A Good Resource

Wednesday, February 03, 2016 | | 0 comments »

Some of you may have heard about the Valeant Pharma (VRX) news story awhile back. The company was doing some suspicious things and Citron called them out on it. Their report opened up the doors for further investigations. Citron Research does analysis from frauds to simple shorts on overvaluation. There is a short bias tilt. Anyway, be it something fraudulent or just a simple possible short people give Citron attention. That in itself has debatably triggered bear raids on lower volume names. Even larger volume large-cap stocks can see bearish action.

Their newest article is on Monster Beverage (MNST). No big smoking gun here. Just simple overvaluation. The stock looks a little expensive. The entire case is in this article here on Monster Beverage (MNST).

I quickly went through a net current asset stock screen. There is not much out there to no surprise. There are a few though that have potential. I've been blogging on them some. The SORL, the SPU. I've blogged about these two deep value stocks a lot in the past. First up is Emerson Radio (MSN)and it has always been around net current asset value and profitable. I took a look at Emerson again and this is what I see currently. I see cash on the balance sheet stable the past year. It is actually marginally up from last year. Cash is 28.1 million. There is zero long-term debt. Total liabilities are just 3.9 million. So net cash is roughly $24 million. The market capitalization of the company is $27 million. So it is right around net cash with the stock at 1.01 per share. I don't think it is any coincidence the stock has bottomed out and found support around 1.00 the past couple years. You can see that here in this chart below.











They squeaked out a small profit last quarter though revenue doesn't look good. Who knows what is to come. I am going to put a limit order to buy some shares around 1.11 or lower. If the price drops below .90 the thesis doesn't work anymore and I'll take the loss.

Coffee Holding JVA is very close to being a net current asset stock. It's been a net tangible asset value stock for awhile. The price has just been in free fall this year. It appears technically it could be bottoming. I hope it keeps dropping though. I see this as the best net current asset value if we get there. It almost got there in early October this year in the 3.80s. That was the bottom though and it got picked up on strong buy volume. This one really just needs an activist investor I think. Something like that. I don't know a whole lot about this company but wholesale coffee can be consistently profitable.

The US stock market keeps ripping higher with mediocre global economic data at best. Company revenues and earnings locally here in the US aren't stellar either. Take for instance Caterpillar (CAT). The company reported quarterly earnings yesterday that were abysmal. The company is still practically in a death spiral. And they may be one of the best indicators of future growth. The stock has been in a strong downtrend but surged higher on heavy trading volume the day of the earnings announcement. It even followed through more today!

Just looking at the major indices the steady climb higher reminds me of the surge off of the 2009 lows. It looks like the aftermath bottom following the 2010 flash crash and the mini flash crash of last fall. What did all of those have in common? One thing. High frequency trading (HFT) or program trading. Here is a video from the summer of 2009 where an institutional trader talks about HFT. He said it just overwhelmed the tape and no one can fight it.

Many stocks were driven higher with uncanny price action. One that comes to my mind in particular from 2009 is Beazer Homes (BZH). If you are familiar with "truly" manipulated penny stocks aka pump and dumps this chart will ring a bell. This is BZH in 2009. See how it goes up day after day without consolidating? And any red days are met with a continuation of the uptrend. Then it soars at the end and crashes.













Here is the current S&P 500 index in its sharp uptrend














They say officially that 50-60% of the volume on the exchanges are high frequency trading. I've always been skeptical and assume its closer to 70 or 80% or more. I don't personally have any problem with HFT.

I think we are seeing a high frequency trading bottom being put in here on the major indices. When we are going higher everyday don't fight it. I wouldn't be surprised if this keeps up for weeks. It smells like QE is here or is coming.

Sometimes there are strong leading indicators in markets. A leading indicator is when one market leads another. One will go up or down and the other will simply follow a little behind. The two are correlated. You can gauge the next movement by seeing what the leading indicator is doing. An example of this is crude oil and the US stock market in late February early March of 2009. Crude oil was a leading indicator for the market. In October of 2007 the Chinese stock market was a leading indicator for US markets. This year corporate bonds specifically high yield corporates are a leading indicator of the stock market. The correlation is continuing even this week. Tickers like JNK, HYG and LQD are leading. Here's JNK the high yield bond ETF beginning it's trading range breakdown in early June.















The S&P 500 didn't really fall significantly until August. You could maybe argue very late June it had a scare but it held in. Still late June is far from early June. So what does this mean? Watch friggin bonds folks! HYG and JNK lead the way again 4 trading days ago when they started breaking down again. The market followed the very next day. We are one or two days behind now. JNK just printed a nasty shooting star yesterday the 22nd. Bearish prints on both of these. I'm writing this early morning here on the 23rd. The downtrend is strong and intact on HYG and JNK. They are coming off of a clear bear flag and it appears the lows will be tested.




This is my second video blog ever. The first one I posted on my other blog . I was looking for a good desktop recording software and ran across this one called HyperCam. I'm still working out some bugs with the audio to video sync. I forgot to mention the rounding top that Under Armor has. In the video I discuss my UA short and look at crude oil and natural gas. Which way will crude go from here? Watch and find out.

We all knew Netflix NFLX was overvalued with a PE multiple of a whopping 200. It's been taking a beating in the recent downturn. I'd like to propose Under Armour UA as overvalued. It's a great company and leader in its industry just like Netflix but the valuation is still to rich. Under Armour currently trades at 88 times earnings. It also trades for 6 times sales. Earnings are expected to grow roughly 24% a year going forward. With a PE of 88 and at 6 times sales perfection is "baked in" to the companies future performance. There is a lot of market cap that could quickly get trimmed on a bad quarter or future guidance. Or how about a market correction! This looks like a correction and an industry leader like Under Armour could get sold off like a Netflix or Apple. I see it happening here in the charts. Let's look at a 6 month chart of Under Armour below.


















See the red line that is forming a round top? A rounding top is a bearish top formation. Some people call it a head and shoulders. Under Armour is a high beta stock and this chart is essentially mimicking the major indices. So yeah we are very close to confirmation of a top in the market. What is does after the pennant bear flag below is key. It looks to me that with the shooting star candles on UA we are going lower next. I am short some Under Armour at 94.52. I successfully shorted Netflix the other day at 116 and covered at 110. I cataloged that trade on my trading blog .










Wild Monday

Tuesday, August 25, 2015 | , | 0 comments »

I'd like to start this off by emphasizing the current situation in US equity markets. Putting it in perspective we have been on a historic bull run since the March lows of 2009. Nothing compares historically to the 1982 to 2000 run but this has been up there. Lately the market has been going straight up. These kinds of corrections in bull markets are good because it keeps the pace slow and steady and avoids a bubble crash. Let's face it valuations have been getting a little ahead of themselves on US companies. Netflix NFLX was trading at a price to earnings multiple P/E of 200. Other big tech companies like Amazon AMZN, Apple AAPL were getting expensive to. Geez, not even mentioning Tesla Motors, GoPro, Alibaba etc etc. These are all falling. They are right to fall.

The media gets over-dramatic about other economies. The US economy has been doing pretty well considering the rest of the world. Don't quote me verbatim but roughly a 1% change in GDP in Europe only effects US GDP 1/4%. It is a global economy now but I'm not convinced the US is going to go into a deep recession because of China or any other Region. There may well be a recession. I don't think it would be a bad thing. Recessions are a healthy part of economic growth. Greenspan did everything he could to prevent them and look at the bubble it created. Bernanke to.  Slow and steady is good.

I just did a post on my trading blog Dynamitestocks.com about some of the things that went on early Monday morning during the US session. I don't know if all of the media is reporting it but we did in fact trigger circuit breakers within 30 minutes of the open. Circuit Breakers are "safe-guards" the stock exchanges put in place to stop a crashing market. A drop of 7% on the Dow Jones or S&P 500 index triggers a level one circuit breaker and the market is halted for 15 minutes. We reached that 7% threshold on the S&P just minutes after the open.