S&P 500 Breaks 200DMA
Posted by Eddy Elfenbein on September 16th, 2010 at 1:45 pm

The S&P 500 recently broke above its 200DMA. Here’s a look:

Last year I looked at the evidence of how well the indicator has worked:

So does the 200DMA work? The evidence suggests that it’s a pretty good indicator of future price performance. When the S&P 500 has been below the 200DMA, it’s dropped a total of about 20% over the equivalent of 27 years. In other words, the S&P 500 has been below its 200DMA about one-third of the time.
Historically, the best time to invest has been when the S&P is less than 1.7% below the 200DMA.
When the index is above the 200DMA, well, then everything looks much brighter. All of the market’s gain (and then some) have happened when we’re above the 200DMA which occurs about two-thirds of the time.

Although we’re above the 200DMA, the S&P 500 runs into a brick wall around 1227. I’ve mentioned the 1020/1130 trading range before, but it’s really making a strong stand.

Phil Maymin On the Nature of Genius
Posted by Eddy Elfenbein on September 16th, 2010 at 12:44 pm

11 Stocks to Short from Tim Sykes
Posted by Eddy Elfenbein on September 16th, 2010 at 12:26 pm

Timothy Sykes is an investor who follows questionable stocks that pump up their share prices with a blizzard of press releases. When the time is right, Timmy goes in and shorts them for fun and profit.
Here’s his latest list of short candidates:

Go Solar USA (GSLO)
RXi Pharmaceuticals (RXII)
RadNet (RDNT)
Liquidmetal Technologies (LQMT)
Texas Pacific Land Trust (TPL)
Vringo (VRNG)
Revolutions Medical (RMCP)
CrowdGather (CRWG)
Kraig Biocraft Laboratories (KBLB)
China Sun Group High Tech (CSGH)
Sunvalley Solar (SSOL)

Tim titled the post “10 Good Small Cap Stocks To Buy & Short Sell” although I counted 11. Be sure to read his comments because he doesn’t suggest shorting them all immediately.

Stock Pickers Aren’t Dead Just Yet
Posted by Eddy Elfenbein on September 16th, 2010 at 11:57 am

Herb Greenberg has a great column on the last of a dying breed, the stock-picker — a group that includes yours truly. I admit that the machines are much faster than us, but we humans still have many advantages, namely the irrationality of our fellow humans.
Despite the hand-wringing, this has been a very good time to be a stock-picker. Let’s look at the Rydex S&P 500 Equal Weighted ETF (RSP) compared with the S&P 500 Spyders (SPY):

In other words, the average stock has beaten the index by a good margin.
Will this divergence continue? It’s hard to say. I think one factor that will help is the persistence of low inflation, if not deflation.
When the pricing environment is so hostile to price increases, this may place a greater premium on companies that are more efficient or that offer something unique. The more diversity there is in rewards, the more opportunity there is for stock-pickers to find above-average profit opportunities.
When anybody can make a buck, anybody will and then you’re much better off going with the indexes.
What’s also going on right now is that many equity classes are correlating with one another. This means that if the drugs stocks go up, say, 1% one day, then the tech stocks are also going up by about that amount.
When the stock groups behave too similarly, it gets hard for money managers to set themselves apart — and that’s how they make their money. They want to see lots of divergences.

“That’s not a healthy market. The mathematical benefits of diversification require assets that exhibit low-to-no correlation amongst themselves. When everything moves in synch, asset allocators have to pull in their horns,” Colas writes. “Wonder why investors are shunning risk and buying bonds? Part of the reason is clearly that the historically proven benefits of diversification just are not working as well as they once did.”
Within the stock market, the Sector SPDR family of ETFs that carve up the S&P 500 offers a striking example of the herd behavior.
“U.S. equity correlations among the 10 industrial sectors of the S&P 500 remain near historical highs, as 7 out of the 10 sector ETFs show correlations with the S&P 500 in excess of 90%,” according to the strategist. “Only Healthcare (XLV), Utilities (XLU) and Consumer Staples (XLP) are lower, and they’re stuck in the 80% range, which is still very high.”

I disagree that this is “dangerous.” It just means that alpha isn’t so easy to come by.

Interview With Bill Miller
Posted by Eddy Elfenbein on September 16th, 2010 at 9:34 am

Here are some interesting insights from an interview with Bill Miller:

But here is a topical example: Hewlett Packard has $15bn of cash on its balance sheet. It will generate $10bn of free cash this year and is probably overpaying this $3bn for 3PAR and ArcSight for $1.5. But even so, it will not make much of a dent in its free cashflow for this year alone.
So HP could take 100% of its free cashflow and pay it out as dividends. While they would never do that, if they did the stock would have a 10% yield on it. Can you think of any companies out there with a 10% yield and can grow? So where would it trade? It might trade to a 5% yield.
It would probably go up 50% immediately and many people would be wondering whether what was going on was secure. But eventually it would be capitalised at a rate higher than a utility or a Reit because it can grow faster. That is the opportunity we currently have in the market.

Morning News: September 16, 2010
Posted by Eddy Elfenbein on September 16th, 2010 at 9:02 am

Yields inch up, Yen moves Watched
Futures Dip Ahead of Jobless Data, FedEx Results
China Yuan Rises To New High Before Geithner Testimony
Obama Reportedly to Name Warren Special Adviser
Pimco Makes $8.1 Billion Bet Against `Lost Decade’ of Deflation
Goldman Sachs Fund of Ex-Prop Traders Said to Return 3% in 2010
India Hikes Interest Rate More Than Expected
E.U. to Ratify First Free Trade Deal With Asian Partner
Wright Express Completes Australian Buyout

Buffett Buys More Shares Of Becton
Baby Bonobos!

One National Capital, Two Cities
Posted by Eddy Elfenbein on September 15th, 2010 at 9:58 pm

Who’s up for some DC primary statistical analysis blogging?
I thought so! (I admit, I’m a pale imitation of Nate Silver, but here goes.)
Yesterday was the Democratic primary for mayor of Washington, DC. Vincent Gray beat the incumbent mayor Adrian Fenty 54% to 45%.
The vote trend was incredibly split with the black-majority precincts going heavily for Gray while the affluent SWPL precincts went strongly for Fenty.
The split wasn’t just big; it was massive. I think the pronounced racial/geographic divide is the major under-reported story of this election.
There were precious few “swing” precincts. Consider this: Of the 143 precincts, the standard deviation of Fenty’s vote was over 25%.
Check out the distribution of Fenty’s vote:

A majority of DC voters live in a precinct that went 75% or more for one candidate. In just 12 of the 143 precincts did both candidates come within 5% of their city-wide total. The results also suggest that votes were more polarized than polling indicated — perhaps an odd double Bradley Effect.
(Note: These numbers are based on the unofficial returns that were listed on the DC Board of Election’s website earlier today. Here’s a spreadsheet of the results.)

Looking Ahead to Bed Bath & Beyond’s Earnings
Posted by Eddy Elfenbein on September 15th, 2010 at 2:35 pm

Next week, Bed Bath & Beyond (BBBY) will report its fiscal Q2 earnings. I like this company a lot and I’ve long admired their highly efficient operations.
When the last earnings report came out in June, BBBY said it expects earnings for Q2 to range between 59 cents and 63 cents per share. The Street was expecting 63 cents per share so this announcement was a disappointment.
The shares fell 5.6% the next day and continued to fall. For most of July and August, the stock bounced around in the upper-$30s. I had said after the earnings report that “if you can get this stock below $40, you’re getting a good deal.”
For the moment, it looks like I was right. With the beginning of September, the stock came back to life. BBBY smashed through $40 and even broke $42 yesterday.
I think the investing community mistakenly believes that BBBY is a housing stock. Yes, it’s impacted by housing but don’t get the idea that buying BBBY is anything like buying Lennar (LEN). I like to find situations where most people think the situation is X, but it’s really only partially X.
I wouldn’t be surprised to see BBBY smash earnings next week. The stock could even make as much as 70 cents per share (look at me being all bold). The big positive is that their margins are looking much better. The last report showed that net margins have improved for five quarters in a row.
Put it this way: When your margins improve from 6% to 8%, which is the case for BBBY, a 12% rise in sales translates to a 50% increase in profits. And that’s a good thing.

My only warning is that if you don’t already own the stock, I would be leery of starting a position over $40 per share. The company will probably earn about $2.70 to $2.75 per share for this year, give or take. That means $40 is a reasonable price but it’s not what I would call “a steal.”

Eager…Now Not So Eager
Posted by Eddy Elfenbein on September 15th, 2010 at 9:59 am

USA Today
April 6, 2009

Tech firms eager to gobble stimulus funds
“This is a once-in-a-lifetime deal,” says Sean Maloney, chief sales and marketing officer at Intel, which is working on broadband projects with governments in the U.S., Japan, Vietnam and others. “This dwarfs the Marshall Plan and the New Deal. It is unimaginably large, and will never happen again. It is incumbent on us to spend it wisely.”

Huffington Post
September 14, 2010

Paul Otellini, Intel CEO: The Stimulus Didn’t Work
Intel CEO Paul Otellini doesn’t buy into the idea that the White House is anti-business, but he does believe the administration “just doesn’t get it” when it comes to creating jobs.
Otellini, in an exclusive interview with CNN Money at the Intel Developers Forum in San Francisco on Tuesday, said the U.S. should not only forgo spending the second half of Obama’s $787 billion stimulus package, but completely axe Obama’s newly proposed $350 billion economic recovery plan.

(Via: Yglesias)

Morning News: September 15, 2010
Posted by Eddy Elfenbein on September 15th, 2010 at 9:46 am

Who Played the Largest-Ever Arbitrage?
Japan Intervenes for the First Time Since 2004 as Yen Surge Threatens Recovery
Best Buy Rings ‘Em Up
Silver Prices Surging With Gold
Gold Hits a Record as Econ Worries Rise Again
EU Proposes Curb on ‘Wild West’ Trading
Production in U.S. Probably Cooled as Automakers Scaled Back
Sinochem Says Not Keen on Potash Buy
Dodd: Limited Will for Senate Vote on Fed Nominees