Sunday, February 13, 2011

13 February 2011 The Week Ahead and a Peak at Barron’s


13 February 2011 The Week Ahead and a Peak at Barron’s

As my father used to say after delivering a great month at PADI, the first day of the next month he would say, “What have you done for me lately?” So it is with basking in the glory of nailing the S & P figure for the week. No calls from Charlie Rose or invitations to appear on Mad Money so we guess we’ll just get back in the groove and take a look at what is happening this coming week and where we might end up.

First let’s start with the Cronastics Chart. As you can see, due to market’s positive direction and 79% of the NYSE selling above their two hundred day average, we have seen a 2% jump in the Cronastic Index. Now what does that mean? Hell if I know and it’s our chart. Our assumptions are the market has some very positive inertia behind it at the moment. If you are a reader of IBD (Investor’s Business Daily), keep your eye on the front page and read “The Big Picture”, but look at the insert called the Market Pulse. Especially stay attuned to “Distribution Days”. These are the number of day that recently saw institutional sell offs. More distribution days means a less stable market. We back tested this and discovered that in October 2007, if you had began to take profits according the number of distribution days as it climbed to 7 distribution days, on November 1, 2007 you would have seen the Dow fall from 14,100 to 13,600 and you have had ample indicators to get out with huge gains. (We had gotten out in Nov 2006 for cash flow reasons. The Dow was at 12,600.) We are using that data for part of the Cronastics Index.

Let’s look at the data points and news that will impact the market. Things are still shaking out in Egypt. One article in Barron’s was rightly titled Goodbye to Mubarak Hello to Who? Be careful what you wish for. Also keep an eye on news from Portutgal. Their Prime Minister is saying they won’t need a bail out. That has been a good indicator that the sovereign debt is in trouble and they will need a bailout. That could get volatility agitated again.

Monday we got nothing as far as US based economic data.

Tuesday we have the Bureau of Census Retail report coming out. That indicator has dropped from .8 to .6 and is expected to drop to .5% on fears that snow and ice kept people from shopping. With all the positive same store sales from so many retailers and consumer confidence creeping up as well as consumer credit exploding last week, look for retail sales to spark a nice rally on Tuesday good for about half a point on the S & P.

Tuesday will also see the Empire State Manufacturing Survey and there are high hopes on this number going up about 26% to 15. We don’t see it especially if you take into consideration all the logistic issues caused by the bad weather last month. We are guessing twelve, but the drop will be explained away by the weather and the market will shrug it off.

Tuesday will also see the release of business inventories. It is expected to increase from .2% to 7%, which we think is a little light. Look for 9% as a lot of manufactures had problems getting things out the door due to ice and snow. What you really want to keep an eye on is the ratio of sales to inventory. The chart below indicates that as the economy improves the ratio drops.

Wednesday will see Housing Start Figures. This one is loosing it’s relevance for us because we are seeing huge tracts of new homes being built just a few miles from vacant tracts just to keep the builder busy and to create more attractive neighborhoods then the abandoned properties currently on the market. This is true in AZ CA NV and we would assume else where. But since the data point can move the market, the number is expected to be 540 new housing starts up slightly from last month. We don’t know and don’t care, except for the fact a huge miss, say anything below 510 will slap the market bottom.

The PPI (Producer’s Price Index) is out on Wednesday as well. This one has us a bit baffled. The core figure is expected to stay salt and the “real” number is expected to go down. We are thinking both will go up. All of the articles about grains and raw materials rising must impact the PPI at some time and we assume some time before it hits CPI (Consumer Price Index). Look for a surprise to the upside.

Later in the day on Wednesday we have industrial production and factory utilization. Look for both to be higher than expectations, just a little tiny bit higher.

Thursday we will see the CPI and we do agree with the flat call there on the less than food and energy measurement. We do not agree with the overall expected drop. We are thinking flat on that as well.

With clearer skies and nicer weather look for the jobless claims number to head back up to 420,000 a little higher than expected.

We close out the week with the Philadelphia Business survey Thursday afternoon and we agree with the consensus it will be up moderately.

Though we are more than half way through the earnings season and the winner versus the looser ratio is healthy, we have a few hitter this week which could move the market. Monday look for a beat by Marriott, say 39 versus the 36 cents expected. Tuesday look for media giant OMC Omnicom to beat 84 versus 81. ADI, Analog Devices should beat as well on Tuesday but we can’t figure the number. Dell should disappoint. Look for GENZ to continue its ride sideways as it disappoints. Netap should please and blow past estimates unless there are some quirky footnotes. Just be careful as a lot of the cloud associated CEO are following great earnings reports with cautionary statements. NVIDA should beat. Apache has an aggressive estimate of 2.45 a share but should hit it. Look for WM Waste Management to beat soundly (WE OWN). Nordies should beat the buck easy. Campbell Soup will not be MMMM MMM Good. First Solar will leave some investors in the dark. They should disappoint.

So we finished the week at 1,329 on the S & P 500. Did we mention that we called that last week? Oh yeah we did mention that. Here is our guess for this week. 1,341. Mark it down boys and girls. We are looking for a .9% increase on the week.

IBD and its use.

We are still reading the Barron’s and enjoying the Wall Street Journal. These are easy reading compared to the tool IBD. If you have never burned through of one and would like to, let me know and I will get you a recent copy. We take a quick run through it in the morning and then take it to lunch and devour it at night. There is so much great information in there that after a 3 year hiatus, even we were overwhelmed.

We thought we would take a minute for those that are interested to take you section by section through the publication and let you know how we are using it to enhance our investing performance. Don’t worry we are going to take baby bites at a time.

First a little background on the publication. William O’Neil and company created the first computerized database of stock performance comparison in 1960. He has been doing this quite a while. It is one of the most widely read publications in the investment industry. (Along with Barron’s and the WSJ.) There are over 2 million subscribers in a publishing world where that kind of number is a pipe dream. In a later post we will spend a little time talking about the various proprietary ratings for more than 10,000 equities, but lest start with the layout of the publication starting with the front page.

At the very top of the page, you see the key indexes and how they performed for the day. The S & P 500, DJIA, NYSE, and the Nasdaq. Hey no big deal every website and investment publication in the world tells us that. TRUE. But under each index there is a brief capsulation of the key mover of that index. For example the issue I have in front of me notes (for NASDAQ) the big movers were Net Logic and Cirrus. This summary is a quick pulse of the key indexes in under 30 seconds.

Down the left had column is the IBD’s top 10. This is great for busy day. They do and exquisite job of nailing 10 key news items that move the market. It is extremely efficient. In the issue here # 2 is Retailers Sale’s Easily Top Views and in less than 50 words summarize the key players who drove the headline.

Then one of my favorites. Regardless of when the newspaper hits my desk, as long as I am there, I will stop and glance at “The Big Picture”. It is one of the most thorough summaries of the previous days trading. (If you have the on line version you can grab this article at about 11:00PM. And you all thought I was clairvoyant. I have a little help occasionally). This 400-500 word summary is the culmination of dozens of article you would have to comb through in the WSJ. To the point and very informative. In the issue I am looking at right now they explain and interesting situation about the trading energy behind OPEN Open Table which provoked me to circle the name for near term future consideration.

In the heart of that column is where we find our (“Market Pulse”), probably the most important 50 or so important words in the investment community as the notes in this little box can easily interpret the over all direction of the market. REMEMBER, market direction drive 75% of the price of a stock on any given day. The balance of the front page is spent on two or three top stories that you can find everywhere else.
Again if you have not enjoyed perusing the IBD, let me know and I will get you recent copies. If you are SERIOUS about improving your returns in the market this is a necessary document.


IDCC InterDigital, Inc. engages in the design and development of digital wireless technologies for use in cellular and wireless IEEE 802 related products. It also develops solutions for enhancing bandwidth availability and network capacity, wireless security and seamless connectivity, and mobility across networks and devices. In addition, the company licenses its technologies and mobile broadband modem solutions (modem IP, know-how, and reference platforms) to mobile device manufacturers, semiconductor companies, and other equipment producers that manufacture, use, and sell digital cellular products. InterDigital's solutions are incorporated in various products, including mobile devices, such as cellular phones, wireless personal digital assistants and notebook computers, and data cards; base stations and other wireless infrastructure equipment; and components for wireless devices. The company was founded in 1972 and is headquartered in King of Prussia, Pennsylvania.

If the company sounds familiar its because we mentioned it here a few times over the last month. We added to a watch list about a week ago, and we thinks it time to make a commitment to the company. We won’t bore you with the fundamentals as we know you will do your own homework and confirm what we have discovered. This is a sound fast growing company with no debt a great operating margin, about 12 dollars a share cash built into its $55 dollar price.

IBD loves the stock giving it a 99 rating and the chart looks real nice. The 97 Relative Strength rating implies that it is in the top 3% of upwardly moving stocks. This has all the makings of another ARM Holdings (ARMH).

In fact if you go back to their charts from a year or so ago you will see similar patterns. Note the Institutional buying of IDCC over the last couple of weeks. If if something fundamental changes in the company it will take a little while for that type of cash inflow to get out of the stock.

Do your home homework but here are couple of plays you could look at. Go long getting in tomorrow at $55.00 a share. Set your stops at 51.00 or buy a June 40 dollar put for insurance at 1.30 or 1.40 a contract. Cheap insurance you probably won’t need.

You could also buy a March 19 55.00 Call Option for 3.80 a contract. This is the option we are using.

For the long position, look for 63 a share by June. If you get in the June call as described look for a 30% gain in a week or two then take the money and run then buy another call a month out from there. Good Luck, but do your homework.

Salve Lucrum


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