6 CHARTS DEMONSTRATING TECHNICAL PERFECTION FOR THE WEEK AHEAD
During last week's review, I spoke about a market that was demonstrating highly bullish behavior through the points at which the market was choosing to consolidate. We continued that trend of technical perfection this past week. A very high probability of a significant bullish resolution to these charts lies ahead. I believe that bullish resolution begins taking shape the week of December 17th through the end of the year, with the Dow ending somewhere in the vicinity of 13,400-13,500. click chart to...
AAPL: WHY SO PRECARIOUS?
The questions about AAPL have been raining on me this weekend like my name is Destiny and I'm 3 feet away from a chrome pole. As an observer of market history, I become concerned when assets of the investor class are so heavily allocated into one idea as they seem to be in AAPL. The story never ends well. That's the bottom line. Apart from my admitted chronic skepticism of AAPL as an investment, I am willing to deliver some short to intermediate term analysis in order to clarify the picture. AAPL was an extremely accommodating investment on a technical basis as it HAD BEEN behaving in an extremely symmetrical manner for most of 2012. That symmetry allowed me to make multiple calls on AAPL throughout the year that made me look like I had a long grey beard, pointy hat with stars and a wooden cane. Well, guess what? The symmetry in AAPL is dissipating quickly. AAPL is poking its head in places it shouldn't. It is doing so frequently. It is doing so on greater volume than it should. The investment that is AAPL is becoming much more difficult to gauge than it has been for all of 2012. Here is the problem with an investment like AAPL when it becomes difficult to gauge: You can't quantify the risk. And I'm not talking about saying that AAPL is trading at 9 times 2013 earnings so it can't have more than 10% downside. That is the articulate incompetent means of gauging risk. The markets thrive on abusing those who utilize miscellaneous gauges of value to determine risk levels without looking at what price action is saying first. It is why most value managers are absolutely putrid at their chosen profession. Moving on. From a price/technical perspective what is your downside on AAPL versus upside? There is no answer to that question at this point. That is my problem with AAPL. It is not isolated to AAPL either. I will not invest in any vehicle where I cannot quantify my risk within 20 seconds of looking at the instrument. It is the first thing I look at. It is the last thing I look at. AAPL just so happens to be the Beatles of the stock market and the current generation of investors are 17 year old girls, wearing plad dresses and those funny looking pointed eyeglasses girls used to wear in the 60s. You know the ones. From a purely short-term perspective, I will say that the volatility and volume we are seeing at these levels if indicative of either (A) a change in trend back to the upside...
AN IMPORTANT STUDY RESULTING IN 10 CLEAR EXPECTATIONS FOR INVESTORS IN 2013
On Saturday, November 17th, with the Dow closing at 12,588 on Friday, I reintroduced a study that led to a forecast of 13,500 or thereabouts being the closing level for the Dow in 2012. I received a bit of grief with respect to the study from the typical band of articulate incompetents. After all, the Dow closing near 13,500 from 12,588 meant a 7% plus run for the market in roughly 28 trading days. It also meant that the markets would have to rise through a period of governmental strife that has seen the word "cliff" used more times than when it was attached to the last name Huxtable. Difficult to fathom, at the time, I get it. A couple weeks later we are not even halfway through December and the Dow has rallied to 13,155 or 4.5%. A short 350 point gap puts the Dow at the target for year end. Obtainable, without a doubt. Investors are now much less apprehensive to accept the idea. As confident as I was when I published the study on November 17th, I am just as confident now that the target will be obtained. The study that resulted in my deriving this price target is one that should be referred to throughout 2013. The summary of the study is as follows: We are in a post-shock price period similar to the years following the 1987 crash. While the macro environment is quite a bit different than it was in the late 80's-early 90's, the psychological foundation among investors is not. There is little trust in the market. Investor's will remain skeptical of Wall Street. Protection of assets takes precedent over creating capital gains. Furthermore, we are moving along the exact same trajectory point that caused the volatility, followed by the pinned type of grinding along the trajectory throughout the first half of the 90s. Major trajectory points, such as the one we are up against in the Dow, tend to have what can best be described as a mirroring effect. Price action tends to become repetitive in nature over certain periods in relation to the trajectory. If you look at this chart you can see the similarity in post crash markets of 1987 and 2008. This chart, from the same post on November 17th, also shows the similarities. I don't expect this study to begin dissipating in terms of influence anytime soon. The Dow will continue to hug the trajectory throughout 2013. What does that mean for investors? 1. There will be no down quarters during 2013. 2. There will be no substantial up quarters in 2013. 3. 2013 will be a...
HERE IS TO THE DOWNFALL OF MICRO-MANAGING PORTFOLIO POSITIONS
There is a parasite invading the minds of investors in this age of abundant information. This parasite creates a desire for a constant stream of news and data to pacify the mind into a comfort zone that is always restless, never satisfied. Never mind that a majority of the information digested by investors is of the useless variety. Nonetheless, it is those pieces of useless information that are combined within the subconscious to make often times irrational, nonsensical investment decisions that serve to either cut profits short or allow losses to run. Micro-managing portfolio positions has become the preferred modus operandi for investors in the current market environment. It isn't, however, just the current environment that has created this negative trait. It has been an apparent flaw among investors since shares of Dutch East India Company traded in the 1600s. The current environment has made it that much easier to micro-manage positions, however. There is an abundant and endless supply of information to fool yourself into making the incorrect decision with. Don't allow yourself to think you are in an exclusive class. You WILL 100%, without a doubt, make the incorrect decision as a result of micro-managing your portfolio. The constant monitoring and obsessive reasoning behind moves in a portfolio will never allow you as an investor to allow your profits to run. Allowing profits to run is one of the biggest faults I see among the investor class. The scope of punishment has been so great over the past several years that profits seized at a moments notice. I see it myself with the questions I receive whenever a company I have issued a research report on begins to run. The most obvious observation is that investors start beginning to look for excuses to take a profit as soon as any profits are achieved. This is a fatal flaw. You will never make the mark you desire in the markets by taking small profits. It won't happen. There will come anomalous periods of time that take back your small profits faster than you can react. The desire to take profits quickly must be deleted from the deepest levels of your cerebral cortex if there is to be any longevity in your game. How do you go about deleting this fatal flaw? Start by becoming detached from your portfolio positions. You can't be intimately involved with every tick and expect to be successful. Stay away from the need to deeply dissect the reason behind every move a stock in your portfolio makes. There are forces of supply and demand in the marketplace that aren't meant to be figured out. There are...
EXACTLY WHAT AAPL CAN AND CAN’T DO FROM THIS POINT FORWARD
I want to say this before you get to the chart: AAPL is now taking part in low probability events on a technical basis. Today's move down should not have occurred. Or rather, it was a very low probability event. When a company that previously went out of its way to behave predictably starts behaving erratically, it is a sign that the drivers of price that existed before have dissipated. This is an intermediate to long-term negative for AAPL. It goes far beyond whether AAPL will close at 520 or 580 tomorrow. It tells of a stock that may be in a period of long-term sluggish behavior.....at best. The next few days are huge from a price action perspective. click chart to...
IT’S DECEMBER, DO YOU KNOW WHERE YOUR CATALYST IS?
There isn't much market analysis that has changed since my weekly review posted on Sunday. We are in a bull market. I am bullish. And I am looking forward to moving up to 100% long from the current 75% long exposure. Simple stuff. I want to discuss the importance of catalysts in an investment. Far too many investors get caught in a trap of looking at an investment from a purely theoretical value basis without searching for what factors can potentially bring out that value. You see, we are not in an environment where equities are in high demand. That simple fact can cause companies that are lacking a tangible catalyst to languish for far longer than investors can stand to wait. The stock being cheap according to every metric in the book doesn't matter. The product being revolutionary makes no different whatsoever. The management being brilliant doesn't make an ounce of difference. None of these qualities matter when equities are held in the same light as a one legged Cambodian hooker. In June of 2011, I wrote an article for TheStreet discussing the importance of catalysts in an investment, along with 3 companies that had clearly defined catalysts going forward. The companies mentioned were CPSS, MAMS and ANFC. Some 18 month after the article was written, CPSS has gained 443%; MAMS has gained 76%; and ANFC has lost more than 50%. I shouldn't have missed CPSS and MAMS this year. They were both on the radar. They were both clear opportunities. I simply got caught up in other names that I thought offered more substantial opportunities. Disappointing error in judgement on my part. Now that we know how on point the analysis for CPSS and MAMS turned out to be, as well as knowing how the analysis for ANFC fell into quicksand, we can gauge the importance and timeliness or lack thereof in each investment. With respect to CPSS, the key read was twofold: 1. They were gaining consistent access to credit facilities that allowed them to lend more to their subprime consumer base, increasing earnings. EARNINGS CATALYST 2. A former board member, Arthur Levine, purchased $1 million worth of the stock in 2010. Mr. Levine had been an active investor in the company at previous points where the company required capital. ACTIVIST/INVESTOR CATALYST Although CPSS was trading at ridiculously low valuations, a valuation measurement is never a catalyst by itself. There needs to be an event or series of events, whether earnings related, macro related or activist related that create a spark for the company. The MAMS investment had two distinct issues that made it attractive: 1....
NOVEMBER MONTH END SUMMARY AND LOOKING AHEAD TO DECEMBER
*This is a copy of my letter to investors summarizing the month of November. Portfolio November Performance: +1.03% Compared to benchmark S&P 500 November Performance: +0.28% Portfolio YTD Performance: +34.90% Compared to benchmark S&P 500 YTD Performance: +12.61% Portfolio Highlights for November - The market neutral posture adopted early in October performed exceptionally throughout November. The portfolio was in positive performance territory for the entire month of November. This is despite the fact that November was, at one point, 400 basis points in the red as of mid-month. A substantial reduction in portfolio exposure in October, as well as a hedge utilizing TZA, made November a much less difficult month for the portfolio than the headlines and volatility would suggest. - TZA was closed for a small profit as of November 28th. During the same period of time, portfolio long exposure increased to 75% invested, from below 50% previously. This puts the portfolio in a much more opportunistic position to take advantage of a seasonally favorable time of year. The substantial increase in net exposure was due to a mechanical, short-term trend signal that determines exposure levels. - A position was taken in PTGI late in the month. PTGI was a portfolio position in January through April, yielding a 40% profit during that time period. Since that time, PTGI has seen a substantial decrease in share price, $2 of which can be attributed to a special dividend. At $11.34 (Friday's closing price), PTGI is selling at a 33% discount (including $2 special dividend) to the price I sold in April. This is primarily due to two factors: 1) The company has very little sell side coverage. Therefore, when the markets landscape starts becoming unfavorable, PTGI essentially leaks market cap on a daily basis. 2) The company has seen some revenue weakness due to divisions of the company that aren't performing well. On the positive side, PTGI is free cash flow machine. Continues to pay down debt, increase operating efficiency and expand margins. It is trading at a ridiculously low 3.5 times EBITDA. As with most of the equity investments I make, the downside equation is what I pay attention to first and foremost. There simply is very little in the way of downside for PTGI at these levels given both the price and fundamental outlook. - A small position was taken in PRXI on November 19th-November 20th at 2.56-2.60 per share. Subsequently, the position was increased in size during this past week to a mid-sized position. Details of the position are in the research report. PRXI is basically an undervalued asset and operating entity play. The business model (museum exhibitions) is very easy...
A MARKET THAT DESERVES TO BE UNANALYZED
The financial media HAS to develop a reason for every market swing. If, at the end of the day, a CNBC anchor comes on the air, proclaiming that the market went up 75 points for no reason whatsoever, they have failed at their profession. Fortunately, my parameters for success and failure are much less rigid. I am not beholden to satisfying anyone with my market prognostications, commentary and analysis. This forum for sharing my ideas is a breathing, living record of my analysis. Along the way, I am hoping it allows some to profit and more importantly, learn from all that I have to share. With that said, I have no problem stating the following: The picture the market is painting at these levels is short-term confusing and deserves to be unanalyzed. I know, unanalyzed isn't a word. It is the only way to explain how to treat the market in the week ahead, however. There are short-term points in the market that don't deserve analysis. As an investor, these are the points when you unwrap the tentacles of your mind from anything having to do with the market. Just like the CNBC anchor who comes up with ludicrous reasons for the behavior of the market on any given day, you are no better as an investor if you feel that a thorough analysis of the market is necessary in every environment. The reason I am unanalyzing the market this week is because of all the short-term conflicts that are sprouting up like a poppy farm in Nangarhar. Financials are conflicting with technology. Commodites are conflicting with each other. Transports are conflicting with industrials. Small-caps with large caps. And the creme de la crepe in all this is that we have a market that is a dancing monkey to a group of politicians who are not only Machiavellian in nature, but misinformed as to the dynamics of the economy as a whole. Does this mean the market sucks from this point forward? No way. Does it mean my price target for year end is in jeopardy? Not at all. It just means that unanalyzing things for the first half of next week is what makes the most sense. I'll be providing further clarity into the situation with my weekly chart review...