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I bought Wilan (win.to) in the recent downturn. I was surprised to see them announce a hostile takeover bid for Mosaid Technologies yesterday (Aug 17). 

The reason I bought wilan is because patents all the rage these days.  Two significant deals most recently increased the awareness of the importance of patents. 1)  4.5 billion offer for Nortel patents 2) 12.5 billion for Motorola by Google.

I do not know enough of this industry to state an expert opinion.  Here are a few articles that shed light on why patents have suddenly become a strategic asset.

Cnet.com:  Google's 12.5 billion to acquire motorola mobility

Patent Wars: Arm for battle (CNBC)

Personally, I would like to see the Mosaid deal fall apart.  This way both companies will trade at a much higher multiples given both companies have significant patent portfolios.  Wilan currently trades at a forward p/e of 8, still lower than it's industry peers.  By comparison, MSD trades at a 10 multiple.  I believe both these firms deserve a higher multiple but we might have to wait as the market conditions don't accomodate for p/e multiple expansion.  Nonetheless, the floor is set for wi-lan at 5.50 minimum, unless mgmt destroys shareholder value.

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At the height of the credit crisis the junior mining sector suffered huge losses as investors fled the sector as commodities prices dropped like a rock.  

Many exploration companies either ran out of cash or were forced to halt exploration activity to conserve the cash burn.  Also,  producing miners suffered from high operating costs due to high oil prices.  Eventually the sector recovered as markets stabilized and commodities prices recovered.

This time (2011) is different for the following reasons:

1. Precious metals are in the driver seat.  And all gold mining companies are prime targets for takeovers.
2. Oil is at 81 due to concerns about global economic slowdown.
3. US dollar decline will help commodites' prices (inversely)
4. Inflation/debasement of currencies will force investors to invest in hard assets besides gold/silver (like copper)

I'll try to do a more indepth article on this with particular stock names; but for now I want to see how the markets fare tomorrow and the rest of the week.

So far Dow has posted losses 8 days in a row.  I've largely stayed out of commenting on the Debt crisis as I was more interested in positioning the portfolio correctly.  That is, where to make money in these markets.

I've posted these charts several times tracking the markets' progress.  Today I'm troubled as the markets are indicating a major downturn is to come in the next few months.  The levels at which the SP500 settled today (aug 2) is key if we are to rally from here…I'm following SP500 closely, but other indices are indicating the same gloom and doom

The chart below indicates # of stocks that are above 200-day ma.  Until recently, it was encouraging to see it hold above 50%. That changed today!  In summer of 2008,  we went below 30%.

Just to give a broader perspective, here is the same chart as above but expanded to include 2009 march bear market bottom.  It's comforting to know we are not there yet!

TSX continues to rollover

TSX continues to rollover even though Gold/Silver seems to be outperforming everything else.   Here are the stats for the individual sectors within the index.

Notice Healthcare sector has outperformed all other sectors.  That's just due to one stock: SXC Healthcare (SXC.TO) (+35% ytd)
Notice Information Technology sector is the worst performer this year: That's due to Research in Motion (-50% ytd)

So, where to find oppurtunities in this market? I will cover that in the next post.

Looking at the previous two runs, gold looks like it wants to run 1720 – 1730 area by the end of this year.  It's so charged up right now that anything can start an explosive move in the metal and in silver as well.  Although gold is currently outperforming silver, in the long term silver is a better investment. 

The debt deal is supposed to pass today Aug 2.  Regardless of it's resolution.  Investors will continue to flock to the safety of gold & Silver as they lose confidence in paper currency and government's ability to control the country's fiscal matters.

Back on June 29, I posted an article discussing the markets for the rest of the year. In that article, I posted some charts and that time I was anticipating a possible H&S (Head & Shoulders) pattern to form on the major indices.  

Below are the same charts updated as of today July 11.  As you can see we have a possible H&S pattern forming.

TSX – Clearly lagging other indices

Dow Transports – Hit a new high last week and we now have a possible double top. It's leading the industrials

Dow Industrials - A classic H&S pattern has formed and can only be confirmed if the price breaks below 11862.  I certainly don't think that's a possibility right now.

SPX – Classic H&S pattern has formed and can only be confirmed if the price breaks below 1258.  I certainly don't think that's a possibility right now.

Why charts are important in market analysis in addition to fundamentals?

We know markets are a discounting mechanism, so any news that's disseminated is quickly absorbed by the markets.  Additionally, markets are remarkable at anticipating future events (barring natural disasters).  So, can we tell what the markets are signalling right now? Are markets going lower amid fiscal concerns in Europe, economic slowdown in the U.S, high inflation in china etc etc…

The indications so far is NO!

Let's take a look at a different set of charts of the same indices. In this case, these are charts representing '% of stocks that are over their 200 day Moving Average'.

As you can see by the charts, none of them indicate we are going lower.  Infact, the markets seem to be in correction mode and going through the usual summer doldrums.  Indeed this is very positive given the uncertainties in the global economy. 

Notice, the '% of stocks above their 200 day MA' are nowhere close to 2010 summer lows. 

SPTSX (commodities heavy) is clearly lagging the other indices. It has hit key resistance at the 50 day MA that also happens to be 38.2% retracement from it's high of 14329 and low of 12763.54.  Since I primarily trade Canadian stocks, I'm watching this very carefully. 

SP500 on the other hand has clearly broken the down trend.

In addition, take a look at the chart below, it's very telling…that if we do get a rally in SPTSX  it will probably last a few months but first it needs to work it's way through the summer doldrums.  Currently, only 50% of the TSX300 stocks are above their 200 day MA compared 77% for SP500 stocks

what do I trade?  I mostly trade stocks/ETFs!

So, where’s the trading plan?  Personally, I believe you should start with figuring out your investment philosophy and your beliefs about the markets.  Ask yourself why want to trade?  Why do you think you can  do it?

Most start with the idea that they can make easy money.  It’s far from the truth.  This is a profession like any other and can’t be learned or mastered overnight.  That is why I believe most people give up or end up losing their capital.  The ones that do make it  overcome many obstacles and persevere through the tough times and make it in a big way.

The framework I posted above is how I approach the markets everyday!  It’s an intuitive process now but not when I first stared out.  I had a piece here and there figured out but I could  never put it all together. It was only after I realized that the most important component (‘psychology of trading’) was missing.   Indeed, this final piece of the puzzle is what enabled me to become a consistently profitable trader.

So, If you’re just beginning to delve into the markets, take your time and understand that this is a long process that requires you to make many mistakes, lose a bit of money and have sleepless nights!  And if after weeks/months of frustration you’re still there but barely surviving, congrats, you’re halfway there…good luck!

I got into trading and investing because I wanted to build an expertise in financial markets.  I knew the only way to learn is to trade with real capital and dive into the markets with both feet. 

I knew it would help my career in the financial services industry if I developed a trading/investing skillset and pursue the CFA designation.

But quickly realized that many variables have to be factored in to analyze markets and stocks in general.

So, my quest began:

1st component was to learn to trade/invest

• so I started trading with real capital
• I studied great traders/investors on how they achieved success
• And I read many many books about trading and investing to enhance my knowledge.

2nd component was to learn to be an analyst

• For this, I am currently pursuing the CFA designation (Just wrote CFA L2 this June)
• Although it's a very tough program, the CFA curriculum is top notch! and I gained tremendous knowledge and  enhanced my analytical skills while preparing for the exams.

So, is the distinction between the 2 components that significant?

Can you master one component and do well in the markets?  I think it's possible.  But, personally, I think mastering both components gives you a upper hand vs the other market participants.

The diagram below gives you a breakdown of a company and it's stock:

An analyst looks at the real world metrics of a company and formulates an expected stock price based on fundamentals.  A trader on the other hand looks at the technicals to make short term bets on the movement of the stock. 

In the end, fundamentals trump technicals because earnings are what drive a stock price higher.

* – The above diagram is inspired by a presentation I watched by Ralph Acampora explaining the 2 components of analysis

I hope this post was helpful in assisting you to chart a path for your own quest to become a an independent trader & analyst

Gold had a major reversal today, Mar 24.  Not sure what this means, but have to analyze the implications.  Silver also had a major reversal but the trendline is still intact.  Oil also holds at the trendline. Lastly, SP500's downtrend still intact.

Gold – Major Reversal + Trendline Broken

Silver – Major Reversal But Trendline Holds

Oil – Uptrend still intact

SP500 – Downtrend still intact

From the previous post where I mentioned Gold was possibly forming a H&S pattern has prompted to write this post.  

As of Nov 30, Gold broke above it previous swing high, thus invalidating a H&S pattern.  See Chart Below

This should take us right back to 1414 area to try for new highs, and traditionally Dec is a good month for Gold, especially now with Europe having to deal with indebted EU nations.