Turn a Blind Eye to the Dow

No, I’m not shorting it or buying DXD, or even calling for a drop. I’ve learned my lesson. Today I would merely like to point out that from a technical standpoint, I would rather close my eyes.

I'll use a 5 month chart to illustrate:

First, I’ve set 4 vertical areas showing bounces off of the mid-Bollinger Band. You can clearly see how the inclines slowly become less steep until they level off. This is normal and can happen with any stock, but when it coincides with a negatively correlating MACD, it normally spells trouble. As the inclines level off, the MACD gets worse, and we see downward slopes.

Second, I’ve shown were the MACD should be with a horizontal purple line, if the DJIA was at 12,200. But the DJIA is at 12,500, so the MACD should be even higher than the lower purple line—it’s not.

Third, I’ve shown with a green line that the DJIA keeps rising while the buying pressure weakens. This indicator, called the Chaikin Money Flow, shows a clear downtrend in buying pressure. We are not below the zero line yet but the trend is clearly down.

The one thing in the Dow’s favor is it's RSI, which is below 60.

There is much less information on the weekly chart, although we do curiously see a crossover on the MACD. This would normally coincide with a fall by now; make up your own conclusions as to why it hasn’t yet.

The message I’m trying to get across is not to short the Dow, but rather to trade carefully. I don’t like what I see, nor should you.
-Chris

Christmas Loves LCD’s II

GLW had been treading water for no apparent reason this past month, but my respite came as earnings were released today with numbers much better than expected. Corning gave very light expectations for this upcoming quarter, but investors were so impressed with management’s new understanding of seasonality, that the stock ended up over 10%.

With such a low bar set for earnings this quarter, another surprise to the upside is in order.

The chart of GLW looks better than when I first suggested it in December. The MACD is basically identical; however, the Slow STO is now at its midpoint rather than overbought as pointed out before. The 200DMA resistance at 22 is keeping investors from getting overly ambitious in a single day, but I believe we will get above it soon. Here is the previous chart, along with today's.

XWG gave back after-hours gains it achieved yesterday, and lost the battle of staying above 2.7. Technical indicators are getting dicey, so I will be watching it closely.
-Chris

Sell AMGN Today

We have done well again with this one, but I have to let it go after January’s quick Biotech run-up.

We are currently overbought on the RSI, at a resistance around 76, and have very little pressure in terms of cash flow coming in. I believe we could put its capital to good use elsewhere for the next month or so. If you bought AMGN when I suggested at 68.4, you would have an 11% gain. The stock is at 76.04 after-hours.

So where do we put our profits? We short sell Nike (NKE) of course.

As far as technicals go, Nike looks as though it’s been pulling to break 100 for the simple sake of saying it’s in the triple digits. Yesterday’s 2% loss confirmed that nobody is ready to buy Nike at $100. MACD looks negatively inverted, and a quick look at a 50% Fibonacci retracement says that Nike could fall below 90.

Five months of highs are rare and usually unsustainable for companies with as few growth prospects as Nike. Also, Philip Knight, one of the largest stockholders of Nike, has sold over one million of his four million shares just this month.

This is not a risky bet, worst case scenario is that the stock hits 101, and we quickly sell for a very small loss. Best case scenario, and a more likely one, is a quick 10% gain.

On other fronts, I’m seeing a 6.6% gain after-hours for XWG, so we could sell it out tomorrow depending on how the price action moves in the first hour of trading.

I hope this bodes well.
-Chris

Burning a Hole in My Portfolio

STP is hot, up over 10% in the past week, and why wouldn’t it be with news that Wal-Mart is looking to install solar panels on its stores. This, my friends, is HUGE news. I’m still positive on STP even at these high levels, as it will benefit even if Wal-Mart goes elsewhere for their panels.

Once the viability of Solar is proven by the world’s largest company, a revolution of sorts will likely follow. Can you honestly see other companies not adapting? Wal-Mart is not doing this to be eco-friendly; they want to save on the energy bill, while getting some good PR. Again, who wouldn’t?

You can’t look at the price of STP and say to yourself “I’ll wait for a pullback,” But it’s on a roll right now and momentum might make you miss out. Maybe it does pull back a few points and you can scold me for my insistency to get in now, But either way this stock will be above 45 by year end.

As explained in previous articles, STP has the lowest forward P/E for solar stocks, around 60, giving the stock room to run toward the norm for solar of 100. It also has the cheapest labor, giving high profit margins and extra cash to spend on research and development. Finally, with a 10 year contract for silicon, STP is ready for the future.

As a side note, I’m very happy with the way our stocks have been treating us. To track the performance on Whammies better, I created a simple spreadsheet and I will give a portfolio update at the end of each month.

Trade carefully.
-Chris

SanDisk & Updates

SanDisk (SNDK) is one of my favorite picks right now. It's a new year, which means new products. Good ones, which use flash memory.

1. 32 Gig Solid-State Drive (SSD)
While 32 Gigs isn't much, the benefits of a flash-based drive outweigh the small size, especially for business use. These drives will be available for laptops for an additional $600. Yes, it's expensive, but valuable. Here are the benefits:

• The drive consumes 40% the energy of a conventional hard drive, giving laptops 10% longer battery life.

• The speed of applications will be dramatically increased.
  "random read rate of 7,000 inputs/outputs per second (IOPS) for a 512 byte transfer, more than 100 times faster than most hard disk drives. Taking advantage of this performance, a laptop PC equipped with SanDisk SSD can boot Microsoft Windows Vista Enterprise in as little as 35 seconds. It also can achieve an average file access rate of 0.12 milliseconds, compared to 55 seconds and 19 milliseconds respectively for a laptop PC with a hard disk drive."

• No matter what speed processor or how much memory a computer has, it is limited by the speed of a hard drive when loading applications. The SanDisk SSD removes this limitation.

• Flash-based drives are much more reliable than conventional drives. Working as a computer technician, I have witnessed corrupt hard drives as being the most common problem people have with laptops. People will be willing to pay a premium for the security of knowing that their data will be safe. If consumers are willing to pay several hundreds of dollars for warranties, they will be willing to pay similar amounts to know that their information will be safe.

Although these drives are smaller than most laptop hard drives, you have to realize that most people (especially business users) will not fill 32 gigs worth of space. Most people pay for extra storage they will never use. College kids downloading DVDs will need more than 32 gigs, not people using computers for business use or the common user.

2. New MP3 Players
While everybody knows that Apple has a very solid grip on the portable audio market, we cannot forget that there are other players. SanDisk is able to produce MP3 players with similar features (minus iTunes) at a much lower cost, since they are the actual producers of the memory used. This vertical integration gives them an advantage in the market.

Sansa Express (pictured): This 1 gig music player has a screen, a built-in USB connector, is similar to size to the iPod Shuffle, and is only going to be $59. People who have less than 1 gig of music probably aren't committed to using solely iTunes as their music library, so the Sansa Express should be able to grab some good share in this market.

Their other MP3 players are also similar in size (although a bit bigger) to apple's models, but offer additional features at a much lower cost.

3. Flash USB drives & Memory Cards
This christmas season, flash USB drives were flying off the shelves. At the price they're at, everybody wants one. Many stores used SanDisk's USB drives as leader items to get people into the store during the holidays. This form of advertisement means that the retailers spent this money out of their own pockets.

4. The stock's valutaion
SanDisk got hit hard in the past year.
The PEG ratio, my favorite metric for measuring a stocks value, trades below 1 at 0.91.
The trailing P/E ratio is 24.5, compared to the industry average of 64.7.
Quarterly revenue growth (yoy) is 27.4% compared to the industry's lowly 8.50%
Operating margin is 19.4% compared to an industry 10%.

This company's ratios are clearly better than others in its industry, but it trades at a lower P/E. This isn't right.

Earnings come out January 30th. Watch for a rise going into earnings.
-Sam

Updates
01/08/07 SNDK @ 44.71. New bullish call.
10/31/06 EXP @ 40. Now @ 43 (7.5% Gain) Staying very bullish on this one. Great valuation and housing is coming back into a positive light.
10/15/06 DHIL @ 63. Now @ 87.19 (38% Gain) I recommend reducing. The CEO sold a bunch. It's risen very quickly, so it'd be best to take money off the table.

Updates on Current Stocks

Amidst the turmoil of Motorola, communication equipment maker, Wireless Xcessories Group, has taken a very modest loss of 4% as opposed to 10% for MOT. This should mean something to you knowing the beta on XWG is much higher.

Either the light volume is creating inefficiencies (as the two should trade alike) or XWG simply has better growth prospects, being a much smaller company. I’m betting on the latter. The stock is showing some resolve, as it touched its current strong support of 2.7 and bounded back up. I’m optimistic that we will have at least a 20% profit on XWG by December.

STP is climbing up to a resistance, so either flip it short term and allow it to come down around 50DMA support, or relax, grab an iced tea, and know that STP will be even higher in a few weeks.

TINY is not playing by the books, I thought it would stay above 200DMA support, but instead it’s dropped a full point. Charts don’t look hot anymore, but the news on TINY is reason enough for me to commit a cardinal sin, and keep a stock with an ugly chart.

ONXX is trading exactly as I hoped; it is now slowing down at resistance in the high $11 range. Expect some indecision at this level.

Finally, GLW is getting unpredictable, as each technical indicator is telling a different story than the rest. It may be too late by the time a winner allows for prediction of price change.
-Chris

Happy New Year Indeed

Before 2007 I sorted through some ugly charts of oil and metal stocks. I'm glad that I stayed out as both keep falling while drug stocks like AMGN and ONXX are doing well. Here's an article from The Street explaining why.

I obviously should have stayed short on Netflix rather than taking the quick profit, as the stock is starting to look like a shooting star.

Finally, STP took a 4% hit, allowing me a chance to get in. (I bought shares of STP for my personal portfolio today @ 32.63)
-Chris

Six Stocks for 2007

First are the two stocks I’m bringing over into the New Year, STP and GLW.

(All Daily charts are six month, All Weekly charts are two year)

STP is one of the hottest stocks I’ve seen in awhile. As mentioned in previous articles, alternative energy will stay hot through 2008 as elections will probably go to the Democrats and a new environmentally conscious congress will give bigger tax breaks and incentives to businesses for clean energy.

Charts show the 50DMA crossing the 200DMA to the upside, which normally coincides with positive stock movement. There is also a healthy amount of supports.

GLW has a strong support right below 18, and the MACD is perfectly inverted. If the trend continues downward, expect a large jump after touching support around 17.7.

We also see a trend on the slow stochastic of 15 day low streaks, then jumps in the stock; we are currently at the end of another streak. (I own shares of GLW in my personal portfolio)

When you watch a stock for long enough it becomes predictable. XWG is a stock that I have profited from on more than one occasion, and I believe it’s that time again. Daily charts show a moderate inverse correlation on the MACD, but more importantly, it’s about to cross the 0 line. Add some volatility with a 50DMA right above the stock, and presto! Similar story on the weekly chart with an even better negativity on the MACD, and a 200WMA right above the stock. XWG is a bit more risky, but we're all young at heart, so live a little. (I will buy shares of XWG when the market opens tomorrow, pending a pre-market run-up or run-down)

We missed out on TINY a few months back when it shot from 9.5 and eventually touched 15. TINY is back down at 12, and I’m willing to bet the recent pull back was just profit taking, nothing more. There is a fairly good trend on the daily slow STO, as annotated with arrows, and I’ve added a box on the weekly chart to show where the stock price should be if it was trending with the MACD (The stock is a bit ahead of itself in the downward direction). With a fair 200WMA support beneath it, I’m giving this one the green light.

ONXX is getting some bad coverage in the media, with their recently nixed Phase III drug, Nexavar. I think investors overly thrashed the stock. I don’t like the three year down trend, and far be it for me to pick a bottom, but we do have a candlestick connoisseur’s doji star, coupled with a solid positive MACD. I like the opportunity but will cut this one free if it keeps falling. (I own shares of ONXX in my personal portfolio)

It’s time to bring back AMGN since we let it slide back to 68, and it’s near a trend line and 200DMA support. If it breaks below its 200DMA @ 65.76, I will probably sell right away, so keep that in mind.

Two stocks I’m watching are HRAY and NVT, I’m not convinced on either of the two, but if anything develops I’ll have an update.
Lets have a great year.

-Chris