by TheWife

The idea for this post comes from @Legacy_Trades who graciously contacted me over the holidays to be part of a "Twitter Pros" list of opinions and Best Longs, Shorts and Year End S&P target for 2013. Unfortunately, I was traveling over that time and as soon as I returned, I came down with a severe dental emergency that took me out of the game for a few days and I missed the deadliine. But I am ever so humbled and honored to be part of such a great list of traders and I graciously thank @Legacy_Trades for the mention in the post. 

OK I know I have pounded the table on this one a lot, but my favorite long for 2013 is $PWER. I have been a champion of this company for a few years now and I believe they are a candidate for buy out in 2013. I am holding $4 calls in my long term account that will exercise next week and I will own the common from $4. 

by TheWife

Market has consolidated a bit the past couple of days after a big move to the upside. 

For now, futures are heading north and $SPX is continuing to rally as it bounces off the 8 ema. Note that there is resistance just ahead at 1474.

by TheWife

It’s not The Good, The Bad and The Ugly.

Let’s face it, when you are trading stocks, there is no in between. There is only The Good and The Ugly and nobody likes ugly. So how can  you keep from being some dope sitting at a bar after four tequilas unable to tell if that chick or dude (or stock) is ugly?

In the previous post, I laid out for you some ideas that can help you determine if a company is profitable and being well managed. Previous to that, I gave you instructions to help you find a reasonable value for a company so that you can have an idea of where the stock price could go and thus determine if the stock is a good buy. But there is no point in doing all that work on a company that is being run into the ground by its management because that is just plain ugly!

Before we continue, let me say once again, that while what I am presenting here is certainly true and a good argument for fundamentals, many stocks don’t give a damn what they are worth. After all, I have certainly made a case for the idea that all this fundamental noise never made me a better trader, but charting has.

by TheWife

Trust yourself and not some goofy sell sider.

When you are valuing a company, you need to have an income statement, or model, as the hedge fund folks call it. (Just a quick sideline here; when I ask my analyst friends what they are doing, they love to say that they are “working on models.” They are all men, of course…the analysts, not the models.)

When I first started in this wacky business, I was working for a hedge fund manager who required me to learn how to create models. I would painstakingly look up the historical numbers for sales, costs, cash flow, debt, etc. on the 10K filings and enter them into an Excel worksheet. I found this to be a tedious and miserable task. I always struggled to see the little cells that I had to put the numbers into. In those days, for whatever reason, we didn’t magnify everything so that it was easy to read and see. I had quite a bit of accounting under my belt, but this frustrated me.

by TheWife

Before I start, I will point out that everyone has their own method and viewpoint for valuation. 

That said, I have not decided if I will continue down this path in my  blogging. Most of you will either be way beyond this level or have no interest. I will wait to see if there is enough interest before I decide to continue.

You will get used to my old musical references eventually.

A reference to the song Do-Re-Mi from The Sound of Music:

Let’s start at the very beginning
A very good place to start
When you read you begin with
A-B-C
When you value you begin with
EPS
…or Earnings Per Share – in other words, a company’s net income divided by the number of shares outstanding. This is one important piece of information you will need to adequately value a company’s stock. You will also hear the term, Diluted EPS, which will take into account any convertibles or warrants outstanding. These are not included in the outstanding basic share count until converted or exercised whereupon they increase the basic share count and “dilute” earnings. You will find this information in the company’s most recent earnings reports.

Next we will use the EPS to determine the company’s multiple or P/E ratio; that is Price to Earnings or the stock price divided by EPS.

This gives us an idea of what folks are willing to pay for a stock in relation to the company’s earnings. If a stock’s current share price is $20 and it’s EPS is $2, the company has a multiple or P/E of 10; that is 20/2=10.

by TheWife

The S&P  might be in a cup & handle or an inverted head & shoulders, but one thing is clear, it's trending up. Now sitting with a doji above the 50 day moving average, it would seem $SPX is making another run for the top of the channel, somewhere above 1440 I would venture. 

 This keeps longs attractive! 

$CREE can move through this volume pocket on a break above yesterday's high.

by TheWife

As we all prepare to feast and give thanks, I would like to share a few things I am thankful for.

I am thankful for my beautiful family whose support and generosity get me through every day. 

I am thankful for my friends who have stayed by me through years of ups and downs.

I am thankful for my health that allows me to live a full life.

I am thankful for my mind and my ability to learn that has allowed me to earn a living.

I am thankful to my readers who give me a reason to write this blog.

And I am thankful for the seasonal stock market strength that this time of year brings.

On that note, I would like to share a few charts to ponder as we all get ready to stuff our turkeys and our bellies with friends and family.

by TheWife

As my family and neighbors brace ourselves for Hurricane Sandy on its way to pummeling the East Coast, running around our house, charging our electronics, gathering candles, flashlights and incendiary devices, (planning for the inevitable power outage that is already common here) I want to also prepare for the coming week's market seasonality: The start of the Small Cap Power Period.

For a few years I have written about this seasonal phenomenon that is used by several hedge funds to gain an edge. Tuesday is the first buy day of the first of three 2012 "sub-periods that occur in the fourth quarter; (we call them 'power periods') which are especially potent and consistently positive. They are:

by TheWife

Heavy futures this morning seem to confirm the idea that yesterday was just a bounce in our bull market correction. Caution was the right stance. I have a mix of longs and shorts in the portfolio and while the shorts were slapped yesterday, I am glad that I held onto them to provide balance into this mixed choppy correction. It is possible, of course, that we gap down then bounce higher again.

Positions added yesterday include $LII short which I had posted in yesterday's pre-market idea mix. As well as $MPEL and $LULU long. $LULU needs to get above the 8-ema here today, or I will kick her to the curb and wait on the sideline until she does. 

by TheWife

(Addendum: Futures are currently higher and while this could be continuation of our up-trend, it could also just be a bounce. We can play certainly play it, but I am still cautious about the coming days direction.)

While longer term up-trend in $SPX is in tact, we are in a short term down-trend correction phase. More distribution has come into the market and while it could be a very short term correction that soon continues to the upside, we can only trade by what we see. Currently I see more downside in the near term. Maybe it is only a day or maybe it is a week or longer. As such I am watching stocks for both the short and the long side. The first level of support from last week's break-out was breached. The next level I see is the bottom of the rising channel denoted by the arrow in the chart below, around 1423. If we lose this, I will look at 1400 for the next level down. 

A few stocks I am watching going into 9/27 follow.

$LII has had two days of selling after a significant uptrend. It has closed below the 8-ema and I suspect it will drop further, heading down to the 50 day for starters at 46.35.

On the long side, I like $JBHT which is creating a Fry Pan bottom and has popped up through the 8-ema with the 50 and the 200 days coming together just above.

$CIM still on watch from yesterday tried to break out today but was waylaid by a heavy market. The more often it knocks at that door, the more likely it will open. This cup and handle into an ascending triangle makes for a beautiful bullish chart.

I like $IDCC here with this strong move above the 8-ema after a pull-back and all other MAs coming together below. Looks like it is setting up for the next leg higher.

Also, a few that have been pointed out to me by my friend and fellow great trader @legalgambling, I like $GFA & $MPEL. Both have large cup & handle formations and are above the 8-ema. Also $TSM which pushed above the 8-ema even while $SOXX is down. 

I am currently short $AYI, & $MLNX and long $PWER & $SHOSR 

Comments and feedback welcome.

Good Luck!