Bernanke does it again!

There is just too much to write. So I will split this post into two – Bernanke and Non-Bernanke (vis-a-vis the earnings).

After being down 82 points in the early going the Dow reversed course and closed 78 points higher on Tuesday. Wow! Then the Nasdaq surged 1.1% as the technology sector led the market today.

The reversal was due to Fed Bernanke’s testimony this morning that the Fed is willing to do what it takes if the economy and labor markets do not improve.  He expects historically low rates to remain in place at least until the end of 2014 and most importantly he convinced the participants that the policymakers at the central bank seem to be preparing for additional moves to spur the economy in the weeks or months ahead.

This low interest rate environment should help stem any serious correction in the market averages.

So, where does yesterday’s trading action leave us now? First, I don’t think that this is a short squeeze anymore. Second, yesterday qualified as a decent follow through day from Friday’s key reversal which is a positive development.

Moreover, the basing action in some stocks and the sector rotation is almost clear now. One last thing to notice is that the junta seems to have realized that the tech and oil & gas stocks have been beaten to death. See below –

In fact we see rise or less “severe” damage to stocks even after the poor guidance.

  1. To exemplify, look at the the turn around in STX after it pre-announced a revenue miss by 0.5 Billion dollars (seriously!) or even QCOM which reported fiscal Q3 revenue and earnings per share a little light of consensus, and a Q4 view below analysts’ estimates.
  2. And of course an earnings beat is amply getting rewarded. e.g. MLNX – up 43% after hours, SCSS – up 17% after hours and SWKS – up 10% after hours.

So step in but be cautious.

Food for thought –

  • FDA approves Vivus’s diet pill (ABC)
  • Over 70% of earnings beating estimates (REU)

 

 

 

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Portfolio as of 5/2/2012

STX – 4% (Sold some today)

WDC – 7%

APA – 6% (Super Long Term)

QCOM – 6%  (Super Long Term)

ALLT – 5% ( Added some more after recent earnings)

GNC – 5%

FFIV – 7%  (Super Long Term)

URI – 7%

HAL – 6%  (Super Long Term)

VMW – 7%  ( Long Term)

TXRH – 3% (Initiated Yesterday)

UA – 3% ( Stop set at $93 and will add if it goes above $103)

TLT – 6%

F – 7%  (Super Long Term)

SWI – 3% ( Will add more around $43.9)

PCLN – 3% (Took significant profit off the table recently)  (Long Term)

CASH – 10%

Stocks which make up less than 5% of PORTFOLIO might be sold or added based on criteria, market condition, etc. I am very nimble and hence very low turn around time.

Earnings – STX, URI and ISRG

We are not out of the woods yet, but today’s price action is a step in the right direction.  The Dow posted its best day since March 13th gaining 194 points +1.50% and in the process moved back above its 50 day moving average.  The S&P 500 and NASDAQ also moved above their 50 day lines gaining +1.55% and +1.82% respectively. NASDAQ made its biggest gains since Dec 20th, 2011. Advancing stocks led declining stocks by 3.25 to 1 on both the NYSE and NASDAQ. But the turnover was slightly lower in both the exchange.

This rally was courtesy – demand of Spanish bonds and good earnings. The investors showed good appetite for Spanish bonds, even though the yields on 10 year notes spiked. It’s early in the earnings reporting season, but as of Tuesday morning 74% of the 39 companies that have reported exceeded analysts’ expectations. But the fickleness of news and volatility of the market definitely reminds me of last year. So being defensive is not bad at all. That said, I am taking out the small index short but will leave the BLV and TLT in place.

Lastly, a buy order of AAPL set long time ago at $581 got triggered today. Let’s see where it takes us.

EARNINGS –

Seagate technologies, STX, the one that I have advocated for last month or so came out with flying colors.

The hard drive maker brought in revenue of $4.4 billion, up from $2.7 billion in the prior year’s quarter, and above the average analysts’ forecast of $4.38 billion. Excluding items, Seagate earned $2.64 a share on net income of $1.2 billion, up from 25 cents a share and $113 million in the prior year’s quarter. Analysts surveyed by Thomson Reuters were looking for earnings of $2.11 a share.

Seagate also achieved a gross margin of 37% during the third quarter, comfortably above its forecast of 33%. These margins are strongest in company’s history. Seagate reaffirmed its $5 billion revenue target for its fiscal fourth quarter on Tuesday, as well as its $20 billion goal for calendar year 2012. The hard drive specialist also raised its fourth-quarter gross margin forecast from 33% to 34.5%.

This stock has formed a two month-long base and will breakout with a gap tomorrow. If you are interested then set a buy for $28.7 and double it up if it goes below $28. If we are in a bull we will go up till $30 in next few days or so. Following is an older chart of STX but the picture still remains the same expect for another blockbuster earnings.

United Rentals, URI,  is the one that I bought around $42 when it broke out a month ago but got out when it went below $40 and 50 DMA. The company mainly rents construction and industrial equipment in North America, including backhoes, forklifts and heaters. It also sells some new and used gear. The company has moved away from the construction rentals with the purchase of RSC holdings that gave URI quite a bit of industrial exposure.

United Rentals earned 36 cents a share in first quarter, reversing a 32-cent loss in the same quarter last year, and trouncing the Street’s estimate of 5 cents. Sales climbed 25% to $656 million, easily topping projections of $610 mil. For the prior three-quarters, sales grew 13%, 18% and 25%. The company’s rental revenue increased 21% in the quarter, reflecting year-over-year increases of 6.3% in rental rates and 18.4% in the volume of equipment on rent. 

“Once again, we drove profitable growth faster than the construction recovery,” CEO Michael Kneeland said. “Both core areas of our business — general rentals and specialty operations — realized higher rates year-over-year on a fleet that was about $600 million larger on average.”

Tomorrow URI will open above consolidation. Once again if this is a bull market it will start drifting towards $50. Remember PEAD.

Intuitive Surgical, ISRG, is a medical robot maker and has been one of the strongest leader of this bull.

The medical robotics maker’s earnings rose 35% to $3.50 a share. Revenue climbed 28% to $495 million. Analysts polled by Thomson Reuters expected Intuitive Surgical to earn $3.14 a share on sales of $464.7 million. Intuitive Surgical also forecast 2012 sales will rise about 20% from 2011’s $1.76 billion. It had expected 17% to 19% growth. A key to growth has been winning acceptance for robotic-assisted surgery in more procedures. The company said da Vinci-assisted procedures grew 29% in Q1 from a year earlier.

Gross margin edged up to 71.9% from 71.8%. Revenue from instruments and accessories climbed 32%, while services revenue jumped 27%. Systems revenue grew 24%, as da Vinci systems sold rose to 140 units from 120 units a year earlier. 

With a new product in late 2011, Intuitive Surgical aims to expand robotics-assisted surgery to gallbladder operations and cardiac procedures, such as heart valve repairs.

I am a big fan of this company and owned it’s share for short period prior to last quarter’s revenue. I will add some if the price drops to $555.

IBM and INTC

There were other earnings such as IBM’s better than expected earnings but a slight miss on revenue side. Chipmaker Intel  posted better-than-expected first-quarter results, easing concerns that sluggish PC sales might weigh on its performance. The Santa Clara, Calif.-based company also forecast revenue for the current quarter above analyst expectations. But the company said its gross profit margin would fall this quarter. Intel earned 53 cents a share in the first quarter, down 5% from the year-earlier quarter but 3 cents better than analysts were expecting. Sales rose 0.5% to $12.91 billion, vs. views of $12.84 billion.

Tomorrow’s earnings –

Date After Close Before Open
18-Apr KMP
VMW
MLNX
FFIV
SCSS
PLCM
CLB PII
QCOM
CBST HAL
YUM
EBAY
TSCO

More on the day Ahead

Some important earnings in next few weeks –

Date After Close Before Open
17-Apr URI KO
STX GS
INTC JNJ
EWBC
IBM
ISRG
18-Apr VMW
MLNX
FFIV
SCSS
PLCM
CLB PII
QCOM
CBST HAL
YUM
EBAY
TSCO
19-Apr CMG EMC
RVBD TZOO
TPX LUV
LTM NOK
VMI
WYNN NUE
SNDK
23-Apr NFLX DHI
VLTR
ETH
24-Apr AAPL
BIDU WAB
BHI F
BWLD
PNRA
IRBT
QCOR
25-Apr CRUS CAT
AKAM GLW
WLL LAD
NOV
SLAB
26-Apr ASGN AMZN
CELG FIO
IVII BMRN
NUS INFA
POT NANO
PEP MTW
CL SWKS
MIPS
WDC

Deja Vu!

Before we move forward let’s review the market

If you look at the half-hourly chart of S & P 500 for last few weeks you will observe a lot of indecision. This can stem from a market that is awaiting a jobs report or the one that has rallied almost 25% since October bottom but bumping into some bad data or a market that is just waiting for earnings to come out. This is a typical sideways movement that needs just one or two catalysts to either jump up or break down.

Till Friday morning, we were all hunky dory – raising toast to the best quarter since 1998.

But by now, you guys must have heard, read and pondered about the jobs report that came out on Friday morning. Entire market was expecting creation of 205000 jobs with lowest estimate being 193K but to everyone’s disappointment the number came in at 120000. This is exactly the catalyst that I mentioned above. Following is the S & P 500 futures –

Going Forward –

The question is where are we heading from here. Let’s look at the slightly bigger picture –

We will definitely get temporary support at 1375-1370. But that floor might not last long if Alcoa comes out with bad numbers on Tuesday after close. I personally expect the floor to crack on Monday itself. This market might turn into a sideways market or 5-7% correction if this is just one-off jobs miss and not a trend.

The real correction will start if –

  1. We get more of such job reports.
  2. The companies fail to meet Q1 numbers.
  3. Manufacturing margins start contracting.
  4. The inventories start piling up.
  5. Europe’s problem resurfaces.
  6. Israel goes after Iran.

All these events individually have the capability of turning a flat market in to an intermediate/full blown correction. A correction that can go beyond 12-15% – That’s spooky.

In terms of technicals if we fail to hold on to 1336, we are looking at lower lows and lower highs. This means that we are in correction. The breakouts will fail, the industrial sector & commodities will sink and we will stare at repeat of 2011.

Deja Vu!

There is a stark resemblance between job numbers & rally at the beginning of 2011 and the similar macro economic data points in 2012. All of them  fizzled out, making 2011 one of the worst trading year in last 20 years. In case 2012 tries to follow the suit of 2011, I suggest that please sit on the sidelines unless you are nimble (like really really nimble) or you are willing to take 15-20% loss or you want to buy stocks such as QCOM,APA, EMC, etc for long-term. The top traders have always said that it’s good to sit out when market goes sideways and hop in when the direction is confirmed.

This is the kind of summer where I would use the old adage -“Sell in Summer and go away”.

Question is why side ways and why not a full fledged correction?

Never underestimate the Printing Press. One off job report might not bring back QE3 from dead but few of such reports will definitely get Feds going.

 

 

 

 

 

 

Lastly what do we do with current portfolio?

Just as not all fingers are alike similarly different kinds of stock in a portfolio deserve different treatment.

  1. Reduce all the momo stocks such as LULU, ALLT, SCSS, TPX, HLF, ULTA, CLR, ALXN, etc to 1/3 of original position. A risk averse investor might sell all. The reason is the panic grips the owners of such stocks with higher multiples faster than does the rest of the market. Just a reminder, small cap stocks corrects more than larger cap stocks during a correction.
  2. Stick with oldies such as HAL, APA, STX, WDC, PG, COV,etc unless the fundamentals show a major shift such as margins contraction trend,etc. Some of them have already seen fair share of correction.
  3. To defend your portfolio you can buy long term US treasury bonds such as BLV, TLT, etc. They tend to be haven during such corrections.
  4. A very active trader might try putting in shorts such as SH, HDGE, RWM, etc.
  5. Keep an eye on the leaders of this bull and see how they perform during the correction. By leaders I mean – AAPL, ISRG, CMG, SCSS, ULTA, LULU, TSCO, FFIV, etc.
  6. Start running scans to look for stocks with excellent fundamentals that are holding up well. They might be the future leaders.
  7. Lastly add to your existing value positions or buy new ones (after fishing for course) after market has gone corrected by 10%. But remember an oversold market can become more oversold!
  8. Again, In case 2012 tries to follow the suit of 2011, I would suggest that please sit on the sidelines unless you are nimble (like really really nimble) or you are willing to take 15-20% loss or you want to buy stocks such as QCOM,APA, EMC, etc for long-term.

I believe that capital preserved is the capital created for future investment opportunities.

If you are really, really lost, I will talk more about correction, handling of stocks during corrections and going short later on in the week.

By the what do you think?

Thanks For participating!

Market and Porfolio

Stocks fell on Wednesday to finish with sizeable losses, but they managed to close off their session lows.

The Nasdaq lost 1.5%, while the S&P 500 shed 1% and ended under the 1400 level. The Dow Jones industrial average dropped 0.9%.  This will end NASDAQ’s 7 week winning streak.

The day’s news largely was on the negative side. The Institute for Supply Management’s service sector index fell 1.3 points in March to 56, indicating the sector continues to expand, but it was below forecasts. Payroll services provider ADP said private companies added 209,000 jobs last month, below expectations. And there were lingering worries over the latest Fed minutes, which came out Tuesday and indicated policymakers are not planning for additional economic stimulus measures.  Finally Spanish bond sale reminded that the PIIGS are still lurking around.

Now the question is – Whether SPX will break the 3 month trend line? This breach of support will be indicative of changing sentiment. And finally our good old 50 DMA will come into prominence. But these things do happen after such a run up. In fact we might see some more profit taking tomorrow based on the long weekend ahead, specially to ward off surprises by Euro and Friday’s  job data.

Now if you look around most of the leaders hung in today with minor correction on low volume to average volume. The leaders of this bull market seem healthy and in control. Some such as PCLN bucked the trend today. On equity side SNDK lost 7% after company cut its revenue forecast and trimmed it’s margin.

Portfolio Time –

The only company to be beaten up today was ALLT. It has been up more than 55% YTD, but 8 out of 11 analyst, who follow this name, maintain buy recommendation on it with average price target of $25. SXCI and  URI almost gave back their yesterday’s gains.

Declining crude is taking its toll on WLL, CLR and APA, though continental is clinging to the 50 DMA.

The earning’s change in latest quarter mentioned above is not correct. It seems that Telechart lags the fundamental data update by a month or so. I recently trimmed FFIV, sold all ALXN. I might close CLR and URI of the 50 DMA is broken comprehensively. I plan on taking some profit off ALLT and LNKD. The idea behind taking profit is to have enough cash in hand to a scoop new buys or make additional buys when stocks bounce of the 50 DMA, such as CRUS below.

Lastly during such times, when market is going sideways, keep an eye on Leaders. They will break before market craters. Thus acting as precursor to the impending correction. The leaders of this market are ULTA, SCSS, AAPL, PCLN, CMG, ISRG, TPX, STX, FFIV, EMC, VMW, RAX, etc.

Some good reads –

  • Employment up 209K (ADP)
  • ECB holds steady (MW)
  • Fed signals no need for more easing (BL)
  • Gold continues post-FOMC minutes fall (BL)
  • Copper falls as dollar rises (REU)
  • Brent slips toward $124 on Saudi supply (REU)
  • Sagging orders suggest eurozone in recession (FP)
  • Eurozone retail sales disappoint (REU)
  • German factory orders disappoint (BL)
  • Spanish yields reach 12-week high (BL)

Where do we go from here?

So ladies and gentlemen, after a scintillating 2012 Q1, where are we headed?

The stock market continues to be in a bull market. Every analyst from every bank is changing his/her year end target of S&P500. Some claim improving job market, some site housing market is turning around and some are just catching up. According to me don’t pay any heed to these people.  Just follow the market and it seems to be doing good -forecasting doesn’t help. In fact any kind of anticipation will bring ego and emotion in your trade.

 

But there are few things that concern me – lack of participation by public, oversold energy sector and the laggard Russel 2000.

The things that can impact the markets this week

Apr 02
ISM Index – Mar
Apr 02
Construction Spending – Feb
Apr 03
Auto Sales – Mar
Apr 03
Factory Orders – Feb
Apr 04
ADP Employment Change – Mar
Apr 06
Unemployment Rate – Mar