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online investment information, financial newsletter
Begin part 2 of 2
SUBSCRIBER QUESTIONS
Q: From Saturday's newsletter in the Subscriber Questions, the first line of your response was, "It is said that recoveries are led by financials and chips." 1. How much value should one place on this perceived aphorism? 2. How long has this statement been around? The semiconductor index (SOX) is only eight years old. Does the axiom pre-date the SOX? Do you remember a time that suggested the financials only in some similar truism? 3. I read one analyst (from early last year) that suggested technology could lag a general recovery, a view you shared earlier this year. Therefore, he thought the chip lead theory was not always true. The SOX started in 1994 and one of the greatest bull runs in history ran from early 1995 to 2000. Certainly the semi's lead the business thrust during this period, however this was a period of vastly above average technological advance. Did this provide a non sequitur conclusion for this chip lead recovery belief? Your views, please.
A: There is another saying that there are some kernels of truth in any legend as something gave rise to the legend. The difficulty is determining just what those first kernels of truth were. The belief that the financials have to perform well has been around much longer than the addendum of the semiconductors. A more accurate statement would be to look at financials for the overall market, chips for the technology market as chips tend to go into just about all technological products. Semiconductors is a very broad category, however, and while PC chips may not do well, wireless chips may. You are right to be skeptical of such a broad statement given the variety of chips types and uses. Intel is continually looked upon to provide leadership for semiconductors and tech in general. With its predominant focus on PC chips, however, it is going to be hard-pressed to provide leadership. Not many of the household chip names are in any solid shape to lead the market; they can run like a bat out of hell when things look a bit better, and then they can sell as if they had lead weights attached afterwards.
As for trusting the saying with respect to financials, the idea is that financials start doing better because there is a perception of economic improvement and that will provide more lending and related opportunities where financials make money. Moreover, the cost of money will go up and if a financial institution is efficient it can improve profits there as well. In theory it makes sense, and this theory has been around for a long time; I cannot even put an exact date on it. Still, each market recovery is unique with new leadership emerging after the prior leadership has been sold off and abandoned; while financials typically improve and join in on the move higher, they do not necessarily lead the move. They are not really leading at this point as a group though some patterns are showing good action. It is still important that they start performing better even if they do not lead, however, because they should improve as the economy improves based on the above relationships. If financials do not start pricing in economic recovery based on their ability to make money in an improving economy, that is a signal the recovery is not ripe or is going to be very slow.
CONTINUING PLAYS:
Watchlist that still look good:
VARI: Looks ready to fall from here on the higher volume reversal.
Stock Date Play Close +/- Pivot Tgt Vol TgtV Stop
ABFS 10/24 Test BO 30.48 -0.39 31.05 37 112K 475K 28.88
Buy not hit. Looks ready.
AGAM 10/03 Test 50 5.95 -0.03 5.71 7 12K 100K 5.31
Current. Good handle action.
ALLY 10/21 BO 17.25 -0.45 18.12 21.75 554K 845K 16.85
Buy not hit. Testing back well.
AMGN 10/22 Test BO 49.07 -0.72 50.45 55.55 12M 17M 46.92
Buy not issued. Holding at the 200 day MVA on lower volume.
AMLN 10/19 Test BO 16.97 -0.71 17.85 20.45 1.5M 750K 16.15
Buy not issued. Tested the 18 day MVA on the low and recovered on lower volume.
AMLN 09/18 cup hdl 16.97 -0.71 13.55 20.25 1.5M 750K 16
Current.
APOL 10/12 BO 41.12 -1.97 44.24 50.88 2.2M 3.3M 42.05
Current. Back below the 50 day MVA at 42 on some lower, below average volume. Has held at this point for several sessions and seeing if it can find a floor here.
APOL 08/15 A Wedge 41.12 -1.97 40.65 48 2.2M 3.3M 42
Current.
BBI 10/08 Test 50 21.9 -0.9 25.24 28.65 1.5M 600K 23.75
Current. Down to support at 22 on some lower though still strong volume. On a bounce to 24 we exit, but if breaks this 22 level we will have to do same.
BLUD 10/10 BO 21.32 -0.33 21.4 24.24 216K 650K 18.75
Current. Testing the move nicely.
BSX 10/19 Test BO 37.51 -0.59 37.75 45.75 2.5M 3.3M 35.85
Current. Tested the 10 day MVA on the low as volume backed off.
BSX 09/12 cup hdl 37.51 -0.59 30.94 40 2.5M 3.3M 35.85
Current.
C 10/26 DB hdl 36.3 +0.6 36.06 42.55 22M 35M 33.54
Buy not issued. Received an upgrade and was up out of the box, but the volume was just average and it was pulling back off of its highs all session. Looking for another stronger move.
CCCG 09/12 Cup 18.24 +0.19 13.45 20 108K 51K 16.35
Current. Tried a strong move but gave it back. Still holding up in a very strong pattern.
CCE 10/15 cup hdl 23.3 -0.88 23.38 28 998K 1.6M 22.75
Current. Testing the 18 day MVA on lower, below average volume.
CENT 10/15 Test BO 19.3 +0.08 18.55 22.25 190K 192K 17.25
Gapped up but could only hold a fraction of the gain on above average volume.
COCO 09/18 Test 18 34.6 -2.45 38.11 42.75 1.2M 809K 35.44
Current. Broke back through the 50 day MVA on some rising, above average volume. Some support at 34 that has to hold.
COCO 08/01 Rv H&S 34.6 -2.45 29.95 36 1.2M 809K 35.75
Current.
COH 10/22 cup hdl 30.7 -1.17 30.25 36.35 875K 1.5M 29.85
Current. Down with the retailers on lower, below average volume. Want it to hold at 30.
CRL 10/14 A Wedge 39.6 -0.4 40.22 46.45 191K 700K 37.55
Buy not issued. Holding above the 18 day MVA on below average volume.
CVX 10/22 Put 73.58 +0.35 71.45 68 2.8M 3.2M 74
Current. Tried the 50 day MVA but could not hold the move, reversing on some higher volume.
GSB 10/26 cup hdl 36.24 +0.24 36.12 41.35 469K 1.6M 34
Buy not issued. Gapped higher but volume was low. Approval has been given for the acquisition by C.
GYMB 09/18 cup hdl 19.15 -0.65 19.64 22.45 783K 586K 18.27
Current. Turned over but on lower volume as GYMB suffered along with the rest of retail.
HCA 10/07 cup hdl 48.65 -2.33 49.52 56.94 5.4M 3.2M 48.49
Current. Tapped the 50 day MVA on the low on heavy volume. Slight recovery. Support at 48.
HITK 10/28 Test BO 15 -0.16 15.75 18.55 32K 60K 14.65
New.
HLYW 10/14 Test BO 18.91 -1.05 19.45 22 1.2M 1.2M 18.09
Current. Held up pretty well, testing the 18 day MVA on the low and rebounding.
HNR 10/17 Test BO 6.78 -0.22 6.38 7.75 120K 288K 5.78
Current. Lower volume test.
IDXX 09/26 cup hdl 34.93 +0.15 32.11 36.75 844K 468K 31.55
Current. Up a bit more but not a strong session.
INGR 10/03 cup hdl 19.29 -0.16 19 22.25 659K 525K 18.25
Buy not issued. Holding well above the 10 day MVA with a shot of volume.
ITRU 09/26 cup hdl 3.01 -0.01 3.35 4.75 199K 550K 2.99
Buy not issued. Flat consolidation above the 50 day MVA.
KLAC 10/19 BO 35 +1.38 33.05 38 23M 1.9M 30.74
Current. Gapped up on stronger volume.
KSWS 10/23 cup hdl 25.41 -0.94 24.11 28.94 389K 187K 24.94
Pulling back. Testing the move, but volume was still very high.
LBIX 10/14 cup hdl 3.05 -0.05 3.22 4.35 116K 145K 2.99
Current. Trying to hold the 18 day MVA on lower though above average volume.
LNCR 10/19 Cup 33.96 -1.02 35.32 40.55 1.2M 1.1M 33.65
Current. Tested the 50 day MVA on the low but recovered to hold the 18 day. Wild session.
MME 10/01 cup hdl 37.95 -2.9 37.95 43.65 1.2M 650K 39.55
Current. Medical still struggling, falling to the 50 day MVA.
NBIX 10/08 Rv H&S 42.56 +0.84 42.35 50.75 580K 1.1M 39.39
Buy not issued. Up to the breakout point, but needs some volume.
PETM 08/26 cup hdl 19.29 -0.7 17.04 22.85 3.5M 2.8M 18.85
Current. Received a valuation downgrade, recovering to hold the 18 day MVA on the close as volume moved up. Good sign it recovered, but needs to hold above 19.
PFGC 10/12 Test 50 38.2 +1.43 36.55 39.5 967K 500K 35.65
Current. Breakout.
PNC 10/12 Put 40.75 +0.45 39.74 36.11 1.5M 1.7M 40.15
Buy not hit.
QCOM 10/24 Test BO 35.39 -1.13 35.65 40 15M 18M 34.05
Current. Holding the 10 day MVA on average volume.
QCOM 10/10 BO 35.39 -1.13 31.1 38 15M 20M 34.05
Current.
QLGC 08/17 CCall 32.89 -0.26 36.48 0 16M 12M 33.55
Current. Basically held flat on the session.
RARE 10/28 DB hdl 27.48 -0.03 28.22 33.85 447K 355K 26.24
New.
RGIS 10/26 cup hdl 29.6 +0.24 29.75 33 469K 525K 28.35
Current. Moving again on above average volume.
RGIS 10/03 cup hdl 29.6 +0.24 28.84 33 469K 525K 27.74
Current.
RINO 10/24 Test BO 15.59 -1.89 17.35 20.75 1.2M 225K 16.06
Current. Turned and tanked with the retail sector as valuation concerns hit retailers.
RINO 08/28 cup hdl 15.59 -1.89 13.8 20 1.2M 300K 16.06
Current.
SBUX 10/16 cup hdl 23.19 -0.74 24.21 29 3.7M 5.5M 22.35
Buy not hit. Sold back on lower volume on retail jitters.
SCSS 10/19 cup hdl 8.38 +0.46 7.75 9.55 1.2M 200K 7.21
Current. Gapped up and ran again on strong volume.
SCSS 09/21 cup hdl 8.38 +0.46 6.02 9 1.2M 200K 6.75
Current.
SHFL 10/12 A Wedge 22.38 -0.27 20.38 24 952K 375K 21
Current. Tried the breakout on big volume but could not hold the move.
SLAB 10/16 Test 50 22.24 +0.89 24.4 28 1.5M 1.3M 22.69
Current. Up over the 50 day MVA on above average volume.
SLE 10/26 Test BO 22.4 -0.4 23.11 27.55 2.2M 3.8M 21.65
Buy not hit. Sold back just below the 10 day MVA on lower, below average volume.
STE 10/07 BO 25.43 -0.31 25.24 29.4 271K 711K 24.15
Current. Continues to move along the 10 day MVA on lower volume.
STE 09/28 BO 25.43 -0.31 23.95 28.75 271K 711K 24.15
Current.
TTWO 08/24 cup hdl 24.59 -2.18 26.61 31.94 4.2M 1.5M 27.25
Exited.
TTWO 08/17 cup hdl 24.59 -2.18 24.75 29.85 4.2M 1.5M 27.25
Exited.
UNFI 10/15 BO 23.28 -0.3 24.05 28.85 70K 185K 22.37
Buy not hit. Looks very good.
USNA 10/14 Flat 9.6 +0.3 7.35 10 172K 65K 7.95
Current. Trying to start another move up.
VAR 10/25 A Wedge 48.81 +0.83 47.5 54.55 1.3M 550K 45.25
Current. Gapped higher on even stronger volume.
VAR 09/16 A Wedge 48.81 +0.83 43.96 50.55 1.3M 550K 45
Current.
VARI 10/24 Put 29.43 +0.45 28.85 26 383K 500K 31.15
Buy not issued. Looks ready.
VRTS 08/19 CCall 16.04 -0.53 19.76 20 9.9M 8.5M 17.45
Current. Gapped higher but sold back to close at the 50 day MVA on lower, below average volume.
VZ 10/10 Test 50 37.61 +1.04 34.75 38.45 11M 10M 34.15
Current. Good move on volume.
WEDC 10/19 BO 9.43 -0.7 9.45 12 133K 142K 9.15
Current. Rolled over on us on some stronger volume.
WTW 10/23 BO 47.52 -1.48 49.45 57 380K 941K 45.99
Buy not issued. Rolled over on, appropriately, below average volume.
XRAY 10/05 cup hdl 37.67 -1.26 42.28 48.75 940K 900K 39.85
Current. Fell to the 200 day MVA on above average volume. Will see if can bounce and exit.
Good Investing!
Jon L. Johnson and your IH Alerts Team
All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Online Investment Services, LP. or its paid consultants and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. We are not licensed or registered in the securities industry. The information presented herein and on our related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of Partners in Online Investment Services, LP. or its paid consultants may, in some instances, include securities mentioned herein and on our web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors.
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