War with Iran?

I was reading that the US and some European allies are moving lots of navy ships towards Iran, with the plan to create a naval blockade and enforce the sanctions against Iran. The logical answer of Iran would be to make it harder to move oil tankers through the Strait of Hormuz. The US is denying any intention of a blockade, of course, while moving ships towards the area. I never found that a denial of the US can be trusted at all, so we have to see what will happen in that area. If there will be a naval blockade, make sure to jump on the energy stocks and short the financial stocks. Any confrontation with Iran will just drag the whole world economy down even further than it is now.

Howard Milano

Energy stocks descending to attractive levels

It's fascinating to see how the energy stocks gains of the first 6 months of this year were lost again in the last month or so (click picture for a larger one). This clearly shows to be careful with holding stocks for a long time without a stop loss in place. After losing 40% in a bit more than a month, DIG is reaching attractive levels again. Some people say that oil should be at $50, but I think those days are over. China has reduced its thirst for oil during the Olympics, but once that is over, China will resume consuming oil at ever increasing levels. Watch DIG carefully, and buy in when it starts going up again for a gain of several percent.

Howard Milano

(Disclosure: Howard Milano has no DIG holdings right now)

US recovering faster than the rest of the world

When you compare the charts of SSO and VEU (click on pictures for larger ones), you can see that the US is recovering faster than the rest of the world. If you are well diversified across the world, your portfolio is probably not going up yet (or even still going down). There has been a lot of talk about the US losing its dominant world position, with the dollar down and the US so dependent on oil from other countries, but here we see that the rest of the world is still not as strong as the US. Just India is doing pretty good, see INP.

Howard Milano

(Disclosure: Howard Milano has no SSO, VEU or INP holdings)

DOW is struggling against the Bear

When you look at the picture of DIA (click for a larger picture), one of the DOW's ETF's, you can see the DOW is struggling. It bounced its head twice against resistance, and the chart makes me think the DOW will go down more before it will go up through this resistance. All this talk about the Bear market, and how we have reached bottom, which is nice wishful thinking, but it's not as easy as flipping a switch between Bear and Bull market. Some of the tech stocks have been doing well, like DELL and INTC, but the financial stocks are losing their enthusiasm again and FNM and FRE are doing their best to go even lower than early in July. Last week I thought GM would do a spirited run up, but that petered out in a day or so and GM is trying to go below its July lows as well. It looks like we're all coming back down to Earth after the euphoria of the end of the Bear last July.

Howard Milano

(Disclosure: Howard Milano has no DIA, DELL, INTC, FNM, FRE or GM holdings right now)

NVIDIA punished even more

More bad news for NVIDIA Corporation (NVDA), Intel (INTC) just announced their new "Larrabee" product, a cross between a multi-core CPU and a GPU with many processors. Something like an easily programmable GPU. GPU's from NVDA are notoriously hard to program for users who want to add new functionality, but the GPU's do graphics functions really well (fast) out of the box without any programming. Larrabee will be easier to program, but it won't have as high of a performance as GPU's. Now, NVDA has excellent fundamentals, with a low P/E, good profit margin, cash flow, no debt, and low short ratio, but it got punished after it gave lower earning projections in early July. I really like NVDA, but I will wait doing any buying in till the stock stops scraping the bottom, for instance after there are decent earnings. Right now it seems it might go a little lower before it starts going back up. All the better, the stock will be more attractive the further it goes down.

Howard Milano

(Disclosure: Howard Milano has no NVDA holdings right now)

Lot of stocks show a triangle pattern

There are a lot of stocks, especially financial, builder, and real estate related, that show this zig-zag pattern (click on the picture for a bigger picture), that can be interpreted as a triangle formation in technical analysis. Usually this kind of formation is considered bearish, meaning the downtrend from the last months will continue. I'm not convinced that the downtrend will resume. What is obvious that XLF screamed up 35% from July 15 - July 23, and now the stock needs to gather new strength if it wants to go higher from here. That seems a better explanation to me. Many people think the financial stocks are a good buy now for a long term hold. For short termers, like me, buy on the dips and scalp a couple of percent each time the stock goes back up.

Howard Milano

(Disclosure: Howard Milano has no XLF holdings right now)

Financial stocks rocket up

It was one of those days where the market was doing really well just an hour or so into the trading day, with lots of stocks up, and almost anybody who bought early in the day made their couple of percent gain at the end of the day. If you're looking for more than a couple of percent, tomorrow might bring another few. With a little luck the rally of today will extend one or two more days. Looking at the charts (click them for a bigger picture) of DIA and KBE it is curious to see that DIA seems to have successfully tested the lows of earlier this month, while KBE didn't come down enough to call it a test of the lows. You can interpret this by saying the financial stocks were beaten down so much that they float on air now, relieved to be going up. Let's see if the stock prices follow through and go up above their last highs, which would be a very positive sign indeed.

Howard Milano

(Disclosure: Howard Milano has no DIA or KBE holdings)

World wide stocks move in tandem

When you compare VEU, the ETF that has holdings from all over the world except the U.S., with DDM, the Ultra DOW ProShares, you see very similar graphs (click on the pictures for bigger ones). Stock markets in various countries and continents around the world pretty much move in tandem right now, meaning they all moved down for the last few months and they all had a bump up the last couple weeks. This is not a good sign; it is often mentioned that international diversification is good, but if all the markets around the world go up and down in tandem, that diversification is not going to help a single bit. The good news is that stocks around the world are getting cheaper, and there will be lots of good buys when this credit and housing crisis resolves itself.

Howard Milano

(Disclosure: Howard Milano has no VEU or DDM holdings)

Analysts doing their pump and dump

This is why I don't like many analysts. Kevin Dann & Partners just issued an upgrade recommendation of Midas Inc (MDS), raising their target from $18 to $21 (there is an article in Barron's Online). Look at the chart (click on it for a bigger picture). There is a giant V bottom that even a child can see, and the stock price increased 35% !!! over the last several weeks, and NOW (???) Kevin Dann & Partners are upgrading the stock? Have they been asleep the last weeks, or counting their money gained from the 35% increase? Upgrading the stock at this time means they see that the stock is peaking after the amazing run up and they want to invite some innocent investors to buy in so the big money can get a couple more points out of it before the big sell off while the stock takes a long breather before the next run up. Sure, in the long run the stock might go up to $20 or so, but don't upgrade now. Should have upgraded on July 8, 2008 when the stock took the big jump up after its first pull back.

Howard Milano

(Disclosure: Howard Milano doesn't have MDS holdings)

MSFT compares Vista to a flat Earth

Microsoft (MSFT) is trying to brush up the generally bad image (in the public eye) of the Vista operating system with their 'flat earth' ad and other new ads that tell 'the truth' about Vista. Ballmer has been talkative lately, hinting at new products coming out (mimicking Steve Jobs from Apple). Meanwhile the stock price is at 2005/2006 levels, P/E is low, cash flow is high, short ratio is low, Bill Gates is selling shares (presumably he sells at regular intervals), Ballmer insists MSFT will not buy YHOO, but many people say buying YHOO is MSFT's only chance to succeed in search. As you can see, conflicting signs, some good, some bad. If it was any other big company, the current fundamentals of MSFT would encourage buying in for the long run. But with all the drama lately, I think it's better to just stick to short term buys. Right now, for instance, the stock looks like it could go up a dollar or two in the short term.

Howard Milano

(Disclosure: Howard Milano has no MSFT or YHOO holdings)

GM looking very tasty

General Motors (GM) is now in the process of testing the lows of earlier this month and it is looking mighty attractive for a short term buy if/when it successfully survives that test. Keep a close eye on the stock the next days (click on picture for a bigger one). Meanwhile Chrysler just discontinued leasing through its lending arm and and it is laying off about 1000 white collar workers, which all makes sense: Chrysler depends for 75% on sales of trucks and mini-vans, both of which are not selling well, so Chrysler is hurting. When Cerberus Capital Management bought Chrysler they probably thought they got a great deal with the high profit margins on trucks and vans, but now Cerberus must be wondering what to do with the dead weight of Chrysler. IPO it again, the investors will take the losses.

Howard Milano

(Disclosure: Howard Milano has no GM holdings at this time)

Barrons online

I enjoy reading various stock related sites online, such as Bloomberg and MarketWatch, and I especially like Barron's. I was just reading Barron's online, and they think the financials hit bottom a week or so ago, and though there will still be ups and downs to make a good base, investors with a 6 or 12 month window should seriously look at the financial stocks. I've been reading quotes such as "a once in a generation chance" and things like that, a bit too exaggerated for me, but as I have mentioned in previous posts, I do agree that the financials look mighty interesting right now, I just wished they would take a breather and dip for a week so people who are waiting for a pullback can start buying in. With the latest news of the housing bill passing, providing support for lots of homeowners facing foreclosure, and giving protection to Fannie Mae (FNM) and Freddie Mac (FRE), the banks might go up a bit more, adding to the 20% or more gains of the last week. Financials are hot, try to make some money with them.

Howard Milano

(Disclosure: Howard Milano has no FNM or FRE holdings)

Nice V-bottoms

Look at the nice V-bottoms the financial ETFs KBE and KRE are making (click on the pictures for larger images). Bottoms like this make it really hard to decide when to buy in. It's normal to wait for a pull back before buying in, but these two stocks have been screaming up for the last week with hardly any retracing. A lot of bank stocks have been posting losses, but there have been some positive stories as well from BAC, C, and WB. I think it's funny to read the general news about banks and listen to people. Some think 50% of the banks will collapse in the next 6 months or so, others think we hit bottom and are on the way up for an easy doubling of bank stocks. There are still a lot of ARM loans that will reset in the next year or two, but by now banks realize the dangers (for the banks) of foreclosures, and there is a good chance the banks will handle the rest of the mortgage misery better. I think it will take another couple of years for the mortgage crisis to be over for consumers, but the first to recover will be the banks: the one thing those businesses want to do is make money.

Howard Milano

(Disclosure: Howard Milano has some C holdings, but no KBE, KRE, BAC, or WB holdings)

VMware (VMW)

I have talked about VMware(VMW) before, and I mentioned that the stock should be in the twenties somewhere when you look at the fundamentals of the company. Well, VMW reported fine earnings, but lowered their outlook. The whole reason VMW had such an absurdly elevated stock price (remember $120's ?) is because people thought they would grow the business forever at a breakneck speed. Now with the original CEO gone, a bloated workforce from too fast of a growth, and a workers morale that is in the dumps, lowered future earnings are not good news. VMW stock tumbled in after hours, and perhaps we'll see VMW go down into the twenties where it belongs. EMC, the greedy parent company of VMW holding on to some 85% of the VMW stock, is not doing too well either. Guess they are trying to figure out how to squeeze the next money out of VMW, for instance by spinning it off. I would advice staying away from both companies till the mess of VMW is sorted out.

Howard Milano

(Disclosure: Howard Milano has no VMW or EMC holdings)

Gm suspends dividends

General Motors (GM) suspended its dividends, in addition to cutting costs and selling assets. All this to try to stay alive after the company lost about 75% of its capitalization since late last year and 50% of its capitalization of just a month or two ago. (click on image for a larger picture). You can see that the stock price got a nice boost from all this news. The thing is that cutting dividends might please short term investors, and boost the stock price short term, but it severely displeases long term investors such as mutual funds which look for companies that pay high dividends on predictable schedules. We'll have to see how this unfolds, the mutual funds might sell shares driving the stock down despite all the cost cutting and selling of assets. I think GM should have taken the middle road, cut down the dividends but not suspend them. GM looks good for a short term gain, perhaps buy in after it successfully tests the mid-July lows, but long term the stock might stay low till dividends are reinstated.

Howard Milano

(Disclosure: Howard Milano has no GM holdings right now)

DIG and DUG

Take a look at DIG, the ProShares Ultra Oil and Gas ETF and DUG, the ProShares UltraShort Oil and Gas ETF. This is what ETF's are good for. You can instantly see how an industry is doing. Another good thing about ETFs is that they are inherently diversified, they're baskets of stocks. DIG is down 25% in the last weeks, while DUG is up about 25%. Oil and Gas are not doing well and you're better off shorting by buying DUG long than being long DIG. There have been rumors that the high price of oil might not be sustainable, with all the global economies hurting, and the steep downhill trend of the oil and gas ETFs makes me wonder if the oil bubble is about to burst. You should be out of your long positions in oil and gas right now, except for a long position in DUG.

Howard Milano

(Disclosure: Howard Milano has no DIG or DUG holdings)

Excellent day

Today was an excellent day with financial stocks aggressively up and almost everything else up except some struggling energy stocks, Seagate (STX) which warned about a weak outlook, and VmWare (VMW) which continues to drop from its stratospheric highs to more justified levels (which I think are in the twenties). Don't believe this is the bottom based on one excellent day. Now is the time to restrain yourself and let stocks drop again and buy on dips as long as the current lows are higher than the previous lows, and the current highs are higher than the previous highs. This doesn't seem to be a good time anymore to be in SKF, the ProShares UltraShort Financials, switch to UYG instead, the ProShares Ultra Financials. Good luck.

Howard Milano

(Disclosure: Howard Milano has no STX, VMW, SKF or UYG holdings)

Hedge fund tactics

Hedge funds don't exactly have a reputation of being nice, and this story is an example. Hedge fund manager William Ackman went short on Fanny Mae (FNM) and Freddie Mac (FRE) on July 10, that's last Thursday, just 3 trading days ago. Today, Tuesday, he's in the news with his plan to reorganize the 2 companies, give bond investors a pretty good deal of 90 cents on the dollar plus equity, and wipe out the common shareholders. Yes, he has easy talking, he is short both companies, and wiping out the common shareholders means he will get the maximum return possible on his 2 short positions. Ackman did something similar with MBIA Inc (MBI), which he shorted and then advised everybody to sell. When other people do similar acts it's called 'pump and dump', but apparently when hedge funds do it, it's the way they operate.

Howard Milano

(Disclosure: Howard Milano has no FNM, FRE, or MBI holdings)

Bank ETFs

I really like ETFs, and since the financial stocks are doing so badly lately, it is informative to watch the bank ETFs. I previously mentioned KBE and KRE. If you like Ultra ETFs, check out UYG (click picture on the left) and SKF (click picture on the right). UYG represents a leveraged long position in various bank stocks, and SKF represents a leveraged short position, which is really nice if you don't like the hassle of shorting (with the up-tick rule and the general dislike of shorters), but you do want to take a short position, which you can take as a long position in SKF!. If you want to see more ultra ETFs, go to the Yahoo finance pages, in the "get quotes" box type: proshares, and select 'show all results for proshares' which will give a listing of some ultra ETFs. Each ETF page, such as the one for UYG, has a link on the left for 'holdings', which will show you which stocks are part of the ETF.

Howard Milano

(Disclosure: Howard Milano has no KBE, KRE, UYG and SKF holdings, but that might change)

YHOO, MSFT, Icahn soap opera

That's hilarious. Yahoo (YHOO) rejected the latest offer from Microsoft (MSFT) and Icahn. The offer was to sell the search engine to MSFT, the rest of the company to Icahn, and all that on the condition of removal of the board and senior management. Oh yeah, and the offer was given on Friday night and YHOO only had 24 hours to consider. It didn't take YHOO 24 hours to flatly reject the ridiculous offer. How do MSFT and Icahn make this up? It's not that YHOO is hurting that badly, the whole market is down right now, what's exactly the hurry or urgency to sell right now on Friday night? It's not good business practice to humiliate the company you're trying to buy. And so the soap opera continues. Some people really believe YHOO should be bought by MSFT to create better competition for Google (GOOG). I sort of like the idea, just to see MSFT try to swallow YHOO, the two companies don't have exactly the same culture, I'm pretty sure MSFT will have to get rid of a bunch of YHOO people, who might leave on their own anyway.

Howard Milano

(Disclosure: Howard Milano has no MSFT, YHOO or GOOG holdings)