My thoughts and journal

I’m starting this rather early tonight, at least the initial part. It is right now 530 ET, well before we know who is going to be the next President of the United States of America. Very soon we hope to know if Mr. Bush will continue to be the commander in chief or if Mr. Kerry is going to take on that job. It has been a bitterly contested election and no matter who wins there is bound to be sour feelings on both sides, but I want to urge all of you to respect whoever wins tonight. In the end each of us are American’s and we have the right to choose our leader, and whoever it is that we choose deserves our respect and backing. I sincerely believe that both Mr. Bush and Mr. Kerry have the nations best interest at heart, even though they may not agree on what that is. It is our job as citizens to do whatever we can to help the president. Our economy and our security are both in the balance and who ever we call Mr. President is going to need our assistance. He also deserves our respect due to the office that he holds.

The markets started off the first few minutes of the day down and looking weaker, however it did not take long for a strong reversal to set in and move stocks higher. If you have been reading this you know that for the last several days I have been a pretty aggressive buyer. Around noon I changed my mind and went 100% to cash, where I currently remain. This had nothing to do with my thoughts of a Kerry or Bush victory, but rather my concern that the markets were pricing in perfection. To the markets perfection at this point means that President Bush would be the clear winner, and it would not be uncontested. I have no idea if that will be the case, but I was not willing to have money riding on an unlikely outcome. My feeling is that we have now gotten a bit overbought and there is downside, up to 10% if things get ugly, but more likely around the order of 3 to 5%. In any event I was sitting on nice profits and gave myself the liberty of taking them and then laying out by the pool for the majority of the day.

Crude Oil futures fell below the psychologically critical $50 mark for the first time in four weeks on expectations that rising inventories are going to offset demand. This goes along with what I’ve been saying for the last few days: If you want to be short, do so in the oil stocks. A clear top has been put in and there is significant downside from here. Everyone is still long, and that pain can carry a market a long ways once they start getting bitten by it.

The S&P500 gained an incredible 0.07 points to close at 1,130.58. The NASDAQ was equally incredible, tacking on 4.92 points to close at 1,984.79. Volume was higher across the board, with 1.65 billion shares changing hands on the big board, a rise of 11%, and 1.84 billion shares on the NASDAQ, also a gain of 11%. I tend to be a grumpy trader, but I hate it when volume picks up after an extended move to the upside and no movement at all occurs. To me this always suggests a real lack of commitment on the part of the bulls and a short term top. I feel even stronger about that when the reason we close flat is that we had very aggressive buying in the early part of the day but give those gains back into the close. The reason for this is that professional traders tend to be most active into the close and they tend to be the elephants that we have to follow. So, for the time being I am looking for a pullback in US Equities. On the whole I remain quiet bullish if for no other reason than the momentum crowd should start to really pick things up off this strong monthly and weekly chart breakout. That can easily give us a few months of upside on nothing but people putting money to work. Longer term I think the market is toast, but to be quiet honest with you I have no idea what I will be eating for breakfast in the morning, and that’s only 10 hours away. So, its best to play it day by day until there is some confirmation. For now the market continues to move higher, even on bad news. This will catch up with it latter, but its far more profitable to let the market tell you when that is than to invest your opinion in it.

Right now Tech continues to lead. The brokers, semis, networking stocks, transports, software, internet and networking groups remain very nice places to have investments. Continue to look at the stronger stocks in those groups to put your money to work in. I will say this again, even though for the very short term I am in cash, I do not think it is the place to spend too much of your time right now. Be putting your money to work.

 

I’ll star this off by whining a little today: I’m as tired as tired gets. If you’re a political junkie like me you didn’t get to sleep till about 5am last night, by which time my eyes just failed me. On top of no sleep last night I’m starting to come down with a cold (Probably because of not sleeping last night) and I have to be up at 4:30am to bring Toni’s mom to the airport. Ok, so enough about me, but this will be short tonight.

U.S Equities gapped up strongly on election related euphoria on Wednesday, but they quickly found their top and sold off for the rest of the day. This is especially true for the tech names. I really don’t put too much weight in this and remain bullish overall, but I would not be aggressively buying here. I will mention some names at the end of this report to watch on pullbacks. The S&P500 was up 12.64 points closing at 1,143.20. The NASDAQ Composite was as high as 2020.03 before closing up 19.5 points at 2,004.33. Volume was slightly higher across the board, up 6% to 1.76 billion shares on the NYSE and also up 6% to 1.96 billion shares traded on the NASDAQ.

Today’s reversal off the euphoric gap should really be no surprise. It’s just a classic example of people buying the rumor and selling the news. Overall we have broken out very nicely on the weekly and monthly charts and traders should focus their attention on being long growth stocks. If you are looking to be short the oil stocks and steel stocks look great. The brokers, semis, networking stocks, transports (especially truckers) software and internet all remain strong. Specific stocks I like are numerous and include RSTI, HTLD, NATR, ALDA, CADA, TZOO, GOOG, JOE, AAPL, STN, ANT, VIP, YHOO, MBT, CACC, SHFL and CME. Most of these are extended so you are not going to want to put capital in them at this point, but low volume pullbacks are an ideal place to be putting your capital to work. This is not the time to be heavily invested in cash.

Here is a quick write up on one of my current favorites, Natures Sunshine Products (NATR):
The technicals here are very good with the stock having formed a base near new multiyear highs since March. This allows a sock to build up a lot of steam if it does finally break out.
In each of the last 4 qtrs sales have accelerated over the prior qtr. EPS is up sharply each quarter as well, with only March of 04 showing under a 100% gain over the prior qtr. The stock is not followed by any analysts at this time, so there is no forward guidance, but looking at other stocks in the industry and what the company says about itself a 20% growth in EPS is I feel very conservative. With a PE of 15 the stock is attractively priced for this kind of growth. Further more, one of my very favorite criteria is in place with this stock: Management is invested heavily. Just like people are correct to insist that I invest heavily in my own fund before they are willing to put their hard earned money with me, I insist that management have a heavy commitment to any stock I will put a larger position in and consider investable. This stock looks great if it can break above $16.00 per share.
Brandon

 

Before I start I want to from the bottom of my heart thank everyone who responded to me with regards to Friday¡¦s edition of Random Rants and Idea¡¦s. I have literally hundreds of replies, and it means a lot to me to know that so many people care. I will personally reply to everyone, but it will take some time due to the volume of response.

Now one more small complaint about my health and then we can get moving on. This weekend I did not get to do nearly as much scanning as I typically do on a weekend. Toni has been sick since Monday evening with the flu, on Thursday night I started to get ill, and Friday night and Saturday I felt approximately the same as I did the morning after my 21st birthday. Not exactly condusive to research. In any event, I feel better now, but my scanning did suffer a bit.

On Friday the S&P500 was up 4.5 points, ending at 1,166.17, while the NASDAQ composite closed up 15.31 points to close at 2,038.94. This marks the 9th straight day of gains in a market which has seen heavy buying. Volume on the NYSE was down 3% to 1.72 billion shares, while NASDAQ volume increased 5% to 1.9 billion shares traded. Market breadth is extremely strong overall and we saw 643 new 52 week highs against only 27 new lows. Jeff Semmel¡¦s tradingscans.com is currently tracking 465 stocks at new 1 month highs and only 10 trading at 1 month lows. This is showing us very strong short term momentum to the upside. I¡¦d like to take this opportunity to break my arm patting myself on the back for having absolutely nailed this move up, but I will spare us that

Globally and domestically equities remain ¡§the place to be¡¨. The S&P500, the small and mid caps and numerous global indexes made new 52 week highs on Friday. I expect the current rally to sustain itself into the 2nd quarter of 2005, at which time I do not think things will be all peaches and cream (but then again I don¡¦t even know for sure what I¡¦m having for breakfast in the morning, so what am I doing looking out 6 months ƒº ) Cash and heavily short exposure is certainly less than ideal in my opinion at this time. You want to be invested in the market and putting your cash to work in strong stocks. I don not believe you should be invested all one way however, because we have the continued risk of significant shock events. Investors and traders should keep a mix of US and Global Equities (I like Brazil, Japan, Australia, Canada and South Africa a lot) as well as SOME short exposure. This will reduce overall risk and volatility in your portfolio while allowing the maximization of potential for gains.

At this point the majority of the leadership names are extended. This means we should be expecting a pullback. For the compulsive traders out there, NO- THIS IS NOT THE TIME TO SHORT THESE STOCKS!, but rather it is the time to sit and watch carefully your list of leadership names. As they pullback you want to take note of which ones act the best. Ideally you will see them pullback less than the overall market and on light volume. When you see this, it is the sign of a winner and you can look to pick up shares as it starts to move back higher. This is the environment to press winners in, and doing so properly can add significantly to the bottom line. The sideways action we have seen for the last year is in my opinion over for the time being. I am currently putting my clients money to work in the market in leadership stocks. Some of my current favorites include: RSTI, HTLD, NATR, ALDA, CNCT, AMED, ALCO, PAAS, CADA, TZOO, GOOG, JOE, AAPL, STN, SHFL, WYNN, VIP, MBT, YHOO, CACC, and CME. Two stocks stand out to me as attractive for day traders using our Oops tactic: RIMM and GOOG. These could be poised to produce very nice intraday profits, but I must caution that day trading is an art best left to the quick, because there are only the quick and the dead in that game.

On a somewhat related side note, I am considering created a chat based mentoring and advisory type product that would cater towards Intermediate term and Swing Traders. We would meet two nights a week plus one day on the weekend for education and scanning. It would be reasonably priced and ideal for people who can not watch the market during the day, but want to take advantage of the numerous opportunities that trading in the market can offer. If there is enough interest (100 or so people) I would love to get such a product started as it fits ideally with my own personal trading and my current schedule. If you are interested in this type of product please respond so that I can get a general idea of were it might stand. I am also going to be offering select traders the opportunity to come to my office in Sarasota and watch as I trade my own and client accounts. This is a week long program that includes a Saturday seminar type presentation, workbook, homework (ugh! ļ ) and the opportunity to see exactly how I go about selecting and trading the stocks I am active in. If you are interested in this please email me @ bastiat13@comcast.net

Have a great week.

Brandon Fredrickson

 

With the state of California recently having passed Prop 71 (Funding Stem Cell Research with taxpayer dollars) I have gotten a lot of email from people looking to invest in this technology and make boocoh bucks. So people ask me what stocks should I be involved in, what do you think of this having passed it's got to help these stocks etc. So, what I'm about to do is what no politician who values his career (power?) will ever do: Give you what I believe to be the absolute truth. If you are easily offended please just skip this part, because you may not like me by the time I am done.

I want to start off just by stating that my thoughts on stem cell research have very little to do with ideology. In fact, I don't have moral quelms about the use of stem cells to help an individual suffering with a terrible disease. I do though have a problem with junk science and with venture capitalists using an emotional issue to bail their asses out of a bad bet, and that is what Prop 71 was really about. If stem cell science had half of the potential that those behind Prop 71 have claimed it does, they would have spent their money to continue to invest in the technology. They would not have spent millions upon millions of dollars in an effort to force the people of California to pay for that research. In a capitalist society such as ours they would want to find the cures and to allow their investments to be propelled higher by the earnings that would result from the miracles that are being claimed possible with stem cell research. The truth however is that we don't have any idea what the potential might or might not be and because of that the venture capitalists decided it a better use of their capital to get peoples hopes up and use the emotional image of sick and suffering people in order to prop up their, thus far, bad investments. So, I would not currently buy any stem cell stocks. They have no earnings and no immediate potential for any beyond what the people of California have been duped into giving them. If you live in the state of California, you are already being screwed by the stem cell research companies and you especially should not invest in them. I hope I am proven wrong and that miracles are just around the corner, but if that was the case the private investment would be there. Only time will tell for sure, but for the time being these companies are pure speculation at best, and outright frauds at worst. So now that I have managed to offend everyone, lets look at the market.

So what about the market? Not much has changed as far as I can see. We had a narrow range day today, and normally I would be very excited about the short term prospects of the narrow range, but we have had such an expansion of volatility the last few weeks that I expect more narrowness in the ranges. That means for you Day Traders to SIT and be patient. If you can't do that, just send me a check, I promise it will be less painfull. For now I just want to continue to watch the same names I have been listing for the last several days. Pullbacks in them will be buyable so long as the markets hold up well here, which so far they appear to be doing. We do need to see a resting period though before I want to be very active again.

I will be out of the office tomorrow but I will be back on the 10th.

Brandon

 

Before I take on a new money management client I have a policy of getting to know the person as well as possible. I do this because I have had some bad experiences in the past taking on new clients who did not know me well enough to be investing with me, and I did not know them well enough to make them a significant part of my life, which my money management clients become. Today I went to Naples and played 15 holes of golf with a potential client, it would have been 18 but I am truly as terrible at golf as Tiger Woods is good. This obviously is not the point of the particular thought I’m on, but it’s the background. I was truly inspired today but the power of the human spirit, and by the realization of the incredible opportunity all of us have. I briefly met a man who, at age 17 was involved in a terrible farm accident that left with no right arm. This man grew up as a poor “farm boy” in the Midwest, and despite the physical and economic disadvantage’s, he rose to become the CEO of one of the largest Dow Components. He is also, with only one arm, a decent golfer. I met another man who grew up in poverty on a dairy farm, his wife was an orphan. He started out his life working in a packing house as a laborer. He and his wife decided that they wanted a better life for themselves and their children, and deciding that he started his own business selling provisions. He started this business with only $200 to his name and eventually sold it for multiple millions of dollars. Both of these men are living breathing testaments to the absolute power of human determination. If you truly want something and believe with all of your heart you can get it, nothing will stop you.

The next point is one that I know will upset some people. I am told all the time that “All of you damn Americans think you live in the best place in the world!” By the end of the day today I no longer thought I lived in the greatest country on earth, I now know it to be absolutely and without a doubt true. I too grew up very poor. For many years I did not have a father and my mom was on public assistance. I spent a good deal of time angry and very envious of the rich kids born with the silver spoon in their mouths. But, I must confess that the more people I meet who have picked themselves up by the bootstraps and made incredible lives for themselves here despite their circumstances, the more I really believe that each and every one of us, simply by virtue of having been born American’s truly, we have all been born with the silver spoon. Sadly many people spend a great deal of time with their mouths open complaining about their circumstance and wanting a free ride, and then that spoon falls out of their mouth. Very sad, but in the vast majority of cases I really believe they have only themselves to blame. We live in a place that if you are passionate, ethical and determined there is no limit to what can be had.

Brandon

PS, the markets still look incredible. We still need a rest, and we are getting it in the best way possible. Continue to watch those strong stocks I have been mentioning.

 

On Wednesday the pullback in the broader markets continued. The S&P500 ended the day down 1.17 points to 1,162.91 while the NASDAQ Composite was down 8.77 to 2,034,56. All of this occurred on slightly higher volume: 1.5 billion shares on the NYSE, an increase of 4%. Over on the NASDAQ volume increased 10% to 1.85 billion shares.

I remain camped out with the bull¡¦s for the time being, however a few things really bugged me today. First, the semi¡¦s got clobbered. It has been and remains my contention that the semi¡¦s are the tail that leads the NASDAQ dog. At some point this will change, but I have not seen that yet. I also did not like seeing CSCO come out with bad news and getting hammered for it. It is not the news that matters so much as the reaction too it, and CSCO was ugly. I know a lot of people own a lot of this stock. For the time being I think that if the market goes higher CSCO will follow, but it is no longer a leading stock. Furthermore, if CSCO breaks under $17.50 per share the party is over and I suspect it goes to $10 per share.

I¡¦m going to start looking to have a more balanced portfolio again, with some shorts mixed in with the longs. I like stocks like ASKJ, SNDK, AMAT and many of the Oil names on the short side. We continue to do very well with our list of long stocks. JOE, AAPL, CME have given new add on setups today and with in the last few days. They are doing very well. Many of our readers are up over 10% in the last few weeks which is remarkable.

Overall it was just another slow day, and I¡¦ve not had time to come up with a political or ethical thought of the day. So to my fans and critics in that department, I¡¦m sorry. ƒº

Brandon

 

Brandon,

i've only skimmed thru this but i thnk these are very good market views, i'm surprised nobody else says/comments anything here. i'm just writing to say thanks and keep up the nice work .

sf

 

I read it every day. There is nothing to comment about. Brandon has a journal running just the way they should be.

 

ditto

 

so sorry

sf