The New Normal!!!

Blogging after a while due to hectic work routine and travel. However, I have been following the markets and trying to figure out my next strategy. The market has a defined range and thats where it is trading (1020 - 1130). Other characteristics are low volumes; sell first ask questions later; and mix macro economic data. This leads to lack of any catalyst for it to go further down or up. Let me try to break it down: 1) lets understand why market is range bound and what can trigger an upside 2) Which sectors and companies will benefit the most

Markets are range bound due to "New Normal". Elections could be the next catalyst for a higher leg

• Most institutional investors are scared to lose money and not investing in equities heavily. As a result the volumes are low and that is confusing traders who trade technical. Most of the historical data is garbage now as this "new normal" starts from this year.
• Revenues and earnings of atleast 60% S&P companies beat expectations however job growth is slow. The reason is CEOs are scared to invest in people when they got use to getting the same work done by lesser number of people. Most companies have gone through massive cost reduction exercises, I was part of some, and developed processes and systems such that most redundant work either does not exist, or streamlined, or automated. In short, companies have learned to work smart.
• The jobs are not growing because companies are sitting on cash waiting for regulations and next move from our president.

There are still some sectors and companies which are working better than the other and consistently making highs. We need to do some stock picking in order to avoid being played by the market. Here is what I think is working: Agriculture, Technology and Energy.

Follow these sectors and identify your winner stocks. I project 10-12% return by end of year!!!

Will leave you with my top pics in the three sectors : Mosiac (Agriculture) Cree (Technology) and RIG (Energy). Do further research about comparable companies and management before investing!!!

You need to get in the game! Slowly!!

I AM A BUYER OF THIS MARKET AND READY TO TAKE THE RIDE DOWN TO S&P 1040 WHERE THERE IS A HORIZONTAL SUPPORT. THE RISK REWARD EQUATION LOOKS BETTER THAN IT WAS ON JAN1.

Bullish Argument

• Majority of the companies reported great results and boosted outlook
• Better than expected GDP
• Re-election of Ben Bernanke
• Most importantly, everyone is scared for Greece and Obamanomics!! EU won't let anything happen to Greece

Bearish Argument

• Economy growth will slow down when the stimulus is out the system. I agree with that to some extent but we are not going back to the stone age!!!
• China is tightening lending to control the growth which is out of control at this point. Hitting the commodity stocks hard.
• DC DC DC DC DC... What can I say!!!! Obama needs to understand his game... I think he is not on top of his game after Mass defeat and saying populist things which are creating uncertainty.

In summary, you decide which side you want play. I am playing on the bull side but with lot of discipline hoping that DC will not harm the market further and Greece will be saved by EU.

I have been reasonably successful in minimizing my losses and preserving by just focusing these simple investment strategies which are easy to understand but hard to implement.

1: When big boys (mutual funds/institutions/pension funds etc) fight it out; you either stay with them or stay out.

Lets be honest. As an individual investor we can't move the market. I don't care how fundamentally correct we are in picking the individual stocks. I personally hate shorting the stocks which I fundamentally like, so when the market is going down on huge volumes (Funds selling) I stay on the sidelines and look for opportunities to buy good companies at a cheaper price.

2: Look for companies who announced great results, boosted outlook, and still trading down due to lack of buying or institutional selling pressure

Recently Amazon announced blockbuster results but the stock got hammered. Goldman, Apple, GOOG are all in the same category. Why??? Because these are the most loved stocks and up more than 80% in 2009. People are taking profits and raising cash for next big opportunity of 2010. I think all these companies deserves a look at the range they are trading.

3: Don't be afraid to take losses!!!

This is the single most important thing to remember as an investor. Everyone hates to lose their hard earned money but cash creates opportunity. No one can get all the trades right and the art is to realize a bad trade early, take the losses and re-invest the cash in a better trade. I have just done that during this 5% correction. Flushed out my bad trades and now I have cash to put in much better companies and position for rebound.

Are you nervous about the market?

..I am and here is what I have been doing to protect my gains and outperform S&P.

Here are key themes worth noticing. They are my guiding principles for the strategy:

1: Obama's attack on bankers and their bonuses shows how immature, reactive and populist this president has become. I think the hidden theme here is the confidence in the US banking system and money these banks are going to generate in the coming years. Remember, Obama is planning to tax these banks for next 10 years. So against tide I would buy banks right here if you are a long term investor. I am a buyer of GS, MS, and BAC on dips.

2: One sector that is hot right now is Agriculture. There are two reasons: as the world economy improves the demand for more nutritious food will grow which means more use fertilizers. There will be a shortage of land available for Agriculture due to rising urban and middle class in emerging markets. That means making the most of the available land and using crop rotation techniques to keep the land fertile.. guess what.. you will need fertilizers...I am a buyer of MOS, IPI, Innophos in this space

3: Technology is my favorite sector but it is also the most crowded sector. Everyone is playing the smartphone and mobile Internet boom. It is too risky to play this sector using individual stocks as the valuations are over the roof. There are still some companies out there which are trading at lower multiples and have strong balance sheets and future growth. One such company is Neutral Tandem (TNDM), a small cap with excellent balance sheet and currently trading at 16X forward earnings. This stock has come down from 33 to 19.30 in just 5 months even after producing a great quarter. I think the competitive threats are overblown and I would pull a plug right now... Other investments are: AAPL, CTRP

No time to cover all other sectors.. Here are some names that I am watching: AMED, VTIV in Healthcare, SPWRA in Cleantech, FLR, BIP, CSR in Infrastructure, NEP in energy, RTP, ABX in mining and precious metal.

Happy investing :-)

Weak hearts stay away from the Market!!!!

I have been busy with work and did not get much time to write about the market. Interesting market movements in the last couple of days forced me again to express my views.

The correction we are seeing in the market is very encouraging and giving you another opportunity to invest.

Don't think I am nuts!!! I believe the bears are underestimating the recovery and spreading the message by these rigged sell offs that we are going back to 660 - 700 on S&P. IT IS NOT HAPPENING!!!! Use these sell offs to target the right companies for investments. I have learned that in this market it is difficult to make money as a trader especially if it is not a full time job. Why even try then? I strongly recommend to pick a direction based on your understanding of the economy and ride it. I believe that we will close the year on high due to the following reasons:

• Not everyone participated in the first leg of the rally and big boys (hedge fund manager) were under invested. Their performance will be measured in 2010 based on how they performed against the S&P 500. They will pile on the stocks which they can justify in buying at the current levels. Some of the strong names are: GS, MS, BAC, MOS, POT, INTC, MSFT, CRM, RIMM, AAPL
• Companies are hiring again and stimulus package is now showing the impact. Some may argue that the recovery will die once the stimulus package impact is over. Well, lets ignore those people.
• I expect a blockbuster holiday season for retailer. Don't get fooled by the consumer sentiment numbers. Look what Amazon, AAPL had to say about the holiday season!!!!

I think the time has come to make a decision whether you want to be out of this market and miss another opportunity or make a tough investment decision which will benefit you for rest of your life!!!!

Time to be ahead of the curve - cont

What we are seeing today is a classical pulback after the earnings season. I hope that most people took some money off the table and locked in their project when S&P was at 1015.

I think that the market will continue to pull back untill we get the big money in from the big boys who missed the rally last time. I think the next S&P support is at 942 if S&P closes below 992.

Don't get long today; just sit back with your cash and enjoy the game. Keep your shopping list ready to ride another rally.

Here is the list: UYM, URE, PXLW, RF, C, MS, FWLT, TEX, IPI

Time to be ahead of the curve!!

I hope someone acted on my recommendations and bought the stocks I listed in my earlier post. S&P was at 880 at that time and now it is at 1015 and going up as I write this blog from a beautiful Virgin Atlantic lounge in London; it does not feel like recession.

This rally still has steam but I am reluctant to go long here. Market has reached the levels where investors start thinking about growth and not recovery. I think the real test is the next quarter where I am expecting a positve GDP number but hey, isn't the stock market suppose to be 6 months forward looking. I think this rally is taking a positive GDP number into account and I don't think we are seeing S&P 1200 anytime soon.

We don't want to be greedy and I recommend taking some money off the table and feel good about it. Another option is to SHORT SPY to hedge your investments.

If the market pulls to 950 levels then I am a buyer again (1/3 of my investment). Keep the follwing stocks in your radar: MRVL, FSLR, URE, PXLW, C, UYM, MOS.

Hope someone is listening!!!!

Cheers!

Watch out transaction volumes today!!! S&P at critical level

S&P is trading at critical levels and has shown some support around 880 levels. It is a difficult market but it is also trying to tell us something. The message is: If you need cash for next 1-2 years then don't jump in the market; otherwise it is time to start thinking about putting some cash to work.
We all are so focused on short term trading patterns and media buzz that we are not focusing on the key indicators that market is giving us for a turnaround. Here are few that I am watching closely:

1: Business inventories are falling shapely which means that when the demand improves the manufacturing will improve
2: Financials are bottoming. GS delivered blockbuster results today and I expect MS,JPM, BAC, WFC to follow the leader. The point is worst is behind the Financials and the long term trend looks up
3: Long term bears are turning bulls and that would mean that the money on the sidelines could start to come into the equities. I say S&P at 1000 by Dec 2009.

BUT, all this could fall apart if unemployment continue to rise.
Happy investing :-). Here are my favorate pics: AAPL, MS, BAC, BSX, FCX, MOS, MRVL, EGLE, MGM, ENER, URE, UYM,