9 DIVERGENT THOUGHTS TO GET YOU THROUGH THE REST OF THE TRADING WEEK
- An old magician's trick: The market has everyone looking one way while the real magic is taking place elsewhere. In this case, the put/call ratio seems to be throwing people off the scent. The more sophisticated among us seem to think this signals an impending pullback. I beg and plead to differ. The low put/call ratio is the diversion. Pay it no mind as it is only good for a few shekles on the downside, at most. - The real magic is the symmetry with which both the SOX and S&P have moved off key trajectory points. The weekly review on 9-2, I pointed out that continuing strength in the SOX into the end of that week would be a buy signal. The buy signal did come at the end of last week. Here we are now rising steadily forward. This is no coincidence. Symmetrical markets (markets that respect their trajectory points with volatile upside reactions) are healthy markets. - Financials are now in an uptrend, adding a valuable cog to the engine of the market. - Speaking of financials, I will reiterate the fact that regional bank companies are exhibiting a symphony of bullish behavior that is an absolute delight for anyone that thinks beyond a 6-12 month time horizon. It has been a long time since I have seen a sector that has seen (1) rapidly improving balance sheets (2) tremendous insider buying (3) a return to profitability (4) a technical picture that is brilliant. This is across the sector, in literally dozens of names. My favorite sector in the markets currently. - You want a buy signal that is perhaps more exciting than the SOX recently? The Nasdaq Composite at multi-year highs is it. I discussed the fact that the Nasdaq was back in the bulls court this past weekend here. - Transports are now back in an uptrend. Another bullish indicator. - I've received several questions regarding IWSY recently. I am happy with my sales from 2.20-2.70. The stock was confusing to me during August when I reinitiated the position and then quickly sold it. The stock remains an enigma now. Don't know what to make of it at this point. Fortunately, I am not in the business of trading "don't know." I invest in clear situations where I have a complete grasp of the risk, the reward, the catalysts and the technicals. - Regret during bull markets comes in the forms of adhering to proven risk strategies. This way, traders become comfortable enough being reckless that the next bear market or even correction that comes along can cause serious damage. Getting out of...
4 CHARTS THAT WILL PROPEL YOU ONTO THE THRONE OF SATURN DURING THE WEEK AHEAD
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TRIUMPH OF THE ILLOGICAL, MUTANT HYBRID INVESTOR
Illogical thinking, by definition, runs contrary to prevailing rules or wisdom. It is often times seen as a reckless act that can endanger one in any number of ways. Whether through injury, incarceration, disease or even death. It is illogical thinking that is often blamed for the travails of an individual. It goes without question then that the average investor will have great difficulty in grasping onto the concept of illogical analysis often times leading to the best results. There is no means of contrasting illogical thinking in finance with illogical thinking in everyday life. We can simply put illogical thinking into the basket of bad things to do, without regard for context. Let's look at all of the illogical events of 2013 thus far: - TSLA is up about 400% this year. Coming into 2013 it was heavily shorted, range-bound and overlooked as an investment by most. It is trading at 15 times sales, 33 times book and more than 100 times forward earnings. Logical arguments, such as comparisons in valuation to other car manufacturers, are thrown at the company everyday. Illogical by any stretch. - YELP is up nearly 250% this year. This is the only social media stock that I have issued a research report for way back in April of 2012. My core reasoning for the investment was that it was so illogical that it would be proven correct. In fact, I ended the research report with this: I am comfortable, however, that there is substantial upside to be had here as rational thinking fails investors once again. An illogical move in YELP this year by an stretch. But once again, a powerful move. - LNKD continues to appreciate dramatically on the basis of seemingly illogical appreciation. I 2011, I posted an article about how the dynamic between logical/illogical thinking makes LNKD a better investment than AAPL. Logical thinking doesn't win on Wall Street, in any way, shape or form. - FB is up nearly 50% this year. When the company was trading below 20 there was nothing but logically based praise for a market that was treating FB as it was supposed to be treated. Logic explained perfectly well why FB not only didn't deserve a valuation at $20 per share, but likely was a single digit stock. The typical articulate incompetents that reside in the hedge fund world even chimed in, this time via SumZero, with a research report about how FB was headed to $10 per share. Logical thinking maims investors again. - The market itself is the perfect study into the power of illogical thinking. There is not an analyst out...
AUGUST PERFORMANCE SUMMARY AND LOOKING AHEAD TO SEPTEMBER
*This is my monthly letter to investors summarizing the month of August. The full PDF version of the summary, including managed account performance data as well as a few added components is only available via email. Return data will no longer be published as a part of the summary posted to Zenpenny. If you would like to be added to the monthly email list, please contact me at mail@t11capital.com Portfolio Highlights For August: - EVOL was the largest winner in the portfolios for the month, posting a gain of 18.48% for the month of August. This was a position that was just initiated in July, making for a significantly positive start for the investment. This company proved to be an attractive candidate when I initially discovered it due to several factors that only seem to be strengthening in the short time the company has been in the portfolios: 1. As shareholder friendly a company as you will find in the sub-$500 million market cap space, with an aggressive attitude towards returning value to shareholders in the form of dividends and buybacks 2.An extremely steady history of generating cash flow through a very difficult market environment over the past several years 3. A commanding market position in DSA (dynamic sim allocation) technology that is difficult to penetrate for competitors In August, EVOL announced earnings that had a number of positive aspects. DSA bookings were up 48% year over year. In the conference call it was already noted that Q3 is off to a strong start. The company is generating plenty of cash with cash on hand increasing 51% since the beginning of the year. This allowed EVOL to announce an increase in the dividend the company pays, which now gives EVOL a 5% yield. Furthermore, the company has gross margins of 71%, highlighting the efficiency of the operation. During the call, they announced their first enterprise wide-licensing agreement in DSA with one of the world's top 5 carriers. I don't think the market, as a whole, has caught onto the potential of EVOL, given their leadership position in the emerging market wireless space. As continued wins and the relevancy of their DSA technology comes to light, the appreciation in the shares should be substantial. - WMIH managed to finish the month of August with a 13% gain. The most important aspect of this gain was the fact that WMIH is now trading above $1 per share. In fact, the break of $1 came early in the month, with WMIH barely looking back since retaking this important technical milestone. Typically, when a stock breaks out over an important number, such as 1, 10...