The Kirk Report

PowerRatings (Update)

Three months ago I did a review of PowerRatings, a quant rating method that ranks stocks on both safety and the potential for price appreciation. If you recall, I filtered all of the stocks showing up in my favorite stock screens through their ratings system and created six model portfolios in order to test the effectiveness of their ratings.

Using the closing pricing of the stocks on January 7, 2008 (the date of the review post) with an end date of last Friday, here's how these portfolios have performed in comparison to the S&P 500 which fell -3.23% during the same time frame.....[READ]

PowerRatings

I received a number of requests for me to offer a review of PowerRatings. Many of you are familiar with this product due to TradingMarkets website.

PowerRatings is a quantitative rating method which ranks stocks on both safety and the potential for price appreciation. According to the website, stocks with high PowerRatings (8-10) have historically outperformed the stock market over the next 12 months while stocks with low PowerRatings (1-3) have historically tended to underperform the market. From 1995-2007, 81% of stocks with PowerRatings of 10 increased in price one year later. On the other end, more than 65% of stocks with a PowerRating of 1 lost value over the following one year period.

The website recommends building a portfolio of stocks with PowerRatings of 9 and 10. Once the stock's rating declines, they urge replacing the stock with another stock rated 9 or 10. Another recommended strategy is to invest in stocks with PowerRatings of 10 and use a 100% profit target and a 20% protective stop. According to backtesting, the average gain per trade using this approach has been more than 41% per stock with an average holding period of about two years. Here are two nice looking graphs that illustrate the effectiveness of the system:

There's no doubt, these are very impressive performance numbers. So, should you run out and subscribe to their service? In my view, the jury is still out. The only way to evaluate these systems are to engage in some serious testing and tracking over a lengthy period of time which is more time consuming and painstaking than most will endure. Fortunately, I'm an exception to that rule. For the record, I was only able to locate one another independent performance review and it was over a short period of time.

As you may suspect, I always take published stats with a grain of salt as there are just too many ways to cook the data to make your system look better than it performs in reality. In addition, just because the system has performed well in the past offers absolutely no guarantee that it will do so in the future (if only the market were than easy!) In fact, as things tend to go, they often do the very opposite. We've seen that principle validated in other quant/ratings systems many times. For example, the well-known and highly regarded ValueLine in recent years experienced a situation where their worst ranked stocks significantly outperformed their top ranked stocks. Yikes!

With that said, over the weekend I did two things to test the PowerRatings. The first thing simply is to build a tracking portfolio from what their system thinks is the best of the best - the PowerRatings 10's portfolio. There are only 10 stocks in this portfolio and all of them are rated 10. Interesting enough, all of them are fairly defensive/pro-recession like stocks and include the following: BRKA, CL, CRL, CVD, KO, MGG, PAA, PRE, THI, and VMSI. I'll track these 10 and report back.

As you know, the way I really like to test these systems is to use my own stock screens as the foundation. Ideally, this is probably how most investors will use a system like this - i.e. they place their portfolio/watchlists and rank them accordingly. In addition, ideally utilizing a solid group of stocks to work with should enhance the future returns of the system or at least give it the best chance to show off its usefulness. Here is how stocks found within my stock screen machine are currently rated.

Performance is everything and I'll report back after some time has passed. But, without that data, here are what I think are some positives and negatives about their offering overall:

Positives:

• Easy import function to sort and rate stocks as an entire portfolio

• Email Guardian Alerts which easily allow you to keep on top of upgrades & downgrades daily

• PowerRatings charts which allow you to see how your stocks have rated in the past along with a simple pricing chart

• PowerRatings by market that enable to you see which stocks are rated best in the Dow, Nasdaq, & S&P 500

• Useful daily/weekly analysis and stock spotlights by David Penn

• Prominent Portfolios (like Warren Buffett to SAC Capital) are filtered through the system

• PowerRatings of the stocks in ETFs

• PowerRatings for industries allows for some interesting sector-based analysis/screening

Negatives:

• I would like to see more performance data and information about the system including rate of position turnover

• If the website gains in both popularity and use, I suspect past results will not be repeated

• PowerRatings portfolio - you should be able view more than 15 stocks at a time

• PowerRatings portfolio - excel export function should include ratings data

• Screener only allows to search powerratings - would be helpful to include both technical/fundamental scans as well

• Education section needs improvement

• Price is expensive ($49 per month/$449 per year) compared with other services

Conclusion: The website is designed well and more user friendly than some of its competitors. David Penn's commentary/analysis is also major plus. I also found it interesting to see what stocks are currently favored (i.e. recession/defensive names) not to mention how stocks within my own screens were rated. With any quant system like this, I'll ultimately let the performance data speak for itself and be extremely slow to incorporate it into my own approach unless it proves consistently helpful.

Where's The Mistletoe?

Bull or bear alike, there's little to keep one interested on this fine Friday afternoon. Perhaps they will rev up the buy programs once again again in the final hour, but I wouldn't bet the farm. They can put lipstick on this pig, but I'm sure not going to do any kissing.

Much like last year, I will be taking a couple of weeks off to spend with friends and family to enjoy the holiday season. During this time, I will be making some updates to the members' only website including a special Q&A session, year-end wrap up letter, and updates to my favorite stock screens.

I hope all of you have a wonderful couple of weeks and a Merry Christmas. I will be back on Wednesday, January 2, 2008.

Bernanke’s Christmas Gift

You may not have realized it, but the Fed just gave everyone their Christmas gift - a short-cover scare so that the smart money can reposition (i.e. go short) and get more defensive, before things really get bad. And, from what I saw on my screens today, reposition they did.

The only thing keeping the market intact is hope for a Santa Clause rally. I really hope that comes true - I have more stocks/etfs to sell.

Be defensive, hold lots of cash, don't be complacent with your longs, protect your assets, and if you're so inclined, look for strength to short. As for putting money to work on the long side, wake me up when we're back to extreme oversold conditions again. I don't plan one single buy until that point is reached. Such a tactic allowed me to survive and thrive in the past and I'm confident the same will hold true now.

We will see better days, but this is not the time for hope and faith that all is well. The market is sending us a message - are you listening?

Back To Resistance

It ended up being a pretty good day after three days of pain. As you can see from the 5-day view of the S&P 500, we've just only returned a little under Friday's failed test of resistance.

Although I read some commentary that today's strength was due to the strong ADP employment report, I'm quite skeptical. If the market went down today, they would be citing the same exact report as the catalyst. I continue to think that bad news about the economy (providing it isn't concerning retail sales) is good here ahead of the Fed.

In my opinion, we probably just saw some portfolio repositioning ahead of the big bad jobs report. If that is true, portfolio managers were reaching for the large growth tech stocks and beaten down financials. Emerging markets were also on fire and given the gains of stocks like ChinaNatural Resources (CHNR) and China Precision Steel (CPSL) it is clear that the fast money crowd is pressing for performance.

So far this week has held true to expectations - it is keeping all of us on our toes. But, so far, so good. We'll see what tomorrow brings our way.

Another Moody Monday

Including today, we haven't had a positive day for the market (as represented by the S&P 500) on a Monday since October 29th. Indeed, we've just seen five straight negative Monday sessions!

Historically, this isn't all that unusual of a pattern. Between 1952 and 1989, Monday was the worst trading day of the week and rose just 44% of the time while other trading days - Tuesday through Friday - closed higher 55% of the time. Very recently, one of the best days of the week has been Tuesday (especially following a negative Monday) and we'll see if the same pattern continues tomorrow.

Technically, 1470ish is the area that the bulls are trying to hold and it would be a major accomplishment if they're able to sustain this level throughout the week leading up to Friday's jobs report. In the short-term, I think we should be prepared for a pullback to 1425 to 1450 area at a minimum and then plan to be held hostage to the jobs data and then the Fed. It would also be helpful to get some positive headlines for a change which were few and far between today.

One Crazy Week

That was one crazy week! There simply no better way to put it.

On Monday, I made the following comment:

"While I’m certainly not sure this week’s economic data, window dressing, oversold conditions, and Fedspeak will be enough to put in at least a tradeable bottom, we’ve got to start somewhere. I’ve been sitting in cash for a reason, but it isn’t to stay in cash when everyone else now hates the market."

As you know from reading me recently, I have been concerned that I haven’t been doing a good job of putting cash to work. As we saw from the subsequent rally this week, those concerns were justified.

For the week just ended, the Dow gained +3.0%, the S&P 500 +2.8%, the Nasdaq +2.5% and the Russell 2000 +1.7%.

Next week will be all about "how much is the Fed going to cut rates?" and "will that make any substantial difference?" Friday's jobs report is going to be "THE" most important data point we'll see for the remainder of 2007. Also, any additional signs about how consumer spending is this holiday season will have a notable impact.

From my perspective, next week will be even more challenging than this one if you can believe that. With the gains we’ve seen, we are no longer working with extremely low expectations. So, make sure to get plenty of rest this weekend. The next two weeks will ultimately decide how we close out the 2007 and, if you’re like me, you want to close it out right!

Whack A Mole

Although it looked like at the start that we could finally put at least two days of gains together (something we haven't be able to do for a month), the bears enjoyed playing another fun round of whack a mole with anything that attempted to move higher.

The largest pressure points were found in all of the typical places - mortgage investment, residential construction, savings & loans, banks, and REITs of every flavor with a notable lack of leadership. And, when you see nothing but bear market ultrashort ETFs in today's winner circle, it doesn't take a genius to realize that people are not happy with this market.

For now, cash feels good, perhaps too good and that makes me increasingly very concerned that I'm not deploying capital into the weakness in the manner I've trained myself to do when things look and feel this bad. My goal this week is to put more than an chicken upside insurance trade on and I'm actively looking for a justification to upgrade my timing indicator from the neutral position. While I'm certainly not sure this week's economic data, window dressing, oversold conditions, and Fedspeak will be enough to put in at least a tradeable bottom, we've got to start somewhere. I've been sitting in cash for a reason, but it isn't to stay in cash when everyone else now hates the market.

See you tomorrow.

Bulls, Bears, & Turkeys

Holidays are stressful times for many and the market behavior this week hasn't helped. That's true no matter if you are a bull, bear, or just a turkey!

From my perspective, today's session was simply awful. While the buying of technology this afternoon is evidence that hope remains for at least a near-term oversold bounce, most everything else continues to struggle to find a bottom as that new 52-week low list keeps adding more and more names. Making matters worse, in my perspective, is options related activity that suggests not a lot of fear is now in our midst. As a result, I sat on my hands without make one single trade.

As long as people continue to think about what they can gain from a near-term rally instead of how much they can lose, this market is likely to test our nerves. No doubt, people have finally begun to lose faith in the Fed (the danger of having any faith in them to begin with) and think we're headed, if not already in a recession. In fact, even the most adamant bulls have started to suggest they're going to wait until the Fed blinks or something really bad happens that forces the Fed to act very aggressively. It's a tough game to play when traders start thinking along these lines.

My game plan is to continue do what I've been doing - maintain an open/opportunistic mindset, keep lots of firepower at the ready, pick at some ETFs that I think will offer some upside short-term potential, and keep monitoring my watchlists for low/risk - high/reward situations within my favorite screens. I haven't done much of stock focused trading recently primarily because the price alerts I've set still haven't been tagged, though they're getting closer by the day.

All in all, probably the best thing the market could have is a holiday to gain some much needed perspective and then prepare itself for the final days of what has been a truly remarkable November.

I'm taking both tomorrow and Friday off to spend time with friends and family. May you and your family have a wonderful holiday!

Searching For Direction

With a late day breakdown, the gains achieved in yesterday afternoon's bold rally quickly evaporated. Failure to take out and hold S&P 1490 kept the bulls restrained.

I said yesterday that today would provide a good test to how much conviction and greed there was in this market but it appears I overestimated today's potential. I personally would have liked to see either a strong breakout or more severe breakdown, but we didn't end up with either one. I'm sure the bulls will argue that holding the majority of the gains was a positive sign while the bears will argue that yesterday was just a dead cat bounce. In my opinion, this entire trading session raises more questions than answers and I'd be a fool to tell you anything different.

Tomorrow we have a ton of economic data to sort though along with options expiration funk. I wish I could say I'm really looking forward to it, but I'm not. The market is in a tough spot here and until we get a good read for whether the bulls can muster the firepower to move ahead, we could see much more of the same as we did today and that's not especially an encouraging thought.

Rest up and we'll do our best tomorrow.

Coming Home To Roost

That was one difficult week. Since last Friday, the Dow lost -4.1%, the S&P 500 -3.7%, the Nasdaq -6.5%, and the Russell 2000 -3.2%.

This afternoon I spent some time surfing around to get an idea what others were saying about the market. (Something I try not to do unless I don't have anything better to do.) The general overview is that I didn't read a lot of concern among the rank and file. If anything, it seems like a lot of people are putting on a brave face and believe that we're seeing just another great buying opportunity ahead of a large Thanksgiving rally. After all, the market can't simply go down in what is the best time of the year, can it?

That lack of concern frankly concerns me. I realize that this market has preconditioned all of us to buy the dips, especially the very big ones. Anyone who has not bought dips this year has been crucified for doing so, so I understand why we're hearing these opinions. In fact, just looking back at this year, if you put money to work back in early March and August, you did quite well. As many of you may remember, I was one of those people telling you that it was time to put money to work in August when people were running away and thinking that cash sitting in their money market accounts were in dire jeopardy.

But, I learned long ago that not every dip can or should be bought and that the market has a way of doing what people do not expect. Think back just two short weeks ago when so many counted on another rate cut on October 31st to start off the 4Q rally. That didn't work out very well, did it?

I think the market sent us a message this week that not all is well. I'm not just talking about the rumors of more writedowns, high oil prices, consumer confidence, falling dollar, or the state of the housing market. Most of us have seen this coming for awhile. In fact, we've looked like idiots for thinking that these issues actually do matter. But, eventually all chickens come home to roost. This week we've only seen a small glimmer of what happens when they do. I personally think many more will come, which is why I'm staying patient and away from the fray until I think it is time to take aggressive action. That time will surely come, I just don't think it was this week.

As always, I hope you're holding up well, staying defensive, and keeping everything in the right perspective. Better days and weeks are certainly ahead and we'll get there together.

Reversal Of Fortune

We knew from the start that it was going to be one ugly day. While they attempted to rally them this afternoon, those efforts failed miserably.

Already you can hear the cries for an emergency rate cut again upon growing fear of a reversal of fortune back to the August lows. With the S&P 500 now under 1490, I don't have to tell you that the picture looks grim.

Just to throw another money wrench into the mix, they're taking down Cisco Systems (CSCO) in after-hours trading following their earnings report. Remember, for the bears to take full control, I think they must take down the tech leaders. Most of the market is hiding there and the bulls aren't going to give up unless you bomb and completely destroy their safety shelter.

Along with everything else, we also have some more subprime disasters to sort through making for another interesting setup tomorrow. Given recent Fedspeak, it seems that the market is losing confidence & patience that Bernanke & Co. can save us. To be sure, weakness in what tends to be the sweet spot of the year for the bulls will do that, especially with performance pressure starting to mount ahead of bonus season.

All in all, emotions are high and, if I'm right, that's only going to get even more so in the days ahead if this kind of tape continues. As they say, let's hope for the best, be prepared for the worst, and expect to be surprised. Good advice in any market, but especially this one.

S&P 1490

It was another tough day for Wall Street.

Weakness in financials continued to weigh heavily and there were few positives to focus on away from that. The good news is that we saw another intraday bounce as the bulls circled the wagons around the 1490 level in the S&P.

Without much doubt, this is the level to watch in the coming week as the market continues to test and retest this same area over and over again. The bears must break this level and do so in a manner that puts the bulls counting on a typical 4Q rally in doubt. So far, I sense most think that this post-Fed pullback is just another great buying opportunity before the typical year-end performance race. As they say, we shall soon see.

At least today's weakness can't be blamed by my absence like usual. See you tomorrow.

Happy Halloween!

Wall Street got what they expected. Although they didn't get another 50 basis point cut and we'll likely stay on Fed watch, it was still enough to keep the bulls running especially with the new math economists are now using.

Reversing yesterday's meaty declines, over 80% of my stock screen machine stocks were in rally mode led by some oversold reversals in Excel Maritime (EXM), Wellcare Health (WCG), and Dryships (DRYS). That said, not everything moved higher with some significant declines on both Garmin (GRMN) and Huron Consulting (HURN). With the after-hours blowup in Crocs (CROX), it looks like the readers' spooky portfolio is off to a spooky start. ;)

Following yesterday's note about my aunt, many of you have sent in your thoughts and prayers for our family and they are appreciated. I'll keep you posted on any travel plans as they occur. Have a very safe and fun Halloween!

Working & Planning Ahead

The market struggled to make much headway today with the Fed decision tomorrow.

While big cap tech remained strong, today's trading reflected a bit of wait and see anxiety in front of Fed day. I suppose you could blame a poor reading in consumer confidence, falling home prices, and a sell oil call by Goldman Sachs, but this market has been impervious to bad news of late so saying that was to blame today is quite a bit of a stretch. Like usual, this is all about the Fed and I suspect some bets were taken off just in case Bernanke & Co. decide to do a 180 tomorrow.

Unfortunately, with news that a close Aunt is nearing the end with her long-battle with lung cancer, I spent the majority of the day making plans and working ahead just in case. So, my apologies for the lack of posts today.

Pre-Fed

The market managed another day of gains as international markets continued to rally (just look at today's top ETFs) and investors waited on the Fed.

Volume tracked lower and the bulk of the strength could be found in the precious metals, technology, internet service providers, metal mining, auto & truck manufacturers and parts, gaming and retail while manufactured housing and mortgage investment firms were under pressure.

Within my stock screen machine, a little more than half of the stocks (66%) managed to climb higher. Significant upside movers include.....[READ]

The Same Old Game Plan

Say what you want about the economy, the stock market continues to stick with the same old game plan.

While oil prices continue to hit new highs, the U.S. dollar fell to new lows, consumer confidence dropped further, and we received even more bad news on the housing market, stocks still managed to rally back this week. Mostly mixed earnings news with a few bright spots along with massive short squeezes were the theme of the week along with extremely high expectations that Bernanke will soon slash interest rates. Needless to say, if Bernanke doesn't give in to the market's high demands, it will be one of the scariest Halloweens that Wall Street has ever seen.

For the week the Dow gained +2.1%, the S&P 500 +2.3%, the Nasdaq +2.9%, and the Russell 2000 +2.9%. That may seem great until you take time compare those gains with markets around the world. For example, Hong Kong's market was up almost +10% for the week while Latin America rose 6%. In sum, the bulls are running rampant around the globe and while our market did well this week, it simply pales by comparison.

On tap for next week includes lots of earnings and, of course, our savior - Ben Bernanke. Have a wonderful weekend.

Buckle Up!

Apparently, no one wants to be short or not long enough headed into another rate cut even amid the bad news out there. After selling off this morning and following a feeble rebound effort, a rumor that the Fed is going to do an emergency rate cut sent the shorts running.

We've seen our fair share of some wild moves over the past week and its difficult to hang your hat on anything that could really explain it. Pure manipulation? Perhaps. But no matter what it is, it makes for a difficult time unless you're renting stocks for just a few seconds. I know as I watched the tape reverse course this afternoon, I found it very odd that my own watchlist didn't really participate in the rally. That's very unusual, but indicative that something strange is going on other than just mere speculation on the Fed's next move.

No matter what you think of the economy, the next week or so is going to be an interesting time for the markets and I'm not just talking about the continuation of earnings season. Buckle up!

Nothing But Tech

After a positive gap higher at the open, investors couldn't get enough of the tech complex (see MICC, RIMM, AAPL, GRMN) sending Nasdaq up +1.65%. In just two trading sessions, the Nasdaq has reclaimed all of the Friday's lost ground. Boy, that dip didn't last too long!

While most are concerned that the market continues to narrow and focus only on the same stuff that has been working, as long as it continues to work, the hot money will continue to press their luck. Unfortunately, the after-hours market tonight has brought out the sellers after some new disappointments surface including in some stocks on my watchlist like Anadigics (ANAD). We'll see if tonight's negativity carries over to tomorrow. Have a great evening!

V-Shaped Reversal

Options expiration weeks tend to be volatile, but today sure took the prize.

After selling into the upside gap this morning, the ugly Beige Book caused an unusual v-shaped reversal. Did we just see another day of consolidation without too much technical damage? I personally think so, but we'll know more tomorrow. The bulls have lost a little of their momentum this week, but haven't given up the ghost.

Meanwhile, my email was running over today with requests for my view on China stocks. Needless to say, it appears that many of you think that we're reaching a key blow-off stage and a ripe short-sell opportunity over there. Over my career I've seen a number of these bull stampedes and with few exceptions every single one of them lasted a lot longer than I expected them to including this one. So, if you're shorting against that momentum, please be careful. Money will be made on the short-side there, but there's no reason to play the hero. However, when I get some free time, I will fire up a few sector-focused screens in order to at least identify some high and low risk targets for you to monitor like I recently did for the homebuilders. I'm planning that for next week.

Tomorrow is a big day for earnings, at least from my point of view, with a number of screen machine stocks scheduled to report like Intuitive Surgical (ISRG) and Nokia (NOK). I've been purposefully patient this week ahead of those reports. I also have another reason or excuse for being so inactive this week - my wife has Friday off (teachers don't have to work) and we've planned a 4-day trip out to Sunriver Resort for some fun. We leave tomorrow afternoon, but I'll be here tomorrow morning and, if all goes well, I will have the October Q&A ready for your review tomorrow before I go.

As always, I hope you're holding up out there and finding time to enjoy fall. Before you know it, we'll be sitting at Thanksgiving dinner.

A Pause That Just Refreshes?

Given the pullback we've seen this week and the nice reports from techland (see Intel (INTC) & Yahoo! (YHOO)) after the closing bell, you have to at least wonder. Both stocks are trading up on heavy volume following their reports. Two stocks don't make a market, but they do help.

Remember, I think for the bears to take back control of this market, they have to take out and shoot down the most-loved group of all - technology. Without taking out that sector in a big way, investors will continue to provide the benefit of the doubt. One of main reasons why we struggled today I think was that they took out shares of Lm Ericsson (ERIC). Even though that is not a tech favorite, it was enough combined with other concerns in financials and homebuilding to keep the bulls at bay ahead of tonight's reports.

In fact, is it just me or do you see the cup with a handle formation in the Nasdaq Composite tonight? In fact, all of the major indexes show the same pattern. Whether we roll over from here or just use this as another launching pad to new highs we'll find out soon enough.

Tomorrow will be a busy day with data on housing starts, beige book, and CPI not to mention a lot of earnings reports. See you in the morning.

Another Fun Friday

After yesterday's late dip, the market was back to business as usual and closed the week with gains. For the week, the Dow gained +0.2%, S&P 500 +0.3%, Nasdaq +0.9%, while Russell 2000 dropped -0.4%

Positive economic data and M&A activity helped the bulls regain control. While volume was again lower on the upticks, the bears once again failed to capitalize on yesterday's selloff. Perhaps the knowledge that expiration weeks tend to be positive or that the Monday before October expiration the Dow has been up a straight 6 times in a row kept the bears away today. I think confidence that earnings will come in better than expected remains the hope that continues to carry the market.

Leading sectors this week were nonmetallic mineral mining, copper, independent oil & gas, agricultural chemicals, precious metals, major integrated oil & gas, industrial metals, oil & gas equipment & services, data storage devices, technical services, steel & iron, heavy construction, telecom services, recreational vehicles, oil & gas refining, and internet information providers.

Ahead of next week, I didn't do much today but clear off my desk and catch up on some reading. Vitaliy N. Katsenelson was kind enough to share a copy of his new book, "Active Value Investing: Making Money In Range-Bound Markets" and I spent the afternoon finishing it up. Like you'd expect from Vitaliy, an excellent read. Pick it up if you get a chance.

Along with a lot more earnings reports and options expiration next week, members should be prepared for an extra special treat one week from today - the Q&A with Justin & Paul at Bespoke. I know given the long list of questions I submitted that it should be a very good Q&A.

Until then, be sure to get plenty of rest ahead of the next couple of weeks. This earnings season promises to be one of the more interesting we've seen in some time. See you on Monday!

Jam The Exit Doors

The volume finally returned, and unfortunately it wasn't in the bull's favor.

In the first minor pullback we've seen since September 4th (yes, it really has been that long), the herd apparently got spooked and decided to jam the exit doors this afternoon.

There is a lot of speculation on what sparked the selling, but frankly none of it really matters. What we do know is that these things tend to happen in extreme overbought conditions. I'm glad that I threw up the caution flag on Monday and more importantly that I wasn't caught with my pants down in some of the momentum stocks that reversed and rolled over today.

I hope you managed today's tape ok and paid attention to those stops when the worm finally turned this afternoon. Have a great evening!

No Worries

With poor news on the earnings front and concern for tomorrow's retail sales reports, stocks had a tough go today. But, if this is as bad as it gets, what's there to worry about, right?

Let's see how the market responds to the retail reports tomorrow morning. Have a great evening!

Happy Birthday!

You know you have a strong market when even the FOMC minutes can spike the market to new highs.

While I didn't see anything in the minutes to indicate that Bernanke will continue throwing money from his helicopter (perhaps I missed something), I suppose in a market that rallies on good news, bad news, and no news, we shouldn't be too surprised to see the post FOMC liftoff.

What I found most interesting is to see which groups were under accumulation: basic materials, financials, oil & gas, technology, aerospace, construction, and utilities. You can see all of these well-represented in today's top-performing ETFs along with continued momentum in overseas markets.

While I came close to snagging a few rentals today, after it initially looked like the tape would fade the FOMC minutes, I prematurely removed my buy orders and was left empty handed in the late day spike. Tough to be on the wrong side of the market (i.e. sidelined or short) in this glass half full, everything is so truly wonderful, market. I suppose it is only fitting that we rallied to new highs on the bull market's 5th birthday.

See you in the morning.

Good, Bad, & No News

Well, here we are at the end of another exciting week where stocks rallied on good, bad, and no news.

For the week, the Dow gained +1.2%, the S&P 500 +2.0%, Nasdaq 100 +2.8%, and the Russell 2000 +4.9% leaving the major market indexes all in record territory except the Russell 2000.

Simply put, it's a nice time to be a bull.

Within my stock screen machine, top 10 weekly gainers were......[READ]

Mid-Day Update

We're doing pretty well so far in the aftermath of this morning's jobs data. The volume is tracking lighter than I want to see, but a solid day so far.

Currently, 84% of stocks within the stock screen machine are higher led by Research In Motion Ltd (RIMM), Commercial Metals Co (CMC), Bluephoenix Solutions Ltd (BPHX), Dryships (DRYS), Vimpel Communication Ads (VIP), Mobile Telesys Ojsc Ads (MBT), Universal Insurance Holdings (UVE), China Life Insurance Company (LFC), Aluminum Corp China (ACH), and Turkcell Iletisim Hizmetleri ADS (TKC) all with +5% gains on the day. There are no significant losers within the SSM. Beyond my screens, traders continue to play the China momentum game - today's target is China Direct Inc (CDS).

We also have an interesting mix of leadership groups out there including retail/restaurants, basic materials, technology, transportation/trucking, and financials. Meanwhile we have some weakness in the energy space (oil & gas) along with declines in more defense/recession related stocks in aerospace, drugs, and tobacco. A lot of folks were counting on a bad jobs report, so a little short-covering this morning have kept the bulls in control. If they can just keep the bulk of these gains without seeing a late day failure the bulls can add yet another weekly victory and force people into chasing performance ahead of earnings season.

Tuned Out

In order to get ready for earnings season, I pretty much tuned out the market today. In fact, it was one of the few days in a very long time where I didn't even have my quote feeds up and running. That's indeed a very rare event for me.

Obviously, I don't have much to comment upon or provide you with tonight as I wrap up a long and tiring day here. But, I'll be back tomorrow morning, bright-eyed and bushy tailed following the big bad jobs report.

Sell Winners - Buy Losers

At least on the surface it doesn't appear I missed much this afternoon.

The speculation in the Chinese stocks continued while retailers and homebuilders were the two bright spots while techs were taken down. In short, it seems like investors are taking profits out of the stuff that have been paying off nicely and moving into the unloved areas of the market at least for a quick trade. That is, at least until we can get a better sense to how the reaction to Friday's jobs report plays out.

Unlike the past few days, stocks in my stock screen machine fared poorly. Only 25% were up on the day pulled down by shares of CRNT, WYNN, RIO, CMED, TBSI, CF, CHL, CNH, ACH, TNH, EXM, CALM, MR, AIT, and POT. Meanwhile, only a few positive movers including KALU, HANS, PCLN, and ISRG.

All in all, I hope the day was more productive for you than it was for me. Lots of unusual tasks and appointments for me to attend, but nothing worthy to comment upon. I'll probably see more of the same tomorrow in order to dedicate my full time and effort to trading following the jobs report. Have a great evening.

Lots Of Rotational Activity

Reports showing weak auto and home sales didn't seem to faze investors very much as the market held up quite well following yesterday's surge. Confidence that weak data reflects the past versus the future is stronger than ever and, even if things are this bad, constant hope that Bernanke will cuts rates again continues to control sentiment.

Buyers could be found in the homebuilder, retail, consumer finance, chips, airlines, and internet stocks while precious metals took it on the chin following strength in the dollar. Small and mid-cap stocks also performed much better than their large-cap brothers. In short, lots of rotational activity as investors position themselves for third quarter earnings.....[MORE]

A Surprising Start

The bulls certainly know how to get us started in the new quarter. In what looked to be a mixed day at the start, it was nothing but strength for vast majority of the day. I’ve seen my fair share of first day of the quarter rallies, but this one caught me a little by surprise......[READ]

Wild & Wonderful

The market hasn't performed well on the last day of the quarter with relative consistency and so far it looks like this one won't be much different.

My watchlist is very mixed with only a handful of upside movers like Terra Nitrogen Co L.P. (TNH), Schnitzer Steel (SCHN), Foster Wheeler (FWLT), Potash (POT), and Ceragon Networks (CRNT) while sellers are taking down shares of Atlantic Tele-Network (ATNI), Man Sang (MHJ), Synaptics (SYNA), Wynn Resorts (WYNN), and China Mobile (CHL).

As previously planned, I'm headed out for the rest of the afternoon to enjoy this gorgeous fall day on the links. It's been a wild, but truly wonderful third quarter. See you in October.

Double-Top Predictions

Those who expected the gains leading up to and following the Fed rate cut rally to be given back quickly are not feeling too good. In fact, given all of the "how stocks must go down in September" banter, those trading by the calendar are probably not very happy either.

Along with all of the bullish soft-landing predictions, at the same time I'm seeing a lot of double-top predictions by the bears. Frankly, it looks like the bears are now reaching for straws and I think if they go ahead and short the daylights out of the market right now, the possibility we'll see a short-squeeze rally to new highs early next month will only increase.

At this point, I'm staying neutral over the next day or so (i.e. refusing to put money to work unless I see a can't miss situation which is not likely) so I can have some sense to how much this is just end-of-the-quarter pumping or something more real. I suspect the former versus the latter, but I'm open minded enough to know that current bullish perception that Bernanke will save us is in full domination. Next month we'll have to shift to earnings mode, which will likely be a far more interesting time for the market.

My plan tomorrow is to update a few screens and, if the weather permits, I'm going to try to squeeze in another round of golf in what is expected to be a good weather day. Admittedly, I've not been doing a good job this week of providing you with many links to look through, but I don't think you're missing very much. There's a lot of noise and speculation out there, but we all need to see how the market responds to earnings in a couple of weeks before we'll have a good idea of what to expect for the rest of the year.

Beefing Up Their Numbers

Given the spate of ugly news out there today (especially regarding the U.S. consumer), you'd think the market would succumb to some serious sell pressure. Yet, no dice.

Technology continues to be the go-to area along with very aggressive speculative action in the high-beta stocks (china, gadgets, chips, & solar). Indeed, it looks and smells like hedge funds are doing their best to beef up their numbers before they close the curtain on the third quarter. We should continue to see more portfolio games tomorrow.

All in all, a great time to day trade some positions - something I suspect many of you were doing today. Tomorrow's plan is to take some time to tee-it up with Michael Steinhardt of HedgeFolios. I'm sure we'll be talking a lot about the market, stocks, and comparing notes. I'll still be around tomorrow morning before I head out, but I wanted to provide a heads up. It should be a lot of fun and probably will be one of my last rounds this year. :(

Wait-And-See Position

The day pretty much went as well as could be expected. Plenty of choppy consolidation with notable weakness in financials, homebuilders, and airlines.

Along with a nationwide strike at General Motors (GM), an IMF warning that the global financial crisis will have a far-reaching impact didn't help. The market is really in a wait-and-see position here ahead of this week's economic data.

However, I don't want to give the impression that nothing was going on today. In fact, while market breadth was poor, there were still some nice movers out there especially on the momentum side. Take a look at today's action in shares of JRJC, CROX, EXM, WYNN, LVS, BIDU, GRMN and you'll see what I mean. Actually, that's a relatively positive sign that we continue to see this kind of action amid an overbought market.

Before I go, I know many of you like Jim Rogers and if you missed his interview over at Bloomberg, you may want to take a look. Is it just me, or does he seem a little more irritated than usual?

See you tomorrow!

Pre-Options Funk

Given how overbought we are, today's pullback was not very impressive. It just seems like some profit-taking, repositioning, and pre-options expiration funk more than anything. Frankly, I hope I'm wrong - I'd like to see the market give back the bulk of this week's gains and then some but as you know I don't expect that to happen in the short-term.

With the Fed behind us, stocks overbought, and tomorrow's options expiration, I also thought I'd get out of dodge for the weekend and go visit mom in Ohio. I'll be traveling with the laptop and I may briefly check in tomorrow morning, but this week is in the history books as far as I'm concerned.

Have a great Friday and an even better weekend. It's been quite a week for the market and I'm sure if you're like me, some time away from the tape is more than a little deserved.

Market Scramble

You have to give credit where credit is due. The powerful are managing this market higher and taking few prisoners.

What you saw today were the market elephants massively scrambling to cover what shorts they had and for the under invested to add exposure. With today's decision, all of the major market indexes reclaimed their 50 day/200 day moving averages and are within striking distance of the summer highs.

For the past month, the Fed has done just about everything they can to keep the bulls fat and happy. Amid that backdrop, we have analysts who've been cutting down earnings estimates aggressively so that when companies report next month things will look pretty good. Combine that with pressure to perform in the final quarter of the year and it looks and feels like today was the official start of the 4th quarter rally even though the quarter doesn't officially start for another couple of weeks.

Analysts will start tomorrow morning by pounding the table on market valuations and how cheap stocks are with a very friendly Fed. At the same point, under invested investors (like yours truly) will be hoping for negative headlines to surface so that they can put money to work without chasing performance. Good luck.

For the market to reverse these gains, something new & really bad has to show up on the horizon. Unfortunately for the bears and the sidelined, that has and continues to be a bet that has reaped few rewards. It will someday, but today wasn't it and tomorrow doesn't look too darn good either.

A Hankering Suspicion

We sure had to sift through a lot of noise and hand wringing this week.

While there were very few ground-breaking headlines, concerns continued over the economy, jobs, oil prices, commercial paper, how much the Fed will cut rates, the U.S. dollar, Iraq, and just about everything else you could think of. Meanwhile, the market rallied and recovered from last week's jobs inspired meltdown.

For the week, the Dow gained +2.5%, the S&P +2.1%, the Nasdaq +1.4% and the Russell 2000 +0.9%. History suggest that you're wise to fade large scale reactions to the jobs report and this week's rebound confirmed that tendency.

From the gains, it is evident that hope is alive that things are better than they seem while analysts cut earnings estimates aggressively and investors expect the Fed to cuts rates next week. Interestingly, many sentiment surveys out this week show substantial sentiment improvement.

As you can imagine, I've been asked many times this week where I think the market will go depending on what the Fed does or does not do next week. Frankly, I don't know and I'm not going to pretend differently. However, I have a hankering suspicion that the Fed will try to please people on both sides of the market. For example, they will likely cut rates, but then issue a hawkish statement that puts further rate cuts off the table. As an only a casual observer of the Fed and one who resists the urge of trying to game these kinds of FOMC decisions, that's my two cents worth.

My goal this week was simply to prepare for the Fed reaction, make a few small trades, and keep looking for tells along the way that may offer some guidance. Beyond all of the noise and speculation, the market itself will be our best indicator next week. For example, how the S&P 500 responds to a breakout above the 1490 level or a breakdown at 1450 will be at the forefront of things I monitor next week. It should be interesting.

Along with the stocks-only Q&A planned for next Friday (please send your question to me by Monday), I will be taking a closer look at which sectors are most likely to go up and down when the Fed starts cutting interest rates. You'll also want to review my stock screen machine this weekend as several screens received substantial updates.

Have a great weekend!

The Danger This Week

A better day than the last two as the market continues to wait on the Fed.

The main reason why I think stocks managed to move higher is due to what isn't happening versus what is happening. Let me try to explain what I mean. Today we really had very few new negatives to deal with. We didn't have to hear about how poorly the economy may or may not be doing, there were no new credit problems, rumors of pending hedge fund blowups are on the decline, etc. Combine that with nervous short sellers who fear a Fed rate cut more than just about anything else and the bulls had little resistance.

The market's inability to get bad news and break down to the March lows have provided a sense (although it may prove fleeting) that you have to give the market the benefit of the doubt. While we can expect the bears to talk about a pending "sell the news" reaction to the Fed next week, remember that the perception is the Bernanke will save the economy and the market. We'll have to put a stake in the heart of that perception if the bears are going to take back control.

In the low-volume tape, I put some money back into the market in five favorite situations (see members only website). All of these are frequent visitors to my screens and are performing in a manner where I should be able to squeeze a few percentage points if the bulls keep running this week ahead of the Fed. These are just short-term trades only and I'm looking for small base hits rather than home runs here. My mistake recently has been to limit myself to only trades with high-reward situations and the market simply isn't providing many of those right now. To do well in this environment you have to be willing to go after 3-5% gains, versus double-digit winners.

My plan is to make a few more buys if the positive tone continues, but for me to have more conviction in these gains I need to see the S&P 500 break above 1490 and do so in a convincing manner. You can see that we're now consolidating between the moving averages and a breakout above the 50 day or breakdown below the 200 day will likely set the tone for the rest of the month.

I think the biggest danger this week is that the Wall Street elephants may try to send Bernanke a message by putting even more pressure on the market ahead of the meeting. That seems to have well worked in the past and if there is any measure of a doubt, they'll likely do it again. Technically, it seems like we're setting up for something big within the next 5 to 7 trading days.

In my spare time I did work on another link post, but I'll share it tomorrow morning after I catch up with some reading tonight. It was a busy day and I didn't get much posted here, but that's the way it goes when I'm trading. See you in the morning.

Fed Nirvana

Not a very impressive bounce following Friday's jobs-related rout. We were a little oversold headed into the new week and today's intraday bounce relieved some of that as investors shifted from "the Fed hates us" to the "Fed will save us" perception with every new Fed headline. Fed watchers should be in nirvana tomorrow as Uncle Ben speaks at a conference in Berlin on Global Imbalances. I can't hardly wait!

With music from Rodrigo y Gabriela playing softly in the background, I managed to set dozens of price alerts, trim down and rank stocks on my watchlist, do some sector-specific research (like in homebuilding) and basically just getting read for the next market surge. They say battles are won or lost in the preparation and the market is giving us an opportunity to use this time to that end. Use it wisely!

Welcome To September!

After the most volatile week in nearly five years, the week was capped off by the worst jobs report since August 2003. The only real debate that lingers now is how much the Fed is going to cut (Fed funds futures suggest .50 basis point cut), not whether they will cut when or before the Fed meets on the 18th.

Given the ups and downs of the week (see market data for the past 7 days), investors are now contemplating whether the Fed has been too late to act and if the recession now beckons. Bad news and rumors filled the air as more than a few bears anticipate large-scale blowups from homebuilders and financials while everyone else is looking for any sort of sign that the U.S. consumer is pulling back the purse strings. Welcome to September everyone!

For the week, the S&P 500 fell -1.4%, the Dow lost -1.8%, Nasdaq -1.1%, and the Russell 2000 -2.1%. Top performing sectors this week were silver, gold, drugs, dairy products, mail order, radio broadcasting, biotech, oil & gas, music & video stores, internet information providers, scientific and technical instruments, and security software. Leading the way lower were home improvement stores, recreational vehicles, homebuilders, retail, rubber & plastics, office supplies, trucking, and outsourcing.

Notable stock winners were ALAB, CRDC, SA, CSUN, DROOY, VOL, NTO, ASTSF, DRL, CLWR, APLX, GOLD, REFR, SILC, POZN, JRJC, SMBL, DEEP, ALNY, SLXP, and BVN. Notable stock losers were KKD, ENZ, NFI, SCON, JADE, HSII, LFG, ODP, OSIS, JSDA, OSIS, SMOD, MWRK, MTEX, FIRE, MHO, CBG, CHINA, KFY, KFRC, MTEX, AMSWA, TSA, and PSPT.

Until Monday, have a wonderful weekend and be sure to get plenty of rest. I think we're going to need it!

Thank you Ben!

Interesting. As bad as everything looked just 24 hours ago, today's bold turnaround certainly helped. The bulls managed to take back the 1450 level in the S&P and kept the rally from August 16th intact. All thank you's should be sent directly to Uncle Ben who again promised to save us all.

It would have been nice to have some skin in the game this afternoon, but I wasn't here to play it and I'm not sure I would have been looking for that kind of reversal even amid the headlines I'm reading as a return home. Are we just trading on whatever the Fed says next? It sure looks and feels that way. Unreal.

Flip Flop

After the past four days (and the impressive gains accumulated since), it almost feels like we're back to normal.

In a little less than a week we've gone from "oh God, our cash is not even safe in money market funds" to "I have to buy something with the Fed on my side." I know this kind of quick flip flop is only reserved for politicians, but Mr. Market is doing an absolutely wonderful job of it. No matter you view, it was smart to look for at least a bounce in last week's fear.

As always, I hope you’re keeping everything in perspective which I know is easier said than done. Based on conversations I’ve had with many traders this week, a lot of you are struggling. As with both the good and the bad, this too shall pass. Just keep your head up and on the ball and you’ll do fine.

Bernanke Bounce

As bad as Friday looked, we saw quite an oversold rebound on pretty decent volume. Traders wanted to get ahead of Bernanke and/or the shorts were too nervous ahead of the tomorrow's FOMC meeting.

One day doesn't make a market and this one tends to either make you look and feel smart or stupid depending on the day. But, like usual, the leading tell continues to be the financials which registered quite a strong bounce. If this rally is to be trusted, we'll see that strength continue near-term.

The Worst Storm In 20 Years?

The afternoons sure have been interesting lately. After we chopped around following the jobs report, it was bombs away as traders decided to get the hell out of Dodge.

Prompting the end-of-week flight out of equities was Bear Stearn's CFO who boldly admitted that it is weathering the "worst storm in financial markets in more than 20 years." Now that's saying something.

The market's inability to hold recent support areas technically put us in a worse position than we were at this same time last week. That's not good. If the bull market was still in fine shape we should have seen at least a decent oversold rally based on the extreme readings across the board. But, we simply didn't. Perhaps Uncle Ben and his crackpot team will come to the rescue next week or at least calm down credit fears. To be sure, those who haven't sold yet are certainly counting on it. If you thought this week was interesting, just wait until next week. :)

Bullet-Proof Market

As Americans feel quite gloomy and keep pulling their money out, traders saw opportunity and played for another final hour bull stampede. They say lightening never strikes twice in the same place, but that rule doesn't apply to the market.

Oversold rebounds in homebuilding, retail, technology, and financials reflect a mood that many think the market may finding a bottom or at a minimum, willing to bet on it with tight stops. Combine that with some more M&A activity, good earnings, and hope that oil prices have peaked out and last week's fear has been tempered by greed. This schizophrenic attitude is not uncommon, but quite typical and further justified by the common belief that the market is bullet-proof following the bears inability to bring the market down on its knees this week.

No doubt, these late day surges which would raise the eyebrows of any skeptical person drawing half a heartbeat and are not what any of us really would like to see from the tape. These kinds of last-minute rallies, like gap opens, feel like pure manipulation and are very difficult to capture. But, remember, there are no perfect rallies so we'd be wise not to look or expect them. Tomorrow's reaction to the jobs report, as long as it is positive, will go a long way to confirm that last week's correction was overdone combined with the past two days. We're still not out of danger, of course, but it certainly would help.

It's been quite a week filled with emotion, volatility and just pure confusion. It is weeks like this that the summer doldrums don't look so bad after all. Have a great evening!

Rumor Season

Wall Street put a lot of lipstick on this pig with a late day rally. As you can see from the charts below, that certainly helped the tape look a lot better than it seemed below the surface and through much of the day.

It was very important to rally from support on this first day of the new month. Failure to do so would have really put the bulls in more hot water than they already are. That said, the type of late day surge seems too artificial.

Summer is typically rumor season anyway and this tape is filled with them. From homebuilders thinking about filing bankruptcy protection to big hedge funds with billions on the line on the verge of total collapse, you have to think back where we were just a couple of weeks ago and be absolutely amazed by how so many things can go wrong so quickly. Perhaps all of these rumors are unfounded and not true, but nobody knows for sure and the market is reflecting that mood

Like last week, however, the day wasn't completely void of positives. Some evidence that insiders have been buying stocks aggressively, more benign data on the inflationary front, a drop in oil prices, that top market timers are staying stubbornly bullish, and still extreme oversold conditions are signs that you want to see if you're looking for a rally. Are these enough to signal a bottom? Perhaps, but just like tops, it will take more than a late day surge on the first trading day of the month to prove that the worst is truly behind us.

The First Failed Bounce

It's difficult to say many positives about today's failed rally and bearish close. As nice as everything looked on the surface this morning, this afternoon was nothing but disappointing.

Subprime fears again reared their ugly head and not much else mattered. The spike in oil prices (now at a record close) may have also contributed. Most disconcerting is to see the rise in trading volume in today's breakdown and the rejection of relatively good news on the inflation and earnings front.

As always, I hope you're holding up well and, even better, finding ways to enjoy the summer in spite of the market. See you in the morning.

Posted by Kirk at 6:19 PM in Review | Bookmark | Feeds | Link |

Friday, July 27, 2007

What A Week!

No matter what kind of investor or trader you are and no matter what your bias, I think we can all agree on one thing - it was an incredible week.

While the bulls attempted to stabilize the market today, those efforts ultimately proved futile. Increasing fear over a market crash kept the sellers in control.

The most important question on everyone's mind now is whether this week's market's meltdown was well deserved and whether more unknown negatives lurk below the surface. If you've been reading the website for awhile now, I'm sure you already have a better-than-average grasp of the various arguments both on the bullish and bearish side of the market. However, putting those opinions aside for the moment, we always have to play the cards that the market deals us both in good times and in bad. So, let's take a brief look at our hand.

This week Mr. Market has dealt us a few bad cards (more sell the news reactions to earnings, higher oil prices, continued housing market trouble, and tightening credit conditions). These were all tough to overcome, especially for a market that has been so bullishly complacent for so long. If we were playing no-limit hold'em poker, that would be the equivalent of having no face cards, no pairs, and no straight possibilities in our hand.

However, it frankly could have been far worse. We could have received evidence that most companies were not hitting their earnings estimates, that the economy was slowing down quickly, inflation was out of control, and/or some unknown event had increased the risk in the risk/reward equation, but that was not the case this week. Sure, there is legitimate fear that the problems over subprime, housing, and the M&A boom will turn to a bust and the market may be sending signals that these problems are ahead. But when I take a big picture look, I think there's a decent chance that the market overall was reacting to pure old-fashioned fear of the unknown. Moreover, I think we're also seeing a transition away from "everything is a buy mentality" to something far less aggressive. These kind of market transitions are never pleasant and can be very painful.

The good news is that the game is not over. There is a decent possibility that our playing hand is stronger than we think after this week's declines. While further breakdowns and the market's inability to stage even a modest rebound would give us enough evidence that the bull is dead and that we have to fold any and all long positions, we need both time and evidence to confirm that is the right play. I'm not suggesting that you let winners turn to losers or that you shouldn't control your risk, just that you should watch the cards and let those dictate your next moves, not pure emotion.

See you next week!

Posted by Kirk at 10:31 PM in Review | Bookmark | Feeds | Link |

Wednesday, July 25, 2007

Down, Up, Down, Up

The summer roller coaster ride continues. Up one day, down the next, and over again. A truly wonderful environment if you like to day trade on both sides of the fence, but for everyone else, get out the Pepto-Bismol.

Bounces in both the financial and energy sectors allowed the bulls to save face as oil prices continue to make the climb to $80 and credit worries linger. It was a positive sign that the bulls managed to close them into positive territory even though market breath was quite poor overall. We'll definitely need to see some improvement in this area in order to trust any rally over the next couple of days.

The reaction to tonight's reports from AAPL and BIDU will be worth watching along with a number of reports on the economy in the morning. See you then.

Posted by Kirk at 5:22 PM in Review | Bookmark | Feeds | Link |

Tuesday, July 24, 2007

Nothing But Trouble

That was an ugly trading da