Thursday, April 28, 2005

"Turn away..." Part 2

(Pre Script: Same graphics problem applies for this post as well...my apologies.)

I forgot to look at the big boys...the boys who will show us the way through this mess. Below you will find charts and commentary on the DJIA, Nasdaq, and the S&P 500.

(Insert Weekly DJIA)

The Dow Jones Industrial Average is finding support where it once found resistance from the looks of things on the weekly chart above.

Do we bottom here? Or...do we continue to ride this support line a long ways down?

That 10,000 level sure is holding strong. I always find it facinating that there are these certain levels which hold such psychological power over the masses. The bulls will pull out all of the stops to keep the DJIA above the 10,000 mark. If they fail, say hello to the 9,640-9,650 levels.

(Insert the SP500 Weekly)

The S&P 500 recently found support last week at the 1,136 level. Who knows if this will hold, but a break and test at the 1,153 level couldn't hurt. I would like to see that before I put any money back into this index. A break of the 1,136 level leads us down further to find support in the 1,050-1,060 level. That wouldn't be a fun ride if you are long.

(Insert the Nasdaq Weekly)

The Nasdaq was my night in shining armor, but the dragon proved to be to strong or the princess not cute enough to save (I honestly don't know which reason was the real reason for this night's lack of courage).

All kidding aside, The IXIC broke support three weeks ago and will most likely test this break soon.

Don't fall into the media trap/hype and think everything is great again when this test of break occurs. The Nasdaq has to break above at least the 2,200 level pretty convincly before I start looking for more maidens to rescue...I mean capital to invest.

Well, that's how it looks form here from the good 'ol city of Omaha. The Oracle will be here soon to have his annual meeting. I will be waiting by the phone for his phone call patiently. I'm sure he'll call this year to find out what I think about the markets...I just know this year is The Year.

Best Regards,

The Soothsayer of Omaha

"Turn away..."

(Pre Scricpt (Instead of Post Script) The graphics program I use is not working right now. I only got 1 chart to work so far. I will upload the rest when the program is working...I hope that is soon. It is very frustrating, but I guess I don't pay anything for this blog format or the graphics program.)

"Turn away...I'm hideous!", says the market.

It sure is getting ugly out there!

So, here is the Soothsayer to the rescue...

Boeing (NYSE: BA)


Click to Enlarge Weekly BA Posted by Hello

Investors in Boeing should think about getting out on this recent strength. I know that it is probably one of the only holdings you have that is working right now, but I believe you should follow the mantra of get out on strength.

As you can see by the weekly chart above. BA is coming up on some multi-year resistance levels. I don't know about you, but I'd be very worried about this holding. BA has been rising on decreasing momentum and the $61-$63 price range could be all she wrote for this guy.

If you want to remain safe and not sell to rashly, you could wait until BA breaks below its 50-Week SMA. You can see by the chart above that Boeing has found support around this level many times.

TASER (NASDAQ: TASR)

(Insert Weekly Chart)

It seems that TASR is going to be testing its recent support break. Look to the volume to know it TASR has found a bottom at $7.33 or if it is heading lower. My guess is that TASR will meet quite a bit of resistance at the $12.00-$12.60 range, but it is only a guess.

Ford (NYSE: F), General Motors (NYSE: GM), Daimler Chrysler (NYSE: DCX)

Yes, I am still holding out hope for "The Big Three".

(Insert Ford Weekly)

(Insert General Motors Weekly)

(Insert Daimler Chrysler Weekly)

The strongest chart out of all three was Daimler, but DCX had a breakdown last week and it continued this week as well. DCX is currently sitting right below its 200-Weekly SMA and it's not looking to good.

Let me make this clear though, I am not recommending purchase of any of these auto manufacturers. I am patiently waiting for them to bottom on increased fear that they will never come back. Then, like the good long-term investor I am, I will swoop in and gobble up many shares. I will let you know when I believe it is time, but it is definitely not now. Right now we sit and wait.

McDonald's (NYSE: MCD)

(Insert Weekly Chart)

I recently recommended McDonald's in as a purchase candidate. You can read my recommendation here along with some other opinions from other investment bloggers.

McDonald's, although being down a little from when I made my recommendation, is acting very well (technically speaking). MCD has recently tested its breakout point from the massive inverse head and shoulders bottoming pattern. If MCD's can hold here, the chances of MCD shareholders retiring a little earlier is definitely in the cards. Looking at the stochastics I get the sense that this is a very likely possibility.

It's tough to find diamonds in this environment, but not impossible.

General Electric (NYSE: GE)

(Insert Weekly Chart)

As you can see from the weekly chart of GE above, GE is still in an upward trading range. Look for a breakdown, but it is my view that Wall St. will try many of their tricks to keep this stalwart from falling on hard times.

Intel (Nasdaq: INTL)

(Insert Weekly Chart)

I don't know how, but Intel is holding up magnificently in this environment. Look at it just clinging to that uptrend line. If only it could break above those pesky SMA lines. Of course traders could look to play between the support and resistance lines, but my long-term compatriots should definitely wait to put their hard earned money to work after a strong break of the downward trending line...that could take a while. Patience is the name of the game.

Merck (NYSE: MRK), Pfizer (NYSE: PFE)

(Insert Weekly PFE)

(Insert Weekly MRK)

I have to say something about the big pharmas here. There are some who are jumping on this bandwagon. I say stay away. Take a look at the weekly charts I have posted above. Sure, they have had recent strength breaking out of flat top triangles, but look at the main trend...DOWN...DOWN...DOWN! Until either can break free from those downward trends I'm not going to touch them. For MRK that's around $38 right now and for PFE the mark to beat would be around $34/share.

KOS Pharmaceuticals (Nasdaq: KOSP)

(Insert Weekly Chart)

I wrote a report on this company and it was posted on Bill Cara's blog. It has since appreciated around 50% or so. In this environment that is darn good! If you are a shareholder of KOSP, you might want to think about taking profits here...at least some...for me...please.

Remember sometimes the name of the game has to revert to selling into strength. KOSP has stalled here and might be looking to take a little break. Maybe not, but maybe so.

Wednesday, April 27, 2005

Japan Extending a Hand???

I'm still hot on the trail of these auto manufacturer's and the Wall Street Journal has a good article today about some interesting developments in the saga.

Two of my favorite parts of the article are these:

1)Mr. Okuday, Toyota's chairman, on Monday "called for giving Detroit more breathing room to address its problems, even suggesting Toyota might raise prices on cars sold in the U.S. to ease competitive pressures on GM and Ford."

2)When President Bush was asked last week on CNBC about the auto's he replied with this, "I think they're going to have to learn how to compete."

It's interesting to note that the demise of US auto manufacturer's must not be all that great for Japan. I don't think they are just trying to be nice.

I also don't think that President Bush's comments are all that bad for the US auto industry. I would whole heartedly agree with him. I think the industry will be better and stronger because of this stance.

I don't think the US auto's are going away and I am waiting for a time to pick them up...cheap.

Best Regards,

The Soothsayer of Omaha

Saturday, April 16, 2005

Wow!!!

Wow!!!

That's all I can say after the market action this week.

The bulls were shredded and eaten by the bears and that might be the nice way of putting the situation. Take a look at the longer term pictures of the big three indicies:


DJIA Weekly Chart Posted by Hello

The Dow Jones Industrials smashed through the 50-day SMA on increased volume. The index is looking to be pretty oversold, but what's not to stop it from getting extremely oversold. We do have that red line that switched from support to resistance that may be able to stop this bear raid, but like always we'll have to wait and see (I can't read the future...yet).

So, we could find support around the 9,900-10,000 range. The 200-Weekly SMA is currently at the 9,649 level. The 200-Weekly SMA is the level that stopped the bears last year and we might see it brought out this year as well for bullish re-inforcement. That would be a shock for all of those bullish talking heads (To see the DJIA below 10,000).


IXIC Weekly Chart Posted by Hello

The Nasdaq, which was one of my last hopefuls broke through the support we've been looking at, but on non-yearly highs of volume (Got to look for something good). That is definitely not a good sign, but we are oversold here as well. We could definitely see a bounce, but if that bounce is stopped by the 50-Day SMA, place your protective helmets firmly on your head and watch out.


SP500 Weekly Chart Posted by Hello

The S&P 500 sits a little below it's 50-day SMA, but is also in oversold territory.

Are we going to see a bounce of these three indicies next week? Was this just a bearish headfake like the last bullish fake? Is this all just a bad dream?

Wake up Soothsayer!!!

Wake up!!!

Ok...sorry...let's get down to business.

Here at this blog we are long-term investors and not of the trading type. So, we have to act differently. If we were traders, we could look for a gap down on Monday to get long with very tight stops. But, we are investors and therefore we have different strategies to implement.

We don't want to get in and out of stocks. So, what do we do here?

I have no problem with recommending that we step aside and take a cash position or look into bearish mutual funds (for at least some of your capital). Soon we will begin seeing many opportunities and we want to have a lot of cash on hand when that time comes. This could get much worse later. True, we may see a pullback, but it will be on decreased volume (most likely) and I believe we will begin heading back down after this next oversold bounce.

I could change my mind. This could be the bottom for the year, but the action is not looking good for the long-term investor.

Many charts that I have been watching are breaking down. I've been watching AIG, General Motors, Home Depot, Wal-Mart, Microsoft, IBM, and Gateway pretty closely...all have broken down. That is not good. One of the only good long candidates I can find is McDonalds, which I recommended a buy a while back.

I'm still recommending a purchase in MCD, but you might want to wait until it touches it's 50-Day SMA. I think it will find support there. I couldn't/won't blame you if you don't want to purchase anything right now. It's pretty ugly out there, but if people are sad I think they'll want to stuff their families faces at the golden arches.

Be careful out there.

We could look to the international community for help...let's see what they've got to offer. I was recommending individuals look towards the Japanese market for some help in accumulating wealth. Let's see if they are willing.


EWJ Weekly Chart Posted by Hello

Nope...the ETF for the Japanese market (Ticker: EWJ) has also just broken down last week on increased volume. Not a good place to hide either.

Any others?

Sweden...no, but maybe soon.
Germany...no, but maybe soon.
Hong Kong...no.
Italy...no.
Belgium...no.

Well, you get the point.

It's not looking good out there (if you are long), but I'll keep checking this weekend and maybe I will spot a light at the end of the tunnel.

Best Regards,

The Soothsayer of Omaha

Wednesday, April 13, 2005

Very Busy Lately...

I have to apologize for the lack of blogging lately. I am very busy with some personal business. I think that I will be moving to weekly posting for a while. So, look for something up on the weekends or use the very handy RSS feeds to keep up on my extremely excellent commentary.

Best Regards,

The Soothsayer of Omaha

KOS Pharmaceuticals Re-Cap

A while back I wrote up a research report for personal use and showed it to Bill Cara. He posted it on his blog at www.billcara.com (See here, here, and here). KOS Pharmaceuticals has appreciated from that point very well (around 50%). This should go to show that individual investors can succeed where Wall Street has failed them.

Join us on our quest. There are many good investment bloggers out there to fit each individual taste. Check them all out. The only reason most of us do this is because we are passionate, knowledgeable, and want to help where we can.

Best Regards,

The Soothsayer of Omaha

WSJ Article on the Autos

Here is a pretty good article from the Wall Street Journal on the Automotive Industry. If you'll remember a while back, I am on the lookout in this industry being a contrarian value sort of investor. We'll have to keep track of this industry together and reap the benefits later.

Best Regards,

The Soothsayer of Omaha

Monday, April 04, 2005

Contribute the Maximum Amount to your IRA

Just another reason to contribute the maximum amount possible to your IRA each and every year:

According to the Wall Street Journal, "The Supreme Court ruled creditors may not seize Individual Retirement Accounts when people file for bankruptcy, giving protection to a nest egg relied upon by millions of Americans."

Here is a link to the full story if you have a subscription.

Best Regards,

The Soothsayer of Omaha

Sunday, April 03, 2005

Investment Roundtable - McDonald's Corp. (NYSE: MCD)

We are dusting off the ‘ol Investment Roundtable this week and analyzing a favorite of most Americans. I’m speaking of a true American company. Not only is this company the largest fast-food restaurant in America, but the world. I’m obviously talking about McDonald’s Corp. (NYSE: MCD).

MCD is currently trading at $31/share with a market cap of around $39.4 billion. As Standard and Poor’s tells us, "With one of the world’s most widely known brand names, McDonald’s serves about 49 million customers daily. The company operates and licenses more than 31,000 restaurants in about 120 countries. At December 31, 2004, there were 13,673 McDonald’s restaurants in the US, and 16,823 elsewhere."

"McDonald’s restaurants offer a substantially uniform menu, including hamburgers, french fries, chicken, fish, specialty sandwiches, beverages, and desserts. Most units also serve breakfast. To capture additional meal occasions, the company operates and franchises more than 1,000 restaurants under its Partner Brands concepts: Boston Market and Chipotle Mexican Grill. MCD also has a minority interest in a UK-based quick service food concept, Pret A Manager."

It’s long been asked how many more McDonald’s could they possibly put up in a county/city/state/country? Well, McDonald’s keeps defying the odds and growing. MCD continues to grow from their ability to be flexible in many different situations. People are eating healthier (supposedly…I have my doubts) and now MCD offers many substitutes to the hamburger and the big fat/calorie items. The parents can still make their kids stop hitting each other in the car by getting some happy meals and they can also feel good about themselves by picking up a salad, some fruit, etc. MCD is even trying to make it easier for the parents to purchase happy meals by allowing substitutes of fruit and milk for fries and pop.

A new growth area for MCD is their new Chipotle restaurants. I must say that I am not a big fan, but everybody else I know loves this restaurant with their overly huge Mexican fare. So, right next to every McDonald’s could now be a Chipotle. It seems that MCD will also begin testing a line of premium coffees at its US stores in 2005 and 2006. I will never doubt McDonald’s in its ways to garner a few extra percentage points of growth.

Now let’s take a look at the value criteria that Benjamin Graham, the father of value investing, was fond of:

P/E 17.3 =Yes, Benjamin Graham criteria requires a P/E at least below 20

Price/Book 2.78 = No, BG criteria requires a P/B below 1.5

Current Ratio 0.8 = No, BG criteria requires a CR above 2.0

Revenue Growth 7.12% = No, BG criteria requires RG to be above 15%

Intrinsic value $31.90 (S & P Fair Value Calc) = No, S&P believes MCD is pretty fairly valued

Yield 1.8%

I'll also add some price targets since I have them right in front of me...

Standard and Poor's: $38.00 12-Month Target Price (22.5% appreciation expected)
Value Line: 2008-2010 Price Projection between $40 and $50/share (33.33% and 66.66% appreciation)

McDonald's passes 1 out of 6 of our Benjamin Graham criteria giving MCD's a 16.66% score. I don't believe MCD's is a value stock at these levels. Let's go over and see what our friends over at nasdaq.com think about good 'ol McDonalds.

Here is what the Guru page over at Nasdaq.com had to say in regards to MCD being a value investment based on BG criteria:

Guru Score: 43%

SECTOR: [PASS] MCD is neither a technology nor financial Company, and therefore this methodology is applicable.

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than $340 million. MCD's sales of $19,064.7 million, based on trailing 12 month sales, pass this test.

CURRENT RATIO: [FAIL] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. MCD's current ratio of 0.81 fails the test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [FAIL] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that do not meet this criterion lack the financial stability that this methodology likes to see. The long-term debt for MCD is $8,357.3 million, while the net current assets are $-662.7 million. MCD fails this test.

LONG-TERM EPS GROWTH: [PASS] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. MCD's EPS growth over that period of 30.8% passes the EPS growth test.

P/E RATIO: [FAIL] The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. MCD's P/E of 17.56 (using the current PE) fails this test.

PRICE/BOOK RATIO: [FAIL] The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. MCD's Price/Book ratio is 2.82, while the P/E is 25.30. MCD fails the Price/Book test.

McDonald's doesn't seem to be a value play as Benjamin Graham would describe one.

That being the case; with MCD's planning to return $1.3 billion to shareholders through share repurchases and dividends, continual increases of the dividend, a continually aggressive debt repayment schedule, and an addictive menu, I believe McDonalds requires another look to the long-term investor.

Now, let's take a gander at what the charts are telling us. The first chart below is a monthly view of MCDs:


Click to View MCD Monthly Posted by Hello

You might be able to see what is exciting me on the technical front. Staring at us right in the face is a seemingly huge inverted head and shoulders pattern. This pattern suggests that MCD will trade to a cycle high of around $47/share. As a technical analyst you should never give both price and time projections so I am not sure when this cycle high will be achieved, but this level offers capital appreciation of 56.67%.

In the big capitalization world of the Dow 30 you can't ask for much more then that.

You will also notice MCDs coming off from previous highs and maybe going to pullback to the neckline. That seems logical, but let's see what the shorter term views are saying about that possibility.


Click to View MCD Weekly Posted by Hello

Now, we are glaring at the weekly view of MCD. MCD is getting to oversold levels according to the Stochastics, but still has some room according to the RSI. The weekly view is telling us that a re-touch of the neckline could be quite possible. That touch might coincide with a touch of the 50-week moving average as well.


Click to View MCD Daily Posted by Hello

Looking at the daily view, it becomes much less clear if MCD will pullback to the neckline. Both the Stochastics and RSI are looking to be at oversold levels. The weekly view has more weight than the daily so what might happen here is another try to move higher might be met with overhead supply. That overhead supply would then act as a catalyst to send MCD back down the the 200-day moving average (same line as the 50-week MA).

Our goal here is to purchase shares at the neckline if at all possible. This would, in fact, be possible with a put selling strategy. You might want to go over to billcara.com to find out more about this strategy. I'm still a beginnner with options as well.

Please check out my other partners that will be contributing to the Investment Roundtable this week:

Tom Ott over at Sixth World Gazette

Harry over at Jaloti

Ron over at Chart Student (His new blog)

Best Regards,

The Soothsayer of Omaha

Monday, March 28, 2005

Watching the Auto Manufacturers

One thing you've got to know is that the market moves in cycles. The market goes up and it goes down. To make what some would call a "killing" you've got to buy as close to the bottom of the cycle as possible and sell as close to the top of the cycle.

The automobile manufacturers are moving towards the bottom of their cycle. It might not be possible to call the exact bottom, but we can get close. I've started looking into this sector with greater detail. I'll probably be posting as much as I can to help find this bottom.

Below you will find the charts of Daimler Chrysler (NYSE: DCX), Ford (NYSE: F), and General Motors (NYSE: GM). You will also find some fundamental information. Then we will look at the difference between the US auto manufacturers and those around the globe.

The sector is really not looking too good right now. Everyone is bearish on this sector. Here is what Efraim Levy, a Standard and Poor's analyst, has to say about the industry:

"Competition should remain intense, aided by new product introductions and incentives. We are concerned that high inventories may lead to additional production cuts in coming months, beyond recent announcements, or higher incentives. If gasoline prices stay above $2 per gallon for a sustained period, demand for fuel-inefficient-but-profitable light trucks may be hurt. Lower production and/or increased incentives in turn could reduce income.

The "Big Three" U.S. automakers collectively should see greater-than-industry average volume declines, as foreign car makers continue to gain market share. Of special concern to us is the highly profitable light truck, minivan and sport utility segment, which we think is facing increasing pricing pressure now that the Big Three's dominance is waning. We project that margins will come down in this segment. Increased sales of luxury import models are also hurting domestic manufacturers' margins in the luxury vehicle category. We think restructuring and other cost-reduction efforts should offset some of the margin pressure in 2005. However, we expect higher raw material, retiree and healthcare costs to squeeze margins.

We believe the favorable backdrop of relatively high employment, combined with aggressive vehicle incentives in the form of discounted prices and financing rates, should bode well for a continuation of relatively high demand for motor vehicles. However, rising competition will likely make profits harder to come by. With a combination of cost reductions and a move to more profitable non-car vehicle sales, automakers' profits have been strong during this upcycle. While a new higher sales plateau in North America may be sustainable, we have concerns about intensifying competition and acceleration of already-heavy incentive activity."

Not too bullish...

Here is some fundamental data on the "Big 3" for comparative purposes:

Daimler Chrysler:
Market Cap $44.82 B
P/E 14.04
EPS 3.15
Revenue $184.51 B
Net Income $3.2 B
Revenue Growth 11.90%
Gross Margin 19.35%

Ford:
Market Cap $20.54B
P/E 6.22
EPS $1.80
Revenue $171.65 B
Net Income 3.63B
Revenue Growth 171.65 B
Gross Margin 17.45%

General Motors:
Market Cap $16.02 B
P/E 5.73
EPS $4.94
Revenue $193.52 B
Net Income $2.81 B
Revenue Growth -0.70%
Gross Margin 12.44$

Looking at these charts you wouldn't get too excited either...


Click to Enlarge DCX Weekly Chart Posted by Hello

Above we have a weekly chart of Daimler Chrysler (NYSE: DCX). DCX is currently in a trading range and has been since the end of 2003. Long-term resistance seems to be in the $48/share region. DCX would have to convincingly break this level of resistance for anyone to get bullish on this stock. Daimler is the strongest "chartwise" and fundamentally of these three auto manufacturers.


Click to Enlarge F Weekly Posted by Hello

This is the weekly chart of Ford (NYSE: F). You can see that F has recently broken down through a declining flat triangle. This is not a good sign. If you own F, you should sell or pray for a re-test and then sell. The re-test might be coming if you are reading the Stochastics, which are indicating that F is extremely oversold. Are we going to make a move into the single digits again? One of my hedge fund co-workers actually called the bottom on this one back in late 2002.


Click to Enlarge GM Weekly Posted by Hello

Lastly we have a weekly look at General Motors (NYSE: GM). This stock is not in good shape. GM recently broke through my last buy point at around $29.85. This support line was very long-term. The line began in 1987 and has held ever since. This support line is now considered resistance and will be formidable resistance at that. I'm now looking at the low 20's or larger teens for a next buypoint watch.

I think the next big down move in GM will be when they restate their dividend lower. I can't be sure that this is going to happen, but it seems pretty likely. GM's dividend yield is currently at almost 7%. That's pretty high...I would assume a dividend cut in the future. The bottoming of the stock will most likely be around that point. We shall see.

Nobody likes the "Big 3" and that is why I am beginning to. Most money is made going against the crowd. I will be looking to pick up some shares of these stocks close to the bottoming of this cycle. We haven't gotten there yet and it could even take a few years, but I will be there waiting. I hope my readers will as well.

Best Regards,

The Soothsayer of Omaha

Correlation or Stupidity

A few months ago there was a bunch of hoopla over Fundamental versus Technical Analysis. The argument has been raging for years, but was spurred this time because of the firing of a whole technical analysis team from a bulge bracket bank.

The correlation being that if this "big time" bank was getting rid of their entire TA team, then TA must be useless. I obviously beg to differ, but that was their argument.

I wonder what these same people would say about this headline from today's Wall Street Journal "Disney Cuts Strategic-Planning Unit". A subscription is required, but the headline is enought to get the gist of my argument. Obviously Strategic-Plainning is useless now.

Best Regards,

The Soothsayer of Omaha