August 2011

 

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Figure 1

The week of 7/25 was a brutal, with distribution, or institutional selling occurring on 4 out of 5 days. This capped off an ugly month of trading which whipsawed up and down, creating an almost perfect “M” pattern (Figure 1). It was just as crazy for leadership stocks as Baidu, Inc. (BIDU) and Amazon.com (AMZN), and Apple Corp (AAPL) were winners; while Netflix, Inc. (NFLX), Panera Bread (PNRA), and Illumina, Inc. (ILMN) were losers. The soap opera surrounding the on again, off again Debt-Ceiling Bill created a volatile, news driven market; making for a difficult investment climate.

Figure 2

One thing as not changed; the US, along with many other countries are way over their head in debt. Many also agree the economy here in the US is still deteriorating. Inflation continues to be a problem, as well as real estate and unemployment. This is why GLD (SPDR GOLD Trust) and SLV (iShares Silver Trust) are this month’s picks to watch. Buy points for GLD and SLV were posted on July 19^th on leadershipstocks.com and are up a little over 2%. GLD ran into 3 big distribution days in the past two weeks, so may be a bit underpressure. It is also extended from it’s $153.61 breakout, so a pullback may be just what it needs before continuing higher (Figure 2).

Figure 3

SLV (iShares Silver Trust) gave a pocket pivot but point on 7/12, an early entry to what appears to now be a building cup formation. Keep an eye as the price continues to climb up toward $48.35 (Figure 3), and a possible breakout to higher levels.

 

June Investment Report

The Cinco de Mayo correction call by Investor’s Business Daily did hold to form as the major indices averaged a 2.5% loss for the month. The Nasdaq (Figure 1) is representive of the downward stair step action for May and what looks to be a dead cat bounce back to the 50 day moving average. It’s possible to see the Nasdaq rally up to the the 2825 level, but the weakness of recent price gains, along with overhead pressure, suggests that the market is headed lower.

Inspite of overall weakness, a few leading stocks have done well and should be watched closely. These are NFLX (Netflix,Inc), CMG (Chipolte Mexican Grill), AMZN (Amazon Corp), GMCR (Green Mountain Coffee Roasters).

Figure 1

June’s pick of the month is GLD (SPDR GOLD Trust). With all the attention turned to the rise and fall of silver, gold has been quietly building the right side of its cup formation and signalled a pocket pivot buy point on 5/22 (Figure 2). Global default worries continue to be a backdrop to demand. Fitch downgraded Greek debt again; and Jean-Claude Juncker, President of the ECB warned that an audit currently underway may reveal that the country may not be eligible to receive financial aid next year. Norway has already frozen its 235 million kroner ($42.6 million) aid package to Greece.

 

April Monthly Investment Report

April 2011

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• In a correction for most of the month, but leaders continued to outperform- the market continues to throw head fakes
• Retailers brace for inflation
• Amazon’s new cloud music service more than an itunes threat

Figure 1

March continued to head fake and fool investors. March 7^th saw Investor’s Business Daily end the rally started on December 3^rd. Almost four weeks later, IBD called a new rally on March 29^th (Figure 1). Navigating this market has been difficult at best, IBD noted in the 3/29 Big Picture article “So, while Thursday’s bullish market signal wasn’t obvious at first, it’s hard to argue with a market that continues to recover, generating fresh breakouts and showing other positive signs. “. Another positive sign is only 5 stocks in the IBD50 were down for the month. Figure 2 shows a one month performance heat map from my leadershipstocks.com blog, IBD50 Finviz link. Any stocks showing green ended the month positive, red designates those who ended down.

Figure 2

Inflation has been most obvious at the gap pumps and while we consumers complain about $4/gallon gas, the government simply turns its head the other way as energy is not included in their inflation report. Groceries are also missing, but will soon be our next inflation gripe. Wal-Mart U.S. CEO Bill Simon said during a meeting with USA TODAY’s editorial board. "We’re seeing cost increases starting to come through at a pretty rapid rate." He warned that Americans should expect "serious" inflation in coming months.  Increased prices for consumer goods are just ahead despite low interest rates. The New York Times had an article on how companies are camouflaging price increases by selling smaller versions are “greener” packages for the environment, more “portable” little carry bags for the takeout lifestyle, or “healthier” fewer calories labeling. It is clear that our elected officials have are further adding to the problem with a FY2012 budget which will spend $3 for every $2 of tax revenue.

Figure 3

SLV (iShares Silver Trust) and GLD (SPDR GOLD Trust) continue to be the preferred inflation plays but are extended from last month’s mentioned buy points. Keep watch on AMZN (Amazon.com Inc). Known primarily as a retailer play, it has set another stake in the ground this month as a bone fide in the cloud computing player. The Amazon Cloud Player is a music service is an itunes competitor, but runs completely on the web. The big difference being your music will be available on any internet connected device. So in addition to playing in at home or your ipod, your music will be available on any Android phone, computer, and in the near future, TV’s. In addition to music, your Amazon cloud account can hold pictures or documents; think of it as a virtual thumb drive. Amazon also has business cloud services called AWS (Amazon web Services). The same infrastructure used to run amazon.com can be rented out to businesses. AWS has quietly grown to hundreds of thousands of customers including NFLX (Netflix Inc) and is expected to generate an estimated $750 million this year. Technically (Figure 3), AMZN (Amazon.com Inc) is completing the final leg of a double bottom pattern which started the beginning of the year. This final leg has nice accumulation including 2 price gap ups. The proper buy point here is a breakout at $191.50.

 

October Monthly Report

October 2010

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· The September rally is still on, and may be taking a breather before going higher

· Growth tech (AAPL, GOOG, BIDU, NFLX, AMZN) is hot

· QE2 may further devalue the US Dollar and raise the price of commodities

The rally which started on September 1^st proved to be very profitable as realized gains were made in SPY (SPDR S&P 500 ETF), QQQQ (Powershares QQQ Trust), GLD (SPDR gold trust ETF), and Silver Trust ETF (SLV). These positions were exited on 10/19 on abnormal drops in GLD and SLV, which also coincided market resistance. The NASDAQ, the leading index, completed the right side of a cup formation, and is likely may spend some time digesting gains, even pulling before possibly heading higher. With elections just around the corner, institutions will also be watching and waiting before committing further big money. The current rally is going strong with a low distribution day count and solid leadership.

Several interesting opportunities exist should the market continue to go higher. With QE2 as a backdrop, institutions seem to be favoring high growth tech: GOOG (Google Inc), AAPL(Apple Inc), BIDU(Baidu), NFLX (Netflix), AMZN (Amazon). GOOG (Google Inc) and AAPL(Apple Inc) are also near potential buy points.

BIDU (Baidu) and fellow Chinese internet competitor SINA (Sina Corp) both report strong earnings and growth as internet use in China continues to boom. BIDU (Baidu) recently broke out of a 3 weeks pattern, so would only be buyable on a pullback at round $110 or even better, a low volume pullback to it 20 day SMA at $80.06.

There was nothing wrong with AAPL(Apple Inc) earnings as the company posted its seventh straight quarter of sales acceleration and fourth quarter of triple digit earnings, so it was a rogue group of after hours traders who decided to take the stock down. At the open on the next day, the “big boys” in the institutions took advantage and bought it right back up. BIDU(Baidu), NFLX (Netflix), AMZN (Amazon) also experienced post earning cardiac drops; in spite of strong earnings reports, with each also recovering. AAPL(Apple Inc) is 2 weeks into a 3 weeks tight pattern. Note how volume has dropped, or dried up this week – another bullish characteristic.

Another example of volume drying up is GOOG (Google Inc). Especially after its huge gap up move, price action has been tight – as if it’s winding up to blast off again. GOOG (Google Inc) needs to pullback to form a proper handle.

UDN (POWERSHARES DB US DOLLAR BEARISH FUND) are plays on the theme that QE2 will further devalue the US dollar, which is just about in a free fall. As the Dollar fall, the price of commodities will raise for price adjustment. DBC just completed its 3 weeks tight pattern and is waiting for a breakout about $25.47. UDN (POWERSHARES DB US DOLLAR BEARISH FUND) is looking to break out of its Cup with Handle at $27.76. Be careful with any of these suggestions, this is not a normal market environment, and volatility has made investing extremely difficult.