DRL, Doral Finacial Corp

DRL,Doral Financial Corp (Google  Yahoo  Earnings BW  Chart) 

This is the kind of stock which might bounce back post new year. All those who want to take loss this year for tax purpose will sell it. In fact lot of stocks in the mortgage sector look like being sold for tax reason and might bounce back strongly.

Mortgage sector stocks:

AFN,Alesco Financial Inc (Google  Yahoo  Earnings BW  Chart) 
AHM,American Home Mtg Hldgs (Google  Yahoo  Earnings BW  Chart) 
ATAXZ,America First Tax-Ex Inv (Google  Yahoo  Earnings BW  Chart) 
CAA,Capital Alliance In Tr (Google  Yahoo  Earnings BW  Chart) 
CFC,Countrywide Financial (Google  Yahoo  Earnings BW  Chart) 
CHC,CharterMac Capital LLC (Google  Yahoo  Earnings BW  Chart) 
CRZ,Crystal River Capital Inc (Google  Yahoo  Earnings BW  Chart) 
DFC,Delta Financial Corp (Google  Yahoo  Earnings BW  Chart) 
DRL,Doral Financial Corp (Google  Yahoo  Earnings BW  Chart) 
FRE,Freddie Mac (Google  Yahoo  Earnings BW  Chart) 
HMB,Homebanc Corp (Google  Yahoo  Earnings BW  Chart) 
IMH,Impac Mortgage Holdings (Google  Yahoo  Earnings BW  Chart) 
IOT,Income Opportunities Realty Investors Inc (Google  Yahoo  Earnings BW  Chart) 
JRT,JER Investors Trust Inc (Google  Yahoo  Earnings BW  Chart) 
LEND,Accredited Home Lenders (Google  Yahoo  Earnings BW  Chart) 
LUM,Luminent Mortgage Cap Inc (Google  Yahoo  Earnings BW  Chart) 
MHL,Mortgageit Hldgs Inc (Google  Yahoo  Earnings BW  Chart) 
NEW,New Century Financial Cp (Google  Yahoo  Earnings BW  Chart) 
NFI,Novastar Financial Inc (Google  Yahoo  Earnings BW  Chart) 
NLY,Annaly Cap Mgmt Inc (Google  Yahoo  Earnings BW  Chart) 
NTR,New York Mortgage Trust Inc (Google  Yahoo  Earnings BW  Chart) 
OPX,Opteum Inc (Google  Yahoo  Earnings BW  Chart) 
SNFCA,Security National Financial Corp Class A (Google  Yahoo  Earnings BW  Chart) 
TFN,Transnat'l Fncl Network (Google  Yahoo  Earnings BW  Chart) 
TMA,Thornburg Mortgage Inc (Google  Yahoo  Earnings BW  Chart) 
UPFC,United Panam Financial (Google  Yahoo  Earnings BW  Chart) 
VRTA,Vestin Realty Mortgage I Inc (Google  Yahoo  Earnings BW  Chart) 
VRTB,Vestin Realty Mortgage II Inc (Google  Yahoo  Earnings BW  Chart) 

Summer stock list

If you have to play the seasonality game, you have to think much ahead of the cycle. I have many alarms set for various seasonal strategies. One of the alarms went off today for the summer stocks. Stocks of companies that have bulk of their sales in summer season.

The market is anticipatory mechanism and many times stocks breakout much ahead of the season in anticipation. The retail sector is one sector where this happens regularly. So you have to think 4-6 months in advance to profit from these seasonal tendencies.

So if you are looking for summer stocks focus on leisure, entertainment, travel, teenage clothing, beer and beverages, lawn care and few other sectors. Like January effect there is a summer effect for some stocks and sectors.

Volcom, Inc. VLCM is one of those sun and sand kind of play, which is finding some buying interest today.
VLCM,Volcom Inc (Google  Yahoo  Earnings BW  Chart) 

High Debt Anomaly

The Barrons is a pretty useless publication due to its editors perma bear stance. They should just fire Alan Abelson, he has been consistently and irrationally bearish for much of his editorship plus his cognitive bias has made the publication pretty useless for serious speculators . So I do not subscribe to it, but last week I was going through the past issues at the library as part of the year end review and I found one interesting anomaly about high debt companies. Now this is the kind of information which is useful fodder to think about. The link requires subscription.

EXTRA RED ON A COMPANY'S BALANCE SHEET can mean more green in a stockholder's pocket. That's the surprising conclusion of a study of corporate debt ratios and stock prices by Narasimhan Jegadeesh, finance professor at Emory University's Goizueta Business School, and Clifton Green, associate professor at the school. After examining all publicly traded nonfinancial companies from 1974 to 2005, they found that companies with high debt levels relative to their peers boast superior stock-market returns.

Shanghai Market Booms

What can you say. The Shanghai market is up how much % in one month? Just do the calculation. Is it telling something about world and US economy slowdown.

Shanghai Composite Index Weekly


Shanghai Composite Index Daily

Last trading day of 2006

Today is the last trading day of the year. It will be followed by 4 days holiday. So expect some crazy moves. Profit taking dominated the day. There is also some divergence between the DOW, S&P and NDX. The NDX is often the pilot fish on down moves.

In last couple of weeks growth seems to be back in favor with many high EPS and IBD kinds plays finding bids.The large caps have been hibernating. Some stocks with good earnings in last earning season are breaking out after sideways move. For example PNSN broke out three days ago.There are many other stocks like PNSN, IGLD, RVSN, VDSI, GROW etc which have broken out of their range in last 3 days.
GROW,U.S. Global Invest Inc A (Google  Yahoo  Earnings BW  Chart) 
IGLD,Internet Gold-Golden (Google  Yahoo  Earnings BW  Chart) 
PNSN,Pension Worldwide Inc (Google  Yahoo  Earnings BW  Chart) 
RVSN,Radvision Ltd. (Google  Yahoo  Earnings BW  Chart) 
VDSI,Vasco Data Security Intl (Google  Yahoo  Earnings BW  Chart) 



Drugs/biotech seems to be shaping up as good theme. The biotechs move on news and regulatory action. The large cap biotechs have not been actively participating in some of this action. But keep an eye on some of the stocks in this list.
AMGN,Amgen Inc (Google  Yahoo  Earnings BW  Chart) 
AOB,American Oriental Bioengineering Inc (Google  Yahoo  Earnings BW  Chart) 
BIIB,Biogen Idec Inc (Google  Yahoo  Earnings BW  Chart) 
CELG,Celgene Corp (Google  Yahoo  Earnings BW  Chart) 
CRL,Charles River Labs Intl (Google  Yahoo  Earnings BW  Chart) 
DNA,Genentech Inc (Google  Yahoo  Earnings BW  Chart) 
HTI,Halozyme Therapeutics Inc (Google  Yahoo  Earnings BW  Chart) 
IMCL,Imclone Systems Inc (Google  Yahoo  Earnings BW  Chart) 
MEDI,Medimmune Inc (Google  Yahoo  Earnings BW  Chart) 
PDLI,PDL BioPharma Inc (Google  Yahoo  Earnings BW  Chart) 


Momentum is cyclical. lasts on index for few days but on individual stock can last for long time(on stocks with significant catalyst). So many of the stocks breaking out in last couple of days have more room to run, even if the overall market goes down.

Obviously the pure momentum plays like FFHL and anything remotely to do with China still continues to offer free money for momentum players. The thing about such plays is unless you have an existing well organised system to identify them or anticipate them you should not play them. By the time you realise what happened the party gets over.

Having pure momentum based systems in your arsenal is always an edge in most market circumstances. I have written extensively many times on how to approach this. In fact this year end I added more momentum based components to my systems and added few more momentum based black boxes.

Watchlist/positions

Momentum is cyclical. After a lacklustre few weeks the markets had couple of good momentum days. Today was profit taking day. On individual stocks momentum lasts longer than the Indexes. Many sector specific action is dominating the tape.

Here are some of the things I am watching or have positions in:

ALLT,Allot Communications Ltd (Google  Yahoo  Earnings BW  Chart) 
ANGN,Angeion Corp (Google  Yahoo  Earnings BW  Chart) 
AOB,American Oriental Bioengineering Inc (Google  Yahoo  Earnings BW  Chart) 
ASIA,Asiainfo Holdings Inc (Google  Yahoo  Earnings BW  Chart) 
BNHNA,Benihana Inc Cl A (Google  Yahoo  Earnings BW  Chart) 
CHINA,CDC Corp Class A (Google  Yahoo  Earnings BW  Chart) 
CHMP,Champion Industries Inc (Google  Yahoo  Earnings BW  Chart) 
CTIB,Cti Industries Corp (Google  Yahoo  Earnings BW  Chart) 
FCFS,First Cash Financial Svc (Google  Yahoo  Earnings BW  Chart) 
GRC,Gorman-Rupp Co (Google  Yahoo  Earnings BW  Chart) 
HGO,Houston American Energy Corp (Google  Yahoo  Earnings BW  Chart) 
HTI,Halozyme Therapeutics Inc (Google  Yahoo  Earnings BW  Chart) 
IGLD,Internet Gold-Golden (Google  Yahoo  Earnings BW  Chart) 
ININ,Interactive Intelligence (Google  Yahoo  Earnings BW  Chart) 
KONG,Kongzhong Corporation  (Google  Yahoo  Earnings BW  Chart) 
MED,Medifast Inc (Google  Yahoo  Earnings BW  Chart) 
NEWT,Newtek Business Services Inc (Google  Yahoo  Earnings BW  Chart) 
OYOG,Oyo Geospace Corp (Google  Yahoo  Earnings BW  Chart) 
PACT,Pacificnet Inc (Google  Yahoo  Earnings BW  Chart) 
RICK,Rick's Caberet Intl (Google  Yahoo  Earnings BW  Chart) 
SCLN,Sciclone Pharmaceutical (Google  Yahoo  Earnings BW  Chart) 
SNCR,Synchronoss Technologies Inc (Google  Yahoo  Earnings BW  Chart) 
SOFO,Sonic Foundry Inc (Google  Yahoo  Earnings BW  Chart) 
THLD,Threshold Pharmaceuticals (Google  Yahoo  Earnings BW  Chart) 

I Love China

When market falls in love with something, it offers opportunities for some quick and easy money. The Chinese stocks have been markets favorite for last couple of days. Everything related to China is up 5 to 30% plus in few days. Just see the list I posted couple of days ago. HMIN which I highlighted yesterday was up more than 10%. I have booked my profits on most China plays, you should bank profits on such plays when you have it. If you are looking for a Chinese play which is yet to make a big move, just look at ALLT.
ALLT (Google  Yahoo  Earnings BW  Chart) 
HMIN (Google  Yahoo  Earnings BW  Chart) 


Besides China the other sector with similar opportunities currently is Biotech. These opportunities are only for the nimble traders.

Earnings trend

After a long time, earnings trend show a slowdown. The earning season will start next week and again offer profitable opportunities on both long and short side.

Materials and Industrials Expected to Lead Q4 Earnings
With the S&P 500 up over 11% from its early August rally-point, investors are hoping for a strong fourth quarter to keep the upward momentum going. On the whole, analysts estimate that the median S&P 500 firm will show 9.7% year-over-year growth this quarter. If this happens, investors will likely be disappointed, as it would mark the first time in years growth was not double-digits. Positive analyst surprises, however, seem to be the recurring trend. With a median surprise similar to what we saw last quarter, the current reporting period could show actual earnings growth in the range of 11% to 13%.

On a sector basis, quarterly earnings growth is expected to be highest in the Materials sector, at 16.3%. The low end of the growth scale belongs to both the Utilities and Telecom sectors, with expected comparable declines of 6.3% and 6.8%. For the full-year, the S&P 500 is now expected to show a healthy growth of just over 12%.

Santa Rally Arrives Late

What we are witnessing is a delayed Santa Claus rally. The volume was thin but the breadth was very good. All major sectors participated in this rally.

Now these kinds of seasonal events are indicated by some of the anomalies I talked about yesterday. The January Effect is a well known anomaly. As more people follow it and become aware of it, such rallies have a self-fulfilling prophesies. If you want to profit from the January effect you need a systematic startegy to do so. If you are looking for ideas on how to profit from this once a year phenomenon study this article by Victor Niederhoffer and Laurel Kenner. They offer a template for identifying which stocks to buy using the Value Line.


January Effect

Whether it be the last month of the year, or the last week of the year as a precursor to the January effect, it is hard to deny that the season of bullishness is imminent.

The Speculators took out pencil and envelope to ascertain exactly what the year-end tendencies are regarding animalistic spirits for the last 10 years. The results show two distinct patterns:

* The S&P 500 ($INX) index has closed up nine times out of 10 in December over November. The Nasdaq Composite ($COMPX) doesn't climb as often -- just 67% of the time -- but, when it's up, it climbs with greater ferocity. In January, the roles seem to be reversed -- while the S&P 500 index is up over December an appreciable 78% of the time, the Nasdaq is up a more consistent 83% of the time -- and with higher returns to boot.
* The first week of January shows real optimism, with investors sending the Nasdaq 100 ($NDX.X) up by an average of 1.25% -- more than three times the rate of the S&P 500 index. It would seem that as the slates are wiped clean, investors are willing to give risk a chance and a sense of optimism yields a spring in the step in the middle of winter.

The results suggest that a pairs trade long the Nasdaq 100 and short the S&P 500 would be appropriate as of the end of November. But the Speculators eschew a pairs trade as an equivalent to betting on a favorite to show in a horse race.

Unless you are prepared for it, you can not profit from it.

Year end rally

The only surprise about this rally is why it did not start pre Christmas. The action today was concentrated in small caps. As usual the China theme was still at work. If you are looking for China themed stock, yet to make wild run, just look at HMIN. Along with China. other international stocks were catching some bid. For nimble traders there were tons of opportunities in last two days. Momentum bursts like this are good for those who can anticipate and position for such moves.

The list below has some ideas worth investigating for long term or short term buys:

ACTU,Actuate Corporation (Google  Yahoo  Earnings BW  Chart) 
ANDE,Andersons Inc (The) (Google  Yahoo  Earnings BW  Chart) 
BULK,Navios Maritime Holdings Inc (Google  Yahoo  Earnings BW  Chart) 
CLF,Cleveland-Cliffs Inc (Google  Yahoo  Earnings BW  Chart) 
CMT,Core Molding Tech Inc (Google  Yahoo  Earnings BW  Chart) 
DXPE,Dxp Enterprises Inc (Google  Yahoo  Earnings BW  Chart) 
EFUT,E-Future Info Tech Inc Ord (Google  Yahoo  Earnings BW  Chart) 
FRD,Friedman Industries Inc (Google  Yahoo  Earnings BW  Chart) 
FSYS,Fuel Systems Solutions Inc (Google  Yahoo  Earnings BW  Chart) 
GES,Guess? Incorporated (Google  Yahoo  Earnings BW  Chart) 
GIFI,Gulf Island Fabrication (Google  Yahoo  Earnings BW  Chart) 
GOOG,Google (Google  Yahoo  Earnings BW  Chart) 
GRC,Gorman-Rupp Co (Google  Yahoo  Earnings BW  Chart) 
GROW,U.S. Global Invest Inc A (Google  Yahoo  Earnings BW  Chart) 
HL,Hecla Mining Co (Google  Yahoo  Earnings BW  Chart) 
HLYS,Heelys Inc (Google  Yahoo  Earnings BW  Chart) 
HMIN,Home Inns and Hotels Management (Google  Yahoo  Earnings BW  Chart) 
IIG,Imergent Inc (Google  Yahoo  Earnings BW  Chart) 
KOSN,Kosan Biosciences Inc (Google  Yahoo  Earnings BW  Chart) 
LNUX,Va Software Corp (Google  Yahoo  Earnings BW  Chart) 
MA,MasterCard Inc (Google  Yahoo  Earnings BW  Chart) 
MBT,Mobile Telesys Ojsc Ads (Google  Yahoo  Earnings BW  Chart) 
MGPI,Mgp Ingredients Inc (Google  Yahoo  Earnings BW  Chart) 
NTZ,Natuzzi S.p.a. (Google  Yahoo  Earnings BW  Chart) 
OLAB,OraLabs Holding Corp (Google  Yahoo  Earnings BW  Chart) 
OME,Omega Protein Corp (Google  Yahoo  Earnings BW  Chart) 
QADI,Qad Inc (Google  Yahoo  Earnings BW  Chart) 
RACK,Rackable Systems Inc (Google  Yahoo  Earnings BW  Chart) 
SPSX,Superior Essex Inc (Google  Yahoo  Earnings BW  Chart) 
TX,Ternium SA (Google  Yahoo  Earnings BW  Chart) 
TXCO,Exploration Co Of Delawr (Google  Yahoo  Earnings BW  Chart) 
UBB,Unibanco Uniao De Bancos (Google  Yahoo  Earnings BW  Chart) 
UPFC,United Panam Financial (Google  Yahoo  Earnings BW  Chart) 
VMI,Valmont Industries Inc (Google  Yahoo  Earnings BW  Chart) 


After two days of rally tomorrow may not be the best day to initiate new positions. A gap up would be sold aggressively as traders who anticipated the year end rally and bought before holidays or bought two days ago exit or book partial profits. The badly mauled bears may be waiting in the wing at higher level.

Top stocks for 2007 - Part 2

In my earlier post on Top Stocks for 2007 I talked about need for a sound concept if you want to make money in 2007. How does one go about finding such concept. The starting point involves un-learning some things like technical analysis and adoption of new paradigms.

The major obsession of several methods used by technical analyst is timing the ownership of equities, but it involves very little thought about which equities to own, how to over weigh or under weigh them. If you are looking for edge, your first starting point should be study of market anomalies. The efficient market hypothesis (EMH) says that at any given time, asset prices fully reflect all available information.The Random Walkers proponents have convinced scores of investor that it is not possible to beat the market. However there have been numerous studies which have demonstrated existence of stock market anomalies.

Stock market anomalies are reliable, widely known and inexplicable patterns in returns. Many anomalies have been shown to persist in spite of their public knowledge. Anomalies come in all sizes and kinds, some offer very short term opportunities, some offer long term opportunities, some offer few percentage point edge, some offer several percentage point edge.

Some of the well known anomalies are:

1 Calendar Anomalies: Certain calendar periods have shown to be good periods to invest. Well known and public domain calendar anomalies are : January Effect, End of month effect, the weekend effect, the holiday effect.
2 Small Firm anomaly : excess returns can be earned by holding stocks of low
capitalization companies
3 Value-Line anomaly Higher ranked stocks earned higher returns.
4 Insider Transactions anomaly
5 PEADS ( Post earnings announcement drift): Over/Under Reaction of Stock Prices to Earnings Announcements
6 IPO's, Offerings, and Buy-backs
7 Low Price to Book/Sales/Earnings
8 Standard & Poor's (S&P) Index anomaly
9 Neglected Stocks and the Distressed Securities
10 Momentum anomaly

This list is not a comprehensive list. If you do exhaustive study , you will find several more anomalies. Basing your systems on proven anomalies is the starting point. Besides the public domain anomalies, there are number of other anomalies many traders have discovered and they are confidential. Over the years I have discovered few non public anomalies with substantial edge.

More anomalies you have in your trading arsenal, more confident you are and you are not worried about the market conditions. Making many of the anomalies work is the difficult part of the equation, but that is where your edge is.

So if you want to find the top stocks for 2007, one of your starting point should be exhaustive study of prominent anomalies. Finding and exploiting structural anomalies in markets is the path to profitability.

A Dash of Insight

A Dash of Insight has a series of posts about 2007 forecast. Jeffrey A. Miller takes a look at recent market history, valuation matrices, Fed Model and the perma bears. Excellent series to get a perspective on investing in 2007.

As we turn over another year on our calendars, it is the traditional time to take stock of what has happened and look forward to prospects for the new year. While our message is primarily intended for individual investors, many traders and fund managers will also benefit from an open-minded consideration (or re-consideration) of this information.

At "A Dash" we always start with the fundamentals. By "fundamentals" we mean looking at the prospective returns of potential investments in a way that can be quantified and tested over time.

Some analysts narrowly define technical analysis and think that everything else is "fundamental. Here is a list of things that are not "fundamentals" by our definition.

* Perennial concerns about old subjects -- war, famine, pestilence, debt, current accounts deficit, etc.
* Market hypotheses like seasonal variation, the Presidential cycle, comparison of various "recovery cycles."
* Complaints about government conspiracies or shortcomings in economic data.

These things are not technical analysis, but they are also not fundamental analysis unless the impacts can be quantified in terms of expected returns.

More here, here, here, and here.

Few buyers at this level

As expected the market rallied post holidays. Given the sharp pullback ahead of the holiday weekend, it was no surprise to see a bounce on light volume. This sort of action is to be expected in a very thin trading environment.A number of small-caps which were particularly strong. The China stocks are finding lot of interest, some of the action might be linked to year and quarter end moves by the international funds or speculation of currency moves. Still, it is difficult and misleading to draw any meaningful conclusions from the day's action.

Some of the stocks worth further investigation based on recent action are :

APKT,Acme Packet Inc (Google Yahoo Earnings BW Chart)
ARTE,Artes Medical Inc (Google Yahoo Earnings BW Chart)
CHL,China Mobile Ltd (Google Yahoo Earnings BW Chart)
DXPE,Dxp Enterprises Inc (Google Yahoo Earnings BW Chart)
FFH,Fairfax Financial Holdings (Google Yahoo Earnings BW Chart)
FMX,Fomento Economico Mex (Google Yahoo Earnings BW Chart)
GSH,Guangshen Railway Co (Google Yahoo Earnings BW Chart)
HAYZ,Hayes Lemmerz International Inc (Google Yahoo Earnings BW Chart)
JAV,Javelin Pharmaceuticals Inc (Google Yahoo Earnings BW Chart)
LNUX,Va Software Corp (Google Yahoo Earnings BW Chart)
MDCO,Medicines Company The (Google Yahoo Earnings BW Chart)
MEMY,Memory Pharmaceuticals (Google Yahoo Earnings BW Chart)
MVIS,Microvision Inc (Google Yahoo Earnings BW Chart)
PNCL,Pinnacle Airlines (Google Yahoo Earnings BW Chart)
PNSN,Pension Worldwide Inc (Google Yahoo Earnings BW Chart)
RHA,Rhodia Ads (Google Yahoo Earnings BW Chart)
SGU,Star Gas Partners Lp Sbi (Google Yahoo Earnings BW Chart)
SVVS,SAVVIS Inc (Google Yahoo Earnings BW Chart)
THLD,Threshold Pharmaceuticals (Google Yahoo Earnings BW Chart)
TS,Tenaris Sa (Google Yahoo Earnings BW Chart)

While the major indices were able to regain the ground they lost last Friday, the action was misleading. There are clearly signs of trouble ahead. Leadership is deteriorating. Follow through buying is tepid or absent. Low priced stocks are breaking out. There just hasn't been much buying interest lately, and the market has failed to make any progress to the upside for quite some time now. Currently it is tough to say that this is simply some healthy consolidation or correction. The next earning season is upon us and market might find the earnings and guidance as a catalyst to pullback and set itself up for March earning season .

Those looking for opportunities on the long side in this market should be extremely nimble and use shorter time frames and use tight stops. I am mostly using this dull market to R&D and develop and improve my trading black boxes.

Every year I use the last few weeks to consolidate all the yearly learning's and incorporate them in the trading models or software. Changing things in the middle of year can be a huge distraction. I have number of profitable systems which are currently working, so trying to tinker with them during the year often takes away the focus from trading them profitably. Plus the new idea should substantially score in profitability potential before replacing existing system.

Throughout the year I study and develop new concepts, collect ideas from the hundred or so of books I read in a year, or from academic research, or from friends at various funds or banks. At the end of the year, once the mental pantry has lots of ingredients, I cook up couple of dishes for next year. So currently I am busy with some exciting new ideas and fine tuning and upgrading existing systems.

Chinese stocks on fire

The Chinese stocks have been in rally mode sometime. Almost every Chinese stock is witnessing some action currently. Some after a long rally are in blowout stage. Chinese IPO's no matter what they do are being run up by momentum traders.

Chinese Stock list from Bullsector.

ACH,Aluminum Corp China (Google  Yahoo  Earnings BW  Chart) 
ASIA,Asiainfo Holdings Inc (Google  Yahoo  Earnings BW  Chart) 
ASTTD,Asat Holdings Ltd (Google  Yahoo  Earnings BW  Chart) 
ASX,Advanced Semicondctr Ads (Google  Yahoo  Earnings BW  Chart) 
ATS,Apt Satellite Hldgs Ltd (Google  Yahoo  Earnings BW  Chart) 
AUO,Au Optronics Corp (Google  Yahoo  Earnings BW  Chart) 
BIDU,Baidu.com Inc (Google  Yahoo  Earnings BW  Chart) 
BNSO,Bonso Electronics Int'l (Google  Yahoo  Earnings BW  Chart) 
CBA,Brilliance Ch Auto Hldgs (Google  Yahoo  Earnings BW  Chart) 
CEA,China Eastern Airlines (Google  Yahoo  Earnings BW  Chart) 
CEO,CNOOC Ltd Adr (Google  Yahoo  Earnings BW  Chart) 
CHA,China Telecom (Google  Yahoo  Earnings BW  Chart) 
CHDX,Chindex International Inc (Google  Yahoo  Earnings BW  Chart) 
CHINA,CDC Corp Class A (Google  Yahoo  Earnings BW  Chart) 
CHL,China Mobile Ltd (Google  Yahoo  Earnings BW  Chart) 
CHN,China Fund Inc (Google  Yahoo  Earnings BW  Chart) 
CHNR,ChinaNatural Resources (Google  Yahoo  Earnings BW  Chart) 
CHT,Chunghwa Telecom (Google  Yahoo  Earnings BW  Chart) 
CHU,China Unicom Ltd Ads (Google  Yahoo  Earnings BW  Chart) 
CMED,China Medical Technologies Inc (Google  Yahoo  Earnings BW  Chart) 
CMQ,Cathay Merchant Group Inc (Google  Yahoo  Earnings BW  Chart) 
CN,China Netcom Grp Corp Ltd (Google  Yahoo  Earnings BW  Chart) 
CNTF,China Techfaith Wireless Communication Technology Limited (Google  Yahoo  Earnings BW  Chart) 
CRGID,Corgi International Ltd ADR (Google  Yahoo  Earnings BW  Chart) 
CTEL,City Telecom Hk Ltd Ads (Google  Yahoo  Earnings BW  Chart) 
CTRP,Ctrip.com International (Google  Yahoo  Earnings BW  Chart) 
CYD,China Yuchai Int Ltd (Google  Yahoo  Earnings BW  Chart) 
DSWL,Deswell Industries Inc (Google  Yahoo  Earnings BW  Chart) 
FXI,iShares FTSE/Xinhua China 25 Index Fund ETF (Google  Yahoo  Earnings BW  Chart) 
GAI,Global-Tech Appliances (Google  Yahoo  Earnings BW  Chart) 
GRR,Asia Tigers Fund (Google  Yahoo  Earnings BW  Chart) 
GRVY,Gravity Co (Google  Yahoo  Earnings BW  Chart) 
GSH,Guangshen Railway Co (Google  Yahoo  Earnings BW  Chart) 
HIHO,Highway Holdings Limited (Google  Yahoo  Earnings BW  Chart) 
HNP,Huaneng Power Intl Inc (Google  Yahoo  Earnings BW  Chart) 
HRAY,Hurray! Holding Co (Google  Yahoo  Earnings BW  Chart) 
ICAB,I-Cable Cmmunctns Ads (Google  Yahoo  Earnings BW  Chart) 
IMOS,Chipmos Technologies Bermuda (Google  Yahoo  Earnings BW  Chart) 
INTN,Intac International (Google  Yahoo  Earnings BW  Chart) 
JADE,Lj Internat Inc (Google  Yahoo  Earnings BW  Chart) 
JOBS,51job Inc Ads (Google  Yahoo  Earnings BW  Chart) 
JRJC,China Finance Online Co Ltd (Google  Yahoo  Earnings BW  Chart) 
KONG,Kongzhong Corporation  (Google  Yahoo  Earnings BW  Chart) 
LFC,China Life Insurance Company (Google  Yahoo  Earnings BW  Chart) 
LONG,Elong Inc (Google  Yahoo  Earnings BW  Chart) 
LTON,Linktone Ltd (Google  Yahoo  Earnings BW  Chart) 
NINE,Ninetowns Digital World (Google  Yahoo  Earnings BW  Chart) 
NTE,Nam Tai Electronics Inc (Google  Yahoo  Earnings BW  Chart) 
NTES,Netease.com Inc (Google  Yahoo  Earnings BW  Chart) 
NWD,New Dragon Asia Corp (Google  Yahoo  Earnings BW  Chart) 
PACT,Pacificnet Inc (Google  Yahoo  Earnings BW  Chart) 
PCW,Pccw Limited Adr 1:10 Ord (Google  Yahoo  Earnings BW  Chart) 
PEAK,Peak Internat Ltd (Google  Yahoo  Earnings BW  Chart) 
PTR,Petrochina Co Ltd Ads (Google  Yahoo  Earnings BW  Chart) 
SAT,Asia Satellite Telecomm (Google  Yahoo  Earnings BW  Chart) 
SHI,Shanghai Petrochemical (Google  Yahoo  Earnings BW  Chart) 
SINA,Sina Corp (Google  Yahoo  Earnings BW  Chart) 
SMI,Semiconductor Manufacturing (Google  Yahoo  Earnings BW  Chart) 
SNDA,Shanda Interactive Ent Ltd (Google  Yahoo  Earnings BW  Chart) 
SNP,China Petro & Chem Ads (Google  Yahoo  Earnings BW  Chart) 
SOHU,Sohu.Com Inc (Google  Yahoo  Earnings BW  Chart) 
SPIL,Siliconware Precision Industries Company Ltd ADS (Google  Yahoo  Earnings BW  Chart) 
SSPI,Spectrum Signal Proc (Google  Yahoo  Earnings BW  Chart) 
TOMO,Tom Online (Google  Yahoo  Earnings BW  Chart) 
TSM,Taiwan Semicond Mnfcg Co (Google  Yahoo  Earnings BW  Chart) 
UMC,United Microelectronics (Google  Yahoo  Earnings BW  Chart) 
UTSI,UTStarcom Inc (Google  Yahoo  Earnings BW  Chart) 
UUU,Universal Security Instruments (Google  Yahoo  Earnings BW  Chart) 
XING,Qiao Xing Univ Telephone (Google  Yahoo  Earnings BW  Chart) 
YZC,Yanzhou Coal Mining Co (Google  Yahoo  Earnings BW  Chart) 
ZNH,China Southern Airlns Co (Google  Yahoo  Earnings BW  Chart) 

Top momentum stocks

Look for long short opportunities in this list. This list is for weekend review and anticipating entries. If the market takes a tumble many of the stocks in this list should be the one to watch. Those which withstand selling may have potential once the correction plays itself out.Any market rally will have some of these leading the rally.

Studying the characteristics of such leading stocks can help you identify criteria essential for making such moves. My model constantly looks at such stocks outperforming the market and builds profile of ideal stocks and compares opportunities with them. Constantly monitoring this small universe ensures that you are investing in the best opportunities the market has to offer for given time period.

ACOR,Acorda Therapeutics Inc (Google  Yahoo  Earnings BW  Chart) 
ACP,American Real Estate Prt (Google  Yahoo  Earnings BW  Chart) 
ADST,Adstar Inc (Google  Yahoo  Earnings BW  Chart) 
AFAM,Almost Family Inc (Google  Yahoo  Earnings BW  Chart) 
ALTH,Allos Therapeutics Inc. (Google  Yahoo  Earnings BW  Chart) 
AMAG,Advanced Magnetics Inc (Google  Yahoo  Earnings BW  Chart) 
AMIE,Ambassadors Internat Inc (Google  Yahoo  Earnings BW  Chart) 
ANGN,Angeion Corp (Google  Yahoo  Earnings BW  Chart) 
AOB,American Oriental Bioengineering Inc (Google  Yahoo  Earnings BW  Chart) 
APAC,Apac Customer Services (Google  Yahoo  Earnings BW  Chart) 
APN,Applica Inc (Google  Yahoo  Earnings BW  Chart) 
AXR,Amrep Corp (Google  Yahoo  Earnings BW  Chart) 
AZL,Arizona Land Income Corp (Google  Yahoo  Earnings BW  Chart) 
AZZ,Azz Inc (Google  Yahoo  Earnings BW  Chart) 
BDY,Bradley Pharmaceuticals (Google  Yahoo  Earnings BW  Chart) 
BIOV,Bioveris Corp (Google  Yahoo  Earnings BW  Chart) 
BITI,Bio-imaging Technologies (Google  Yahoo  Earnings BW  Chart) 
BRLC,Syntax-Brillian Corp (Google  Yahoo  Earnings BW  Chart) 
CHDX,Chindex International Inc (Google  Yahoo  Earnings BW  Chart) 
CHINA,CDC Corp Class A (Google  Yahoo  Earnings BW  Chart) 
CHTR,Charter Communications Inc (Google  Yahoo  Earnings BW  Chart) 
CLEC,Us Lec Corp Cl A (Google  Yahoo  Earnings BW  Chart) 
CLWT,Euro Tech Holdings Ltd (Google  Yahoo  Earnings BW  Chart) 
CPA,Copa Holdings S.A. (Google  Yahoo  Earnings BW  Chart) 
CRVL,Corvel Corp (Google  Yahoo  Earnings BW  Chart) 
CTRX,Cotherix Inc (Google  Yahoo  Earnings BW  Chart) 
CUBA,Herzfeld Caribbean Basin (Google  Yahoo  Earnings BW  Chart) 
DGIT,Dg Fastchannel Inc (Google  Yahoo  Earnings BW  Chart) 
DHIL,Diamond Hill Investment Group Inc (Google  Yahoo  Earnings BW  Chart) 
DVAX,Dynavax Tech (Google  Yahoo  Earnings BW  Chart) 
ENCO,Encorium Group Inc (Google  Yahoo  Earnings BW  Chart) 
ENPT,En Pointe Technologies (Google  Yahoo  Earnings BW  Chart) 
FFH,Fairfax Financial Holdings (Google  Yahoo  Earnings BW  Chart) 
FTGX,FiberNet Telecom Group Inc (Google  Yahoo  Earnings BW  Chart) 
GIII,G-III Apparel Group Ltd (Google  Yahoo  Earnings BW  Chart) 
GOAM,Goamerica Inc (Google  Yahoo  Earnings BW  Chart) 
GROW,U.S. Global Invest Inc A (Google  Yahoo  Earnings BW  Chart) 
GTXI,Gtx (Google  Yahoo  Earnings BW  Chart) 
GVP,Gse Systems Inc (Google  Yahoo  Earnings BW  Chart) 
HAUP,Hauppauge Digital Inc (Google  Yahoo  Earnings BW  Chart) 
HCTL,Healthcare Technologies (Google  Yahoo  Earnings BW  Chart) 
HGO,Houston American Energy Corp (Google  Yahoo  Earnings BW  Chart) 
HRT,Arrhythmia Research Tech (Google  Yahoo  Earnings BW  Chart) 
HRZ,Horizon Lines Inc (Google  Yahoo  Earnings BW  Chart) 
HTI,Halozyme Therapeutics Inc (Google  Yahoo  Earnings BW  Chart) 
ICAD,Icad Inc (Google  Yahoo  Earnings BW  Chart) 
IGLD,Internet Gold-Golden (Google  Yahoo  Earnings BW  Chart) 
IIG,Imergent Inc (Google  Yahoo  Earnings BW  Chart) 
IMMU,Immunomedics Inc (Google  Yahoo  Earnings BW  Chart) 
IOC,Interoil Corporation (Google  Yahoo  Earnings BW  Chart) 
IOSP,Innospec Inc (Google  Yahoo  Earnings BW  Chart) 
ITMN,Intermune Inc (Google  Yahoo  Earnings BW  Chart) 
JAS,Jo-ann Stores Inc (Google  Yahoo  Earnings BW  Chart) 
JST,Jinpan Internat Ltd (Google  Yahoo  Earnings BW  Chart) 
KOSP,Kos Pharmaceuticals Inc (Google  Yahoo  Earnings BW  Chart) 
LFC,China Life Insurance Company (Google  Yahoo  Earnings BW  Chart) 
LPHI,Life Partners Inc (Google  Yahoo  Earnings BW  Chart) 
MAMA,Mamma.com Inc (Google  Yahoo  Earnings BW  Chart) 
MCF,Contango Oil & Gas (Google  Yahoo  Earnings BW  Chart) 
MEH,Midwest Express Holding (Google  Yahoo  Earnings BW  Chart) 
MFRI,Mfri Inc (Google  Yahoo  Earnings BW  Chart) 
MWP,Markwest Hydrocarbon Inc (Google  Yahoo  Earnings BW  Chart) 
NAVI,Navisite Incorporated (Google  Yahoo  Earnings BW  Chart) 
NRMX,Neurochem (Google  Yahoo  Earnings BW  Chart) 
NRPH,New River Pharmaceuticals Inc (Google  Yahoo  Earnings BW  Chart) 
ONSM,Onstream Media (Google  Yahoo  Earnings BW  Chart) 
PCCC,Pc Connection Inc (Google  Yahoo  Earnings BW  Chart) 
PGLA,Progen Industries Ltd (Google  Yahoo  Earnings BW  Chart) 
PNCL,Pinnacle Airlines (Google  Yahoo  Earnings BW  Chart) 
PNTR,Pointer Telocation Ltd Ord (Google  Yahoo  Earnings BW  Chart) 
PTT,Vcg Holding Copr (Google  Yahoo  Earnings BW  Chart) 
RAND,Rand Capital Cp (Google  Yahoo  Earnings BW  Chart) 
RBN,Robbins & Myers Inc (Google  Yahoo  Earnings BW  Chart) 
RNAI,Sirna Therapeutics (Google  Yahoo  Earnings BW  Chart) 
ROS,Rostelecom (Google  Yahoo  Earnings BW  Chart) 
SIGA,Siga Pharmaceuticals Inc (Google  Yahoo  Earnings BW  Chart) 
SIGM,Sigma Designs Inc (Google  Yahoo  Earnings BW  Chart) 
SOFO,Sonic Foundry Inc (Google  Yahoo  Earnings BW  Chart) 
SQNM,Sequenom Inc (Google  Yahoo  Earnings BW  Chart) 
SRSL,Srs Labs Inc (Google  Yahoo  Earnings BW  Chart) 
SRVY,Greenfield Online Inc (Google  Yahoo  Earnings BW  Chart) 
STEC,Simple Technology Inc (Google  Yahoo  Earnings BW  Chart) 
SVNT,Savient Pharmaceuticals Inc (Google  Yahoo  Earnings BW  Chart) 
SYX,Systemax Inc (Google  Yahoo  Earnings BW  Chart) 
TATTF,Tat Technol Ltd (Google  Yahoo  Earnings BW  Chart) 
TGEN,Targeted Genetics Cp (Google  Yahoo  Earnings BW  Chart) 
TSTC,Telestone Technologies Corp (Google  Yahoo  Earnings BW  Chart) 
TTEC,Teletech Holdings Inc (Google  Yahoo  Earnings BW  Chart) 
UAHC,United American Healthcare Cor (Google  Yahoo  Earnings BW  Chart) 
UUU,Universal Security Instruments (Google  Yahoo  Earnings BW  Chart) 
VSNT,Versant Corporation (Google  Yahoo  Earnings BW  Chart) 
VTO,Vitro Sociedad Anonima (Google  Yahoo  Earnings BW  Chart) 
ZOLL,Zoll Medical Corporation (Google  Yahoo  Earnings BW  Chart) 


"Confine your studies of movements to the prominent stocks of the day. If you cannot make money out of the leading active issues, you are not going to make money out of the stock market as a whole" Jesse Livermore

No bids

Market spent the low volume Friday session going down. While the set up was ideal for a snap back rally, there was complete absence of enthusiasm on buy side. The post Christmas period should see some buying.

The selling smells of profit taking. While leaders are breaking down or pulling back, more speculative names in technology and biotechs and low priced stocks are the one witnessing major action. This market behavior is usually found at correction zones.

While there has been substantial profit taking in leadership group, the overall selling is muted and drip, drip kinds. This indicates probably a leg up to take out some short positions. We are yet to whiteness a substantial selling and selling which persists for a week or so.

Happy Holidays

Merry Christmas and Happy Holidays.

This blog will be active over the weekend and holidays. I am working on a major trading software redesign and will be active. I plan to post a series of posts on ideas and concept for next year.

Thank you to everyone for great year of blogging. I value your readership and support.

I am grateful to your encouraging emails, comments, and intense email discussions. You motivate me to keep blogging and finding new ways to improve my trading skills. I thank you all for your support.

I hope the next couple of weeks is a fun and relaxing time for everyone! Happy Holidays!

What to look for in low price momentum list

I look for 500 million plus revenue/sales kind of companies in this list. Many times you find that when large companies get in to trouble they become single digit companies.

If you see a catalyst, you buy them and forget about it for few years, they are like call options you should be willing to lose the entire amount. I have few like that in my long term accounts bought below 5 e.g. MT, ABB, RHA ,SGU, AHO etc. I buy small position and forget about them. The other without revenue or concept in low price momentum are highly speculative and more for trade. I buy only non technology companies from the list as they are less speculative.

Chances of finding mis priced securities in this list is high, the market are highly inefficient. Sentiments and price reach extremes on good companies when they or the sector gets in to trouble. You have to research the list to find the gems in that dustbin.

Santa time

There is a perfect set up for a brief Santa appearance. Listless market, steady build up of negativity. Negative economic news. Terrorism fear. Thin trading environment. All this bode well for a Santa rally and I would not be surprised to see some action in the market till end of year.

If you are looking for quick buck, keep a close watch on the top momentum plays. That is where the action will be concentrated.

Low price momentum

The low priced stocks have been doing pretty well for couple of weeks. Look at the stocks which were highlighted in my Dec 13 th post. Some like MAMA, RHA, SOFO, ONSM etc have gone on to make nice gain after that. So here is a list of speculative below 5 stocks with momentum. Research before you invest.

ADST,Adstar Inc (Google  Yahoo  Earnings BW  Chart) 
APAC,Apac Customer Services (Google  Yahoo  Earnings BW  Chart) 
CESI,Catalytica Energy Systems (Google  Yahoo  Earnings BW  Chart) 
CHTR,Charter Communications Inc (Google  Yahoo  Earnings BW  Chart) 
CKSW,Clicksoftware Technlgies (Google  Yahoo  Earnings BW  Chart) 
CLRT,Clarient Inc (Google  Yahoo  Earnings BW  Chart) 
CNR,Canargo Energy Corp (Google  Yahoo  Earnings BW  Chart) 
ENCO,Encorium Group Inc (Google  Yahoo  Earnings BW  Chart) 
ENPT,En Pointe Technologies (Google  Yahoo  Earnings BW  Chart) 
FORG,Forgent Networks (Google  Yahoo  Earnings BW  Chart) 
HAYZ,Hayes Lemmerz International Inc (Google  Yahoo  Earnings BW  Chart) 
HCTL,Healthcare Technologies (Google  Yahoo  Earnings BW  Chart) 
ICAD,Icad Inc (Google  Yahoo  Earnings BW  Chart) 
IMMU,Immunomedics Inc (Google  Yahoo  Earnings BW  Chart) 
IPA,Interpharm Holdings Inc (Google  Yahoo  Earnings BW  Chart) 
LOGC,Logic Devices Inc (Google  Yahoo  Earnings BW  Chart) 
MDF,Metropolitan Health Networks (Google  Yahoo  Earnings BW  Chart) 
MEMY,Memory Pharmaceuticals (Google  Yahoo  Earnings BW  Chart) 
MVIS,Microvision Inc (Google  Yahoo  Earnings BW  Chart) 
ONSM,Onstream Media (Google  Yahoo  Earnings BW  Chart) 
ONT,On2.Com Inc (Google  Yahoo  Earnings BW  Chart) 
PGLA,Progen Industries Ltd (Google  Yahoo  Earnings BW  Chart) 
PTT,Vcg Holding Copr (Google  Yahoo  Earnings BW  Chart) 
RAND,Rand Capital Cp (Google  Yahoo  Earnings BW  Chart) 
RHA,Rhodia Ads (Google  Yahoo  Earnings BW  Chart) 
RMTR,Ramtron Internat Corp (Google  Yahoo  Earnings BW  Chart) 
SGU,Star Gas Partners Lp Sbi (Google  Yahoo  Earnings BW  Chart) 
SIGA,Siga Pharmaceuticals Inc (Google  Yahoo  Earnings BW  Chart) 
SOFO,Sonic Foundry Inc (Google  Yahoo  Earnings BW  Chart) 
SQNM,Sequenom Inc (Google  Yahoo  Earnings BW  Chart) 
THK,Think Partnership Inc (Google  Yahoo  Earnings BW  Chart) 
TWTI,Third Wave Tech (Google  Yahoo  Earnings BW  Chart) 
WRLS,Telular Corp (Google  Yahoo  Earnings BW  Chart) 
XNN,Xenonics Holdings Inc (Google  Yahoo  Earnings BW  Chart) 

Written by fools to be read by imbeciles

Wall Street Journal is threatened by blogs, so it is resorting to name calling. Many bloggers who cover market are thousand times better than the pompous editorial staff of WSJ. No wonder the Dow Jones & Co. Inc stock is in dumps.

Blogs are very important these days. Even Mahmoud Ahmadinejad has one. The invention of the Web log, we are told, is as transformative as Gutenberg's press, and has shoved journalism into a reformation, perhaps a revolution.

The ascendancy of Internet technology did bring with it innovations. Information is more conveniently disseminated, and there's more of it, because anybody can chip in. There's more "choice"--and in a sense, more democracy. Folks on the WWW, conservatives especially, boast about how the alternative media corrodes the "MSM," for mainstream media, a term redolent with unfairness and elitism.

The blogs are not as significant as their self-endeared curators would like to think. Journalism requires journalists, who are at least fitfully confronting the digital age. The bloggers, for their part, produce minimal reportage. Instead, they ride along with the MSM like remora fish on the bellies of sharks, picking at the scraps.

More success is met in purveying opinion and comment. Some critics reproach the blogs for the coarsening and increasing volatility of political life. Blogs, they say, tend to disinhibit. Maybe so. But politics weren't much rarefied when Andrew Jackson was president, either. The larger problem with blogs, it seems to me, is quality. Most of them are pretty awful. Many, even some with large followings, are downright appalling.

Top stocks for 2007

The beginning of new year brings out the worst in forecasters. Every business/investor magazine has some sort of forecast on likely market directions. Then there is growing list of 10 stocks to buy for 2007 kind of nonsense. There are even books talking about best stocks for 2007.

Now if you see the last year predictions of same magazines, they have horrible results. Most of the gurus who offer these picks or market forecast don't make their living trading stocks. But every year magazines go through the motion. Why, because it is good business for both the magazines and the gurus.

I can predict with certainty that the best performing stock in 2007 will be some unknown stocks at the beginning of year, not on the radar of any market pundits they will be stocks like GROW, AXR, AMAG, IAAC, IIG, CRVL, JST, IAAC (all these stocks up 300% or more in 2006) .

Every week I get emails from readers asking what do you think of XYZ stock, should I load up on this stock. If they are techies, they will ask about tech stocks, if they are in some other profession, they will ask about stocks in that industry. Or ask about stock which is in news. If they are Indian, they will ask about INFY, if I charge 1 dollar for every time I am asked about INFY, I would not have to even trade! Charging 1 dollar for every time I am asked are you a software engineer would beat the bonuses of some Wall Street traders!!

Every time I get the question I always tell people focus on specific methodology not stock. Only 4-5 people get what I am saying and have gone beyond the stock picks to look at specific methodologies. They have asked relevant questions, put together some sorts of system of their own based on few hints and concepts I discussed with them. They no more ask about specific stocks but most of their questions are about methods and concepts.I have exchanged 100 of emails with some of these people, they had their share of frustrations and challenges. Some of them are clearly doing extremely well(You know, who you are). Some of them have helped me improve on my original ideas. Some have better results than I have with similar concept.


You can still ensure that you are in the top 20-50 best performing stocks in a year, without listening to any guru. Stocks come and go. What is critical is methodology. Methodologies are evergreen. The stocks they pick keep changing, but if the foundation of the methodology is sound you will get in to best stocks.

The biggest winners in a year come from unfamiliar, unloved, untracked,and unknown stocks. They are seldom well known names.


Surprises on such names, leads to market discovering them. Those surprises might be earnings acceleration, sales acceleration, new products, surprise shortage in that industry or any other surprise. Neglect, surprise, and small float are three main things which leads to dramatic price rises.

Methodology is most critical. Profit is an outcome if you have right methodology. Once you perfect one methodology, you find building others is child play. If you build a methodology you might be surprised by what you can make in 2007.

Ideal set up for a trap

Market participants are in holiday mood. As we approach the end of the year, the market is meandering about without much direction.Low volume and lack on interest characterises this action.

The prices are not going much higher. The bullish case has a lot going for it right now in the form of some positive seasonality and strong momentum. The bears have all but given up on the idea that we will see any significant pullback in the next six trading days, they are scared of the squeeze. When the market is in such complacent stage, all it requires to trigger a move in either direction is few programs. An extremely high level of complacency is always dangerous.Be wary of trap.

When everyone is convinced nothing is going to happen till January, chances of something dramatic happening are very high. Anyone who has been around the market for any length of time knows that it can be very, very dangerous when everyone (the bulls and bears) is convinced of the same thing.

You must have a plan in place and be prepared for a possible pull-back. Conditions are ripe for a complacency trap to be sprung on the market.When everyone expects nothing to happen, a programme buy or sell can catch so many off guard.

There has been a steady deterioration in the leadership group. Slowly, one by one stocks which were the first to burst out when this tally started are deteriorating. The stocks making 50% or more move in a month indicator is at 5 stocks level currently after being in 15-20 range for entire duration of rally. Stocks making 100% move or more has deteriorated steadily in last one week. The stock making 25% move in 65 days has started deteriorating rapidly. Number of stocks from high EPS earnings breaking out has deteriorated, many which are breaking out are not moving forward, are stalling or reversing on failed breakout. Some of these and many other things are shadowed by action in few momentum names. Many of those names are highly speculative and are not the one to lead rallies higher.

Top 30 stocks on momentum scan:

ACOR,Acorda Therapeutics Inc (Google  Yahoo  Earnings BW  Chart) 
AOB,American Oriental Bioengineering Inc (Google  Yahoo  Earnings BW  Chart) 
AXR,Amrep Corp (Google  Yahoo  Earnings BW  Chart) 
AZL,Arizona Land Income Corp (Google  Yahoo  Earnings BW  Chart) 
BRLC,Syntax-Brillian Corp (Google  Yahoo  Earnings BW  Chart) 
CHTR,Charter Communications Inc (Google  Yahoo  Earnings BW  Chart) 
CLWT,Euro Tech Holdings Ltd (Google  Yahoo  Earnings BW  Chart) 
CRVL,Corvel Corp (Google  Yahoo  Earnings BW  Chart) 
ENPT,En Pointe Technologies (Google  Yahoo  Earnings BW  Chart) 
FTGX,FiberNet Telecom Group Inc (Google  Yahoo  Earnings BW  Chart) 
GIII,G-III Apparel Group Ltd (Google  Yahoo  Earnings BW  Chart) 
GOAM,Goamerica Inc (Google  Yahoo  Earnings BW  Chart) 
GROW,U.S. Global Invest Inc A (Google  Yahoo  Earnings BW  Chart) 
GVP,Gse Systems Inc (Google  Yahoo  Earnings BW  Chart) 
HGO,Houston American Energy Corp (Google  Yahoo  Earnings BW  Chart) 
HTI,Halozyme Therapeutics Inc (Google  Yahoo  Earnings BW  Chart) 
IAAC,Internat Asset Holdg Cp (Google  Yahoo  Earnings BW  Chart) 
JST,Jinpan Internat Ltd (Google  Yahoo  Earnings BW  Chart) 
MAMA,Mamma.com Inc (Google  Yahoo  Earnings BW  Chart) 
ONSM,Onstream Media (Google  Yahoo  Earnings BW  Chart) 
PCCC,Pc Connection Inc (Google  Yahoo  Earnings BW  Chart) 
PGLA,Progen Industries Ltd (Google  Yahoo  Earnings BW  Chart) 
PTT,Vcg Holding Copr (Google  Yahoo  Earnings BW  Chart) 
RAND,Rand Capital Cp (Google  Yahoo  Earnings BW  Chart) 
SIGA,Siga Pharmaceuticals Inc (Google  Yahoo  Earnings BW  Chart) 
SOFO,Sonic Foundry Inc (Google  Yahoo  Earnings BW  Chart) 
SQNM,Sequenom Inc (Google  Yahoo  Earnings BW  Chart) 
STEC,Simple Technology Inc (Google  Yahoo  Earnings BW  Chart) 
TGEN,Targeted Genetics Cp (Google  Yahoo  Earnings BW  Chart) 
UAHC,United American Healthcare Cor (Google  Yahoo  Earnings BW  Chart) 


What can go higher, yes there are stocks and groups which can go higher. I am keeping an eye on around 100 stocks like that. Expanding the momentum universe to 5% can give you much better read on which are likely to lead in next phase. The top 2% are slowly deteriorating one by one but they will be replaced in relative ranking by others. It does not take much to get fully invested on long side, if the market does start rallying. But I have serious doubt about it at this stage.

Danger signals

A speculator of great genius once told me:
"When I see a danger signal handed to me, I don't argue with it. I get out! A few days later, if everything looks all right, I can always go back again. Thereby I have saved myself a lot of worry and money.
I figure it out this way. If I were walking along a railroad track and saw an express train coming at me sixty miles an hour, I would be damned fool not to get off the track and let the train go by. After it passed, I could always get back on track again, if I desired." I have always remembered that as a graphic bit of speculative wisdom.
Every judicious speculator is on the alert for danger signals.
Curiously, the trouble with most speculators is that something inside them keeps them from mustering enough courage to close out their commitment when they should. They hesitate and during that period of hesitation they watch the market go many points against them.
Jesse Livermore

Several things which I am looking at indicates clear danger in next few weeks. When you see danger ahead, you must act on it, is my philosophy. Protecting your profits and trading capital in first priority. So I am sitting in cash.

Besides all the techniques and tools I use, there is also a speculative instinct and speculative hunches. When you are in tune with the market sometime you can sense danger ahead of time. Those instincts are not always 100% correct, but if you don't act on them, it results in lack of conviction. I have no conviction on the long side for next couple of weeks. I may be wrong but I smell danger.

Breakouts

Market continues to be in holiday mood. This trading environment is creating some wild moves. If you are nimble day trader or swing trader, there are lots of opportunities.

ACEL,Alfacell Corporation (Google  Yahoo  Earnings BW  Chart) 
AGYS,Agilysys Inc (Google  Yahoo  Earnings BW  Chart) 
CBRX,Columbia Laboratories (Google  Yahoo  Earnings BW  Chart) 
CHRD,Chordiant Software Inc (Google  Yahoo  Earnings BW  Chart) 
CTDC,China Technology Development Group Corp (Google  Yahoo  Earnings BW  Chart) 
EBS,Emergent BioSolutions Inc (Google  Yahoo  Earnings BW  Chart) 
ENCO,Encorium Group Inc (Google  Yahoo  Earnings BW  Chart) 
GGC,Georgia Gulf Corp (Google  Yahoo  Earnings BW  Chart) 
INOC,Innotrac Corp (Google  Yahoo  Earnings BW  Chart) 
ISON,Isonics Corp (Google  Yahoo  Earnings BW  Chart) 
ITWO,i2 Technologies Inc (Google  Yahoo  Earnings BW  Chart) 
JH,John H. Harland Co (Google  Yahoo  Earnings BW  Chart) 
KMX,Carmax Inc (Google  Yahoo  Earnings BW  Chart) 
KOSN,Kosan Biosciences Inc (Google  Yahoo  Earnings BW  Chart) 
LCRD,Lasercard Corporation (Google  Yahoo  Earnings BW  Chart) 
LGVN,Logicvision Inc (Google  Yahoo  Earnings BW  Chart) 
LIFC,Lifecell Corporation (Google  Yahoo  Earnings BW  Chart) 
MXIM,Maxim Integrated Prods (Google  Yahoo  Earnings BW  Chart) 
PFWD,Phase Forward Inc. (Google  Yahoo  Earnings BW  Chart) 
RBAK,Redback Networks Inc (Google  Yahoo  Earnings BW  Chart) 
SOFO,Sonic Foundry Inc (Google  Yahoo  Earnings BW  Chart) 
THRM,Thermage Inc (Google  Yahoo  Earnings BW  Chart) 

Just buy the dips

Till they stop working. Momentum persists and yet another shakeout followed by dip buyers enthusiastically bidding up equities. As I have said before when repeated attempt at making a high fail or once shorts get shaken out repeatedly, is when the market will reveal its true intention.

While the dip buyers were active yesterday, number of market leaders and high momentum stocks, or stocks which lead healthy advances, or stock with outstanding earnings are not the one necessarily finding the bid. When Gold, silver, GE, C and the likes lead the market, I find little to be enthusiastic about. Anyway I will be looking at most opportunities post new year.

In new year the market will turn its attention to the upcoming earning season and then again you will find opportunities on both long or short side as stocks breakout or breakdown in anticipation or post earnings. The earnings are projected to slow down. This is the difference between last earning season and this one. That was one of the reason, I was bullish heading in to last earning season. There are some sectors which however are projected to have accelerated earnings and you should keep an eye on them.

Many of you have emailed me asking how is scan different from a conveyor belt and other questions related to the conveyor belt metaphor I used yesterday, while I have responded to some specifics, I will make a more detailed post later sometime today to give some examples of kind of things I have researched. Those examples should give you enough hints to possible directions on setting your own trading conveyor belt.While I try and respond to most emails I receive individually, in this case most questions are similar, so if the post does not answer your question, you can email with more specific questions.

What works for me may not work for everyone. Each trader must find his own nirvana.

Round up of some interesting things

Merger Mania:

The total value of takeovers across the world has reached $3,611bn (£1,836bn) this year, higher than during the dotcom bubble, according to new figures.

This is a bearish sign. Merger tend to happen at bullish extremes. But that alone is no reason to be bearish.

Earnings surprise
I visit this page everyday. Earnings drive prices. Surprises are even better. Another good source of earnings is Starmine, When analyst raise estimates it can be bullish. There is more to it than just that, you can find more about the Starmine methodology on their site and also sign up for free newsletter. It has some good profitable ideas.

Bonus Nightmare for some

The bonus pool is the largest ever doled out by a Wall Street firm. Inevitably, jealous rivals want similar sums, so stories abound of fits of pique and resentment — hence, the “Goldman problem”.
One London banker said: “This Goldman stuff has caused us a nightmare. Suddenly I’ve got a row of 25-year-olds outside my door telling me that if they get £200,000 it’s not enough. We’re not even announcing bonuses yet — it’s extraordinary. They know it’s far more than their parents earned over a period of years but there’s still this culture of jealousy.”

Most profitable trade in Goldman's history

Goldman has made much of its extra profits by trading on its own account — rather than by using the traditional bank model of trading for other people and then taking a share of the profit.

The bank made $1.3 billion in a single trade this year. For decades Goldman has been cultivating contacts in China. In April the bank invested $2.6 billion in Industrial and Commercial Bank of China; when ICBC went public in October the investment was valued at $3.9 billion. It is believed to be the largest single gain on an investment Goldman has made since it opened its doors in 1869.

The last time western capitalists pulled off a trade this profitable in China “they were selling opium”, wrote Trader Monthly, a magazine that chronicles the lives of the financial elite.

Culture of negativity and Barry Ritholtz

More people are realising that popularity in blogosphere is a function of how bearish you are or how persistently wrong you are in analysing markets or your ability to generate conspiracy theories.

A problem in this exercise is that some pundits are good debaters. They quickly find some argument that has a superficial plausibility (e.g. The government is manipulating the data) which resonates with many active traders, most of whom did not take a course in political science or quickly forgot it! The average person's knowledge of government is basically zilch, which is why they know more about The Three Stooges than the three branches.

Any investor or trader who is more sophisticated in the understanding of government organization, the institution of the Fed, how research is conducted, and what to expect from data has a real market edge.

With this background in mind, I read with some astonishment a recent post by Barry Ritholtz. Barry claims that since he knows about cognitive bias, he is beyond this problem. He writes as follows:

My saving grace is that I at least recognize these biases, which gives me a fighting chance to see reality without all these filters. That's why I am so keen on looking past the headline data and taking apart the details beneath.

I find this amazing since Barry does not really do what he says. My impression of his analysis is that he posts, uncritically, any link that supports his bearish view. He attempts to tear apart any number that conflicts with this view. This is an empirical question. One could look at his blog and analyze the posts to see if my impression is correct. If my staff has time, we might do this. Barry could also do this in his forthcoming year-end analysis.

I want to be perfectly clear in setting this forth. I respect Barry and I am delighted at his success in building a blog that gets major attention and getting media coverage. He is approaching many problems in the right way. I just think he is reaching the wrong conclusions. The popularity of his blog, as well as the attention to Roubini, and other bears like Doug Kass is part of the current climate of negativity.

See my earlier post on this ' Don't follow an analyst unless you understand Cognitive Dissonance'

GMI: 6; No longer long stocks

Failure of new highs to hold up is a sign of market weakness. Only 37% of the Nasdaq 100 stocks advanced, along with 57-60% of the S&P 500 and Dow 30 stocks. The Nasdaq 100 stocks are clearly lagging. Only 49% of them closed above their 30 day averages, the lowest percentage since this rally began in mid-August, and well down from a peak of 88% reached in October. The IBD 100 list from 12/18 did better on Tuesday, 54% of them advanced and 72% remain above their 30 day averages. RIMM fell on Tuesday, but GOOG and AAPL bounced.......

I am sorry, but I don't like this market and I have told you I am a chicken. It has been 17 days since the QQQQ hit a recovery high, the longest such stretch since this up-turn began in mid-August. Tuesday was the 86th day of the current up-trend in the QQQQ. The MACD for the QQQQ continues to decline. I am out of all of my longs, and holding a small pilot position in the QID. QID will rise if the QQQQ declines. Meanwhile, I will earn 5% interest in a money market fund as I wait for a clear trend.

One of the blogs I visit daily. I like his very focused and well thought out approach. Lots to learn from his approach and trades.

Cartoonist for a month

My name is Evan and I like to do different things each month and then write about them on the Internet. Some are more interesting than others. For November, I only ate $1 worth of food each day. For December, I'm drawing a web comic each day.

High volume breakouts

The market has its own agenda. It wants to go up. Let us see how much leg the move has. Lot of bears must be very frustrated as conditions were ripe for a sell off with the Asian market tumble. Many times market just ignores these kind of thing and then after few days tumbles. The market already had a failed breakout on Thursday, so I don't know how far this move can go. May be the elephants want to hold market together till new year . Santa might still make an appearance after today's action.

Here are stocks with high volume action. Some of them look attractive from long term perspective. Action in Gold looks interesting, NEM might be worth keeping an eye on.


AEY,Addvantage Tech Group (Google  Yahoo  Earnings BW  Chart) 
AHCI,Allied Healthcare Intl Inc (Google  Yahoo  Earnings BW  Chart) 
ALXA,Alexza Pharmaceuticals Inc (Google  Yahoo  Earnings BW  Chart) 
ANO,Anooraq Resources Corp (Google  Yahoo  Earnings BW  Chart) 
ANSW,Answers Corp (Google  Yahoo  Earnings BW  Chart) 
ARTX,Arotech Corp (Google  Yahoo  Earnings BW  Chart) 
AUY,Yamana Gold Inc (Google  Yahoo  Earnings BW  Chart) 
AVTR,Avatar Holdings Inc (Google  Yahoo  Earnings BW  Chart) 
DNE,Dune Energy Inc (Google  Yahoo  Earnings BW  Chart) 
EDA,Endeavor Acquisition Corp (Google  Yahoo  Earnings BW  Chart) 
EEE,Evergreen Energy Inc (Google  Yahoo  Earnings BW  Chart) 
EGO,El Dorado Gold Corp (Google  Yahoo  Earnings BW  Chart) 
ESCL,Escala Group Inc (Google  Yahoo  Earnings BW  Chart) 
GMKT,GMarket Inc (Google  Yahoo  Earnings BW  Chart) 
GMST,Gemstar-tv Guide Intl (Google  Yahoo  Earnings BW  Chart) 
GNVC,Genvec Inc (Google  Yahoo  Earnings BW  Chart) 
GRZ,Gold Reserve Inc (Google  Yahoo  Earnings BW  Chart) 
GSX,Gasco Energy (Google  Yahoo  Earnings BW  Chart) 
GVP,Gse Systems Inc (Google  Yahoo  Earnings BW  Chart) 
HH,Hooper Holmes Inc (Google  Yahoo  Earnings BW  Chart) 
HL,Hecla Mining Co (Google  Yahoo  Earnings BW  Chart) 
HNR,Harvest Natural Resources Inc (Google  Yahoo  Earnings BW  Chart) 
HOC,Holly Corp (Google  Yahoo  Earnings BW  Chart) 
IDP,Idera Pharmaceuticals Inc (Google  Yahoo  Earnings BW  Chart) 
IMMU,Immunomedics Inc (Google  Yahoo  Earnings BW  Chart) 
IPSU,Imperial Sugar Company (Google  Yahoo  Earnings BW  Chart) 
KERX,Keryx Biopharmaceuticals (Google  Yahoo  Earnings BW  Chart) 
KRY,Crystallex Internat Corp (Google  Yahoo  Earnings BW  Chart) 
LOCM,Local.Com Corp (Google  Yahoo  Earnings BW  Chart) 
NCTY,The9 Limited (Google  Yahoo  Earnings BW  Chart) 
NOIZ,Micronetics Inc (Google  Yahoo  Earnings BW  Chart) 
NSTR,Northstar Neuroscience Inc (Google  Yahoo  Earnings BW  Chart) 
NXG,Northgate Minerals Corp (Google  Yahoo  Earnings BW  Chart) 
NXXI,Nutrition 21 Inc (Google  Yahoo  Earnings BW  Chart) 
ORBC,Orbcomm Inc (Google  Yahoo  Earnings BW  Chart) 
OSIS,Osi Systems Inc (Google  Yahoo  Earnings BW  Chart) 
OSTK,Overstock.com Inc (Google  Yahoo  Earnings BW  Chart) 
PACT,Pacificnet Inc (Google  Yahoo  Earnings BW  Chart) 
QEE,Queenstake Resources Ltd (Google  Yahoo  Earnings BW  Chart) 
RGLD,Royal Gold Inc (Google  Yahoo  Earnings BW  Chart) 
RZ,Raser Technologies Inc (Google  Yahoo  Earnings BW  Chart) 
SLW,Silver Wheaton Corp (Google  Yahoo  Earnings BW  Chart) 
SYNM,Syntroleum Corporation (Google  Yahoo  Earnings BW  Chart) 
TGB,Taseko Mines Ltd (Google  Yahoo  Earnings BW  Chart) 
TOMO,Tom Online (Google  Yahoo  Earnings BW  Chart) 
TSTC,Telestone Technologies Corp (Google  Yahoo  Earnings BW  Chart) 
TTG,Tutogen Medical Inc (Google  Yahoo  Earnings BW  Chart) 
VEH,Valero Group Holdings LLC (Google  Yahoo  Earnings BW  Chart) 
VNUS,Vnus Medical Tech (Google  Yahoo  Earnings BW  Chart) 
VTIV,Inventiv Health Inc (Google  Yahoo  Earnings BW  Chart) 
WSII,Waste Services Inc (Google  Yahoo  Earnings BW  Chart) 

What Every Fidelity Investor Needs to Know

What Every Fidelity Investor Needs to Know by James Lowell

There are two reason I picked this book to read. First is I have family money invested in Fidelity funds. Second most important is that I think there is lot to be learned from mutual funds. While everyone is excited by hedge funds, the mutual funds have been in this game for long. Many of the good mutual fund managers have better track record than majority of hedge fund managers. So I read most books on mutual funds.

Many people might be familiar with James Lowell because of his columns in magazines. His Fidelity Investor newsletter offers a valuable service if you have large mutual fund portfolio.

This book by him is a comprehensive resource about Fidelity funds, their history, management structure, track record and various services offered by Fidelity. Large part of the book deals with explaining the Fidelity range of offering to lay investor.

The meat of the book is in later part where the author talks about how to design an investment strategy using Fidelity fund offerings. There are couple of key insights about Fidelity funds. The most important being that you should buy the manager , not the fund. Fund manager is the most important determinant of fund performance.Asset allocation is important but owning the wrong manager in your chosen asset allocation can make a big difference in your returns.

The other key insight is chasing performance works in Fidelity. So buying whichever fund has performed best in previous year is a winning bet. According to the authors database at Fidelity, Fidelity hot hands stay hot.

For mutual fund investors, the chapter on model portfolios for different risk reward profile offers good ideas on choosing relevant Fidelity funds. If you are Fidelity fund owner, this book is a valuable asset to improve your returns.

Wild games in thin market

The market is in stand still mode. There is no momentum in either direction. The dip buyers are on holiday. Shorts are scared of squeeze. Day traders and short term traders are having a field day running up stocks like ESCL 60% plus. This typical of holiday markets.



Stocks up on high volume:
ANO,Anooraq Resources Corp (Google  Yahoo  Earnings BW  Chart) 
CSLR,Consulier Engineering (Google  Yahoo  Earnings BW  Chart) 
EDA,Endeavor Acquisition Corp (Google  Yahoo  Earnings BW  Chart) 
EGO,El Dorado Gold Corp (Google  Yahoo  Earnings BW  Chart) 
ESCL,Escala Group Inc (Google  Yahoo  Earnings BW  Chart) 
GMKT,GMarket Inc (Google  Yahoo  Earnings BW  Chart) 
GNVC,Genvec Inc (Google  Yahoo  Earnings BW  Chart) 
IIG,Imergent Inc (Google  Yahoo  Earnings BW  Chart) 
KERX,Keryx Biopharmaceuticals (Google  Yahoo  Earnings BW  Chart) 
NCTY,The9 Limited (Google  Yahoo  Earnings BW  Chart) 
NXXI,Nutrition 21 Inc (Google  Yahoo  Earnings BW  Chart) 
OSIS,Osi Systems Inc (Google  Yahoo  Earnings BW  Chart) 
OSTK,Overstock.com Inc (Google  Yahoo  Earnings BW  Chart) 
SQNM,Sequenom Inc (Google  Yahoo  Earnings BW  Chart) 
SYNM,Syntroleum Corporation (Google  Yahoo  Earnings BW  Chart) 
TGB,Taseko Mines Ltd (Google  Yahoo  Earnings BW  Chart) 
TOMO,Tom Online (Google  Yahoo  Earnings BW  Chart) 
TTF,Thai Fund Inc (Google  Yahoo  Earnings BW  Chart) 
TTG,Tutogen Medical Inc (Google  Yahoo  Earnings BW  Chart) 
VCI,Valassis Communications (Google  Yahoo  Earnings BW  Chart) 
VEH,Valero Group Holdings LLC (Google  Yahoo  Earnings BW  Chart) 


The market is set for a bounce and should be positive by day end.

Trading conveyor belt

Walter:
this is a market time when i think charting is very helpful - for timing short sales, for setting stops, etc.

for a top we would be looking for lower lows and lower highs, high vol days where the stocks goes nowhere or goes down, or stocks go up on very low volume

Walter has left this comment on one of the posts. Now you know my views on charting and technical analysis. Charting on a right set of stocks as against any stock magnifies return.

Conceptually you must think in terms of a trading conveyor belt. You must set up a conveyor belt for long/ short ideas. So that long/short ideas come on that conveyor belt, you inspect and take them or reject them. Charting, technical analysis is involved in the last stage on this conveyor belt.

Considerable thought process should go in to setting up your conveyor belt. The logic for it should be solid, so that it brings only the best ideas and only those with high probability to you.

Many of you are aware of this conveyor belt concept, I talked about in the now defunct group. I have around 5-6 long conveyor belts. Each one has a logic. Now on a daily basis they bring ideas to table. The speed varies depending on market or depending on nature of strategy. By using 5-6 conveyor belt, you get strategy diversification, plus you never run out of ideas. Some of these belts are based on momentum, some on earnings, some on value, some on market anomalies.

For example I have a conveyor belt based on long term (multi year range break), now by the very nature of the strategy it gives you signals very rarely. But those signals are highly profitable and significant in giving you a signal about possible style shift. Now in August/ September it started showing lot of large caps, because the market circumstances changed. The speed of ideas on it changed. Which to me signaled underlying change in market dynamics.

Similarly on short side I have 3 conveyor belts based on sound logic. One of them is based on extreme price growth in 2 year time. Why because studies show mean reversion on past market leaders. Now it starts looking at candidate only on certain events like range expansion, or volume expansion or failure or runaway move. So when this happens, those stocks show up on the conveyor belt. Applying technical analysis or pattern recognition on those will give you high returns, why because the underlying logic behind stock selection is the most critical element in making those shorts work.So conceptually you must think of technical analysis as solving only the last mile problem. So a double top/ key reversal or candle pattern on a stock on this conveyor belt is relevant as against on any other 50 random stocks.

Once you set up such conveyor belts, opportunities keep popping up. You never run out of opportunities. You utilise your time effectively and can focus on only the best opportunities in market. More than that, you can use extremely tight stops and time stops, as you know, if this idea does not work, I have something else coming up on conveyor belts.

Pilot fish

Some days ago, I linked to the Bombay Sensex tumble and talked about another market acting as pilot fish for impending move in another market. Look at the Asian markets today. Thailand (like it did last time), precipitated the crisis and now the market across the region had highly volatile day. So much for diversifying by geography, when one market catches flue, it just spreads. So it helps keeping an eye on abnormal action or aberration in other markets and sectors besides the one you trade.

The heart of the fear surrounding the 15% plunge in Thailand’s shares is captured in one word: contagion.

Hedge funds have increasingly loaded up on risky derivatives in recent years, which can maximize returns — and losses. Hedge funds struggling to meet margin calls in suddenly plunging Thai shares may be unable to unload their holdings in Thailand amid the rush for the exits, and are forced to sell more liquid, or easily traded, shares held in other countries. That could be one reason why Japanese, Indian and European stocks swiftly followed Thailand’s decline Tuesday.

A Contrarian call

There are many who claim to be true contrarians, but true contrarians who are right are rare. One such market analyst whom I track daily is Marc Faber of Gloom, Doom and Boom fame.

He is often right on the money on his market calls. Though he is a bear, he is not perma bear. He makes tactical bullish calls which most of the time work. Like in July, when most USA based market pundits were bearish on the market, Marc Faber was bullish. If you search this site, you will see I linked to his bullish calls on US markets in July/ August/ September period. Now he is bearish and read his analysis below:

"I think as we move into 2007, I noticed globally the wave of optimism, the art dealers are bullish on art, and the commodity traders bullish on commodities, the real estate guys bullish on real estate, the stock traders bullish on stocks, everybody has something to buy," Marc Faber says.

He says this type of an environment is very dangerous and feels that this is a suitable time to liquidate some assets and just sit back and see what happens. He feels that there are no bargains — only some relative bargains like the price of sugar or the price of cotton.

"I do not think that gold is terribly expensive. I think we are very stretched in the asset markets and just looking at the rise we had in markets since July of this year after the correction, we have gone up almost vertically and all the markets are overbought. One reads in the paper about excess liquidity and soft landing and that is the accepted view.

"I will say that basically you should sell stocks and assets when there are no clouds in the sky and you should buy them when there is a thunder and storm and everything looks dismal. Today everything looks wonderful, I could see the global economy is expanding, we have synchronised growth, economically everything looks good, the problem is the inflated asset market, that is the bubble," adds Faber.

Downside move dynamics

Real down moves become visible or apparent when large amount of distribution has already happened. Strength is used by big speculators to pass on their holdings acquired at lower price to enthusiastic late stage buyers. When there are no more large buyers left, the absence of buying is what drives price down. What we are witnessing is profit taking after a long run.

Short sellers might delude themselves in believing that they drive the market down. But that is not how the market operates. Prices drop from lack of bids not from too many offers. Buyers don't see reason to pay current prices. This leads to bid drying up. So when a down move starts those who bought late or late in selling their profitable position are willing to sell for less than current prices. This leads to the kind of move which you see yesterday in some stocks. At least that is my understanding of how markets work.

Stakes and big positions are accumulated slowly, over a period of time by big speculator, sometime it is done suddenly, when a catalyst like earning or new product, or regulatory action changes fundamentally the prospect for a security. Once sufficient large positions are built, the elephants have no hesitation in talking and broadcasting about their bullish position, as it helps drive the prices up.

On the other hand selling in most cases is done stealthily, slowly, and while the party still looks full of life. That is when many small speculators or those on sideline become enthusiastic participants in the rally. That is the reason, corrections and tops are slow protracted events and require considerable skill to trade and detect.Buying clues most of the times are very apparent, while selling is well disguised. To complicate the dynamics further, there are often false moves and traps. To understand the market you have to anticipate the elephants next big moves.

When I was new and less experienced traders, I would get caught in such events frequently. Now I play the high probability game, risking more money at the beginning of rally from weakness and playing tactically in later stages and playing small in later stages. Can the market rally from here, sure, anything is possible, but the risk reward for at least next couple of week is not favorable to long side in my judgement. My views might change in few weeks as I am flexible and not married to a hypothesis or a big picture theme.

If this round of selling continues, there will be no safe corners, never be complacent about your long position in such sell offs. Remember that your stock could be next. When they raid the whorehouse, they take the piano player too , as the saying goes.

At 5% correction level in Indices, I will be bullish, at 15% more bullish at 50%+ correction level I will load up the truck.

Later today:

Coming next answer to question by couple of readers- "Bullish on Thursday, bearish on Monday morning". Anatomy of the decision making process.

What Every Fidelity Investor Needs to Know. A review of a book I finished reading last night.

Stay tuned.

No Santa rally this year

It is certainly not pretty out there. This is the start of correction many were waiting for. Even though the selling was concentrated in few sectors, it will soon spread to more sectors and more stocks. High volume declines, range expansion to bearish side, and bearish breakouts exceeding bullish breakout. This is clear distribution.

The safest place is cash currently. Attempts at squeezing the market upwards will persist , but when you see action like this, any further commitment on long side is extremely risky. At least I am not going to put my hard earned profit at risk at this stage. At some stage the market will set itself up for up action again, but the mojo is gone. Forget about Santa rally.

Stocks breaking down or experiencing correction. Go through this list, that is clear distribution.

ACI,Arch Coal Inc (Google  Yahoo  Earnings BW  Chart) 
AGIX,Atherogenics Inc (Google  Yahoo  Earnings BW  Chart) 
AIR,Aar Corp (Google  Yahoo  Earnings BW  Chart) 
ALJ,Alon USA Energy Inc (Google  Yahoo  Earnings BW  Chart) 
AMSC,American Superconductor (Google  Yahoo  Earnings BW  Chart) 
ASGN,On Assignment Inc (Google  Yahoo  Earnings BW  Chart) 
BRKR,Bruker Biosciences Corp (Google  Yahoo  Earnings BW  Chart) 
BTJ,Bolt Technology Corp (Google  Yahoo  Earnings BW  Chart) 
CHDX,Chindex International Inc (Google  Yahoo  Earnings BW  Chart) 
CMCO,Columbus Mckinnon Cp(Ny) (Google  Yahoo  Earnings BW  Chart) 
COGT,Cogent Systems (Google  Yahoo  Earnings BW  Chart) 
CPE,Callon Petroleum Co (Google  Yahoo  Earnings BW  Chart) 
DPTR,Delta Petroleum Corp (Google  Yahoo  Earnings BW  Chart) 
DWSN,Dawson Geophysical Co (Google  Yahoo  Earnings BW  Chart) 
EAC,Encore Acquisition (Google  Yahoo  Earnings BW  Chart) 
ECA,Encana Corporation (Google  Yahoo  Earnings BW  Chart) 
EMBT,Embarcadero Technologies (Google  Yahoo  Earnings BW  Chart) 
FTO,Frontier Oil Corp (Google  Yahoo  Earnings BW  Chart) 
GGR,Geoglobal Resources Inc (Google  Yahoo  Earnings BW  Chart) 
GIII,G-III Apparel Group Ltd (Google  Yahoo  Earnings BW  Chart) 
GOOG,Google (Google  Yahoo  Earnings BW  Chart) 
GRP,Grant Prideco Inc (Google  Yahoo  Earnings BW  Chart) 
HERO,Hercules Offshore Inc (Google  Yahoo  Earnings BW  Chart) 
HES,Hess Corp (Google  Yahoo  Earnings BW  Chart) 
HHGP,Hudson Highland Grp Inc W/i (Google  Yahoo  Earnings BW  Chart) 
HOC,Holly Corp (Google  Yahoo  Earnings BW  Chart) 
ICFI,Ifc International Inc (Google  Yahoo  Earnings BW  Chart) 
KELYA,Kelly Services Cl A (Google  Yahoo  Earnings BW  Chart) 
KNDL,Kendle Internat Inc (Google  Yahoo  Earnings BW  Chart) 
KWK,Quicksilver Resources (Google  Yahoo  Earnings BW  Chart) 
LLL,L-3 Communications Hldgs (Google  Yahoo  Earnings BW  Chart) 
LWAY,Lifeway Foods Inc (Google  Yahoo  Earnings BW  Chart) 
MATR,Matria Healthcare Inc (Google  Yahoo  Earnings BW  Chart) 
MFB,Maidenform Inc (Google  Yahoo  Earnings BW  Chart) 
MFRI,Mfri Inc (Google  Yahoo  Earnings BW  Chart) 
MIKR,Mikron Infrared Inc (Google  Yahoo  Earnings BW  Chart) 
NBL,Noble Energy Inc (Google  Yahoo  Earnings BW  Chart) 
NOV,National Oilwell Varco Inc (Google  Yahoo  Earnings BW  Chart) 
NTG,Natco Group Incorporated (Google  Yahoo  Earnings BW  Chart) 
NVEC,Nve Corp (Google  Yahoo  Earnings BW  Chart) 
OIH,HOLDRS Oil Service ETF (Google  Yahoo  Earnings BW  Chart) 
OMNI,Omni Energy Services Cp (Google  Yahoo  Earnings BW  Chart) 
ONXX,Onyx Pharmaceuticals Inc (Google  Yahoo  Earnings BW  Chart) 
OSIR,Osiris Therapeutics Inc (Google  Yahoo  Earnings BW  Chart) 
OSTK,Overstock.com Inc (Google  Yahoo  Earnings BW  Chart) 
POWI,Power Integrations Inc (Google  Yahoo  Earnings BW  Chart) 
PRFT,Perficient Inc (Google  Yahoo  Earnings BW  Chart) 
RDC,Rowan Companies Inc (Google  Yahoo  Earnings BW  Chart) 
REDF,Rediff.Com India Ltd Ads (Google  Yahoo  Earnings BW  Chart) 
RMKR,Rainmaker Systems Inc (Google  Yahoo  Earnings BW  Chart) 
SMSC,Standard Microsystems Cp (Google  Yahoo  Earnings BW  Chart) 
SUN,Sunoco Inc (Google  Yahoo  Earnings BW  Chart) 
SWN,Southwestern Energy Co (Google  Yahoo  Earnings BW  Chart) 
SYX,Systemax Inc (Google  Yahoo  Earnings BW  Chart) 
THE,Todco (Google  Yahoo  Earnings BW  Chart) 
TSO,Tesoro Corp (Google  Yahoo  Earnings BW  Chart) 
TTI,Tetra Technologies Inc (Google  Yahoo  Earnings BW  Chart) 
VCI,Valassis Communications (Google  Yahoo  Earnings BW  Chart) 
WNR,Western Refining Inc (Google  Yahoo  Earnings BW  Chart) 
WTI,W & T Offshore (Google  Yahoo  Earnings BW  Chart) 


As I said in the morning, several things indicated this. How long the correction will last, I have no idea, but all that I know is there will be more opportunities on the long side in 2007 and when the risk is low and opportunities are compelling on long side, I will load up the truck again on long side. Till then it is R&D times.

Santa seems to have liking for short sellers this season.

Insiders

This chart for SecForm4.Com, looks pretty interesting. Along with other sentiment indicators, it is now in extreme territory. Looks like 2007 might start with a bang.

Finding the Next Starbucks: How to Identify and Invest in the Hot Stocks of Tomorrow

Finding the Next Starbucks: How to Identify and Invest in the Hot Stocks of Tomorrow by Michael Moe, is a new book on investing in growth stocks. This weekend over few Starbucks lattes I finished reading this book. CANSLIM strategy retold is one line summary of this book.

The author describes in detail his firms methodology to identify and invest in stars of tomorrow- the fastest growing, most innovative companies in the world. The idea like in any growth investing is to find small, unknown company , young company, with lots of growth potential ahead of them. If you find and invest in such company early, you benefit when the company is discovered and the opportunity becomes widely recognised. The author gives examples of companies like Starbucks, Apollo Group, Dell, and so on to illustrate his point.

The central premise of the author based on his analysis of past data is that in the short run variety of factors influence stock price- geopolitical events, funds flow, interest rates and so on. But in the long run only one thing influences stock price- Earnings Growth.In the long run, a company's price will be 100% correlated with its earning growth. Earning growth drives stock price. That is the central message of the book.

One of the pitfalls of growth investing is for every Starbucks, you have 10 or even 1000 duds which do not live up to expectations. The author offers an elaborate methodology to try and identify such stocks. That is where the book varies a bit from the CANSLIM method popularised by William O'Neil. This is where the book also loses its focus and makes the CANSLIM method needlessly complicated.

Many of the items on the laundry list of checklist to find tomorrow's winners is nice sounding rhetorical word plays:
1 Be right on fundamentals
2 Be proactive, not reactive
3 Be rigorous , but do not have rigor mortis
4 When wrong, admit it
5 The cockroach theory
6 Investment ideas are about information and insight
7 4 P (people, product, potential and predictability
8 Use 5 independent sources for each stock you invest in
9 Find 3 main reason for a stock to move up or down
10 Be passionate about investing, but dispassionate about the investment

Many of these things sound nice but are not really actionable. To further complicate the effort, the author proposes a framework for identifying megatrends. Hind sight is a very wonderful thing and the 8 megatrends identified by the author suffer from this bias. It is very easy to identify megatrends after the fact. Plus the question to be asked is , is it at all necessary. If earnings drive price then that is what you should track. A large part of the book is devoted to these megatrends.

All in all the book basically is a variation of the CANSLIM style investing concept. It tries to improve on it and in the process makes it more complicated. The book would have benefited a lot from good editing to make it crisper.

If you want to learn growth investing stick to William O'Neil methodology. If you want a better insight in to growth investing read :
Frank Cappiello's New Guide to Finding the Next Superstock
Superperformance stocks
The Hedge Fund Edge

Save your money, don't buy this book. The book vividly demonstrates the temptation to complicate simple things. The cover is good and also the latte at the Starbucks was excellent.

The market is not doing much, so let me grab another latte and a book by my favorite author- Memories of My Melancholy Whores

Can the market hold up for the rest of the year

In retrospect, the market rallied since July on the belief that the economy will have a soft landing. Inflation will go down, and the Fed would have the flexibility to reduce interest rates sometime next year to boost the economy. Very few even talked about soft landing in July, the talk was all about hard landing and housing lead recession, inflation and 100 USD oil. In the face of such skepticism,contrary sentiments, and majority convinced about that scenario, a rally in market was the perfect scenario. After all the market is the leading indicator and it signaled soft landing. Low expectations about earnings also helped.

Now look at the following things:

Market has rallied without a pause for 5 months. Many stocks have doubled or tripled in that period. There are few bargains. Earnings got priced in. So on a broader level, there is likely hood of pause in market, or correction or sideways move.

Some best performers during the July to December rally periods are:
ACOR,Acorda Therapeutics Inc (Google  Yahoo  Earnings BW  Chart) 
ANGN,Angeion Corp (Google  Yahoo  Earnings BW  Chart) 
AZL,Arizona Land Income Corp (Google  Yahoo  Earnings BW  Chart) 
BRLC,Syntax-Brillian Corp (Google  Yahoo  Earnings BW  Chart) 
CHTR,Charter Communications Inc (Google  Yahoo  Earnings BW  Chart) 
FTGX,FiberNet Telecom Group Inc (Google  Yahoo  Earnings BW  Chart) 
GOAM,Goamerica Inc (Google  Yahoo  Earnings BW  Chart) 
GROW,U.S. Global Invest Inc A (Google  Yahoo  Earnings BW  Chart) 
IAAC,Internat Asset Holdg Cp (Google  Yahoo  Earnings BW  Chart) 
JST,Jinpan Internat Ltd (Google  Yahoo  Earnings BW  Chart) 
MAMA,Mamma.com Inc (Google  Yahoo  Earnings BW  Chart) 
MDV,Medivation Inc (Google  Yahoo  Earnings BW  Chart) 
NVEC,Nve Corp (Google  Yahoo  Earnings BW  Chart) 
OMRI,Omrix Biopharmaceuticals Inc (Google  Yahoo  Earnings BW  Chart) 
PTT,Vcg Holding Copr (Google  Yahoo  Earnings BW  Chart) 
SQNM,Sequenom Inc (Google  Yahoo  Earnings BW &