– The Stock Market Companion –

15Minute Market Update

November 6, 2012

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

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-Executive Summary-

• The markets are still attempting to stabilize after a -6% drop in value in the broader U.S. equity markets in a bit more than 2 month’s time.   The broader market S&P 500  plunged below its 200 day moving average 14 trading days ago, but has since moved back above its 200 day moving average and above its 50 day moving average.  Please see the SMC S&P 500 ETF (SPY) Daily Chart, below for details.   
  
• Market Overview = The important Institute for Supply Management (ISM) U.S. November manufacturing survey, measured WEAKNESS not seen since July 2009.  ISM non-manufacturing results (read: retail and housing) remained strong for November.  This is natural – often the non-manufacturing sector lags the manufacturing index in trend.  People spend money that they have already made, then realize that their earnings are diminishing and then reign in their future spending.
  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, with the broader U.S. market losing over  -6% in value over the last 2 months. 
  

  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).

• Our assessment last of Hewlett Packard Co. shares being an attracting investment, has been validated.  The shares are UP approx. 10% since our note.   We are however reluctant to engage the markets at this time with so much uncertainty surrounding us.  We are ready for sudden and abrupt opportunities, and HPQ was one of them that we identified, but didn’t take.  In retrospect, we would have been fine to take the investment, BUT with a lower investment amount at risk.
  

  
  

• We have highlighted Acadia Pharmaceuticals (ACAD $4.63) as a stock to watch, after the shares JUMPED +43% in value a little over a week ago.  We wrote …”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.”  Selling has continued in the shares, pushing their value back below recent consolidation support at $4.81.  We have time to watch this one carefully.
  

   

• 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.
  

  
  

• Over the last two weeks we have talked about the shares of Facebook (FB $26.15) being a good opportunity.  The shares have advanced strongly = from $22.88 to $26.15 in this short time.  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).
• Please click here for the Employment Situation – September 2012 – presented by the U.S. Bureau of Labor.
  

  
  Please observe this measure of total unemployed- buried in the Bureau of Labor’s report – which measures more than 14% (but still an improvement over last year).  This measure is known as “U6”.  This is an eye opener.  There are over 6.5 million Americans who would like to be working, and are not.
  

• 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.