Stocks

My Love for Android Knows No Bounds

This has been one of the laziest market weeks I’ve ever gone through. As a result, I’ve had more coffee this week than I’ve had in a long time.

I tell you, the girls over at Dutch Brothers (a drive-thru coffee joint here in Oregon, which hires shockingly good looking people) not only know my name by this point, but they’ve also figured out exactly what I love to drink, and what car I drive.

They have my coffee ready for me by the time I drive up to them! It’s fantastic. But it goes to show you how much time I’ve spent getting coffee this week in order to cope with this flat market.

After all the excitement of Monday’s rally, the rest of the week was flat, flat, flat.

Dow Jones Industrial Average

Just look at that. The Dow Jones stayed in a 33 point range for most of the week.

A big reason why the market was so flat is that investors were posturing for today’s Bureau of Labor Statistics employment report. At the start of the week people were throwing around all sorts of optimistic jobs numbers. I even saw Zero Hedge –- the most bearish blog I’ve ever read in my life — point out analysis calling for a jobs number surpassing 300,000 due to seasonal fudge factors.

From ZH…

An analysis out of Stifel Nicolaus points out that due to various seasonal adjustments, an NFP print of up to +100,000 could be expected (which incidentally does not reflect anything favorable at all about the actual employment picture as it is due exclusively to seasonal fudge factors). In fact, Stifel argues, a print of +316,000 is theoretically possible

Alas, the positive number never came. Instead the employment report showed an 86,000 job drop.

A couple things you should be aware of regarding the employment report…

• Bernanke said himself that it would take 100,000 new jobs a month for the unemployment rate to start dropping.
• When trying to look for a bottom, it’s best to look at how many hours the average work week is. Right now it’s at 33.2. Once employers start feeling better about the economy, we’ll see this number increase. That’s because an employer would rather give an existing employee more hours rather than hiring a new employee.
• There are 2.5 million people that have no job and want one… yet are still not counted in the unemployment report.
• In February the BLS will make revisions to the 2009 unemployment numbers. Analysts are expecting a HUGE decline as the BLS accounts for fewer jobs created at small businesses. Calculated Risk, who is very good when it comes to predicting economic numbers, has calculated that revision to lead to 824,000 more jobs lost. This would most certainly shock the market and lead to a higher unemployment rate.

So while the jobs report has certainly been improving, we’re not out of the woods yet.

As for the market…

The three major US indexes are at or near 52-week highs and overbought. Investor sentiment is at extremely bullish readings. And the VIX is at a 52-week low.

Even the commodity companies I love so much are sitting at 52-week highs. So what does that leave for us, the guys who profit off of short-term market swings?

One rout we could take is getting into some bearish credit spreads. In other words we sell call options in hopes that they are never profitable for the buyer. But honestly I just don’t feel comfortable going against the dominant uptrend right now.  Nearly ten years of playing the stock market has shown that type of play to be a painful one.

What it comes down to is good old fashioned stock picking.

One stock I’ve recently loved up is Google, mainly because of the Android operating system for mobile phones. It’s really started picking up market share after Motorola’s recent release of the Droid for Verizon.

Admittedly I think the Droid is a hideous excuse for a phone. But everyone seems to be eating it up. Most of that love is because it runs on Google’s OS.

In just the last year the Android operating system has picked up 12.4% market share in the smartphone sector, mainly at the expense of the iPhone and the Blackberry.

And with a slew of new Android devices hitting in the first quarter of 2010, I fully expect that market share to hit 20% or more by the end of the year.

This is great news for Google, and so I expect GOOG to be a low risk way of riding the Android OS higher. Another way to take part is to get into Motorola itself. The company has picked up pace ever since the release of the Droid. Analysts expect 1.4 million Android devices sold for Motorola in the 4^th quarter alone. In all, Motorola sold 12.5 million handsets for the year. For a company everyone expected to vanish by 2010, that’s remarkable.

Motorola isn’t sitting on its ass either. It’s gone ahead and released another phone, the backflip, for AT&T. It also plans on introducing more new Android based models this year.

At this point Motorola has good exposure to AT&T, T-Mobile, and Verizon Wireless. That’s good in my books. All it needs to do now is charge for the European market and sales should beat expectations.

Just be aware that positions in these companies should be held over the mid to longer-term (about 6 – 12 months).

Take care,

Charles Delvalle

2010 Prediction

The market didn’t move one way or the other yesterday. The Dow Jones – the lagging index – ended the day slightly down. The S&P 500 and Nasdaq closed  slightly in the green.

The reason why the indexes didn’t move much had to do with economic news. The Commerce Department reported factory orders for November that were twice as good as what had been expected. This good news was offset by data that the National Association of Realtor’s Index of Pending Home Sales dropped 16%. That was the first drop in nine months.

Plus, dollar started trending higher again, moving up almost 1%. Not only did this put pressure on the stock market, but it also helped push down the price of spot gold by 3.35%.

When you look at the technicals, the market is pretty overbought. Don’t get me wrong, if the technicals were overbought and everyone hated the market, I’d probably take it as a sign of higher prices. But right now everybody is bullish.

The American Association of Individual Investors Bullish Ratio hit its highest level since February of 2007. The market topped out later that year.

Another sentiment indicator, the Investors Intelligence Advisors’ Survey (they all sound the same), showed the lowest percentage of bears since March of 1987. We all know what happened a few months later…

So, while investors can stay bullish for a long time, the contrarian in me says that we’ll see a drop in the next 3-6 months. But that’s not the only reason why i think we’ll see a drop in the second half of the year.

During a typical recovery, the inventory rebuild leads to more jobs, which leads to more domestic consumption, which finally starts a growth cycle. But right now, consumers are up to their ears in debt. Most have been laid off. And a good number have seen their hours cut. People out there are picking and choosing what bill to pay. And the credit card ends up being the last one.

Consumer demand can’t take off in that type of environment. Cash is tight. And the next dollar is used to pay the next bill.

To make matters worse, the Fed may end up tightening in response to this inventory rebuild and the effects of the stimulus. Could the Fed be so stupid? Sure they could!

Listen, the Fed typically begins tightening as soon as job growth begins. Over the next 12 months, the US government will hire up to 1.4 million people for the 2010 census. And even though these 1.4 million jobs will probably only last about 6 months, it could definitely push the labor market up over the next few months.

It’s enough to make you go “hmmm”.

An overbought market with record bullishness… poor consumers… and tighter money, spells a recipe for a nasty second half.

One Thing I Should Say Now…

I’ve been writing for http://www.contrarianprofits.com for the past month now.

You can see my writing in the ‘Chart of the Day’ section of the site : )

I’ve also been tasked with the duty of finding them great recommendations.

Should be easy though – investing in times like these is pretty straight forward. You just have to have the “cohones” to do what your gut tells you to do. Half the times, everyone else will think you’re crazy. But then again, you and I know better…

By the way, should probably toss you a bone and let you know what I think the best place to put your money is…

Well, I don’t really trust the stock market much. But I do trust discount retailers (do a Google search).

Otherwise, you can sell me a high-interest, high-grade corporate bond trading under par and with a short-term maturity any day (now that was a mouthful)…

Admittedly though, it’s about 3:33 AM on a Friday night. I think I’m going to crawl back in my “money making” cave (you know, the bed).

Take care,

Charles

P.S. My lazy designer informs me that a design for the blog is coming soon! Which means I have to work on giving you a lot more content (money making wisdom, stock market tricks, and a thorough analysis of the big picture!).

A Soothing End to an Exciting Day

Have a seat.

Want a beer? Be my guest.

I hope you like the Black Crowes, because that’s what’s on right now.

You see the market action today? I tried not to pay too much attention to it. You know, I just have to much stuff to do in a day.

Yet even with everything I had to do, I kept glancing at my screens.

Precious metals were up on the day. Agriculture companies too. Let’s not forget about the rally solar companies had, some rallying five to ten percent.

That one company I bought into my personal last week is now up well over 12.4%. That was an Ag company.

Still, when I saw the market down another 100 points this morning, I thought I would see more of what we saw on Monday.

But the bulls weren’t having it. They recovered the losses and took the market up 50 points. Not bad for a day that was supposed to end bad.

You see, and this is why I’m not fully bearish anymore. Too many negative days turning positive. Too many positive days turning negative. It’s just not worth it to be a bull or a bear.

You have to get into genetic engineering and be a hybrid ‘Bullear‘ or ‘Bearull‘ if you want to survive this market.

With that said, there are some AMAZING opportunities in the solar sector right now. And I plan on taking advantage of some of them in the next few days.

Also, in a few days i’ll start talking about what I believe will be the next big bubble. Its already getting big, but in the next 4-8 years it’s going to explode.

Until next time.

Dazed and Confused

Market has no idea what to do today.

Should the market rally because the economy might do better? Should the market tank because interest rates might not be cut again?

If anything, I think this recent rate cut added more uncertainty to the market. That’s because the certainty of a rate cut is now gone. And the certainty of the economy doing better was never around to begin with. And now that earnings season is coming to a close, the only thing left for the market to pay attention to is economic news.

That and world news.

With that said, I heard that first quarter GDP came in better than expected on the back of inventory building. So the thought goes that next quarter inventories will be fine, which means no more orders for more inventory.

Needless to say, economists expect a big contraction, even with the tax rebates. If we get a big enough contraction, then the bear market would be in full swing.

Better yet, if the economy doesnt start improving by summer, the market is going to be lost. Right now traders are trying to predict a recovery in the second half of the year. Yes, a recovery.

This ain’t 2001.

With that said, here’s a song that I feel the market is feeling right now.

And Jonathan – you should be happy because its Led Zeppelin!

Don’t Lose Focus!

Everyone – I know Scrooge helped us see a really great market day yesterday.

But I don’t want you to lose focus as to what’s really happening. So I’m here to offer you some perspective so you don’t get sucked into all the optimism that’s flooding the markets.

We’re in a bear market! The financials are crumbling under leverage. Consumers aren’t buying because they’ve seen the price of milk and gas skyrocket. Consumers are having a hard time getting any new credit at all. 30 year mortgage rates don’t want to drop. Manufacturing in the US is sinking. Foreclosures are still rising.

You get the point. Now here’s a chart to take a look at – and it’s what I’m basing my future decisions off of:

Click on that chart and make it bigger if you have to. You see how there’s a downward sloping trend line (which shows the Dow in a downtrend)? Well, the Dow hasn’t been able to stay above that trend line since early October. But the Dow also hasn’t been able to go under around 11,750 (support). This has formed a descending triangle pattern, which is one of those distinctly bearish patterns.

In this pattern, the stock (or index) normally goes on to break under its support and the downtrend resumes. I’m looking for the same thing to happen to the Dow Jones as the economy continues to weaken.

But if the Dow Jones breaks above its resistance (and stays there for a few days) then that means we could see another swing higher.

It’s tough to say what will happen. If you want to be safe, wait for the break under support before you get into bearish positions. If you want to take some risks, then start inching into bearish positions starting today.

Retail Sales are Up?

Let me start this off by saying that last night was a long freaking night.

Not only did I get caught up in the excitement of Obama destroying Hillary in the Potomac primaries, but I also got caught up looking for a place to go camping this weekend.

Of course, all the good sites were already booked. So I resorted to camping in the everglades. My mission is to wrestle an alligator and see if it can make any marks in my metal armored bear suite (strengthened with nano-technology).

By the time I was done with all of that, it was two in the morning. So I go lay down. And right as I start drifting off into the land of fantastic dreams, my power goes out. Not only that, but my intrusion alarm starts alerting me that the power is out – for HALF AN HOUR!

My girlfriend had to stop me from smashing the thing with a hammer.

After all was said and done, it was around three in the morning by the time I was able to sleep. So right now, the only reason I’m awake is due to heavily caffeinated Dunkin Donuts coffee.

Walking into the office today was also a shocker. I saw Market watch report that retail sales were up 0.3% in January. The market promptly celebrated by pushing the Dow Jones up 100 points.

On the face of it, an increase in retail sales is a good thing. But when you dig deeper, you find that this report is actually bad. You see, the reason why retail sales weren’t flat was due to gasoline and car sales.

Well, considering gas prices are stupidly expensive right now, the only reason why gas affected retail sales was due to the increase in price.

And then there are car sales. January car sales were actually down for the month. So how in the heck did car sales bump up the retail sales report? Because auto makers were charging higher prices.

Do you get what I’m trying to imply here? The 0.3% gain in retail sales was due to INFLATION, not growth.

You take both of those things out of the report and retail sales would have been flat for the month.

But what really made me giddy was the fact that the two companies I’m shorting now – one a retailer and the other a car manufacturer – were both down on the news.

Listen, I don’t expect the many investors to dig into the retail sales report and realize the error of their ways. If they did, the Dow would drop 1,000 points.

But with ‘good news’ like this, I simply can’t wait for the market to finally catch up and move lower.

Where are the Scandals?

As a bear market progresses, one thing always happens – scandals. But have you noticed that there haven’t been any ‘Enron’s’ to speak of yet?

Don’t think it’s going to stay that way though. And here’s why…

As people spend money, they create an economic expansion. As the expansion progresses, certain sectors start getting most of the money. As that sector gets more money, investors are lured in and add even more money. In the last expansion, that sector was clearly real estate.

So now you have a sector that has more money than should be there. Since consumers are feeling good about the future, they are willing to spend more money than they should on something basic, like a home. Of course, businesses will do what they can to keep this momentum going. And that includes dirty little tactics.

But eventually consumers will be spent. They just can’t spend any more money on an expensive home.

Once home prices level out, the investors get spooked. So they start selling. As they sell, prices start to drop. So now homeowners get spooked, because the home they bought isn’t worth what they paid for it. That gets them depressed.

And if anyone fell victim to the dirty lending tactics, then they get screwed as ARMS reset and subprime loans balloon. What does that cause? Foreclosures.

So now foreclosures and home sales tick higher. All the industries that relied on that money starts losing money, and what starts off as a housing problem, turns into a consumer spending problem.

And then that becomes a credit problem.

As people lose their homes, their retirement and their savings, they get pissed off. Who’s to blame? Is it the banks, the Fed, maybe Bush?

This is where we are now. People are looking to blame someone.

Just a few days ago, the Feds started an investigation on 14 different lenders. And I have a feeling they are going to find something. And after they do, they are going to look for someone else to blame.

You can be sure these scandals will knock the market down as it did during 2001-2002.

We’re in the start of a recessionary period. And that recessionary period won’t come to an end until we see people getting blamed and tried for the excesses the previous expansion brought.

Once I see these scandals come out of the wood works, I’ll start hunting for the bottom of this bear market.

Until then, I’ll short the living bejesus out of every weak, overpriced stock I see.

The Service Bomb

Didn’t I just rant about this yesterday?

I said “We’re in a bear market, right?”

So today I walk into the office (sadly, with no coffee in hand) and ask Rick Pendergraft what the futures look like.

Rick is a chart addict. I can’t imagine that he sleeps without dreaming about charts and the market.

Anyways Rick tells me the futures are lookin ugly.

How ugly? Well the S&P is down nearly 21 points. And the Dow is down 136 points.

This time, the drop was because of the ISM nonmanufacturing index. This is a report that tells you whether services in the US are expanding or contracting. Any reading under 50 means contraction.

Well analysts expected 53. And it came in at 41.9!!!

This is big because we are in a service economy. Services make up around 2/3rds of our economy. If that sector is in contraction, then our economy is contracting along with it.

As much as you want to hear the positive, you can’t deny that we are just now getting into a huge bear market. If you don’t position yourself to take advantage of it, or if you can’t change with the times, you’re going to have a hard time making money.

Me, I’m short the market right now. That’s right, this ‘suckers rally’ that just came around only made me get into more shorts. I didn’t use it to buy ‘great deals’. That’s because the deals we’re seeing now will get much better in a few months.

But we do have a lot of retardedly expensive stocks on the market. And I’m using this opportunity to short the ones that are just starting their downtrend.

Since this is going to be a hectic day, I’ll be back to inject my bear market thoughts every once in a while.

A fool and his money…

I have to admit, I was almost worried for a minute there…

If you know me at all, you know I’m a metal armored vicious bear.

Stun guns and market rallies have no effect on me.

But seeing the market move higher day in and day out made me wonder if my armor would fail; exposing the bear that I am to the ramming horns of a bull.

I just needed a sign from above – anything that would reassure me that this market is doomed. After seeing the market begin to descend again today, I felt good enough to shoot out a put recommendation.

And my readers should make some good money from it.

I mean, after all we’re in a freaking bear market! And in bear markets stocks fall, right?

The best part is that most people aren’t yet convinced that we’re in a bear market. These are the optimists – the bulls if you will – that are constantly looking for that one report to show the economy ‘turning around’.

It’s like they’re fighting a hurricane induced rip tide when they have no legs to swim with. They’ll never win.

As they say… ‘A fool and his money are soon parted’