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July 24, 2008

Checkin’ In On Style, Market Cap Forecast

Filed under: — MicroCapPress Editor @ 7:23 am

It was about a week ago today we updated our expectations regarding styles (value versus growth) and market cap (large versus small). The initial discussion took place in the July 3rd edition, but a wild market pretty much required an update on the 17th. Now - though only five days later - it’s time to revisit the theory….that’s just how quickly things have been moving.

You might recall we were looking for simple rotation. By that, we just meant growth’s leadership in the early part of the year was going to be trumped by a revival of value. In terms of market cap, we specifically felt mid cap growth was going to weaken considerably, and anticipated large cap value would pull itself out of the deep hole in which it had been buried. 

By the 17th (last Thursday) we were already seeing hints of this rotation. And how about since then? Check out the results table - you can see for yourself what’s happened over the last five days (which doesn’t include today’s data). Value has led the way…mostly small cap, but large cap too. Growth has trailed. Mid cap and large cap growth have decidedly not participated in the bounce. That’s pretty much what we expected.

style and market cap rank

So is now the time to pile on the leaders and dump the laggards? Not quite. The time to do so was a week ago, or three weeks ago. No, at this point we think the market’s going to take a break….perhaps a long weekend. That’s fine - we need to burn off some of the euphoria and see stocks fall back a bit. When the profit-taking is done, then we can start fishing based on this relative strength in certain areas. This isn’t a five-day war. Five days is just a battle…the war will last for weeks. And, timing is still half the battle.

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June 4, 2008

Is Dow Theory Saying We’re (Still) In Bear Market Mode?

Filed under: — MicroCapPress Editor @ 2:19 pm

Our comments last week about the Dow Theory (and its currently-bullish mode) prompted some feedback from our readers. Some of you agreed, and some disagreed. We’ll try and work through all of it, starting with this e-mail.

Dow Theory indicated our entry into a bear market at the end of last year when we slipped below the 200 MA for more than a few weeks - we recently retested it and failed miserably.   Look at recent volumes, the bear market rally is fading fast.

Thanks for the note. We’re not sure what you’re calling the Dow Theory here. For our purposes, the ‘theory’ only involves the leadership of the transportation stocks or the industrial stocks. Where one goes, the other will eventually follow. We used the 200 day moving average line not because it’s a component of the theory, but simply because we needed some sort of baseline to compare apples to apples. (We could have used a 100 day average, or a 250 day average, or a 184 day average….it was arbitrary. We just chose 200 because it’s fairly common.)

Yes, the pullback from late last year was ‘predicted’ by the Dow Theory because the transportation stock sold off first. The 200 day average indicated the same thing.

Yes, the 200 day line acted as a resistance line for the Dow Industrials a few days ago, which also is bearish.

However, with the transportation stocks well above their 200 day line, that’s actually bullish for the overall market even though the Industrials are struggling with the 200 day moving average line.

In other words, we’re seeing mixed signals.

Which is right? That’s the question we’re asking. We can’t say yet either. We’re just saying according to the Dow Theory, the current scenario is bullish. Certainly other analysis could suggest otherwise.

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May 28, 2008

Poor Consumer Confidence and the Stock Market - The Whole Story

Filed under: — MicroCapPress Editor @ 11:45 am

Yesterday, the Conference Board - an arbitrary and self-selected group - released May’s ‘consumer confidence’ number. Let’s just say it wasn’t good. In fact, the average consumer was as nervous as they’ve been in the last 16 years. The last time we saw the confidence reading below this month’s 57.2 level was in October of 1992…when it reached as low as 54.6.

The typical assumption was that it wouldn’t be good for the market (though most investors have become desensitized by this point). The thing is, why would investors - led by the media - make that assumption?

Yes, the logic is obvious…battle-scarred consumers are in hiding, according to their confidence levels. However, the flaw in the assumption is assuming that logic and reason prevail. What the media didn’t tell you is that following that low confidence reading of 1992, the S&P 500 spent the next six months gaining 5%. By the next October, the S&P had gained 11%. That’s not gang-busters, but it sure doesn’t suggest low confidence is a guarantee of gloom and doom for the stock market.

The reality is, low confidence levels are more often associated with bottoms than tops. There are always exceptions, but the odds say this is more bullish than bearish. Take a look at the chart and decide for yourself.

 

 

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May 16, 2008

Investment Forecast for Broadcast & Entertainment Stocks

Filed under: — MicroCapPress Editor @ 2:29 pm

Today we continue to flesh out a handful of industry forecasts made in a recent commentary. We talked about the methodology on Wednesday, and put the strategy into action on Thursday by making a couple of consumer electronics stock picks. Today we’ll apply the same principles to pick some entertainment stocks…a surprisingly strong sector lately.

As before, our interest in entertainment stocks is rooted in poor long-term performance, but strong short-term results. The aim is to find stocks that are (1) undervalued, and (2) starting to outperform the rest of the market.

Wednesday’s industry-strength table isn’t the Holy Grail in that endeavor, but it’s a great place to start. Why? It can show investors trends they may not have found on their own. And, as obscure as the broadcast and entertainment industry is, today’s picks may be prime examples how the strategy finds undiscovered opportunities.

We’ll start with the chart of the Dow Jones Entertainment & Broadcasting Index (DJUSBC).

Between last year’s peak and this year’s low, the group sank about 25%….a fairly significant devaluation. From this year’s low, the group has gained 16%, thanks to a rebound at a key support line. Still, there’s a lot of room for more recovery. How much? A move back up to last year’s highs around 500 is possible, which would be a 16% move from current levels. That’s a lot more potential than many other groups are offering, largely in part to the size of the loss a few months back.

Of course, the leading stocks in the group may do even better than that. How do you find them though?

We’ll stick with yesterday’s precedent and look for a good fundamental pick as well as a good technical pick. Just bear in mind that the very best trading opportunities often have positive elements of both schools of thoughts.

One broadcast/entertainment stock with a great-looking fundamental snapshot is Dish Network (DISH). Revenues have grown at an 18% clip for the last five years, and earnings have improved by 36% over the last twelve months. The P/E is 17.8, and the P/S ratio is 1.34….all good numbers.

Those numbers weren’t enough to prevent the stock’s decimation between late last year and early this year though - the same trouble spot the whole sector went through. In Dish’s case though, the market may have thrown the baby out with the bath water. Of course, if this past week’s rebound is any hint, the market also figured out their mistake.

From a technical point of view, Shaw Communications (SJR) may be worth a look. For some reason. Shaw was hit particularly hard when the rest of the industry was too. The rebound so far has been great as well, but doesn’t even begin to rival the stock’s trading level before the dip.

If you look further back on the chart you can see the market has no problem liking and paying for this stock. The attraction here is a possible repeat of the move we saw in 2006 and 2007. Half of that would still be a great move though.

The sweet part about this chart is that the company actually has some impressive fundamentals to go along with it. The P/E is 15.0, the ROE 30.8%, and profit margins come in at 28%.

As before, these are two possibilities out of hundreds, so don’t assume these are the absolute best choices. They might be, but a little more digging could find something better. The trading strategy and method is the point we’re trying to illustrate.

Start receiving FREE e-research on select small and micro cap stocks. Get in-depth research reports, comprehensive coverage, exclusive market commentary and more, just by becoming a MCP subscriber today! Look for the submission form at the top of the right-hand column.

May 15, 2008

Industry Forecast: Consumer Electronics, Universal Electronics and Sanyo

Filed under: — MicroCapPress Editor @ 1:32 pm

In yesterday’s commentary we featured a handful of the stock market’s industries that may be ready to rally or sell off, as the case may be. We also mentioned we were going to try and find a few stock trading ideas from within the group - preferably a small or micro cap, and ideally, an undervalued and unknown company.

The opportunity that caught our eye a little better than any other is the potential recovery in the consumer electronics arena. These stocks are still down by 46% for the last twelve months (which was basically the worst of any of the groups), yet these same stocks are up 8% for the last two weeks (which is among the best). So, clearly something has changed for the better here.

The chart of the Dow Jones Consumer Electronics Index (DJUSCE) shows a terrible start to 2008, not to mention a terrible last half of 2008. However, that may mean the recovery is just that much bigger, if the last few days is a hint of things to come. 

From a fundamental point of view, Universal Electronics (UEIC) looks like a bargain. This micro-cap company’s P/E is 17.7, with a P/S ratio of 1.23. None of its valuation measures are jaw-dropping, but all of them are solid. What’s most interesting here is the rather high short interest of 11.2%. A little strength could prompt a brief short-covering rally.

The only big downside we see is the chart. We saw a rebound attempt earlier in the year, but the stock gave up a little too much ground when it failed to crawl back above the 200 day moving average line in April. This past week we’ve seen volume pick up a little, but not enough to get it over the hump.

Though the fundamentals are outstanding, the technicals are still telling us ‘not yet’. We’ll keep it on the radar.

As far as a technical pick is concerned, Sanyo Electronics (SANYY) might be a good bet. It’s just now coming out of a long-term oversold situation, but hasn’t bolted out of the gate. More importantly, for the first time in a long time we’re seeing this ADR make higher highs and higher lows. And, bullish volume has been flowing at least a little more consistently.

In the very short-term we view SANYY as a little overbought, so don’t be surprised to see it ease back slightly from the recent high of 13.70. As long as it catches itself early and starts to recover well, a dip may be a good entry opportunity into what could be a longer-term uptrend.

As always, cross referencing a chart with the company’s underlying fundamentals is a good idea. We didn’t do this for Sanyo due to time restraints, but you may want to invest the time.

Of course, these two stocks aren’t the only two possibilities within the world of consumer electronics. Other stocks also have to be helping the industry index move upward. Maybe one of those is an even better choice. We just wanted to get some trading ideas flowing.

Start receiving FREE e-research on select small and micro cap stocks. Get in-depth research reports, comprehensive coverage, exclusive market commentary and more, just by becoming a MCP subscriber today! Look for the submission form at the top of the right-hand column.

May 14, 2008

Investment Forecast: Sector & Industry Trends

Filed under: — MicroCapPress Editor @ 1:00 pm

We got lots of great feedback following Monday’s newsletter about spotting sector rotation, and how to capitalize on it. In fact, the feedback was so good, we’re going to go ahead and post an even-deeper look at current industry trends.

Using the same kind of analysis - comparing long-term performance with short-term results - we’ve found several industry-specific trends worth a closer look (industries are sub-sets of sectors). We’ll look at those opportunities in a moment. First, let’s just look at the foundation for the forecast. The table below tells all.

What we’re looking for are what may be the best and the worst arenas right now. If the short-term numbers are horrible but the long-term numbers are great, we may be seeing an over-extended industry starting to implode…a bearish possibility. If the short-term results are very strong but the long-term numbers are poor, we may be seeing a recovery in the making.

But what if the short-term numbers and long-term results are both bullish or bearish? That’s ok too - it might indicate a sustained trend (though caution is advised - keep reading). 

The starting point for our study is the one-month return. That’s a long enough time to weed out simple volatility, but still a short enough time frame to catch the early part of any emerging trend. Also, though we said above consistent trends can also be trade-worthy, we’re not necessarily looking for the stocks that are the strongest of the strong or the weakest of the weak. Those scenarios are often too dangerous to get involved in.

Take a look at the table. We’ve highlighted what we think are the best trade-worthy possibilities.

Top 15 Industries - One Month

Bottom 15 Industries - One Month

The industries highlighted in green or orange are the ones we felt were/are most apt to offer bullish or bearish (respectively) trading opportunities.

Obviously the work isn’t done here. You can rarely trade an industry ETF, particularly for some of the focused indices cited above (like soft drinks, recreational products, heavy construction, or tires). However, there are clearly underlying stocks in those groups. Any of the top or bottom 15 might make good places to look for stocks that are moving. 

In other words, these industries are moving for a reason - the task now is to go find the stocks leading the charge.

Over the next few days we’re going to dig up some ’stocks of interest’ within as many of these categories that we can. Be sure to check the blog again soon.

Start receiving FREE e-research on select small and micro cap stocks. Get in-depth research reports, comprehensive coverage, exclusive market commentary and more, just by becoming a MCP subscriber today! Look for the submission form at the top of the right-hand column.

January 29, 2008

Will ‘Bennie & The Feds’ Cut Interest Rates on Wednesday?

Filed under: — MicroCapPress Editor @ 1:53 pm

You might want go ahead and note the time and day…Wednesday, January 30th, 2008, at approximately 2:15 PM EST. That’s the day we may end up seeing Ben Bernanke make or break this vulnerable market. Getting just the right-sized cut in the Fed Funds rate - and then saying the right words - could be like doing surgery for Helicopter Ben.

According to Fed Funds futures, a 1/2 point cut is still the favored outcome of the Federal Reserve Chairman’s congressional testimony. However, a 3/4 point is running a close second. A 1/4 point cut is surprisingly still in the race, though a distant-third choice.

Though we don’t want to get involved in the “guess the rate cut” game the media seems obsessed with, we’re siding with the odds evident in the futures…we’re looking for a 1/2 point cut. That’s quite a bit compared to recent history, as 1/4 point moves seem to have become the weapon of choice for the Fed Chairman D’jour. And following an emergency 3/4 point cut, well, that starts to get into unprecedented territory in terms of changes in the overnight rate over a span of only 10 days. We may be challenged, but we don’t need that much economic medicine.

A 3/4 point brings a huge inflation risk with it (and we’re already starting to see it spin out of control). A 1/4 point cut is likely to be perceived as too little, and may end up shutting the average consumer down altogether. The 1/2 point option is the happiest medium.

Will we be right? We’ll let you know tomorrow at 2:16 PM EST. If we are though, we feel stocks could really start to build on the recovery move we’ve only seen glimpses of in the last few days. After what’s basically been a 15%+ correction in stock prices, the underlying dynamics (like volume, sentiment, breadth, and depth) are mostly saying bullish things…they’re just waiting for the trigger. Hopefully the Fed will give ‘em what they want.

Start receiving FREE e-research on select small and micro cap stocks. Get in-depth research reports, comprehensive coverage, exclusive market commentary and more, just by becoming a MCP subscriber today! Look for the submission form at the top of the right-hand column.

November 29, 2007

Is Low Michigan Sentiment Reading Good or Bad? It All Depends

Filed under: — MicroCapPress Editor @ 1:59 pm

Back on September 10th, the Micro Cap Press took an in-depth look at the impact of certain economic data on the market. One of the data sets we studied was the Michigan Sentiment Index…a general survey of consumer optimism. Though our bottom-line stance was the survey was more dangerous than useful as in investment tool, it still wasn’t worthless - you just needed to know its flaws.

In any case, we observed more often than not how a sharp plunge in the Michigan Sentiment readings coincided with a market bottom. That’s not to say the market hit a bottom on the same day the reading was announced, though it was usually the same month.

One qualifier….the overall mood of the market seemed to play a role. If the bigger trend was still bullish when we saw a low reading, it was almost always a great dip to buy into. The same is true even in a bear market - strong dips that coincided with low sentiment readings were still short-term buying opportunities.

If instead the plunge in the survey score occurred but the market wasn’t making a short-term correction, then the survey actually forecasted a market lull (most of the time).

In the current scenario, what we have is a market dip along with a low Michigan Sentiment Index reading, which is actually a bullish event. It may take a month or two to fully realize the potential, but the odds still favor it.

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