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.



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.