Trade Radar

With your ideas we can build a better Alert HQ together

2010-08-30T21:29:00.000-04:00

I am planning to add a premium section to the Trade-Radar web site. This members-only area will consist of content similar to Alert HQ but more unique. In fact, I will be naming it Alert HQ Premium and there will be a modest recurring charge to access the data.

Tell me what you'd like to see --

I would like to ask readers to submit ideas for content. Tell me what kinds of custom stock screens you would like to see and I'll try to build them.

Just to get the ball rolling, let me describe what I have built so far. The following alert lists will be generated three times per week based on our scans of the NYSE, NASDAQ and AMEX:

Value stocks breaking out
Reasonable Value Momentum Stocks to Buy on a pullback
Dividend Growth at Reasonable Value
Over-priced and Over-bought Report
Ebb and Flow Report - stocks on the move based on weekly data
Top 50 stocks based on Total Return Ratio

I think these alert lists will be unique in that I will be combining value analysis and technical analysis in order to bring you low-risk investment candidates.

I am thinking of providing some alert lists dedicated solely to ETFs. Any suggestions? Would you be interested in best and worst performing ETFs over the last week? Perhaps a report dedicated to the ProShares family of ETFs?

I'd very much like to hear your ideas --

Where do current stock screeners fall short? How can I help get you the information you need?

Please leave a comment or send me an email.

Why not share or Tweet this post so others can contribute their ideas? The more suggestions we have the better we can make Alert HQ Premium.

Let's do this together!

Total Return Ratio -- 11 stocks John Neff might have liked

2010-08-27T16:31:00.000-04:00

John Neff, who beat the S&P by 3% over the course of 30 years while managing the Vanguard Windsor Fund, attributed much of his success to a metric he liked to use dubbed the "total return ratio." Here is the definition:

Total Return Ratio = (analysts' expected earnings growth rate + dividend yield) / price-to-earnings ratio

What is interesting about this equation is that it takes into account both earnings growth and dividends. In this era of ultra-low bond yields, stocks that pay dividends are gaining more and more importance. That makes this metric all the more interesting.

Let's break the equation down into its constituent parts.

Dividend Yield = most recent annual dividend / current share price

Finding the analyst expected earnings growth rate isn't as hard as it sounds -- it's built into PEG which is available for most stocks at Yahoo Finance.

PEG = PE / annual EPS growth rate

Annual EPS growth rate = PE / PEG

Now that we have all the pieces, we can calculate the Total Return Ratio as follows:

Total Return Ratio = ((PE / PEG) + dividend yield) / PE

Theoretically, the higher the ratio, the better the potential investment.

John Neff liked to find stocks whose TRR was 50% higher than that of the market or the sector.

Here, I used this equation to run a screen against my database of about 6000 stocks and simply picked the top 10 which turned into the top 11 because because two stocks tied for the tenth spot on the list.

Total Return Ratio	Symbol	Name	Sector	Industry	Last Price	PE	PEG	Dividend
20.00	SMP	Standard Motor Products, Inc.	Energy	Industrial Machinery / Components	$9.17	25.07	0.05	0.2
7.14	SNHY	Sun Hydraulics Corp	Capital Goods	Metal Fabrications	$22.99	36.48	0.14	0.36
6.67	GLNG	Golar LNG Limited	Consumer Services	Marine Trans-portation	$9.99	28.14	0.15	0.2
4.77	CVX	Chevron Corporation	Energy	Integrated oil Companies	$73.33	9.01	0.21	2.88
4.55	REP	Repsol YPF S.A.	Energy	Integrated oil Companies	$22.38	11.23	0.22	0.87
4.35	ALV	Autoliv, Inc.	Capital Goods	Auto Parts: O.E.M.	$52.88	13.65	0.23	1.2
4.17	MT	ArcelorMittal	Basic Industries	Steel / Iron Ore	$28.21	10.79	0.24	0.64
4.00	SNP	China Petroleum & Chemical Corporation	Energy	Integrated oil Companies	$78.83	7.27	0.25	2.86
3.85	NNI	Nelnet, Inc.	Finance	Finance: Consumer Services	$21.24	4.95	0.26	0.28
3.71	NM	Navios Maritime Holdings Inc.	Transportation	Marine Transportation	$5.29	7.21	0.27	0.24
3.71	NC	NACCO Industries, Inc.	Capital Goods	Construction/ Ag Equipment/ Trucks	$77.83	10.71	0.27	2.09

What do you think? Would you like to see this kind of list on a regular basis?

Do you have some familiarity with any of the stocks on this list that you would like to share with other readers? Then please leave a comment!

Note: This list is based on data gathered last weekend. We'll run this screen again after this coming weekend and see if we get some new candidates.

Disclosure: no positions

Intel cuts outlook -- confirms cautionary signal in Durable Goods report

2010-08-27T14:07:00.000-04:00

From Business Wire today we have this report:

Intel Corporation (INTC) today announced that third-quarter revenue will be below the company's previous outlook. The company now expects third-quarter revenue to be $11.0 billion, plus or minus $200 million, compared to the previous expectation of between $11.2 and $12.0 billion. Revenue is being affected by weaker than expected demand for consumer PCs in mature markets. Inventories across the supply chain appear to be in-line with the company's revised expectations.

The company's expectation for third-quarter gross margin is now 66 percent, plus or minus a point, lower than the previous expectation of 67 percent, plus or minus a couple of points. The impact of lower volume is being partially offset by slightly higher average selling prices stemming from solid enterprise demand.

It's surprising that just over a month ago, Intel reported stellar earnings and very positive forward guidance. Now today we suddenly have this update to the company's outlook.

Apparently, this confirms the suspicions of several analysts from JPMorgan, Barclays and Wedbush who have been saying that PC demand is clearly slowing.

Then there is this chart from my post on the recent Durable Goods report for July:

This shows new orders in the Computers and Related Products segment falling 12.7% month-over-month. Historically speaking, this is a larger than usual decline and there is little doubt that Intel is beginning to see the drop in demand that this chart suggests.

Something I didn't chart in the post on the Durable Goods report is Unfilled Orders. After two months where unfilled orders grew at over 5% month-over-month, in July we saw a decline of more than 7%.

I've been a cheerleader for tech in general and semiconductors in particular but it does look like growth is taking a breather. From the point of view of stock prices, we are now seeing solid, market leading companies such as Intel and Cree reaching levels of quite attractive valuation. The following charts show how beaten down these two companies are currently:

Given how volatile the semiconductor sector is, it's always worth watching. A few pieces of unexpected good news and it could turn on a dime. You'll want to be ready for it when companies like Intel and Cree begin their recovery.

Disclosure: no positions

Stock Inspector Tips & Tricks -- fix bad "flash crash" data points

2010-08-26T23:03:00.000-04:00

We haven't had another "flash crash" in a while but I still see crazy data points hanging around that can play havoc with stock charts.

When I go to a site like StockCharts.com, for example, and look at an ETF like IGW, the iShares Semiconductor ETF, there is a "flash crash" data point back in May that dips down below $15 on a day when the ETF was trading mostly in the mid-$40's. This data point makes the chart almost unreadable and tends to skew the technical analysis algorithms.

Did you know that if you are using Trade-Radar Stock Inspector, you can fix this wacky data point and get your technical analysis back on track?

You've probably noticed those fields on the right-hand side of the main screen in Stock Inspector. Those fields display the date, the open-high-low-close and volume data for the stock or ETF. Using the arrow buttons on the toolbar, you can sequence through that data and get to any date you choose.

Once you do find the wacky data point, you can click the Edit button on the toolbar and modify the data. To fix the flash crash situation, update Low value of the stock price to a value that is more reasonabke. Click the Save button on the toolbar and you're done.

The next time you look at the chart, it won't be thrown off by some data point out of left field.

One further piece of advice: when you load new data for that stock symbol you should choose a start date after May 2010 so you don't overwrite the data you just fixed.

If you're interested in trying Trade-Radar Stock Inspector, please go to our Download page and take advantage of the free 45-day trial.

June Durable Goods -- mixed signals from tech keep investors on edge

2010-08-25T23:40:00.000-04:00

The advanced report for Durable Goods for July was released Wednesday and it was pretty dismal.

The fact that the market managed to advance in the face of this report almost makes me think that a rally is in the offing. This is the second instance of bad news leading to gains in stocks. The first was the homebuilders stocks rallying after the horrific existing home sales report on Tuesday. And today we have the overall market gaining even though this report clearly shows one of the green shoots of the economy showing signs of wilting.

In any case, here are some of the highlights of this latest report:

New orders for manufactured durable goods in July increased $0.6 billion or 0.3 percent to $193.0 billion. Excluding transportation (primarily aircraft) new orders decreased 3.8 percent. (Yikes!) Excluding defense, new orders increased 0.3 percent.
Shipments, up four of the last five months, increased $4.4 billion or 2.2 percent to $200.6 billion. Transportation equipment, had the largest increase, $3.4 billion or 6.9 percent to $52.7 billion.
Unfilled orders, down following three consecutive monthly increases, decreased $1.1 billion or 0.1 percent to $802.8 billion. Computers and electronic products, down following four consecutive monthly increases, had the largest decrease, $0.5 billion or 0.4 percent to $121.1 billion.
Inventories, up seven consecutive months, increased $1.8 billion or 0.6 percent to $311.2 billion. This followed a 1.3 percent June increase.
Capital Goods. Nondefense new orders for capital goods in July decreased 2.8 percent to $64.1 billion. Shipments increased 1.4 percent to $64.7 billion. Unfilled orders decreased 0.1 percent to $487.2 billion. Inventories increased 0.8 percent to $129.8 billion. Defense new orders for capital goods in July decreased 2.2 percent to $9.5 billion. Shipments decreased 2.4 percent to $9.5 billion. Unfilled orders decreased slightly to $139.7 billion. Inventories increased slightly or 0.1 percent to $17.9 billion.
Revised June Data -- all categories of June data were revised upward slightly

As always, I'll take a closer look at the tech sector. I wish I had better news to report.

Shipments --

I generally give less importance to Shipments since this is a backward looking measure reflecting orders that have been confirmed, manufactured and shipped. It's similar to earnings reports -- it's good to know but the data is in the past and we're more interested in the future. The following chart shows how July shipments look for the overall tech sector:

Despite all the bad press on the headline numbers, you can see that the overall Tech sector managed a pretty strong July with shipments hitting a post-recession high (just barely).

Looking a little deeper, we can see that signs of weakness are beginning to appear. Here is the chart for the Computers and Related Products sub-sector:

You can see that shipments have stagnated for the last few months and the latest data point has dropped to the 6-month moving average. Not exactly a sign of doom but still worrisome.

New Orders --

Here is where the bad news is lurking. Here's the chart of new orders for the entire tech sector:

This the second month in a row where new orders have decreased and now this month they slid under the 6-month moving average.

Where things get really dicey is in the Computers and Related Products category:

Whereas the decrease in new orders is only 2.4% for the tech sector as a whole, we have a sickening 12.7% drop in the Computers sub-sector. Interestingly, it has been exactly two years since this category endured a drop of this magnitude. What kind of impact might this have on Dell or H-P or even Intel?

We find a bit of good news at the bottom of the barrel. There is a little uptick in the chart of new orders for Communications Equipment:

Nevertheless, the uptick doesn't manage to rise above the 6-month moving average which, incidentally, is still heading downward. No wonder Cisco Systems was cautious in their most recent earnings conference call.

Conclusion --

The headline numbers surprised economists, coming in significantly weaker than expected. Last month, I looked at the numbers for the tech sector and said that after two months of decreases in shipments, it would be important for July to show a gain. It's a relief that the gain did indeed materialize but, as noted above, the sharp drop in new orders is raising a serious alarm.

If you're a pessimist, you can look at these charts and say tech is dead on arrival. With new orders breaking down so badly, tech is running into that most over-used of words: headwinds.

If you're an optimist, you can look at these charts and say that the data bounces around on both sides of the 6-month moving averages. Tech certainly seems to be taking a breather but it is not a done deal that the sector has thrown in the towel. This is especially true since the summer months tend to be somewhat of a weak seasonal period for tech. So, though the caution flags are certainly waving, full-on bearishness is not yet warranted here.

Still, as I look for a good entry point in a semiconductor ETF (why semis? read the post Analysts can't agree on outlook for semiconductors - what's an investor to do?), this durable goods report gives me pause. Tech remains at a tipping point, perhaps tipping a little further toward weakness than I had expected. Once again, we await next months' numbers. Will it be game over or recovery back on track?

Disclosure: small position in ROM, the ProShares Ultra Technology ETF, no positions in other companies mentioned in this post

Is company guidance worth listening to?

2010-08-24T22:27:00.000-04:00

Yesterday I wrote a post titled "Q2 earnings scorecard -- believe the guidance or believe the bears?" The point of that post was that forward guidance during the most recent earnings season closely matched the guidance offered during the previous earnings season and that, based on these fairly positive expectations of company management, it was unlikely that the economy was heading for a double dip.

It immediately afterward occurred to me that it might be worthwhile to test the hypothesis that Upside guidance actually results in increased earnings.

In Q1 of 2010, roughly 20% of the companies that offered any guidance at all provided Upside guidance. Here are the Q2 results for this optimistic set of companies:

77% did actually deliver increased earnings
2% delivered no increase
21% showed a decrease in earnings

93% showed year-over-year top-line growth
7% saw a decrease in revenues

Companies that offer Inline or Mixed guidance usually see their stock price slammed during earnings season. Do they deserve it?

Here are the Q2 results for those companies that provided Inline guidance in Q1:

68% delivered increased earnings
4% had flat earnings
28% saw earnings decrease

76% had year-over-year revenue increases
17% saw year-over-year revenues decrease
Only a couple had flat revenues
7% were missing data on year-over-year revenue growth in Q2 results

And here are the Q2 results for those companies that provided Mixed guidance in Q1:

59% delivered increased earnings
5% had flat earnings
36% saw earnings decrease

86% had year-over-year revenue increases
12% saw year-over-year revenues decrease
2% were missing data on year-over-year revenue growth in Q2 results

Finally, what about those companies that didn't provide any guidance at all in Q1? Here are the Q2 results for these guys:

64% increased earnings
32% decreased earnings
4% had flat earnings

68% showed increased year-over-year revenue gains
21% saw a decrease in year-over-year revenues
A few saw flat revenues and roughly 10% were missing year-over-year revenue

Conclusion --

I think there are several points to be made here:

In Q1, earnings were robust and guidance pretty decent. The follow-through for those expectations set in Q1 was that Q2 earnings and revenues were, as predicted by management guidance, robust and pretty decent.

Those companies that announced upside guidance did actually fare better than those who did not offer guidance at all or offered guidance that was less optimistic.

The great majority of companies, more than two thirds, saw top-line revenue growth. This implies that the bears, who say all earnings improvements must be due to cost-cutting, are wrong. Whether or not they are due to government stimulus is another question.

Forward guidance in aggregate can be used as one more input when attempting to determine the general trend in stock markets.

Caveats --

Forward guidance cannot be used as the sole indicator on which to base investment decisions. But it seems like it could indeed be used in combination with other indicators or investment criteria.

Some percentage of the positive outcomes in Q2 were no doubt the result of a "rising tide lifts all boats" situation with respect to general economic improvement in the first two quarters of this year supporting better earnings. It appears that the second half of the year will be tougher.

Comparing Q1 to Q2 seems to show some interesting relationships between guidance and subsequent results. This, however, is one data point and that does not make a trend or a rule of thumb. We'll repeat this analysis after the Q3 earnings season and see if the results are consistent.

Q2 earnings scorecard -- believe the guidance or believe the bears?

2010-08-23T22:46:00.000-04:00

The 2010 2nd quarter earnings season has wound down so it's a good time to do a comparison the 1st quarter.

I always say that earnings are ancient history so I focus on forward guidance. Unfortunately only 40% of companies provide guidance; nevertheless, I would contend 40% is enough to get a good picture of where the market might be heading.

The two charts below compare Q2 to Q1. The percentages displayed are based on the total number of stocks in a sector that provided guidance. This first chart, for example, looks at how many stocks offered upside guidance as a percentage of stocks in a sector that provided guidance.

This chart shows that Q2 is roughly the same as Q1: in both quarters 23% of guidance offered was to the upside. In other words, there has been no decrease in upside guidance quarter-over-quarter. For those pessimists looking for evidence of the double dip, I'm afraid there is no bearish confirmation in this measure.

Not shown are the charts for Mixed guidance and Inline guidance. They are almost exactly like the chart above in that there was very little change from Q1 to Q2.

There has been an increase in the amount of downside guidance in Q2 compared to Q1 but that increase is not that drastic. All told, in Q2, 12% of the companies offering guidance provided downside guidance compared to 9% in Q1. Once again the Financials take their place at the bottom of the barrel.They were noticeably bad in Q1 and even worse in Q2. If there's a double dip happening in looks like it's going to be in the Financial sector.

Conclusion --

Based on forward guidance provided by company management during the Q2 earnings season, it seems the economy is expected to continue to muddle along. The majority of companies are expecting mixed or inline results, nearly a quarter of companies are expecting improved results and only 12% are expecting results to worsen.

This may not be sufficient to guarantee an economic resurgence but it sure doesn't seem to confirm the most dire, double dip projections of the bears.

Two reasonable value stocks raising dividends this week

2010-08-21T00:13:00.001-04:00

With the stock market in distress and bonds yielding practically nothing many analysts and bloggers are proposing that investors should focus on companies paying dividends.

For this post, I've combined my Reasonable Value screen with a filter for those companies that have raised their dividend in the last week. Two stocks below qualified and, coincidentally, both raised their dividends by $0.08

Symbol	Name	Industry	PE	PEG	Price To Sales	Price To Book	EV To EBITDA	Debt To Equity	New Dividend	Previous Dividend
AFL	Aflac Inc.	Accident & Health Insurance	12.52	0.65	1.2	2.28	7.75	0.2645	1.2	1.12
ALTE	Alterra Capital Holdings Ltd.	Property-Casualty Insurers	4.91	0.62	1.22	0.73	N/A	0.0992	0.48	0.40

So are investors favoring these two companies? Here are the charts for each:

Though both stocks have wilted lately, Aflac seems to be holding up a bit better. Both the 200-day moving average and the 50-day moving average are still heading upward for Aflac while it looks like ALTE is really rolling over despite beating earnings expectations.

At this point, Aflac's dividend yield is 2.2% and Alterra Capital's yield is 2.7%. Compare this to the yield on the 10-year Treasury bond which is currently at 2.61%.

Analysts can't agree on outlook for semiconductors - what's an investor to do?

2010-08-19T23:57:00.000-04:00

So, what else is new? Let's look at the two opposing viewpoints.

In this corner, the optimists --

Starting with the positive viewpoint, iSuppli is looking at the second half of the year as being a very positive time for the semiconductor industry.

"iSuppli now predicts global semiconductor revenue in 2010 will rise by 35.1 percent to reach $310.3 billion, up from $229.6 billion in 2009. iSuppli’s previous forecast, issued on May 6, predicted growth of 30.9 percent this year.

With an $80.7 billion increase, 2010 will bring the largest annual expansion in semiconductor revenue in history in dollar terms. In comparison, semiconductor revenue increased by slightly less than $60 billion during the next best year for dollar chip growth: the dot-com-fueled year of 2000."

iSuppli points to several factors for the boom in chips: rising prices, inventory buildups and richer chip content in key electronic products like smart phones and advanced LCD-TVs.

If things are going so well, they can only go down from here, right?

iSuppli further states the following:

"Robust semiconductor revenue growth in 2010 is based on a strong increase in the sales of electronic equipment. Factory OEM revenue for electronic equipment is projected to grow by $131 billion to reach $1.54 trillion in 2010, up 9.3 percent from 2009. The previous high for electronics OEM revenue was $1.53 trillion in 2008.

Shipment and revenue growth for electronics equipment is surpassing expectations in areas including PCs, cell phones, LCD-TVs and other semiconductor-rich products."

I'm not sure where iSuppli gets the projected revenue numbers referenced in the preceding paragraphs but it is clear they are pretty optimistic numbers. Unfortunately, recent Durable Goods reports don't do much to generate confidence in an outlook quite this bullish.

iSuppli makes the point that semiconductor revenues are in a special situation. Pricing strength is unusual because both inventories and capacity were so drastically reduced in 2008 and early 2009 and now that demand has improved, shortages are driving high prices and juicing revenues. Another factor is that there is a trend to more sophisticated system-on-a-chip solutions that are harder to design and manufacture, command higher prices and yield fatter margins. The fact these chips are also seeing somewhat of a shortage also serves to increase semiconductor revenues.

Another optimist, Bill Jewell from consulting firm Semiconductor Intelligence LLC, said he believes capacity utilization will continue to increase through the rest of the year, hitting 96 percent in the fourth quarter. Jewell said he believes end demand will hold up at least through the end of this year. "I think capacity got cut so far back last year and just has such a long way to come back."

The following chart, courtesy of iSuppli, illustrates how 2010 will be killer year for semiconductors:

The chart also illustrates iSuppli's thesis that semiconductor revenues will return to normal seasonal patterns beginning in 2011.

In this corner, the pessimist --

Christopher Danely, an analyst at J.P. Morgan, writes:

"Semiconductor industry capacity utilization will peak during the third quarter at 96 percent, then decline to 90 percent in the fourth quarter,"

A decline in capacity utilization is a sign of slowing sales; hence, the importance this measure is accorded.

Danely also said the PC end market, which accounts for 40 percent of semiconductor sales, appears weak. Perhaps he has newer information than the most recent Durable Goods report which shows new orders still in an uptrend. Indeed, Danely says Taiwan supply chain checks show that order rates from the PC end market deteriorated sharply during the last part of July.

The communications end market, which accounts for 25 percent of chip sales, he believes is also showing signs of weakness. This is confirmed by the drop-off in new orders for the communications sector in the last Durable Goods report and is also illustrated by Cisco Systems Inc.'s second quarter results, which disappointed analysts and contributed to a down day for tech ETFs.

Conclusion --

In actuality, both optimists and pessimists see semiconductor revenue growth peaking this year and dropping off to more typical rates next year. The difference in outlooks vary by only a quarter or two.

Having concentrated on analyst opinions, it is worthwhile to review earnings season and what company management thinks. There are 95 semiconductor companies in my earnings report database. Of these, 68 beat expectations and 92 showed year-over-year revenue increases. There were 62 companies whose management offered forward guidance; of these, 32 provided upside guidance, 25 in-line or mixed. That leaves only 5 companies that offered downside guidance. All in all, the sector has turned in pretty results this earnings season.

With IGW, the iShares Semiconductor ETF at a three month low and the rest of the year still looking fairly strong for the sector, an aggressive play would be to buy at this point on the expectation that an upside bounce is due. The chart below shows the cyclical nature of the price action over the last three months.

Note that MACD and Williams %R do not confirm the Slow Stochastics buy signal. In addition, the overall stock market is currently struggling and this can be a headwind for any individual sector.

In summary, the semiconductor sector does not appear to be over-valued, in terms of capacity utilization it is running essentially flat out and revenue growth will slow from an unusually strong rate to a more normal rate over the course of the next couple of quarters. Is it too late to invest? Yes, it's too late to take advantage of the big surge in growth rates that occurred during the last year. But the current pessimism of investors could be an opportunity to buy into a hot growth sector at reasonable prices. Keep in mind that bringing on new capacity in the semiconductor industry is not trivial or quick; therefore, high capacity utilization should continue to support prices and revenues, especially for those more complicated or smaller geometry chips where capacity is most constrained.

The consensus seems to be that growth rates may slow but no double-dip will occur in the semiconductor sector. That's actually a better scenario than most investors seem to expect. Don't write off the semis yet.

Disclosure: no positions

Google keeps getting social - and stands to make money from it

2010-08-18T00:02:00.000-04:00

Google has been in the limelight quite a bit lately. The main reasons are as follows:

Google's supposed repudiation of its commitment to "net neutrality"
Oracle suing Google over an alleged violation of the terms of the Java license
In the most recent quarter, smartphones using the Android operating system actually outsold Apple's iPhone and RIMM's Blackberry

For those of you who have not yet come up to speed on these news items, the following links provide some excellent reading:

My two cents on the net neutrality issue is that Google is a public company with shareholders. It should be no surprise that they have chosen to "play along to get along" in the mobile space, an industry on which they are increasingly staking future growth prospects. As for Oracle, the company needs to call off the lawyers. It's sad to see a company that has championed innovation in the past starting to rely on legal wrangling to extract a few million dollars out of a competitor. Finally, though the growth rate of Android is surging, the operating system has a long way to go before it it's total market share exceeds that Nokia, Apple or RIMM. Still, Android seems to have the wind at its back.

OK, enough of that. I wanted to focus on a less noticed event involving Google - their acquisition of a small company named Jambool/Social Gold. The company provides a platform for purchasing virtual goods and currency online and managing virtual holdings. Why is this significant? Because a pattern is emerging.

Google recently acquired Slide, a company that makes some of the most popular games on Facebook. They have also made a $100 million to $200 million investment in Zynga, probably the leading producer of social games, many of which are also featured on Facebook.

So it is clear that Google is building strength in social gaming and, with the acquisition of Jambool, Google now has a payment platform to directly profit from gaming. This allows Google to go beyond advertising. In addition, with Picasa they have photo sharing and with Google Profiles they have a database of personal information. These could all be considered the building blocks of a fullblown social site to rival Facebook. And indeed, there are rumors galore that Google is planning to roll out a social site or at least a social gaming site.

What is also an interesting is that Jambool has an API that allows the payment process to be embedded in games or any other kinds of applications. And that suggests to me that it could just as easily be embedded in games or apps that run on Android. So this acquisition supports Google's mobile strategy, as well.

In any case, even if Google doesn't go head to head with Facebook, they now have a set of properties that provides Google more ways to profit from the social web and even use Facebook as a platform. Which brings to mind an old saying: "If you can't beat em, join 'em."

A week without posting - here's what I've been up to

2010-08-15T23:24:00.000-04:00

Wow, it's been a week since my last post. During that time markets have gone through some wild gyrations and the Trade-Radar blog has been silent.

I just want everyone to know that I've been busy working on a site redesign. The blog now gives you a preview of how things will look. Unfortunately, this process has been quite time consuming and has kept me from my usual rate of posting.

In addition to the new look and feel, I will soon be rolling out a members-only, premium section of the site that will provide some new stock signals. I'm quite excited about this but I want to do it right so I need to devote a serious effort to it before making it public. Stay tuned - there will be more information about this forthcoming.

In the meantime, if you'd like to register your opinion of the blog's new look, please leave a comment or send me an email.

15 under-valued stocks to buy on a pullback

2010-08-05T09:41:00.000-04:00

Here's another "Reasonable Value" screen run against Tuesday's Trend Leaders list. For those of you who have not see one of my previous "Reasonable Value" posts, here are the criteria for the screen:

PE between 0 and16
PEG between 0 and 1.2
Price-to-Sales less than 2
Debt-to-Equity less than 1
EV to EBITDA less than 10

With the market showing some strength the last week or two, we actually have a Trend Leaders list that has a reasonable number of stocks on it now - over 500, as a matter of fact. This gives us a wider field in which to seek out those stocks that still have some value characteristics while exhibiting some strong price action. The table below lists this week's candidates:

Sym bol	Name	Industry	Last Price	PE	PEG	Price To Sales	Price To Book	Debt To Equity	Cash On Hand	Divi- dend	EV to EBITDA
CACI	CACI Int'l, Inc.	EDP Services	$47.62	13.12	0.98	0.47	1.27	0.4666	174.7M	0	7.4
DOV	Dover Corp.	Industrial Machinery/ Components	$48.56	18.55	0.95	1.4	2.18	0.4383	973.5M	1.04	8.57
TSTC	Telestone Tech- nologies Corp.	Telecom Equipment	$12.10	11.66	0.17	1.61	1.82	0	10.01M	0	9.12
VSEC	VSE Corp.	Military/ Government/ Technical	$36.22	7.54	0.79	0.19	1.77	0	2.19M	0.24	3.81
ARW	Arrow Electronics, Inc.	Electronic Components	$25.40	16.3	0.43	0.19	1.01	0.4316	576.7M	0	6.93
POWL	Powell Industries, Inc.	Electrical Products	$33.01	9.11	1.01	0.63	1.44	0.075	113.6M	0	3.63
GIII	G-III Apparel Group, LTD.	Apparel	$25.48	12.45	0.64	0.58	2.1	0	17.8M	0	6.73
JACK	Jack In The Box Inc.	Restaurants	$20.89	11.6	0.81	0.49	2.14	0.6549	105M	0	5.85
CORE	Core-Mark Holding Company, Inc.	Food Distributors	$30.10	13.27	0.73	0.06	0.97	0.0021	91M	0	4.62
UNH	United Health Group Inc.	Medical Specialities	$32.42	8.19	0.91	0.38	1.39	0.3237	11B	0.5	4.35
MFB	Maidenform Brands, Inc.	Department/ Specialty Retail Stores	$24.68	13.33	1.21	1.12	3.56	0.464	22.8M	0	9.35
FDO	Family Dollar Stores, Inc.	Department/ Specialty Retail Stores	$41.41	16.46	1.19	0.7	3.84	0.1758	444.8M	0.62	7.32
FCX	Freeport-McMoran Copper & Gold, Inc.	Precious Metals	$74.03	9.42	0.73	1.96	3.16	0.4447	3,042M	1.2	4.35
HS	Health- spring, Inc.	Medical Specialities	$19.03	7.37	0.93	0.4	1.15	0.1628	294M	0	3.42
AMP	Ameriprise Financial Services, Inc.	Investment Managers	$42.82	13.58	0.85	1.31	1.09	0.7601	4.4B	0.72	8.3
ALV	Autoliv, Inc.	Auto Parts: O.E.M.	$57.78	14.29	0.25	0.78	1.94	0.2708	459.4M	1.2	5.23

Valuation measures listed in the table above show all of these stocks to be at reasonable levels. Data not included in the chart above, however, shows that two companies in particular are also showing impressive growth.

Arrow Electronics (ARW) has steadily improving financials as shown in the chart below:

Revenue, earnings and margins are all up sequentially as well as year-over-year for this distributor of electronic components and systems.

Our other growth candidate is Ameriprise Financial (AMP). I normally am not too fond of financial companies as the sector overall has been the worst performing in our Earnings Scorecard analysis. This company, however, has managed to perform reasonably well while staying far enough under the radar to maintain its value characteristics.

Here, in the chart above, we can see that the most recent sequential quarterly results were quite good on both top line and bottom line.

So why buy on a pullback?

All of these stocks have been on a tear lately, hence their inclusion on our Trend Leaders list. Our experience is that most stocks stay on the list for a week or two and then drop off. These pullbacks are often good buying opportunities as the best stocks show up on the Trend Leaders list again shortly after. For example, UnitedHealth and Family Dollar are both repeat members of the Trend Leaders.

So browse through the table above and pick a few of these stocks for your watch list. Their value characteristics should help limit any downside and their momentum characteristics should eventually yield some good price gains.

Disclosure: no positions in any of the stocks mentioned in this post

Does finding winning stocks have to be so hard?

2010-08-03T17:27:00.000-04:00

With respect to the Trade-Radar Stock Inspector software, one of the requests I often get is that I should add a stock scanning facility. Users have said that they like all the analysis features in the software but that it's hard for individuals to unearth those good stocks that look like winners.

My reply has usually been that I have already done the scanning for them and the results are available at Alert HQ where I provide free stock picks and alerts. Daily and weekly BUY and SELL signals are available as well as Trend Leaders, Trend Busters, Swing Signals, Gaps and Cash Flow Kings.

But wait. There is another alternative: our affiliate friends at MarketClub have a technology they call Smart Scan.

Using Smart Scan, you can easily spot winning stocks, futures, precious metals, and currencies that meet one of 24 preset scanning criteria, including uptrends or downtrends.

As traders we have 3 potential positions we can take at all times: (1) We can be long the market (2) We can be short the market (3) We can be on the sidelines and out of the market.

Using their Smart Scan technology and filtering out the noise can help find some of the real nuggets that are out there.

To see how Smart Scan works, you can watch this video. As always, the videos are free to watch and there are no registration requirements. If you'd like to comment on this video please do so and let us know what you think.

Oh, and by the way. If you are interested in trying the Trade-Radar Stock Inspector software (click here to download), please be aware that anyone who signs up for the User Group email newsletter gets a discount coupon code worth $10 off the purchase price.

Three weeks of earnings -- it's clear which sectors are strongest now

2010-08-03T10:40:00.000-04:00

Three weeks of second quarter earnings season are in the books. Here's the status so far broken down by sector (analysis is provided below):

Sector	Earnings Beats	Y-o-Y Earnings Increases	Y-o-Y Revenue Increases	Upside Guidance	Total Providing Guidance	Total Number of Stocks Reporting
Basic Industries	48	54	65	9	23	72
Capital Goods	104	95	99	21	56	124
Consumer Durables	69	67	77	12	43	91
Consumer Non-Durables	47	42	45	5	27	64
Consumer Services	106	90	111	10	81	152
Energy	52	43	53	1	11	78
Finance	105	98	57	0	9	171
Health Care	82	77	92	14	69	113
Miscellaneous	23	27	31	4	24	42
Public Utilities	29	23	31	4	17	45
Technology	163	170	207	36	136	238
Transportation	35	34	38	2	3	42
Totals	863	820	906	118	499	1232

Before getting into individual sectors, let's start by looking at some of the totals and calculating the percentages.

Earnings beats: 70%
Year-over-Year Earnings Increases: 66.5%, down a few percent compared to last week's results
Year-over-Year Revenue Increases: 73.5%
Upside Guidance out of those providing guidance: 24%, down about two percent compared to last week
Upside Guidance out of total stocks reporting: 10%

Unless otherwise noted, this week's percentages are pretty similar to last week's. These summary numbers show that as earnings season has progressed, company fundamentals have remained pretty strong.

Here are a few more ways of looking at the results:

There are 212 companies (17% of those that have reported) that have exceeded earnings estimates by 20% or more.
There are 626 companies (almost 51%) that have registered year-over-year increases in earnings of 20% or more.
There are 371 companies (30%) that have registered year-over-year increases in revenues of 20% or more.

Sector results --

There are several sectors that seem to be faring particularly well:

Capital Goods and Transportation have the most earnings beats at over 80%
Consumer Durables, Consumer Non-Durables, Health Care and Consumer Services registered between 70% and 76% earnings beats
Transportation has the highest percentages of y-o-y earnings increases (81%) and y-o-y revenue increases (90%)
Between 71% and 77% of the companies in the Capital Goods, Basic Industries, Consumer Durables and Technology sectors have registered y-o-y earnings increases
Between 80% and 90% of companies in the Capital Goods, Basic Industries, Consumer Durables and Technology sectors have registered y-o-y revenue gains

Investors have been especially interested in guidance this quarter due to the worries about the economy slowing in the second half of the year. Only about 40% of companies have offered forward guidance so far this earnings season. Here's how it looks:

Transportation has the highest percentage of upside guidance but it is only 2 out of 3 companies so it can effectively be ignored
Roughly 38% of companies in the Basic Industries and Capital Goods sectors have provided upside guidance
Consumer Durables and Technology are next with 28% and 26% of companies, respectively, in each sector offering upside guidance

Noticeable by its absence in our discussion above is the Financial sector which continues to rank near the bottom in terms of our earnings season performance.

If you are interested in using this data to guide your investing, there are many sector ETFs that will fairly closely match the sector results discussed above.

Stocks take a rest -- will they wake up rejuvenated?

2010-08-01T08:02:00.000-04:00

As I often do, I am taking the opportunity to provide an overview of this weekend's stock market BUY and SELL signals available at Alert HQ. This weekend we have the following stock picks and signals:

Reversal Alerts based on daily data, we have 34 Alert HQ BUY signals and 11 SELL signals
Reversal Alerts based on weekly data, we have 11 Alert HQ BUY signal and 12 SELL signals
We have 103 Bollinger Band Breakouts based on daily data and 73 are bullish. We also have 101 Breakouts based on weekly data of which 69 of them are bullish.
We have 700 Cash Flow Kings
7 Swing Signals -- 4 are BUY signals and 3 are SELL signals
399 Trend Leaders, all in strong up-trends according to Aroon, MACD and DMI. We have 82 stocks that are new additions to the list and 81 that fell off the previous list from Thursday.
35 Trend Busters based on daily data of which all but 4 are BUY signals. We also have 46 Trend Busters based on weekly data of which 25 are BUY signals.
191 Gap Signals -- stocks with upside or downside gaps or gaps that have been closed. We see 94 downside gaps and 97 upside gaps based on daily data. We also have 39 Gap Signals based on weekly data of which 11 are bearish.

The numbers of bullish signals suggest the broader market still has some strength despite the S&P 500 being stuck at it's 200-day moving average.

The view from Alert HQ --

The data for the following charts is generated from our weekly Alert HQ process. We scan roughly 6040 stocks and ETFs each weekend and gather the statistics presented below.

In this first chart below we count the number of stocks above various moving averages and count the number of moving average crossovers, as well. We then plot the results against a chart of the SPDR S&P 500 ETF (SPY).

Though SPY stalled and fell back slightly below it's 200-DMA, the the market essentially ended flat on the week. That is seen on the chart above as the number of stocks above their 50-DMA (the yellow line) barely budged. There was, however, an increase in the number of stocks whose 20-DMA had made a bullish cross above their 50-DMA. This chart has the look of a market in consolidation.

The next chart provides our trending analysis. It looks at the number of stocks in strong up-trends or down-trends based on Aroon analysis.

This chart has a much more bullish tone. The number of stocks in strong up-trends has increased sharply over the last week. The number of stocks in down-trends has continued to dwindle. It's good to see that neither is at an extreme yet.

The outlook --

Though the S&P 500, the Russell 3000 and the Nasdaq Composite have failed to hold their 200-DMA, the Dow Jones Industrials, the NASDAQ 100 and the Russell 2000 have managed to hold onto that important level. The picture, therefore, is mixed. Our signals and indicators suggest the recent bullish trend has not yet exhausted itself though it may be taking a rest.

With roughly one half to two-thirds of companies having reported second quarter earnings results, we can expect further turbulence from earnings season. The big market moving report coming this week, however, is the Non-Farm Payrolls report. With the last couple of weekly claims reports coming in slightly better than expected, investors will be holding their breath waiting for the big NFP numbers to confirm some improvement in the jobs market.

While waiting for the Non-Farm Payrolls report which hits on Friday, we get to see construction spending, personal income and personal spending (consumer discretionary stocks and ETFs will certainly react to these numbers), factory orders, pending home sales, auto and truck sales and important ISM services index. And don't forget that on Wednesday, we get a preview of the employment numbers when the ADP employment Change report is released. In other words, there will be plenty of data to keep investors on edge.

Earnings, data and stocks at a strong resistance level. This week could set the tone for the next couple of months to come.

June Durable Goods -- Tech sector at a tipping point?

2010-07-30T07:59:00.000-04:00

The advanced report for Durable Goods for June was released Wednesday and it contributed to a drop in the market that day. Indeed, headline numbers were disappointing (especially since this is supposed to be a manufacturing led recovery):

New orders for manufactured durable goods in June decreased $2.0 billion or 1.0 percent to $190.5 billion
Shipments of manufactured durable goods in June, down two consecutive months, decreased $0.7 billion or 0.3 percent to $195.0 billion. This followed a 0.7 percent May decrease.
Unfilled Orders. Unfilled orders for manufactured durable goods in June, down following two consecutive monthly increases, decreased $0.1 billion to $802.9 billion. This followed a 0.3 percent May increase.
Inventories. Inventories of manufactured durable goods in June, up six consecutive months, increased $2.8 billion or 0.9 percent to $308.2 billion. This followed a 1.1 percent May increase. Transportation equipment, up six consecutive months, had the largest increase, $0.8 billion or 1.1 percent to $80.0 billion.
Shipments for Computers and electronic products, down four of the last five months, had the largest decrease, $1.3 billion or 4.1 percent to $31.3 billion.

Since I usually focus on the tech sector, that last bullet point was rather alarming. Let's look at the charts and put that data point in context.

Shipments --

Many analysts give less importance to Shipments since this is a backward looking measure reflecting orders that have been confirmed, manufactured and shipped. In other words, ancient history. The following chart shows how June shipments look for the overall tech sector:

That big decrease mentioned above is clearly visible in the last data point. It's a little surprising that, despite the drop in shipments, so many tech companies are showing improved earnings and are beating earnings expectations anyway.

New Orders --

The forward looking measure that Wall Street gives the most credence to is the New Orders number. The following chart shows New Orders for the tech sector:

New Orders show a decline back to levels last seen in March of this year.

The outlook --

First of all, there were a couple of positives in this month's Durable Goods report

Capital goods -- Nondefense new orders for capital goods in June decreased $1.1 billion or 1.6 percent to $64.1 billion. Shipments increased $0.6 billion or 1.0 percent to $63.2 billion. Unfilled orders increased $0.9 billion or 0.2 percent to $486.6 billion. Capital goods are generally considered to be a proxy for business investment and, though new orders declined the uptick in shipments and unfilled orders shows there's still life in the capital goods category and that businesses have not yet pulled back in their investing for growth.
With respect to the tech sector, we also see an a 0.3% increase in unfilled orders which at least suggests some continuing strength in the sector. Inventories increased 1.9% which, hopefully, is a sign that manufacturers are preparing for increased demand.

So we now have two months of declining shipments in the tech sector which more or less continues the pattern that has been in place for the last year. This most recent decline was sizable, however, and it makes the upcoming July numbers all the more important. Without an increase in July, the tech sector may be facing a change in trend - to the downside.

Luckily, the back-to-school shopping season is coming soon and that will provide increased demand for consumer technology products and the associated components that go into them. Back-to-school is of course followed by the holiday shopping season. So the seasonality is in favor of supporting demand for tech.

So for now, I have to say the trend for the tech sector remains up but the next couple of months will be crucial. Tech could be at a tipping point.

Earnings finally matter -- and the market recovers

2010-07-25T21:54:00.000-04:00

Having spent the day working on renovating a bathroom I confess I don't have the energy to get too deeply into another post tonight. Still, I wanted to share the the weekly charts from Alert HQ.

The view from Alert HQ --

The data for the following charts is generated from our weekly Alert HQ process. We scan roughly 6040 stocks and ETFs each weekend and gather the statistics presented below.

In this first chart below we count the number of stocks above various moving averages and count the number of moving average crossovers, as well. We then plot the results against a chart of the SPDR S&P 500 ETF (SPY).

Last week I opined that this chart looked "bottomish." After this week's strong performance (major indexes gained more than 3% and the Russell 2000 gained 6.6%) this chart is now looking downright bullish. Do you realize that we now have roughly 50% of stocks above their 50-day moving average? That's the best level we've seen in the last two months.

The next chart provides our trending analysis. It looks at the number of stocks in strong up-trends or down-trends based on Aroon analysis.

Since this chart is based on Aroon analysis and Aroon is a more slow moving indicator, the results are not quite as dramatic as in the first chart. Still, improvement is clearly visible as the number of stocks in up-trends is definitely increasing.

Finally, if you haven't been browsing through the signals at Alert HQ, I would encourage you to take a look. We identified a ton of BUY signals this weekend and they are a confirmation of the strength that is returning to the market.

It looks like it's safe to be long again. But for how long?

Agriculture sector is on fire -- here's a roundup of stocks and ETFs

2010-07-25T06:52:00.000-04:00

In case you haven't noticed, agricultural products, grains in particular, have been putting on an impressive rally. Take a look at this chart of the Dow Jones - UBS Grains Index:

If you're looking for a way to participate in this rally, I have the following list of ETFs courtesy of ETFdb.com:

Symbol	Name
DBA	PowerShares DB Agriculture
RJA	ELEMENTS Rogers Intl Commodity
JJG	iPath DJ-UBS Grains TR Sub-Idx
COW	iPath DJ-UBS Livestock TR Sub-
JJA	iPath DJ-UBS Agriculture TR Su
GRU	ELEMENTS MLCX Grains Index TR
UBC	UBS E-TRACS CMCI Livestock TR
CORN	Teucrium Corn
FUD	UBS E-TRACS CMCI Food TR ETN
UAG	UBS E-TRACS CMCI Agriculture T
AGF	PowerShares DB Agriculture Lon

Another way to play this is to look for some of the better fertilizer and agricultural chemical companies. I have written previously about CF Industries Holdings (CF) and came to the conclusion that it was undervalued and in the process of breaking out (click here to read the post). That exercise made me aware of what was going on in the sector. I did subsequently buy a few shares of CF and, so far, it has not disappointed. Note that CF has acquired Terra Industries, a company that used to appear on many lists of good ag sector investments.

Here are a few others you might want to consider. I have filtered this list to only include those companies whose stock charts are looking bullish.

Potash Corp of Saskatchewan (POT) - this well-known potash, feed and chemical producer boasts a chart that shows an upside reversal in the making. It has just cleared its 50-DMA and has some work to do to clear the next resistance level in the $100 range. Earnings will be reported next week and they had better be good as the stock has already moved out of the value category. Revenues and earnings have been increasing on a sequential basis over the last few quarters so investors are hopeful this positive trend will continue.
Agrium (AGU) - finally popping above its 200-DMA, the company is involved in nitrogen, phosphate, potash, sulphur, and micronutrients; crop protection products, such as herbicides, fungicides, adjuvants, and insecticides; and seeds. Revenues have been increasing while earnings have been decreasing. This is a play on a turnaround in the ag sector. There are two big questions: can the stock hold its 200-DMA and will its upcoming earnings report justify the rally in the stock price?
Monsanto (MON) - primarily offering seeds and herbicides, financial results have been uneven over the last few quarters though the company is solidly profitable. After a big decline, the stock has been rallying sharply since the beginning of July and, based on PE, Price-to-Sales and a few other measures, it is now getting expensive. Investors are apparently anticipating a strong upcoming earnings report. Citi rates the company a BUY - they had better be right on those earnings expectations.
Mosaic (MOS) - another potash producer, MOS beat earnings this week due to strong sales and improved margins. This is a nice continuation of the sequential quarterly trend. The stock declined for a couple of days and then rallied with the rest of the market on Friday. The chart looks like a nice upside reversal is underway.

Conclusion --

This is an interesting sector with lots of choices. Increased global demand coupled with weather issues (hot, hot, hot in the U.S. cornbelt) have allowed prices for agricultural products like corn, wheat and soybeans to firm up. This has allowed pricing for fertilizer and chemicals to firm up, as well.

Almost all of the ETFs listed above have been very strong lately. You could easily say that they are over-heated and investors, at this point, may be late to the party. On the other hand, we also see CF Industries, Potash and Mosaic as standouts among individual stocks and if earnings and guidance come in as expected, their share prices could easily accelerate.

Disclosure -- long CF, no other positions in stocks mentioned in this post

Value stock with a growth stock chart -- RLI could be worth a look

2010-07-24T07:14:00.000-04:00

So how can a stock be on both the Trend Leaders list and the Trend Busters list? To review, the Trend Busters lists consists of those stocks or ETFs that have simply broken a trend line while the Trend Leaders list includes those stocks that are exhibiting bullish performance according to MACD, Wilder's DMI and Aroon analysis.

After running Thursday night's Alert HQ process, I have a stock that is on both of these lists and is also passing the screen for Reasonable Value. This company is RLI Corporation (RLI). Here is the chart :

I've drawn two trend lines in blue: a longer term trend that is sloping upward and which RLI seems to be following and a shorter-term downward sloping trend that the stock has broken through to the upside. The fact that RLI has burst upward out of the wedge formed by the two trend lines is another positive which suggests the stock could hit $59 before too long. All in all, pretty bullish performance.

Why is RLI considered Reasonable Value?

Here are my criteria for the Reasonable Value screen:

PE between 0 and16
PEG between 0 and 1.2
Price-to-Sales less than 2
Debt-to-Equity less than 1
EV to EBITDA less than 10

Here are the stats on the company:

Market Cap	PE Ratio	Price to Sales	Price to Book	PEG Ratio	Debt to Equity	Price to Free Cash Flow	Cash Flow Yield	Dividend Yield	EV to EBITDA
$1.18B	10	2.04	1.38	1.13	0.12	9.53	-1.03%	2.08%	6.53

RLI meets all the Reasonable Value criteria, with room to spare.

Background --

RLI Corp. underwrites property and casualty insurance primarily in the United States. The company serves the commercial market almost exclusively and operates in three segments: Casualty, Property, and Surety. RLI insures things like office buildings, factories, apartment buildings, refineries, truckers and more.

The company beat earnings estimates earlier this week which allowed the stock to continue its upswing. RLI reported blow-out second-quarter 2010 operating earnings of $1.52 per share, beating the Zacks Consensus Estimate of $1.05 per share by 47 cents. These results also compare favorably with operating earnings of $1.32 per share in the year-ago period. Some of this quarter's earnings gain, however, came from reversing reserves set aside during prior years (the same trick the banks are playing this earnings season) but there were also organic gains from increased premiums and investment income. Underwriting income was $30.8 million, up 22.8% year over year, led by an increase in Property and Surety underwriting income, partially offset by a decline again in Casualty underwriting

A measure of profitability used by insurance companies to indicate how well they are performing in daily operations is the Combined Ratio. A ratio below 100% indicates that the company is making underwriting profit while a ratio above 100% means that it is paying out more money in claims than it is receiving from premiums. For RLI, combined ratio for the quarter improved 480 basis points year over year to 74.7% driven by an improvement in Casualty and Surety combined ratios, partially offset by decline in the Property combined ratio.

Because the growth picture is somewhat murky with the Casualty segment lagging in underwriting and the Property segment's combined ratio failing to improve, Zacks maintains a Neutral rating on the stock. Similarly, Stifel Nicholaus has upgraded the stock but only from SELL to HOLD.

Conclusion --

RLI is a value stock with a growth stock chart. Caveats are that it is not unusual for financial stocks to pass the Reasonable Value screen and the company is seeing uneven results in two of the three segments in which it operates. On the other hand, the company is solidly profitable, raises its dividend on a regular basis and has been able to reduce costs year over year. I'm not an expert in analyzing insurance companies but the stock could be worth a trade.

Disclosure: no positions

Earnings scorecard -- two weeks in, where's the evidence for a double-dip?

2010-07-23T22:29:00.016-04:00

The first two weeks of earnings season are in the books so it's time to take our first look at which sectors are doing well and which ones are - uh - "underperforming".

The chart below breaks down each sector's earnings reports into five different categories and gives total stocks that have reported thus far.

Sector	Earnings Beats	Y-o-Y Earnings Increases	Y-o-Y Revenue Increases	Upside Guidance	Total Providing Guidance	Total Number of Stocks Reporting
Basic Industries	11	11	15	2	6	16
Capital Goods	37	34	40	7	17	47
Consumer Durables	27	28	26	6	16	33
Consumer Non-Durables	21	18	18	1	13	28
Consumer Services	33	36	43	2	30	49
Energy	9	9	12	0	2	18
Finance	48	47	20	0	3	84
Health Care	24	21	26	6	22	32
Miscellaneous	8	7	10	0	7	13
Public Utilities	9	7	8	1	2	10
Technology	63	72	75	17	47	83
Transportation	22	24	25	2	3	26
Totals	312	314	318	44	168	439

Before getting into individual sectors, let's start by looking at some of the totals and calculating the percentages.

Earnings beats: 71%
Year-over-Year Earnings Increases: 71.5%
Year-over-Year Revenue Increases: 72.5%
Upside Guidance out of those providing guidance: 26%
Upside Guidance out of total stocks reporting: 10%

Based on earnings and revenues, this earnings season has so far been pretty darn good. The doubt begins to creep in when we look at the guidance numbers. Company management seems to be rather reluctant to go out on a limb and declare that the upcoming quarter will result in the kind of growth we are seeing in Q2 results.

Sector results --

Just so we don't end on a downer, let's identify the worst performing sector first. That honor goes to the Financial sector. Earnings beats and Y-o-Y Earnings Increases are roughly 57%. Revenue Increases were less than 28%. There was no upside guidance whatsoever.

Also in the lower range of results, we have Energy and some of the Consumer sectors where upside guidance is very light or nonexistent.

At the high end of results, there are the Transportation and Technology sectors. Earnings beats, Y-o-Y Earnings Increases and Revenue Increases are roughly 75% for Tech and upside guidance is plentiful. Transports are doing even better with Earnings beats, Y-o-Y Earnings Increases and Revenue Increases over 85%. Unfortunately, very few transportation companies offered guidance - only three companies went on the record with guidance but at least two of them were positive.

Conclusion --

With Technology and Transportation leading the way and solid performance from Basic Industries and Capital Goods, it's hard to believe we are headed for a double-dip. Earnings beats are all well and good but revenue increases and upside guidance would argue for continued future improvement though it is clear that some sectors will lag for a while.

Stocks show gains two days in a row -- is the rally back on?

2010-07-20T22:20:00.000-04:00

This post is announcing that Tuesday's Swing Signals, Trend Leaders, Trend Busters and Gap Signals are now available at Alert HQ. All are based on daily data. It's been a while since I wrote a post highlighting the latest Alert HQ signals but I want to remind everyone that we have been putting up the Tuesday, Thursday and Saturday morning signals regularly without interruption.

Today we have the following:

25 Swing Signals -- 23 BUY signals and 2 SELL signals.
87 Trend Leaders, all in strong up-trends according to Aroon, MACD and DMI. We have 35 stocks that are new additions to the list and 43 that fell off the previous list.
15 Trend Busters, of which 11 are BUY signals and 4 are SELL signals.
125 Gap Signals -- stocks with upside or downside gaps or gaps that have been closed. 75 are bearish gaps and 50 are bullish gaps.

The view from Alert HQ --

Over the weekend I wrote that Friday's market action was so bad that it seemed the advantage had gone to the bears. Major indexes wilted just as they seemed ready to decisively move above moving averages that were presenting resistance. Over the last two days, however, the stocks seem to be gathering strength for another run at the same moving averages.

The signals at Alert HQ are in tune with this recovery in strength. BUY signals are strongly outnumbering SELL signals on the Swing Signals and Trend Busters lists. Just so you don't get carried away with optimism, though, the Trend Leaders list has more stocks falling off the list than were added today and downside gaps over the last five days still outnumber upside gaps.

So our fast moving signals are showing a resurgence in stocks and our slower moving signals (the Trend Leaders, for example) are still reflecting last week's weakness. Which do you think will dominate Wednesday's trading?

Using our signals --

If you're a momentum trader, the Trend Leaders list is a good place to go shopping. If you practice technical analysis, check out the Trend Busters. And if you are a short-term trader or even a day trader, our Swing Signals or Gap Signals may provide some good trading ideas.

Found a few stock picks you are interested in? If you are looking to refine your entry and exit points, you should take a look at what our friends at Hottinger's E-Zone Signals have to offer.

Bond ETF reversal alert -- but will the rally continue?

2010-07-19T23:51:00.001-04:00

This weekend's Reversal Alerts based on weekly data turned up an interesting BUY signal for an ETF I had never heard of before.

The symbol is IGOV and the ETF is the iShares S&P/Citigroup International Treasury Bond Fund. The S&P/Citigroup International Treasury Bond Index ex-US is a market value-weighted index designed to measure the performance of treasury bonds issued in local currencies by developed market countries outside the U.S.

Holdings include bonds from Japan (fully 25% of the fund), France, Italy, Germany, Austria, Canada, Australia and even the problem children like Greece, Ireland, Spain and Portugal. Credit ratings are mostly in the AA to AAA range.

Maturities are mostly short to intermediate with roughly 75% of holdings falling into the 1 to 10 year maturity range.

Regardless of the exposure to problems in Europe, this ETF has been on a roll since early June when a multi-month downtrend reversed to the upside. The chart of daily data follows:

This chart suggests that investors have become much more comfortable holding sovereign debt lately. As stocks have fallen out of favor, bonds have received attention and IGOV seems to be benefiting from this rotation out of equities.

A technical analyst, however, might point out that on this daily chart the ETF appears over-bought according to Williams %R and Slow Stochastics. In addition, strong resistance looms above at the 200-day moving average. A move through that 200-DMA would signal a continuation in the new bullish trend. The fact that IGOV doesn't look nearly as over-bought on the weekly chart and that it has moved above resistance in the $99 range are also positives.

Given that Europe seems to be emerging from its sovereign debt crisis (Greece and Spain have been able to issue bonds at better than expected rates, confirming investors are developing some optimism on the countries sorting out their problems), perhaps IGOV really does have the potential to keep up the bull run. And compared to similar ETFs it even has a rather low 0.35% expense ratio.

If you are looking for an international bond fund that is not focused on emerging markets then IGOV might be the right ETF for you.

Disclosure: no positions

All it takes is one bad day and advantage goes to the bears

2010-07-18T22:14:00.000-04:00

Friday stocks staged another retreat just when bulls were looking for upside follow-through. Instead of a nice push above the 50-day moving average, confirming the bullish trend, we got a 3% drop that wiped out more than a week's worth of gains. Now, charts are shaping to show lower highs and lower lows - the classic definition of a down trend.

The view from Alert HQ --

The data for the following charts is generated from our weekly Alert HQ process. We scan roughly 6040 stocks and ETFs each weekend and gather the statistics presented below. First, here's the two charts and I'll summarize my interpretation at the end.

In the chart below we count the number of stocks above various moving averages and count the number of moving average crossovers, as well. We then plot the results against a chart of the SPDR S&P 500 ETF (SPY).

The next chart provides our trending analysis. It looks at the number of stocks in strong up-trends or down-trends based on Aroon analysis.

OK, the price chart of SPY is now looking pretty awful. These two charts, however, while clearly reflecting Friday's weakness, are at the same time looking kind of "bottom-ish" if such a word exists.

The Moving Average Analysis chart shows a zig-zag of the yellow line above and below the magenta line. Neither line has established new lows recently, hence the "bottom-ish" characterization. The Trending Analysis chart shows a continued decline in the number of stocks in a down-trend. Unfortunately, it also shows that the number of stocks in up-trends has reverted to a relatively low level, and it seems it will be a struggle to increase. This is certainly not a bullish chart but it is still sort of bottom-ish.

This next chart shows SPY over the course of the last year. What is highlighted is the downward wedge that the ETF seems to be trapped in.

The bears look at this chart and see SPY continuing down this channel, fulfilling the dark promise of the "death cross" when the 50-DMA crossed below the 200-DMA. The failure to break over the top trendline is a telling sign showing that we are truly in a bear market. Many expect SPY to drop out of this channel which would probably result in a quick drop to the $92.50 range

The bulls look at this same chart and say "Hey, isn't a falling wedge a bullish formation?" Of course, the answer is Yes only if we finally break out to the upside, something that looks more challenging now that SPY has been rebuffed so soundly at that falling upper trendline shown in the chart above.

The bulls may just be biding their time and hoping for a strong reversal sign. Take a look at the chart below:

You can see a potential head-and-shoulders set up. The optimists are OK with a pullback in SPY as long as the ETF fulfills this pattern.

Could it happen as the bulls hope?

Only time will tell but I thinks earnings will have an impact. There are a good number of bellwether companies reporting this week including IBM (IBM), Texas Instruments (TXN), Johnson & Johnson (JNJ), PepsiCo (PEP), Goldman Sachs (GS), Coca-Cola (KO), Morgan Stanley (MS), AT&T (T), Caterpillar (CAT), UPS (UPS) and Amazon.com (AMZN). If we can get a consistent set of good reports combined with positive outlooks then Friday's market slide might be arrested.

In terms of economic reports, the bulls will probably be swimming against the tide. We have a bunch of housing related reports coming up and they are all likely to range from lackluster to awful. These reports include National Homebuilders Association Index, Building Permits, Housing Starts and Existing Home Sales. In addition to the usual weekly jobless claims we will also have the latest report of leading indicators from the Conference Board.

There has been a lot of attention paid recently to the ECRI weekly indicators. There is a difference between the two as well as some similarities. For example, here is what the Conference Board takes into consideration when constructing their index:

The index of leading indicators includes the ten economic statistics listed below.

The interest rate spread between 10-year Treasury notes and the federal funds rate.
The inflation-adjusted, M2 measure of the money supply.
The average manufacturing workweek.
Manufacturers' new orders for consumer goods and materials.
The S&P 500 measure of stock prices.
The vendor performance component of the NAPM index.
The average level of weekly initial claims for unemployment insurance.
Building permits.
The University of Michigan index of consumer expectations.
Manufacturers' new orders for nondefense capital goods.

The ECRI weekly leading indicators are composed of the following components:

The Mortgage Bankers Association's home purchase index
Money supply
Stock prices
Initial jobless claims
Corporate yield spreads (inverted)
Corporate bond quality spread

ECRI, in other words, doesn't directly take into consideration several aspects of manufacturing, consumer expectations or data from the NAPM purchasing manager indexes which until recently were all clearly on the mend. I'd like to think that ECRI underweighted the benefits of the improvements in the manufacturing sector but it's probably a wash now that it seems that manufacturing is showing some slowdown based on last week's Empire State index and the Philadelphia Fed index.

So it's clear the two sets of indicators will not track exactly but both will show slowing growth based on the items they have in common. And since both track stock prices, it becomes somewhat of a self fulfilling prophecy that the indicators will decline when stocks do. I'd love to see these two without the impact of stock prices given how volatile and crazy the markets have been lately.

So the battle between bulls and bears and between double-dippers and economic optimists continues. Expect the outcome to see-saw back and forth for weeks to come before we see a resolution.

Weekly ProShares Review -- foreign stocks grab investor interest

2010-07-14T23:44:00.001-04:00

Some interesting things going on with ProShares ETFs this past week.

Every now and then for the last few weeks I have been presenting a list of the ProShares ETFs that have exhibited the strongest performance over the course of the last week or have registered the biggest increase in volume. Since these ETFs are primarily short-term trading vehicles and, as such, can be viewed as indicators of short-term sentiment, looking at the leaders among them can paint a picture of those areas of the market in which short-term investors are currently most interested.

Looking back over the course of the previous week, the five ETFs with the biggest gains were:


Symbol	Fund Name	Group	Objective	Percent Change - Price	Percent Change - Avg Volume
EFO	Ultra MSCI EAFE	Ultra	200% of the underlying	12.7%	176.8%
EET	Ultra MSCI Emerging Markets	Ultra	200% of the underlying	11.5%	16.1%
XPP	Ultra FTSE/Xinhua China 25	Ultra	200% of the underlying	10.9%	22.4%
UPRO	UltraPro S&P500	Ultra	300% of the underlying	10.2%	-44.5%
UKF	Ultra Russell1000 Growth	Ultra	200% of the underlying	10.0%	15.4%

The two ETFs with the biggest increase in volume (other than EFO) were:


Symbol	Fund Name	Group	Objective	Percent Change - Price	Percent Change - Avg Volume
JPX	UltraShort MSCI Pacific ex-Japan	Short	200% of the Inverse	-10.3%	310.9%
YCL	Ultra Yen	Ultra	200% of the underlying	-1.4%	107.8%

Interestingly, the volume for all the other ProShares ETFs declined or was barely up at all.

Conclusion --

The overriding theme this week seems to be that, after suffering serious declines (China sinking to bear market lows, for example), foreign stocks are back in favor. Surprisingly, that includes European stocks which make make up a large part of the EAFE index which was our top performer. The biggest volume play was to bail out of the UltraShort MSCI Pacific ex-Japan ETF.

U.S. markets rallied last week but short-term traders seem more interested in foreign stocks. Is this a vote of confidence for improvement in the global economy? At least this week, the double dip seems like a figment of the perma-bear imagination.

An update to Trade-Radar Stock Inspector is available: version 5.2.6 is live

2010-07-14T15:32:00.000-04:00

I'd like to notify users that a new version of Trade-Radar Stock Inspector was just made available over the weekend. The update is related to a fix for the user interface.

Some flaky things were going on when entering new stock symbols and retrieving data. It's all been resolved. Both methods now work just fine.

For your reference here are the two methods:
Method #1: Click the "Get data from Yahoo" button, enter the new symbol in the text box and all data will be retrieved and stored in the database.
Method #2: Enter the new symbol in the dropdown and click the "Search Database" button. Then click the "Get data from Yahoo" button to retrieve data.)

I also fixed a bug that is encountered when Yahoo data has non-numeric results in today's price data. Instead of blowing up, the program now just rejects the data. This usually happens only on very thinly traded stocks or ETFs.

If you'd like to take advantage of these updates, click on [ this link to our Download page ] and get version 5.2.6.

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