Take a break

US is in the middle of a real estate crisis. Prices of homes are decreasing. New starting homes are improving. But the picture is a little bit far from the end.

S&P - 500 is moving higher. It will be better to take a break. Otherwise, we will have a hardlanding!

Greenspan and the Chinese bubble

We all know that Alan Greenspan has made a big masterpiece in the international markets, in the last part of the 20th century.

Even, after leaving the Fed, any remark from Mr. Greenspan make some noise. But, as always: good noise.

Mr. Greenspan, right now, is telling us about China. In this case, what he has said, doesn't surprise us: former Federal Reserve Chairman Alan Greenspan warned a big correction is due in Chinese stocks.

We do not believe in trees rising to the skies. The bubble in Chinese stock market, will burst, right now, or 3 years from now.

Investors, with or without speculative behaviour will be burned. Just because of that, the warning from Mr. Greenspan it is very healthy.

TJX. Breakdown of the 50 SMA support?

In the chart of TJX (TJX Companies Inc) between points 1 and 5 we have a behaviour of higher lows and higher highs, but in point 6 the highs behaviour is violated with a high lower than the previous and in point 7 the lows behaviour is violated with the price of the stock falling slightly below the previous low. So we have a sign of a trend change.

The RSI crossed below the fifth line, also a sign of a trend change. A important point now is the 50 Simple Moving Average (SMA) and notice how the price closed almost equal to the value of the 50 SMA. If the price breakdown this support then the odds increase for a strong move down. A obvious stop loss for a short position is placed near the 28.8, i.e., the previous high.

LYO. A classic base and breakout pattern.

A consistent pattern in stock markets is a base followed by a breakout in big volume. In the chart of LYO (Lyondell Chemical) we identify a base of tree months and then a breakout of good quality. It´s possible that a pull back to the base occur in the short term, but the pattern is very powerful. In addiction, when we study a long position we like price/book numbers not very high, in this case is less than 3. For a more aggressive trader or investor, that enter the position faster not waiting for a pull back (a pull back that may never occur), a possible stop loss is near 32 usd.

KRY. Trading with the trend after a pull back?

In stock markets a fundamental rule is expressed frequently by the phrase "the trend is your friend". With KRY (Crystallex intl), since March, we have a series of higher highs and higher lows and we draw a nice bullish trend line using the higher highs, in accordance with the rules. We write nice because a lot of touches give more significance to the trend line.

Trading with the trend is better when we wait for a pull back to occur and here we have a pull back to the trend line and near the 20 day simple moving average, also a important support during an uptrend. The RSI remains bullish above fifty. For a long position a obvious stop loss is near the previous low (3.7 usd).

DNA. A very significant bearish trend line

In the chart of DNA (Genentech Inc) we draw a bearish trend line that is very significant.

A bearish trend line is based on lower highs and the significance depends on some factors as the number of times the price touches the line, the angle and the lenght. In this case the price touches five times a four months line with little inclination. Moreover, we have a breakout of a triangular formation and a price/book grater than 8 allowing some "space" for a down move. But in stock markets we deal with uncertainty and for a short position a possible stop loss is some cents above the bearish trend line.

Follow the leader

When you do not have a fundamental source of information, it will be better to follow the leaders.

When you see some steps from Buffett, Soros or Icahn, you can imagine what will be the next steps.

Look to this:

• Berkshire Hathaway, run by billionaire investor Warren Buffett, said in an SEC filing that it had almost doubled its stake in Dow stock Johnson & Johnson.
• Berkshire has also taken stakes in railroads Norfolk Southern and Union Pacific, as well as insurer Wellpoint.
• George Soros has more than doubled his holdings in Dow stock Microsoft.
• Carl Icahn's Icahn Management bought a large stake in Anadarko Petroleum.

All this news in a day, with an additional private equity business: Bausch & Lomb agreed to be taken private by Warburg Pincus for nearly $3.7 billion in cash and stock.

We are in May. Statistics show that, you have to sell in May!

S&P 500

200 points in the major index, in one single year, it is too much. Meaning roughly +15% return on investment. Too good to be true!

We think stock market will always be the best way to make money, nevertheless it is impossible to grow so quickly in one year, especially in a economy giving some clues of a slower pace.

Let's go to a sector analysis, because the ETF type of investment, based on S&P, or even in the Nasdaq, will be more volatile.

CMGI. Long position?

This year between February and March the price of CMGI rise almost 100% and in the end of March we have a perfect 0.382 fibonacci retracement. In April the price "slept" and oscillated between 2.05 and 2.28 usd. This month the high of the previous month was broken and we have a breakout of a one month base, although the range of the base isn´t very tight. The price/book for CMGI is only 2. Here, a good stop loss for a long position is based on fibonacci and at the end of the base, placed near 2.05 usd.

Motorola

One of the major icons of the American tech industry is thriving, particularly in mobile industry. Could Motorola make a new turnaround? Or could be Motorola another laggard in the American industry picture?

YHOO and JBLU. LET THE PROFITS RUN AND STOP THE LOSSES.

Let profits run and stop losses are two basic rules in investing and trading.However there is some variants that I like to follow. One that I classify as very good consist of close half the position when a big gain is achieved and there is some evidence for a reversal.

I use as objective number, for a big gain, a return of more than 10%. For JBLU, where we study a short position suggested with a price close to 11.5 usd,we have since January in the week chart a strong down move without any correction. For that reason the probability for a move against us increase. Additionally,we have almost 12% of return,so, with this strategy we close half the position.

Other example from our suggestions that favors the strategy presented here is YHOO. Since the price we study as a potential good entry for a long position the return achieved almost 15%, but last days some strong move occurred against us and at the moment I´m publishing my thought´s the bid price is at 28.18 usd corresponding to a loss less than 1%. if we had followed the strategy of closing half position with a big gain (more than 10%) and when we have evidence of a reversal, we still have a good result with YHOO. In this case the suggestion for a investor that remains with all the position is stop loss at a very short negative return (less than -1%). We stop with a almost null loss because the reason for the long position disappeared.

Dates of previous discussions in this blog:

JBLU 11.04.2007

YHOO 25.01.2007

Thank you for reading our thought´s and remember that they are only for illustrative/educational purposes and although our historical results are very good,no system or methodology has ever been developed that can guarantee freedom from losses.

CIEN. One month base followed by a breakout.

With CIEN (Ciena) we have a one month base followed by a breakout in good volume.

Between August and November of last year the price and MACD (12,26,9) formed a positive divergence and between November and March the price formed higher lows. In the fundamental side the price/book equals 3.19, allowing some upside movement.

We only thing twice because the long term trend is not very favorable, but considering the very good short term pattern, we favour a long position placing a stop loss close to 27.8 at the end of the base.

Gold - No comments

Toyota: new King in town

It is real. It is a milestone. It is something that seems like a new age:

• Toyota Motor Corp. became the world's top auto seller in the first three months of the year, passing rival General Motors Corp. for the first time, the Japanese automaker said Tuesday.

It is bad news for GM? Possibly, no. Wagoner was cutting fleet contracts, which contribute mainly to poor margins. But Toyota is telling to the world, that its long term strategy is paying off. Toyota long term strategy focus on quality and efficiency is paying off.

Let's see, if automakers will learn the same way Boeing did in the past. Boeing faced EADS (Airbus), and is again on top of the hill.

Again, automakers need new corporate leadership like Sloan or Iacocca.

Oil prices

The "io-io" business is very well. After the Iran hostage's crisis had been solved, the tide will move down.

But, some clues for the next months:

• In its weekly inventory report, the Energy Information Administration said oil and gas refineries ran at 90.4 percent capacity, up from 88.4 percent a week ago.
• Refineries had suffered a string of accidents and other unexpected shut downs in recent weeks, which along with strong gasoline demand and a draining of winter blends had pummeled gasoline stockpiles and helped push retail prices to nearly $3 a barrel.
• EIA said gasoline demand averaged 9.4 million barrels per day over the last four weeks, up 2.5 percent from the same period last year. The average rate of demand increase is about 1.5 percent.

Let's bet that we will have a hot summer!

Note: yellow colour is the oil company's index; blue colour is the Nymex daily.

Boston: return to heaven?

After several problems, Boston Scientific is returning from hell:

• Reshuffle the board governance.
• FDA warnings.
• Stents quality.

Can we take it for granted? Or the Guidant purchase still is the major obstacle?

Going deep....

IMF is telling us: The global economy should turn in an energetic performance this year, even though its biggest player, the United States, is expected to experience its weakest growth in five years.

This is wishful thinking! The real estate and mortgages issue in US, will spread in a major way. Even the IMF will assume that risk: Although there have been some "tentative signs of stabilization" in the troubled housing sector, the "housing correction still has a way to run," the IMF said. "A turnaround in residential construction is still several quarters away."

In a scenario like this, IMF speaks in a world economy growing at 4.9%. This is bullshit! Especially, if we look to the main driver's growth:

• The U. S. economy is expected to grow by 2.2 percent this year.
• In Europe, the IMF is projecting Germany to expand by 1.8 percent this year, an improvement from a previous projection of 1.3 percent growth.
• Britain should see economic growth of 2.9 percent this year.
• Japan, meanwhile, continues to recover from a decade-long stagnation. It is expected to post economic growth of 2.3 percent this year.

The emerging markets are doing well, but their weight is not so big in the world economy:

• China, is expected to log blistering growth of 10 percent this year.
• Russia is expected to see economic activity increase by 6.4 percent this year.
• India, which grew by 9.2 percent last year, will moderate to 8.4 percent this year.

How could it be possible, to grow 4.9% in 2007?

The io-io business

In a week, it is a question of US inventories: oil is up.

Next week, it is a question of a riot in Nigeria: oil is up.

In another week, it is a hurricane in Caribbean: oil is up.

Last week, Iranians put Brits back home: oil is down!

What a huge business, for traders. And for owners!

What about the consumers!

Today, we see this: Crude oil plunged $2.77 a barrel in New York, the biggest decline in three months, on speculation that an Energy Department report will show U.S. inventories jumped last week as refiners unexpectedly shut units.

Kirk is back

Billionaire investor Kirk Kerkorian's Tracinda Corp. on Thursday made a $4.5 billion cash offer for DaimlerChrysler AG's troubled U.S.-based Chrysler unit.

Kerkorian type of investor is very good, to clean the mess! No doubt, Chrysler will benefit from this approach. And, for us, we think Chrysler value is bigger than 4.5 billion dollars.

This is another ingredient to the rearrangement of the auto industry in America.

In another planet, we read this: Alan Mulally, who succeeded Bill Ford last year as chief executive of Ford Motor Co., received compensation valued at $39.1 million in his four months on the job in 2006, including an $18.5 million bonus related to his signing and awards he gave up when he left his previous employer Boeing Co., according to a regulatory filing Thursday.

This is not good for Ford. To earn 39.1 minus 18.5 million dollars in four months says that the Ford Board did not make its appropriate job!

JBLU. Will the price break the one month support?

The last month JBLU form a base after some move down. The last tree days we have some evidence for a breakdown. If the price breakdown the base we have some expectation for a strong move down. However be careful if the overall market moves higher.