Even as IPOs are soaring and low interest rates are pledged to infinity the major indices are at a major test here. These highs are following the trend breakdown we had back in the spring. That pull-back was pretty significant. Before that the market was in a tight uptrend. Whether the correction in the spring was just a pull-back or the start of a major top will be decided over the next couple weeks. If there's going to be a double top it is going to start very soon. The Nasdaq has printed two days back to back above the upper bollinger band. This is bearish. A shooting star candle above the upper bollie is very often the "kiss of death" in technical analysis with stocks. A crashing stock price often follows.
The Russell 2000 index is at resistance and could be topping out. I remember the 2007 Chinese stock market crash began with a double top. I don't think anything here is starting to "crash" as I'm pretty bullish long-term on equites but some major consolidation could be in store. As much as I'd love to see us finally clearly break out of the trading range we have been stuck in since the 2000 Tech bubble crash and 2008 banking panic a runaway market has to consolidate. If this raging bull market is going to stop it is going to begin here. However, if we keep heading higher there is no resistance in sight. So, maybe it's prudent to get some protection on the short-side for a bit. Buy some puts, sell some futures or something and get a little short.
Just two days after the last post I put up on LOJack the stock has run 18% on the day today and was a top percentage gainer on the Nasdaq. That trend support held well. Since I had a buy stop order at 4.60 set I didn't get filled until after the gap up. I got filled at 5.07 which I'm still happy with as I plan to keep the position on for some time. It should be volatile for awhile here anyway. I might get to add some at a lower price.
FundamentalsI wrote a quick post on a small-cap stock I thought was undervalued a month ago. LoJack Corp. LOJN I believe is a good value here now at $4.50 a share. It looked cheap then at almost $6.00 a share when I wrote that. With $.23 a share in earnings for the year the current PE multiple is just 19 here at $4.50 a share. This is a small company with only about an 80 million market cap and revenue growth is apparent along with earnings growth. Next years earnings are forecast at $.43 a share. If they hit the $.43, that times a PE multiple of just 20 values the stock at $8 share. I think that PE is pretty conservative given how fast their revenue and earnings can grow. I see this stock as an economic recovery play at a fair price. Technicals I am going to nibble on some shares and put a buy limit order in to buy at $4.57ish a share. I want to see it hold the $4.50s first. Sell volume looks currently exhausted as it is resting on trend support.
Back in January Shanda Games GAME announced a proposal of a going private transaction valued at $6.90 a share. The stock is currently at only $6.50 a share based off of Fridays close. This is about a 6% spread. I did some quick reading on this as I was unable to actually pull up the filing outlining it. The most official info I could pull up was that old press release. As far as I know this is still likely to get approved and become a done deal. I don't see how it wouldn't when "As of January 27, 2014, the Consortium members beneficially owned, in the aggregate, approximately 76.2% of the Company's outstanding shares" according to their press release. The only key thing I'm missing here is the limit on the number of shares one can hold.
As far as macro trades go there doesn't seem to be anything more certain than the fact that interest rates will eventually rise. The FED has said they will raise rates when they like the employment figures. Unemployment rates have been falling across the country and to my knowledge the most recent rate was between 6-7% nationwide. My state of North Carolina is now down to about 6.5%.
A few years back I was almost certain that the FED's unprecedented low interest rate environment was going to spawn serious dollar inflation. Something along the lines of the late 1970s through early 1980s inflation that only Paul Volker saved us from in the early 80s. One of the reasons I feel less concerned about massive inflation is the falling price of gold. To see the true value of the dollar you only have to look at gold. Rapidly rising gold means the dollar is falling and vice versa.
Now to the play. The only place rates can go from here are up. The timeframe is less certain but the fact they will go up is clear. When rates go up bonds go down. The simple trade is to short long-term Treasury Bonds. The Proshares Ultra short US Tresury bonds ticker TBT is a vehicle. I'm not going into this trade tomorrow or the next day or even next month. But some day this will be a good trade.
LoJack Corporation (LOJN)
As I am typing this we are in the middle of the tech bubble it seems. I probably wouldn't touch Facebook with a ten foot pole. I noticed this stock LoJack LOJN awhile back when they reported their 4th quarter. 4th quarter revenue had risen 20%. The thing I like more is that they gave guidance of next full years revenue growth to be 8% to 10% year over year. The business is simple. They help people recover stolen cars and do car security. It's a small company too with just under a $100 million market cap which is good. The market still isn't fully valuing this companies revenue and earnings growth. The stock is currently at 5.60. They should grow earnings atleast 25% a year but the current PE is just 16. Foward PE multiple is just 13!! This is if they just do $.43 EPS for the year.
I bought the oil ETF UCO awhile back. This position trade is working out well. It's up 11% now as oil has climbed. I also bought some Silver American Eagle coins as a long-term investment from Apmex.com recently. Gold and silver have both fallen a lot from the highs. It wouldn't even surprise me if they fell more. But, I don't really care as I'm just looking to build a long-term position. Both charts of course went parabolic and are selling off. Silver looked like it came down a lot more than gold has so far. That's one of the reasons I started in the silver.