Principles of the Stock Market : The Principle of Relative Strength

BUY CHINESE SOLAR

Richard Schwartz — Tue, 14 Apr 2009 13:20:00 GMT

GLOBAL VIEW. China’s Growing SOLAR Niche. China’s domestic-investor only stock market, the Shanghai Stock Exchange Composite continues to rise. Looks like Chinese investors are setting themselves up for more trouble after the Shanghai exchange rose some 514% from mid 2005 to October 2007, then fell -73% through October 2008. But before that next collapse happens, I see Chinese solar stocks as good buys here. Let’s review the larger picture first, then I’ll talk China and renewable energy.

Asia Bottomed Five Months Back? Remember ASIA in general hit its last bear market lows back last year. China, Hong Kong, India, Japan, Korea, Indonesia, Malaysia and the Philippines all last hit lows last October, along with some Latin American developing markets like Brazil and Chile. That’s six months ago thus way past the normal three weeks to three months counterswing rally time frame. So is Asia in a new mini bull market? Other regions of the world, meaning the US and CANADA and most all of EUROPE continued lower until just last month. So by my Principle of Relative Strength, which recommends always (almost) focusing on those countries, markets, individual stocks showing relative strength or outperformance, Asia in general is the area for us to concentrate our attention on today. I previously wrote last Wednesday and Thursday how well known Bob Prechter, Jr. and his Elliott Wave International advisory service says parts of Asia are now in a big bear market RALLY phase in the cycle. Like an A wave back up which can be powerful, long lasting and sizable. And I also pointed out how “hot” and well known, Swiss investor Marc Faber is now saying buy Asia on any “setbacks” (there hasn’t really been any). And I ended last Wednesday’s report with a buy recommendation on India, offering up as one way to trade or invest, the India Fund (symbol IFN) which closed Wednesday at 18.25. IFN closed yesterday at 20.69. So in general Asia is where the best action is now. Plus regular readers will remember even before that, back on February 10^th, I recommended investing in Chinese agricultural and offered up a list of stocks which you could choose from (I bought one of the 13 stocks listed; did you buy any?). Plus a few days prior to that, I went to great effort and posted the whole 100 stocks separated by industry sector on the USX China Index for you to print out, keep and go shopping from.

China In A Sweet Spot. That’s because the Chinese government, with it’s unique, command-style quasi-free marketplace, blending capitalism and government management still has great and speedy influence. They can rapidly decide on a, any, direction for the country and quickly move down that path. Not like us here in America with our democracy. We take lots of time getting any bills passed (but when we do agree on a new law, we get better if not implementation). Of course, China still has to fight its widespread corruption and pay offs at every step forward so their implementation is harder. Still, perception is everything in the short term in the stock market so implementation problems aren’t a concern over the near term. And near term the Chinese government has just changed the laws to encourage solar (and other renewable energy like wind energy use). Back on March 26^th China “introduced a subsidy for solar projects of more than 50 kilowatts that could pave the way for increased sales of rooftop systems.” One analyst projected that this change could increase solar demand this year by 58 megawatts and 232 megawatts annually by 2012. This announcement moved Chinese solar stocks up the most ever in one day and the rally in Chinese solar is now in its third week and still looks solid. One London analyst said after the announcement that: “China has the potential to double the solar market, soak up the excess capacity that’s out there, and get manufacturers back on their expansion plans.” Another report said: “China is closing older coal-fired plants and implementing clean energy to fuel economic growth.” The government itself said its going to implement its “solar roofs program” to accelerate the application of solar energy. Schwartz View: Good for you China! Just lead by example, that’s the way to do it. Don’t worry about what other countries are doing. (What we should do here in America too regarding renewable energy.) A more recent announcement says China is writing a new renewable energy law and on that news solar and wind stocks jumped again. The essence is that China wants to increase renewable energy usage to 10% of total energy consumption by 2010 (from 7.5% in 2005). Go China Go!

BUY CHINESE SOLAR. Net, net, I recommend buying Chinese solar!

SOME CHINESE SOLAR STOCKS

Mkt Analyst Next

Symbol Company Name Price Cap Ratings EPS Business Line

STP Suntech Power Holdings 14.49 2170m 7-12-11 5/21/09 China’s largest solar manufacturer

YGE Yingli Green Energy 7.67 964m 7-6-2 5/15/09 PV modules and PV systems

LDK LDK Solar Company 8.04 928m 1-8-5 5/12/09 Multicrystalline solar wafers

JASO JA Solar Holdings 3.58 589m 6-7-4 5/11/09 Solar cells

TSL Trina Solar Ltd 13.21 388m 3-6-4 6/5/09 Solar-power products

SOLF Solarfun Power Holdings 4.73 252m 0-3-5 5/21/09 PV modules

Disclaimer! I own a small amount of Yingli Green Energy but can and do change positions without notice.

For a FREE week's sample of my complete daily letter, please email me at RichardStk@aol.com

Chinese Strategy Looks Good

Richard Schwartz — Tue, 17 Feb 2009 14:38:00 GMT

GLOBAL VIEW. What Is China’s Strategy? Without having to worry about their banks, because China never got involved buying securitized, US subprime mortgages and other debt backed instruments, China’s now at a great advantage. Sure China is slumping fast economically like everyone else, their manufacturing industry shrinking rapidly, but China still has much greater leeway than other countries in lots of ways. First, luckily, because China has no developed bond market and is just starting to open up their financial markets, China missed the debt feast most other banks enjoyed. And are now regurgitating. So now it turns out, that’s a big, big plus. Also China still has its ‘Command Capitalism’ in place, meaning that when government decides on a path, boom, the country can start right off on it. No arguing back and forth like in big democracies like the United States and India. Next, China’s leaders are well educated, many with useful engineering backgrounds and have proven themselves. Finally, China is in a great spot financially. So what is China doing strategically, meaning their plans of long term significance?

Strategically, I’ve written previously how China is moving quickly to help their farms and farmers every which way because the farms were the first part of the Chinese economy to move to quasi free marketplace operations. After this move proved very successful, China then tried the same in manufacturing. Which, obviously, turned out to be a great and grand success. But now that Chinese manufacturing is downsizing rapidly, China has to keep the millions of Chinese workers forced back to the farms happy. Thus I see this government boost as making Chinese agriculture one of the few good buys around today as their farms consolidate, become larger and thus more efficient and productive, and have thus previously recommended Chinese agriculture strongly and offered up a list of stocks to consider buying.

Stockpiling Minerals & Mineral Producing Companies Too. Another, a second, strategic or long range move China has implemented is to stock up on raw minerals while their prices are down and also to take equity positions where allowed by other governments in mining companies themselves. The reason being that when China starts really growing again they are going to need adequate raw materials. China found this out quickly as it became the world’s manufacturing colossus. Even today with their new infrastructure program already in force, China needs cement, iron ore, steel, etc. So consider some recent Chinese moves:

· State-owned Zhongjin, China’s 3^rd largest zinc producer, bought a 50.1% stake in Australian zinc miner Perilya Ltd.

· State-owned Jinchuan Group, Asia’s largest nickel producer, bought 18% of Albidon Ltd, a Perth, Australia based nickel producer and has a deal to take 100% of the nickel from Albidon mines in Zambia.

· China’s 3^rd largest steelmaker bought a 50% interest in Australia’s Centrex Metals Ltd.

· Chinese interests bought a 40% stake in Australia’s Mount Gibson Iron.

· China’s 2^nd largest steelmaker upped its stake in Australian Gindalbie Metals from 12% to 36%.

· Aluminum Corp of China (ACH) has just increased it’s stake in Rio Tinto Plc.

· China’s Tongling Nonferrous Metals Group just bought 13% of Canada Zinc Metals.

· China Mining Resources said it would up its stake in Canada’s Quadra Mining from 4% to 19.9%.

Schwartz View: My point being watch what China’s doing. You might want to even sign up for FREE www.moneymorning.com as this service tracks closely what’s happening in China, the news clips above coming from a recent article. Again, while other countries play defense, having no real answer to their economic slumps besides cutting interest rates and implementing various stimulus plans, China is on offense, planning for where they want to be when this economic slump is over. So, again, if you want to put your toe back in the water on general market weakness, I would do so in China. You should have a ready resource right in front of you to do so, as along with the list of Chinese ag stocks I ran here, I also detailed by category & sub category the USX China Index and published it here for you on February 5^th.

* As soon as I wrote that along with China’s domestic-investor only stock markets, the Shanghai and Shenzhen Stock Exchange Composite Indexes going up this year, the USX China Index (symbol HXC) and the iShares FTSE/Xinhua China 25 Index Fund (symbol FXI), an ETF, were following suit and rising, that link ended. Schwartz View: Ok, I was surprised they were moving together anyway. Going forward, still scale in to China, just take it a little slower.

Trading Ideas In A Bear Market

Richard Schwartz — Fri, 16 Jan 2009 14:45:00 GMT

SECTOR VIEW. Biotech, Small Caps, US Treasuries and the US Dollar. Let’s comment on a couple market sectors and asset classes today. First, two stock market sectors which may prove profitable. Ha, you scoff! Profitable? In a bear market? Before you laugh, at least read my reasoning.

1. BIOTECH. The biotech sector was having a nice run up last year leading the stock market before trouble hit. From July 7th to August 14^th, the NASDAQ Biotech Index of 136 stocks jumped +16.2% as not many sectors were participating while the market, looking back, was building a top just before the October panic. Of course when worries about financial concerns, etc. got too heavy, the market, and the biotech sector, fell sharply until the November 21^st bottom. Since then biotech has regained +16%. What I’m saying is I’m seeing more relative strength in biotech than elsewhere. Even on down or mixed days I’m seeing the medical industry and the biotech niche hold up better than most. For example, just look at yesterday. Even after the reversal upward, not everything worked its way into positive territory by the close. Banks and financials ended lower, computers were up only slightly, utilities and large caps were only modestly higher yet the aforementioned NASDAQ Biotech Index gained +2.32% on the day. Plus I noticed a health care fund manager saying two days back on CNBC saying biotech is the particular niche of health care to be in going forward. Based largely on the fact that large pharma needs to restock its pipeline and that generally means takeovers of smaller companies like promising biotech concerns. Schwartz View: The large pharma companies have financial staying power so it’s likely they can build a fuller new drug pipeline by buying up biotech companies. Net, net I would use biotech as a core position in your modest long exposure, the allocation of both depending on whether we hold down here near the trading range’s bottom or not. Disclaimer! I hope modest long biotech positions in the sector rotation portfolios I manage but can and do change positions without notice.

2. SMALL CAPS. Then I’ve also noted some relative strength in small caps recently as well. In fact when I cut back my market exposure, increased some to participate in the last month and a half of modest rally, earlier this week, a little late, darn, I decided to keep my small cap sector fund and dump my large cap one. Then yesterday I see Mark Hulbert, who tracks stock market newsletters like this one, report the January Effect is underway. That’s when small caps outperform near the end of the year and in the beginning of the following new year. Generally works best when there are a lot of losses to take at the end of any calendar year, you know brokers work the phones to get investors to book losses for tax purposes. Anyway, Mr. Hulbert posits that this relative stronger showing by small caps shows investors are starting to embrace more risk. I don’t know about that but let’s hope he’s right. Myself, I’m looking at this relative strength as small caps NOT being exposed, or as exposed, to and hurt by the now strengthening US dollar and also that many small and mid cap companies hold far less debt than most large caps. Schwartz View: Still, Hulbert says this return to small caps outperforming now means investors can go back to analyzing individual companies again rather than worrying about total systemic risk. That would be a step forward if there are actually some winners and winning groups around once more instead of a sinking ship taking everything down with it. Note the online, vocational schools for working adults, like Apollo (symbol APOL) which jumped some +7.8% yesterday as a bit of proof that something’s working normally again. Disclaimer! As in biotech above, I hold small positions in some small and mid cap sector funds but can and do change quickly.

Ok, after two actual buy ideas for you in this Papa Bear market, not bad, let’s discuss briefly two asset classes which in today’s modern investing world, the individual investor can easily participate in through ETFs (exchange traded funds) and sector and inverse sector funds. One is just an update, the other a buy..

· US TREASURIES. Long term Wall Street economist, but not of the mainstream ilk, Dr. A. Gary Shilling just announced that “The 27-year rally in US Treasury bonds is over.” Wow! I know Gary has been 1000% correct on long dated US Treasury paper for a long time, for many years now, especially over the last year as the global “flight to safety” trade pushed long government bond yields lower and lower and lower. Gary long ago predicted rates would go below 3% eventually and they sure have. The plunged below 3% recently until bottoming, at least for now, on December 18^th at 2.074% for the benchmark 10-year Treasury and at 2.546% on the 30-year “long” US Treasury bond. But I don’t see Gary predicting a move up in yields, not yet. Schwartz View: That’s the key question. When to short long US Treasuries? Deciding whether yields will V-upward or go into a long L formation, remaining down here around a 3% yield. Myself, I’ve predicted that this Papa Bear market will include a ratcheting upward of long Treasury yields somewhere in say the second or third years (hopefully we don’t have a 3^rd year to this bear market!) So I’m just watching now and not betting on higher yields, not quite yet. Not with the Fed & Federal Reserve Chairman Ben Bernanke publicly saying that one next step for the Fed in getting credit flowing once again is for the Fed itself to become a buyer of government debt. Most feel he means shorter term US Treasuries, say up to 5 years in duration rather than longer term Treasuries but who knows for sure. So I wait and suggest patience, monitoring and waiting for just that right time to initiate a short ETF or inverse sector fund position inversing tracking long Treasuries. Jim Rogers, the renowned long term investor, is also licking his lips, getting ready to short US Treasuries as he’s stated more than once but I haven’t heard he pulled the trigger yet. Actually Rogers, like myself, previously shorted long Treasuries last year and then had to step in and cover at a small loss. Net, net for now we have to exhibit ultimate patience, desperately needed during any extended bear market like this one, and wait for our opportunity.

· THE US DOLLAR. The greenback has now been rallying since July 15^th so this long length of time, longer than the normal three month maximum time frame normally associated with intermediate term corrections up or down versus primary trends, likely means that a bull market in the buck is underway. But the jury is out right now on which way the primary direction if one just looks at the charts. The US dollar dropped sharply for three weeks in December and while it’s been working on regaining the large amount of ground lost then, it’s still not above its highs posted in late October. Schwartz View: My best gueestimate is that the buck does regain all lost ground and moves above its late November highs and continues on in a bull market. Again, “Mr. Correct,” Dr. Shilling, predicts the dollar will keep rallying this year. Why? Because he sees the stock market again dropping similar to last year, possibly losing another -35% or so. And thus the dollar is the best of a bad lot of global currencies, all trying to devalue to keep their economies moving, net, net meaning that there will remain a flight to safety in the dollar. Schwartz Recommendation: I don’t hold any long, or short, positions in the US dollar today but am considering putting one on as I see and agree with Gary’s logic and myself feel this big bad bear market isn’t going to be able to wind up in just one year. The breakdown being so severe needs time to heal. And if we do have another bad year in the stock market, the US dollar should hold up at least for the foreseeable future.

Principles of the Stock Market: Sample

Richard Schwartz — Tue, 06 Jan 2009 14:56:00 GMT

Richard Schwartz's

PRINCIPLES OF THE STOCK MARKET

A learning, teaching, always evolving stock market letter and advisory service

Eighteenth Consecutive Year of Publication; Letter #1; September 18^th, 1990

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Tuesday, January 6^th, 2009: OK, back to the rat race. The weather remains ugly. Yesterday am it was all ice. Tonight it seems like snow, then severe ice again tomorrow morning. This is the time of year I wish I lived in southern California or other warmer clime. Still, tiny New Paltz is a college, mountain town with open space, a walk around lifestyle so Lucy & I are there for the duration. Of course with beach vacations.

UPDATE ON THE STOCK MARKET. The latest gigundo $800 billion economic stimulus plan, now called the Obama Recovery Plan or some such, as he puts his fingerprints on it, may cause a bigger stock market rally than I previously thought, I realized last night as I watched the Nightly Business Report (before I got in the bathtub with reams of printed research to read). The Nightly Business Report (NBR) showed very wide differences in economic growth rates. Much stronger economic growth with the plan. Or rather much less economic weakness with next year showing positive Gross Domestic Product (GDP) with the plan and negative GDP without. Now I know the National Bureau of Economic Research (NBER) just said we’ve been in recession since December 2007, sort of bypassing the outdated GDP stat altogether but not every investor realizes this yet. CNBC and other financial media still take the easy way out, constantly stating a recession is two consecutive quarters of negative GDP, but as Peter Schiff writes in his latest book, THE LITTLE BOOK of BULL MOVES in BEAR MARKETS, most government stats are really skewed, biased toward what government wants to say, today. Also please remember, a stronger GDP really measures mostly spending … and overspending which is what we’re trying, what we need for the sake of America’s future, to get away from. More investing our money, not spending (blowing) it on unneeded gadgets, etc. But that’s a story for another day. Yes, what a mess!

THIS RALLY. Right now I can visualize stocks rising right into Senator Obama’s inauguration on January 20^th as the 44^th US president. (Obama as US president? Amazing!) Stocks rise as the plan comes into clearer focus, and as it becomes -- hopefully, cross fingers! -- a non-ideological, non-partisan bill. Hey, many Republicans should be very happy to come on board as surprise tax cuts are included and surprises also about the large size of the tax cuts, importantly including tax cuts and larger depreciation write offs for business! (We have to encourage, not discourage, business to invest, just the opposite of what FDR did during the 1930s.) Schwartz: Myself, I love what I’m seeing from our president-elect. Press conferences actually focused on improving America, not arguing among parties, open and honest talk and also a proposed web site so Americans can see where each of our dollars is going. “Go America Go!”

RALLY ENDS WHEN? Then maybe it’s all over, this bear market rally ends on inauguration day or shortly thereafter, say when the bill gets passed. But if those GDP interpretations I saw on NBR last night are reasonably correct ( it will take much time to discredit and change how we figure GDP to make it more relevant again) then maybe the US economy gets a sizable lift which lasts for some longer period of time before our still emerging problems pull us back down again. If that happens I can see a mini bull market or cyclical (short term) bull market unfolding this year, say starting back at the November 21^st intraday lows.

Schwartz View: Bottom line, my best recommendation this morning is that traders and many slightly longer term investors too get further reinvested back into the stock market. Not 100% for sure yet but higher exposure than in a long while. When? Say right now or very soon. Many key market indices and averages confirmed this new rally once again, on the first trading day of the year, last Friday. That’s the exact point – when we have a “Trader Vic” identified change-of-trend in place, we do, along with a higher low followed by a higher high, we do, and then we get another breakout move up and above that higher high (like occurred last Friday) – where correct strategy is to invest more.

ECONOMIC VIEW. Like I noted yesterday, I’m seeing more and more record statistical drops, like yesterday’s drop-off-the-cliff report from the auto industry; Chrysler leading the way down with a year over year drop of a mere 53%! My point is that just like the phenomenon in stocks when the economy drops fast it may also have a tendency to bounce back rapidly. I note some are now saying the same for oil, using history of something called the forward curve of futures prices. Of course this almost automatic, stock rally back likely doesn’t go all that far. Just like when a car crashes into a wall, bounces back, but still in drive, comes on again. Depends on how bad the crash was on how long the engine keeps running fueling the bounce back. Schwartz View: I have to think this financial crash of ours was extremely bad. Still I can see another big stimulus plan, if pointed at and framed correctly, using our brains and learning from past mistakes, doing a lot to produce some positive stats for a time after implementation.

TECHNICAL VIEW. Many Individual Stock Charts Looking Good! I drew up charts of almost all 100 companies on the latest IBD 100 weekly computerized list of leading stocks, stocks with good fundamentals and generally leading the market upward, yesterday afternoon. And I must say most now look good. A few of them are even already back above their highs set BEFORE the October panic sell off. That’s one of my parameters for possible buying as per my Principle of Relative Strength telling us what to buy. As to what other technical screens I used as I reviewed their charts on two charting services I get, Bloomberg, and for FREE on www.Marketwatch.com, I used RSI and DMI primarily. Briefly RSI stands for Relative Strength Index, it’s an oscillator, and measures market consensus psychology. While DMI stands for Directional Movement Indicator and is a trend-following indicator showing how fast a trend is moving and thus when a trend is worth jumping on board. Traders of all sorts should be familiar with both indicators I’d say. I would recommend Alexander Elder’s 1993 book TRADING FOR A LIVING as the best reference I’m aware of to bone up on these and other indicators.

Here’s a listing of a few companies and their underlying industry sectors which look ripe for trading this latest rally. Remember Investor’s Business Daily turned bullish, put the bull back in the box, back on December 3^rd and hasn’t been forced, by stocks hitting lower lows, to take it out since. This is a major difference for months prior to that. A bullish change. So let me post some stocks which look good to me.

Disclaimer! I own none of these stocks today but am considering buying a package of about three to five today or soon. Please remember my positions can and do change without notice.

IBD 100 STOCKS LOOKING TEMPTING

Market Industry

Price Cap Ranking Business

SXCI SXC Health Solutions 19.03 455m 2 Pharmacy Services

LPHI Life Partners 42.27 502m 3 Insurance Brokers

ESI ITT Educational 92.28 3570m 5 Schools

TWGP Tower Group 28.74 700m 8 Property/Casualty Insurance

HOME Home Federal Bancorp 10.65 184m 11 S&L/Thrifts-Western US

VSEC VSE Corp 42.34 215m 18 Engineering/R&D Services

SXE Stanley, Inc. 35.74 839m 18 Engineering/R&D Services

SYKE Sykes Enterprises 19.65 810m 18 Computer Services

AVAV Aerovironment Inc. 39.38 831m 23 Aerospace/Defense

TDG TransDigm Group 35.00 1703m 44 Aerospace/Defense

NPK National Presto Inds. 77.88 533m 63 Aerospace/Defense

NCIT NCI, Inc. 30.66 410m 70 Computers-Integrated Systems

SXL Sunoco Logistics 48.80 1398m 90 Energy Pipelines

CMP Compass Minerals 63.12 2046m 117 Quarrying

Schwartz View: It’s been some time since I posted stocks off IBD 100 weekly list. Because of this bear market. But this rally looks like it may just have some legs and my market philosophy is to play all decent looking rallies, modestly. I would thus suggest a three to five stock trading portfolio chosen from the stocks above. Some points to keep in mind. Don’t overdue it! We’re still in a bear market after all and one which looks to have more downside, even if it doesn’t come immediately. Also remember IBD recommends investors always focus on the top 40 or so industry groups. Finally, look for a quick +10% profit but cut your losses, individually or whole port6folio-wise, quickly. Remember we just might be starting some type of cyclical (short) bull market now but, on the other hand, the odds still favor much lower prices over time. So participate but always concentrate on your downside, how much you could lose.

Good trading! Have a great day!

Updating Energy Saver's Theme

Richard Schwartz — Fri, 01 Aug 2008 13:35:00 GMT

UPDATING MY LATEST INVESTMENT THEME: ENERGY SAVER’S

I realize I should go back and update my various recommendations, especially my investment themes, more often. If you follow and buy into some of these themes you’d certainly want to see some updates.

So this morning let me update my latest theme, that of investing in companies which offer other businesses ways to save on energy use and thereby overhead and money. Last I wrote about buying these energy saving companies was to recommend: “Respecting the Bear But Nibble On Weakness.” Thus, here’s a compiled table of my recommended companies below. Some of which are obviously correcting in price as the price of crude oil moves lower. Certainly most of the below companies are NOT immune to lower oil which makes the need for their services, short term, seemingly diminish. But it gives us, those of us who believe the world, and most companies’ business models, are going to continue to move inexorably towards more efficient energy use, the opportunity to buy on weakness, the ideal way for long term investors to buy. Modeling Warren Buffett, whose key criteria is price, the lower the better, on sale, after a fire even better.

ENERGY SAVERS THEME

June 13^th 2008 Recommendations

Buy July 14^th Current

Price Price Price Chart/Business Update

CPST Capstone Turbine Corp. $3.41 3.50 3.06 Correcting from peak $4.42 on June 23^rd

BCON Beacon Power $1.72 1.30 1.29 Another in a sharp pullback, a buy opportunity

WGOV Woodward Governor $37.78 35.64 45.00 Up, up and away after a good earnings report

MXWL Maxwell Technologies $12.57 11.11 13.47 Up as companies keep buying more product

CHP C&D Tech $8.40 8.74 8.03 Correcting a big move up

June 18^th 2008 Recommendations

COMV Comverge Inc. $12.73 13.95 10.90 Fallen to support on new competition

ENOC EnerNOC, Inc. $15.65 20.74 16.14 Like COMV, pulling back on new competitors

ITRI Itron, Inc. $94.75 88.60 92.33 Earnings good; high price a bit scary

BMI Badger Meter $50.04 52.50 56.33 In uptrend; analysts 1 buy, 3 holds, 1 sell

July 15th Recommendations

July 15th

Price

ALTI Altair Nanotech $1.83 2.68 Stock taking off; earnings/news good

AMSC American Superconductor $32.15 39.49 After sharp correction, uptrend has resumed.

Disclaimer! I own a little of Altair, Beacon, Capstone, Comverge and EnerNOC and am watching the others for “buy on weakness” opportunities although I hesitate buying many/any very high priced stocks during bear markets.

Reasons For a Summer Rally

Richard Schwartz — Wed, 30 Jul 2008 13:22:00 GMT

UPDATE ON THE STOCK MARKET. Written Wednesday, July 30th, 2008: 6:30 am EST.

Another ‘flashy-splashy’ rally yesterday So typical of bear markets, especially those with much further in time and points to go. Grizzly bear markets thrive on investors’ hope and adamant investor reluctance to believe things can get worse. Bear markets end when that hope is gone. Anyway, everyone jumped on board the stock market yesterday, figuring that, once again, the credit crunch is over or at least winding down. I doubt that and really doubt that the nine month bear market is over but one never knows the future for sure so we always have to keep an open mind.

A SCHWARTZ RECAP. Bulls, still fighting this bear market, did a great job of spinning (it’s always easier to spin when there is a germ of truth) that Merrill Lynch’s capital raising move yesterday and more billions in write offs showed we’re in the “end game” of this crisis. That Merrill selling some distressed assets, doing what no one has wanted to do, selling out and thus setting a low market price, about 20 cents on the dollar, for some of their CDO’s, means that everyone else may be forced to follow suit and thus that will call an end to the prevailing uncertainty. But this game doesn’t end with Merrill alone, this may just be the beginning of the end, which, as we all know, can go on seemingly interminably. And subprime write downs are now just one piece of the now larger and still spreading problem, although a big part I admit. And subprime sell offs at whatever price would have been better if done many months ago, following the old Wall Street rule which Wall Street, when pressed, totally disregarded: “The first loss is the best loss.” Not many are noting the awful details either, that Merrill is paying Temasek Holdings, a Singapore-owned SWF (no, not meaning Single White Female!), a sovereign wealth fund to buy more stock. Previously Temasek bought Merrill stock and lost a bundle. Thus in this deal Merrill is now paying Temasek a cool $2.5 billion to offset some of Temasek’s losses on that first buy. Plus Merrill is financing the deal for Temasek and this deal will increase and dilute Merrill’s outstanding shares by 36%. And, ironically, the sale of these CDO’s are at a price lower than Merrill’s just announced mark-to-market quarterly earnings report and stated value. Finally, this whole new deal flies in the face of what John Thain, Merrill’s relatively new boss, has said previously, that Mother Merrill wouldn’t need or be raising any new capital. Schwartz View: Net, net, some say Merrill is a goner, that it will have to be taken over down the road some. I don’t know any details but agree with the concept, that brokers will have to merge.

TECHNICAL VIEW. IBD PUTS THE BULL BACK IN THE BOX!

Yep, yesterday was a bullish “follow-through” day according to Investor’s Business Daily (IBD). On the 11^th day, pretty late, after the recent July 14^th bottom, a number of key market indices followed through yesterday, that is rallied more than +1.7% and on heavier trading volume than the day before. Obviously lower oil has been the underlying linchpin to this rally; oil down stocks up and vice versa. Schwartz View: My stated view is that this drop in oil will help stocks for a time, for the time it takes investors to realize that lower oil isn’t going to be the panacea for this bearish stock market. That at some point lower oil will scare the pants off investors (so to speak) because they will see lower oil as confirmation that a recession is here and spreading globally. But we’ll have to wait on this theory of mine as for now lower oil does means higher stock prices.

IBD goes on to remind us that: “Every bull market in Wall street history started with a follow-through. But not every follow-through launches a new bull market.” I believe their stats but also know IBD has put the bull back in the box and then had to take it out a few days or a week or so later a couple times during the last few months. So, remember, nothing, no particular indicator, is perfect, by any means.

More Reasons For a Rally. But I’ve also been writing that the market is oversold, that the US government has come up with a boat load of temporary fixes and props to support the stock market including the stimulus plan, unprecedented lending to non-banks and barring short selling or at least making it extremely difficult to short the financials (the SEC extended this one week ban to August 12^th yesterday). And that a historical study of the pace of declines during extended bear markets show the market is now ahead of itself on the downside. Plus I must say I am impressed by many European stock markets posting a sequence of five straight up days after an extended, inexorable, grinding-lower decline, i.e. a bullish Trader Vic 4-Day Rule and change of intermediate trend. So we could certainly have a summer rally now.

Schwartz View: Myself I’d like to see and have written that a Dow Industrials and S&P 500 close above last Wednesday’s highs would give us a series of higher highs and higher lows, the definition of an uptrend. Well, we didn’t get quite that high a close yesterday another good day or two could do it. As for “Trader Vic’s” as easy as 1-2-3 change of trend, we have condition #1, a broken downtrend line and condition #2, a market which has stopped going down in place. We don’t have, as of yet, condition #3, that’s the higher high I’m watching for. Still, Trader Vic Sperandeo in his two excellent books from the early 1990s, get them, writes we don’t need all three, we can turn bullish with just one or two conditions met. Just be more cautious in proceeding and realize there’s always the chance for a whipsaw and have a backup plan for what you’ll do if that happens, how fast you’ll backtrack. With those caveats in mind, I put on some longs yesterday, not a lot and not terribly risky ones. Basically my theme is that as crude and other commodities correct, pressure should come off the food companies, off their raw material and input and power costs. And that at the same time these pressures diminish, food companies are successfully pushing through price increases such as mentioned by Kraft yesterday. If this summer rally holds together, say we get a new higher high by the Dow and S&P, I’ll push the envelope for short term trading purposes further.

IBD 100 Weekly: Two Ways to Profit

Richard Schwartz — Tue, 22 Jul 2008 13:22:00 GMT

IBD 100 VIEW. Usually I report to you the ‘new names’ in the weekly IBD 100 list of leading companies, those companies outperforming most other stocks in price and with good fundamentals and earnings and revenues. With the idea that there is a ‘first mover’ advantage in becoming cognizant of and familiar with these new companies before the crowd does, say before Cramer on MAD MONEY recommends them. A first mover’s advantage especially for those of you who will make the extra effort to go look them up and find out what’s driving them higher. Lot’s of time one can get on to the newest, latest fashion or hottest thing by doing some homework. I believe that extra effort can really prove illuminating and profitable. So, although I’m not recommending running out and buying a package of them in this bear market summer, below are this week and last week’s new names, some totally new and some rehashes, rejoining the IBD 100 list after being squeezed off it.

IBD 100 NEW NAMES (IBD dated Monday, July 21^st, 22008)

IBD Mkt Industry

Rank Symbol Name Price Cap Rank Business Line

18 EZPW EZCORP 16.78 694m 52 Pawn shops

43 CFX Colfax Corp 27.26 1120m 3 Diversified manufacturing; fluids, valves

63 ATVID Activison Blizzard 36.82 24,219m 57 Entertainment software (the old Activision)

68 SYUT Synutra Intl 30.57 1650m 164 Vitamins & nutrition – CHINA

79 MANT ManTech Intl 50.91 1774m 30 Enterprise software to US government

85 AIMC Altra Holdings 16.66 440m 3 Machinery; motion control products

93 BKE The Buckle 48.96 1500m 23 Retail; youth casual apparel

100 GIFI Gulf Island 43.16 614m 7 Oil field equipment

But today with the stock market mired in a bear market although maybe with it’s recent 2^nd steep leg down or decline just ended, let me add a second or different approach as well. That of capitalizing on IBD’s own offered up insights. IBD agrees we’re in a market correction but the weekend paper asks: “Which groups and stocks will emerge as the new leaders?” And then offers up a partial answer highlighting a few stocks to put on our watch list as possible new leaders and describes their current chart patterns; below:

IBD POSSIBLE NEW MARKET LEADERS

IBD Chart Review

5 MA MasterCard, Inc. 267.90 34,830m 52 Could be building right side of base

8 CF CF Industries 156.73 8835m 5 Four weeks into potential base -on-base

28 CLHB Clean Harbors 75.91 1771m 28 In 4^th week of possible flat base

42 CMED China Medical 46.04 1261m 70 Now shaping handle to Double Bottom

55 SDA Sadia 22.55 5134m 51 Quickly shaping right side of base

59 SXE Stanley Inc. 31.93 731m 59 Shaping handle to base started in January

Schwartz View: My plan, and what I’d recommend to you all, is to follow chart developments on the above possible new leadership candidates. This should give us a “2-fer.” First, some possible profits if these stocks do become market leaders as the first stocks up after any market decline usually perform very well. And second, some more study and thus understanding into how IBD analyzes bases. In that regard, I would recommend any & all books which William O’Neil, founder of IBD, has written or co-written. The market student can learn O’Neil’s CANSLIM strategy & much about chart reading too. And at this point, make sure you get his HOW TO MAKE MONEY SELLING STOCKS SHORT (2005) with Gil Morales.

Stock Market Strategy: 6:30 am EST, Thursday, July 17th, 2008

Richard Schwartz — Thu, 17 Jul 2008 13:55:00 GMT

STRATEGY VIEW. This morning please let me warn a bit further about using inverse vehicles. Appropriate because yesterday’s big rally must have gotten everyone’s attention, longs and shorts alike, but especially those now using these shorting vehicles. And because I’ve been getting increased interest in my hedging strategy of offsetting my longs and this bear market with inverse mutual funds and short ETFs. I’ve been recommending starting small and going slow. Exactly because even during sustained and extended bear markets, as I believe this one will prove to be, a too aggressive investor can get taken and/or shaken by jumping into new territory. Hey, it only is fundamentally correct policy to proceed into new, unexplored territory v-e-r-y s-l-o-w-l-y, right? I mean there’s sayings about such like: “Fools rush in where wise men never go.” And wagon trains sent out just a couple advance scouts to test out unexplored territory (I know from watching all those old cowboy and Indian movies). But I know we’re all impatient and want to resolve gray matters quickly, to get that monkey off our backs, especially so when it comes to investing, so we can get back to sleeping well at nights. But enough of those warnings … for the second.

My advice remains putting one foot slowly ahead of the other. Say if you have a $100,000 account. First, I would be keeping roughly half of it in cash or laddered short term US Treasury notes (for a little more income). Then with the other half I’d have roughly half long and half short, shifting with the tide.

· Longs. Say have the longs spread over the strongest acting market specific sectors, picking the strongest acting sector charts in technology, health care, and maybe chemicals or transports as a continuing cyclical play (likely boosted if oil keeps coming down). So try to play the strongest relative strength sectors you can find in an overall declining stock market.

· Shorts. Then on the short side I’d be short the S&P and or Dow, as both indexes have a diversified mix of industry sectors. Yesterday, for example, while the banks jumped sharply, utilities, energy and precious metals fell. So a diversified mix will benefit you if the whole stock market slumps as I continue to expect (although we could easily see somewhat of a sustained rally here on the hope that the government is going to fix things).

Go Slow! No matter what, (from first hand experience!), I would advise moving slow. Say today, tomorrow or soon take your first step. Again with that $100,000 portfolio, if you are 100% long, I’d lighten up into this rally, again doing so in steps in case this rally proves sustainable, trying to sell a little each step higher. And of the projected goal of putting the remaining 50% or $50,000 to work, $25,000 long, $25,000 short, I’d start off by going short with just 20% of the $25,000. Say buy an inverse fund or a short ETF with $5000 or 20% of the $25,000 you’re now long. Then watch the account’s value for a few trading days. If you’re still seeing your portfolio value fall more than you can stomach, go short another $5000, thus giving you a position of $10,000 short and $25,000 long. And so on, step by step. And, of course, only go short on or after up days. You need to sell most anytime midway through a big bear market, not waiting for rallies, but to go short you have to wait for rallies. You need to build yourself a profit buffer as you go otherwise big up days like yesterday will devastate you mentally and hurt too much financially. And cause you to abandon the whole scheme (scheme used in the best sense of the term).

Schwartz Summing Up. The goal again is to hedge your downside, not make a bundle going short!

Don't Let Hot Solar Stocks Distract You!

Richard Schwartz — Fri, 23 May 2008 14:29:00 GMT

YOUR WEEKEND ALTERNATIVE, GREEN CLEAN ENERGY UPDATE

I haven’t issued a clean, green update in quite a while. Distracted by other areas. But watching my IRA consistently grow – holding almost only alternative, clean, green stocks -- in spite of today’s iffy stock market makes me desire to get back to this bullish trend. To refresh regular readers and/or to prep new readers, let me reiterate I’ve detected a critical mass now built worldwide to back any/all alternatives to using oil and coal; dirty fuels in general. Obviously one goal is to get energy prices down for the long run, a critical need to boost, not drag on, future global economic growth. But secondly, to change the awful, long established pattern of funding many of our stated enemies, rogue governments and terrorism in general by buying what they have; OIL! And thirdly, of course, to change another long-entrenched, bad habit trend of polluting and killing off planet Earth. I mean Earth is our home after all and we’re ruining it at an accelerating pace. So today we have at least three solid reasons to get rid of using oil as our power source; (1) price, (2) to win a war and (3) to live up to the responsibility of the custodianship of the planet, to leave our kids something livable. Any one of these reasons alone should be reason enough to change.

Moving on, my constant reading of investment information shows most everyone is lined up behind this goal of powering the world going forward by using clean energy sources. Businesses, governments, scientists, venture capitalists, individuals, governments, just about everyone except for President Bush and a few blinkered, therefore almost blind, “business first at all costs” advocates like the publishers of The New York Post and Investor’s Business Daily (the two primary papers I read daily; it’s awful their nearsightedness!). But “the trend is our friend” in this vital, critical global challenge, finally! As opposed to back in the 1970s when the world wasn’t worried about, there was no issue with, global warming. And we can certainly make this massive changeover! We switched from wood to oil. We build railroads from coast to coast. We invented and implemented electricity and telephones and the Internet. We now have indoor plumbing. We moved from horse and buggy to cars. And on and on. So there’s no doubt we can stop using oil and coal to power ourselves. We just need some real leadership to do so. Even without that leadership almost every day I see step by step progress being made. This morning, it’s a story about how big companies like Google, Chevron and Goldman Sachs are betting big and building solar power mirrors in the Mojave Desert to power Southern California.

What brings me to today’s investment tie in and idea. That is for investors to follow my tack since it’s proving so successful. That is to buy a little of each alternative, clean green energy company one can. And I don’t mean just the solar companies. Sure they’ve had a big boom and are therefore now on everyone’s radar screens. First Solar (FSLR) is up 885% since I first began this alternative energy theme back in December 2006. SunPower (SPWR) is still up 125% over the same time frame, after being up 287% at its peak. Most other solar stocks have soared as well and stolen all the attention. And I would still own these stocks, buying them on weakness anytime. The news almost consistently is great and when some glitch does comes along, like the last couple days in Solarfun (SOLF), it goes back on the shopping list to buy.

But this morning I want to raise a clarion call for investors to not forget or overlook the rest of the alternative, clean green energy stock complex. While solar and wind get all the attention there are plenty of other technologies and ideas out there and likely the real long term solution to our three –pronged, and now critical, problem with (1) the high price of energy, (2) paying our enemies for their oil and (3) to cleaning up the planet before it’s too late, will come out of somebody’s garage like Microsoft, Google and others did. Thus I would buy little pieces – no one can predict which individual company – of battery technology, natural gas for cars, electric motors, power electronics, fuel cell tech, meter reading, distributed generation, etc., etc., etc. I don’t mean to profess I deeply understand these technologies but I do know there’s lots and lots of companies in this space.

I won’t give you a list of the exact 15 or so companies I own in my IRA today. For fear of conflict of interest. But I plan to rerun the full list of alternative energy companies I used to run when I first started writing about this theme back in December 2006. And update it to include many more companies I’ve found since. For today, suffice it to say, almost daily, the news from these companies is bullish. One day it’s a signed contract to provide services or products. Another day it’s a report about how strongly revenue growth is occurring. Another day it’s about how much money venture capitalists are pouring into discovering some new energy source. Another day it’s Governor Schwarzenegger saying the changeover to clean energy will provide much needed job growth. And on & on. Stay tuned next week for more on this.

Relative Strength Tells Us What To Buy

Richard Schwartz — Thu, 08 May 2008 14:49:00 GMT

The Principle of Relative Strength. Just checked some on where this rally now stands applying one of my principles. One sound fundamental to practice for near and intermediate term performance is to favor those stocks and sectors doing well and then shy...(read more)

IBD 100 "New Names" Strategy

Richard Schwartz — Tue, 22 Apr 2008 14:48:00 GMT

IBD 100 ‘NEW NAMES .’ Lots of new names this week. But nothing really thematically new after a deeper look into which new names popped up on this list of those stocks doing well, fundamentally and in stock performance. Most come from what I’ve taken to...(read more)

Only One Global Trend!

Richard Schwartz — Tue, 08 Apr 2008 14:02:00 GMT

GLOBAL VIEW . Especially Important View Today! I’m looking around at as many global stock markets as possible this morning. To refresh myself as to exactly where they stand and what that bodes for the future. Broad brush thinking-wise, I want to confirm...(read more)