Monday, March 28, 2005

Watching the Auto Manufacturers

One thing you've got to know is that the market moves in cycles. The market goes up and it goes down. To make what some would call a "killing" you've got to buy as close to the bottom of the cycle as possible and sell as close to the top of the cycle.

The automobile manufacturers are moving towards the bottom of their cycle. It might not be possible to call the exact bottom, but we can get close. I've started looking into this sector with greater detail. I'll probably be posting as much as I can to help find this bottom.

Below you will find the charts of Daimler Chrysler (NYSE: DCX), Ford (NYSE: F), and General Motors (NYSE: GM). You will also find some fundamental information. Then we will look at the difference between the US auto manufacturers and those around the globe.

The sector is really not looking too good right now. Everyone is bearish on this sector. Here is what Efraim Levy, a Standard and Poor's analyst, has to say about the industry:

"Competition should remain intense, aided by new product introductions and incentives. We are concerned that high inventories may lead to additional production cuts in coming months, beyond recent announcements, or higher incentives. If gasoline prices stay above $2 per gallon for a sustained period, demand for fuel-inefficient-but-profitable light trucks may be hurt. Lower production and/or increased incentives in turn could reduce income.

The "Big Three" U.S. automakers collectively should see greater-than-industry average volume declines, as foreign car makers continue to gain market share. Of special concern to us is the highly profitable light truck, minivan and sport utility segment, which we think is facing increasing pricing pressure now that the Big Three's dominance is waning. We project that margins will come down in this segment. Increased sales of luxury import models are also hurting domestic manufacturers' margins in the luxury vehicle category. We think restructuring and other cost-reduction efforts should offset some of the margin pressure in 2005. However, we expect higher raw material, retiree and healthcare costs to squeeze margins.

We believe the favorable backdrop of relatively high employment, combined with aggressive vehicle incentives in the form of discounted prices and financing rates, should bode well for a continuation of relatively high demand for motor vehicles. However, rising competition will likely make profits harder to come by. With a combination of cost reductions and a move to more profitable non-car vehicle sales, automakers' profits have been strong during this upcycle. While a new higher sales plateau in North America may be sustainable, we have concerns about intensifying competition and acceleration of already-heavy incentive activity."

Not too bullish...

Here is some fundamental data on the "Big 3" for comparative purposes:

Daimler Chrysler:
Market Cap $44.82 B
P/E 14.04
EPS 3.15
Revenue $184.51 B
Net Income $3.2 B
Revenue Growth 11.90%
Gross Margin 19.35%

Ford:
Market Cap $20.54B
P/E 6.22
EPS $1.80
Revenue $171.65 B
Net Income 3.63B
Revenue Growth 171.65 B
Gross Margin 17.45%

General Motors:
Market Cap $16.02 B
P/E 5.73
EPS $4.94
Revenue $193.52 B
Net Income $2.81 B
Revenue Growth -0.70%
Gross Margin 12.44$

Looking at these charts you wouldn't get too excited either...


Click to Enlarge DCX Weekly Chart Posted by Hello

Above we have a weekly chart of Daimler Chrysler (NYSE: DCX). DCX is currently in a trading range and has been since the end of 2003. Long-term resistance seems to be in the $48/share region. DCX would have to convincingly break this level of resistance for anyone to get bullish on this stock. Daimler is the strongest "chartwise" and fundamentally of these three auto manufacturers.


Click to Enlarge F Weekly Posted by Hello

This is the weekly chart of Ford (NYSE: F). You can see that F has recently broken down through a declining flat triangle. This is not a good sign. If you own F, you should sell or pray for a re-test and then sell. The re-test might be coming if you are reading the Stochastics, which are indicating that F is extremely oversold. Are we going to make a move into the single digits again? One of my hedge fund co-workers actually called the bottom on this one back in late 2002.


Click to Enlarge GM Weekly Posted by Hello

Lastly we have a weekly look at General Motors (NYSE: GM). This stock is not in good shape. GM recently broke through my last buy point at around $29.85. This support line was very long-term. The line began in 1987 and has held ever since. This support line is now considered resistance and will be formidable resistance at that. I'm now looking at the low 20's or larger teens for a next buypoint watch.

I think the next big down move in GM will be when they restate their dividend lower. I can't be sure that this is going to happen, but it seems pretty likely. GM's dividend yield is currently at almost 7%. That's pretty high...I would assume a dividend cut in the future. The bottoming of the stock will most likely be around that point. We shall see.

Nobody likes the "Big 3" and that is why I am beginning to. Most money is made going against the crowd. I will be looking to pick up some shares of these stocks close to the bottoming of this cycle. We haven't gotten there yet and it could even take a few years, but I will be there waiting. I hope my readers will as well.

Best Regards,

The Soothsayer of Omaha

Correlation or Stupidity

A few months ago there was a bunch of hoopla over Fundamental versus Technical Analysis. The argument has been raging for years, but was spurred this time because of the firing of a whole technical analysis team from a bulge bracket bank.

The correlation being that if this "big time" bank was getting rid of their entire TA team, then TA must be useless. I obviously beg to differ, but that was their argument.

I wonder what these same people would say about this headline from today's Wall Street Journal "Disney Cuts Strategic-Planning Unit". A subscription is required, but the headline is enought to get the gist of my argument. Obviously Strategic-Plainning is useless now.

Best Regards,

The Soothsayer of Omaha

Friday, March 25, 2005

Review of the Big Boys

To get back into the swing of things, let's take a look at what the markets, in general, are doing. To accomplish this task I have included the charts of the DJ Composite, DJ Industrials, DJ Transports, DJ Utilities, S&P 500, Nasdaq, and Nasdaq 100.

Once again, I would like to reiterate that these markets are very tricky right now to gauge. We are at a turning point, and no one is really sure which way the markets will go, but many people have their guesses. You must remember that there is always one entity that is 100% correct, and that entity is known as "Mr. Market".

Shall we see what he has to say?


Click to Enlarge DJA Weekly View Posted by Hello

The first chart here is the weekly chart of the Dow Jones Composite. You can see that the DJA broke out on that last burst upwards at the beginning of March. This break helped me get more bullish on this composite and some of the other DJ's. Then, it seemed that the move was a false breakout as it headed back down below that resistance level. You will notice, however, that the DJA seems to be at the uptrend line that has been intact for a few months now. This causes me to be more bullish then bearish at this point.

The above opinion is just taking the price action into consideration. Now, let's take a look at the bearish divergence between the RSI, Stochastics, and the price. You will see that the DJA made a new high, but both the RSI and Stochastics did not follow suit. This is bearish action.

I would be very careful in looking for new long-term investments. How prophetic, huh?


Click to Enlarge DJIA Weekly Chart Posted by Hello

This next chart is of the Dow Jones Industrial Average, which is the most followed of the DJ's. The DJIA also experienced a breakout at the beginning of March. The DJIA has also come back down from that break of resistance showing a false breakout. On the bullish side, the 50-Week Moving Average is where the DJIA found support last time. I don't think I'm going to get that bearish until the DJIA breaks below the 10,320 level. Remember a downtrend has to be a lower low and a lower high. We haven't gotten either yet in the DJIA.

On a bearish note, the DJIA is also experiencing the bearish divergence between the RSI, Stochastics, and price. This is usually a telling sign. I would still wait for a break of the 10,320 level to get bearish.


Click to Enlarge DJT Weekly Chart Posted by Hello

Now we've got the DJ Transports to look at. The Transports did make a new higher high for the year, but failed to breakout of the long-term resistance level. Having the Transports continue to increase while oil keeps rising is beyond me. Find the trend that can't continue and bet against it as George Soros would say.

You will have to note the bearish divergence here as well. Also note the continuing uptrend line that began in 2003.


Click to Enlarge DJU Weekly Chart Posted by Hello

Above is a "busier" chart of the DJ Utilities. You can see that the Utilities didn't break above the extremely long-term resistance level. The Utilities are also experiencing the bearish divergence, but there are many support levels below as you can see.

So, I wouldn't be putting any long-term buys in anytime soon if the stock is on one of the DJ's. If you do, you would have to be highly selective and very knowledgeable. This market isn't easy...that's for sure.


Click to Enlarge SP500 Weekly Chart Posted by Hello

Here we have a weekly chart of the S&P 500. The S&P 500 hinted to a breakout for the DJ's by breaking out much earlier at the beginning of the year. The breakout occurred after the bullish flag formation. The new support for the S&P 500 is around the 1155 level. I will not get bearish on this index until the new support line has been breached.

The breach of the new support line could happen, though. The S&P 500 is also experiencing the same bearish divergence between the RSI, Stochastic, and price that the DJ's are experiencing. I need to let you know that this occurrence and any occurrence that appears on a weekly chart is much more powerful than if it were to appear on a daily chart.

So, I am not bearish yet and will not be until the new support level is broken. This could happen due to the bearish divergence.


Click to Enlarge IXIC Weekly Posted by Hello

Almost last, but not least is the Nasdaq Composite Index. Here is where I break the broken record. The Nasdaq is actually close to it's support level. The IXIC has been forming this consolidation pattern for a few years now. I'm very excited to see which way this consolidation is going to break. It should be very interesting.

The Nasdaq is extremely oversold according to the stochastics and should bounce off of this uptrending support line. This could be a good spot for traders to get long. Between the resistance at around 2200 and the support at around 1990 is 10.5%. A leveraged trader could get 21% or more out of this next move. I would have much different advice for a long-term investor (Wait for a break of the consolidation).


Click to Enlarge Nasdaq 100 Weekly Posted by Hello

Lastly, we have a weekly chart of the Nasdaq 100. This index broke above resistance at the beginning of November 2004. The Nasdaq 100 is now at this new support level and is also very oversold according to the stochastic. Traders might be able to find some gems within the components of the Nasdaq 100...take a gander.

In summary, I am not bearish, but I could be soon according to the charts. I would not be looking for any long-term investments right now except in very special cases. If you are a trader, it is a different story. A trader has no problem getting in and out of positions. A long-term investor is wired differently...they don't feel comfortable with frequent trading. If you can do both, that is great.

Let me know your thoughts on the markets. A dialogue between readers and blogger would be much welcomed and appreciated.

Best Regards,

The Soothsayer of Omaha

I'm Back!


Click to Enlarge Posted by Hello

I have returned from Chicago and had a great time. I was there for St. Patrick's Day and Chicago knows how to show an out-a-towner a good time. The picture is of the "green" river that is dyed for the special Irish occasion.

I'll write something up for this weekend. It's good to be back.

Best Regards,

The Soothsayer of Omaha

Wednesday, March 16, 2005

Vacation in Chicago

I'll be in Chicago the rest of the week. I hope everyone is doing well and I'll be back next week. Thanks.

Best Regards,

The Soothsayer of Omaha

Sunday, March 13, 2005

An International Look

Now more then ever investors and traders need to look at every corner of the globe to find quality investments. This is becoming easier and easier. There are ETF's and IShares and all sorts of investment vehicles that can give you international exposure.

Below you will find monthly and weekly charts for the Nickei 225 and the Japan ETF. This is one ETF you might want to keep an eye on. Japanese equities have badly lagged the global stock market rally in recent months as the global economy cooled. It seems that the Nickei could be on the verge of a breakout, which could prove to be the signal needed for the Japan ETF.


Click to Enlarge Monthly View Posted by Hello

You can see from the monthly view of the Nickei 225 that it is on the verge of breaking out of a seeming inverse head and shoulders pattern. This breakout could send the Nickei 225 to the long-term downtrend line, which is now at around 18,000. This would be a move of around 50%. The Nickei 225 is currently in a trading range of between 10,490 and 12,000. A break above 12,000 would be considered bullish.


Click to Enlarge Weekly View Posted by Hello

This weekly view is also of the Nickei 225, but more focused on the current picture.


Click to Enlarge Weekly View Posted by Hello

The above weekly chart is of the EWJ, which is the IShares vehicle for Japan. You can see that the EWJ is currently in a consolidating triangle pattern. A breakout of both the Nickei and the EWJ could be a double bullish signal and you might want to take a position in the EWJ if/when this happens. The breakout of the EWJ could send the price up to the resistance line established in 2000. This would almost coincide with the 50% move from the Nickei 225.

Keep this one on your radar.

Best Regards,

The Soothsayer of Omaha

Friday, March 11, 2005

Be Careful What You Ask For...

Joseph Quinlan, the Chief Market Strategist for Bank of America, came out with a good piece of research and writing this week. The basic premise of the report can be summed up by this paragraph:

"While rising world energy prices may be an unpleasant fact of life, there is a bright side to the spike in oil prices. Oil producers, flush with cash, recycled record sums of petrodollars back into the United States last year, helping to underwrite the debtor status of the United States."

The research report made me think even further. Oil prices increasing beyond historic highs have acted as a brake on world economic activity. Higher long rates should be doing this but now don't have to because of expensive oil. In other words, higher oil prices act as a replacement proxy for higher long term interest rates.

What further buoys the bonds is the big money fatcat foreign oil producers taking with one hand while giving with the other. If oil were to drop in price to $25 or so, bonds would collapse and long T-rates soar, causing a cascading real estate crash the likes of which have not been seen by anyone living today. The stock market could be dumping ala 1974, and there would be no place to hide, except TBills and Zero Coupon Bonds. I believe the stock market prefers oil prices not too hot and not too cold. The same goes for inflation.

The Feds have their hands full trying to warm the porridge just right for Goldilocks who can be, and often is, an ungrateful and fickle brat. Everyone is complaining about the high oil prices, but be careful what you wish for.

Just a few thoughts that have been going through my brain lately. Let me know what you think.

Additional and Clearer Implications: If oil stays the same or rises further, rates should stay low. If oil comes back off, interest rates should rise.

I would bet more on the rates staying lower. That would reflect a flattening yield curve as short-term rates rise steadily. An inverting yield curve will tank the market.

P.S. Remember that this is just a theory. Come up with some of your own and post them in the comments section. Dust off that keyboard and write some of your thoughts down.

Best Regards,

The Soothsayer of Omaha

Wednesday, March 09, 2005

Mark Cuban Give-A-Way!

Mark Cuban has given away his portfolio sectrets! There might be some gems in this group. I will have to check them out and I suggest you do the same.

Best Regards,

The Soothsayer of Omaha

Bullish Employment Report?

Barry Ritholtz over at The Big Picture drilled a little deeper into the employment report and wan't as impressed as the market.

"Drilling beneath the headlines, the report was far less bullish. We note 3 specific issues:

· The unemployment rate ticked up, from 5.2 to 5.4%;

· Average hourly wages were unchanged;

· Long-term unemployed (27 weeks+) remained at 1.6m;

· Persons holding more than one job increased by 432,000 to 7.7 million, 5.5% of total employment. That’s up from 5.3% a year earlier.

These suggest to us that the labor market still has plenty of slack left in it. Unlike the commodity markets, we see little inflationary pressures in the labor market: no wage pressures, long-term unemployment, and an increasing number of multiple jobholders. "

Maybe this is why the market has been fading lately?

Best Regards,

The Soothsayer of Omaha

Monday, March 07, 2005

Warren Buffett Sighting

Here is an article from Forbes about Mr. Buffett's record at making market calls. The Oracle of Omaha (my arch nemesis) certainly does get a lot of press around this time every year.

Best Regards,

The Soothsayer of Omaha

Sunday, March 06, 2005

A Look at the Big Boys

Here, we are going to take a look at the big boys, which are the indicies that consume the investors' lives. We are hoping that we will be able to find some sense of what is going on within the current market conditions.

The new employment report sent the indicies higher on Friday. This one report seemed to add the extra oomph to the market that some participants were looking for to get involved. This one report made Bill Cara retract his previously bearish remarks and save them for another day.

Here is what the Bank Credit Analyst has to say about the employment prospects:

"The February U.S. employment report confirmed that business risk-taking is on the upswing and above-potential growth will persist." (Emphasis Theirs)

"Payrolls rose strongly and the unemployment rate should resume trending lower in the months ahead. Employment conditions have improved since 2003, but more slowly than the rebound in corporate profits would have suggested. The cautiousness in the business sector is fading, especially in recent months. Although the Fed has been lifting rates, corporate and consumer borrowing rates have not risen. Hiring surveys remain upbeat and solid job gains loom based on our Payroll Model. Moreover, total consumer income growth was recently revised higher and is up by more than 6% in the past year. Thus, solid household spending growth should persist and the Fed will continue hiking rates, putting the financial markets at risk."

The folks over at the Bank Credit Analyst are smart folks and should be listened to, but we should be wondering if the employment number is what the media is going to force us investors to focus on in the near term. We will find out soon.

Let's now take a look at those charts:


Click to Enlarge Weekly DJIA Posted by Hello

On Friday, the Dow Jones Industrial Average broke throught multi-year resistance levels to close at 10,940. I am scared to say that this is bullish, but it is. The DJIA broke out of a bullish flag pattern on 11/4/2004. Most consolidation levels are halfway points and that would mean that the DJIA is heading towards the 12,000 mark.

After breaking out of the bullish flag pattern, the DJIA met resistance at the downtrending line established in 2000. So, the bears still had some clout. Now this level has been taken out and I'm afraid the bears might be giving up. We will have to see.


Click to Enlarge Weekly DJT Posted by Hello

The Dow Jones Transports (DJT) traded above the resistance line, but ended up closing right on the line. That is not a break. Something smells fishy when the transports are heading skywards while the oil price is hitting constant higher highs. Oh well, the only person that is always right is the market in this game. There is still a solid uptrend line in place, and you can't really get bearish until this line is broken.


Click to Enlarge Weekly DJA Posted by Hello

The Dow Jones Composite Index (DJA) broke resistance as well on Friday due to the jobs report. The only thing I can really say on the bearish side of the equation is that the RSI and Stochastics didn't make higher highs along with the indicies. That is a bearish divergence, but these divergences can last longer then you can remain in the game (to paraphrase the famous quote).


Click to Enlarge Weekly IXIC Posted by Hello

The Nasdaq (IXIC) did not break out and isn't really that close to the breakout level. The figure to watch on the IXIC is 2,200. A break above that level would get me bullish. This is an index to watch as well, though. You can see the two red lines converging, which means that the IXIC has to make a decision soon. Will it follow the bullish or the bearish case?


Click to Enlarge Weekly NDX Posted by Hello

Here we have the Nasdaq 100 (NDX), which has already broken out and has now come down to test the new support line that used to be resistance. The NDX seems to have found support at the red support line and the 50-Week SMA. I have also placed the fibonnaci levels on this chart. The 33% level is at 2,338 and the 50% level is at 2,811. The NDX is at a pretty good point with regards to Risk/Reward. You should search through the NDX components to find some stocks that are looking as well as this index is looking.


Click to Enlarge Weekly S&P500 Posted by Hello

The S&P 500 (SPX) also formed a bullish flag and subsequently broke out on 11/3/2004. The chart is telling investors that the SPX could be heading toward the 1390 level.

I don't like being bullish at this juncture in the market cycle, but it is very difficult to not fall into the bullish camp with the recent action of the Dow Jones's and the S&P 500. The IXIC has a little more to prove before I get bullish on it, but no one is saying that the Nasdaq 100 isn't trying hard to convert me/us.

Best Regards,

The Soothsayer of Omaha

Saturday, March 05, 2005

Warren Buffett's Yearly Musings

Here is Mr. Warren Buffett's 2004 missive about his company, investing, and so much more. Enjoy!

Best Regards,

The Soothsayer of Omaha

Friday, March 04, 2005

Investment Roundtable - Exxon Mobile (NYSE: XOM)

This week the Investment Roundtable is analyzing Exxon Mobile (NYSE: XOM). XOM is a member of the Dow Jones Industrial Average, has a market cap of a little over $405 billion, and is the world’s largest publicly owned integrated oil company.

Exxon is obviously a play on the oil industry and the rising oil prices have been helping XOM appreciate 58.34% in a little over a year. With all of the chatter these days regarding oil prices everyone knows about this industry...yep, everyone. According to the “experts” oil could head either toward $35 a barrel or upwards to $80 a barrel, which is very helpful to the average investor. You will note that I have made my predictions regarding oil prices on this blog and have so far been vindicated. I stated, “I tend to agree with the BCA (Bank Credit Analyst). I don’t think we will see under $40 for quite a while, if ever again.” Check out the link for chart and all.

We are going to see steady to higher oil prices for the foreseeable future. Do we want to invest in Exxon then? I don’t think you missed the boat here and I would definitely wait for either a pull back or some consolidation. XOM has appreciated in price 17% in a month or so. I don’t chase stocks. I’m not a momentum investor and I don’t pretend to be. I’m a long-term investor who enjoys the simple life. I don’t drive over 100 mph and I don’t purchase stocks that have exploded skyward in such a short amount of time.

With regards to Exxon, I don’t believe we are going to uncover any hidden gems by scouring through the fundamentals. XOM is a play on the oil industry, which is a play on oil prices. I truly believe it is as simple as that. But, to keep with the theme of this blog I will peruse the fundamentals that Benjamin Graham was so fond of.

P/E 16.2 = Yes, Benjamin Graham criteria requires a P/E below 20

Price/Book 3.96 = No, BG criteria requires a P/B below 1.5

Current Ratio 1.4 = No, BG criteria requires a CR above 2.0

Revenue Growth 7.49 = No, RG should be above 15% according to Mr. Graham

Intrinsic Value $55.10 = No, BG likes the stock price to be below IV by at least 15%

Yield 1.7%

XOM passes 1 ½ Benjamin Graham tests out of 6 (I gave ½ a point for the yield), which equates to a grade of 25%. Let’s take a look at what the Guru page over at nasdaq.com had to say about XOM with regards to BG criteria.

It seems that according to nasdaq.com’s interpretation of Benjamin Graham’s criteria, XOM would have gotten a 56%. Here are the details:

SECTOR: [PASS]

XOM is neither a technology nor financial Company, and therefore this methodology is applicable.

SALES: [PASS]

The investor must select companies of "adequate size". This includes companies with annual sales greater than $340 million. XOM's sales of $298,035.0 million, based on trailing 12 month sales, pass this test.

CURRENT RATIO: [FAIL]

The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. XOM's current ratio of 1.40 fails the test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS]

For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for XOM is $5,013.0 million, while the net current assets are $17,396.0 million. XOM passes this test.

LONG-TERM EPS GROWTH: [PASS]

Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. XOM's EPS growth over that period of 137.9% passes the EPS growth test.

P/E RATIO: [FAIL]

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. XOM's P/E of 16.21 (using the current PE) fails this test.

PRICE/BOOK RATIO: [FAIL]

The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. XOM's Price/Book ratio is 3.97, while the P/E is 21.80. XOM fails the Price/Book test.

I do like the oil sector along with most of the commodities, but I will wait for the right moment to buy into this trend. So, let’s see when that “intelligent” moment might be by taking a look at some charts. I will, as always, start with the monthly view.


Click to Enlarge Monthly Chart Posted by Hello

Obviously, using hindsight, the perfect point to get into XOM would have been when it broke out in February 2004. That would have really been great, but the Investment Roundtable has to decide if we would invest right now. My answer would have to be a no...not right now. Look at that really long candle that just occurred. That's a move! I would like to wait for a consolidation of some sort or wait for a move back down to the current uptrend line.


Click to Enlarge Weekly Chart Posted by Hello

The weekly chart does give us one more support line to look at, which is just one more piece to the puzzle. I would venture a guess that XOM will come back down to these uptrending lines. This might even occur when the two uptrending lines converge at a point. We shall see, but that would be a good point to look to jump onto this trend.


Click to Enlarge Daily Chart Posted by Hello

The addition of the daily chart shows that there is some short-term resistance at $64/share. We can hope that this new resistance might send XOM back down to our buying levels. The RSI and Stochastics are at overbought levels, but XOM has been trending very hard rendering these technical indicators near useless. The weekly and monthly RSI and Stochastic levels are also pretty overbought which does add more credence to the overbought argument.

In summary, I love the oil and other commodity plays. I would not purchase XOM currently due to the massive run-up this past month. I woul wait for a pull back to the uptrending lines or some sort of consolidation. Standard and Poor's is giving a target price of $66/share and Value Line Research is giving a target of $65/share for 2007.

Check out the other contributors this week to the Investment Roundtable to see their points of view as well:

Sixthworld Managment and Commentary
Jaloti
Technically Speaking

Best Regards,

The Soothsayer of Omaha

Wednesday, March 02, 2005

Throwing Down the Gauntlet

Bill Cara is throwing down the gauntlet! Bill states that we have reached the cycle high on the Dow 30 at 10,869. Bill adds some advice as well, "Sell stocks. Sell bonds. Clear your debts, including short-term mortgages. Accumulate cash. Buy gold. And, if you’ve got a job, hope you can keep it." Kind of scary talk coming from Mr. Cara.

It seems what Chairman Alan Greenspan said today got to him. Here are the Chairman's actual words.

Not a good quote from his speech:

"I fear that we may have already committed more physical resources to the baby-boom generation in its retirement years than our economy has the capacity to deliver."

Best Regards,

The Soothsayer of Omaha

Tuesday, March 01, 2005

Fundamentals Versus Technicals Argument

Recently there has begun a, fundamentals are better than technicals and vice versa, argument floating around the financial world. This was all started from the recent firing of Louise Yamada and the entire technicals team at Smith Barney. I believe Ron Sen, over at Technically Speaking, has a great observation about the entire ordeal. It seems that Ms. Yamada might have been a little too bearish for good 'ol Smith Barney. They need to sell the bullish argument remember.

Anyway, one of the worst arguments I have seen against technical analysis is this, "Technical analysis only works because everyone believes that it works." This argument makes zero sense to me. Let's take an upside breakout out of an asymetrical triangle of XYZ as an example.

XYZ is currently in an asymetrical triangle pattern. Seventy percent of market technicians have recognized this and are salivating for a breakout. The breakout finally occurs. Those seventy percent of market technicians get in. Now if the argument above against TA is correct, then the stock would just collapse. All of the TA's that recognized the breakout have bought their shares. If TA only works because everyone believes that it works, then the next move for XYZ shares would be down. This is not the case most of the time.

Someone has to keep pushing XYZ stock upwards after the breakout. The TA's are already in, so they are not doing it.

I believe that this argument is idiotic, unless I'm completely missing something, which is very possible.

Best Regards,

The Soothsayer of Omaha

Some Charts to Peruse

Below you will find three charts that are each telling a story. Two of these charts are related to the commodities bull market we are currently in and the other is of a fallen angel.


Click to Enlarge the Daily Chart Posted by Hello

This first chart is of Phelps Dodge (NYSE: PD). I wrote earlier in my post "Falling From Grace" that PD had broken down through its uptrend line and to watch out for the implications of this on the commodities market. Well, PD proved me wrong. PD moved back up above the uptrend line and then found support there once again. This shows amazing strength in a stock if you see this again some time. Phelps Dodge then went on to break above the upper boundry and has now tested support there as well.


Click to Enlarge the Weekly Chart Posted by Hello

Here is another commodities related company. This second chart is of Inco (NYSE: N). Recently Bill Cara announced a recommendation to look at Inco and I added a message to his posting that said that I was waiting for N to break out above the assymetrical triangle. Well, that has occured and I am bullish on this commodity play.


Clidk to Enlarge the Weekly Chart Posted by Hello

This last chart was the other company that I discussed in my post "Fallen From Grace", which is Fannie Mae. I don't want to gloat, but the Soothsayer of Omaha called this one. The famed investor Jim Rogers recently stated that this one is going to $8. He might have been going for shock value, but his words were loud and clear.

Best Regards,

The Soothsayer of Omaha