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Friday, July 08, 2005

Off-topic: No posts today

This is the only post for today. Sorry, I am out of the market today. Hope, you'll find something interesting in the blog archive.

Thursday, July 07, 2005

How to Find the Next Big Winners

Ugly Chart and MaoXian have made some posts on the same topic: how to find stocks that are going to boost like HANS:

Chart courtesy of StockCharts.com
MaoXian:
So I guess the lesson is: 1) do a scan on the weekend that finds all the stocks that are at new 52-week highs accompanied by unusually large volume; 2) scan through the selected charts to find the stocks that have been moving sideways for some time (the longer the better); 3) check the stock's float to see how tight it is.
Read further:
MaoXian: Expanding on Ugly's Wisdom
Ugly Chart: MaoXian expands on my wisdom
Ugly Chart: Ugly Picks (June 6, 2005)

Update 4: Live Action: Schnitzer Steel Industries Inc (SCHN) calls

I just sold my Schnitzer Steel Industries Inc (SCHN) July $25 calls with $0.90. I bought it in two parts ($0.75, $0.60, with the average price of $0.675). The total profit is +33.33%. I made a stupid mistake with SCHN... I had to leave my computer just for a minute and at this time the shares started to fall. I was holding my soft stop at $0.95 (I was planning to sell at this level if the bid size gets lower, the profit would have been +40.74%).

See also:
Update 3: Live Action: Schnitzer Steel Industries Inc (SCHN) calls
Live Action: Schnitzer Steel Industries Inc (SCHN) calls

Macro Movers for 2nd Half of 2005

The Big Picture writes:

I stake out the rather unremarkable position that, barring some unforeseen crisis, the same issues that have been driving the economy (as well as the financial markets) in the first half of the year are likely to continue doing so in second half of the year.

The big four are:

• Energy and Oil
• Inflation/Deflation
• Interest Rates
• Housing

I also look at 5 other problems percolating below the surface. Any of these have the ability to disrupt at some unknown time in the future -- whether its the 2nd half or sometime later I haven't a clue. These are all longer term issues with potentially serious consequences:

-Federal deficits
-Return of the long bond
-Employment
-Trade deficit
-The U.S. dollar

Read further:
The Big Picture: Macro Movers for 2H 2005

Stocks to Watch: SYNX, TBUS

SYNX +145%, TBUS +50% in pre-market.

Stocks to Watch: AH, CDCY, LLL, MANT, SRA

On Bloomberg TV, Friedman Billings Ramsey homeland security analyst listed stocks that may trade higher on London attacks: AH, CDCY, LLL, MANT, SRA. (Briefing.com, 7:58)

Alert: Blasts Rock London

Today is going to be very volatile and nervous trading day as several explosions (at least 6-7) occured in London earlier today.

London was yesterday selected to hold 2012 Olympics. But I believe, you should find the reason for explosions in G8 meeting in UK.

NDX -1.23%
INDU -2.08%

Major European markets have fell over 3%.

Wednesday, July 06, 2005

85% of Chinese stock investors suffer loss

China View writes:
BEIJING, July 4 (Xinhuanet) -- Over 85 percent of medium-size and small stock investors in China have incurred losses in the first half of the year, with their loss rates ranging between 30 to 50 percent, the China Securities Journal reported here Monday.

Citing a survey on 2,792 investors in 20 major cities by the Huading Market Survey Corporation of Shenzhen, the newspaper said that only four percent of medium-size and small stock investors have made money so far, with the remaining 11 percent barely keeping their books even.
Read further:
China View: 85% Chinese stock investors suffer loss: survey

Finding The Right Online Stock Broker

Big Ben writes in his blog about choosing the right online brokerage firm. He has a link to Consumer Search site reviewing online brokers.

Read further:
Big Ben's Investing Blog: Finding The Right Online Stock Broker
ConsumerSearch: Online Brokers Reviews

Monster Payroll Number

Stephen Vita, the author of Alchemy of Trading blog, writes some words about Friday's Payroll Number:
The way I see it, an extraordinarly weak report -- one of those crazed reports you get every now and then -- with, say, less that 100k in new jobs, ignites a big T-Bond rally and even possibly an Equity ramp if The Mastrosity is finally shackled and led away from the Fed Funds control panel.

Pure speculation and I don't make bets on this sort of thing, but fun to think about.
Read further:
Alchemy Of Trading: Monster Number Coloring Things

Google insider selling

Michelle Leder from Footnoted.org writes (I found the post via Seeking Alpha) about SEC filings:
Among the most interesting were the 30 Form 4s filed late Friday by Google (GOOG) CEO Eric Schmidt who seems to have gone on a bit of a selling spree, based on this long list of 4s. Perhaps Schmidt was spooked by the rash of articles last week that began to raise questions about the $300 a share price.
Read further:
Footnoted.org: And the winner is...
Seeking Alpha: Google insider selling (GOOG)

Best on the Street: Top-performing Analysts

Who where the leading analysts of 2004? There is an article in Wall Street Journal on this topic. The best recommendations were issued by Magnus Fyhr from Jefferies (total return 225%), followed by Ric Prentiss (Raymond James; 211%) and Steven Milunovich (Merill Lynch; 171%).

Industry by Industry: Leading Analysts Look Back -- and Ahead
Wall Street Journal
May 16, 2005
As the stock market moved up only slightly in 2004, the winning analysts this year's Best on the Street survey did their homework.

These master stock pickers spent time digging into financial information about the companies they follow, visiting headquarters to meet with executives to find out more, and going out into the field to see what people were buying or drinking or eating. And they came up with some great recommendations.
Read further:
The Wall Street Journal: Industry by Industry: Leading Analysts Look Back -- and Ahead (paid subscription required)

Update 3: Live Action: Schnitzer Steel Industries Inc (SCHN) calls

Briefing Story Stocks section about Schnitzer Steel Industries, Inc. (SCHN):
Nevertheless, considering shares are roughly 40% off their highs, we feel the downside is limited for the near-term. The stock trades at a forward P/E of 5.5x a third of its historical average, but right in-line with its peers like Metal Management (MTLM).
Read further:
Briefing.com: Story Stocks: Schnitzer Steel Industries, Inc. (SCHN) (paid subscription required)

See also:
Update 2: Live Action: Schnitzer Steel Industries Inc (SCHN) calls
Live Action: Schnitzer Steel Industries Inc (SCHN) calls

Update 2: Live Action: Schnitzer Steel Industries Inc (SCHN) calls

I added a few SCHN July $25 calls (the same amount I had already) with $0.60.

See also:
Update: Live Action: Schnitzer Steel Industries Inc (SCHN) calls
Live Action: Schnitzer Steel Industries Inc (SCHN) calls

Stocks to Watch: CTTY

CTTY is gapping up. Keep an eye on it today, CTTY has proved its ability to make big and quick moves.

Update: Live Action: Schnitzer Steel Industries Inc (SCHN) calls

Briefing: SCHN beats by $0.03

Update (July 6, 2005 8:14 AM):
Briefing.com:
Reports Q3 (May) earnings of $1.08 per share, $0.03 better than the Reuters Estimates consensus of $1.05; revenues rose 17.1% year/year to $226.8 mln vs the $207 mln consensus. "Based upon the wholly-owned Metals Recycling Businesses' current order backlog, contracted average net selling prices that are anticipated to be shipped in the fourth fiscal quarter of 2005 will be lower than the $230 per ton average reported in the third quarter of fiscal 2005, but should remain above the $199 per ton reported in last year's fourth fiscal quarter".

See also:
Live Action: Schnitzer Steel Industries Inc (SCHN) calls

Buy on Bad News? - Alvarion

The Stalwart has a post about yesterday's big loser Alvarion (ALVR), Alvarion lost 22.5% of its market cap after releasing earnings guidance. Stalwart suggests to keep ALVR in watchlist for further look.
This company was highlighed in Barron's not too long ago.

From the last available data, the company seems to have about $2/share in cash and is in a business set to expand.

No time here to go further, but perhaps its worth a look/placement on your watchlist.
Read further:
The Stalwart: Buy on Bad News? - Alvarion

Tuesday, July 05, 2005

Live Action: Schnitzer Steel Industries Inc (SCHN) calls

I just purchased a few Schnitzer Steel Industries Inc (SCHN) July $25 calls with $0.75. SCHN will announce its earnings release tomorrow morning. I was thinking about straddle, but I believe the stock is a little oversold. But the risk is huge and if SCHN misses, I will probably lose everything. Therefore, I didn't take more than only some calls.

Waiting for the Earnings Storm

Waiting for the Earnings Storm
Wall Street Journal
By Justin Lahart
July 5, 2005
Earnings season traditionally begins with Alcoa Inc. firing the first shot. The big aluminum company reports its second-quarter results Thursday, but before the earnings period really gets under way investors may find it is their portfolios that are really taking the shots.

Early indications are that, unlike recent quarters, investors' hopes may be hard to live up to this time. More companies than usual have been warning that their results will fall short of Wall Street analysts' estimates.

According to Thomson Financial, 102 companies in the Standard & Poor's 500-stock index have guided second-quarter estimates lower over the past three months. Only 39 companies have said that results will be ahead of estimates.

Compare that with last year's second quarter, when 77 of the S&P 500 companies had said results would come in below estimates and 96 said they would be higher.
Read further:
Wall Street Journal: Waiting for the Earnings Storm
(paid subscription required)

The Psychology Behind Common Investor Mistakes

The Big Picture writes about the important role of psychology in stock markets. You really should read this post, it's excellent.

Six common errors of perception and judgment, as identified by psychologists, are examined in this article: overconfidence, fear of regret, cognitive dissonance, anchoring, representativeness, myopic risk aversion.

The original article was published in AAII Journal, by R. Douglas Van Eaton, CFA, a professor of finance in the College of Business Administration at the University of North Texas in Denton, Texas.
Behavioral finance, a relatively new area of financial research, has been receiving more and more attention from both individual and institutional investors. Behavioral finance combines results from psychological studies of decision-making with the more conventional decision-making models of standard finance theory.

Overconfidence
A leading researcher found that when analysts are 80% certain that a stock is going to go up, they are right about 40% of the time. You can profit from this research only by heeding its message: Trade less. This is perhaps more easily said than done.

Fear of Regret
Studies have shown that people will postpone a decision, claiming that they are awaiting an upcoming information release, even when the new information will not change their decision. In stock transactions, acting so as to avoid the pain of regret can lead to holding losing stocks too long and selling winners too soon.

Anchoring
Understanding the role of anchoring in the decision-making process can help you avoid some investment pitfalls. "Bottom fishing," the practice of buying stocks that have fallen considerably in hopes of getting them cheaply, can be quite hazardous to your wealth. The motivation behind this strategy is similar to the concept of anchoring. A higher recent price is taken as evidence of value, so that the new price seems cheap.
Read further:
The Big Picture: The Psychology Behind Common Investor Mistakes

What about Position Sizing?

Michael from TraderMike.net references an interesting study by Dr. Van K. Tharp about another important side of trading – position sizing.
A position sizing model simply tells you 'how much' or 'how big' of a position to take. Position sizing can be the key factor in whether or not you stay in the game or whether your gains are huge or minimal.

He tested the models on the same trading system, so the only variable was the position sizing. The simulations were run with an initial equity of $1,000,000 and took 595 trades over a 5.5 year period. The models produced drastically different results:

The worst was the baseline model which just bought 100 shares of stock whenever a signal was given. That model returned $32,567 or 0.58% annualized.

Fixed-amount model: This method traded 100 shares per $100,000 in equity. It returned $237,457 or 5.75 annualized.

Equal leverage model: Each position in this model was 3% of the account equity. This method returned $231,121.

Percent risk model: According to this model positions were sized such that the initial risk exposure was 1% of the account equity. This model returned $1,840,493 or 20.92% annualized.

Percent Volatility model: Positions were sized based on each stock's volatility -- the more volatile the stock the fewer shares are traded. For this trial positions were pegged at 0.5% volatility. This model returned $2,109,266 or 22.93% annualized.
I personally think that percent risk model is one of the best strategies to use, with a few exceptions.

Read further:
Trader Mike: Position Sizing

Too much of a good thing?

Steve Rosenbush writes in BusinessWeek Online's Deal Flow blog that U.S. corporations piling up too much cash.
Are U.S. corporations piling up too much cash? The companies of the S&P 500 have amassed nearly $800 billion among them. I asked Jeremy Siegel, the finance professor at the University of Pennsylvania's Wharton School, whether that was the case. His answer? Absolutely. “Studies show that firms that accumulate cash do not in general create value for shareholders,” Siegel said.

Siegel would like to see companies across the board should give half of it back and that stocks would rise 1 1/2 percentage points as a result.

“Watch Cisco,” one analyst says. “If Cisco starts giving back cash, it’s a signal for everyone to jump in. Prof. Siegel’s wish might then come true.
Read further:
BusinessWeek Online: Deal Flow: Too much of a good thing?

Monday, July 04, 2005

Have Profits Peaked?

Have Profits Peaked?
Barron's
By Vito J. Racanelli
Monday, JULY 4, 2005
Wall Street analysts predict that the companies in the Standard & Poor's 500 stock index collectively will post a 7.4% increase in second-quarter profits over year-earlier results. Not shabby, market bulls say. After all, the 2004 quarter's breathtaking 25% earnings pop isn't sustainable over time.

Not so fast, the bears counter. The second quarter of 2005 could mark the first period in a long while in which corporate profits grow at a less-than-double-digit rate. And, as any tyro trader can tell you, it's the direction, not the number, that matters most for stocks.
Read further:
Barron's: Have Profits Peaked? (paid subscription required)

Markets closed today

US stock markets are closed today. It's 4th July, just in case anyone didn't know it ;)