Fed Continues Operation Twist

Back in September of 2011 the fed chairman Ben Bernanke announced Operation Twist, which I wrote about here  Fed Announces Operation Twist. Today the Fed announced a continuation of the same program and that interest rates will remain low through 2014.  The continuation program of selling shorter term treasuries and buying longer dated treasuries is an attempt to keep bond yields low.  The program will run until the end of 2012 and will total 267 billion. The initial program was estimated at 400 billion, which is set to expire.  Similar to the original Operation Twist, the fed's balance sheet will not expand as it did during the release of QE1 and QE2 (quantitative easing).  How did bonds react after the announcement of the continuation of this stimulus package.  Below is the 10 year bond TLT.

This move by the Fed looks like it was telegraphed and expected weeks early as bonds put in an all time high as seen from the chart above.

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 continuation being as equity friendly as the prior two stimulus packages, that did not see a rapid economical improvement when all was said and done anyway.

Bottom Line:  I am not sure what another few 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. Thank you for stopping by.

Greece Kicks the Can

All eyes were on the Greece elections last night.  Greece voters chose to stay on the Euro and accept the bailout money, kicking their problems further down the road.  The markets originally liked this outcome over night, but since then the euphoria has worn off.  The Euro crisis is far from over.  Forget the headlines, let's look into the credit markets of specific country bond yields to see what they are saying.  Below is a chart of Spain 10 year bond yields, which have reached new highs today.

So the cost of borrowing for Spain has increased to new elevated levels.  I would have expected Spain 10 year bond yields to come down some, given the Greece elections have been decided.  Italy 10 year bond yields have also increased today, but not as much as Spain.  Below is a chart of Italy 10 year bond yields.  Not an all time high, but still elevated at over 6%.

Bottom Line:  The Greece elections were an important event to see if they would stay within the Euro.  Even with the outcome to stay in the Euro, the 10 year bond yield in Spain reached a new all time high of over 7%. One has to ask, has anything really been solved. Has the sovereign debt crisis disappeared or have they simply borrowed more time?

 

World Markets

Back in March  I posted the chart below here Weekly Recap 3-23-2012 to show world market performance from major stock markets around the world. Keep in mind, the chart below was year to date up to March 23, 2012.

The returns at that time were beyond exceeding expectations, the returns were outstanding for just three months into the year.  Fast forward to the same chart today of the same world markets and notice a much different picture.  

Since March, returns have vanished as the Brazil (Bovespa) Index is down -24% from the high.  The Japan (NIKK) is now down approximately -20% from its high.  The other country indexes have also fallen back from their highs ranging from -6% to -14%.  

Bottom Line:  The charts above illustrate that the current environment is not conducive to a buy and hold strategy.  I believe the world markets have put in a top in March, have sold off, and will remain under pressure throughout the year.  There will be oversold bounces higher, but I do not see new market highs achieved this year.  Thank you for reading.

Facebook IPO - Sitting on the Sidelines

This article was published on Seeking Alpha here Facebook IPO - Sitting on the Sidelines.  The Facebook IPO on May 18,  presents a rare chance to own an ultimate consumer stock, a company that almost everyone has heard of, or is actively using as a social media gateway to the world.  More details why we elect not to participate in this IPO is in the article.

ACOM - Wait Until A Lower Risk Buy Point

The last time I wrote about ACOM was their third quarter 2011 release here ACOM Third Quarter Results.  Ancestry.com released their first quarter 2012 earnings results on Wednesday April 25th. The company beat on top and bottom line vs. analyst expectations.  I wanted to dig a bit deeper into the numbers to see how the company's growth is compared to the past.  First, let's have a look at sequential revenue growth from 12 quarters back.  Keep in mind, I am looking at revenue growth from quarter to quarter.

2010 Sequential Revenue Growth

 7.2%  15.6%  6.5%  4.3%  = 33.8%

2011 Sequential Revenue Growth

10.0% 11.3%  1.8%  1.1% = 32.8%

2012 Sequential Revenue Growth  

 4.1%   6.9% est. 2.6% est.  2.1% est. = 16.3%

As shown above, ACOM is expecting a slowing of sequential revenue growth after the 2nd quarter release.  This should be viewed as seasonality, as the first and second quarter are the strongest quarters of the year.  But what stands out is the year/year growth drop off from 2010 and 2011 into 2012 of 16.3%.  Based on these numbers, it is understandable why ACOM announced it has purchased Archives.com for 100 million dollars on April 25th to potentially increase growth.

VALUATION:
I have a forward 2012 P/E ratio of 13.02 and a PEG (price earnings growth) of .62.  Both represent excellent value.  I have a price target based on PEG alone of $37.00 per share.

TECHNICALS:
The stock has good support in the $21 to $22 dollar range.  So I would be patient and wait for that area prior to starting a position.  Below is a weekly chart of ACOM.

Bottom Line:  ACOM has done a very good job of maintaining a stable stock price despite declining revenue forecasts.  They have initiated a 100 million potential stock buyback, plan on releasing new products, and has purchased Archive.com for 100 million.  The stock has strong support in the $21-22 dollar price range. I plan on remaining on the sidelines for now and will wait until the stock comes to a lower risk buy point in the low twenties until considering a buy.  Thank you for reading.

Celgene Reports 1st Quarter Results

Corporate earning releases are past history, and at times will have little effect fundamentally moving forward.Celgene's latest earnings release fits into this category well.  This report can be viewed at Seeking Alpha here, Celgene Reports 1st Quarter Results, as we are not allowed to reproduce the report on another website including our own. 

Month of March Recap

The markets returned +3.21% during the month of March.  A 3.21% return annualized is approximately +36% for the year, which is four times the average stock market return.  So it was a strong month for stocks.  Below is a chart of the S&P 500.  Notice the upward trend line support.

Celgene (CELG) is a major holding of ours and we began buying the stock in the low 60's.  The company has several near term catalysts approaching in the 2nd quarter and beyond.  I do not believe the street has given this stock the respect it is due.  Below is a chart of CELG.

Bottom Line:  The overall market is performing well and looks like the move higher will continue into April.  Celgene is a key stock of ours, and we await several near term catalyst to push the shares higher.  The company continues to buy back stock in the open market, and should continue the buyback until the stock hits $100.00 a share, which I believe can happen sometime in 2012.  Thank you for stopping by.

Weekly Recap 3-23-2012

Just a quick look at markets around the world.  Japan and emerging markets have outperformed this 2012 year to date.  The US stock market representative of the S&P 500 index (SPY) has trailed other parts of the world to date, but has still put in a healthy gain so far.  Below is a chart of select stock markets around the world and their year to date results.

As shown above, world markets are putting in healthy returns so far in 2012, with the Nikkei Index in Japan leading the way, higher at + 19.77%. 

Bottom Line:  The returns of these markets around the world have exceeded expectations during the first quarter of 2012.  For now, markets look healthy and are trending higher, but I am expecting a correction sometime during the next few months prior to the 2012 political elections.  Thank you for visiting. 

Celgene Chart Update

Celgene, (CELG) one of our larger holdings has made a multi-year high and is approaching the all time high set in 2008.  Today the stock moved on the rumor that Novartis (NVS) may be interested in purchasing the company for a huge premium at 115.00 per share price.  Though I do not give much credence to rumors, this one seems to make sense on several fronts.  The combined companies would become a Hematology leader worldwide. Below is a chart of CELG.  

The all time high for the stock is around 77.50, or just a 1.50 away from challenging that price.  Below is a monthly chart of CELG.

Bottom Line:  The overall market is moving nicely to the upside and CELG has just broke out to a new multi-year high is can now challenge the all time high of around 77.50.  Today's buyout rumor does make some sense, as the two companies CELG and NVS would have a nice Hematology worldwide product line.  Thank you for stopping by.  

Weekly Recap

The market looks a bit tired right now.  I would expect some sideways action or possibly a 4-6% pullback from the current area to relieve overbought readings.  Then a break higher above resistance to have a sustainable intermediate term market rally. Below is the support area I would expect the S&P 500 to pull back to.

CEN.TO Toronto, or (CENJF) US symbol, is a current holding of ours.  They are an oil exploration company with resources off the coast of Thailand.  This is one of the fastest growing companies that I have seen in the past 20 years. We originally bought in the 16.00 area and repurchased again around the 20.00 area.  Seventy percent of the stock is held by four insiders, making the float available to the public at about 35 million shares.  I believe the company will be purchased within the next 12 months at a premium to today's prices. Below is a weekly chart of CEN.TO.

Bottom Line:  The markets need some side ways to a small pullback, then a move above resistance to have a better chance of an intermediate market rally.  CEN has come a long way, but is still a cheap stock comparing its production and future resources, they should be an attractive acquisition for a larger company. Thank you for stopping by.

Disclosure:  Long CEN.TO 

Charts of Interest

Here's some charts of interest heading into a new and shortened week.  First the S&P 500 exchange traded fund  (SPY).  The S&P 500 has broken out of resistance and has achieved multi-year new highs.  The chart is oversold on a shorter term basis but there is still no reason to be shorting this market based on an intermediate term basis from the chart below.

The next chart of interest is the Euro.  The Euro has had a positive correlation to the US stock market.  In other words, when the Euro is appreciating against the dollar US stocks in general tend to outperform.  The chart really has not made up its mind which direction it will proceed, but it is well of the lows. Below is a chart of the Euro exchange traded fund FXE.

CELG is a large holding in the portfolios.  The stock is closing in on an all time high price of around 77.50.  Once it breaks that level, it will be trading in new high territory.  Below is a monthly chart of CELG.

Bottom Line:  The stock market has been resilient shrugging off average economic data and European debt issues.  The trend is heading higher as the market has broken out of several year resistance points.  There is absolutely no reason to be shorting this market based on the charts above, and I expect higher prices in the future.

Disclosure:  Long CELG

 

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.