Monthly Archives: April 2008

Stock Brokerage Fee Comparison

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Stocks & ETFs
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Market Analysis

  • MSFT hangover is able to cool techs, however the SP500 can clear resistance
  • Oil blitzes back up toward 120 after an appearance of a crack in the oil pan
  • Bonds carry on their flight, and so did the dollar
  • Most of our earnings season is over, however the economic calendar is filled
  • Techs and the Big 3 – will the lead again?

The market has problems, but it will make it through. Microsoft defended its current quarter performance in a state of mind, which shows that ‘what is good for Apple, which is beating us about the head and shoulders is good enough for us’ stand. Contrary to the performance of Apple that rebounded smartly and posted a gain of almost 4% after its somewhat disappointing earnings, MSFT failed to rebound, unless you consider finishing $0.23 off its session low during a 6.19% loss as a rebound. Unlike Thursday’s occurrence, when NASDAQ bounced back and broke its February high level in a notable breakout, NASDAQ had to drag MSFT around all through the session since it was behind.

It was not helpful either that RIMM has reported that it acquired problems with its 3-G BlackBerry for AT&T and that it may be the cause of a delay. RIMM plunged earlier in the session, but rebounded to end at a loss of 3%. In addition, oil surged back up even as the dollar climbed, tapping at $119 once more (118.93, +2.87). Interest rates rose again for the second time in the last two weeks.

This session was solid. Breadth was mushy and volume backed off, but the market overcame disappointing news, held near support at the 10 day EMA, and rebounded with leaders bouncing back, and as noted, a new breakout by SP500. The volume was very large on the breakout, but the breakouts were piling up and that was an extra-ordinary development for the health of the market.

SP500 joined NASDAQ and DJ30 in their breakouts during the peak in early February, makes it ‘official’ for an up trend at the present time for all the three of the large cap indices. Basically, they have all made new highs since bottoming on the sell off, surpassing the prior highs in the 3.5-month base. The technical move is important enabling to focus on overall market and individual indices. As mentioned above that actually makes it disappointing, is the low volume move on the SP500′s. However, you take what you can when you can when recovering from a serious correction.

It surprised us this week after they broke lower to adjust given the dollar’s sudden popularity, but DESPITE a stronger peso the Big 3 (energy, ag, and metals) came right back on Friday . . .or, excuse me, . . . the US dollar. Extra. This was even better than it sounds keeping in mind the fact that the technology sector was soft due to the MSFT and RIMM issues. Even then, however, RIMM rebounded to hold near support and thus remains in great shape. However, even with those, the RIMM has rebounded and held support, and still remains stable. Furthermore, while others are testing or starting to bounce back up after testing near support following a breakout move, plenty of leaders continue to form up good bases and are set to breakout.

Excellent. Others moved higher, and showed no symptoms of use, like the transports sector, including trucking, rails, and shipping. Money keeps on moving into new areas as well as mature areas when the occasion arises. Positive activity.

Jason McGuire

Jason McGuire

Profile:
Jason attended the University of Texas where he earned his BA in Finance, and also received his MBA from the University of Houston. Combining both his technical financial background and his software knowledge, Jason was able to develop automated online technical analysis software. With the development of Stocknod.com Jason has been able to visualize his life long dream of creating profitable, reliable and easy to use technical software. All of this high level experience provided Jason with a deep understanding of the financial services industry and subsequently the confidence to follow through with his vision of automated technical stock analysis software with the trading metrics he knew to be successful. This vision was finally realized with the launch of Stocknod.com in early 2007. Jason likes to refer to Stocknod as a perpetually beta website as to always adapt our member’s services to an actively changing market place.

Investment Philosophy:
Jason does does not believe in the traditional buy and hold strategy.  One quick look at the return of the S&P 500 over a 10 year period explains why.  From December 1998 to December 2008, the S&P500 lost almost 30%.   As an avid swing trader, Jason looks for companies with good fundamentals and excellent technicals.   He finds industries doing well under certain economic conditions, and then sifts through companies to find the gems in the industry.  Jason looks for strong performance relative to other companies, competent management, and excellent prospects for future earnings.  He looks for stocks trading at steep discounts relative to his assessment of their intrinsic value.  In valuing companies, Jason looks at the present value of future cash flows. He is focused on cash earnings, not accounting-based valuation measures.

Moving Averages and the Trend

Moving Averages and the Trend

One of the key tenets of technical analysis is that “the trend is your friend”.  There are many tools in a Technical traders toolbox, and the Moving Average indicator is one of them.   It can be helpful in identifying trend reversals and continuances.  As long as you trade in the direction of the trend. 

Trend reversals may occur at any time.  One of the important skills a trader must possess is the ability to identify a reversal.  It is easy to exit a position too early by over anticipating a trend reversal, and just as easy to loose money by not exiting a trade quick enough.  

The use of a moving average is an excellent tool to help us identify trend reversals.  By plotting the proper moving average on a stock chart, we can watch for the stock’s price to penetrate the moving average to know that a reversal may be occur.

Moving averages come in two common forms: simple moving average (SMA) and exponential moving average (EMA) – also known as weighted moving average.   As a general rule of thumb, the exponential moving average weights more heavily the latest stock prices.

First Solar Stock Chart

The chart to the right on First Solar shows a good example of how exponential moving averages can help us identify the trend.  Although the price of FSLR started moving down at the beginning of the year, the moving average indicator shows us that the overal trend is still moving up.  We know this because the 10 day exponential moving average line bounced off the 90 day moving average line and continued on its path upwards.   As long as the security is in trend, the moving average is relevant.

Sometimes a stock will consolidate (move sideways in a tight range), and in this case, the value of the moving average as a useful indicator diminishes. Consolidations are a bit more trickier to analyze and predict future price movement, and we will cover consolidations in another article in much more detail. 

Below are some of the key take aways to remember about moving averages:

  • Moving averages are good trend indicators as long as the stock is not consolidating
  • Exponential moving averages place more emphasis to the most recent data and are better indicators to use with high volatility stocks
  • Simple moving averages are good trend indicators for low volatility stocks

 

US Economy

Is this the end of the economic crisis and financial market disintegration?

After the initial FED reaction, it was followed by hesitation as the credit markets froze, causing the markets to lose confidence and chaos ensued within the financial world. BSC, which had been solvent as soon as the previous week, was victimized after the first quarter scare took center stage. It was voided with assistance from Fed since it went bankrupt and could not effectively conduct business.

The financial crisis of 1998 triggered a bear market, which ended relatively quickly (14 weeks between crisis peak and recovery) with the Fed support of foreign currencies. How many weeks has this one gone on? From the August peak of 26 weeks this one has lasted significantly longer yet fourteen weeks have elapsed from the first low to this week’s breakout. Although there is more to it than just the mortgage issues, they greatly caused the financial problems that even spread to other countries.

As luck would have it, it was the Fed’s action with respect to BSC as well as its opening the discount window to non-primary dealers, and jumping the size and content of its auctions that finally led to the unfixable. This allowed markets to see that Fed was ready to backstop the problem. Also, it demonstrated that this Fed was different from the Greenspan Fed, for example continually meeting one financial issue after another with the inevitable rate cut. Instead, this Fed was thinking outside the box, looking at how to provide liquidity without resorting to endless rate cuts and associated dollar liquidation. As soon as the market received the memo, there was a halt in the decline of the dollar. There wasn’t a sudden rebound since the administration didn’t help. In the past five weeks it has only moved laterally.

The direction of bond yields is another sign. Interest rates for bonds rose, especially short-term ones. After remaining at 1.8%, on Friday yields rose to 2.2% during trading and closed the day at 2.13%. Prior to landing at 3.71%, the 10-year escalated from 3.4% to more than 3.8% on Friday. Breakouts occur on both ends but especially the short. This could suggest inflation as discussed on Thursday, the elevated rates are not inflated. The Fed says that they do not depend on the constant rate cuts. The dollar has firmed as noted and that, and even though we have those exporting, means a better economic outlook for the US. Bond yields reflect economic strength, and rising yields in the past have shown a firming economy.

Gold is also showing well and indicating that the Fed has done something right, since gold hit its high in the middle of March; giving up 15% off the peak, bounced, but then gapped lower Friday, falling 28 clicks and is now at a key junction a little above 900. There is an indication of a problem since the gold has fallen since the recession and the inflation trade is slowing. The Fed won’t cut rates so the gold inflation is over.
This indicates that the credit crisis and accompanying economic slowdown may be at an end. Leadership and stock market bounce are good leading indication but not fully conclusive in themselves. The action in bonds, the dollar and gold add weight to the favorable story, but even those are not conclusive as the dollar is still basing and gold has not broken down completely. More of the story will be revealed in the next few weeks.
As always there is a rub; LIBOR (London Interbank Offered Rate) rate spreads are increasing again. When spreads are high banks are less willing to loan money to the other banks. At the start of the credit freeze they were at 90+ points, but as a result of the Fed actions they fell back to an understandable 5 to 10 points. Although the economic outlook had improved, they have returned to the 94 basis point level. Borrowing cost higher than bank are indicating means profit impact yet undisclosed

Oddly, banks are not running to participate in the Fed auctions. Indeed, the participation has declined, indicating that liquidity levels are improving and quite livable. They would go to the Fed if they could not access funds.

In any case, today’s market allows us to profit from the moves as long as leading stocks and the indices show the right kind of action.

You think prices are high now?

According to a recent survey, the summer months are going to start with national gasoline prices soaring to the $3.60 mark. During the last few weeks we’ve seen an increase of approximately 20 cents. By summer $4/gallon gasoline is expected. The price last summer was $3.

Prices of gas are affected by the ethanol. Above all else, it’s caused wild regions to overflow, destroying wildlife habitations on the edges of farmland and tarnished streams with fertilizer surplus and the lands are gaining ground all the way up to the water’s edge. Minimal amounts of ethanol are being produced by using hundreds of gallons of our limited water supply resulting in very little or no gain at all. Severe environmental effects.

Food costs have skyrocketed because of this. The prices of animal feed are inflating just like stated by the CPI and PPI. That is causing price increase on top of a price increase. In what way? Corn is now being used for ethanol so food costs are going up. Rice is the basis of the Asian diet, corn syrup is the basis of our food. Diverting corn from food production to fuel production raises food prices Food prices are skyrocketing worldwide, causing riots, unrest and starvation and we continue to use food staples for fuel, CAT’s CEO wondered at the folly of this Friday in an CNBC interview.

There are issues besides the increasing prices for corn-based foods. Feed corn is so much higher that ranchers are slaughtering cattle and chickens to prevent themselves from buying the high-priced feed in a losing proposition as it costs too much to raise the animals. Therefore, we will have an insufficient supply of beef and poultry in a matter of months. As an example, we are hearing prices for ground beef as high as eight dollars per pound.

Once again, the US government has blundered foolishly into market manipulation, with its ill-conceived policies impacting both its own citizens and consumers around the globe. With the ethanol plan they have fused together food and energy prices and as a result there are increases in both.  Saying there had to be a start somewhere, one of my clueless senator’s staffers discussed energy issues with me.   Yes, but looking at the past it is evident that failure occurs over and over again when the government picks the method of solving a problem rather than providing incentives for anyone to find the best solution. People will uncover the top solution, so long as they are provided with the incentive. When the government picks the solution the only ones benefiting are those who basically receive the government monopoly. For instance, corn, our main food source. Nice move. We need to undo this decision yesterday or we are going to see a price explosion in food, and that is going to escalate unrest across the globe at a time that we simply don’t have the resources to meet it. Our enemies can only benefit from this course of events.

Market Analysis

Dow Jones Industrial Index 04/18/2008Stocks surged as the mortgage crisis appears to be subsiding.  Investors even liked Citigroup’s loss as it was not as bad as originally predicted.

  • Bond yields jump, dollar firms, gold plunges: what the markets outside stocks are telling you.
  • Price surges to come: how the government tied food prices to energy prices and how we are all going to pay the price.
  • NASDAQ, SP500 breakout will confirm a continued rally near term.

Earnings provided the trigger for a breakout in many sectors. 

After a weak start that led to a deeper pullback from the rally, a pullback that left investors uncomfortable enough to wonder if the rally could continue, earnings started to come through this past week.  IBM, JPM, GOOG, INTC, CAT and HON all posted earnings and guidance that showed a stronger future than the general mood of the market was giving the economy credit for. Even misses by SLB and C were viewed in favorable light, indicating that the build off the lows with leadership and good price/volume action underpinning the move, as well as other factors at work as discussed below, are driving prices higher despite the concern about the US economy. This could very well be just a relief move in a larger bear market, but for now there are a lot of good stocks in good patterns making solid advances. Hard to argue with that regardless of what is driving it.

Stocks gapped higher on the earnings, fought off an early selling attempt, and rallied to new session highs in the afternoon. It was expiration and in the afternoon the market sagged as some expiration reshuffling occurred given the strong market recovery in the second half of the week. That pullback kept NASDAQ and SP500 from taking out their early February highs, but they did clear some important resistance milestones on the Friday move. DJ30, following the breakout Wednesday by the Dow Transports (DJ20), broke out as well, as it broke a hole in that ceiling at 12,750, doing so on stronger, above average volume. NASDAQ showed solid above average trade on its break higher as well, the first above average trade in a month.

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David Yang

Profile:DavidYang2 David Yang got his BA in computer engineering from Beijing information Science&Technology University and then received his master degree in MIS from Beijing University of aeronautics and astronautics. He started his software development career at the Bank of China and then provided consulting services to different industries mainly in financial and retail. With over more than 15 years hands on experience in successful software development, David strongly believes that technology plays an active and powerful role in financial investments and significantly improves the return on investment.He developed leading software for banks and financial companies to analyze massive amounts of stock and mutual fund data using technical indicators and data models before he joined stocknod.com in 2008.

Investing Philosophy:
David Yang invests in a wide array of investments ranging from fairly traditional value stocks to more esoteric investments like distressed debt, liquidations, and foreign equities or bonds.  Yang doesn’t mind “doing nothing” on occasion depending on the pulse of the markets.  He is completely unperturbed by the idea of sitting on the sidelines holding cash whenever investment opportunities are scarce. In fact, in 2005 and 2006, nearly half of his portfolio was held in cash. Investing, he cautions, is more than just producing absolute returns. Too often investors focus on that one easy number “return” and ignore the risks incurred to generate that number.