Wednesday, December 29, 2004

Guru Analysis from NASDAQ.com

NASDAQ.com has a nice feature that I have mentioned plenty of times during my writing for the Weekly Investment Roundtable I contribute to. NASDAQ.com has a guru page that analyzes stocks from a "guru" point of view. Below are some picks that they believe Benjamin Graham would have liked based on his investment requirements.

These stocks are on my watch list, but the guru page is not my only source of information.

1) Friedmans (NASDAQ: FRDM) is in an obvious downtrend. This one has fallen pretty sharply and will most likely take a while to calm down before its next ascent.


Click to Enlarge Posted by Hello

2) Steel Technologies (NASDAQ: STTX) is currently in an uptrending range. I would be more likely to purchase shares once it tested its lower range again around $15-$16. Take a look at the bearish divergence in the RSI and Full Stochastic indicators.


Click to Enlarge Posted by Hello

3) Furniture Brands (NYSE: FBN) is currently in a triangle pattern. Watch and wait for a trend break. It is much easier to invest/trade on breaks of trends rather than buying at the lower support and selling at the upper resistance line. Watch out for those moving averages as well. They will act as quite a bit of resistance and are currently heading down.


Click to Enlarge Posted by Hello

4) Flexsteel (NASDAQ: FLXS) broke it's uptrend in the middle of 2004. Avoid new purchases of this stock. If you are still holding on due to hope/fear, look towards selling at around $18.50-$19.00 (If you can't stand selling now that is). That uptrend line is now considered resistance.


Click to Enlarge Posted by Hello

5) Superior Industries (NYSE: SUP) is looking to break out of it's downtrend that began in March of 2004. The RSI and Full Stochastic might be forecasting that break. Both of these indicators recently broke above resistance. This is not an instruction to buy, but be watchful of that downtrend line. A break above it with good volume would be a well received omen of things to come.


Click to Enlarge Posted by Hello

On another note, I may have finally found an investment to put my hard earned money in. I will give a full report when it's time.

I am hoping to teach many aspects of investing through the exercise of investing my own (real) money. I have put together a portfolio of $5,000 that I will invest in value stocks for the long-term. If you care about your future, you will have to learn to invest wisely. I hope I can be of some help. Other's that are here to help are located on my sidebar.

This first investment will put me on the quest of becoming the greatest investor out of my home town. Warren Buffett has that title now. I hope to change that. Join in on the fun and come back often to see my progress and hopefully learn something.

Best Regards,

The Soothsayer of Omaha

Morningstar Looks at the Buffett Portfolio

Here is an article at Morningstar that takes a look at my arch nemesis' portfolio for Berkshire Hathaway (you may have to register to see the article):

The 28 Stocks in the Buffett Portfolio

I'll take a look at each stock technically in future articles so check back often.

P.S. Warren Buffett is not really my arch nemesis...he doesn't even know I exist...yet.

Best Regards,

The Soothsayer of Omaha

Sunday, December 26, 2004

Investment Roundtable

The Investment Roundtable is up over at Sixth World Management and Commentary. This week we took a look at GLD. Come check it out to see where we think GLD is heading in the future.

Best Regards,

The Soothsayer of Omaha

Wednesday, December 22, 2004

The Investor Formerly Known as Trader Wizard

Bill Cara, formerly the Trader Wizard, is now back in action. Make sure you check out his blog as often as you can.

You can find his new home at www.billcara.com.

Best Regards,

The Soothsayer of Omaha

Tuesday, December 21, 2004

Inverted Yield Curve

Mr. Mauldin tells us in his weekly article about an inverted yield curve currently in England. That is not good news for our friends across the way.

Here are my past articles on the yield curve:

Part 1
Part 2
Part3

You can read Mr. Mauldin each and every week at the link on my sidebar (I do).

P.S. Random Roger has a picture of the current inverted yield curve for England if you would like to see it along with some comments here.

Best Regards,

The Soothsayer of Omaha

Sunday, December 19, 2004

Weekly Investment Roundtable

This weeks investment roundtable is being held over at Sixth World Management and Commentary. This week we take a look at investing in Motorola. Come check it out.

Best Regards,

The Soothsayer of Omaha

Thursday, December 16, 2004

The Trader Wizard (RIP???)

Bill Cara, also known as the Trader Wizard, is taking a vacation. He has been cut off from his blog so he asked a few of us financial bloggers to post a letter for him for his readers. Here it is:

TW Networkers,

The Trader Wizard is going to take a holiday. For business reasons, the web site has been shut down. Readers can reach me directly at carabill@rogers.com

When I return, in January, I will have a different style blog, and maybe even a new name.

In the next few weeks, in addition to enjoying the holidays with my family, I will be hard at work at a number of things:

· to build an investment fund for the China projects of Michael Wong
· to finish my book draft "Say No! to Wall Street"
· to consult to the credit union system in North America
· to build my automated buy or sell decision models
· to consider how I might improve my web presence with a new website and blog.

After the Dow passed north of 10,400, I felt that equity markets entered a zone of rampant speculation, where risk/reward ratios became unreasonable. In that scenario, I feel it is best to step back and take a deep breath.

So maybe my readers might think it wise to consider doing the same.

Seasons greetings, and see you soon…

Bill Cara

For the Trader Wizard

Wednesday, December 15, 2004

Turning Points in Trend

The academics claim that timing the market is almost impossible. This is probably true for individuals who do not care to watch the markets, but any astute investor/trader can pretty readily spot major turning points in the market or in individual stocks. The best way to do this is through spotting divergences with the help of technical indicators.

Divergences occur when the security's price keeps following the trend while a certain technical indicator breaks the trend and goes the opposite direction. Here is an example using the Relative Strength Index (RSI):


Click to Enlarge Posted by Hello

As you can see with our TXN example, the price kept moving from the $24/share range to the $25/share level while the RSI was decreasing in value.

This bearish divergence is telling the astute (aware) investor that momentum is slowing down in TXN and a top should be forming. You won't know the exact date, but you should be more aware.

It should be noted that divergences can go on for seemingly extremely long periods of time. In fact, depending on what time frame you are looking at, they can go on for many months and up to a year or so.

So, when do you know the turn is going to occur?

Let's use TXN as an example. We have a bearish divergence occurring. This indicates that the price is topping and should be heading south at some point in the future. I would have been short (or sold out) at the beginning of December (Hindsight is obviously 20/20). I would have known in December because TXN didn't make a higher high. The stock price did not exceed the November high. This would tell me that the stock was going to begin heading lower.

There are other criteria to look at, but this lesson is just on divergences using RSI.

Let's look at another example using Plum Creek Timber (PCL).


Click to Enlarge Posted by Hello

You can see that PCL began a bearish divergence in December of 2003. Once we see this divergence we are on the look out for a change in trend.

We didn't see a lower high in January 2004, in March or April 2004, in June or July 2004 either. In fact, we have not seen a lower high yet. So, we would not have expected a turning of the trend yet.

Of course if you are going to delve into technical analysis, you must learn about risk and how not everything is always 100%. You could be completely wrong at times. You must be prepared for that.

For instance, let's go back to the TXN example. If I was wrong, I would have purchased the stock back once it closed 3% higher than the high hit in November. If TXN closed that high, I would have been incorrect in my analysis. I have grown to accept that I am not always 100% right when it comes to trading/investing (on other matters I would have to beg to differ).

You can learn more about the Relative Strength Index here.


Best Regards,

The Soothsayer of Omaha

SFO Magazine

For those of you who do not know by now, Stocks Futures & Options (SFO) Magazine is offering a free subscription for 2005. It would definitely be worth it. You can find out more about the deal here.

Best Regards,

The Soothsayer of Omaha

Tuesday, December 14, 2004

Immediacy and the Investor

The immediacy frame of mind can be very dangerous to the long-term value investor. You must get past this mind-set to be successful. I see it all the time and all around. I just shake my head in dis-belief. The daily newspaper (most financial media) always has a reason why the market did this or that. It doesn't matter whether it is true or not, they have to print something. Dear reader, they are leading you astray.

For example, oil prices have a weak correlation at best for causing the stock market to move (I believe it is around 0.55). What did the public hear was the culprit for the stock market slump the past month or so? Oil prices. Well, anyone who cares to find out for themselves knows that there are studies that prove this to not be the case at most times.

Most investors have a goal to know what is happening right this exaxt moment. What will I talk about at the water cooler tomorrow if I don't know what caused the stock market to move today? I'll look like a fool!

If you want to retire wealthy, you have got to get out of that trap. Who cares if Bob thinks you are a moron because you didn't know the Premier of China fell and broke his arm and caused the dollar to rise 5%. Stick with the long-term cycles and trends and let Bob trade off of the news. Bob will be cleaning your pool some day.

Best Regards,

The Soothsayer of Omaha

Congratulations Are In Order

Congratulations are in order for two on my trading blog partners. Kaushik Gala and Bill Cara, who are the operators of the GalaTime and Trader Wizard investment blogs, were reviewed this month in Forbes magazine.

Congratulations gentlemen, you deserve the spotlight! Keep up the good work. Both of these blogs are located on my sidebar. Check them out.

Here are the reviews: http://www.forbes.com/bow/b2c/category.jhtml?id=297

Best Regards,

The Soothsayer of Omaha

Wednesday, December 08, 2004

Technical Analysis...An Art or Science?

Basic technical analysis is not a difficult area to master. The basics like trendlines and resistance and support areas are also the most important to learn. Sometimes it can be more of an art than a science though. Check out the two charts below. One is with all of my trendlines and support and resistance areas. The other is the future outcome.


Click to Enlarge Posted by Hello

I passed on purchasing PLB this time around. It turned out to be a good move. It will be a good stock to own at some point (most are for the right price), but not until the price moves lower or holds support here. Maybe PLB will hit its all time low again around $15/share?


Click to Enlarge Posted by Hello

One of the points I am trying to make is based off of the first graph. One thing you will want to learn in technical analysis is that you never know what points are going to be influential in the future. Some of those lines look like they are going nowhere until a year from now when that seemingly unsuspecting line turns into support. Just a thought to remember when you are up late at night honing your craft.

Best Regards,

The Soothsayer of Omaha

Saturday, December 04, 2004

SecurityTraders.com Investment Roundtable

The new Investment Roundtable is up at securitytraders.com. This week we took a look at Martha Stewart Living Omnimedia (NYSE: MSO). Make sure you check it out.

Best Regards,

The Soothsayer of Omaha

Thursday, December 02, 2004

The Yield Curve, Part III

Now that we know what an effective tool the yield curve can be let's take a look at what it is saying now.


Click to Enlarge Posted by Hello

Using the academic study we looked at in Part II of this series, we can see that there is a less than 5% chance that a recession is 4 quarters away. Remember, the study took the 10-year T-Bill rate and subtracted that by the 3-month T-Bill rate. Using that simple equation we get a yield spread of 2.32 (4.40-2.08) at the time of writing.

So, currently we are out of the recession woods.

Here is one soothsayer's take on the present condition of the yield curve. For a few weeks long-term rates stubbornly stood at low levels, flattening the curve a bit and forecasting a slow down in the economy. With the complexities of the falling dollar spurring foreign business for US international businesses, long-term bond rates have started to climb to slow the inflation and attract more foreign money.

Speculations abound that China is no longer buying US bonds with their profits from large export trade to the US. They may be buying EUROBonds. No one knows for sure, but the yield curve is starting to steepen again. If the long bond rates can climb as fast as the short-term bill rates, this economy will pick up steam into next year. However, when you see a flattening or inverted yield curve, you must stand ready to exit your long equity positions.

If the long rates (10-year) stay at current levels and the short rates (3-month) increase, a flattening of the curve will occur that will slowly crunch the economy. If long rates increase proportionately with short rates, that may kill the economy even quicker. If that happens, the housing sector, copper, lumber, concrete, furniture, and mortgage companies, etc. will get creamed. There will be enormous efforts to keep this from happening by foreign countries and the Feds.

The problem that nobody seems to want to talk about is the buying by the Fed to keep the long bond's rate artificially high will have to be done with newly printed money. This new found money will keep inflating the economy to unsustainable levels. That is not good; be watchful and ready, dear reader.

I'd also like to point out another amazing tool at stockcharts.com. They have a dynamic yield curve presentation where you can actually watch what the yield curve was doing from 1997-present and what effect that was having on the stock prices. Play around with it. It's really interesting and telling.

I hope you enjoyed my reports on the yield curve, and hopefully you learned something.

Best Regards,

The Soothsayer of Omaha


New Project

Bill Cara (Trader Wizard) and I are launching a new project. At his site, http://www.traderwizard.com/, we are starting a forum for the 20 and 30-something crowd. It will be a resource that will help with all of your investing questions.

Bill, as I have said before, is one of the good guys in the investing world. He truly wants to help everyone he possibly can to invest well. Bill is also only one man. He can’t possibly help everyone in the world, so he is taking on some help.

I am proud to say that I will be looking after the 20 and 30-something individuals who have questions (or just want to talk) about investing and the markets. This will be a community-based forum and will only be a success with the help of our readers. Please come check out Bill’s website and the forum. You should also be reading what Bill has to say every day at www.traderwizard.com/blog.

Best Regards,

The Soothsayer of Omaha

Wednesday, December 01, 2004

Real Money

I just wanted to remind my readers that I am using real money to try to help show you how to invest for the long-run. As you can see, I have made $0.10 since the last statement I posted. Obviously we need to put this money to work.

I've been thinking of an addition to this site that I think could help out many of my readers. It will involve your 401(k) at your place of employment. I'll announce something a little later after I think about it a little longer.


Click to Enlarge Posted by Hello

Best Regards,

The Soothsayer of Omaha