Tuesday, 30 October 2012

ASUSTeK - Record Quarterly Profits driven by Tablets

ASUSTeK just reported their highest quarterly profit in over four years, jumping 43% to $230 million from $160 million year ago.  This is in comparison to most of their tech competitors like Dell and HP who are consistently reporting losses and sale drops.  They credited their tablets, in particular the Nexus 7 and Transformer series for the increase.  As a Nexus 7 owner (plus iPad and iPhone owner), I was not surprised by this result at all as Asus has really been the only company aside from Samsung thats really innovating and creating great consumer tablets and smartdevices.

In fact, if you read my previous post and Marketwatch article on alternative ways to invest in the smartphone industry, I specifically called out the great results of the Nexus 7 and how it could cause a big jump in revenue and profits for its makers.  While I focused on nVidia and others because its difficult to invest in for US investors, Asus clearly stood to gain from it and which it has.

With Nexus 7 now becoming an even better deal with a drop in price and bump in specs, expect it to do well for the shopping season.

From the WSJ:

Asustek has been able to outperform its rivals thanks in part to its partnership with Google Inc. on the popular Nexus 7 tablet and strong demand for its "convertible" product, a tablet that comes with a detachable keyboard.
According to market-research firm Gartner, Asustek posted the third quarter's biggest rise in PC market share, to 7.3%, as its shipments rose 12%. H-P, Dell and Acer all reported lower shipments and market share for the period.
Asustek said in a statement its net profit for the three months ended Sept. 30 was 6.71 billion New Taiwan dollars (US$229.1 million), up 43% from the year-earlier NT$4.68 billion and exceeding the NT$5.41 billion average forecast of 16 analysts polled by FactSet.
Notebook PC shipments in the third quarter were up 14% from the second quarter, to five million units, while tablet shipments nearly tripled, to 2.3 million units from 800,000.
Asustek now expects its fourth-quarter notebook-PC shipments to be up 10% from the third quarter, to 5.5 million units, and tablet shipments to be up 13%, to 2.6 million units.

Sunday, 28 October 2012

On Vacation

Just a quick note dropping informing that since I'm on vacation, I'll either be posting a lot or posting very little!  Depends on how boring things go.  :)

Also note, the stock market almost always crash when I'm on vacation in Asia so....lets see what happens this time!

EDIT: Apparently this time New York is just gonna be flooded instead of a crash?  Woops!

Friday, 26 October 2012

Samsung Results - Huge Profits

While Apple is well known as being perhaps the most profitable company in the world, its earning report yesterday actually disappointed, reporting only net income of $8.2 billion.  Its stock is down significantly.  Meanwhile, another competitor is quickly catching up.

As I mentioned in my Marketwatch article and post recently, of the major competitors and components, one of the best ways to profit from the smartphone and tablet revolution without investing in Apple is Samsung.  With tremendous profits from its leading Galaxy line of Android products, Samsung just reported a net income of $6 billion, a steep increase from previous years.

Several market research sites are clearly finding growing presence of Android tablets as well, which may have been partly the cause of Apple's disappointing iPad sales.

So as I mentioned before, Samsung is a great way to invest in the electronics industry as they are slowly eating Apple's lunch.  How do you invest in Samsung?  Not that easy if you're not in Korea.  The simplest way is again, EWY, the South Korea ETF which has a large Samsung weighing.

    Strategy Analytics claims Android is up to 41 percent of tablets in Q3, iPad may feel the heat

Thursday, 25 October 2012

Quick Technical Charts - Caterpillar (CAT)

Quick technical look at CAT.  Everyone knows about the slowing growth in the emerging markets which has affected the commodities market significantly.  One big victim of this slow would be those who make equipment and machines to help infrastructure building and natural resource mining: Caterpillar.

Looking at the CAT charts, you can see this clearly where CAT has strongly diverged from the S&P 500 who is still only 3-4% from its peak.  CAT is down an astounding 30% since its peak in Feb, right before the slowing emerging market news really took hold.  With their recent warnings, all the way to 2015, its not necessarily unjustified the drop.  However, anything there's such a big drop in a relatively established company that is NOT caused by a market innovation disruption, there is the potential for a cyclical bounce.

Looking at the CAT charts, it is now back at its support line of $82.  With a PE of 8-9, its hard to make an argument that its still too high of a valuation.  Though its not yet clear when the growth will return (2015 is a bit scary in terms of time frame), there can be a case made that in a long term time frame, CAT represents a somewhat interesting bet to buy in now...IF you have a several year horizon.  A dividend yield of 2.5% does help soften the multi-year wait however.


Wednesday, 24 October 2012

S&P 500 Sector Overbought Oversold

Quick table from Bespoke Invest showing that in just 1 week, many sectors have dropped from an overbought position to slightly oversold.

Fast movement....

Tuesday, 23 October 2012

Quick Technical Charts - S&P and QQQ - Well...that was fast!

Its been a relatively wild roller coaster ride on the stock market for the last few weeks.  A quick look at the S&P chart below shows the wild triple peak swing over the last 2 months.  Whats unique this week is that the S&P finally broke down through its 50 DMA that it rebounded from last week AND it broke through the support level of 1430 that held previously.  While there is another support at 1400, there is a definite negative trend occurring. 

The Nasdaq 100 ETF QQQ is much worse off.  Unlike the S&P which is only 3.5% off its highs, QQQ is off by over 7%.  That's approaching the 10% normally used for corrections.  Tech has been incredibly beaten up lately and is within a hair's breadth of hitting its 200 DMA of 64.77.  I would expect that point to hold for at least a short time.  Depending on earnings news, it could drop down to its old support levels in the 61-64 range.  Regardless, if you're a very long term buyer, now's not a bad time to start cost averaging into QQQ at least a little bit.

Monday, 22 October 2012

China on the way back up?

Quick chart...

Looks like China finally broke from its 200 DMA and broke back up.  Interesting reversal consider the China news hasn't changed much (indeed, in light of its low GDP growth too).

Blog Redesign Issues

Testing out a new blog design...but seems like there's been some problems with the layout and how it worked with previous content.  Will take a bit to get fixed.

Friday, 19 October 2012

Poor Poor Tech Earnings

It was expected that earning results from last quarter were going to be bad.  In spite of that however, earning optimism kept stocks moving up.  Eventually it would have to come down to reality when the numbers come out.  And have they ever.  In the last week, several names have reported and they are all punished tremendously.  Lets look at some of them:

IBM - EPS estimate $3.61, actual $3.33 - stocks down 7.6% in 2 days.  It does have some support at $195 which is where it ended.  Next support is at $190.

Intel - EPS estimate $0.49, actual $58 - but it dropped anyway due to weakness in its business, down 3.7%.  It has a bottom resistance support at ~21.

Google - EPS estimate $10.65, actual $9.03 - stock down 8.5%.  It has a resistance at $680.

And the story is not yet over...Microsoft just reported their earnings after market close and is down 1.47% after hours after first dropping 3.4%.  This does not look to be a good quarter for tech...

Thursday, 18 October 2012

S&P 500 vs Nasdaq

An interesting disparity is showing up between the S&P 500 and the tech stocks (represented here via QQQ, the Nasdaq 100).

Generally the two are pretty correlated.  However, with the recent spate of poor tech earnings from the big tech names like IBM, Intel, Ebay, etc, the Nasdaq is not recovering nearly as well as the S&P which is nearing its highs again.

As you can see below, the S&P is just a smidge off its highs of the year (and post-financial crisis really).

The Nasdaq 100 however, is still over 3% from reaching its highs and today hit its 50 day moving average resistance.  Will be very interesting to see where tech earnings take us over the next few days.

Wednesday, 17 October 2012

Can S&P 500 Break Double Peak Resistance?

After a pretty dismal last week, I had expected the market to recover and bounce for a couple of days.  I didn't anticipate the strength of the bounce though, taking us up almost 2% in just two days.  Looks like there's more life in the bull side of the market than I anticipated.

Looking at the technicals, there's a very strong double peak resistance at ~1460-1465, only 0.5% or so away.  While the indicators had dropped a bit following last week's rout, they never got to the strongly oversold position, bouncing right off its 50 DMA and are going to retest its post financial crisis high.

Tomorrow will be interesting.  With Intel and IBM's earnings "disappointment," there's a strong question of tomorrow's tone with both stocks dropping 3.4% in aftermarket trading.

Tuesday, 16 October 2012

Alternative Ways to Invest in the iPhone/iPad/Android

This is a short except from my Marketwatch article contest regarding how to invest in the smartphone revolution via supplier and component analysis.

Please visit the page and vote for me!  Otherwise, constant writing with negligible returns gets boring (check out the ads on this page too!).

Its undeniable the impact smartphones and tablets have had on the consumer electronics industry.  For perspective, iPhone revenues alone have surpassed Microsoft’s entire business.  However, while smartphones and tablets are fast becoming a mature market, there is still plenty of growth in the iPhone, iPad, iPad mini, Android, and even Windows 8 tablets.  From 2011 to 2012, iPad sales has grown 100%, iPhone 75%, and Android devices over 240%, indicating the time is still ripe for profiting if you make the right investments. 

Potential investment opportunities can be broken into several tiers.  Tier 1 consists of primary benefactors – think Apple, Google, AT&T, etc.  Tier 2 benefactors are mainly component suppliers - think processors, antennas, LCD displays, etc.  Tier 3 includes the rest like the shippers, assemblers, and even app developers.  Tier 1 investment opportunities are generally already well known and arguably priced in, Tier 3 opportunities tend to either be too small, hard to invest in, or insignificant profits, leaving us with Tier 2 ideas which is the focus here. 


Based on this data, several suppliers stand out:
  • ·         nVidia (NVDA) – supplies the Tegra 3 processor for most Android tablets – Value: $20 per device
  • ·         Texas Instruments (TI) – supplies the Kindle Fire processor and several small – Value: Est. $5-20 per device
  • ·         Qualcomm (QCOM) – cellular communication chip – Value: $20-35 per device
  • ·         Broadcom (BRCM) – several small communication components chips – Value: Est. $5-15 per device
  • ·         Samsung – manufacturer of Apple’s chips, display, and Android maker – Value: Est. $10-60 per device
  • ·         Omnivision (OTVI) – maker of camera image sensor – Value: $12-18 per device
  • ·         Hynix –  supplies NAND and DRAM memory – Value: $5-40 per device
  • ·         Corning (GLW) – manufacturer of glass used in most smartphones and tablets- Value Unknown
  • ·         ARM (ARMH) - licenses CPU architecture used manufacturers – Value unknown


Qualcomm (QCOM) – Currently the cellular chip of choice used in most connected phone/tablets.  At $20-30 per device, it also commands a large piece of the cost pie.  Though not all devices are connected, all iPhones are, approx. 30% of iPads, but none of the iPods or Nexus or Kindles.  On just Apple products QCOM make $4.5B of its $18B revenue, not including the myriad of Android smartphones.  QCOM 2012 sales and revenue have grown 25% vs. 2011.  With global LTE adoption still in the early stages, QCOM’s dominant position as an advanced chip provider positions it well for future growth. 
nVidia (NVDA) – Traditionally focused on desktop GPUs, nVidia made a big push into mobile with its Tegra SoC line.  Leveraging its GPU expertise, NVDA will have a competitive advantage with its integration of the state of the art Kepler architecture in its upcoming Tegra 4 chip.  With just the Nexus 7, NVDA could net $200-400M vs. its yearly revenue of $4B.  However, the potential is high as Tegra is the current standard for Android and upcoming Windows 8 tablets.  While revenue and profits are up only slightly up due to weakness in desktop PCs, the upcoming Tegra 4 chip with a faster ARM and GPU architecture gives nVidia the potential to become the standard for the next generation


Is Market Hanging by a Thread?

A bit of a repost here from Barry Ritholtz via Marketwatch.com (check the link for more charts):

Note that with today's close, we closed above the lower bound.  This isn't entirely unexpected as its pretty uncommon to have that many days of consecutive drops in the S&P.  Whats key is the next few days.  If it fails to keep the support, there's a decent ways to fall still.

S&P 500

The S&P 500 has pierced its uptrend of the summer rally and sits right at the 50-day moving average.  After making a new high a few days after the announcement of QE3, the index has been made a higher low and lower low.   The S&P 500 opens the week at a critical level and really needs to prove itself.

NasdaqLed by the 10 percent sell off in Apple the Nasdaq is down almost 5 percent from its Sept. 21st high and has clearly broken trend closing the last four days under its 50-day moving average.  The next support level is 3,000 and then the 100-day at 2865, which, if realized, would result in a 10 percent correction.   Watch the price action in Apple, which needs to hold Wednesday’s low at $623.55.

China Shanghai CompositeAfter a week off the Shanghai managed to rally almost 1 percent last week, closing above its 50-day moving average four consecutive days.  It has broken its ugly downtrend line but needs to prove itself.  Let’s see if it rolls over again going into the November 8th leadership transition.  Support is at 2,000.

Tuesday Data Releases

Calculated Risk Blog mentions the 3 pieces of economic data releasing tomorrow.

On Tuesday:
• At 8:30 AM ET, the Consumer Price Index for September will be released. The consensus is for CPI to increase 0.5% in September and for core CPI to increase 0.2%. This release will determine the Cost-of-living-adjustment for Social Security. 
Currently I expect COLA to be around 1.6%.

• At 9:15 AM, the Fed will release Industrial Production and Capacity Utilization for September. The consensus is for Industrial Production to increase 0.2% in September, and for Capacity Utilization to increase to 78.3%.

• At 10:00 AM, the October NAHB homebuilder survey will be released. The consensus is for a reading of 41, up from 40 in September. Although this index has been increasing lately, any number below 50 still indicates that more builders view sales conditions as poor than good.  This index bottomed at 8 in January 2009, and was at or below 22 for over 4 1/2 years.

The most interesting data point to me is the CPI index as I'm curious whether the COLA for Social Security would change much.  If it does change, it also means that the maximum taxable income for social security would increase, snagging a few more people than it did last year.

While I think social security is helpful and all to the older people, I do wonder about the fairness of COLA.  Its not like every worker actually gets COLA in their paychecks either.  Indeed, many employees have had salary freezes for years now.  The average worker has actually seen their real wages drop in the last few years.  Why shouldn't they get a COLA too?  Just food for thought.

Monday, 15 October 2012

Death of Physical Cash

Recently a friend of mine was in Japan and noted the relative infrequency of credit card acceptance at various merchants.  Its a bit shocking sometimes to think many places still don't accept credit cards (mostly developing regions) as living in the US, its pretty easy to forget physical money is still essential.  I know I almost never carry cash around anymore.

So how much is global non-cash based payment doing?  Here's a chart from The Economist:

Note the consistent rise in non-cash payment, 20% growth from 2011 vs 2008 and double vs 2001.  North America looks pretty flat for the last 4 years and the majority of growth is coming from Asia/BRIC.  About 80% is from developed countries.  And apparently Brazil is now the second largest market after US.

As for specific uses:

Cards account for 56% of non-cash payments; more than one in three payments are made with a debit card (increasingly chosen over cash for small amounts).

How long would it take before most of the world is using non-cash?  And would it take the form of traditional credit + debit cards or would it look more like paypal, google wallet, NFC payments?  Regardless, this trend is favorable for Visa, Mastercard, and Amex as well as other companies in the industry.  While the rate is formidable, 7% growth per year means it'll be a long long while till cash is gone.

Quick Technical Charts - Apple (AAPL)

Normally I don't like to do technical charts on Apple for a number of reasons.  One, its such a heavily traded stock and a heavy hedge fund / institutional favorite that I don't have a good feel for how well the technicals work for it.  Another, its can be very news driven sometimes such as the rumors of the upcoming iPad mini scheduled for next week.  Lastly, it almost always just goes up since they're making so much money that there's nothing interesting in the charts.

But today, I'll look at it anyway because the charts are actually interesting.  So lets take a quick 6 month look.  Apple had been climbing since it hit a bottom in late May at $520 but that's still an astounding jump from the beginning of the year when it was at $420.  Yes that's right, Apple is up an astounding 55.5% this year so far.

While Sept. 4 was the announcement about the Press Conference for iPhone 5, it really was inconsequential as everyone knew by then.  Based on the charts, its very hard to sell when the market started pricing in any expectations as its been a continually increase over time.  However, when the iPhone 5 released, that actually marked its high point and the stock is down 10% since then.  As you can see, its current price is at the very bottom of the trading channel that started in late May.  That trading channel has also been mostly confirmed because the recent highs also hit the upper bound before dropping.

Normally, this would say that Aapl is poised to reverse back up.  With the upcoming iPad mini announcement expected next week, there's definitely a strong catalyst for an Apple jump.  However, as I mentioned above, Apple stock tends to be hard to predict technically in my experience and its hard for me to grasp such a huge upside potential in a stock that's up 55% already YTD (where are you reversion to the mean???).  However, I've had that thought for years already about Apple so I can't really say much about that hesitation!  So if you're a long term believer in Apple (seems like that's everyone nowadays) then this represents a very opportune moment to jump in (even if you are a bit late already).   

See the jump for Apple's one year chart and prepare to hate yourself if you didn't buy early!

Disclosure: I have a teeny tiny long equity position on Apple from 2011ish that I wonder everyday why I didn't dump all my money in and also kick myself everyday for selling the shares I bought at $69 (yes Apple wasn't always triple digits) in 2005 too early.  

Friday, 12 October 2012

The Big Picture Conference Presentations - Learning Opportunity

Recently The Big Picture had a conference sharing number of interesting talks and speeches.

Check for some great learning opportunities:

TBP Conference Presentations

• James O’ShaughnessyWhat Works on Wall Street
• Barry RitholtzYour Brain on Stocks
• David RosenbergNavigating the New Normal
• Jim BiancoWhat is the Fed’s Plan and Will it Work?
• Michael BelkinReality vs. Wishful Thinking: Bear Markets and the Business Cycle, a 110 Year View
• Bill Gurtin: Inefficiencies in the Muni Market

Conference Videos

Quick Technical Charts - Crude Oil

Commentary on crude oil prices has not been as prevalent lately even though gasoline prices continue to climb.  Lets take a quick look at where crude oil is at the moment.

Below is the 1 year chart for Brent crude oil.  As you can see...crude oil had a tumultuous spring and summer capped by a relatively boring winter and fall.  After averaging around $108 per barrel, all the way till Feb, it jumped quickly to almost $127 per barrel before completely reversing itself and dropping all the way to $90 per barrel.  It has since recovered and is now close to both the 50 DMA and 200 DMA of $115 per barrel.

Really there isn't much direction here from what I can see in terms of whether it'll drop or climb back up as that's driven by macro factors.  There's a slight bias to an upward trend from technicals but global macro picture still remains weak.  In any case, the oil picture looks relatively uneventful for the moment.

Thursday, 11 October 2012

Dow Overbought/Oversold Indicator

Good table from Bespoke Invest  showing where the Dow 30 looks like from an overbought and oversold perspective.

World GDP Charts

Interesting charts here and here from The Economist:

IN THE second quarter of the year the global economy grew at its slowest rate since the end of 2009, according to The Economist's measurement, which is based on an assessment of 52 countries. This is mostly due to slower growth in America and China, and to the accelerating shrinkage of the euro-zone economy. In 1990 the US accounted for a quarter of the world’s GDP and China just 4%. Today America’s share is less than one-fifth, while China’s has expanded to 15%. Yet in the latest quarter America made its biggest contribution to world GDP growth since 2005 (excluding periods of global recession). 

DEVELOPING economies account for almost all of global growth in GDP per person, according to the IMF. In 2011 they contributed some 80%, as advanced economies were still reeling from the recession of 2008-09. The recession ended both emerging-markets' accelerating growth rates, and (temporarily) the decoupling debate. But measured by GDP per person, growth rates may be back to pre-crisis levels.
Most big advanced and developing economies alike saw stark downward revisions to their GDP forecasts (from the IMF's July update) for both this year and next. World GDP is expected to grow by 3.3% this year and 3.6% next year (down from 3.5% and 3.9%, respectively). India saw the biggest revision, with forecasts for 2012 reduced from 6.2% to 4.9%.

Wednesday, 10 October 2012

Quick Technical Charts - Weakness in Catepillar - CAT

A month ago, I made a post noting that CAT was due for an oversold bounce with a potential upside of ~96 on the lower bound.  As an update, while I was right about the oversold bounce, CAT only hit ~$95 (still good for a few %) but then quickly dropped back down below into its trading channel.

As seen below, the trading channel has a lower bound of ~83 which it hit and continued to drop below today.  One day is usually not enough, many people look for 3 days below the line as a confirmation signal.  However, this clearly points out that CAT is suffering from significantly weakness in its technical.  On the brighter side, its trading channel is slightly on a rising trendline.  

Whether CAT is a wise investment right now or not will depend largely on 2 countries: China & Australia.  Infrastructure spending, growth, and commodities such as mining will play a large role in whether demand for CAT products will resurge.  For now, its a hard call to make.  Cost averaging a long term CAT position is not a bad play here but its also not the safest.

Labor Force Participation

While the debate rambles on about Welch's conspiracy theory idea (a bit rubbish), here's an interesting chart from Business Insider on labor force participation rate since the 50s.

It was pointed out that labor force participation has dropped to ~63.5% from 67% in the Clinton years but noted the huge jump in overall participation rate due to women entering the workforce starting 50 yrs ago.

Chart 1

Women participation rate doubled from 35% in the 50s to almost 60% today.

Labor force

While at the same time, male rate dropped from 87% to only 70%.

Mens labor force part.

As Business Insider points out:

Why are fewer men choosing to work? For that, we turn to the Census Bureau's 2012 Statistical Abstract. The participation rate is lower for single men than for married men, and marriage rates in the US have been falling for decades, so we'd expect a modest decline from that. Looking by age bucket, it's been pretty steady for single and married men for everyone over the age of 25 since the start of the Great Recession. 
The recent decline we've seen has been primarily among young, single men. For single men age 16-19, participation fell by almost 9 points from 2006-2010. For single men age 20-24 it fell by almost 5 points. This could be for a variety of factors, from men deciding it's not worth bothering to apply for a job at the local grocery store, to men more focused on their education with unskilled work harder to find, to those living at home who decide there's no need for spending money when so much entertainment is free online.
Additionally, the acceleration in the labor force decline began when the oldest baby boomers began turning 60. Yes, because of deflated housing prices and retirement accounts, boomers will work longer than they thought. But 60-year olds still work less than 30-year olds, and that demographic shift is being reflected in the data.
What's more, this decline in the workforce is part of a century-long trend towards working less in the United States. Child labor laws were passed during the Great Depression, restricting child labor. During the Truman administration, the US government instituted the 40-hour work week for federal employees. The passage of Social Security and Medicare reduced incentives for seniors to work as well.

Read the entire article at Business Insiders.

Quick Technical Chart Summary - Intel - INTC

Today's quick look is Intel Corp. (INTC).  For the last week, tech has been hit pretty hard but Intel has been dropping every since mid August when it kept lower highs and lower lows.

You can see from the daily price chart below, Intel broke under its trading channel back at the beginning of September and has subsequently continued its downward trend.  While some of its technical indicators show a potential bottom last week, that did not stop the price from dropping continuously with a precipitous drop on Tuesday.

However, with a 25% drop since May, one has to wonder if Intel has been oversold as its now very positive from a valuation perspective.  Its sporting an extremely low PE ratio (ttm) at 9.3 which compares favorably with IBM at 15.11, CSCO at 12.6, MSFT at 14.6, etc.  Its also yielding a tremendous 4.0% dividend.  Again, this compares vs IBM at 1.6% yield, and MSFT at 3.1%.  At this price point, even a flat performance will yield a good return via dividends alone.

So the question now becomes, whats the downside?  Obviously further drops is possible but whats the downside potential?  Based on the last 6 months, its broke through all its support, particularly the last one at $23.5.

Looking further at the multi-year chart:

Its currently at a multi-year second price support of ~$22 so there's a good chance it could bounce around the current price.  There's another price support around $21 and a very low one at $18.5.  At that point, INTC would be hurting quite a bit.  However, as a longer term play, INTC still has significant potential and a small cost averaging opportunity as it drops or bottom would not make for a bad play.

Disclosure: Initiated a small long stock position in INTC over the last several days.

Tuesday, 9 October 2012

Las Vegas Demographic

So I spent the weekend running around Las Vegas for a little bit on vacation.  As one of the early sites  in the housing crash, its a good early indicator to some degree of the economy.  What I found there was that the housing market was pumping back up and several people already considering or starting to jump in, scooping up real estate at very depressed prices.

As for overall business, it was hard to tell what the baseline is but it was relatively hopping, not ultra busy or crowded but not deserted either.

There's also an astounding number of Asians, particularly Chinese tourists visiting.  Gives you a good idea where the wealth is today.

There's my economic anecdote of the day...

Continuing Drop in Tech

While tech has had a nice run up in the last few months, last week or so has been nasty.  As seen below, QQQ is now at its 50 day moving average and there is a support line at 67.

Most of the drop has been driven by Apple stock drop of almost 10%.  We'll see if the impending ipad mini will reverse Apple's stock.

Thursday, 4 October 2012

NYSE & Nasdaq - Trading Volume - Last 3 Yr Trend

There's been much chatter in the markets about the recent trend of super low volumes in the stock markets.

Various points have been made about:

  • Average retail investor bailing out of the stock market
  • High frequency algo trading taking over the market (though this would drive volume up)
  • Low volumes indicate poor confidence in current market price trends
Volume is definitely an important indicator but how much of a change or drop has there really been?  Lets take a look at the charts:

First up - The NYSE volume.  Over the last 3 years, there is a definite trend of drops over time.  Note that the regular 3 month volume peaks are the high volumes associated with triple witching expiration.  So 3 yrs ago, NYSE 50 day average trading volume was at 1500 on this scale and is currently now at 867 for a 42% drop in average volume. 

Next up is the Nasdaq total volume.  Over the last 3 yrs, it went from 2300 to 1722 for a more moderate drop of 25%.  

So overall, there is a severe drop in volume for NYSE but not as much for the Nasdaq.  However, the trend is overall worrying somewhat as this is a very regular and consistent trend.  I won't speculate too much in the cause but fleeing retail investors is definitely an important consideration.  

There's lots of supporting data indicating net money outflows from equities in general.  Reuters reported back in July that equity funds had net outflows of $31.4B and bond funds had net inflow of $223B, a rise of 94% vs same time last year...  This also correspond with my post made the other day, referencing how Fidelity's bond/money market assets have now surpassed its equity assets.  So its clear that equity flows have been negative based on these data points.  What's less clear is how much these outflow quantities are responsible for the volume drop as its unlikely to be one single factor.

Interesting none the less.         

Wednesday, 3 October 2012

JP Morgan's 2012 Guide to the Market - Available Now

Quick link post for the JP Morgan's Guide to the Market - Updated to Sept. 30, 2012.  It has tons of great information about market performance and returns.  Still reading it myself and will post some snippets that I find interesting but highly recommend you go through it yourself if you're a numbers freak like I am!

Some examples of the awesome content:

S&P Returns by Equity Category

S&P Returns By Sector

S&P Stock Valuation Measures

Quick Technical Charts Update - Procter & Gamble - PG

A few weeks ago, I posted a technical chart summarizing Procter & Gamble stock performance (PG). Generally, it was noted that P&G had broke through a pretty strong resistance line of ~$67 which was its peak (repeatedly) from Mar thru May.

On some mildly positive news (but not very strong), it rallied all the way from a low of $58.5 to a hair's breadth of $70, a nice bounce of 20%.  However, such a strong and fast move really spoke more that P&G had been undervalued and shouldn't have dropped that much rather than that a miraculous turnaround had occurred, in my opinion.  While P&G is having growth issues and has several soft points, by far its still a solid business with steady earnings and revenue.

However, I pointed out in my post that P&G's rally was getting a bit long and while not reversing, it definitely was worth keeping an eye on for signs of a potential top.  Which brings us to today's chart.

From the trend line  there was likely a strong resistance for P&G stock at ~$70 and so far, it has consistently challenged but failed to break through several times.  It is still very close to its highs but several indicators are starting to point downwards and there is a very significant risk of P&G stock retracing its gains.  Don't be surprised if it retests its $67 support in the near future.

Disclosure: Own significant amounts of P&G stock long and other financial interest.

Tuesday, 2 October 2012

Global Investing Banking Revenue Rankings

Nice summary from The Economist showing the global investment banking revenue for the major financial banks.  Its not a great secret that overall investment banking has taken a pretty significant hit in the last year and is markedly down.

Some key #s:

  • First 9 months had investment banking global revenue of $44.9 billion
  • IB revenue is down 19% vs last year so far
  • Merger & Acquisition revenue dropped 18% to $12.6B
  • Equity market earnings drop by 29%
  • The only bank to grow was Canada's RBC surprisingly
  • The largest bank was JP Morgan but at -25% YOY
  • Bank of America Merrill Lynch was the worse performer at -30%
  • Citibank did surprisingly decent at only -7%

Is the market overbought or oversold?

There's a lot of indicators, contrarian indicators, etc floating out in the financial world.  The more indicators there are, the more likely they're going to "accurately predict" the stock market.  I put it in quotes because in statistics, there is such a thing as over-specifying the degrees of freedom.

Fundamentally, the concept is that if you have a given # of points, you'll always be able to fit a line through it if the # of line parameters is equal to the number of points.  For example, 2 points can easily be described by a line of slope a and intercept of b, 3 points by a, b, c, and so on.

So right now, the market looks a bit on the fence by various indicators from number of different sources.

Are we being overly bearish?

1) According to Merrill Lynch via The Big Picture, we're at a record low for stock bullishness.  The chart below is pretty shocking really, as we're far below the normal lows of 48-49.  I have a hard time believe this chart as equity values are just so high considering the fundamentals.  We're nowhere near the low P/Es during the crash.  Hell, according to this, the Mar 2009 lows were just barely below average from 1985-2000.

2) From Reuters (via The Big Picture):  Fidelity's bond/money market assets have surpassed its equity assets.  Why is this a big deal?

Way back in the Summer of 2003, I wrote a report that analyzed the Contrary Indicators 2000 – 2003 Bear market. It consisted of both internal and external signals that strongly suggested that the 2000 crash was over, and it was safe to get back into equities.

The second of the external signals was that PIMCO’s Total Return Bond fund had surpassed the Vanguard S&P500 fund to become the largest mutual fund (as of October 2002) in the world.

The PIMCO vs Vanguard observation was noteworthy in October 2002, when Bonds surpassed Equities as the bottom of a brutal crash was occurring. The technical types will point out markets were tracing a double bottom, with March 2003 holding near the October lows setting up the start of the next leg higher.

Now that Stocks have been eclipsed by bonds at Fidelity, are we approaching a very similar moment? The key difference is that markets are up 100% over the past 3 years, not down 81%, like the Nasdaq was in October 2002. Regardless, this is an interesting contrarian sign; it suggests to me we are closer to the end of the secular bear that began in March 2000 than we are to the beginning.

3) From Bespoke Invest: The S&P 500 10-Day Advance Decline line is oversold as its near the lows of earlier in the year (though by no means is it the lowest)...

But the absolute price is still very high, as its been trading consistently in the overbought trading range.

4) Looking quickly at the S&P 500 chart:

The market did hit an overbought point and a high shortly after the QE3 announcement.  Since then, it has been steadily dropping before taking a big dive last week.  However, positive news events swayed the market back a bit such that its no longer plunging down though the positive price trend has yet to be fully established so there's still a chance of further decline.  Interestingly, there's a trading channel with 2 potential support lines (see lower blue and lower purple) and the S&P bounced off the higher support line.  It remains to be seen whether it'll challenge the support levels again.

Overall, the market performance for both the short and long term is still somewhat inconclusive.  As great as it'll be to always have a forecast prediction for where the stock market will go, sometimes its just not going to happen.  Unlike many of the talking heads in the sometimes too loud financial world, I'm not going to sit around and recommend something just to fill in the air time.  As Warren Buffett says, sometimes you just need to let the cash sit in your wallet until you find something you want to buy.  So maybe its time to just hold onto your hats (do people really wear hats nowadays?) and wait it out a bit.

Monday, 1 October 2012

Rules of Investing

Good post from The Big Picture as they have a column out in the Washington Post on rules of investing.

We have 6 rules today, and 6 more rules next week:
1 Cut your losers short and let your winners run
2 Avoid predictions and forecasts
3 Understand crowd behavior
4 Think like a contrarian (occassionally)
5 Asset allocation is crucial
6 Decide if you are an active or passive investor

Generally, a lot of the difficulties with investing lies in the psychology.  Buy low, sell high sounds simple but obviously not considering how many people buy and sell at exactly the wrong time.

Hit the link for the full story.

Marketwatch Special Feature - Philippines and Indonesia

Those of you who have been reading my blog have noticed that one of my focuses is on the emerging markets, particularly in Asia.  Some previous posts were analyzing the historical effects of QE on emerging market stock marketsupdates on BRIC stock markets, and general emerging markets.  One of the countries I believe that has significant upside potential is the Philippines (for a list of reasons see my post on the Philippines).

I actually took some of this information and used it as the basis of my Marketwatch New Columnist contest entry (shameless plug: Vote for me here!).  Likely due to coincidence, Marketwatch actually posted a relatively large special feature on the exact same topic, focusing on Philippines and Indonesia as entering a period of strong growth potential.  Its good to see they are now picking up on some of the same stories I've been pushing for a while.

In this post, I'll list of some of the information they shared in their feature as a synopsis as well as my take on it.      

(1) - Indonesia/Philippines come of age:      

Noting that both countries got bailed out only a decade ago during the Asia financial crisis, both have recently become the opposite, now pledging 1 billion each to the IMF instead.  Both of them have been growing for 3-5 yrs and have received investment grades.  Debt stands at only 25% and 41% of GDP for Indo and Philippines respectively (much better than US/Spain/Italy/Japan,etc).  A third of the workforce is still in agriculture so although it has grown, there's still quite a bit of ways to go, especially in investment in infrastructure and industrialization.  

Indo - $850B GDP, 241 million population, and half lives on $2 a day.  A large need for infrastructure development is needed outside of the big main cities.  Though the biggest economy, the stock market cap for Indo is only half that of Singapore and Thailand so there is significant pricing mismatch for corporate equities as well as many unlisted companies that will eventually IPO.

Philippines - Though the economy hit a minor soft patch in 2011, 2012 has done well and the economy is improving again.  Business process outsourcing has surpassed India and looks set to grow further with millions of English speaking young semi-educated population.  Its only the 2nd youngest country with half the population under 23.1 yrs.  Industrial manufacturing is a core area that needs to grow however.   

(2) - Global Investors Key Into Indonesia/Philippines:

U.S. exchange-traded fund giant iShares, managed by BlackRock Inc.BLK -0.35% , launched U.S. traded ETF funds for both Indonesia and the Philippines in 2010 — the iShares MSCI Philippines Investable Market Index EPHE +0.36% and the iShares MSCI Indonesia Investable Market Index EIDO -0.10% .

Still, infrastructure development has been lacking, he said. “This is a headwind for companies in many different ways. Distribution costs can be high as the roads are not very good, for example,” he said.

Indonesia is also a resource-rich country and some companies are focused on extracting commodities, which hasn’t benefited their share prices in a year where commodity prices have suffered amid concerns about global growth. Read more about Indonesia.

The Philippines, in contrast, doesn’t have the same exposure to the global trade cycle though commodity prices.... The country became an investor favorite as “it suddenly had some very positive surprises such as progress on public-private partnerships and so there was more investment into the economy,” said Adrian Zuercher, emerging-markets investment strategist at Credit Suisse Asset Management in Hong Kong.

Both the Philippine and Indonesian markets are also on the small side for global investors. Compared with the NYSE Euronext exchange, which had a market capitalization of $11.8 trillion at the end of 2011, the market capitalization of the Indonesian stock exchange totaled $390.1 billion while the Philippines stock exchange’s market capitalization totaled $165.2 billion, according to data from the World Federation of Exchanges.
Any concern about the small size of the Indonesian and Philippines markets has been put aside in the past few years by investors in part seeking safety from European debt turmoil by buying into “stable stocks and stable markets,” said Khiem Do, head of Asian multi asset at Barings Investment Management.

(3) - Tourism for Philippines Future:

Tourism, which would highlight the Filipino attitude and drive infrastructure development, is the perfect fit, observers say. The Philippines is ideally suited to become a tourist mecca, but a lack of infrastructure and a history of corruption has held it back. The country has the tools it needs to fix this, with an expanding workforce, improving financial position and a government pushing hard to clean up corruption.
An archipelago of more than 7,000 islands, the Philippines boasts world-class beaches and natural wonders. The country is a vibrant mix of Asian, Spanish and American cultures. Yet despite similar natural charms, visitor numbers to the Philippines pale compared with neighboring Thailand and Malaysia.
The Philippines government wants to boost annual international arrivals to 10 million by 2016, from 3 million today. A bigger tourism sector would help absorb labor in its swelling population, as it nears 100 million. Rapid population growth has not been matched by infrastructure expansion. Aging roads and inadequate airports have frustrated economic development and made getting around difficult for visitors. There is a shortage of hotel rooms. The problems are curtailing the growth of what many see as the critical next-wave industry.
“The key reason tourism is underperforming in the Philippines is infrastructure,” Credit Suisse economist Santitarn Sathirathai said.
Infrastructure development would achieve two aims — clear the bottlenecks and prove to the world that the Philippines can deliver. Execution so far has been slow. The need to ensure transparency and guard against corruption has impeded the pace of the PPP rollout.

(5) - Data & Charts:

Follow the link for some charts such as unemployment, life inflation, market capitalization, etc.

(6) - Other articles:

Need for Entrepreneuers
Banks Flourish in Indonesia & Philippines