Articles from Nov 2006

Data Impact

Looking for explanation of market sell offs or rallies in macro data can be an interesting exercise and can keep you busy for a lifetime. Stocks down because of factory data is a very simplistic interpretation. Same data at different market phase will have no impact.

There are lot of speculators who track several macro data points like employment, factory orders, transport tonnage, housing permits, retail sales and so on to make sense of markets. Often it is tempting to dive in to the macro economics world and start tracking and talking like several TV commentators and pundits who write about such macro stuff. Reading lot of that kind of macro stuff can give you a sense of inadequacy that you are the only fool who does not understand or track it.

There are two critical things one must consider or at least I considered before abandoning the quest for holy grail in macro indicators and data. The first is data is a big speculators edge. No matter what you do, you will never get access to some of the best and timely and accurate databases as a small speculator. The investment banks, mutual funds, pension funds and large hedge funds have the resources and infrastructure to collect and manage such databases. Because the business is oligopilistic , each one keeps its data proprietary and jealously guards it. So some of the best data is not publicly disseminated. Plus there is a time lag between what you get and what big speculator get.

Second important thing to consider with data is even if you have an access to best databases, the data is only useful if it is a leading indicator. A data or indicator should be able to tell you the future direction of the market, then only it is worth it. Then you can use the data to forecast market. Very few things in macro economic data are leading indicator for market direction. All the talk about macro stuff might impress the cocktail crowd and might fool few clueless girls at bar, but if it was that easy, why would macro economic and big picture speculators be making their living selling newsletters and data services.

In fact macro data and too much analysis of them and beliefs in them can lead most analyst to be persistently wrong for extended period of time.Those who got stuck on housing lead slowdown had hypothesised that housing is a leading indicator for stock market. What they consider as leading indicator just does not act as leading indicator for market direction or the correlation changes. By the time they realise it the rally is over. The best leading indicator for economic growth is probably market direction itself.

I have looked at several macro economic variables and tried to model them before abandoning that approach. That is one way to trade. The other way is what I follow where I am focused on equity selection and more immediate to vehicle kind of data like earning, sales, price momentum, new product or management change as catalyst. Much of such data is actionable and comparatively easily available at low cost. Plus there are many ways to develop edge using it.

When I have billions to trade I will also look at macro things. For now researching and perfecting vehicle level edges is the best choice. You must only fight the battles where you have an edge.

Transition time

It is transition time in markets. The Monday sell off was indicator of distribution in some sectors and stocks running on adrenalin. The distribution in those names will continue. In fact more high flying groups would join in the slow distribution phase. New sectors are now breaking out. The money is moving in to sectors which were not part of the original up move. This can be a good dynamics as the rally becomes more broad based. But sometimes when laggards start moving up it can also be indicating that the rally is over and under the guise of action in the new sectors a serious and slow distribution is happening.

The brokerage sector is showing up on my short scans, the torrid rallies in GS, BSC, OXPS, LEH, AMTD, ET, etc. seem to be reverting or pausing. Similarly the exchanges like NYX and NMX are clearly showing the hype on exchanges was a good ruse to palm of shares to some unsuspecting fools. Most of the times when everyone gets it the party is almost over.

Last few weeks saw flurry of activities in exchanges with everyone saying , you can never go wrong buying exchanges. Mom and POP guru Crammer was hyping NMX pre IPO. James Crammer in his own book talks about how he told everyone to sell Thestreet.com shares when they popped up on first day of IPO. But here he was pumping everyone to buy NMX before the IPO. Good entertainment may not be the best investment advise. As a rule following advise of anyone on CNBC is a road to disaster.

The oil and metal sector is making a move. So bonds should also make a move. The inflation theme might be back soon. Market will continue to consolidate or move sideways for few weeks and then make a move either way. By that time we will be in the earning expectation for next quarter cycle. If you keep a tab on earning trends, you will get a good idea on what is likely to happen.

During the transition phase many times buying the high relative strength names or stocks at top of range after extended move up may not be the best strategy. Those stocks are most vulnerable to sell off especially if the sector has been hot for sometime. You have to find new stocks breaking out with lower relative strength and having new earning power. The relative strength strategy needs adjustment in such times.

I am keeping an eye on DSW, DSW INC and ICE, Intercontinental exchange based on earnings. There are some interesting candidates with potential showing up on my scans :

ALY,Allis-Chalmers Energy Inc
ATI,Allegheny Technologies
BONT,Bon-Ton Stores Inc
BTJ,Bolt Technology Corp
DBRN,Dress Barn Inc
DIL,Dyadic International Inc
DVAX,Dynavax Tech
EPG,Environmental Power Corp
GEOI,Georesources Inc
GHDX,Genomic Health Inc
GLDN,Golden Telecom Inc
IGLD,Internet Gold-Golden
IPS,Ipsco Inc
KEQU,Kewaunee Scientific Corp
OIH,HOLDRS Oil Service ETF
RNIN,Wireless Ronin Technologies Inc
SIGM,Sigma Designs Inc
TGEN,Targeted Genetics Cp
USEG,U.S. Energy Corp Wyo
VIP,Vimpel Communication Ads

Buying and selling

While the high fliers till last week are being sold , there is money flowing in several stocks which were not participating actively in the rally. Sector rotation is clearly visible everywhere. There are lots of opportunities and probably playing the game stock by stock and sector by sector is the best course of action. While I am bearish on some sectors and stocks, I am finding lots to buy in other sectors. Besides some of the stocks I mentioned in my earlier post today, I have opened fresh positions today in ATI, TIE, and CHIC. There are many more opportunities on long side currently. The trend is your friend till it bends.

Some of the other stocks on my watch or in my portfolio are:

ARO,Aeropostale Inc
ATI,Allegheny Technologies
AVR,Aventine Renewable Energy Holdings Inc
BONT,Bon-Ton Stores Inc
BTJ,Bolt Technology Corp
CHIC,Charlotte Russe Hldg Inc
DBRN,Dress Barn Inc
DIL,Dyadic International Inc
DVAX,Dynavax Tech
EDU,New Oriental Edu And Tech Corp
ENER,Energy Conversn Devices
EPG,Environmental Power Corp
GEOI,Georesources Inc
GHDX,Genomic Health Inc
GLDN,Golden Telecom Inc
GRA,W.R. Grace & Co
IPS,Ipsco Inc
KEQU,Kewaunee Scientific Corp
MBT,Mobile Telesys Ojsc Ads
MTCT,Mtc Technologies Inc
NYT,New York Times Co The
OIS,Oil States Intl
PFB,Pff Bancorp Inc
POSS,Possis Medical Inc
PPP,Pogo Producing Co
PTEN,Patterson-Uti Energy Inc
RBC,Regal-Beloit Corp
RNIN,Wireless Ronin Technologies Inc
RNOW,Rightnow Technologies Inc
RTI,Rti Internat Metal Inc
SIGM,Sigma Designs Inc
SNDA,Shanda Interactive Ent Ltd
STO,Statoil Asa
TATTF,Tat Technol Ltd
TEO,Telecom Argentina Sa
TGEN,Targeted Genetics Cp
TIE,Titanium Metals Corp New
TIF,Tiffany & Co
TRGL,Toreador Resources Corp
VIP,Vimpel Communication Ads
VSE,VeraSun Energy Corp
WNR,Western Refining Inc
ZVUE,Handheld Entertainment Inc

Breakouts to watch

The market is doing good job of frustrating the top callers. Early bears are getting whacked in some stocks. New sectors like China, Metals, Drugs and biotechs, and retail continue to see new breakouts.

As usual earnings is driving the action in some stocks like TATTF, MBT, BONT, DBRN, TIF etc. Keeping an eye on other stocks in the same sector can get you in to some good point moves. MBT earnings announcement is resulting in the Russian mobile sector stocks rallying. The FDA clearance news continues to provide good bid and decent pops for the biotechnology stocks.

Here is what I have positions in or looking at based on today's action:

BONT,Bon-Ton Stores Inc
BTJ,Bolt Technology Corp
DBRN,Dress Barn Inc
DVAX,Dynavax Tech
MBT,Mobile Telesys Ojsc Ads
POSS,Possis Medical Inc
QI,Qimonda AG
RNIN,Wireless Ronin Technologies Inc
RNOW,Rightnow Technologies Inc
TATTF,Tat Technol Ltd
TGEN,Targeted Genetics Cp
TIF,Tiffany & Co
VIP,Vimpel Communication Ads

New sectors and new themes

New sector and new theme stocks often attract buy interest when the already established leaders start breaking down or consolidating. Most of the times the markets attention is still focused on the earlier leaders, in the process you can miss out on good new opportunities.

Last night I was looking at some new leadership kind of stocks and here is what I found :

BCP,Balchem Corp
CDZI,Cadiz Inc
DG,Dollar General Corp
DWSN,Dawson Geophysical Co
ECMV,E Com Ventures Inc
FMCN,Focus Media Holding Ltd ADR
IOC,Interoil Corporation
KWK,Quicksilver Resources
LPX,Louisiana-Pacific Corp
MTL,Mechel Steel Group OAO ADS
OIS,Oil States Intl
OMRI,Omrix Biopharmaceuticals Inc
SNDA,Shanda Interactive Ent Ltd
SPN,Superior Energy Svcs Inc
SWM,Schweitzer Mauduit International Inc
TRBN,Trubion Pharmaceuticals
VSE,VeraSun Energy Corp
VTAL,Vital Images Inc

Many of these stocks are being quitely accumulated by those in the know. Some of them offer good entries at current levels.

Small caps in focus

The mid July to November rally was lead by large cap stocks. The Dow and S&P were the focus. Some of the selling on Monday was concentrated in those stocks. The small caps were not so much in focus. Now small caps seems to be finding some bids.

Here is what I have positions in or watching based on yesterday's action:

AEZ,American Oil & Gas Inc
AMAG,Advanced Magnetics Inc
ANIK,Anika Therapeutics Inc
ANTP,Phazar Corp
AXR,Amrep Corp
BITI,Bio-imaging Technologies
CSLR,Consulier Engineering
DIVX,Divx Inc
GGR,Geoglobal Resources Inc
GOAM,Goamerica Inc
ICOP,ICOP Digital Inc
NRMX,Neurochem
NTY,Nbty Inc
OMNI,Omni Energy Services Cp
PCCC,Pc Connection Inc
SVM,Servicemaster Co The
SVNT,Savient Pharmaceuticals Inc
SWAT,Security With Advanced Tech
TRT,Trio-Tech Internat
UAHC,United American Healthcare Cor

Resilient Stocks

Market corrections separate the boys from men. Stocks which are resilient during market downtrends are the one to focus on during such correction phases. Many of these stocks jump out and restart their rallies the moment the weight of market direction gets lifted. Many of the resilient stocks continue to crawl up during corrections.

Also some stocks which have specific catalyst or outstanding earning defy the market direction and breakout during overall downtrend in market. Keeping a close tab on them can offer good low risk entries. Some of the stocks breaking out today have such catalyst. I have a small position in one such play- ANIK, which I got in to on the FDA approval news.

Here is some of the resilient stocks I am monitoring and looking to get in to soon.

ACLI,American Commercial Lines Inc
ACP,American Real Estate Prt
ADL,Amdl Inc
AEM,Agnico-Eagle Mines Ltd
AEOS,American Eagle Outfitter
AEPI,Aep Industries Inc
AEZ,American Oil & Gas Inc
AFAM,Almost Family Inc
AKAM,Akamai Technologies Inc
AKH,Air France KLM
ALB,Albemarle Corp
ALGN,Align Tech Inc
ALTH,Allos Therapeutics Inc.
ALX,Alexander's Inc
AMAG,Advanced Magnetics Inc
AMIE,Ambassadors Internat Inc
ANGN,Angeion Corp
AOB,American Oriental Bioengineering Inc
AOI,Alliance One International Inc
APN,Applica Inc
ARRY,Array Biopharma Inc
ATI,Allegheny Technologies
ATNI,Atlantic Tele-Network
AUXL,Auxilium Pharmaceuticals Inc
AXR,Amrep Corp
AXTI,Axt Inc
AZK,Aurizon Mines Ltd
AZZ,Azz Inc
BAB,British Airways Plc Adr
BAMM,Books-A-Million Inc
BDY,Bradley Pharmaceuticals
BIDU,Baidu.com Inc
BIOV,Bioveris Corp
BITI,Bio-imaging Technologies
BRCD,Brocade Communications
BRLC,Syntax-Brillian Corp
BW,Brush Engineered
CAL,Continental Airlines B
CAPA,Captaris Inc
CCOI,Cogent Communications Group Inc
CHAP,Chaparral Steel Company
CHDX,Chindex International Inc
CHINA,CDC Corp Class A
CHTR,Charter Communications Inc
CKSW,Clicksoftware Technlgies
CLB,Core Laboratories N.V.
CLEC,Us Lec Corp Cl A
CNS,Cohen & Steers Inc
CNXS,CNS Inc
COGO,Comtech Group Inc
CPTS,Conceptus Inc
CPY,Cpi Corp
CRVL,Corvel Corp
CTDC,China Technology Development Group Corp
CTEC,Cholestech Corporation
CTRX,Cotherix Inc
CUBA,Herzfeld Caribbean Basin
DAKT,Daktronics Inc
DECK,Deckers Outdoor Corp
DGIT,Dg Fastchannel Inc
DHIL,Diamond Hill Investment Group Inc
DLLR,Dollar Financial
DPTR,Delta Petroleum Corp
DVAX,Dynavax Tech
EBIX,Ebix Inc
ELE,Endesa Sa
EZPW,Ezcorp Inc Cl A
FCGI,First Consulting Grp Inc
FIA,Fiat S.P.A. Adr
FMD,First Marblehead Corp
FRG,Fronteer Development Group Inc
FTEK,Fuel Tech Inc
FTGX,FiberNet Telecom Group Inc
GDP,Goodrich Petrol Corp
GEL,Genesis Energy (L.P.)
GEO,Geo Group (The)
GIII,G-III Apparel Group Ltd
GMTC,Gametech Internat Inc
GOAM,Goamerica Inc
GRC,Gorman-Rupp Co
GROW,U.S. Global Invest Inc A
GTXI,Gtx
GVP,Gse Systems Inc
HGO,Houston American Energy Corp
HRT,Arrhythmia Research Tech
HRZ,Horizon Lines Inc
IAAC,Internat Asset Holdg Cp
ICAD,Icad Inc
IEDU,Investools Inc
IGLD,Internet Gold-Golden
IIG,Imergent Inc
IMKTA,Ingles Markets Inc Cl A
INAP,Internap Network Svcs Cp
ININ,Interactive Intelligence
IOC,Interoil Corporation
IOSP,Innospec Inc
JST,Jinpan Internat Ltd
KBALB,Kimball Internat B
KBAY,Kanbay International Inc
KNOT,The Knot Inc
KONA,Kona Grill Inc
KOSP,Kos Pharmaceuticals Inc
LFC,China Life Insurance Company
LMRA,Lumera Corporation
LNOP,Lanoptics Ltd
LQU,Quilmes Industl Q.S.A.
LVS,Las Vegas Sands
LXU,Lsb Industries Inc
MAG,Magnetek Inc
MALL,Pc Mall Inc
MCDT,Mcdata Corp Cl B
MCDTA,Mcdata Cl A
MCF,Contango Oil & Gas
MEH,Midwest Express Holding
MEND,Micrus Endovascular Corp
MFB,Maidenform Inc
MFRI,Mfri Inc
MIKR,Mikron Infrared Inc
MNG,Miramar Mining Corp
MSII,Media Sciences Intl Inc
MWP,Markwest Hydrocarbon Inc
MWRK,Mothers Work Inc
MYOG,Myogen Inc
NEXC,Nexcen Brands Inc
NRMX,Neurochem
NRPH,New River Pharmaceuticals Inc
NTY,Nbty Inc
NVDA,NVIDIA Corporation
NVEC,Nve Corp
NWK,Network Equipment Tech
NYX,NYSE Group Inc
OBCI,Ocean Bio-Chem Inc
OMG,Om Group Inc
OMNI,Omni Energy Services Cp
OS,Oregon Steel Mills Inc
PCCC,Pc Connection Inc
PD,Phelps Dodge Corp
PERY,Perry Ellis Int'l
PMTR,Pemstar Inc
POT,Potash Cp Saskatchewan
PRGX,Prg-schultz Intl Inc
PSMT,Pricesmart Inc
PSPT,Peoplesupport Inc
QD,Quadramed Inc
RBN,Robbins & Myers Inc
REGN,Regeneron Pharm Inc
RGR,Sturm Ruger & Co Inc
RGX,Radiologix Inc
RIMM,Research In Motion Ltd
RKT,Rock-Tenn Co Cl A
RMKR,Rainmaker Systems Inc
RMTR,Ramtron Internat Corp
RNAI,Sirna Therapeutics
ROCM,Rochester Medical Corp
ROS,Rostelecom
RRA,Railamerica Inc
RTI,Rti Internat Metal Inc
SGMO,Sangamo Biosciences Inc
SIGA,Siga Pharmaceuticals Inc
SIGM,Sigma Designs Inc
SIM,Grupo Simec S A Adr
SOFO,Sonic Foundry Inc
SPAR,Spartan Motors Inc
SPTN,Spartan Stores Inc
SQNM,Sequenom Inc
SRSL,Srs Labs Inc
SRVY,Greenfield Online Inc
SSRI,Silver Standard Resource
STEC,Simple Technology Inc
STSI,Star Scientific Inc.
SUAI,Specialty Underwriters Allianc
SVNT,Savient Pharmaceuticals Inc
SWAT,Security With Advanced Tech
SWHC,Smith & Wesson Hldg Corp
SYX,Systemax Inc
TCC,Trammell Crow Co
TCHC,21st Century Holdings
TESS,Tessco Technologies Inc
TGEN,Targeted Genetics Cp
THK,Think Partnership Inc
TRT,Trio-Tech Internat
TTEC,Teletech Holdings Inc
TWTI,Third Wave Tech
UAHC,United American Healthcare Cor
UCTT,Ultra Clean Holdings
UUU,Universal Security Instruments
VSNT,Versant Corporation
VTS,Veritas Dgc
ZOLL,Zoll Medical Corporation

Wait and watch

After a big down day yesterday, today is as of now just a lackluster day. Lot of short term systems kick in long entries on such down move and that is helped by the fact that exits get jammed early in the morning. More people want to get out early and those holding longs sell on first hint of weakness. The market makers further accentuate the process by bidding down or pulling bids. When the dynamics plays itself out, you have a quick bounce.

So patiently waiting on the sideline for sometime with lots of cash in hand is good option currently. I am looking at number of longs and waiting to pounce on some good earning plays like JCG,OMRI,DLB,AMAG,ZOLL, GMKT,MGM, etc. which have a catalyst.The oil stocks are finding a bid but I do not yet see anything to be excited about.

There are some stocks up on earning or news and as usual the low float stocks are making some wild moves. This is what I have on my scans on long side:
CRDC,Cardica
CSLR,Consulier Engineering
ECMV,E Com Ventures Inc
GOAM,Goamerica Inc
LPX,Louisiana-Pacific Corp
SVM,Servicemaster Co The
SWAT,Security With Advanced Tech

Buyers Exhaustion

The market was in rally mode since mid July, so correction was expected and normal course of action. In the last few weeks there were several signs of froth with stocks gapping up and making 4-10 dollar moves after that. There were several blowout kind of late momentum phase moves The IPO market was red hot with everyone rushing in to buy Nymex IPO. The markets had moved ahead of themselves.

So a correction of some magnitude is a normal and healthy thing for the market. The markets ran out of fresh set of buyers. Those who bought late after being on sideline were caught holing the bag. Absence of bids leads to scary correction on days like yesterday.

The bears will be all over painting their bearish scenarios and peddling their doom and gloom. While it is easy to get tempted by such talks at these kind of junctures, a more balanced perspective is better option for those looking for profitable opportunities. Not all sectors will be equally affected by correction. Even a rush to short (unless you are a day trader) might result in some serious whipsaws.

The move will evolve over a period of time. The easy money phase of last few weeks is now over. It is back to being a stock pickers market. Stocks with significant earning/sales surprise in last earning season will withstand the correction, similarly stocks with earning and price momentum may go in to bases but some of them will start breaking out after few weeks in anticipation of next earning season. The opportunities on short side will also take time to evolve. Even greater skill is required to pick and time your shorts.

I have only 2 open position currently on long side (LVS and IAAC) and plenty of cash. Here is what I am watching on both long and short side currently:

Long
ADVNB,Advanta Corp Cl B
PNTR,Pointer Telocation Ltd Ord
DXPE,Dxp Enterprises Inc
JCTCF,Jewett-Cameron Trad Co
FTGX,FiberNet Telecom Group
TGEN,Targeted Genetics Cp

Short
BSC,Bear Stearns Companies
BIDU,Baidu.com Inc
GOOG,Google
GS,Goldman Sachs Group Inc
MA,MasterCard Inc
NMX,Nymex Holdings Inc
NYX,NYSE Group Inc
RIMM,Research In Motion Ltd

End of day scans

Just follow the earnings and you can get on some nice moves. I am travelling till Tuesday so posts will be few.


ATEA,Astea International Inc
BBI,Blockbuster Inc
BJ,Bj's Wholesale Club Inc
BRCD,Brocade Communications
BUF,Minrad International Inc
CRAY,Cray Incorporated
CTTY,Catuity Inc
CYBX,Cyberonics Inc
FTGX,FiberNet Telecom Group Inc
JCG,J Crew Group Inc
LAB,Labranche & Co Inc
LNOP,Lanoptics Ltd
MCDT,Mcdata Corp Cl B
MCDTA,Mcdata Cl A
MGM,MGM MIRAGE Inc
MR,Mindray Medical Intl Ltd
NMX,Nymex Holdings Inc
PDCO,Patterson Companies Inc
PLB,American Italian Pasta
PNTR,Pointer Telocation Ltd Ord
PSS,Payless Shoe Sources
SGMO,Sangamo Biosciences Inc
TGAL,Tegal Corp
ZVUE,Handheld Entertainment Inc

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