Archive for April, 2010

Caution: Greatly Overvalued Stocks in the News

Caution: Greatly Overvalued Stocks in the News

Courtesy of Ockham Research’s The Razor’s Edge 

As a long term focused valuation methodology, Greatly Overvalued is the most negative rating we can have on a stock.  In our view, this rating means one of two things: either the stock is too hot and has risen too quickly, or the stock has seen deterioration in underlying fundamentals that have not yet been reflected in their stock.  Just because a stock is overvalued doesn’t mean that it is due for a slide, but rather we think that it is not an attractive buy candidate and may be ripe for taking profits.  Essentially, these stocks are trading for higher levels of price-to-cash earnings and price-to-sales (among other fundamental valuation metrics) than has been normal throughout their recent history.

At Ockham, we recently released a new stock screening tool on our site that we now use daily around the office to more efficiently wade through our coverage of over 8400 stocks.  One interesting filter we used today was to see stocks that have our Greatly Overvalued rating, and also have been mentioned in the financial media within the last 30 days according to RazorWire.  These stocks represent a subset of our most negative ratings that are also attracting some attention lately either because of earnings releases or some other reason to be mentioned on business television or influential financial blogs.

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I am aware that the image of the screener is too small to read, so the list has been recreated below.  These stocks come from a variety of sectors but the highest concentration is in Basic Materials, Consumer Goods (particularly auto-related), and Energy sectors.  We are not saying investors in these stocks need to sell and plant their money on the sidelines, but it may be worthwhile to reexamine exit strategies because their prices have become a bit too stretched based on current fundamentals.  So, here are the 18 stocks that met the criteria listed in order of largest capitalization to smallest.

Greatly Overvalued Stocks with at least one RazorWire Capture in the Last 30 Days:

  1. Occidental Petroleum (OXY)
  2. ArcelorMittal (MT)
  3. Caterpillar (CAT)
  4. Johnson Controls (JCI)
  5. PACCAR, Inc (PCAR)
  6. Vornado Realty (VNO)
  7. Kinder Morgan Energy Partners (KMP)
  8. Eaton Corporation (ETN)
  9. Fidelity National Info Services (FIS)
  10. Cliffs Natural Resources (CLF)
  11. Cree, Inc. (CREE)
  12. Eastman Chemical Company (EMN)
  13. BorgWarner, Inc. (BWA)
  14. Autoliv, Inc. (ALV)
  15. M.D.C.


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Goldman Sachs Gets Thrown in the Briar Patch by the DoJ

Goldman Sachs Gets Thrown in the Briar Patch by the DoJ

Courtesy of Jr. Deputy Accountant

First, before you read the WSJ bit, check out this video. It will put everything into context nicely.


(is that Eddie Murphy as Br’er Fox?!)

Finding out that a lather can easily be worked up in response to a regulatory bitchslap, the Department of Justice will be next to line up against Goldman Sachs, sort of like the couples skate of regulation. Awww!

WSJ:

Federal prosecutors are conducting a criminal investigation into whether Goldman Sachs Group Inc. or its employees committed securities fraud in connection with its mortgage trading, people familiar with the probe say.

The investigation from the Manhattan U.S. Attorney’s Office, which is at a preliminary stage, stemmed from a referral from the Securities and Exchange Commission, these people say. The SEC recently filed civil securities-fraud charges against the big Wall Street firm and a trader in its mortgage group. Goldman and the trader say they have done nothing wrong and are fighting the civil charges.

Prosecutors haven’t determined whether they will bring charges in the case, say the people familiar with the matter. Many criminal investigations are launched that never result in any charges.

Line up and get a piece while rage against the big bankers has reached its breaking point: the regulators are so desperate to get your respect back, they’re trying to take down the largest piece of prey they can find.

Before you let them park a wooden horse in your driveway, make sure you check the trunk for termites. 


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Is the Market Resting For Another Bullish Move?

Courtesy of Market Tamer

Improve Your Market Timing: The Bullish Engulfing Pattern

  • The Bullish Engulfing Pattern is a bullish reversal pattern and is considered a major candlestick formation.
  • The pattern is most effective when found at the bottom of a downtrend.
  • The pattern represents a change in investor sentiment and is characterized by an initial gap down from the prior trading day.
  • The stock will not follow through with the initial gap and will begin to trade up on increased volume.
  • The mature pattern will end the session with a close above the prior session’s open, thus engulfing the prior session’s real body.
  • The pattern is considered stronger when the stock trades up from a larger gap down and if it not only engulfs the real body but the entire trading range of the prior session.
  • Sometimes you will see a situation when the Bullish Engulfing Pattern wraps around and engulfs several prior sessions and that is a very convincing reversal scenario.
  • The Pattern is additionally effective when combined with a pre-defined level of support as represented by chart patterns, major moving averages, Fibonacci levels and trend lines.
  • Oscillators such as Stochastics or RSI can also confirm a changing sentiment from being oversold to becoming more bullish.

 

Dow 

S&P 500

Nasdaq





William K. Black on Bill Moyers’ Closing Show

William K. Black on Bill Moyers’ Closing Show

William talks about fraud, or "control fraud" and the criminogenic environment of the Wall Street-Washington world. The regulators themselves were a huge problem because when regulators who hate regulation are appointed, it leads to a self-fulfilling prophecy of failure, "anti-regulation." There’s much more in this interview, click on the picture to watch.  Transcription’s below. - Ilene 

H/tip Barry Ritholz


 

April 23, 2010

BILL MOYERS: Welcome to the JOURNAL. We’ll get to two big battles in Washington in just a moment — financial reform and the future of the internet. But first, I want to thank those of you who wrote after you heard me say last week that the JOURNAL will come to an end with next Friday’s broadcast. It’s true, and all of us here were touched by your messages of regret.

I will miss the virtual community of kindred spirits that has grown up around this broadcast — viewers like you, as we say, whose unseen but felt presence reminds me of why I have kept at this work so long. But it has been a long time, and that’s why I can assure you that my departure is entirely voluntary. Many of you wrote to say you were alarmed at the possibility that we are being pushed off the air — that higher ups or dark powers pointed to the door and said, “Go.”

You can relax; it didn’t happen. I’m leaving for one reason and one reason alone: it’s time. Believe me, it wasn’t an easy decision: I like what I do, cherish my colleagues and enjoy your company. But I’ll be 76 in a few weeks, and there are some things I want to do that the deadlines and demands of a weekly broadcast make impossible. So for me, it’s now or never. I informed public television of my decision more than a year ago, intending to leave back in December. But my colleagues at PBS asked me to extend the series four more months to give them time to prepare a new public affairs series. More on that next week.

Now to the big rumble of this week — and I’m not talking about that volcano in Iceland. I’m talking about the fight to reform our financial system.

PRESIDENT BARACK OBAMA: There…
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Just A Reminder

Courtesy of Tyler Durden

By Nic Lenoir Of ICAP

In case politicians don’t understand what’s at stake, the market kindly gave them a little reminder with a nasty close for equities today. In the early morning it seemed people were quite willing to ignore GS’s misfortunes in its dealings with the ever more schizophrenic government. Washington simply cannot understand why it can’t destroy speculation and leverage yet keep the equity market up, as it is the only economic driver in the US since easy credit is no longer available. Tough indeed: since nothing or close to nothing is manufactured in the US we need our upper class’s investments to skyrocket so it is inclined to spend thereby providing service jobs. US politicians have a lot of work on their plate with the financial reform. Any measures too drastic in terms of balance sheet reduction will be tough on financial assets and curb lending, and any measures to curb speculation on commodities will hit this asset class hard and the commodity stocks along with them (miners are amongst leaders in US equities). European politicians have one fine mess to sort as well and money markets are pricing in higher Libor and funding difficulties ahead already. Without expanding too much on the subject, there is no one I would like less to depend on to make the right decisions.

While stocks were within reach of new highs to start the day in the US, it seems market participants felt like taking risk off before the brainiacs try to figure out what it is exactly they want to do, and by the same token give them a reminder as to the consequences of any stupid decision. S&P is pretty close to posting a H&S on the tops (though the neckline is slightly downward sloping which is not ideal) and the support zone is 1,175/1,180. Watch out below. Similar observation on the Nasdaq future with a neckline support at 1,990. The Nikkei joins in the H&S galore, and the Dax which seems to have been more resolutely bearish (understandable given that the epicenter of the main crapshow the market is focusing on is Europe). After a 61.8% or close retracement of the initial sell-off, if the Dax goes to make new lows next week the markets should in theory accelerate to the downside. For good measure, the French index (CAC) is…
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Treasury Redeems A Gargantuan $643 Billion In Treasuries In April

Courtesy of Tyler Durden

A week ago we were practically speechless when we showed that the Treasury had redeemed nearly $494 billion in Bills in April. A truly stunning number and an indication of just how much cash the Treasury needs to have access to to keep rolling its ridiculously short average maturity debt load. Today we stand even more speechless: according to today’s DTS, the Treasury has now redeemed $596 billion in Bills in Aprils: an all time world record, even when accounting for the Fed’s steroid abuse period of SFP 1 (we are currently in the second iteration). Add $47 billion in Notes and there are almost $650 billion in redemptions. This number is simply ridiculous. Forget the interest expense: this ever increasing roll is the number one danger to the US and world economy. Should the Treasury be unable to keep issuing shorter and shorter dated debt (and it already is skirting away from even the belly of the curve), it is for all intents and purposes game over.





US GDP growth rate is unsustainable; recovery will fade

US GDP growth rate is unsustainable; recovery will fade

Magnifying glass on line graph

Courtesy of Edward Harrison at Credit Writedowns 

The US turned in a fairly robust quarter in Q1 2010, with real GDP growth meeting expectations at 3.2% annualized. This comes on the back of a very robust annualized 5.6% growth in the previous quarter. This is the best growth two-quarter growth we have seen since 2003.

However, when one digs deeper, it is obvious this growth is unsustainable because it is predicated on a reduction in savings rates and a releveraging of the household sector. As a result, I expect weak GDP growth in the second half of 2010.

The problem with the BEA reported numbers is the composition of GDP growth. The BEA says in its data release:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 3.2 percent in the first quarter of 2010, (that is, from the fourth quarter to the first quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 5.6 percent.

The Bureau emphasized that the first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3). The "second" estimate for the first quarter, based on more complete data, will be released on May 27, 2010.

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, and nonresidential fixed investment that were partly offset by decreases in state and local government spending and in residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the first quarter primarily reflected decelerations in private inventory investment and in exports, a downturn in residential fixed investment, and a larger decrease in state and local government spending that were partly offset by an acceleration in PCE and a deceleration in imports.

So the gain in GDP was due to consumption, while GDP decelerated from Q4 2009 due to inventory, exports, residential investment, and state and local government spending. 

Young Couple Shopping at Shoe Store

Translation: These numbers are entirely dependent on an increase in consumer spending. Everything else is becoming a drag on…
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Net Euro Shorts Spike, Regain Record Highs, As Dollar Longs Surge To Highest Since August 2008

Courtesy of Tyler Durden

This week’s risk aversion trade is nowhere more evident than in the spike of Net eureo shorts for the week ended April 27, as reported by the CFTC. After having retreated to as low as 66k two weeks ago, the net speculative position in the european currency has surged, hitting record resistance in the 97k range. (see chart below). And even as Europe fears drove speculators to abandon the euro, the one currency which is sitting in no man’s land, the USD, this week saw net longs rise to the highest value since August of 2008. Feel free to oull up a chart fo the EURUDF pair and see when the last time it was preparing to blow out so wide was,





Distribution And Rotation, aka Sell Off

Courtesy of Tyler Durden

The sectors that brought us to the ridiculous highs are getting sold off. The financial sector now faces a choice between offering a sacrificial lamb or becoming a regulated utility. We hope it opts for the first (we have  a few candidates in mind), as the latter will likely lead to the prompt realization that we never really emerged from the great depression v2. Goldman once again reminded everyone today who is still in charge. As for tech, say good bye to the stimulus wave. In fact, Q1 GDP will be merely the next point on a declining curve. Unless a new stimulus is instituted promptly, this is now the middle of the W. The same for the artificial and one-time bounce in GDP as we have been saying since April of 2009. The bears, for the first time in 13 months are finally smelling blood. And we have a weekend chock full of catalysts, number one and two being the Greek bailout and the resultant civil war, and Lloyd Blankfein on Charlie Rose, digging himself into an even deeper hole. The best damage control for the squid right now is silence. Pity that stooping to the level of the morts has always been the mollusc’s weakest side, and soon to be its undoing. Also add to that the Bund short-end screaming tighter, and the surge in the dollar, as in the sudden and dramatic evaporation of all carry trades, and you have set the stage for the Lehman unwind. Next week will be fun.





Bears bombard Massey Energy Corp. as FBI Investigates Mining Tragedy

Today’s tickers: MEE, CSTR, SMH & RTP

MEE – Massey Energy Corp. – News the coal producer is being looked at by the Federal Bureau of Investigation following the tragic explosion at one of the firm’s mines in West Virginia on April 5, 2010, fuelled bearish options trading activity today and pushed Massey’s shares down 5.9% to $38.90 as of 12:45 pm (ET). Earlier in the session Massey’s shares declined 9% to an intraday low of $37.43. Shares of the underlying stock are currently down 31% since April 5, 2010, when the stock touched a new 52-week high of $54.80 before falling on news of the mining accident. Investors piled into put options on Massey today, with trading traffic heaviest in out-of-the-money puts in the May contract. The May $35 strike attracted the most volume with more than 12,600 puts changing hands at that strike by 12:50 pm (ET). It looks like at least 6,700 puts were purchased there for an average premium of $0.97 apiece. Put-buyers make money if Massey’s shares fall another 12.5% from current price of $38.90 to breach the average breakeven point to the downside at $34.03 by May expiration. News of the FBI’s involvement, coupled with investors’ voracious appetite for puts on the stock today, boosted Massey’s overall reading of options implied volatility 22.5% to 64.53% as of 12:55 pm (ET).

CSTR – Coinstar, Inc. – Shares of the provider of diverse services, such as self-service coin counting and Redbox $1-a-day movie-rental dispensaries, are up more than 21.5% to $46.44 as of 12:10 pm (ET). Earlier in the session Coinstar’s shares surged 32% over Thursday’s closing value of $38.21 to attain a new 52-week and intraday high of $50.35. One options player reeled in hefty profits by selling a previously established long call position in the May contract. It looks like the investor initially purchased 600 in-the-money calls at the May $35 strike for an average premium of $2.83 apiece back on Monday April 26, 2010, when shares of the underlying stock were trading at a volume-weighted average price of $36.51. Today the trader sold the calls for $14.40 each, banking average net profits of $11.57 per contract. Perhaps expecting continued bullish movement in the price per Coinstar share, the investor established a fresh optimistic stance on the stock by purchasing 600 calls at the May $50 strike for an average premium of $2.20 apiece.…
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Phil's Favorites

DARK TOWERS by David Enrich

 

In his best-selling book Dark Towers, David Enrich, finance editor at The New York Times, chronicles the complicated history of Deutsche Bank and its entanglement with Donald Trump. Reviewing Dark Towers, Roger Lowenstein writes, 

"Enrich’s most tantalizing nugget is that in the summer of 2016, Jared Kushner’s real estate company (which received lavish financing from Deutsche) was moving money to various Russians. A bank compliance officer filed a “suspicious activity report,” but the report was quashed and she was fired. The suggestion that maybe the money was payback for Russian campaign meddling isn’t one that Enrich can prove. Similarly, we will have to wait to see if Deutsch...



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Zero Hedge

NYSE Announces Disaster-Recovery Test Due To Virus Fears

Courtesy of ZeroHedge View original post here.

In a somewhat shocking sounding move, given administration officials' ongoing effort to calm the public fears over the spread of Covid-19, The New York Stock Exchange has announced it will commence disaster-recovery testing in its Cermak Data Center on March 7 amid coronavirus concern, Fox Business reports in a tweet, citing the exchange.

During this test, NYSE will facilitate electronic Core Open and Closing Auctions as if the 11 Wall Stree...



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Chart School

Dow, Three strikes and your out!

Courtesy of Read the Ticker

The Dow has topped out with major events, the current virus could be the third strike!

2001 - 9/11 Twin Towers
2007 - Bear Sterns
2020 (?) - C19 Virus


Chart explains all. Dow Jones Industrial's comparing market tops 2000, 2007 and 2020.


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Changes in the world is the source of all market moves, to catch and ride the change we believe a combination of ...

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ValueWalk

Cities With The Most 'New' And Tenured Homeowners

By Jacob Wolinsky. Originally published at ValueWalk.

Homeownership is a major investment. Not just financially, but when a person or family purchases a home, they’re investing years – if not decades – in that particular community. 55places wanted to find out which real estate markets are luring in new homebuyers, and which ones are dominated by owners that haven’t moved in decades. The study analyzed residency data in more than 300 US cities and revealed the top 10 cities with the most tenured homeowners – residents who’ve lived in and owned their home for more than 30 years – are sprinkled across ...



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Kimble Charting Solutions

Financial Crisis Deja Vu: Home Construction Index Double Top?

Courtesy of Chris Kimble

Most of us remember the 2007-2009 financial crisis because of the collapse in home prices and its effect on the economy.

One key sector that tipped off that crisis was the home builders.

The home builders are an integral piece to our economy and often signal “all clears” or “short-term warnings” to investors based on their economic health and how the index trades.

In today’s chart, we highlight the Dow Jones Home Construction Index. It has climbed all the way back to its pre-crisis highs… BUT it immediately reversed lower from there.

This raises concerns about a double top.

This pr...



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Insider Scoop

A Peek Into The Markets: US Stock Futures Plunge Amid Coronavirus Fears

Courtesy of Benzinga

Pre-open movers

U.S. stock futures traded lower in early pre-market trade. South Korea confirmed 256 new coronavirus cases on Thursday, while China reported an additional 327 new cases. Data on U.S. international trade in goods for January, wholesale inventories for January and consumer spending for January will be released at 8:30 a.m. ET. The Chicago PMI for February is scheduled for release at 9:45 a.m. ET, while the University of Michigan's consumer sentime...



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Biotech & Health

Could coronavirus really trigger a recession?

 

Could coronavirus really trigger a recession?

Coronavirus seems to be on a collision course with the US economy and its 12-year bull market. AP Photo/Ng Han Guan

Courtesy of Michael Walden, North Carolina State University

Fears are growing that the new coronavirus will infect the U.S. economy.

A major U.S. stock market index posted its biggest two-day drop on record, erasing all the gains from the previous two months; ...



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The Technical Traders

SPY Breaks Below Fibonacci Bearish Trigger Level

Courtesy of Technical Traders

Our research team wanted to share this chart with our friends and followers.  This dramatic breakdown in price over the past 4+ days has resulted in a very clear bearish trigger which was confirmed by our Adaptive Fibonacci Price Modeling system.  We believe this downside move will target the $251 level on the SPY over the next few weeks and months.

Some recent headline articles worth reading:

On January 23, 2020, we ...



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Promotions

Free, Live Webinar on Stocks, Options and Trading Strategies

TODAY's LIVE webinar on stocks, options and trading strategy is open to all!

Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

...

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Members' Corner

Threats to democracy: oligarchy, feudalism, dictatorship

 

Threats to democracy: oligarchy, feudalism, dictatorship

Courtesy of David Brin, Contrary Brin Blog 

Fascinating and important to consider, since it is probably one of the reasons why the world aristocracy is pulling its all-out putsch right now… “Trillions will be inherited over the coming decades, further widening the wealth gap,” reports the Los Angeles Times. The beneficiaries aren’t all that young themselves. From 1989 to 2016, U.S. households inherited more than $8.5 trillion. Over that time, the average age of recipients rose by a decade to 51. More ...



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Digital Currencies

Altcoin season 2.0: why bitcoin has been outgunned by crypto rivals since new year

 

Altcoin season 2.0: why bitcoin has been outgunned by crypto rivals since new year

‘We have you surrounded!’ Wit Olszewski

Courtesy of Gavin Brown, Manchester Metropolitan University and Richard Whittle, Manchester Metropolitan University

When bitcoin was trading at the dizzying heights of almost US$2...



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Lee's Free Thinking

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

 

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

Courtesy of  

The repo market problem isn’t the problem. It’s a sideshow, a diversion, and a joke. It’s a symptom of the problem.

Today, I got a note from Liquidity Trader subscriber David, a professional investor, and it got me to thinking. Here’s what David wrote:

Lee,

The ‘experts’ I hear from keep saying that once 300B more in reserves have ...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. Contact Ilene to learn about our affiliate and content sharing programs.