A few months back we held a survey regarding the expected price of Gold on July 1st. The results were as follows:
Above $1100 24%
Between $1000 and $1100 24%
Between $900 and $1000 22%
Between $800 and $900 15%
Below $800 15%
The actual price of gold on July 1st was around $937. Congrats to the 22% of poll takers that correctly predicted the $900 to $1000 price range.
Since the start of July, gold has been looking bit toppy as if the momentum has disappeared in the market for this precious metal. It sunk to near $916 before staging a rebound in the past couple of days. This may be setting the stage for the next leg of the run up, however it is more likely a small bounce before further downward action. The next few weeks will be interesting to watch in this market.
Thursday, July 10, 2008
Wednesday, July 9, 2008
Cisco dashes 2008 recovery hopes but there is light
Earlier commentary associated Cisco outlined hopes of a tech sector recovery in 2008. Recent comments on Tuesday by CEO John Chambers dashed those hopes. He stated "I think most of us realize that it's probably going to be a little bit longer than the one to two quarters that some people had hoped for.”
In reaction most analysts cut their forecasts for CSCO citing that both the remainder of 2008 and 2009 could be challenging for the company.
Cisco stock dropped to $21.76 late Wednesday afternoon. Despite the bearish trend of CSCO and the overall market recently; a basic predictive analysis spreadsheet that utilizes volatility, mean return, standard deviation, trend, and other factors indicates the future is not so gloomy. A quick run of the spreadsheet shows that CSCO has a 5% chance of hitting $30 in the next 90 days and only a 1% chance of hitting $16.
This shows that a basic short-term analysis is leaning towards a more bullish case for Cisco stock – hopefully the market follows through and provides shareholders with some type of short-term rebound. However the long term price is always driven by the fundamentals, which in this case is dependent on an overall tech sector recovery.
At minimum a soft economic patch will provide the 800lb gorilla Cisco the opportunity to shake some of the smaller competing monkeys out of the trees. Cisco has tradition of leaving competitors in the dust; especially taking advantage of downturns to enhance their position in both existing and newly emerging markets.
In reaction most analysts cut their forecasts for CSCO citing that both the remainder of 2008 and 2009 could be challenging for the company.
Cisco stock dropped to $21.76 late Wednesday afternoon. Despite the bearish trend of CSCO and the overall market recently; a basic predictive analysis spreadsheet that utilizes volatility, mean return, standard deviation, trend, and other factors indicates the future is not so gloomy. A quick run of the spreadsheet shows that CSCO has a 5% chance of hitting $30 in the next 90 days and only a 1% chance of hitting $16.
This shows that a basic short-term analysis is leaning towards a more bullish case for Cisco stock – hopefully the market follows through and provides shareholders with some type of short-term rebound. However the long term price is always driven by the fundamentals, which in this case is dependent on an overall tech sector recovery.
At minimum a soft economic patch will provide the 800lb gorilla Cisco the opportunity to shake some of the smaller competing monkeys out of the trees. Cisco has tradition of leaving competitors in the dust; especially taking advantage of downturns to enhance their position in both existing and newly emerging markets.
Sunday, July 6, 2008
Screening for the Top 2%
How does an investor land up ranked in the top 2%? It takes a serious approach to screening the universe of stocks to sort out the wheat from the chaff. Screening a list of potential candidate stocks is just the first step.
GregB is now ranked 284 out of 17989 players in the Wall Street Survivor Contest (Traders Wanted - Play $50,000 Stock Trading Game). The evening before the contest, I ran the HingeBuy and HingeSell screens in the HingeScreen 1.5 product. These screens normally produce 30 to 50 results. HingeBuy provides a list of stocks that have the potential to out-perform the market; while HingeSell produces a list of stocks that are likely to under-perform.
The next immediate question is how did I narrow these lists down to 5 stocks as longs and 5 stocks as short to use in the Wall Street Survivor contest.
In terms of the five stocks I selected from the HingeBuy list for the contest. I pulled up each stock on the list at the time (there were about 30 to 40) and took a detailed look at the charts, industries, fundamental info, and technical indicators to narrow down the selection. For the HingeSell (short) candidates I basically look for the inverse of the outline below.
Basically the following were evaluated for each potential long stock:
1) Strength of the chart over the past year. Look for a chart where the stock is continually rising with some minor pull-backs. Look for strong increases in the past six months. Do not want a stock where the stock price had a one time big bump due to a news event; nor a stock where the chart is basically flat but still outperformed the associated indexes.
2) Evaluate the industry that the company is in and the industry performance over the last six months compared to other others.
3) Rank the stock within the Industry from a relative performance perspective.
4) Fundamental information evaluation with a focus on earnings growth, revenue growth, cash flow, debt and their associated ratios. Do not focus on forward P/E etc. because many times the projections are nonsense.
5) Technical evaluation of the price chart looking for divergence between the price action and technical indicators (MACD, RSI, etc.). Divergence may indicate an impending change in price action. Also look for extreme readings in oscillator-based indicators which may show that a bounce-back is overdue. Keep in mind that technical indicators are good for evaluating short term action; long term price is driven by fundamentals.
6) Take a look at news from corporate press releases. Look for management churn, re-orgs, layoffs, product cancellations, guidance (vs. price reaction), and regulatory action. These are generally not positive developments.
Basically rank all the stocks on the HingeBuy candidate list from 1 to 5 using the criteria above. Five being the strongest. Select the five stocks with the highest rating.
For HingeSell and shorts - look for the inverse.
Note in my terms, the outline above is my light-weight starting point evaluation. I normally dig into the 10Q / 10K reports when selecting stocks for my actual portfolio. I would urge everyone else to do the same. A stock screener is a tool to find stocks that meet your basic criteria - a more detailed follow-up analysis is needed to find the best stocks for your portfolio that meet your diversification and risk-tolerance needs.
Disclosure: These stocks have been selected in a fantasy stock selection contest. They are not held in my real portfolio. Investing involves risk. Your results using software screening informational tools may vary. Proper portfolio diversification is important and any outlined investments may not be appropriate for your financial objectives or risk tolerance. This is not a solicitation to buy or sell securities.
GregB is now ranked 284 out of 17989 players in the Wall Street Survivor Contest (Traders Wanted - Play $50,000 Stock Trading Game). The evening before the contest, I ran the HingeBuy and HingeSell screens in the HingeScreen 1.5 product. These screens normally produce 30 to 50 results. HingeBuy provides a list of stocks that have the potential to out-perform the market; while HingeSell produces a list of stocks that are likely to under-perform.
The next immediate question is how did I narrow these lists down to 5 stocks as longs and 5 stocks as short to use in the Wall Street Survivor contest.
In terms of the five stocks I selected from the HingeBuy list for the contest. I pulled up each stock on the list at the time (there were about 30 to 40) and took a detailed look at the charts, industries, fundamental info, and technical indicators to narrow down the selection. For the HingeSell (short) candidates I basically look for the inverse of the outline below.
Basically the following were evaluated for each potential long stock:
1) Strength of the chart over the past year. Look for a chart where the stock is continually rising with some minor pull-backs. Look for strong increases in the past six months. Do not want a stock where the stock price had a one time big bump due to a news event; nor a stock where the chart is basically flat but still outperformed the associated indexes.
2) Evaluate the industry that the company is in and the industry performance over the last six months compared to other others.
3) Rank the stock within the Industry from a relative performance perspective.
4) Fundamental information evaluation with a focus on earnings growth, revenue growth, cash flow, debt and their associated ratios. Do not focus on forward P/E etc. because many times the projections are nonsense.
5) Technical evaluation of the price chart looking for divergence between the price action and technical indicators (MACD, RSI, etc.). Divergence may indicate an impending change in price action. Also look for extreme readings in oscillator-based indicators which may show that a bounce-back is overdue. Keep in mind that technical indicators are good for evaluating short term action; long term price is driven by fundamentals.
6) Take a look at news from corporate press releases. Look for management churn, re-orgs, layoffs, product cancellations, guidance (vs. price reaction), and regulatory action. These are generally not positive developments.
Basically rank all the stocks on the HingeBuy candidate list from 1 to 5 using the criteria above. Five being the strongest. Select the five stocks with the highest rating.
For HingeSell and shorts - look for the inverse.
Note in my terms, the outline above is my light-weight starting point evaluation. I normally dig into the 10Q / 10K reports when selecting stocks for my actual portfolio. I would urge everyone else to do the same. A stock screener is a tool to find stocks that meet your basic criteria - a more detailed follow-up analysis is needed to find the best stocks for your portfolio that meet your diversification and risk-tolerance needs.
Disclosure: These stocks have been selected in a fantasy stock selection contest. They are not held in my real portfolio. Investing involves risk. Your results using software screening informational tools may vary. Proper portfolio diversification is important and any outlined investments may not be appropriate for your financial objectives or risk tolerance. This is not a solicitation to buy or sell securities.
Thursday, July 3, 2008
Global Inflation: The New Crisis
A new monster has raised its ugly head to spook investors. Inflation is accelerating at a rapid pace providing policy makers with a new set of ulcers. Unfortunately basic antacid tablets will not cure the unsettled guts of national regulators.
The spike in inflation gives flashbacks to the dreaded 1970s with stagflation era. Many older investors do not enjoy reminiscing about interest rates above 14%, food rising in price each week, investors hoarding gold coins, and long gas lines. The dilemma is that all the statistics indicate that we are heading towards a scenario with run-away rising inflation worldwide.
Regulators have commented on rising inflation, raised interest rates in hopes of moderation, and are shocked to see the numbers running upward like an out-of-control train down the tracks. With rising commodity costs, pent up wage increase requirements, and tightening credit; there is not very much the regulators will be able to do to apply the brakes.
Certainly the news flow has not been encouraging, the ECB raised lending rates today amid record inflation, while U.S. Treasury Secretary Henry Paulson said inflation was becoming the top economic focus of many countries.
Inflation is a global phenomenon; impacting countries as diverse as Iran (with 26% inflation), the Philippines, Brazil, India, Russia, South Korea, Mexico, and Indonesia. No country is immune and no market is safe. Rapidly increasing inflation is the top concern in most nations, and the situation rapidly appears to be heading towards stagflation.
The immediate question becomes how should an investor prepare for this situation? The first emphasis is that a greater portion of your portfolio needs to be placed in commodities and precious metals, or in stocks focused on these industries. There is also a need to have your income oriented investments placed in vehicles which are inflation indexed in regards to interest rates. The other alternative is the keep cash in shorter term CDs as inflation and interest rates rise, allowing an investor to ride the rising curve.
Successful investing in a rising inflationary environment is difficult. Usually the stock market returns are dismal and many other investments are also victims of an inflationary spiral. Still it is best to keep your focus on the long term, and maintain a diversified portfolio of stocks that have wide economic moats. These companies invariably become stronger in downturns as competitors fall by the wayside.
Investors should pay close attention to news about inflation during the remainder of 2008 and start making appropriate adjustments to their portfolio to ride out the storm.
The spike in inflation gives flashbacks to the dreaded 1970s with stagflation era. Many older investors do not enjoy reminiscing about interest rates above 14%, food rising in price each week, investors hoarding gold coins, and long gas lines. The dilemma is that all the statistics indicate that we are heading towards a scenario with run-away rising inflation worldwide.
Regulators have commented on rising inflation, raised interest rates in hopes of moderation, and are shocked to see the numbers running upward like an out-of-control train down the tracks. With rising commodity costs, pent up wage increase requirements, and tightening credit; there is not very much the regulators will be able to do to apply the brakes.
Certainly the news flow has not been encouraging, the ECB raised lending rates today amid record inflation, while U.S. Treasury Secretary Henry Paulson said inflation was becoming the top economic focus of many countries.
Inflation is a global phenomenon; impacting countries as diverse as Iran (with 26% inflation), the Philippines, Brazil, India, Russia, South Korea, Mexico, and Indonesia. No country is immune and no market is safe. Rapidly increasing inflation is the top concern in most nations, and the situation rapidly appears to be heading towards stagflation.
The immediate question becomes how should an investor prepare for this situation? The first emphasis is that a greater portion of your portfolio needs to be placed in commodities and precious metals, or in stocks focused on these industries. There is also a need to have your income oriented investments placed in vehicles which are inflation indexed in regards to interest rates. The other alternative is the keep cash in shorter term CDs as inflation and interest rates rise, allowing an investor to ride the rising curve.
Successful investing in a rising inflationary environment is difficult. Usually the stock market returns are dismal and many other investments are also victims of an inflationary spiral. Still it is best to keep your focus on the long term, and maintain a diversified portfolio of stocks that have wide economic moats. These companies invariably become stronger in downturns as competitors fall by the wayside.
Investors should pay close attention to news about inflation during the remainder of 2008 and start making appropriate adjustments to their portfolio to ride out the storm.
Dark Pools going strong
Despite regulatory concerns and consolidation worries, the Dark Pool business is still showing enormous strength. New dark pools venues are implemented regularly and the profits are looking solid.
Reflecting this strength, LiquidNet has now filed for a $500 million IPO. Goldman Sachs and Credit Suisse Securities are overseeing the transaction. Despite the generally weak IPO markets, there is the expectation that this will be one of the strongest public offerings of the year.
Reflecting this strength, LiquidNet has now filed for a $500 million IPO. Goldman Sachs and Credit Suisse Securities are overseeing the transaction. Despite the generally weak IPO markets, there is the expectation that this will be one of the strongest public offerings of the year.
Wednesday, July 2, 2008
Circuit City: So Toxic that Nobody Wants It
Is there such a thing as a bride so ugly that no one will marry her? Apparently there is such a thing as a business so toxic that everyone steps away from buying it.
One of the great fears of any party seeking to close a deal to purchase Circuit City (CC) is that the due diligence would reveal information so negative that potential acquirers would drop their bids. Apparently this scenario is playing out.
Blockbuster (BBI) dropping its bid may be due to other bidders pushing up the price; more likely it is that further disclosure revealed that Circuit City is already deeply entangled in its death throes. Blockbuster's Chief Executive Jim Keyes cited "market conditions" as a reason for withdrawing its offer, valued at up to $1.3 billion, and said the deal was not in the best interests of its shareholders.
Circuit City dropped over 16% on the open on Wednesday after this news. Blockbuster climbed over 12%, the shareholders gleeful that this proposed merger has been dropped. It is interesting to note that Blockbuster had offered at lest $6 per share for Circuit City. CC stock now sits at $2.19; effectively the proposed deal was at triple the price of Circuit City stock. The failure of Circuit City management to grease the skids on this deal will probably go down in financial history as one of the worst executive decisions ever; unless some other suitor actively closes on a transaction.
Philip J. Schoonover, the CEO of Circuit City, kept hope alive for a deal by commenting, "Our exploration of strategic alternatives is intended to serve the interests of our shareholders by considering every possible alternative to enhance shareholder value. The board's review was not dependent on Blockbuster's (BBI) participation. We are diligently working with the parties involved in the process, and intend to continue our thorough approach until such point as the board determines upon a particular strategic course of action. The board has not established a deadline for completing the review."
Loosely translated this means, “We are trying to find a deal that will leave the existing management team employed with large compensation packages despite our ruinous track record. The board is hoping some magical deal materializes shortly with a private equity fund. If something does not pop up soon; the company will be dead as we complete the review of the bankruptcy paperwork.”
The only constant is that the long suffering Circuit City stockholders will continue to be disappointed.
One of the great fears of any party seeking to close a deal to purchase Circuit City (CC) is that the due diligence would reveal information so negative that potential acquirers would drop their bids. Apparently this scenario is playing out.
Blockbuster (BBI) dropping its bid may be due to other bidders pushing up the price; more likely it is that further disclosure revealed that Circuit City is already deeply entangled in its death throes. Blockbuster's Chief Executive Jim Keyes cited "market conditions" as a reason for withdrawing its offer, valued at up to $1.3 billion, and said the deal was not in the best interests of its shareholders.
Circuit City dropped over 16% on the open on Wednesday after this news. Blockbuster climbed over 12%, the shareholders gleeful that this proposed merger has been dropped. It is interesting to note that Blockbuster had offered at lest $6 per share for Circuit City. CC stock now sits at $2.19; effectively the proposed deal was at triple the price of Circuit City stock. The failure of Circuit City management to grease the skids on this deal will probably go down in financial history as one of the worst executive decisions ever; unless some other suitor actively closes on a transaction.
Philip J. Schoonover, the CEO of Circuit City, kept hope alive for a deal by commenting, "Our exploration of strategic alternatives is intended to serve the interests of our shareholders by considering every possible alternative to enhance shareholder value. The board's review was not dependent on Blockbuster's (BBI) participation. We are diligently working with the parties involved in the process, and intend to continue our thorough approach until such point as the board determines upon a particular strategic course of action. The board has not established a deadline for completing the review."
Loosely translated this means, “We are trying to find a deal that will leave the existing management team employed with large compensation packages despite our ruinous track record. The board is hoping some magical deal materializes shortly with a private equity fund. If something does not pop up soon; the company will be dead as we complete the review of the bankruptcy paperwork.”
The only constant is that the long suffering Circuit City stockholders will continue to be disappointed.
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