 |
In
This Edition... |
|
-
What Consumer Confidence
Didn't Say
-
Update of Previous
Ideas and Focus Stocks
-
New Penny Stock
and Micro Cap Watchlist
|
 |
What
Consumer Confidence Didn't Say |
|
|
An
unexpected rise in the Conference Board's consumer confidence figure pushed
stocks much higher yesterday, but did the move make sense? More importantly,
can the market possibly live up to these fast-growing expectations, or
did investors read too much into the confidence level?
Those questions
are of particular interest to us, since consumer confidence is one of
the very few economic sentiment tools that has any merit when it comes
to making investment decisions. GDP, productivity, yield curves?
They're all interesting data, but irrelevant when it comes to figuring
out which direction stocks are likely to go.
 So
what do we say regarding consumer confidence and the market's response
to it?
The fact is
- in the long run - rising confidence levels do indeed coincide
with rising markets. We
mentioned about a month ago that we'd yet to see enough confidence
to say a long-term bottom had been made. Now though (as of yesterday),
the long-term downtrend in confidence levels has been broken and a new
upturn has begun.
So, we're suggesting
getting on board like everybody else did yesterday? Nope, not quite yet.
What the confidence
number did say was that people are generally more optimistic than
they were one, two, and three months ago. In that regard, yes, we're bullish
in a multi-year time frame. What the confidence figure did not adequately
say, however, was that sentiment can be more fickle and erratic than
the market itself.
We have little
doubt the Conference Board's indicator will retreat at least to some degree
in the very near future - the expectations are unreasonable at current
levels. And, when confidence does retreat in the future, undoubtedly
every perma-bear and grim pundit will come out of the wood work, shake
a finger, say "I told you so", and beg you to sell your stocks.
Don't
listen to them. The consumer confidence number isn't a swing-trading
tool, and one month's worth of data (up or down) is meaningless. This
is a long-term indicator that's worked phenomenally well for decades,
IF interpreted effectively.
Needless to
say, we still don't advocate piling into stocks right now, as we're
anticipating summer weakness. That's a call based on more appropriate short-term
indicators. After the summer doldrums play out, then the long-term investors
should step in based on what we hope will be a slightly less aggressive
uptrend in confidence levels.
And if you're
wondering how we 'interpret' confidence data, in essence, we apply a moving
average to the chart. That's the thin line following the consumer confidence
trail on the nearby image.
On a more philosophical
note (and we've discussed this before), confidence data is very
well suited for finding major tops and bottoms, as it's generally more
persistent - and leading - than stocks themselves usually are at
those turning points. The absolute level of the reading doesn't
mean much; the direction the trend is pointed is the key. We believe
the reason economic sentiment can be so useful is that it's not daily
data, and therefore not subject to constant interpretation and reinterpretation
that can just be distracting - and even misguiding - to investors.
(Just an
FYI, the moving average line you see plotted on the consumer confidence
portion of the chart isn't the same one we analyze internally, That's proprietary.
Also, our methodology is a little more complicated than a simple review
of a moving averages. Those details are proprietary too. You get the idea
though - the trend is more important than the month to month data.)
|
|
ParkerVision
Moves to the Head of the Class |
|
|
Last week we
made our first mention of PerkerVision Inc. (PRKR), but didn't get
a chance to look at the chart. We'll make the time to do so today, as we
suspect this penny stock could be gearing up to make a bullish leg.
 As
we mentioned then, the stock had been flat since late April, giving the
20 day moving average line a chance to catch up. When it did, PRKR shares
found support there and are now acting - even if it's a little early
to be thinking like this - as if that 20 day line is going to act as
a springboard.
The key is still
getting and staying past resistance. ParkerVision moved above its ceiling
a couple of different times this month, but hasn't managed to stay there
yet.
Other names
we've been scrutinizing include Dolphin Digital Media Inc. (DPDM), Allied
Defense Group Inc. (ADG), Flow International Corp. (FLOW), EnDevCo Inc.
(EDVC), and a poptentially-bearish Mirani Brands Inc. (MRIB).
Dolphin Digital
Media has been lethargic, so we're going to drop the stock today. Allied
Defense Group has been impressive either, but is consolidating... we'll
hang on for now. Flow International's potential breakout fell apart before
it ever really started to get traction, so we're not going to bother following
FLOW from this point on either. EnDevCo still looks interesting, though
when the volume dried up, so too did the rally. The stock hasn't faltered
yet though, so as long as it can hold its ground while the bulls regroup,
we still feel it's worth watching. We're likely to take Mirani Brands off
our bearish watchlist, not because the potential isn't there, but because
it's just taking a little too long to break the support at 25 cents. We'll
let you know for sure soon.
As for new ideas,
we have two charts that look really interesting. One's bullish, the other
is bearish.
 Riverview
Bancorp Inc. (RVSB)
It was a long
battle, but the buyers finally gave up on Riverview, letting the bears
take control this past week.
How so? Check
out the string of lower highs we've seen since April (and really, March).
A chart can tolerate a few weak days, but that many weak days back to back
is just too much to resist. That's not the 'hook' for us though...
As the nearby
chart indicates. Riverview shares have been forming a wedge since January.
With the lower edge of the triangle now broken, we have to assume the previous
downtrend has been resumed.
 Spreadtrum
Communications Inc. (SPRD)
This one's not
for the faint of heart, as it's basically a coin toss - certainly not the
kind of bet Warren Buffett would make. But..
Spreadtrum is
up big today, on even-bigger volume. The stock traded at multi-week highs
earlier in the session, and has since done a decent job of hanging onto
those gains. That alone, however, isn't quite enough to attract us.
We're also eyeing
how the stock's downtrend has slowly - and we mean slowly - turned
into a mild uptrend during Q1 of this year. It's still volatile, but at
least the volatility has been bullish. And as of today, we're truly starting
to see higher highs and higher lows thanks to persistent support from the
20 day moving average line.
So what's
the scary part? Spreadtrum announces earnings after the close today.
Clearly the market expects good news, though the market can be wrong. Analysts
are looking for a loss of 19 cents, which makes this one even trickier
- a 'smaller than expected' loss should be good news, but who knows
how the market will actually react when the time comes? Still, based on
the way the market's acted since March, maybe the glass will be half full
no matter what.
Like we said
though, this isn't one for the faint of heart.
|
This
Week's Watchlist |
|
Yes, like last
week, some of the stocks we were following have fallen off our watchlist,
while others have been added. We want to focus on the best of the best
ideas, so a willingness to sift through a lot of tickers is important when
looking for that diamond in the rough. Here's the latest batch of stocks
we suggest keeping tabs on:
-
Richardson Electronics
Ltd. (RELL) - in a consolidation phase, resistance around $4.20
-
U.S. Gold Corp.
(UXG) - still heading into the tip of a pennant
-
Gabelli Healthcare
& Wellness (GRX) - higher lows, resistance at $5.00
-
G-Willi Food Intl.
(WILC) - this one resumed the trend after all that volatility
-
Intricon Corp.
(IIN) - still struggling
-
PDI Inc. (PDII)
- still winding up
-
CFS Bancorp Inc.
(CITZ) - support at $3.55 is crumbling
-
Aristotle Corp.
(ARTL) - gaining momentum, though a little overbought right now
-
Collectors Universe
Inc. (CLCT) - now pressing onward into new high territory
-
Herzfeld Caribbean
Basin Fund Inc. (CUBA) - broke out of consolidation?
|
Updated: 8:15 pm PDT (03:15 GMT), November 2, 2010
