– The Stock Market Companion –

15Minute Market Update

May 5, 2013

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

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-Executive Summary-

• Weekly U.S. Stock Market Results = S&P 500 ETF (SPY) +20 pts. (+1.25%), DOW +202 pts. (+1.37%), NASDAQ +77 pts. (+2.33%)
  

    

• Markets – Amid appropriate skepticism, the broader U.S. stock market – as measured by the S&P 500 – marches higher.  This is a very good development for our nation, economy, and for families and individuals – and not just shareholders.  We have some ideas for possibly good investments, below!
  

  
  When stock market values are strong, a wide range of individuals in our country feel better.  They are more likely to invest or make expenditures.  Those who have hiring responsibilities increase hiring.  Jobs are created.  Hiring employees involves risk – and as the markets strengthen – such risk taking increases.  Another very important form of risk-taking also emerges – Those who have waited for the market to rebound before starting a business, find themselves ready to launch new businesses.
  

  
  As mentioned above, individuals and families are more likely to make expenditures when the economy feels stronger.  They fear less about losing their jobs or about abrupt changes in their purchasing abilities.  Consumption increases.  Increasing consumption drives increasing demand.  With increases in demand often come increases in earnings at well-managed, individual companies.  Share prices often LEAD expectations for earnings.  This is perhaps the most difficult counter-intuitive aspect of individual stock investing.  Share prices go up in ANTICIPATION of increases in earnings.  Once the earnings have been achieved, share prices generally already account for the strength in earnings and wise investors – “sell the news” and take their profits when earnings are strong and may be peaking.
  

  Inexperienced investors, to the contrary, hear the news of strong earnings and then decide to invest.  It is then often too late.  They are the ones who end up paying the high prices of shares that experienced investors bought when the shares were cheap, and now are SELLING because they understand that share price development is often very cyclical in nature.
  

  
  Last week we wrote that it was hard for us to believe that the market would simply press higher after the awful Boston bombings and subsequent sharp drop in the markets.  We expected that the markets may find themselves at least confined by the recent top, and trend laterally before making a real decision to continue to move higher or to retrace a bit of the November through late April advances.  Not so!  The markets moved higher.  It is up to us now to uncover interesting investments and decide whether to take them or not.
  

  
  

• We need to find market sectors that are primed to attract investment.  It may be that the processed materials sector like steel and aluminum looks ready to pick-up steam.  We like how the share prices of Alcoa (AA $8.62) and U.S. Steel (X $18.14) moved this last week.  Interested investors can find suitable places to place stop-loss levels and gauge risk.
  

   

• There have been individual stock stories that have resulted in very significant returns for individual investors over the last nine months.  Individual investors will find opportunity where there is predictable behavior occurring in the context of an excellent growth or recovery story at a company.  With the broader U.S. markets in a possible lateral consolidation after a strong run HIGHER since November 16, 2012 lows, there is room for individual stock stories to emerge and be excellent investments.  This is what we at SMC are after.   SMC examples of this are – Facebook at $18.60/share, which advanced to over $32/share this fall, Hewlett Packard shares which advanced from $10/share to over $23/share; Acadia Pharmaceuticals at $5.16/share and now at approx. $13.40/share.
  
• We continue to like very much J.C. Penney stock.  From last week – “Here’s a new idea = JC Penney stock.  Ticker = JCP ($17/share).  The shares were $43/share in February 2012.  The company has just fired its CEO and there is perhaps room to the upside?  How about earnings?  Terrible = -$1.95/share.  Last year, earnings were +0.07.  Revenue has also dropped by -28%, within one year.  Awful.  The managing directors finally had enough of the existing CEO and gave him the boot.  Can the next CEO turn the company around?  Comparable companies are Macy’s or Kohls.  Macy’s last earned $2.05/share and revenue increased +7% since last year.  Macy’s stock sells for $44.63/share at a price earnings ratio of 13.”
  
• We like investment ideas like Alcoa and U.S. Steel (as mentioned above).
  

  
  

• Our SMC investment idea from January 2013, Acadia Pharmaceuticals (ACAD 13.40), is now “untouchable” after gaining +160%.  It is no longer behaving predictably.  We wrote last week – “ACAD has recovered well from the market turbulence from the terrible Boston situation, and the shares sit +160% higher than our indicated buy-point of $5.18 on January 14, 2013.  After such a strong run, it is difficult to recommend an entry for an initial investment here, although the shares are indicating a possible continuation jump higher from here.  There is simply not a good place to put a reasonable stop.  Recent lows of $11.81 would present a decent place to put a protective stop, but it that stop was triggered, the loss would be at least -12%.
  

  
  Here’s our note at the end of December 2012 that prepared the way for this investment for SMC members –

  “(ACAD $4.95) continues to establish itself in a lateral fashion, and appears at the moment to be perhaps ready to move HIGHER.  A move above $5.18 will get us on board.  We have highlighted Acadia Pharmaceuticals (ACAD $4.95) as a stock to watch, after the shares JUMPED +43% in value almost 1.5 months 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.”“
  

• At SMC, we think that the broader market will be perhaps entering a broader consolidation as we enter summertime.  As such, we are not “running” after the market.  As we recently wrote – “We are very interested in pursuing new investments, when all the pieces fit together.  Friday’s broader U.S. market action CONFIRMED Wednesday’s DOWNSIDE reversal for the markets.  The catalyst for the drop was the terrible “Jobs Report” for March.   The reported 88,000 jobs was less than HALF the expected number of jobs created for the month.  Also – IMPORTANTLY – factory data apparently also showed its weakest growth in three months.  Please click here for a good Reuters article on the subject. ”
  
• 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.
  

   

• A close friend and long term (3.5 years) paying subscriber of Stock Market Companion mentioned recently on the phone that he had earned approx. $26,000 by engaging SMC ideas like Facebook (FB) and Acadia Pharmaceuticals (ACAD), as well as other investments that he made in the markets – on his own, since October 2012.  We will inquire for a short written testimonial.  Most importantly, I asked if he had sold his positions, and he said, “Yes”.  This means he captured his gains.  He did what many successful investors have and continue to do – He profited in the stock market and took those profits and invested in real estate.
  

   

• Here’s our early alert on Hewlett Packard which led to a +47% return in 3 months time = “Hewlett Packard (HPQ) has now advanced +11% from our last update, when we shared this chart – “Click here for our SMC Daily Chart of Hewlett Packard Co. (HPQ $13.68), which shows how we are viewing possibilities.””
  

• Our investment in Arena Pharmaceuticals has so far been a disappointment.  We have taken time to create this 5 minute teaching video on this one to give you an idea of how we are seeing things recently.  (Please click on the link and the video will open in a separate tab on your browser).
  

  There are pockets of strength and “oversold” conditions that we at Stock Market Companion will engage in – like our first Facebook investment at approx. $19.20 / share in September 2012 – which recently increased to over $32/share = +66% in 5 month’s time!

• Please click here to send us your feedback.  Let us know how we are doing – We are here to serve you.  Support@Stockmarketcompanion.com