Chart Update

I still like the uptrend of the overall market here.  The S&P 500 is close to a breakout higher (above the resistance zone) that I believe will take it to the 140 level in the coming weeks. As long as the overall market is trending higher we can still hold onto stocks for the near to intermediate term time frame.  Below is a chart of the S&P 500 fund (SPY).

Bottom Line:  There is still the issue of a Greece default down the road that may have an effect on Portugal and other countries within the EU.  But for now, markets are willing to put those worries aside and focus on corporate earnings and a potential economic recovery in the US.  We remain about 90% invested.  Thank you for stopping by.

 

Market Recap - Tuesday December 10th

Three breakout charts below.  First the S&P 500 index ETF (SPY) breaking out above prior resistance.  Please click chart to view.

Although the S&P 500 has not been trading at very high volume, the volume today was 15% higher than yesterday, which counts for something.  Below is a confirmation chart of the transportation index, also breaking out higher.  

Lastly a holding of ours, CELG, has broken out higher on above average volume.  The breakout is a multi-year new high.

Bottom Line:  From a technical basis we have both the S&P 500 and the transportation index on breakouts above previous resistance levels.  On a shorter term basis the market is getting a bit overbought so I would expect some consolidation prior to extending the gains.  CELG a holding of ours has made a clean break higher on above average volume.  I am looking for more upside from them also.  Thank you for stopping by. 

US Dollar and Stocks

I have written about the non correlation between the US Dollar Index and stocks several times including most recently here US Dollar and Stocks. Another words when the dollar index was appreciating higher in value, stocks were falling at the same time.  This non correlation was extremely strong up to around September of 2011.  Let's have a look at a 4 month chart of the US Dollar Index and the S&P 500 with performance since this time.

Notice that both the S&P 500 is higher by 9.62% and at the same time the US Dollar Index is higher by 8.27%.  So the question becomes, has the non correlation been broken?  For the time being yes.  Part of this reason could be due to economic releases that have been better than expected over this past month, or that investment dollars are finding their way out of Europe and into US stocks while the dollar gains strength against the Euro currency. Thank you for stopping by.

 

Chart of Interest

CELG, a major holding of ours, is on the verge of a multi-year high breakout. The previous price high was 68.25.  What I would typically like to see on a breakout is above average volume and closing near the high of the day. Below is a chart of CELG. Please click to view image.

Bottom Line:  A breakout of the 68.25 area with decent volume could clear the way for this stock to run into the mid 70's.  Technical aside, the company will be giving 2012 guidance on January 9th at the JPM healthcare conference. Thank you for reading.

Italian Bonds

Complacency is running extremely high as the EU countries start their two day meeting this week Thursday and Friday.  The meeting to discuss how to restore confidence in the European financial system.  Right now virtually nobody wants to loan money to financially troubled countries in the EU and nobody wants to lend money to major European banks. Europe was able to bail out Greece, Ireland and Portugal, but bailing out Italy is a whole different story.  All debt in Italy is 1.9 trillion euros or 120% of GDP.  Italy is indebted to France for 309 billion euros and Germany for 120 billion euros.  So its easy to see why France and Germany are in the public light when it comes to the EU debt crises, Italy owes a majority of its debt to those two countries.
The solution of countries needing  to cut back on spending during a time of high unemployment in the EU, will not make matters any better either.  Austerity measures in these countries becomes near impossible to do when they are in a recessionary environment. Below is a chart of Italy 10 year bond yields.  They reached a high of around 7% before just recently pulling back to under 6% yield, which is positive.  This move up in yields happened all during ECB bond intervention.  Another words the ECB has been buying Italy bonds in an attempt to keep yields from moving higher.

Bottom Line:  This two day summit in the EU Thursday and Friday may give us some clarity on how they intend to get out of this debt issue mess.  The end result for US stocks revolves the currencies ( Euro and USD ).  A default of Italy or a breakup of the European Union could send the US Dollar higher, which would have a negative effect on US stocks.  This, all outside of the possibility of a global recession occurring in 2012 all on its own.  Complacency is running high as stock markets rally higher in what many do not want to miss out on the Santa rally in December, or funds that find themselves under invested.  The fear of missing out on a market run is greater than the fear of losing investment capital at this time.  Thanks for reading.

Sector Comparison

Here's a comparison of two sectors that have high and low ticket items. Below is a chart of Ford, GM and a major auto supplier Lear.  Ford and GM are both down approximately - 40% and Lear is down around -18% this year alone. These are companies that sell high priced items to the consumer, or provide items to the auto industry as Lear does.

Copper a leading economical indicator is down - 27.63%, as shown by the the copper ETF (JJC). Copper is used in just about any large scale building including auto and homes.

Not to show just bearish looking charts, below is a nice looking chart of stocks that cater to people looking for low cost items and food.  McDonald's, Dollar General, Dollar Stores, and Walmart all fit this category and are all higher for the year with Dollar General up 28%.

So what we have is a tale of two industries.  Car manufacturers and anything heavy duty including copper has been sold off hard which is expected in a struggling economy. McDonald's, where you can feed a family of four for around $20.00 and the $1 dollar stores have seen their stocks appreciate this year.  

Bottom Line:  Monitoring charts like these can be helpful in determining the mindset of the consumer.  Is the consumer still pulling back and staying away from high priced ticket items and continuing their cost conscious ways by visiting the economical low cost stores, or have they opened up their wallets to higher ticket items that have a longer term obligation to pay off.  For now, the consumer is extremely risk averse with their purchasing habits.  I would expect those charts to reverse when the economy starts a recovery.  A potentially good trade would be to go long the autos manufacturers and sell short the low cost providers when the economy does rebound.

 

Market Recap - Wednesday November 16

Today is a perfect example of the kind of stock market we currently have been experiencing.  Today around 3:00 pm stocks started to sell off under heavy volume.  From what I can see the 3:00 pm reversal down was caused by three reasons. The price of oil breaking 102.00 per barrel to the upside, a stronger US Dollar Index, unsolved EU Debt Issues.
First let's take a look at a 5 minute one day chart of the S&P 500 (SPY).  Notice the 3:00 pm sell off on heavy volume.

Below, is a chart of oil breaking out above the 102.00 dollar range.  Expect higher gas at the pump soon.

Bottom Line:  What we have is a very fragile market that has been moving on headline news primarily about what's going on in Europe.  Couple that with high oil, and you have a market ripe for a sell off.  Those who are bullish, are expecting a Santa Claus rally into the new year.  I think the chances of such a rally are diminishing quickly.  The headwind of high oil alone is enough to keep the market from putting in a year end rally. Thank you for stopping by.

World Stock Market Performance

Stock indices around the world have been performing poorly on a relative basis to the US S&P 500 Index.  Part of the reason for that is because capital is coming out of Europe and into US stocks. Below is a chart showing the various country indexes from around the world.  They include Brazil, China, Germany, Japan and Hong Kong.

As you can view above, all the major indexes around the world are currently down double digits this year.  The best place to have placed your investments this year would be the S&P 500 and not on the other major indexes around the world.  Stocks as of late sure have a bullish tone to them, with every dip in the market being bought.  Thank you for reading.

US Dollar and Stocks

What's moving the stock market these days?  The answer is the strength or weakness of the US Dollar Index.I wrote about this phenomenon some time ago here U.S. Dollar Weakness and the Markets.  Below is a chart of the inverse correlation or non-correlation between the US Dollar and the S&P 500 Index. Notice when the dollar strengthens like today, and yesterday, the stock market moves lower.  Notice the chart of the non-correlation between the two.  US Dollar in red, S&P 500 in black.

Stocks like a weaker currency, because in general companies become more competitive selling their items world wide.  The dollar has gained strength for two reasons:  First Japan is actively intervening in their currency to drive it lower to become more competitive, and secondly, the debt problems in Europe have also led to a lower Euro vs. the Dollar.  

Bottom Line:  Monitoring currencies has become just as important as stock indexes around the world.  So for now if we keep experiencing dollar strength then I would continue to expect some weakness in stocks at the same time. Thank you for stopping by.

ACOM Third Quarter Results

Ancestry.com posted 3rd quarter results after the bell.  Revenues were in line and earnings per share exceeded analyst estimates by .05 cents to .40 versus the .35 estimate.  The company achieved bottom line by recording a very low G&A of just 9.5% of revenue, and a lower tax rate, ( the lowest in the last two years).
I previously wrote about ACOM's 2nd quarter results here ACOM Results.  My biggest concern for the stock in the near term was the sequential drop off in subscriber growth rate, which I posted below.
2010
14.00%, 8.00%, 5.00%, 1.30%.
2011
15.77%, 3.52%, 1.67%, 1.17%
The current guidance for sequential subscriber growth rates now looks like this.
2011
15.77%, 3.52%, 1.73%, -.65%
These subscriber numbers are not surprising, and actually I expected a marginal drop off due to a very challenging environment.
VALUATION:
Attractive at these price levels.  I just reviewed NFLX and AMZN results the last couple of days.  Those results compared to ACOM look terrible and the stocks are still overvalued even after their selloffs.  I have ACOM trading at a forward P/E ratio of 12.78, which is the lowest this stock has seen in the last two years. I have a price target in the 40's.
TECHNICALS:
ACOM has shown support in the low 20's area over the last six weeks time period.  Below is a weekly chart of ACOM.  The stock is very over sold on a weekly basis.  

Bottom Line:  Although the company achieved bottom line results by managing a lower G&A line and tax rate, these results are good comparatively to other consumer oriented stocks, and I believe the stock has already discounted the subscriber drop off rates going forward.  The company has announced a 50 million dollar share buyback also, and could seek an existing credit facility for the buyback.  The company had cash of around 46 million, end third quarter. Buying in the low 20's makes sense if you plan on holding the shares for a while.  

Contact: 586-431-8000

Fed Announces "Operation Twist"

So what is "Operation Twist"?  Basically the Fed will buy 400B worth of longer dated bonds and fund the purchase by selling an equal amount of bonds with the maturity of 3 years or less to fund that purchase.  This will all be done prior to June 2012.  The feds balance sheet will not expand as it did during the release of QE1 and QE2 (quantitative easing).  Bonds in the range of 6 to 30 years will be purchased, and an equal amount of bonds 3 years and under will be sold, all in the hopes of stimulating the housing market.
How did bonds react after the announcement of this stimulus package.  Below is the 10 year bond TLT.

Unlike QE1 and QE2, this stimulus package does not look to benefit stocks and commodities.  Under QE1 & 2, the feds balance expanded by purchasing mortgage backed securities and treasuries, and the liquidity found its way into stocks, commodities and bonds worldwide.  I don't see this stimulus as being as equity friendly as the prior two stimulus packages, that did not see a rapid economical improvement anyway.  

Bottom Line:  I believe the Fed Reserve is out of ideas to stimulate the economy and chose now to focus solely on the housing market.  I am not sure what another 50 basis points lower will do to spur the housing market.  Also, unlike QE1 and QE2, this package will not have a direct effect on stocks or commodities, but should lift longer maturing bonds (lower yields) in an effort to boost the housing market.  I expect stocks to be under pressure in the near term based on the makeup of this stimulus package.  Thank you for stopping by.

Macro Data

We have an important week ahead for the markets with these reports to consider.
* ISM data on Tuesday
* Jobless claims on Thursday
* President Obama speech Thursday evening 7 p.m.(His latest proposal to create jobs and boost the economy).
There are fewer safe havens to preserve assets globally at the present time. Below is a chart of Germany's DAX index.  Germany is a top exporter of higher priced goods worldwide. What you see below is a market crash as the index is down approximately 30% from the high this year and has taken out the 2010 low today.

I have noticed a very tight correlation (markets that track each other) between Germany's DAX and the S$P 500 index.  So what is that correlation telling us now.  Below is a chart overlaying the two indexes.  Notice the recent skew today, or the fact that the correlation needs some catching up to do.  Is Germany's DAX index a leading indicator for US stocks?  It will be interesting to see how that correlation plays out in the coming weeks.

Finally just to show a comparison between 10 year bond yields today compared to the crash low yield of 2009.  Safety of capital is driving yields lower.

Bottom Line:  Markets around the world are on shaky ground as shown by the crash that has occurred with Germany's DAX index.  The 10 year bond yield shows a flight to safety also. The presidential address Thursday evening will have my attention to see if any new plans are in the works to create jobs and stimulate the economy. We have no positions above.  Thanks for stopping by.