ParkTwain's Parlor

[IIC]

Good to see you are still among the living Park...However, it would be nice if you would post that you are taking a break instead of simply disappearing for 2 months...Best, Doug(IIC)

[ParkTwain]

So many utils doing well right now

Quite a number of them in Fri's new 52-wk high list. I noticed a couple in my previous post, and here are a couple more: PPL and LNT. Defensive stocks like MO and CL are strong right now. But I heard a couple of money managers on WSJR w/ M. Bartiromo state that they expect an improving stock market in the 2nd half of this year. "Sell in May and go away" (for the summer).

For the coming week I'm inclined to be long any of: OMCL, FTD (earnings ~8/1), ORB, AHS (earnings rlse ~8/1), ORCL.

[ParkTwain]

Several more nice-looking brkout setups

Brkouts or continuation of same and with improving technicals, especially rising RSI at about 70

LHCG
TTG - above 5.50, there's no resis through ~15/sh; strong current technicals
ALE - Yahoo's chart is bogus; all-time high is ~50/sh, closed today at 49/sh
CVS
AES
MHS

And the channeling monster of the day: SAFT

[ParkTwain]

Let go my OMCL today after yesterday up and today down to where it started the previous day. It should still work its way up to about 21/sh in the near future, if the markets cooperate, as it fills a gap from early April 2004.

This morning I had put in a limit buy for TTG that did happen to fill after I left home for work. Then I got to watch it rise all day, about 7% worth. I love it when that happens. It better not do tomorrow what OMCL did to me today.

For Wed, I'm inclined to go long any of: LNT, CVS, BAC, AHS. Also still like MO, MHS, INTU, and OCN for new long positions.

I'm watching: AEA (earnings 7/26), ORCL, XOM (earnings 7/27), HRL (wanna see its RSI uptrending again), VMSI (earnings 7/28th), and ALB.

I was looking tonight at a multi-year chart of XOM. I expect blowout earnings on 7/27. It's bumped its head up against $65/sh three times beginning in about March 2005. You gotta think that with another qtr of record earnings this week, it's going to break out above 65ish with a vengeance this time around. Today's close was 65.74/sh.

I'm looking forward to a profitable August and beyond. The previous three calendar years brought especially good results in the market starting that month.

[Websman]

It's good to know that someone else around here works a real job and has to use limit orders... lol

Keep up the great posts! I'm still in cash for now.

[billyjoe]

Webs,
As Maynard G. Krebs would say .......WORK ????????

-----------billyjoe

[ParkTwain]

This morning I did pull the trigger with new long positions in CVS and XOM. Also remain long TTG and FTD. Assuming positive developments tomorrow morning, I may add to XOM and might pick up something like MHS and/or BAC.

I also like this 20-20 hindsight MarketWatch.com article (June 20, 2006) about Louis Navellier.

http://tinyurl.com/mre3v

//
By Peter Brimelow, MarketWatch
Last Update: 12:01 AM ET Jun 19, 2006

NEW YORK (MarketWatch) -- A rip-roaring bull says everything is fine, and he has a great record, too.

Louis Navellier has sort of come out of the closet recently. Twenty years ago, he could easily have been accused of being a nerd, devoted to the quintessentially nerdy Modern Portfolio Theory approach, a highly quantitative system of comparing risk to reward in the small-cap area.

Then he became positively flamboyant, changing the name of his letter, from MPT Review to "Louis Navellier's Emerging Growth", and pontificating about exchange rates and inflation and other interesting but (from an MPT point of view) irrelevant issues.

It's easy to be irritated by this sort of thing. But nevertheless, Navellier is the top-performing letter over the past 20 years, according to the Hulbert Financial Digest, with a lifetime annualized gain of 20.6% since 1985 vs. 12.7% for the dividend-reinvested Dow Jones Wilshire 5000. See Dec. 27, 2004 column

On Friday, Navellier (probably understatedly): "Well, I'm sure a lot of you were relieved to see the big market bounce this week. I want to reiterate what is going on. One week ago Thursday was what is officially called "capitulation day" where the market goes down and then reverses suddenly on no news. All that happened this week is that the market tried to retest those lows from the previous week and it actually made new lows."

(This supports other letters' argument that June 8 was a "key reversal day.") See June 12 column)

Navellier's analysis: "This market went down on fears of inflation and fears of rising rates and also somewhat on fears of a weak dollar, which causes foreign investors to flee. Now inflationary pressures have moderated and we know that June 29th will be the last Federal Reserve rate increase. Finally, regarding the dollar continuing to slide, we've had phenomenal trade deficit numbers that show that it will not happen. In fact, the current account deficit is $22 billion better than was expected."

Navellier's conclusion: "The end of the quarter is called "window dressing season" where institutional managers put good stocks in their portfolios, and our stocks should benefit immensely from that. This is why several weeks ago I picked June 20th as the time to get in--it's the start of the last 10 days of the quarter when our stocks benefit from "window dressing." Then, of course, in early July, we'll have earnings pre-announcement season. From mid-July on, we'll actually have earnings season and everything will be fine.

"So we still have a phenomenal buying opportunity despite Thursday's big bounce. I want you to know that I think the coast is clear and that you have to jump back in - you just have to."

Navellier did indeed pick June 20 as a buying opportunity several weeks ago, but he also said then that May 29 would prove to be the market low.
It's also unclear that he actually makes investing decisions based on these sorts of Big Think considerations. He doesn't actually try to time the market. And, as he said in his June letter of the stocks he was selling: "We are only selling these stocks because of deteriorating reward/risk characteristics. That's it - nothing more than that.'
//

[ParkTwain]

Re-post of my post on the "How to Play a Recession" thread

Hey, ski, I'm reading here (http://www.investopedia.com/articles/01/082901.asp) about ETFs and I have a question that isn't answered there. Is there the notion of "net asset value" in the ETF's shares, or is each share a piece of an imaginary "basket" of the shares of all the stocks in that sector? Seems to me that because the ETF is freely traded "just like a stock", its value could get way out of whack versus the currently calculated index of the current market prices of all the shares found in the basket. That would make it one more level of "looseness" versus how those actual shares are trading in a given day/week/month/etc.

Oops, OK, here's the answer, I guess ("how to construct an ETF"):

http://www.investopedia.com/articles/mutualfund/05/062705.asp

//
The Role of Arbitrage
Critics of ETFs often cite the potential for ETFs to trade at a share price that is not aligned with the value of the underlying securities. To help us understand this concern, a simple representative example best tells the story.

Assume an ETF is made up of only two underlying securities:

* Security A, which is worth $1 per share
* Security B, which is also worth $1 per share

In this example, most investors would expect one share of the ETF to trade at $2.00 per share (the equivalent worth of Security A and Security B). While this is a reasonable expectation, it is not always the case. It is possible for the ETF to trade at $2.02 per share or $1.98 per share or some other value.

If the ETF is trading at $2.02, investors buying shares of the ETF are paying more for the shares than the underlying securities are worth. This would seem to be a dangerous scenario for the average investor, but in reality, it isn't a major problem because of arbitrage trading.

Here's how arbitrage sets the ETF back into equilibrium. The trading price of an ETF is established at the close of business each day, just like any other mutual fund. ETF sponsors also announce the value of the underlying shares on a daily basis. When the price of the ETF deviates from the value of the underlying shares, the arbitragers spring into action. If the underlying securities are trading at a lower price than the ETF shares, arbitragers buy the underlying securities, redeem them for creation units, and then sell the ETF shares on the open market for a profit. If underlying securities are trading at higher values than the ETF shares, arbitragers buy ETF shares on the open market, form creations units, redeem the creation units in order to get the underlying securities, and then sell the securities on the open market for a profit. The actions of the arbitragers set the supply and demand of the ETFs back into equilibrium to match the value of the underlying shares.

Because ETFs were used by institutional investors long before they were discovered by the investing public, active arbitrage among institutional investors has served to keep ETF shares trading at a range that is close to the value of the underlying securities.
//

OK, now I'm going to do some reading about ETF arbitrage...

OK, I just posted over on the $MM$ board's "What Do You Think of MM's System" thread my notes about this paper, which describes how a team created a neural-network applciation to predict and act upon certain narrowly defined ETF arbitrage opportunities:

http://www.kellogg.northwestern.edu/faculty/jagannathan/teaching/practicum/2004/files/Final-Reports/ETF%20Arbitrage%20.pdf

Here is another interesting article ("How Effective Is Arbitrage of Foreign Stocks? The Case of the Malaysia Exchange-Traded Fund") where a researcher examines a situation in the Malaysian stock market where ETFs existed but what happened to the ETF arbitrage premium during a period when the Malaysian government prohibited the operation of arbitrage. Here is paper's conclusion:

http://www.findarticles.com/p/articles/mi_qa3674/is_200310/ai_n9302097

//
This article tests the efficacy of fund arbitrage by examining the impact of the only extended suspension of arbitrage in an ETF [the iShares Malaysia Fund]. The capital controls imposed by the Malaysian government caused the managers of the iShares Malaysia Fund to suspend in-kind creations or redemptions of shares. In the period before the Asian financial crisis, the share price closely followed the portfolio value. During this time, 90 percent of the premiums were between -0.37 percent and 2.24 percent. After arbitrage was restricted, the absolute value of the daily premiums increased substantially, and the 10th percentile was -23.84 percent and the 90th percentile was 18.91 percent.

The primary conclusion of this study is that the fund-facilitated arbitrage feature is surprisingly successful in minimizing premiums, especially considering the transaction costs involved in an arbitrage. Without this check on the domestically traded share price, the shares in an international ETF could exhibit characteristics of closed-end country funds, which often trade at prices substantially different than their values. This would likely limit the diversification benefits of international ETFs.

This study has important implications for the evolution of exchange-traded funds, the number of which is expected to expand significantly in the next five years. New international ETFs will almost certainly invest in emerging markets since funds already exist for the major developed countries. The sec has already received filings associated with the offering of international ETFs for several countries in Eatin America and Southeast Asia. Investors in such countries are more likely to be impacted by capital controls and currency crises; these events may impede the arbitrage of ETFs and prevent investors from receiving prices in the domestic market that reflect the value in the foreign market. The experience in Malaysia demonstrates that such risks are real and can cause ETF premiums to exceed 30 percent.

This study also has implications for the domestic ETF market. The SEC recently published a concept release in formulating the rules on actively managed ETFs (SEC, 2001). Currently all U.S. ETFs track an index, but actively managed funds will allow a fund manager to determine the fund's investments. The share arbitrage of an actively managed fund is problematic because actively managed funds traditionally don't have adequate portfolio transparency to permit arbitrage. Regulators should be aware that the popularity of actively managed ETFs may depend on creating a vibrant arbitrage market in the fund shares. This study shows that without an effective in-kind arbitrage process ETFs can trade at significant premiums.
//

[ParkTwain]

New to my watch list this week

BDX (my POTW pick for week of 7/31)
CPO
DLP
KNOL
LFC
LMIA (recently traded for no gain)
LNDC (recently traded for minor loss)
NGPS
NTY
NUHC
RMKR
STAN
TYL
WNR

Last week's watch list:
AHS (earnings anncmt 8/7)
ALB
BAC
HRL
INTU
LNT (earnings anncmt 8/3)
MHS (earnings anncmt 8/4)
MO
OCN
ORCL
VMSI

My present long positions:
CVS (earnings anncmt 8/3)
FTD (earnings anncmt 8/9)
TTG
XOM

[ParkTwain]

Big move Mon 7/31 in NVEC

No news from the company. Yahoo chat board observers of the stock seem to anticipate a possible product deal with Freescale Semi.

[ParkTwain]

Looking at StockCharts.com Para. SAR buy signals

...scan for Monday 7/31. Almost none of the stocks this scan picks up these days is already in an uptrend. That said, here are the most interesting charts (turnaround prospects) to me:

EPIX
FTRS
GEHL
TFSM
UCTT

[ParkTwain]

More stuff I'm watching

Plenty of candidates to make long money on these days. Just keep looking! Some of these are from StockCharts.com "Parabolic SAR new buy signal" scan, others are making new 52-week highs.

BGF ("oasis" stock, food biz, growth but also defensive)
ISYS (acquisition target?)
LTR (defensive)
LOGC (turned profitable)
MIGP (insurance)
MKC (food, defensive)
NFS
PGTI (wind-resis windows, sales growth in hurricane country)
PSPT (earnings beat expectations)
RGA (reinsurance)
RNWK
TRMA (offshore oil services)
VTRU (earnings beat expectations)
XPO (earnings 8/03)

[ParkTwain]

After Wed. research

Here are few more to keep track of for new long positions. These are either imminent breakouts that are showing improving technicals, or recent breakouts (this week) that should be watched for a near-term pullback.

Go long sooner rather than later:

CMX (imminent brkout)
CNL (Louisiana pub utility, imminent brkout, defensive)
GSTL (buy pullback ~19/sh)
IMA (strong recent op performance; P&G deal announced in July could be big win)
SWHC (Smith&Wesson, well known on this board; PEG of 0.50!)

Watch these:

AFG
AMIE
CMP
DVA (from stockcharts.com "parabolic SAR Bull" scan)
ITC (from stockcharts.com "parabolic SAR Bull" scan)
MDRX
MWA
OPEN (from stockcharts.com "parabolic SAR Bull" scan)
SPTN
WTS (from stockcharts.com "parabolic SAR Bull" scan; highest 1-day vol in stock's history yesterday, on earnings rpt; perhaps this goes in the list above instead)
XRAY

Also, "little Berkshire" LUK is trading at its 200DMA, which is a rare occurrence.

[peanuts]

Here are few more to keep track of for new long positions. These are either imminent breakouts that are showing improving technicals, or recent breakouts (this week) that should be watched for a near-term pullback.

Go long sooner rather than later:

CMX (imminent brkout)
CNL (Louisiana pub utility, imminent brkout, defensive)
GSTL (buy pullback ~19/sh)
IMA (strong recent op performance; P&G deal announced in July could be big win)
SWHC (Smith&Wesson, well known on this board; PEG of 0.50!)

Watch these:

AFG
AMIE
CMP
DVA (from stockcharts.com "parabolic SAR Bull" scan)
ITC (from stockcharts.com "parabolic SAR Bull" scan)
MDRX
MWA
OPEN (from stockcharts.com "parabolic SAR Bull" scan)
SPTN
WTS (from stockcharts.com "parabolic SAR Bull" scan; highest 1-day vol in stock's history yesterday, on earnings rpt; perhaps this goes in the list above instead)
XRAY

Also, "little Berkshire" LUK is trading at its 200DMA, which is a rare occurrence.

I will have to do some research on these. I'll let you know which ones I like best. LOGC looks interesting at first glance. There is a lot of room for more volume to come in.

[ParkTwain]

Tonight started reading J. Greenblatt's book

... "You Can Be a Stock Market Genius" (1997). It's a lot of fun and so far I can recommend it to anyone who has some facility in the market. Spinoffs, rights offerings, corporate restructurings, stuff like that.

This is same author who put out "The Little Book That Beats the Market" last year. I've been giving that one out as high school grad presents.