Think Big, Invest Little

Nanotechnology companies are comparable to biotechnology companies; unpredictable, risky, and able to spend billions of dollars with no end result. Don’t get me wrong, these sciences do create breakthroughs that are priceless to advancement in all areas of life, but the odds are usually against them.

You can double your money on a flip of a coin, but the odds are 50%. You can earn 50 times your money on a nanotech, but the odds are 1/20. Why not own all of the nanotechs, and forget about which one makes you the money? That’s exactly what the ETF PowerShares Lux Nanotech (PXN) does. By owning a basket of nanotechs, you can allow more than half of them to flop, and as long as just one makes a breakthrough, odds are you’ll profit with less risk. (Keep in mind the odds from the example were arbitrary)

Here is the list of PowerShares Lux Nanotech’s Top 10 holdings

Although I like PXN and I continue to watch nanotech companies with interest, I refuse to suggest buying either. When investing you can’t lose sight of the bigger picture, and I am adamant that we are too high on the DJIA. Unfortunately, nanotech companies will trade in sympathy with the market.

There are plenty of bulls right now who disagree that the market will take a hit; if you’re in that camp, go straight ahead and buy PXN. As for me, I’ll stick with my gut and wait until the “all clear”.

With the end of this months trading one day away, I am in the bear camp, believing that the strength in the past few days was mostly due to window dressing. Keep in mind skepticism is almost never a bad thing.

Here are some random articles on nanotech companies that I found of interest. Fool1 Fool2 Yahoo Forbes

Splish Splash

I’m decidedly negative on the market, but I always have a positive bias when looking for stocks. After seeing an odd upgrade on a company I’ve been tracking for a few years, I took a closer look. Buy Aqua America (WTR) (around 21 if possible) if you want a good solid long term stock.

Why buy the largest water utilities company? UBS initiated WTR at a buy on September 22^nd, making five consecutive analysts buy signals since the stock dropped to its low this May.

Here is a map from the UN website showing projections for future clean water.
When the two most populated countries in the world have a hard time finding clean water, you have an opportunity to profit.

But wait, Aqua America is only in the U.S. so how can they supply India? This is true, and it gives me more reason to suggest the highest market cap water company. WTR will have enough capital to be able to grow into other countries when the time comes.

This all seems so far in the future, but to an investor’s retirement account 15-20 years is just right. Again I am suggesting this stock as a long term buy.

Lets take a look at the charts:

• Daily-The stock price remains at 21.5 while the MACD has risen near the 0 line. A trend with the Slow STO is telling the stock to bounce at levels below 20.
  

• Weekly- WTR has a 200 week MA at 18.5. This support level is too strong for WTR to fall below.

So what’s the drawback? The problem with most water companies are that they look overvalued. WTR has a PEG ratio over 2. Ouch. It seems investors have already come to the conclusion that water is a good investment. If you think that WTR needs to pull back before you buy, believe me when I say that this baby will bounce on its 200Week MA (if it actually drops to that level).

Lazy Stocks

Can you smell the recession? Maybe a few more rally days, maybe not, either way things are turning sour and there is no denying it. A few traders are calling Amaranth the canary in the coal mine. (Amaranth is the hedge fund which announced this week that they lost investors 6 billion dollars)

Today I'll pick a company that has nowhere to go but down. It's been awhile since my last pick, so I've done some research on a nice short. On monday short sell La-Z-Boy Inc. (LZB).

Not only have they missed earnings estimates for a second quarter, they've gotten downgraded by a few analysts lately, and the charts look bad.

• The stock has crossed below both of its DMA lines
• MACD is crossing downward
• RSI and Slow STO has room to move downward

Simple pick here folks, furniture is not going to suddenly start selling with americans on tighter and tighter budgets.

Good luck on Monday

Quickie

Here we are, at that point where the double top is at its pinnacle. The high for the Dow in May was 11,675 and the equally crucial candlestick high was 11,642. Let the Dow hit these highs and let the reversal begin.

I’m sorry that today has little to do with the market, but I thought I would put out a quick F.Y.I. as I have been bogged down with homework, I have sold a couple of my positions, NBR & STP.

Both have excellent opportunities and I would still be in them if I could, but I needed to free some cash to purchase a tablet PC for school and business. I looked critically for a few weeks and finally picked the T4210 Tablet from Fujitsu.

I dropped NBR and STP because they were my longer term picks and I plan on staying more liquid. I still own NTDOY, DXD, AMGN, and SIRI.

Don't Take My Word For It

With the talking heads beginning their countdown of the DJIA nearing record highs, I thought I would elaborate on my conviction of a drop in the market.

Here is a chart of the personal savings rate as recorded by the U.S. Department of Commerce. Granted, we have had a negative savings rate since mid-2005, but one has to wonder how long this can continue without affecting the market.
http://bea.gov/briefrm/saving.htm

Here is a chart showing the rise of non-mortgage household debt. Does it bother anybody else that the rise is parabolic?
St.LouisFed.Org

Here is the outlook of consumer spending (in the context of the housing market) courtesy of Comstock Partners Inc.
Comstockfunds.com

There is also some interesting talk about the VIX and its relatively recent (2 year) correlation with the DJIA. I’ve created a chart to show the inverse relationship. If this association continues, the DJIA is getting ready for a drop.

If you don’t plan on buying SDS or DXD to hedge against a possible drop, I would at least pull some consumer discretionary stocks off the table.

Have a great week.

Hello opportunity, my name is Chris

As I wrote on my August 16th post referring to the DJIA , "We could be setting ourselves up for a double top." Feel free to look at this next picture and tell me what you see...

We couldn't have asked for a better setup,

• A double top has formed
• The MACD has a decidedly negative correlation
• Volume is drying up as the stock keeps going higher
  

Using my three rules for trading from the post “Keep It Simple Stupid”

1. We have a great reason for buying the DXD; technicals show amazing potential, and fundamentals show a slowing economy with a flat yield curve.
2. I see no conflicts that aren’t already priced in.
3. Timeframe is short to medium term.

Finally oil can easily become the monkey wrench. Give us any kind of oil disruption: hurricanes, pipeline breaks, international disputes, etc. and we will see the DJIA get a kick in the teeth.

I plan on selling half of my position in NBR, and pushing two-thirds of my margin into DXD Tomorrow.

*Edit* Today I did just that, selling some NBR and picking up some DXD.

I love Gooooold!

Gold is a commodity that everybody in the investment world seems to have an opinion about. Today I am giving out two excellent gold stocks. For those of you who like gold as an investment, buy Liberty Star Gold Corp (LBTS) and/or buy Glencairn Gold Corporation (GLE).

Both companies are small, risky, and full of opportunity. These two are smaller than any of my previous recommendations; they are micro-cap stocks. I will not be posting them onto the “picks section" (Yahoo quotes), as I am simply posting these two for the aggressive investor.

The time horizon for these two can be anywhere from short-term to long-term.

Here are the Charts for LBTS and GLE:

Time to Cover

Halliburton (HAL) got the thrashing it deserved today, and saved my reader picks from a bad day. Time to cover, as this may be a double bottom, and it's daily MACD is not coorelating with its weekly anymore. If you shorted this stock where I suggested it about a month ago, you would have made a cool 11%.

Now that we've consolidated these past few days, I'm eagerly waiting for one last push out of the bulls, to 11,600 on the Dow Jones Industrail Average. If we keep going sideways or down, the pattern that has developed for the past four months may become useless. Let's hope for a bounce in the next day or two.

Money Where My Mouth Is

Today I took the initiative to buy NTDOY. I suggested this stock on August 9th when it was at 23 and I'm buying now around 25. The stock could come back to 24, but waiting for it to come down a point didn't help in the last round, so why try now? The stock recently hit 26.5, and now it's back to a level where I feel safe getting in.

Again I will reiterate to Buy NTDOY, it has the future of gaming in it's pocket.

My positions are getting kicked around a bit, but if you positioned youself with enough DXD, as I keep suggesting, you should be doing just fine.
(Full disclosure: I bought shares of NTDOY on 09/07/06)

*edit* I found this article on SIRI that should tempt even the non-believers.

Getting Ready for Next Week

Ready to add to my DXD position. I will double down on my DXD position today IF the DJIA breaks even, or better yet, goes positive. I believe the DJIA will make a correction soon enough that it seems pointless for me to wait and possibly miss out on the first day of cliff diving. The anniversary of September 11 is coming up and I wouldn't be surprised if we get a market shocking event. I hope I am wrong, but I wouldn't bet on it.

Always frustrating when a company takes a 13% gain the day you decide to buy it. As mentioned yesterday, I was doing my due diligence on LBTS. I take a break to grab a bite around two O'’clock, get back, and see it has hopped above .85! I'’ll have to take a rain check.

Here'’s an update on my current positions:
NBR
STP
SIRI
DXD
AMGN

I recently sold UNH and NSRGY this week.

Tuesday E-mails

Welcome back to the party, Hope you all had a great Labor Day.

An analysis on Boeing Co. (BA) was asked for. Either I keep getting some very unpredictable charts, or this market is getting troubling, my guess is a little bit of both. BA is showing the same symptoms of VLO. A consistent bounce when the weekly RSI touches 50, yet a terrible MACD correlation. I have no need to research further to tell you stay away, or if you trade options, make a straddle. I have an inclination that the stock will bounce but I'm not buying on a whim, nor should you.

Readers should know that if you bought Comstock Homebuilding Cos. Inc. (CHCI) on my recommendation I would suggest taking the money. Although I gave a long term view, recent facts on homebuilders are surfacing that tell me to change my mind. You would have a 35% profit if you bought after earnings or you would have broke even if you bought before.

Finally there is a small stock that I have my eyes on called Liberty Star Gold Corp. (LBTS) I still have some work to do on this one, but I just thought I'd throw it out there. It's uranium projects look promising.

Now that Labor Day is over, get ready for better volume.

E-mails galore

In one of my e-mails I was asked about Embraer-Empresa Brasileira de Aeronáutica S.A. (ERJ). As can be assumed, it’s an aircraft maker based in Brazil. Usually I’ll stay away from aerospace, but this one looks promising. This is not a stock for the faint of heart, as no aerospace stock ever is, but with its latest positive earnings and yesterday’s deal with China's Hainan Airlines Co. we have plenty of catalysts to keep this one in the air. ERJ supplies many different countries allowing it to dodge the coming recession in the American markets. Charts look good, but it’s overextended. Allow it to come back down to 37.5 and if you like this one, hop aboard.

Good Ol’ Valero (VLO) This stock has been my biggest money maker of all time and I was asked for an analysis. Currently VLO is a chartist’s nightmare. As shown, there are two strong opposing trends. The stock is sitting on its 50 week moving average, which implies high volatility. If anybody trades options, I believe a straddle is in order. I have the bias that oil will hit $90 per barrel, so I can’t say to short this one, but buying seems unreasonable. VLO has its nearest support at 40, and its best support all the way down to 30. I’ll stick to the trends that are more consistent.

I will cherry pick from the stocks Andrey left in the comments since I still have more e-mails I need to get to, and I can’t do too many at a time unless I want to make a mistake.

I’m skipping World Wrestling Entertainment, Inc. (WWE), since they reported today. Again I’ll advise to never jump into a stock the day before earnings. Not even the professional analysts have a good handle on predicting earnings. If anybody got into WWE, hop on out for the short term because it’s already overextended (17.40 at the time of this writing).

Finally, Vical Incorporated (VICL) was suggested. I love the fact that insiders from the company are picking up shares. A few analysts like the company and it may have some good products in development, but it has no revenue generators yet. As we all know I currently own Amgen, but all biotech’s are not created equally. This is a high volatility stock with an average day of 4% change. You should not own VICL unless you can handle a big risk. Some may disagree, saying that VICL has licenses, partnerships, and XYZ product being developed but with a recession coming, a company without a product is a sitting duck.

Thanks for the stocks,
and again I hope this was helpful.

*Edit* I found this article that mentions AMGN as a recession proof stock.

Random Stock Analysis

In these slower days near the end of summer, there are not many stocks out there enticing me, so today I’ve decided to entertain a few stocks thrown at me by a fellow trader at stockforlife.blogspot

If you have a stock you need analyzed, feel free to drop me an e-mail or add a comment.

Cabela’s (CAB) – I don’t like the outdoor retailers here, but with two strong supports this one might be considered for the longer term. There is not a lot of reward here short-to-medium term because most project this stock to reach 22 by Jan. The stock is nearing 20, so I’ve no interest. Also the Short % of float is 12.51, which tells us that volatility will make CAB’s moves unreliable. (As a technical trader reliability is key)

Cubic Corporation (CUB) - The charts on this one looked wonderful in November. Although the most recent quarter was excellent, we are dealing with a family owned company that has more potential than they will allow it. Erratic earnings and bad charts give me reason to think this is a short sell nominee; however this company is an obvious buyout candidate. CUB is below both of its 50 & 200 week moving averages. I would wait for a second good earnings announcement or a surprise catalyst before considering.

Abercrombie & Fitch Co. (ANF) – I was debating on this one mid August when it broke its 50DMA and sat on it for a week, but those of you who read this blog know I’m not one to buy a stock right before earnings. Earnings came out positive, and the stock is currently up around 63. I like the stock and think it can hit 70-75 by December. Personally, I’m not eager to get into retail with a recession coming, but this one will look fashionable if it comes back to 60 (its 200DMA).

Harris & Harris Group (TINY) – A venture capital group investing in the future of technology; “tiny technology”. I have to say I had never head of this group until it was suggested yesterday, and last night I did enough research to write a small book on this one. The charts look perfect and I’m taking a position! Well… at least that’s what I thought last night. Today they took a jump over 10%. Damn. I can only hope that traders sell it back down near its 50DMA around 10, and then I’ll give it another look.

Always looking for the next trade so feel free to drop a stock.
I hope this was helpful.

Few Updates

Well I'm finally moved in, but my final year of school started yesterday. My Bachelor of Science in Business Administration is within reach, however, I'll have to slow down on the posts to keep the grades up.

I'll keep up to date on the important things. Also, I've added the Yahoo quotes so we can better track the stocks I've suggested.

Now back to the market,

• STP bounced on the 50DMA as prescribed
• AMGN broke through the 50DMA another happy note
• SIRI is looking uneasy nearing resistance at it's 50DMA, I'm guessing a few days of turbulence, and then it can shake above it.
• CHCI is doing wonderfully for a homebuilder in midst of the more recent turmoil in the builders
• HAL seems to be immovable. I will be honest, this is my least confident pick but I still think it will fall.
• DXD and SDS are on the backburner until the Dow Jones Industrial Average hits a double top, or until big money finally realizes that this recession will last more than a year.
• Finally, I'm taking RMD off the watch list as it provided a nice gain, and I took it.

Happy trading

Keep It Simple Stupid

When I started trading I thought I would beat the market with a complex valuation model.

I included everything I could. Technical factors, analyst opinions, I even used other valuation models into my own. Then I had it spit out a number 1 through 100, 100 being the best.

Every stock would spit out a number around 60. No stock ever stood out in my models. Analysts for the investment banks I used in my model would have "buy" or "outperform" ratings without reason. The analysts changed their minds sometimes monthly. There were no time lines to the investments suggested.

The problem with these services are time frame and reasoning. There are none. They don't tell us to "buy for this reason" or "sell at this point". The way I see it, they can just keep a buy rating on everything and sooner or later they will be right.

My own three rules for K.I.S.S.
1. Have a very good reason for buying a stock (technical/valuational & logical)
2. Make sure there are no conflicts (earnings, recent CEO departure, recalls, etc.)
3. Pick your timeframe (long-medium-short term)

Forget the analysts! As insider information is almost impossible to come by anymore, these guys no longer have a clue. They know just as much as you and I.
____________________________________________

Onward to money making. STP is ready to move up. This stock will most likely bounce on this 50DMA support line, and if not, the lowest it can go is 23. I don't know how to make this any more clear. Buy STP for the medium-long term. Barring any crazy anomalys, this stock is going higher.

So Far So Good

I'll keep today’s post short and sweet.

The first pick of my blog, RMD finally reported earnings and gave just what I asked for. If you took a position in shorting this baby as I suggested, you would have made over 10% in three days. As of today I’m taking profits and saying to cover if you are still short. Although this one could go lower just like HANS did, I’m happy with my gain.

SIRI bounced back above its weekly 200DMA to my delight after riding the coattails of XMSR’s upgrade by Bear Stearns.

The market is consolidating, so don't think too hard about what is going on. As always I'll be searching for the winning picks. Happy Humpday.

The Future Looks Bright

One of the biggest topics in America today is energy prices. So a logical long term investment includes renewable energy. Wind ethanol, geothermal, or solar: they are all useful. The question is which one will make you the most money. That being said, buy Suntech Power Holdings (STP) here's why,

1. Wind power companies don't seem viable as a safe investment since the government must give out incentives for these companies to be profitable.
2. Ethanol companies have been hyped recently, as many gas stations are now using the fuel. It will be a great renewable energy source, but the market needs to settle a bit, as investors have already profited here and valuations were a bit overdone.
3. Geothermal stocks are fine, but I don't think they will ever get the spotlight they deserve, because too many people don't understand the process. A congressman won't support an energy source that the public is uneducated about.

That's what this really comes down to. Our politicians will be the main supporters of alternative energy as Americans are finally getting fed up with high energy prices and global warming.

This is why I am suggesting solar energy. Solar stocks are off the high that we reached early this year, and are ready for another round.

Let’s look at the 3 most likely candidates:

ESLR– Forward P/E of -24.60 (yes they are still unprofitable). Recently the CEO sold about 1/5 of his shares. Ouch, I want my CEO buying more shares. Also due to research and development, ESLR had a larger loss than expected in its latest earnings report.

SPWR– Forward P/E of 106.10. Last week the CEO sold 2/3 of his shares. Again, ouch. Average earnings news here (for a solar stock).

STP– Forward P/E of 45.70. No sells yet by the CEO. STP Raised guidance a week ago. Also, they are extremely profitable as they are based in China, keeping their labor costs very low.

The biggest possible threat to solar power companies is a shortage of silicon, and STP decided to cover their bases by signing a 10 year contract with MEMC electronic materials in which they will provide silicon wafers. Nothing but positive articles here.

In no way am I saying that the other two solar companies mentioned are bad stocks to own, they will both probably do well. STP just looks like the best one to pick up. Once again buy STP and hold, as it should do well all the way though elections in 2008 (and probably further)

Snooping through the web the other day I found Barry Ritholtz’s blog, which gave some very interesting articles on the stock market. Check them out here and here.
Kudos Barry, for the excellent research.

(Full disclosure: I bought shares of STP on 03/17/06 and 12/7/06)

*Edit* Today looks perfect to buy them, as they started around 29.5.

Take Two and Call Me in the Morning

I will be posting less regularly for about a week or two because I'’m moving. After I'm all set in my new place, all will be back to normal.

Last post I finished by saying Buy Amgen, allow me to explain the trade. Amgen (AMGN) is the second largest biotechnology company in the world, so there wont be much volatility. When you get a stock with a market cap around 100 billion dollars, everything is usually priced into it already. This is why I prefer small to mid caps, but in this case the large size may help.

Daily Chart

• Good spot on the Slow STO
• Rising MACD
• Yes, I see the stock is below the 50DMA but this will be broken

Weekly Chart

• Bad MACD
• 200DMA support

Keep in mind, the 200DMA is the strongest support/resistance line for a stock. Amgen is coming back into favor as pundits like Jim Jubak and Jim Cramer have recently highlighted. (click on their names to read further)
_______________________________________________

Now on to the DJIA, something that it seems many technical traders are missing and what I mentioned earlier, is that we could be setting ourselves up for a double top. (marked by the dotted line at 11600)

I've shown how the DJIA had reacted whenever it's Slow STO gets above 150 in conjunction with it's RSI above 65. Each time it has dropped over 600 points. If we hit 11600 levels in the next week or so, this could play out again.

You could easily make the opposite point, when the Slow STO hits 20, the DJIA bounces, but what makes this shorting opportunity more promising is the 4 month double top which would develop.

Buying the DXD would be the obvious play if this pattern forms.

(Full disclosure: I bought shares of AMGN on 08/08/06)

The Waiting is the Hardest Part

Biggest rally in two weeks, eh? With all of the bearish talk I'’ve been making, you would think I'’d be upset about this, but I'm not. My portfolio, which I outlined last week, is doing great. (Mostly thanks to STP my solar power company which reported earnings)

Core PPI was reported today, and unexpectedly fell .03%. This eased inflation fears, allowing the bulls to make another "Fed is done” rally".

For those of you confused about all of this technical jargon on the economy, let me sum up the two things that are still moving the market:

1. Inflation- when the prices of goods go up. (due to an increase in available cash & credit)
2. Stagnation- when the economy's growth slows. (due to slower spending habits of consumers)
3. Stagflation- when the economy's growth slows while prices of goods are going up.
   

Stagflation is a problem because tools for directing the economy can't fix it.

Our economy is still slowing and we may switch into bear mode soon, which would create a hard landing. But some pundits like Jim Cramer have been predicting a soft landing. I've not heard anyone take the middle road on this issue, a mild stagflation that would allow the economy to slow, but still eek out a gain. I'’m not convinced of anything yet.

Wall Street is trading on the data day-to-day so there is no long term trend yet.

The S&P500 is breaking a crucial level of 1280 to the upside, as the MACD crosses, and moves above the 0 line. This is good for the bulls, and makes me wonder if that double top around 1325 will take place. This being said, hold off on the DXD and SDS as the bulls may have some short term strength.

Wal-Mart (WMT) gave earnings today with its first year over year profit decline in 10 years. Their earnings call alluded to an unconfident full year guidance with concerns of high gas prices. If Wal-Mart isn't suggestive of the American economy, I don'’t know what is.

Tomorrow at 8:30Eastern Consumer Price Index (CPI) will be announced, so hold on for the bumpy ride. Wait for a clear longer term trend and stay in secular or defensive plays.

Here is an article on interest rates and the economy from the New York Times. (Don'’t read unless you'’re truly interested, as it is on the boring side)

Buy Amgen & Sirius. The risk/reward is just too good at these levels.

*Edit* Core CPI rose .02%, slightly positive for bulls. We are now at a 25% chance of a rate hike.

One of These Things Just Doesn't Belong Here

Don't own a stock that you wouldn't buy today. I've read this in many different books, in many different ways. The biggest folly of the amateur investor is holding losers too long and selling winners too soon.

This is the only time I will ever endorse the opposite. I've been holding Nabors Industries since the beginning of the new year, and all I have to say is: Watch me folly! I wouldn't buy it and I'm holding on. Sounds ridiculous to me too. In any case, today I'm suggesting to short sell Halliburton (HAL)

To get a good look at the overall oil services picture, lets look at Oil Services Holders (OIH). This is a collective trust of oil service stocks, basically like an index. This is its weekly chart

• The three blue lines show a head and shoulders pattern (very negative)
• The blue circle is the MACD crossing the 0 line (very negative)
• Finally, the arrows in eccentricly happy green show bottoms in the slow stochastic (possibly positive)

Many people are shorting these OIH stocks, and for good reason, as stocks like Halliburton (HAL) are showing the worst charts of all. Here are the weekly and daily charts.

• On BOTH the daily and weekly charts the stock has broken supports, creating an amazing amount of resistance lines. (50DMA, 200DMA, and trend line for the daily, 50DMA and trend line for the weekly)
• The 50DMA is starting to cross over the 200DMA on the daily chart
• Daily slow stochastics are overbought

Aside from charts, Halliburton has been having random troubles that could disrupt future earnings.

Now for Nabors, here is it's daily chart

• NBR is sitting on its support (positive)
  
• The MACD has just started to cross (negative)

Although I am a technical trader at heart, I can't drop this stock. Why? ALL 3 of the most respected investment research services have the highest possible rating for NBR . As always I can't go into further detail because these are subscription services. If you don't subscribe to any I always suggest you try one out, as most have free trials.

Also as a bonus, Jim Cramer is also very bullish on NBR.

The problem is that many oil service stocks should be moving downward, and the pressure could force Nabors downward in sympathy. As Sesame Street used to say "One of these things just doesn't belong here," and Nabors is it.

Hopefully groupthink won't force the good down with the bad. Short sell Halliburton (HAL)