– The Stock Market Companion –

15Minute Market Update

August 20, 2012

—— Stock Market Investing since the 1980’s ——

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-Executive Summary-

 

  • Markets FLAT but continue to hold their positive bias.  There is momentarily NO meaningful sell-through pressure.  S&P 500 (-0.03%); DOW (-0.03%); NASDAQ (-0.01%)
  • Market Overview = The market is in a confirmed up-trend, has moved higher on LOW Volume, and has now reached the early April HIGH’s.>

    We are getting our pull-back now in material stocks, which may offer interesting entries.We are CAUTIOUS at this time, due to light market volume and uncertainties related to the economy AND the upcoming U.S. elections.We cannot emphasize enough about how the low prices of material stocks  and slowing economies is keeping us careful and on the sidelines.  Things just don’t gel right now.>Today we read that Bosch is negotiating a shorter work week for its German industrial employees, because business is drying up.  Here is a short article from 8/13 about Bosch avoiding inventory build in India.>

    Crude oil demand is down, YET the crude oil barrel price is rising.  This article (Reuters) is a great one. It identifies that “at the height of summer driving season (in the USA) …, we had the smallest amount of oil consumption since September 2008…”.  The article author attributes a lot of this to gasoline demand dropping, due to more fuel efficient cars.  That’s good news, but we think that it also pointing to our continued, sluggish economy.  Remember, we reported that our US 2nd quarter GDP growth fell to approx. +1.5%, from +2% in the 1st quarter.  Our GDP trend is DOWN currently.>

    This doesn’t mean that we won’t place an investment.  It does mean that we are TWICE CAREFUL at this time.  Maybe the crude oil advance is identifying something in the Middle East that we simply don’t see yet…   We are not conspiracy theorists.  We are simply desiring for things to “line-up” a bit more clearly.

  • Today, Facebook (FB $20.05) gapped DOWN after the open, but at around 10:30 am the shares began attracting a lot of buying interest.  The shares closed HIGHER today.  Please see our review of a Gap-Down, Upside Reversal… below!   This may be a good bounce opportunity for swift investors, or a “toe-in” opportunity for longer term investors.

 

  • At Stock Market Companion, we remain focused on our S.I.M.P.L.E. Stock investments that offer us a clear “story” which includes expanding earnings and a catalyst for change that we can understand.  This year, the “pickings” have been pretty thin – but we have been successful identifying eBay, Mitek, Apple, 3-D Systems, Arena Pharma, Hovnanian this year – which have moved very significantly – although some for only a brief period of time. We have also made mistakes – particularly in the basic materials sector with Alcoa, and in the manufacturing sector with Ford.  Active trading without a clear understanding of catalyst and expanding earnings is a failed proposition.
  • We like how Hewlett Packard (HPQ $20.16) and Dell, Inc. (DELL  $12.56) shares are attracting buying interest today!
  • Home improvement store chain Lowes, Inc. (LOW $26.26) was beaten DOWN today, based on their earnings results reported today – and stands in sharp contrast with The Home Depot shares, which are sitting at near 52 week highs.
  • The Home Depot is showing us an example of what may be happening at other companies this earnings season … Sales are not growing much, but earnings are expanding compared to previous year levels due to good leadership and focusing on the numbers.
    This week,  The Home Depot, Inc. (HD $55) reported earnings expectations for 2012 to be +19% for the year.  Fiscal year sales will be approx. +4.6%.  This is excellent earnings performance on a moderate increase in sales.  This is a result of excellent leadership from HD CEO Frank Blake.   At Stock Market Companion, we have talked about him over the years and identified him as a very good leader, compared to the company’s previous CEO.  The shares of The Home Depot have already risen from approx. $42/share this year for a +31% increase.  This is 5% less than the total performance of eBay’s shares this year, which we focused on at SMC.The Home Depot shares are – from our standpoint – not a purchase we can make on strength, but are rather to consider on strong market weakness.

– Stock Market Companion – Current Holdings –

Nr. Co. Ticker Action Entry Date Current Gain (Loss)
We cannot and DO NOT provide investment advice to individuals. Please see our disclaimer below.

 

 

– Stock Market Companion – ADVANCED INVESTOR OPPORTUNITIES –

 

We are introducing this section so that at SMC, we can “get out of the way” and let you decide for yourselves and not influence members so greatly with our own risk-tolerances and objectives at the time.  We WILL point out key characteristics that we think are important to consider, or logical areas to place stops or offer realistic targets based on our over two decades of investing experience, but we will be less inclined to judge these opportunities beyond that.  What we list in this section will be cover many dimensions:

  • Growth stories following our successful S.I.M.P.L.E. investing method
  • Unusual opportunities arising from oversold or overbought conditions
  • Opportunities presenting themselves due to key technical developments in the shares (key support and resistance line engagement, high volume clues…)
  • Stocks that offer excellent dividend yields and measurable risk
  • Covered Call ideas
  • Higher risk but possibly quite unique investment opportunties
  • Excellent mutual funds and ETF ideas (including off-shore)

At this time, we are including this section in the SMC Basic Membership.  Our advisors may determine that these insights should be offered outside of the basic membership for a modest additional fee. That decision is for sometime later.  Let’s proceed …

Nr. Introduction
Date		 % Gain or (Loss)
(Introduction)		 Co. Ticker Possible Opportunity NOW STOP Level or Other Considerations Possible TARGET REWARD / Risk
Ratio		 S.I.M.P.L.E. Notes +
1 3/7/2012 +/- 0% Vermillion VRML WAIT for break above 3/6 highs for entry ($2.95) With 12 Million shares outstanding, this company could possibly really run on news that its OVA1 test becomes a standard.
For S.E.C. compliance, here too we must  identify clearly whether we have a position.  We may introduce lightly traded stocks for ideas for you, but we will not be able participate in them.  We will maintain a wide margin of compliance with the S.E.C.
All investments involve RISK.  Please remember, at SMC there is no way that we can match our ideas with the suitability or risk tolerance of each member – We therefore cannot and DO NOT provide investment advice to individuals. Please see our disclaimer below.

– 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 1,418.13 Index FLAT
DOW-30 13,271.64 Index FLAT
NASDAQ 3076.21 Index FLAT

 

– Market Trends –

 

Trend

SP-500

DJ-30

NASDAQ
Short Term FLAT FLAT FLAT
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 –

See above.

 

– 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?)

 

This morning, shares of Facebook (FB $22.05) gapped-DOWN at the open, cascading DOWN to approx. $18.80/share in the first 45 minutes of trading.  But then, buyers started showing up and began pressing the shares HIGHER, on BIG VOLUME.  Short sellers (those who have borrowed shares and sold the shares in hopes of buying them back at lower prices) immediately began covering.  As of July 31st, 13% of the outstanding shares of FB were sold SHORT.  That is not so many, BUT adds fuel to what could be a gap-down, UPSIDE reversal.

Here are the characteristics of a meaningful, gap-down reversal –

 

  • Shares been in a state of significant decline for several months.
  •  Selling in the shares have accelerated over the most recent weeks and days, indicating an increase in FEAR and investors abandoning shares.  Repeated bounce attempts in the share price have failed.
  • Share price “breaks” significant price “support” and this break in support triggers MORE SELLING.
  • “Lower-Lows” are established in the share price.
  • On the day of the gap-down reversal, the shares GAP down in morning trading
  • New lows (not necessarily all-time lows) for the shares are achieved, the shares bounce, and then experience again what we call “exhaustion” selling.
  • Buyers begin to purchase shares at the new lows and the shares begin to lift.  Buyers begin seeing a possible opportunity and begin purchasing larger quantities of shares.  Short sellers sense that they may begin to lose money and begin covering their positions, joining the ranks of the buyers to do so.
  • Ideally the shares CLOSE at a share price HIGHER than the previous day’s close, on very, very strong volume (at least 2x average volume).

Today, the shares of Facebook (FB $20.05) fulfilled the above listed criteria for a gap-down UPSIDE reversal.  Average daily volume for FB is approx. 49.3 million shares traded.  Today 101 million shares were traded (a little over 2x). (finance.yahoo.com)

After the markets closed, we read that early FB investor Mr. Peter Thiel sold “most” of his stake in FB, and that other insiders have been buying.  Please click here for this interesting article (CNNMoney).

This may be an interesting moment to purchase shares in FB for those interested in either a quick bounce, or maybe even a longer term hold.  Right now, we are looking at this as a “bounce” opportunity.

– Benchmarks “At a Glance” –

US Dollar


1.2352 USD = 1 Euro

USD / EUR

Dollar =FLAT against the euro.

Gold

$1,622.30

Ounce

Gold = Flat / Up a little.

Oil

$95.82

Barrel (West Texas Crude)

Oil = Flat

30 Yr. Fixed Mortgage

3.7%

Percent

Down below 4%.

10 Yr. Bond Yield

1.81%

Percent

UP, but still down firmly below the important 2% line.

1 Yr. CD

1.00

Percent

Flat

–Data Source : Financial Visualizations Inc.

Please help us by sending your valuable feedback to – Support@stockmarketcompanion.com

 

 

Signing-Off for Today,

Your -Stock Market Companion

** Stock Market Companion Disclaimer **

The Stock Market Companion (SMC) Market Update and Watchlist are published documents to subscribers that show how we (SMC) are viewing the markets and what we are watching, investing in or selling.  This information is for a wide readership and is not intended for any particular individual,  and under no circumstances should this Market Update or Watchlist be considered an investment recommendation or plan for any specific individual.  By accessing this material, you agree that the Stock Market Companion will not be held liable for any actions taken by a subscriber or other parties.  You understand that the Stock Market Companion holds positions in the above mentioned securities.  Based on market related or personal events these positions may change without notice.

Furthermore, the Stock Market Companion, Inc. is a content provider and publisher and not a registered broker-dealer or licensed investment professional.  Our intent is to publish very accurate market information for an audience of subscribers (1000+ subscribers).  By accessing the Stock Market Companion website and/or using the Stock Market Companion products and services such as this Market Update and accompanying Watchlist, you understand and agree that the material provided in the Stock Market Companion products and services is for informational and educational purposes only, and that no mention of a particular security in a Stock Market Companion product or service constitutes a recommendation to buy, sell, or hold that or any other security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.  To the extent any of the information contained in any Stock Market Companion product or service may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.  Before selling or buying any stock or other investment you should consult with a qualified broker or other financial professional to verify pricing information and to solicit advice as to the appropriateness of a given transaction or investment.

  • 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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