Monthly Archives: June 2011

Market Analysis: A technical look at the $SPY

Posted by Investing Freak on June 28, 2011
Market Analysis / 3 Comments

Nearly six months ago I was wired to around 200 news feeds constantly receiving mixed news both from bearish and bullish camps and I sided with one side after doing my own “biased” research. I decided that the market was nearing a top. Ha!! Uncle Bennie wouldn’t let the party die down would he? Everybody loves the cool-aid and the party hats on CNBC keep coming back and making weird noises (yes Jim Cramer I’m talking to you haha).

Fast forward to what happened during those 6 months is summed up in one sentence. “Life happened in ever aspect, got very busy and also stopped the information flow to clear my mind”.

Now that I got that out of the way I will point out that while I took a break from financial news and focused on life I also shared informal emails with a few InvestingFreak readers.

Lets have a look at a few charts I sent out in early May, keep in mind that I like to mainly focus on the weekly for trends while trading on the daily with an eye on the hourly. I will explain why these are the only 3 time-frames I watch in an Investing School video coming soon.

The SPY on a weekly chart dated May 9th 2011. It shows an uptrend channel with the market at the very top of it poised for a correction. The green lines moving up are EMA’s which act as support.

The chart as of today shows the progress for the past 7-8 weeks where a correction did occur and it is bouncing just on top of the Exponential moving averages. There is a bit of “resistance” at 130-130.50 and plenty of support (remember this is weekly and a lot can happen within the week so remember that) at 120-125 area.

Lets have a closer look at how its doing in the daily chart to see what we should look for temporarily.  On the daily the Moving averages are hovering right above in the 129.83-130.57 range and causing the SPY to stay range-bound in this box like formation. Notice an added support line on here and its thinner than the others? That is because its drawn on the daily chart and its a way for me to distinguish importance. The past two days the market has bounced nicely but be wary of the impending resistance on top.

Going long two days ago would have been a good risk reward with a stop below 126 but at this stage going short on the daily $SPY is a better risk reward ratio with a stop right above 131.
Whatever your play is just be cautious, do your own research and feel free to use these charts and my numbers (which aren’t perfect science) to make better trades. Stops are important to being liquid and getting out when you are wrong, do not move stops if the trade isn’t going against you and until we break Pandora’s box there might be more sideways action to play with.

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Stock Talk Update: $RIMM Research In Motion play cost me 18.5%

Posted by Investing Freak on June 28, 2011
General / Comments Off on Stock Talk Update: $RIMM Research In Motion play cost me 18.5%

I last wrote about $RIMM a day or two before their 6/16 earnings “Research in Motion near 2009 Lows” and at the end of that article I mentioned that I had an intention of Buying some RIMM within the week.
Well ladies and gents in honor of full transparency I did create a small position on 6/15 at 35.43 and closed it the day after earnings at 28.86 for a loss of -18.5%.

Plenty of things I wrote in the previous article including the charts were a clear warning for me to steer clear especially near earnings but my fatal flaw of chasing risk got the better of me.

Once again here is the chart I posted on the 15th at midnight (after which I acquired shares right before close that trading day). Clearly this is a downtrend with the major moving averages on top which naturally become resistance (plenty of gap-downs too).

I also mentioned that in the SEC filings the company made it clear that one of their biggest risks is being too slow to roll out competitive products and they have patent infringement aplenty which haven’t been settled. And as soon as I acquired my stake even before earnings came out I missed this news:

Dolby Laboratories said Wednesday it has filed patent infringement lawsuits against Research In Motion in the United States and Germany and is seeking to halt sales of devices made by the Blackberry maker.

RIM is using Dolby’s patented technologies in its Blackberry smartphone and Playbook tablet computer without having obtained licenses, Dolby said.

Dolby said all of the other major smartphone makers have agreed to license the Dolby technologies.

Source: Associated Press (Jun 15, 2011) “Dolby files patent infringement lawsuit against RIM”

What blinded me the most in this case is the magically low PE ratio which I mentioned being at 5.63 and even here I laid it out in the article i wrote to the world!

“P/E ratio isn’t always indicative of an undervalued stock and it might well be the case that RIMM has lost its edge.” I don’t listen to myself too well it seems and that cost me dearly.

Of course now that the PE is at 4.48 and the stock suffered another gap down isn’t it time it fills them all? This is a good long term investment now right? Well dear trader/investor/friend that is up to you and your trading rules. Nobody can predict the future of a stock or anything in life but educated guesses lead to better probabilities. Alas this is the end of RIMM coverage from the freak. 🙂

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Basics 101 – Valuation and Investing

Posted by Investing Freak on June 16, 2011
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The first in many posts at the Freak Investing School is a series of videos from the awesome Khan Academy.

Over the years I’ve read and studied many books on corporate finance , accounting, investing etc and yet when it comes time to explain the basics I can’t do as good of a job as these videos by Sal Khan. They are hands-down the best interactive source to learn the basics so you will have a better idea of the companies you invest your hard earned money with.

There are a total of 12 videos and while I will link each one below I will only embed the first four.

 

1. Price and Market Capitalization (11:55)     Introduction to price and market capitalization.

[youtube=http://www.youtube.com/watch?v=fa-VZ-SDxgY]

2. Introduction to the Income Statement (15:27)   The income statement, revenue, gross profit, operating profit, net income, ROA and ROE.

[youtube=http://www.youtube.com/watch?v=Z7C4cz2HkeY]

3. Earnings and EPS (10:14)  Earnings, EPS (earnings per share) and how they relate to the income statement and balance sheet.

[youtube=http://www.youtube.com/watch?v=RouNXdkC0do]

4. Introduction to the Price-to-Earnings Ratio (14:47) Price to Earnings Ration (or P/E ratio).

[youtube=http://www.youtube.com/watch?v=cppxO67e6eo]

 

– If you were able to get through the first four videos and understood the concepts Congrats!-
Below are more videos to further enhance your learning so you can invest smarter.

  • P/E Discussion (15:34) Discussion of the price-to-earnings ratio.
  • ROA Discussion 1 (10:31) & ROA Discussion 2 (10:17)  The various ways to measure return on assets.
  • Depreciation (12:33) Depreciation a capital asset
  • Amortization (7:45)  Introduction to amortization
  • P/E Conundrum (13:41)  A situation where the price to earnings ratio seems to not fairly price an asset.
  • Enterprise Value (17:29)  Solving the P/E conundrum by looking at Enterprise Value
  • EBITDA (14:07) Review of Enterprise Value (EV) and comparing it to EBITDA

This should hopefully give you a better idea about the basics of investing (mostly fundamentals). As a fun fact if you watched all of the videos like I did you have watched nearly 2.5 hours worth of material, keep it up and soon you will be very comfortable doing your own research and investing.

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We are the champions! Congrats Bruins!

Posted by Investing Freak on June 16, 2011
General / 3 Comments

I had to post this or I wouldn’t be a true Boston sports fan… sorry

CONGRATS B’s Well deserved!

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Stock Talk: $RIMM Research In Motion near 2009 Lows

Posted by Investing Freak on June 15, 2011
General / Comments Off on Stock Talk: $RIMM Research In Motion near 2009 Lows

Upon the nightly stock pondering I decided to repay my old pal RIMM a visit at FINVIZ.com

I had last checked this stock out in early April and was in for a surprise. it has since gone south around 45% and its sitting at a low PE of 5.63 (although to be fair it has had a decently low PE for a while). P/E ratio isn’t always indicative of an undervalued stock and it might well be the case that RIMM has lost its edge.  I got rid of my Blackberry device in favor of android back in April hence why I forgot about this until now.

Reading their SEC filings it is obvious that the company is failing due to it being too slow to roll out competitive products and also because it has infringed on many patents there are dozens of Litigation’s going back to 2007 until recently March 2011 that are still work in progress.

 

Ran the annual income statements and balance sheets for the past 3 years through my valuation worksheets and the 3 year average Z-Score is very healthy, net profit margin has still remained in an uptrend and so is the total Asset Turnover. Return on equity and Return of Assets are also in a 3 year uptrend while gross profit margin has dropped 4 percent. The liquidity ratios are mixed but for the most part also good and the company has no debt, $288 million in cash and a total of $2.6 billion in cash/cash equivalents and investments so at the current $19 billion market cap they have 10% cash.

Here is a weekly chart with the $35.05 low from back in March of 2009.

If we were to go back even further there is support to the downside at 34.65 area in the weekly and at that point $RIMM might as well be done but fundamental and technical play this deserves a short term move to the upside so I will watch closely and might initiate a position on the long (BUY) side in the next 7 days. Already have a buy limit in at a lower price in case I sleep in or forget to check it for a few days.

Update:  RIMM has Earnings on 6/16/2011 Afterhours

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Nothing to see here…aaand we’re baaack!! :)

Posted by Investing Freak on June 14, 2011
General / Comments Off on Nothing to see here…aaand we’re baaack!! :)

 

If you take a look at the archives to the right you will see that the months of at least half a dozen posts came to a halt in June 2010 when I set off for a nearly 2 month vacation in which time I tried my best to cut away from the World Wide spider Web.

Upon returning, life took its toll and between juggling this, another part time gig, an internship, school and more I was spending over 14 hours a day even most weekends trying to run it all but eventually it was either my health or a few of my favorite things (such as investing and this blog) and thus began the almost dry run of no investing and no blogging (well almost none) from my return late August 2010 until now June 2011 where I have taken a part time gig into a full time Business and have eliminated the fluff.

I have made several attempts at coming back committed to the blog in August then September and continuing almost one post or so a month until it just wasn’t worth making half-baked posts.

Corporate America is behind me for the time being and even though it was fun, having more time to focus on what makes me happy is a much better trade-off. I do lecture a Special topics class on investing at my University and therefore I have decided to create a “investing school” section in the blog which I will update with useful info for beginners. I know the page is blank right now but a few articles are written which I will be releasing slowly every few days in case i fall into a dry spell again.

To those that are still subscribed via RSS, come from referral sources or even have the site bookmarked and stop by I would like to say THANK you for hanging around while Investingfreak took time to “restructure”.  The website has also been redesigned with the Green Money colors and with the simplicity in mind.

 

As always the moto or Mission Statement for us is:

“See it, Call it, Trade it, Bank it” -Investing Freak

 


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