Hmmm.  Again, let’s use a simple ratio calculating what the share price should be of a P/S of 6.6, when $38 represented a P/S of 22…  We arrive at a price of $11.40/share.

But Facebook is NOT just an internet phenomenon.  It has real earnings, strong growth, and over 900 million users.  Linked-In (LNKD $98.13) has CURRENTLY a P/S ratio of 21 and trades at price / earnings ratio above 200.  At $38/share, FB’s P/S ratio of 22 compares well with Linked-In.  If Facebook drops into the low to mid 20’s on sudden weakness in the market and strong disdain for the FB shares, we may consider an investment.

Arguments that FB has missed “mobile” and somehow doesn’t know how to monetize its enormous user-base is banter.  If wild concerns like that somehow push the shares down harder in price, we will consider buying some, provided the markets are not in total dis-array.

– Benchmarks “At a Glance” –

–Data Source : Financial Visualizations Inc.