Eagle Materials

For the past few months I've had my eye on Eagle Materials (EXP). This company has taken a big hit down from its 52-week high. It has had a very pessimistic sentiment because of the decline of the housing bubble. Over the course of this stock's entire life, it has had great life. It wasn't until the past 9 months that it experienced a very large jump, which was followed by a similar decline.

EXP just released their earnings today, which were pretty close to being in line with expectations. More importantly, they gave guidance for FY '07. These numbers are above analysts expectations for the most part. This should bring a much needed increase in sentiment for the company. Already in after-hours trading, the stock is up 6%. This gives us an indicator on how the market views the earnings results.

EXP knows their business a lot better than any analyst could. Analysts will raise their estimates in the coming weeks in order to make it look like they know what they're doing. These raised estimates will give the stock even more momentum.

Positive earnings reports can have an effect on stocks for months to come. A market anomaly known as Post Earnings Announcement Drift (PEAD) often times occurs. PEAD is when a stock releases an earnings surprise and the stock proceeds to drift in the same direction for the next months to come. This should happen with EXP.

EXP has reached a low point where it has shown support. Heavy buying keeps it from falling below this level. Check out the latest insider transactions. They all show strength at these levels. At these levels, it makes me believe that there is more chance of upside than downside.

The valuation of this stock looks good as well
P/E: 10.38 for EXP , 13.78 for Industry
Qtrly Rev Growth (yoy): 26.9% for EXP , 15% for Industry
Operating Margins: 28.5% for EXP , 16.66% for Industry

Lower P/E, yet higher revenue growth year over year and high operating margins? Bargain.

Watch for the trend on this one to finally shift back to positive.
-Sam

Short-term Thoughts

Amgen (AMGN) is nearing resistances so I would be a seller around 80. If you are long term, keep the stock. I just think it will be bouncing around those levels for enough time that the short-term trader could put their money elsewhere for a bit.

Suntech Power (STP) is showing some positive developments, as it has gotten above its 50DMA and has formed an attractive flag pattern. I illustrated its previous flag also.

Aqua America (WTR) is nearing resistance at its 50WMA, but has good MACD movement about to cross the zero line. Earnings come out on November 1st; the stock could get pushed down, but since most earnings have been good this quarter, I'm sticking with it.

Finally, I'm glad Sirius (SIRI) decided not to break it's only support. It gained over 5 percent today, hopefully not just a knee jerk.
-Chris

Toxic Shock

After the Cameco screw up (CCJ), I have to advise selling Liberty Star Gold Corp (LBTS) which I suggested about a month ago for the risky investor. The disruption of uranium should allow a good price to take money off the table. Also the charts show some resistance ahead. If you bought when I suggested the stock at .62 you would have made 98% on your money.

I also suggested Glencairn Gold Corporation (GLE) at .58 and it is now at .51 and I would hold off on buying more if you picked it up. These two weren't added to the picks list since they are too risky for the average investor.
-Chris

Interest in Shorts

Today I'll throw out a few stocks I'm looking at with interest. I haven't done my due diligence, so these are just ideas for those who are looking for oddball stocks.

Pre Paid Legal Services (PPD) has a short interest of 69.92%. This means that out of all shares held, about 70% are from investors who are short the stock. You could interpret this in two ways:

1. Investors are right, and this stock will take a tumble

2. The stock has been climbing so Short Interest Theory will take hold, pushing the stock higher.

To the right is a one year weekly chart showing the high SlowSTO trying to consolidate. Expect volitility.

Next, is a stock that I'm considering adding to my picks as a short sell candidate, Netflix (NFLX). It's short interest is also high (although nowhere near PPD) at 22%. The mid-Bollinger band is looking to be its new resistance line; the 200WMA will be the real test. This is also a one year weekly chart.

Third is a stock we all love to hate, General Motors (GM). Short interest is a moderate 12% so don't look there for clues. The charts, however, show a short story worth of information.

From the beginning of the year GM has managed to climb all the way up to 33, but the past three months investors have been apprehensive about putting in new money. The problem is hovering above the 200WMA at 35. This line in the sand is a second strong resistance from a year ago that could send the stock right back down even if it crossed its 200WMA.

The daily chart is showing a lot of negative MACD correlation. The main thing keeping me from shorting GM is what could be construed to be a flag pattern on the weekly chart above.

I'm curious to see how these three will pan out. Time for some pumpkin pie.
-Chris

*Edit* Short Interest Theory holds true as PPD hits over 10% intra-day, NFLX reports good earnings causing shorts to panic upwards of 18% (afterhours included), and GM adds over 5%.

No, It’s Not Just Me

After catching the first two hours of CNBC, it became clear that it’s not just me. All of the analysts booked to speak had a similar opinion; the Dow is being exuberantly irrational.

• Talking head #1 told how his firm had the year end price of the Dow at 12,100; we touched within 50 points of this today.

• Talking head #2 explained why he wouldn’t advise clients to put money in at this point, explaining that they would be chasing money that was already made (too little too late argument).

• Talking head #3 enlightened viewers as to how the Dow is not factoring in everything from rate hikes to terrorism anymore.

Heck, even Jim Cramer is speaking to the fact that there are no shorts left, making at least a 200 point correction inevitable. Jim Cramer is being cautious?

So call me crazy when I confidently say that you should short the Dow, even if it’s only for 200 points. That’s four percent if you buy DXD, and any money is good money.

Yes, I was wrong about a double top in the Dow, but I’m not a stupid trader (although that’s debatable) my portfolio has been right overall, and I am not selling any DXD in my personal portfolio. Becomming even more overbought will make me liable to trade some puts in the Dow mini-futures.

Dear Stock Market,
Don't make me trade futures just yet.

-Chris

Updates Galore

This morning the core PPI came out much hotter than expected at .06%, raising inflation concerns and burning the indices.

Chicago Mercantile Exchange
Big news today, as CME Bought the Chicago Board Of Trade for $8 Billion, making even the commentators on CNBC confused about how CME went up. As we all know, the acquirer usually drops, while the acquired jumps (The stock began up 6% and is now up 2%). We are slightly better than break-even on CME at this point and I am holding my short position because the charts still look bad.

Aqua America
Good price action has been going on as buying volume has been picking up. The stock is reaching near its 200DMA; I believe it will eventually get over the hump, but expect some testing and retesting at this level. The AP wrote this article yesterday on water companies.

La-Z-Boy
Last Thursday LZB cut the company’s earnings guidance by 10 cents per share. The stock shed a few points and we are now in business as far as the short trade is concerned.

Nintendo
This stock is showing a possible Cup-and-Handle pattern and with Sony’s recent screw-ups, Nintendo should be able to take some market share (or investor dollars) to keep its momentum this holiday season.

As a side note- Amgen reports on Monday, read the comments section of the last post for my thoughts.

Have a great week,
-Chris

Ready for a fresh new start?

In order to bring more frequent postings and another perspective on the market, I’ve added a partner to Big Money, No Whammies. This person has an eye for detail, especially for IPO’s (I can remember him suggesting to me Volcom, Under Armour, and Crocs all at very profitable points).

He is known in the Business College of Central Michigan University for frequently winning Stock-Trak, the financial simulator for students to compete in the stock market (usually 300+ business students). After shorting Natural Gas Futures he is again at the top of the crop this year.

I wouldn’t have asked him to join the blog if he wasn’t smarter than me. I’ll stop now because you get the point, and I don’t want his head to get too big; so without further ado, Sam Scherf’s first posting starts now.

It's been plastered all over the media that the stock market has been reaching record highs. Regardless of if you're a believer in a bull or bear market, you can't deny that the market's getting more positive attention than usual.

When people see a boom, they want to jump in on the ride. For this reason, I decided to take a look at which investment advisers are doing well. Diamond Hill Investment Group Inc (DHIL) has caught my eye as a good catch.

Price
This is a company that has a quarterly revenue growth of 285% year over year. Their trailing P/E ratio is 25, making them below the average P/E of 27 for Regional Investment Brokers.

Economies of Scale
The company currently manages over $3.1 billion in assets. Last year at this time, they managed $1.15 billion. Financial service firms don't need to increase their costs by too much more when managing larger sums of money, yet will receive much larger commissions.

Stability
Although the stock has already had a huge (and justified) run up for this year, it's showing stability in its price. The company has shown consistent growth throughout its life, and the present should be no different.

The fundamentals of this company look strong. I would recommend this stock as one to hold on to for the long term. Investment management companies are showing no signs of slowing, and this pick shows promising attributes to take advantage of that trend.
-Sam

Come Back on Monday

Nothing to see here folks, just riding out my portfolio through the week. Check back in on Monday morn'.

Notes Before the Open

I’ll be sticking with the eight picks I currently have for a few weeks; I don’t intend to add or drop anything this month unless I see a clear imbalance. If a turnaround doesn’t occur soon, I will be seriously confounded and concerned. Here's a quick read for Monday.

Technical Issues:

• I understand that Internet Explorer users can’t see the page correctly, so I’ll work on this to get things looking right. If you use Firefox like myself, then you should have no problem.

• Also I received an E-mail on Nintendo, so I’ll reiterate that the Yahoo Finance quotes I use don’t allow ADR’s so Nintendo will not show up, but it is one of my picks.

Windy City Ready to Topple

Today I found a short that I’m willing to endorse wholeheartedly. On Friday short sell Chicago Mercantile Exchange Holdings (CME).

I'm not merely suggesting CME because I believe that the stock market as a whole will drop, although this would hit CME extra hard. Quite simply, this stock has way too much room to fall.

As today’s article in Fortune Magazine states:

“The Merc's highflying share price makes us wonder whether there's a cheaper way to get exposure to the booming market for futures, options, and other financial esoterica. Goldman Sachs, for example, has transformed itself from a traditional investment bank devoting most of its resources to underwriting securities and advising on mergers into arguably the most sophisticated trading machine on Wall Street. Goldman's earnings growth over the past four quarters exceeds the Merc's -- 88% to 31% -- and yet Goldman's P/E is nine, compared with 48 for Chicago.”

Let’s see what the charts are telling us:

The daily chart shows two resistances lines just above the current price. Also the Slow STO has been high for too long, and will eventually follow suit as the arrows show. The RSI is getting too high but the MACD looks normal.

The weekly chart is more interesting (and as always, more important). The MACD has been sinking for almost six months, while the stock price has stubbornly been holding on. This never turns out well for the stock price and we will eventually see a reconciliation of the two. Finally, On balance volume is relativly lower as the stock goes higher.

If all of this technical gibberish means nothing to you, then by far the greatest argument that the CME is at or near a top is the sheer amount of shares sold by insiders. The Chief Technology Officer as well as the Chief Executive Officer sold half of their total shares last month. Directors, Officers, and members of the General Counsel are all selling. You don’t see this amount of insider selling in a short three month period very often.

Again, if you're not sold on the "hard landing" argument for the market, then at least stay away from CME.

Twilight Zone

What a great run today; we closed the DJIA at 11,850. Patience is now my game plan; I will double down on my DJIA shorts if the daily RSI hits 80 or the weekly RSI touches 70. Either way our positions are well set for the 4th quarter.

I was watching as Sirius third quarter subscribers numbers came in above estimates for the 5th time.

"Sirius Satellite Radio, which is based in New York, says it added 441,101 subscribers to reach a total of 5.1 million for the third quarter, a 135% jump from year-ago levels. This came in above the average estimate from analysts of 418,000 new subscribers. The company reaffirmed its target of reaching 6.3 million subscribers by the end of the year."

Shares dropped 3% on this news? Looks like the XM Director resigning and BofA securities analyst comments spooked investors.

Aside from this, Lazy Boy gains 8% today on news that a board member is leaving and that they are getting sued.

I feel like I'm taking crazy pills.

Pulse of my Predictions

Time to do a checkup and review of my suggestions.

SIRI – Buy on July 28^th
Price then: 4.03
Price now: 3.92

Very little price action here, Sirius is still waiting for holiday season I assume. I used the weekly chart because it shows the supports/resistances better. Also it gives a good picture of its rising MACD action. SIRI will have to trade with its MACD sooner or later; lucky for you if you haven’t had a chance to pick up shares yet, now is your opportunity.

DXD – Buy on July 31^st
Price then: 69.5
Price now: 64.7

I suggested this one as a hedge to make sure you’re not caught when the market drops. I’m still unwaveringly suggesting it. Some can call it stubborn, I’ll call it safe. DXD is now over 1/3 of my personal portfolio.

AMGN – Buy on August 15^th
Price then: 66
Price now: 71.53

Smooth sailing with Amgen. If you’re still iffy on this one, consider this: The stock is showing a pennant pattern, it has a new 200DMA support, and the 50DMA is ready to cross the 200DMA (technical jargon meaning the uptrend will continue). This is a triple threat if I’ve ever seen one.

STP – Buy on Aug 20^th
Price then: 30
Price now: 25.83

Suntech Power is down about 4 points since suggested. This is a volatile stock, and will likely pop back above its 50DMA soon. Last week showed a very large after hour trade when the stock went below 24. I’m wondering what institution/big money investor decided that the price was too cheap? Either way I agree.

NTDOY – Buy on Aug 9^th
Price then: 23
Price now: 25.85

Still soaring and it’s not even the holiday. Nintendo will continue to do well.

I’ll allow LZB and WTR some time since I suggested them so recently.
Overall not bad, It looks like I have more losers than winners but that's only because the stocks I've closed out are not included.

Here are my closed positions:
RMD - 10% Gain
CHCI - 35% Gain (or break even if you bought before earnings)
HAL - 11% Gain
HANS - 33% Gain

If I stop now, I would have six gainers out of nine, so I'm keeping pace at 2/3 correct. But of course amount correct means nothing if you have larger losses in trades that went the wrong way. In this case, the average loser is 8% while the average gainer is 18%.

So far, so good. I'll take another look at the big picture when the year is over.

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.