Tag Archives: rimm

Profit Taking?

Market Fallacy apologizes for any inconvenience that resulted from the switch to the new format. The Market Fallacy Blog, www.marketfallacy.wordpress.com, will now provide macroeconomic analysis, while the newsletter will give stock picks and recommendations. For the remainder of May the recommendations will be free of charge, but starting June 1, 2009, there will be a monthly charge to view the updated predictions. Each newsletter will be broken down into two types of recommendations: Preferred Picks and Optional Picks. Preferred Picks are must haves for any portfolio, whereas Optional Picks give the reader the opportunity to choose between two companies in a particular sector or industry. For Optional Picks, the recommended allocation is to divide the capital between the companies instead of holding full positions in both. This strategy is suggested since Optional Picks will typically be in the same sector or industry. When allocating do not over expose your portfolio to the given sector by allocating too much in each of the Optional Picks.
 
Preferred Picks
The three Preferred Picks for this newsletter are Goldman Sachs (GS), Ford Motor (F), Proshares Double Crude (DXO).
As of the close on Friday, Goldman Sachs is approximately 10% above its recent equity offering price. Based on academic studies in behavioral finance, on average, companies that issue seasoned equity offerings have approximately 40% cumulative abnormal return in the 500 days leading up to the announcement. On average, the price of the equity drops to reflect the new offering price, and then remains flat for about 3 months. The fact that GS has already been able to overcome the typical scenario has positive implications on Goldman’s future. Market Fallacy recommends buying Goldman Sachs (GS) up to $155. At the current price, this will be an approximate 15% return, in addition to the $1.40 per year dividend.
 
Ford Motor also just recently raised capital through an equity offering. Although the stocks has not returned to pre-issuance levels, Market Fallacy recommends buying Ford Motor (F) up to $8. At the current price, this will be an approximate 46% return.

 
Proshares Double Crude (DXO) is an etf that tracks twice the daily return of light sweet crude oil (WTI). Market Fallacy has had a buy rating on DXO since $2.80, and reaffirms this recommendation up to $6. At the current price, this will be an approximate 84% return.
For more information on Market Fallacy’s oil outlook, please visit www.marketfallacy.wordpress.com
 
Optional Picks
The first Optional Pick is in the basic materials sector and agricultural chemicals industry. Potash Corporation of Saskatchewan (POT) and Mosaic Company (MOS) are the two choices for the first Optional Pick.

Potash (POT)

Potash (POT)


Mosaic (MOS)

Mosaic (MOS)

 

Based on technical analysis, the triangle bullish pattern breakout implies POT is headed higher. POT has recently established support on top of prior resistance, also bullish. Market Fallacy recommends building positions in POT on pull backs only, as the current price has broken out above previous consolidation levels. Market Fallacy’s price target for POT is $130. At the current price, this will be an approximate 22% return, in addition to the $0.40 per year dividend. On Thursday, MOS had a bullish engulfing candlestick which was confirmed on Friday. This candlestick pattern in addition to the current breakout above the bullish channel suggest further appreciation in the stock price. Market Fallacy recommends buying MOS up to $63. At the current price, this will be an approximate 23% return, in addition to the $0.20 per year dividend.
 
The second Optional Pick is in the technology sector. Research in Motion (RIMM) and Apple (AAPL) are the two choices for the second Optional Pick.

Research in Motion (RIMM)

Research in Motion (RIMM)


Apple (AAPL)

Apple (AAPL)

Based on technical analysis, the rising wedge patter suggests RIMM is setting up to break out. After the recent pull back in techs, it is likely there will not be a better entry point the rest of the summer. Market Fallacy recommends buying RIMM up to $95. At the current price, this will be an approximate 31% return. Fibonacci retracements and Elliot Wave Theory explain the recent pull back in AAPL as a corrective wave. Wave 4 down precedes impulse wave 5 up, which in theory will be between 20-50%. Market Fallacy recommends buying AAPL up to $155. At the current price, this will be an approximate 27% return.
 
Market Outlook
After the recent 5% retracement, the market approaches an important point where it must decide to break the short term up trend or rejoin the longer term down trend. Given the recent economic data which suggests the economy is improving, Market Fallacy reaffirms its long positions. Any new optimism will spark additional fuel for this rally. In the coming days expect above average volume, volatility and price movement.

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7 Weeks?

Nasdaq Composite

Nasdaq Composite

Apple (AAPL)

Apple (AAPL)

Google (GOOG)

Google (GOOG)

Research in Motion (RIMM)

Research in Motion (RIMM)

Russell 2000

Russell 2000

Citigroup (C)

Citigroup (C)

The markets are closing in on the gap between last Friday’s close and the 7th week of consecutive up weeks. Actually, some of the indices have already filled this gap. The Nasdaq Composite, representing smaller and technology based companies, which is positive year-to-date, has already filled the gap. In the charts above, the Nasdaq Composite, Apple, Google and Research in Motion are all currently establishing a new floor or support levels. Similar action is occurring in the Russell 2000. Both the Nasdaq and the Russell 2000 indices have consistently led the rally. Put another way, the Nasdaq and Russell 2000 have foreshadowed both the rallies and the declines for the last couple of months. It is for this purpose, that I reference them and point out the consolidation activity.

I also want to address Citigroup’s behavior. Citigroup is the only large bank that is not taking part in the current rally. Large banks here refer to Citigroup, Goldman Sachs, Bank of America, JP Morgan Chase, Wells Fargo and Morgan Stanley. The days following Citigroup’s earnings announcement, have seen the stock drop by approximately 20%. Citigroup has declined the last couple of days on lower than normal volume. However, yesterday’s candle on Citigroup was a hammer, a bullish sign. If Citigroup closes above $3.30, today’s candle will be a bullish engulfing candle. This would confirm yesterday’s bullish suggestion.

The importance of volume cannot be stressed enough. The higher the volume, the more valid the market movement. If the SPX closes above 870, extending the consecutive week streak, and does so on high volume, this will confirm my expectation the markets are setting up for the next move higher. The 10-day average volume for the SPX is about 6.1B shares. Currently the SPX has traded about 3.5B shares halfway through the trading day.