MoneyMiser Picks

Well, we open this week within 30 points on the S&P 500 from the 200 day SMA on the index.

And there was an interesting bearish cross on the daily chart of the SDS last week, as the 50 day SMA crossed below the 200 day SMA. Could this signal a further bull run in general?

On a technical basis I think we're going to pull back on the S&P 500, but not much. The pull back will allow the 50 day and 200 day SMAs to move closer together, and then the 2nd surge should come.

So if you're like me, and you missed the first rally in your 401ks Index funds, I think you'll get another opportunity this year. How long it will take, I'm not certain.

Watch the charts, they don't lie.

Comments: View Comments |  Monday May 11, 2009

It will be interesting to watch a key technical on multiple bank stocks for Monday.

Morgan Stanley and JP Morgan both closed Friday on, or very near, their 50 day moving average.

The break above the 50 MA has been widely cited on CNBC, as well as the web as a sign that the financial stocks were going to rally.

Monday will prove the first key technical test, to see if they bounce off or break down.

Given trends in two other technical indicators, my guess is they will break down. Both the MACD (8,17,9) and the Slow Stoch (14,5) in MS & JPM have started to trend negative. In MS's case, the MACD divergence has already crossed below 0 to the negative, and the Slow Stoch has crossed below 80. In JPM's case, the MACD divergence declined the past two sessions, and the Slow Stoch has already crossed over it's signal line, and will probably break below 80 on Monday.

Looking at a broader measure of financial stocks, the XLF could not sustain its break above its 50 day MA. The ETF closed below the 50MA this past Thursday, and followed with another down day on Friday.

From a technical perspective, the XLF is like JPM in that its MACD declined the past two session, and like MS in that its Slow Stoch has alread crossed below 80.

All three made huge moves last week, and already retraced some from that. So let's factor the price movement in as well. A 50% retracement from the high of each moves gives us approximately:

JPM - $21 (close Friday at $23.15)
MS - $21 (close Friday at $20.24)
XLF - $7.80 (close Friday at $8.14)

So what does this suggest going forward? Given the overall sentiment about how "strong" of a company MS is, the break below a 50% retracement signals one of two likely scenarios:

(1) Not all may be well still in bank stock land, and this bear market rally in the financials may already be over

OR

(2) Perhaps traders "overdid" the selling/profit-taking on MS, and that's your best opportunity for the bear market rally going forward.

I'm not experienced enough to say "with any authority," which is the more likely scenario. So like a lot of other traders, I'll make a guess.

Personally, I don't believe in the rally from a fundamental standpoint. I agree with Jeff Macke that we cannot accurately value how the banks are making money, despite assurances of Citi, BofA,a nd JPM this past week about the "profitability" so far this year. Until we create an accounting system that anyone who balances a checkbook can understand, there will always be those who "financially engineer" their books to deceive shareholders, board members, regulators, and lawmakers for their own good.

From a technical trading perspective, the indicators show downward trends.

So based on my fundamental viewpoint and the technical indicators, my guess is we're heading lower in the financials again. I don't know how low however.

So given the negative outlook, where's the best place to make money? Given the three above symbols, I'm more likely to be interested in an April put options spread on JPM. Shorting the stock outright is too dangerous imho, given the volatility in the financials. Being able to define your risk accurately is important in volatile times.

So I'd recommend buying the $23 put option, and selling the $18 put option. At Friday's close, you' be paying about $1.77 for this, with a maximum profit opportunity of $3.23. Not quite 2 to 1, but pretty close. Also, let's say JPM stalls out at its 50% retracement level. This spread eeks out a tiny bit of profit per spread contract. If you can afford enough of them, that tiny bit of profit offers a real return on investment (before fees and taxes) of just under 13%.

Comments: View Comments |  Sunday March 22, 2009

Well, it looks like the big bad bear has a majority of traders in its grasp.

So what should you do now?

It's time to start buying quality on the cheap.

Now the average investor can't do what Warren Buffett did, getting 10% for life essentially and an option to buy more for potentially less than face value, but there are a lot of companies out there who are quality on the cheap for INVESTORS WITH A LONG TERM MINDSET (10+ years)

My first buy today: CHK when it dipped below $13.

Chesapeake has become the #1 or #2 (depending on how you view it) natural gas producer in the U.S. In the good days, it went north of $60 per share. In the low teens, that'a more than a 75% discount from the highs.

But Chesapeake won't recover quickly. It's a long term share price growth story.

Essentially a greenier energy source than oil, will make you green (cash) in the next decade + .

--Look at how many plants have converted to nat. gas for electricity.
--How do you make all of that steel for infrastructure growth? Nat. gas needed to heat to hot temperatures.
--T. Boone Pickens isn't blowing hot-air about using nat. gas as a bridge.
--Democrats in Congress seriously considering off-shore drilling for nat. gas

All of this adds up to a decade long (or longer) fundamental story for nat. gas.

Again, CHK won't recover by end of 2008, but probably by Spring 2010, we'll start to see momentum recover. From a $13 price floor, we could easily see $40 by 2018, and that's about 15% compounded return on investment.

Others I like for 5+ years recoveries: Both MGM & LVS. Both are in the low teens, and the world is not going to stop gambling anytime soon. Of the two, I prefer MGM because of its brand name properties, performance at those properties, and expansion plan.

Comments: View Comments |  Friday October 10, 2008

Oil whipsaws the market up and down like a teeter totter. This is a market for traders, not investors.

Which leaves me pretty much down and out. We have to hold too many stocks for my liking in this contest, in a volatile market where day to day changes favor those who move quickly.

I'm just not experienced enough to see beyond 2 or 3 opportunites currently, while the top players have the foresight.

Persoanlly, I'd rather only have about 4-5 stocks in my portfolio right now (GRMN, ISRG, KWK, DKS, KSS), if I had to start from scratch today. All are undervalued, and have promise if their growth falls within analyst expectations.

Stocks I'd keep on my radar for attractive entry points: GS (Below $165), CSCO (Below $24), INTC (below $21), V (when it falls below $80 again), USB (When I figure out why a so-called conservative bank is getting knocked down).

I've pretty much proven that I don't understand certain stocks as well as I thought. TSO, MSFT, NVDA, GE, PFE, NTRI, and NYX all fit that bill. Of course this is all relatively short-term reuslts (4 months is hardly conclusive), and I may turn out to be correct with a longer time-frame. However, within the confines of this game, I did not perform well enough. I have no one but myself to blame.

What I find intriguing is that my longer term portfolio I'm also running on Marketocracy, is positive. For that one, I sold half of my AAPL position when it broke $185 back on May 12th. I then got out of AAPL all-together at $188 the next day. I also sold part of my EMC and CSCO positions on May 13th. I made large bets on all three stocks, and did well on them.

Now I'm mulling whether to dump my CVX position when it goes above $100 again, and whether to dump JEC. Both positions are up 23%+ since I bought them.

Just goes to show I have a lot more to learn.

Comments: View Comments |  Monday June 16, 2008

Amazing what falls in the stock market sometime. What if I told you that two best of breed companies we're offering you a more than 50% discount on what their fair value estimated prices were?

Well we've got such a situation, thanks to the fears being force fed to us about the economy going down the toilet.

They are Garmin and MGM Mirage.

The case for GRMN:

The premiere name in GPS devices. They put competitors like Tom-Tom to shame. And really, who believes those God awful commercials from Tom-Tom actually helps Tom-Tom's bottom line. Forget Tom-Tom, or Sue-Sue, or whatever name you want to double... give-a-give a Garmin. Makes it much simpler to get your idea across.

Garmin won't be dragged into a price war because of the quality of their product. The company also makes money off of selling its GPS technology to cell phone makers.

Then there's the financial side. And boy does Garmin impress. Book value per share has climbed from 78 cents per share in 1998 to $10.83 per share in 2007. And Return on Equity has never dipped below 22% in the past decade. Garmin's ROIC in the past 5 years average is 34.5%, which is more than four times the industry average, and more than three times the S&P 500 average.

With numbers like that, Garmin can't be trading below fair value can it? Oh Mr. Market is having another one of his manic depressions over this GPS giant. Current fair value estimate, given it's current earnings, projected average growth rate, and an average past P/E for 10 years is approximately $116. It's selling at $50 per share as of end of Friday trading, and that's AFTER an $8 per share move from Monday!!! So yes, it's up nearly 20% in a week, but it has a lot more room to grow.

The case for MGM:

Fair value estimates for this stock given it's current earnings, projected average growth rate, and an average past P/E for 10 years is approximately $111. From that level, it should hit a target price of $444 in 10 years, averaging about 15% compounded ROI (minus expenses of investing and taxes).

Then you've got the properties. Macau, the Bellagio, the MGM Grand, and several new international hotels/casinos including a new Middle East venture. This company can thrive when the U.S. market slows down thanks to its international exposure.

Then there's the book value and Return on Equity story. In the past ten years, book value per share has increased from $4.63 per share in 1998 to $20.63 per share as of 2007. In five of the past six years, Return on Equity has been more than 10%, and increased the past five straight years.

MGM's longer track record and success as a public company, makes it a more stable name to invest in than it's bigger competitors Wynn or Harrah's.

Both GRMN and MGM have three key technials in common:

1. Both recently crossed above their 30 day moving average
2. Both of their Stochastic oscillators are surging. MGM above 50, and GRMN crossed above 80.
3. Both MACD divergences are approaching 0. And the trend looks positive.

So I'm buying both for my SLO2 account and my longer term Marketrocracy account.

Other new positions:

Citibank's drop back below $24 per share has me buying in. This is purely for a value TRADE. I predict at least a 15% return within a month.

Pfizer dropped below $20 per share. The last time this happened, Prizer shot up above $22 quickly (like it was injected with Viagra or something... lol). I don't see why it won't do it again. Heck PFE below $20 is a great long term investment for both the dividend, and turnaround potential.

I added more to my Visa position on the dips this past week. I still feel Visa has tremendous long term potential.

Holding on to: WDC, YUM, BHI, INTC, BUD, MSFT, NTRI, CSCO, DNA, VZ, GE, SIRI, TSO.

Selling HUM, AMAT, MO, PM, ESLR, MRK to free up cash to buy GRMN & MGM. Also, because I just don't understand these stocks enough.

Comments: View Comments |  Saturday May 17, 2008