Saturday, August 21, 2010

8/21/10 Catching The Next Wave

Soccer practice started Wednesday for the little guy. The parents were chatting and one conversation surprised me with the number of teachers in San Mateo County (several who taught at my son's grade school) who had been laid off. The coach himself (an ex-IT project manager) has been unemployed for over 2 years.

On the other hand, the playing fields of all the local schools have been/will be re-sod, and the kids are playing on new grass. The local hospital is two months away from opening the doors to its new state-of-the-art (and seismically sound) facility.

I find myself thinking the market sells off to yearly lows over the next two months.

On the other hand, I'm leaning towards opening positions in companies with battered share prices.

Transitional periods are always difficult to navigate. When it's all going down or all going up, it comes down to going short or going long. When divergences abound, it comes down to picking sectors and/or companies (or sitting on the sidelines).

The next wave of economic prosperity will arrive at some point, as it always does. Certain sectors will lift, while others are left behind- or at least late to join the party. I can see the need for technology, in particular the need for secure technology- so I like INTC at current prices.

22 comments:

  1. I'll be away most of the day. May return with a story or two.

    Enjoy one of the last weekends before it all starts again- kids back to school, traders back to turnstiles.

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  2. It looks like Charles Kirk is doing the same type of weekly videos as Landry. Believe membership is required though, but he did post one from a couple weeks ago for open viewing. Worth a listen...

    http://www.kirkreport.com/10/chartshow_free.html

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  3. This article in the Financial Post (Canada) is in line with my current framework:

    I have always liked Ron's market summaries in the past.


    [Pessimism key to next upleg in stocks

    David Pett August 19, 2010 – 12:43 pm

    Did the latest rally in equities really end last week when markets tumbled almost 4%? David Tippen and Ron Meisels don’t think so.

    In a note to clients Thursday, the two technical analysts at Phases & Cycles said last week’s sell off was just a much-needed breather and they believe the primary trend for stocks remains positive.

    “The five-week rally from early July to the first week of August put the major market indices near their respective 200-day moving averages – a normal pause point – and more importantly put the markets in a short-term overbought position,” they wrote.

    Mr. Tippen and Mr. Meisels said widespread pessimism that followed last week’s broad declines should be viewed as a contrarian indicator and combined with favourable technical and cyclical measures the growing negative sentiment is laying the basis for a new leg up in the bull market.

    “Currently what we see is a market environment where negative news and bearish expectations are emphasized,” they said.

    “This pessimism looks excessive, but, at the same time, it creates the “wall of worry” the markets need, in order to climb higher.”]

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  4. shark--

    You may find these performance statements of interest...

    http://www.kirkreport.com/portfolio2004.html
    http://www.kirkreport.com/portfolio2005.html
    http://www.kirkreport.com/portfolio2006.html
    http://www.kirkreport.com/portfolio2007.html

    Although he has a lot of good material out there, I always liked this one best...

    http://www.thekirkreport.com/2007/06/my-perfect-four.html

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  5. My strategy with PST calls will be to buy 1 call on Monday, then if PST drops to $39 to buy another 1 call, to $38 -- another 1 call, etc., until I have about $2K invested in them. For each purchased call, I'll set a sell limit order at twice the purchase price. So even if PST keeps going down for some time and then rebounds only up to $40, then the calls I will buy later on will still double in price.

    Why buy PST now? It seems to have found a bottom at 2.5% on the 10-year yield, and Bernanke did mention in this famous speech that a preferred method of quantitative easing would be to keep buying treasuries until the yield drops to 2.5%. So I think the downside for PST is pretty limited at this point.

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  6. Wonder if Chinese aviation industry growth might help Garmin out a little?:

    "Illegal Flights Cause Confusion in China's Skies
    By Chengcheng Jiang / Beijing Monday, Aug. 16, 2010
    On a recent summer's evening, a shimmering metallic object appeared in the skies above the city of Hangzhou in eastern China. Gliding across the dusky sky, the craft startled locals and frightened air-traffic controllers, who promptly closed Hangzhou's busy airport and locked down the city's airspace for more than an hour. News of the Hangzhou UFO even made the national news.

    But when amateur pictures of the craft were splashed across Chinese newspapers the following morning, experts quickly determined that Hangzhou was not under threat of an imminent alien invasion. Rather, the flying object was identified as most likely being another example of an increasingly common nuisance in China's airspace: off-the-grid, short-hop flights by local private-plane owners. China's airspace is tightly controlled by the government, and access for any crafts other than commercial or military aircraft is strictly limited. But as planes and helicopters become the new playthings of China's wealthy elite, private-plane owners are agitating for more freedom to fly, and hei fei, or black flights, are becoming a headache for the nation's air-traffic controllers. "

    http://www.time.com/time/world/article/0,8599,2010920,00.html

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  7. Alternatively, I may play PST "the right way": waiting for it to break out of its downtrend and then enter it. In fact, PST seems like it has already put in a small double bottom, and so I have just placed a buy stop limit order on it for 200 shares at $41/$41.05. If that order gets triggered, I'll set a sell stop order at $40.

    So even if I PST keeps going down and I keep trying to enter it on fake break-outs (losing $1 in price every time), I don't think there are more than one or two such fakes left in PST, given the very low levels of the 10-year yields. In fact, as I previously wrote, I think 2.5% level will be (or has been) the intermediate-term bottom.

    On the other hand, once I do catch the real trend change in PST, it will be good for a $5-$10 rally, so my strategy ultimately has a favorable risk/reward ratio.

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  8. AMAT - Fantastic book to bill and record earnings.

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  9. No plan for me.

    Find anything liquid. Wait for a mini panic, buy it, wait for a bounce, sell it.

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  10. I'm not talking about dingbat companies here, right? INTC, CSCO, and HPQ are DJIA components, for crying out loud. And AMAT is a Silicon Valley stalwart with a 2% dividend yield and 1.74/share in cash. All are trading at 52-wk lows. All have plenty of cash on hand. All have solid earnings with relatively low P/E multiples.

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  11. I'm not going to sit here and pretend I know anything at all, but show me Intel at $16 and I'll buy again. Its worked in the past as long as you were gutsy enough to turn off the screens for 6 months to wait out the storms.

    As I see it, to make money buying panics, you have to wait and be the buyer at the tail end of the panic. Buying too early is a fatal mistake because inevitably, you second guess yourself and dump for a loss at just the wrong time, and then it runs away from you.

    Been there, done that.

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  12. cheapy- Yeah, that's always the challenge, right? Do I buy now, or take a chance that it all goes lower?

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  13. INTC: I scale into it and look at lows as deals.
    I have a VERY small position in INTC and will add on any good pullbacks.

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  14. Here is one more data point I overlooked last week: US Conference Board Leading Economic Index (LEI) has increased 0.1% in July:

    http://www.conference-board.org/press/pressdetail.cfm?pressid=3988

    “The indicators point to a slow expansion through the end of the year,” says Ken Goldstein, economist at The Conference Board. “With inventory rebuilding moderating, the industrial core of the economy has moved to a slower pace. There appears to be no change in the pace of the service sector. Combined, the result is a weak economy with little forward momentum. However, the good news is that the data do not point to a recession.”

    Says Ataman Ozyildirim, economist at The Conference Board: “The economy should continue expanding, albeit slowly. The LEI is growing at its slowest pace since mid-2009 and it has been essentially flat since March. However, the index is still well above pre-recession levels and the CEI remains on a rising trend that began in late 2009. All four coincident indicators have risen over the last six months, with July’s gain in industrial production offsetting the recent weakness in employment.”

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  15. However, that's what David Rosenberg had to say about the LEI:

    "The treatment of the shape of the yield curve seems to skew the number by 0.3 to 0.4 of a percent point each and every month, so outside of that the LEI actually fell 0.2% and is down now in two of the past three months. In fact, the LEI is barely up from the Mach 2009 low without the contributions from the yield curve and the stock market, which together accounted for about two-thirds of the rebound."

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  16. Yea, kinda strange how so many good blue chips are still making good money yet are at/near their 52-wk lows...

    I hope this is going to get more interesting fairly quickly, can't shake that feeling the big boys are trying to shake down the retail guys.. If there are any left, that is.

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  17. Historically the economy slows after elections are over, probably because it was pumped with vote buying stimulus before the elections.

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  18. Anyone remember this bear picture???...

    http://www.thekirkreport.com/2010/07/27/index.html

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  19. a large part of me thinks there is a reason the blue chips are at 52 week lows and its not time to buy them. the market is trading a lot like the Nikkei did from June 09 to June 10...it has since gone down almost 10%. India is one of the few markets that I think looks like a buy right now.

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  20. CADC - They seem to be walking this one down a trendline drawn back to January's high, I think there's a good possibility we revisit recent lows prior to moving up.

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