– The Stock Market Companion –

15Minute Market Update

December 2, 2012

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

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-Executive Summary-

• The U.S. broader equity markets HAVE stabilized, after dropping more than -6% from September 14th through November 15th.   The broader market S&P 500  currently sits ABOVE its 200 day moving average AND its 50 day moving average in price.  S&P 500 (+.02%%); DOW (+.03%); NASDAQ (-.06%).  
  
• The U.S. markets are in a “confirmed” uptrend.  The UPSIDE reversal day was 11/16/2012 and the confirmation day was 11/23/2012 = 4 trading days later.
  
• Market Overview =  The “fiscal cliff” concerns AND overseas economic weakness has the complete focus of investors – large and small – at this time.  Our cautionary stance towards the market over the past few months has been validated. 
  

  The current four major points of interest for the markets, which will determine near and intermediate term market direction are as follows –

  1. Outcome of U.S. political negotiation related to the “fiscal cliff” scenario, resulting from decade long tax breaks being REMOVED at the same time as automatic, mandatory budget cuts are implemented.

  2. Persistent concerns in Europe, resulting from unresolved European Monetary Union member fiscal policies (Greece, Spain, Portugal) that are putting a strain on the euro, causing lending to dry-up, and reducing investment there.  Europe is currently in a recession.

  3.  Economic stabilization in China, instead of continued manufacturing contraction.

  
  

  4.  Strength or weakness in U.S. corporate earnings AND revenue growth.

  In the USA, our gross domestic product was expanding at a very modest  rate of +2% last February, but since the late spring has been contracting.  Our GDP measures now are at approx. +1.2% – and subject to downward revision.  All gains in the equities markets related to Quantitative Easing III – were erased as the broader U.S. markets sank below 142 on the SPY (“SPY” is the S&P 500 Exchange Traded Fund = ETF).

• “Bottom Fishing” on Groupon (GRPN) from our “heads-up” on November 19th has brought a +33% return for risk tolerant investors.  The trigger came on Monday, November 19th when we reported that a large, reputable hedge fund had taken a significant position in Groupon – “Tonight we read that Tiger Global Hedge Fund has taken a +9.9% ownership position in Groupon (GRPN $3.11).  (Bloomberg)“.  
  

  
  

• We like how the shares of Acadia Pharmaceuticals (ACAD $5.43) JUMPED +43% in value over the last week.  The company has received brokerage upgrades to approx. $9/share, after demonstrating very positive Phase III results for their drug that fights Parkinson’s Psychosis (PSD).  Please click here for the company’s press release highlighting this very significant development.  The shares need to consolidate in a predictable pattern before we will consider an investment.  Shares are consolidating pretty well.  We nnedto see if the $4.78/share level is going to hold, and THEN if the shares are going to push above $5.66.
  

   

• It appears that Chinese manufacturing output is improving.  The Financial Times reports that November brought the fastest pace of growth in over 7 months there.  Please click here for the article.
  The markets are weak because of concerns centered on real (actual) CONTRACTION in the European, Chinese, and Japanese economies AND DUE TO THE UPCOMING “Fiscal Cliff” situation and UNCERTAINTY that it brings with it in the USA.  The “Fiscal Cliff” is a valid concern that unless the U.S. Congress takes action, in January the Bush era tax cuts automatically go away AND the automatic deficit reduction measures established last year by congress go into effect.  The combination of these two items would severely impact our economy.
  

• We like how Arena Pharmaceuticals (ARNA $9.31)  is building a higher, flat base between $7 and $9.50/share, holding reasonably firmly through the markets rough spell these last few months.  This one may have some real upside potential.
  

  
  

• We have been reporting about Hewlett Packard Co. (HPQ) with a certain regularity now.  We believe that there is an opportunity NOW with Hewlett Packard, Co. (HPQ $12.99).  Buy and hold investors may find a stop just below the 11/20 CLOSE of 11.71 suitable for a long term hold.
  

• Facebook (FB $28) has been a strong opportunity for SMC members.  The shares have advanced from $22.88 to $28 = +22%, since our reporting in early November … “We wrote … Shares of Facebook (FB $22.88) did squeeze higher as we predicted last week … “Facebook announced a “Jobs” page and jumped strongly higher, even though approx. 800 million ADDITIONAL shares were made available for sale today.  Risk tolerant investors, experienced in options may find a “short squeeze” unfolding in Facebook shares.”  
  

   

• Please click here to view today’s Stock Market Companion Daily Chart of the S&P 500 ETF (SPY) – Our Roadmap for Successfully Investing in the U.S. Domestic Stock Markets.
  
• There are pockets of strength and “oversold” conditions that we at Stock Market Companion will engage in – like our recent and first Facebook investment and our investment in Arena Pharmaceuticals and its NEW appetite suppressing, prescription diet drug – and others to come (with time). 

• 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.