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wow, what a signal from the market that new stimulus from the FED will not be sufficient to provide anykind of relief for the economy.

It is time to go short!  but it's also critical not to get caught.  So, if you're setting up the trade you have to be mindful not to get trapped.

The charts clearly shows familiar patterns like the bearish flag and mini head & shoulders on the daily charts.  These patterns are so obvious for the whole world to see. Therefore, one should be cautious of getting trapped.

Here are the charts: and wow do they speak volumes about the current state of the world and investor's confidence of where things are headed.

If s&P breaks down here, we are head for below 1000 (to 950 – 980) .  Nasdaq is performing a little better and given apple broke out in the last week certainly helps the tech index.

A beautiful bearish flag has formed on the sp500 and that does not bode well for the markets.  Essentially this is a continuation pattern that will possibly take SP500 down to 800-900 area.  The pattern isn't validated until it breaks down through the flag portion.  Will be watching this closely

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.

I live for this S#@t!!!  What a day.  Days like today is what's it's all about.  It's exciting because you can buy good companies for cheap as investors run for the hills.

I was up 20% for the year 2011.  Took a big haircut this past week!!! down -14%.  Still up 6% for the year.  The market downturn has been massive and caught a lot of people by surprise, including myself.  I managed to raise cash and ready to deploy, looking for deals.

My targets (see previous posts) on Gold and S&P both surpassed my price targets.

• Gold -> target 1728 surpassed; SPX -> downside target of 1130-1140 also surpassed. 

This mean I don't know how bad it will get.  However,  I continue to buy stocks that I think will do well the second half of the year. 

This Head and shoulders pattern will be remembered in history.

I've been posting this chart of SP500 since June/July.  Here it is updated for today Aug 8.

This head and shoulders pattern will be remembered in history.  It's one of the best ones ever!!!

I've also been posting this chart for a while now and here it is updated for Aug8.  Just 8% of stocks in the SP500 are above the 200 day moving avg. Is this signaling a bear market?

Aug9 – What I'm looking for:

President Obama tried to assure the market today that united states is still AAA country.  But the market didn't buy it. 

Now it's the FED and ECBs turn to calm the markets.  I am waiting for a policy response by the FED in the next few days which should stabilize the markets a bit.  However, there are no guarantees!  Where is the plunge protection team when you need it?

Avoid CNBC website/TV

Financial journalism mimics the markets so well that you don't really need to watch the news, just watch the tape (market).  CNBC like clockwork brings on the doomsday pundits (roubini, whitney, faber, schiff, rogers) when markets are down big.  And When the markets are climbing they will have asset managers pumping stocks all day long. 

Why you should watch the Tape (market)

After a several down days, the selling will eventually dry up.  This is what I'm looking for,  By that time the best stocks would have rebounded and are one of the first ones to lead the market higher.  That's why it's far more important to watch the tape than listen to experts calling in a bottom.

Wow, two days ago I posted an article suggesting that 'all hell is about to break loose' and here we are.

I posted this chart Aug2 and have been posting it since June.  And cnbc has finally picked up this technical patten (link) 

So where to from here?  This is the scenario (I am betting on) that will unfold the rest of the year. And will likely position the portfolio.

• Any policy response will have to come from the ECB not the FED.  The reason is FED has intervened in the markets via QE1 and QE2 programs.  ECB on the other hand continues to be in denial suggesting that the Euro zone is in better shape than US
• My Bet:  The ECB will respond by cutting rates and hinting an easy monetary policy. 
• The FED can then step in and announce similar measures for the US.

Implications:

Currencies

• I expect a lower EURO in the coming months waiting for ECB to respond to current fiscal crisis in the eurozone.
• The dollar will continue to rally until a further FED announcement of sorts.

Commodities

• Gold/Silver continue to be in the driver seat.  To think that gold is up +40% in the last 12 months is an EPIC statement of the condition of world governments and continuous money printing of the central banks.
  
• Oil/Copper are both economic sensitive and will continue to move with the markets barring any supply disruptions

Emerging Markets

• India/China might face a dilemma between tightening (fighting inflation) and easing once again in the face of another slowdown in world economic growth

I'll try to expand on these ideas a little further.  I want to see how the market opens tomorrow (friday aug 5). 

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.

The Uranium sector completely collapsed after the nuclear disaster at Fukashima Nuclear Power Plants back in March.  Many stocks fell by more than 50% from their peaks.  It's been 5 months since the earthquake and these stocks look to have bottomed.

Good (positive) news seems to be slowly trickling in.  All we need to need is one positive news release either by govts endorsing nuclear power once again or analysts recommending this sector once again.

I will do a more detailed post in a few days

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

The analyst framework occupies 80% of the time that goes into making an investment decision. The execution of ideas (trader framework) requires only 20%.  So, It's very important to develop your analytical skills so that you are not swayed by daily market swings, tips from friends, advice from pundits, the news media etc.

Everyday, financial markets are influenced by political news, earnings, economic indicators (unemployment numbers, GDP growth etc), energy prices, inflation/deflation, FED statements, natural disasters etc etc etc…

For ex// In March, Japan was hit with a 9.0 magnitude earthquake and tsunami.  How you trade this news?

An as independent Trader/Analyst I found this to be very challenging indeed but eventually figured it out!  And I will share that with you in future posts. 

Infact, I'll talk about each of the components (listed below) in more detail so you have a better idea of how to interpret and analyze these items. 

The name of the game is: How do you formulate an investment thesis and turn it into a executable trading strategy?  I spend majority of the time thinking in this mode.  It requires 80% analysis and 20% trade execution.

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

This is what I'm watching for in the markets to see how they shape for a rally going into the end of the year. 

My analysis of the markets is very simple! I operate in the daily/weekly timeframe and do not daytrade.  So, for me I don't need to know every intraday move and it's significance. 

So, as of Jun 20 there are several macro events that could have an adverse affect on the markets. 

• Greece is causing a lot of nervousness in the markets.  How will the world markets handle a default if Greece decides to go with that option.  This is particularly significant if it occurs late Aug/Early Sep. Traditionally, a bad time of the year for the markets.
• Of course, the end of QE2 (at least in it's current form) also has implications on the market's ability to rally from here. 
• And finally the US economy – With lackluster job growth and recent GDP growth reductions from the IMF and Goldman Sachs, the economy looks to stagnate in the next few months.  This of course doesn't help the markets either.

Below are weekly charts of the major indices!  The most noticeable pattern common to these charts is a possible H&S (Head & Shoulders) Pattern.  This is showing up on the weekly charts of the Dow industrials, Dow Transports, NASD and SPX.  However, the Canadian market (TSX) is signalling something different.

Normally, H&S patterns are bearish and signal a possible top.  But notice in 2010, the markets formed a similar H&S pattern only to see it fail and then rally from July 2010 to April 2011 of this year.

We look to be setting up for another possible H&S pattern fail and rally.  Of course, if everyone knew ahead of time, then the market will do something else.  But For now, it's worth watching.

Canadian Index (TSX) is a resource heavy index.  Interestingly, tt's signalling something different! but don't know what it is.  Maybe commodities won't lead the next rally? not sure! Will be watching this one closely.

• For a fund manager, Performing fundamental analysis is a lot easier.  They have access to analysts reports, access to management and sophisticated tools that enable them to make investment decisions.
• But if you're an independent trader/analyst, you have to exclusively rely on financial statements provided by the company.  And we learned from Sino Forest that financial statements are not to be trusted even if they have been signed off by a reputable accounting firm.

So,What's the solution?

• I believe all investors must incorporate some technical analysis in order to protect themselves from adverse downturns in a stock.  It's simply not worth one's time to hold on to a stock that's falling in price no matter how rosy the story behind the company maybe.
• Remember, Every stock must be sold! period!
• Take a look at the chart below, it should give you an idea of how you should have a plan to either cut your position or cut your losses

Here's a chart of TRE.TO a day before the debacle (June 1):

Follow The Analysts

• Following consensus estimates for stocks is an invaluable method to see if a company is being upgraded or downgraded.
• You can find this information any website.  In this case, I went to globeinvestor.com (click here). 

Here's how to interpret Analysts Ratings:

• Generally, you'd like to see analysts go from Hold -> Buy -> Strong Buy (i.e. A company's earnings are getting better and better).
• What you are now seeing for Sino Forest is the beginning of a downgrade cycle (i.e. Strong Buy to Hold and eventually SELL)

• Remember, typically analysts are behind the news.  Very rarely do you see an analyst upgrading ahead of earnings or downgrading ahead of warnings.
• You as an investor must anticipate what the analysts will do in light of the news disseminated by the company.  This is the only way you can either make money or minimize losses.

_{Source: globeinvestor.com}

Lastly, Follow Market Direction

• Remember 80% of a stock's move is attributed to market direction.  so, if the market is in correction mode or in a general declining, almost all stocks follow suit.  Your imperative is to either cut losses or cut positions ahead of time.
• Remember it's not worth holding onto a losing stock as the market declines.  Many stocks never come back even if the market recovers. 

Ok, I've presented a few methods that should help you protect your portfolio from substantial losses.  If you are unfamiliar with any ideas here, I urge to read more and educate yourself. 

Remember, every stock must be sold1

I'm back after taking a 2 month hiatus as I was preparing to write CFA Level 2 Exam (June 4)

So, Expect more posts from now on…

I sold most of my positions (98%) at the point indicated below (A day before TSX hit a double top).  Now, I'm waiting to short the market or go long.  Will have to watch the next few days to get a better idea of market direction

Yes, it seems everyone is bullish about the markets these days.  Then we have Laszlo Birinyi who's been a super bull predicting S&P at 2854 .  Here's a great article from Bloomberg discussing factors that could keep the rally going.

Some of the Factors listed:

Previous Bull Markets 

Even after almost doubling in 24 months, the S&P 500’s two- year return is about 36 percentage points below the average bull-market gain of 131 percent since 1962, according to data compiled by Bloomberg and Birinyi Associates. The 730-day rally without a decline of 20 percent or more compares with an average duration of 1,407 days, the data show

Profit Growth

Five straight quarters of U.S. profit growth and the biggest yearly increase since 1988 have held down valuations…The U.S. benchmark index is trading at 15.5 times reported earnings, compared with the average ratio of 19.7 at bull-market peaks.

Major Expansion’

S&P 500 companies will boost earnings by 17 percent during the next 12 months to a record $99.82 a share, according to analyst estimates

So is it possible for SP500 to hit all time highs

The Charts indicate that it is indeed possible.  Back in Dec 2010, I posted an article suggesting that SP500 could hit 1330 next year (2011).  Well, we achieved that target. 

For 2011 and beyond.  SP500 looks like it's headed for it's all time highs.  Posted below is a Monthly Chart of the SP500 going back to 2007 high of 1576. 

Chart Interpretation

What you're seeing on the chart is called a measured move, where the 1st leg is (666 to 1219) followed by a correction back to 1010 (38% retracment)  and the 2nd leg is exactly the same as the 1st leg (projecting target of 1576 or above from 1010).  

Ofcourse, the markets do not go up in a straight line.  Could we see all time highs this year, it's possible.  It's also possible that the whole rally could derail.  

I want to be clear – Forecasting Markets is very difficult to do, all we can do is consider possibilities.  This possibility of SP500 hitting all time highs is firmly ingrained in my head.  So, I will trade on the long side until the market conditions change.  so, keep this chart in mind.

Commodites Got Hit on Monday (Apr 11) mainly due to Goldman's sell recommendation on Oil.  

Below are TSX and Gold.  TSX is resource heavy and was hit hard Mon and Tues (Apr 11 and Apr12).  However, looking at the chart, the trendline seems to be intact.  Support comes in at 100-day MA and thats where the trendline support happens to be as well.

Gold's trendline is intact as well…Gold pulled back to the breakout point and reversed back up again.

One last thing: TSX seems to look very similar to the gold chart.  On Mar 30, I posted an article expecting a monster move in gold.  And we got that on Apr 5.  Now, TSX looks to be setting up for a monster move up as well.

I'll post another article focusing on SPX AND TSX..

Looking at the gold chart, it seems to be setting up for a monster move.  Few days ago, we had a trendline break but it has reasserted itself, and looks like it wants to run back to all time highs which could take it to 1600.  I'm watching this move closely! Let's see what happens in the next few days and weeks.  Clearly 1380 is major support right now, and if that breaks, we're in trouble.  However, right now it's aim is the 1450 level and an eventual breakout.   

DownTrend on SP500 broke today.  So far so good.  But we need volume to confirm this up move.   What's troubling prior trends have continued with meager volume.   This has always been a concern that markets are rallying on weak volume.  Here we are again, starting a new uptrend with anemic volume.  Will have to see how this markets sorts itself out.

I only focus on the SPX in this port, but looking at the Dow industrials, transports and QQQQs.  They all show the same pattern.

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

I originally posted this chart on Mar 7…here's the updated version.  1260 right now looks like a double bottom (intraday Mar16).  If it holds it's very positive.  But If it breaks, 1230 area looks like support.  On the Other hand, if the 1260 level holds, it will be another 2 months atleast for the rally to regain it's uptrend.  Any attempt to rally will now have the 50 day MA acting as resistance.  So, I expect sideways trading (if 1260 holds).  

The VIX

I've mentioned watching the VIX (Fear guage) for spikes.  Since the broad market rally of sep 2010 til feb 2011, VIX was at it's lowest level since 2008 high (89).  Right now it's not even close to the most recent high of 48.  Could we get there? certainly possible.  Depends how quick Japan recovers from it's nuclear crisis..  

Yes, this is capitalism.  There's wide devastation in Japan and here we are talking about investment opportunities.  I hate it but this is the stock market, this is capitalism.

Uranium Stocks are Dead (for now)

Uranium stocks got clobbered today, on avg down 25% or so. This is mainly due to the concerns that nuclear power might not be a viable energy source as memories of Chernobyl come back to remind the world the dangers of nuclear meltdown.

So, what industries might benefit from the reconstruction of Japan?

1) Natgas

2) Lumber

3) Copper/Aluminum/Steel (base metal complex)

4) Solar 

I'll give more details in a follow up post of specific companies that might benefit from the reconstruction efforts.  But There are many unknowns right now as the world markets are still figuring out the total damage caused by the quake and the tsunami.  

In the previous blog post suggested that SP500 trendline had broken and possibly headed to 1270.  The chart below however shows something interesting.  If we assume that SP500 is going through a standard correction, and if and when the uptrend resumes, we could have another strong leg up in the rally

After hitting 100, WTI promptly retreated along with Gold & silver.  Note: This only cover WTI not Brent Crude.

What does it mean for WTI going forward?  Seems like the new support level is between 85 – 90.  The uptrend has been in place for some time within a well defined channel.  The upper bound of the channel suggest that the price could go well above 100.  Eith

Either way, it looks like it will price in mid-east concerns permanently into the price going forward.  That being said, Would canadian oil companies enjoy a premium for the Oil Sands production given that canada is politically safe.

Oil just surpassed $100

Gold has not followed Oil or Silver to new highs

Silver Broke out and looks to retest the 34 high

What could derail these commodities run-up?

• In the next few days if we get any form of concessions from the Libyan leader, then the fear trade should subside (i.e. all three oil, gold, silver will drop hard) atleast temporarily
• You will have a relief rally in world markets.  But mostly in the developed countries, as emerging markets are in a rather difficult situation with inflation wreaking havoc in their economies.

Could we have an outright crash in the equity markets?  Yes, it's possible, particularly if oil continues to go up and further escalation in the middle east.

Watch the VIX  (volatility Index)

The VIX is up close to 30% in the past 2 days.  As volatility increases, the risk of a crash will be a concern.  Note we are no where near those levels like those witnessed in 2008

EEM vs SPY

Emerging markets Continue to underperform as the emerging economies will be hard hit with the increase in energy costs and the cost of food.  So far, in 2011 developed economies have outperformed the emerging markets.  The chart below illustrates this clearly.

Believe it or not! the market wants to go higher…On weekly chart for the SP500 we have a cup and handle formation which is bullish! This should take it to 1330 into next year, barring new surprises either with the US economy or the european debt situation.  Even China's economy  could be a factor! 

Uranium stocks have had a tremendous run in the last few months. Given the rally we had in the markets yesterday (+2% moves in markets), the uranium stocks didn't participate in the rally.

Given the tremendous run, caution is ahead for the uranium plays.  At some point, we'll get a substantial correction in these plays, which will be another opportunity. 

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.

In my previous technical note, markets showed technical divergence.  That was before QE2 FED official announcement.  Since then, we rallied higher and subsequently are in correction mode.  Is this a top for S&P? or is this just a correction?

Here are the charts once again.  

Note: 

• Gold – Possible H&S Pattern (will have to wait and see)
• Silver – Has a very well defined trend
• SPY –   Mini trading range with 1200 as resistance
• SPTSX – Has major support 12,500 and has broken its downtrend

I wrote this prior to Research in Motion releasing their Playbook tablet…So part 2 will follow

On a weekly chart, stock has broken the downtrend.  This should take the stock 58 – 59 range (previous resistance)

Research in Motion (RIM.TO, RIMM) recently has been plagued by bad PR; first with security concerns from countries like India, Saudi Arabia and it's recent release of it's next generation BlackBerry "Torch".

Valuations

Looking at valuations, by every measure the stock is cheap relative to it's peers. Added Nokia (which is suffering growth problems) for comparison purposes. 

At Price-to-Sales of just 1.6, No Debt, 5 billion in cash, 50 Million subscribers, an earnings growth of 30%, margins in the 40% range and a P/E of 9, this stock screams a buy on all fronts!  Yet, stock performance YTD has been dismal! while NASDAQ is up 8%, RIMM Is down 30% and apple is up 35%. So, is the market telling us something?

Gurufocus.com

The Threat is Real!

What is RIM's bread and butter? It is the architecture that runs their network.  Yes the same network that's so good that governments can't spy on their own citizens. While RIM is a network service provider Apple is content services provider.  This is where RIM suffers, it does not have the experience in the consumer market nor does it have experience delivering content to it's users. RIM seriously sufferes from a lack of apps, like apple does for it's blackberry OS. Yes, RIM is a productivity tool for businesses but if you are competing in the consumer market, you have to have a platform to deliver content to your users.  This is what the competitors are all doing. 

Let's take a look at each competitor in more detail

Apple (AAPL)

• More and More companies are trial testing the iphone for business use (enough said…)
• Itunes is the platform that all their devices operate from!  From apps, digital content (music, movies, now iTV) to credit card payments; the bread and butter of the IPAD, iphone and itouch are the apps and itunes store
• This is a formidable competitor that has built a solid platform and has sex appeal with young people (and they all want an iphone)

Nokia (NOK)

• Not a threat yet! but will be in the next year or two!
• currently they are suffering from lack of good products, and recently hired a microsoft exec to restrategize their busines (will have to wait and see)

Google/Andriod (GOOG)

• While Google is giving away Andriod to other phone manufacturers and telecom providers, make no mistake they are building a platform around the andriod OS.
• Andriod phones are #1 selling devices right now
• Google also like apple has been busy building a platform for Andriod users to deliver digital content and google "marketplace" for google apps users, and of course Andriod apps
• Samsung will be selling the Galaxy Tab (running Andriod) through Verizon in December 

Microsoft (MSFT)

• Windows phone 7 OS for smartphones looks good!  MSFT is certainly poised to steal some thunder from iphone/Andriod based phones next year or two
• Microsoft is also quietly building a platform (like Bing, new streetmap technogies(geolocation), office online apps, integration with video games and Xbox 360live). In addition, developers can readily use .net technologies to quickly build apps for the new OS

Indeed the threat is real and it's coming from all fronts. 

Part 2 to follow

EEM chart shows a breakout out of the recent range…while it’s true that other markets have broken out of their range.  This breakout is more significant!

It demonstrates that emerging markets are leading vs the SPY (american markets).  Below are two charts for comparison.  Notice in mar 2009 EEMdid not make a new low and SPY did.  Now EEM breaks out of the range and SPY has yet to!  This is a good indication for a strong rally to the end of the year, unless we get bad news again.  So, keep an eye on the emerging markets as they are leading this rally.

* – Please note: the highlighted columns are relative performance of the column itself

* – Data courtesy of Stockcharts.com and Barchart.com

[View with PicLens]

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Above is a slideshow of a list of stocks with “strong buy” recommendations on the Toronto stock exchange…

click on “View with Pic Lens” to view all the charts

The “strong buy” recommendations come from globeinvestor.com.  Note this page contains only equities (no warrants, debentures, income trusts etc)

On a Day when both GOOG and AAPL are up and the market is rallying, RIMM is down 3%.

Even with recent earnings release, RIMM faces a tough challenge in the smartphone market from Andriod based phones and the Iphone 

Below is a chart of RIMM (weekly)…technically this chart does not bode well for the stock

On top, you can see the relative performance of RIMM (up 45%) vs AAPL (Up 250%) since Mar 2009

* – Please note: the highlighted columns are relative performance of the column itself

* – Please note: the highlighted columns are relative performance of the components within each table

TSX 300 components

TSX Indices

Financial Markets Summary

Typically, When I’m researching a company for a potential investment, This is the checklist I use. Note:  The questions pertain to fundamentals and technicals.  I believe both are necessary to execute a successful trade.

1. What does the company do?
2. How does it make money?  How many products/services does it sell?
3. How much do those products/services contribute in revenue?
4. What sector does it operate in?
5. How are it’s peers doing?
6. Compare to it’s peers, the industry, how does this company fare?
7. What are the margins for their products/services?  Are they growing? or are they shrinking?
8. Is it a cyclical business?  Does it depend on a commodity? does it depend on demographic trends?
9. Are it’s products price sensitive? or inelastic?
10. What’s the current market share of the company?  How many players are in the industry?
11. In terms of porter’s five, is it a concentrated industry, or fragemented?
12. Does gov’t policies affect their business, what are the current regulations in the industry?
13. In terms of valuation, Is it rich or cheap?
14. Technically, is it trading in a range, trading up or down? What is the current chart pattern/
15. Where will the company be in the next 5 years?  what will make the company keep growing at this rate?
16. Where will the industry itself be in the next 5 years?
17. What are the main variables that affect this company?
18. How many customers contribute to the revenue of this company?
19. Does it have the ability to raise prices?
20. How does mgmt get compensated, stock options?
21. What are the institutional holdings of this company?
22. What was the total return of the stock in the last 5 years,  what factors contributed to that! Will those factors still be around in the next 5 years?
23. Looking at depreciation patterns? accounts receivables?  How’s the earnings quality?
24. What is their working capital in a given year?  Has it been going up, why?  Has it been going up more than free cash flow?
25. Have they been buying back stock?
26. What is the current capital structure of the company? how has it changed in the last 5 years?
27. What are the disclosures in the footnotes of the company?
28. What is the future strategy of this company? Intrinsic growth? growth by acquisition?
29. Looking at previous annual reports, has mgmt delivered on their strategy.
30. Does the company depend on financing to expand their projects?

So, these are some of the questions you need to ask before you invest in a stock.  In a later post, I’ll provide a detailed example of company analysis.