Post by Savant on Oct 21, 2004 19:32:25 GMT -5
Uncommonly Bullish Scenario Unfolding - Take 2 - Published 1500 EDT Thursday October 21 2004
What if? You could have it all... So goes the intro to NBC's hit show: The Apprentice and other investment enticements:
Well, some of the most fortunate investors in history just about "got it all", in two of largest distributions of wealth ever recorded!
Investors in The Carlyle Group and Kohlberg, Kravis Roberts & Co are being returned a combined total of some $15 Billion in mega gains from their investment activities over recent years. If the average investor splurges one third of this and re-invests 2/3rds of this money, then an extra $10 Billion could find its way back into stocks and the $5 Billion is mildly stimulative to the upcoming Christmas economy. So net, net: It's a positive anyway you cut it. Not to mention Wall Street's likely upcoming end of year bonuses, based on other potential supersized performances. Now add the anticipated $3 per share one time dividend distribution from Microsoft equate to just over $30 Billion and sooner or later your talking real money on a scale of Greenspan type stimulus, in what could amount to in excess of $50 Billion including Microsoft's share buy back program... A lot of money could be hitting stocks in the very near future.
The reason for mentioning the Greenspanesque size of $50 Billion, is that is part of the amount of net stimulus that was fairly eagerly applied to the markets in anticipation of Y2 K problems at the turn of the Century and which we highlighted in early October 1999 just as we are doing now... And, as we all now know, that had an inordinately bullish impact on stock prices in the final quarter of 1999.
In fact, by late October of that year, the market was just beginning to get into high gear and the real tech rally was just starting to lift off in an unprecedented manner, led by a strengthening Semi-Conductor Index SOX and Amex Networking Index NWX.
It is entirely possible that something similar could unfold over the next few weeks and months aided by the amount of potential stimulus highlighted above and further aided by Bond prices at New Century highs and extremely low interest rates by any historical measures.
Add to this almost unheard of "average" Global growth projections for 2005 for an unprecedented 5% and a weaker dollar rendering computers and multiples of new and ever more appealing, "must have" high tech products more affordable than ever to a tech hungry World and therein lies a powerful elixir for what could be a deja vu of 5 years ago.
Over the past few days there has been somewhat of a disconnect that could be a hint of things to come, in that a firmer tech sector has been trading at a considerable premium to the Dow and S&P 500 and some notable tech issues have been reporting better than expected to near stunning results in some cases. Advanced Micro Devices AMD which is already up 50% off its lows for the year, has become the more nimble and perhaps even more sensitive indicator or weathervane of high tech trends, given Intel's more company specific problems of late that may belie the groundswell of underlying and emerging strength in the overall tech sector. In addition to all this, the Dow Jones Transportation Index at 3431 is fast approaching its all time record high 3797, recorded back in October of 1999.
Yesterday the market appeared to test new interim lows and held them well before rebounding later in the day to close positive almost across the board. As we said earlier in the month, we thought we might see a strong start to October, which we got and a mid to late month low-point, which now appears to be in the making and a potentially strong finish leading into November and on into December.
Some weeks back, we highlighted Microsoft at the point of its breakout from its late summer trading range just above $27 calling for a possible run through $30 in due course. Microsoft is now just $1.20 away from that number and the $30 barrier is one of potentially enormous significance because it is a multi-year threshold that has effectively restrained Microsoft's share price and therefore a break of this level in our view should produce at least a $3 price move and possibly as much as $5 fairly rapidly, especially as investors soon will begin to surmise that Microsoft is finally breaking out of an elongated basing formation that could well be enhanced by a possible buying surge caused by its proposed share buyback program.
Whilst Microsoft MSFT still could potentially break in either direction depending on its upcoming quarterly results, it is definitely not entirely inconceivable that Microsoft could actually gap through the $30 barrier adding extra verve and drama. Should this eventually happen it is very likely to have a reverberating affect throughout the entire tech sector and could lift the major horsemen of the Nasdaq in such a way that it could set the stage for a breakout back above Nasdaq 2000. Such a positive development might thereafter portend a move initially towards a retest of the 2152.83 high of January 26 of this year and possibly significantly higher numbers later.
Last week, we reiterated how we have stated for a while that we feel a tech upturn lies directly ahead and the encouraging news of the alleviation of Intel's inventory problems, which we also felt would inevitably be worked out and the somewhat better than expected Intel results bodes well as a harbinger of things to come. Apple's stunning results and Yahoo's impressive numbers on the heels of the encouraging Intel news is setting up a positive trend omen, as is Ebay potential to exceed $100 per share in due course.
This morning Ebay gapped up $6 on gravity defying expectations and now looks poised to move through $100 and likely through the 110's to the low teens, at least if our bullish scenario outlined above does in fact unfold accordingly. IBM's better than expected results have also potentially positioned Big Blue for a run through the 90's and again, given a sufficiently bullish scenario, could see a move back through the 100's.
We recently highlighted a number of issues that have performed well. In particular, ASE Test ASTSF, Lanoptics Ltd LNOP, Intervoice INTV, CATT, CMTL, AIRT, MIND, NSTK, VSEC, OPMR. IMX, BLLD and MWAV look particularly dynamic as all three of these issues ran substantially higher on significant volume earlier in the year.
Many of the stocks we like have been basing out and appear to have exceptional upside potential. For an extraordinary example of what a great elongated base can do for a stock and how and what a rapid rise off that base can be truncated into such a short time frame look no further than Isonics ISON
We're going out on a bit of a limb with a sell short on 4 of the components of the Energy sector within the following parameters
Sell short CLZ4 at 54.00 stop, HUZ4 at 1.40 stop, HOZ4 at 1.5575 stop & NGZ4 at 8.425 stop. Warning: This is a high risk trade
Keep in mind that the above ideas whilst they may actually play out, they could be subject to extreme volatility over coming weeks
In the event the Nasdaq were to lose its premium and break back down towards 1900, we would be inclined to adjust our thinking
At around $90, RIMM has been a huge performer all year and has more than doubled since its most recent stock split which occurred more or less around $75 or so at the time and reminds of one investor who was short this issue back then and inquired as to whether he should cover his position. As a general rule, people who ask those kinds of questions on high growth beta stocks should cover and get out, especially following stock splits. Sometimes splits can be the kiss of death as happened post 2000 to many issues, but in an early emerging bull trend or recovery, the opposite can be so.
Whilst we are trying to capture a downdraft in the Energy Complex and have placed sell stop contingency orders to self execute into any sudden downtrend, even though at this time the market prices are above us and so we are safe no matter how high energ prices rise, some risk of something similar going wrong if we get whiplashed into a continuingly surging energy arena most definitely still exists and would present us with some challenging risk control counter-strategies.
Sorry but we could not post earlier due to to web site congestion...
Have a Great Thursday Afternoon
Best Regards
Savant
What if? You could have it all... So goes the intro to NBC's hit show: The Apprentice and other investment enticements:
Well, some of the most fortunate investors in history just about "got it all", in two of largest distributions of wealth ever recorded!
Investors in The Carlyle Group and Kohlberg, Kravis Roberts & Co are being returned a combined total of some $15 Billion in mega gains from their investment activities over recent years. If the average investor splurges one third of this and re-invests 2/3rds of this money, then an extra $10 Billion could find its way back into stocks and the $5 Billion is mildly stimulative to the upcoming Christmas economy. So net, net: It's a positive anyway you cut it. Not to mention Wall Street's likely upcoming end of year bonuses, based on other potential supersized performances. Now add the anticipated $3 per share one time dividend distribution from Microsoft equate to just over $30 Billion and sooner or later your talking real money on a scale of Greenspan type stimulus, in what could amount to in excess of $50 Billion including Microsoft's share buy back program... A lot of money could be hitting stocks in the very near future.
The reason for mentioning the Greenspanesque size of $50 Billion, is that is part of the amount of net stimulus that was fairly eagerly applied to the markets in anticipation of Y2 K problems at the turn of the Century and which we highlighted in early October 1999 just as we are doing now... And, as we all now know, that had an inordinately bullish impact on stock prices in the final quarter of 1999.
In fact, by late October of that year, the market was just beginning to get into high gear and the real tech rally was just starting to lift off in an unprecedented manner, led by a strengthening Semi-Conductor Index SOX and Amex Networking Index NWX.
It is entirely possible that something similar could unfold over the next few weeks and months aided by the amount of potential stimulus highlighted above and further aided by Bond prices at New Century highs and extremely low interest rates by any historical measures.
Add to this almost unheard of "average" Global growth projections for 2005 for an unprecedented 5% and a weaker dollar rendering computers and multiples of new and ever more appealing, "must have" high tech products more affordable than ever to a tech hungry World and therein lies a powerful elixir for what could be a deja vu of 5 years ago.
Over the past few days there has been somewhat of a disconnect that could be a hint of things to come, in that a firmer tech sector has been trading at a considerable premium to the Dow and S&P 500 and some notable tech issues have been reporting better than expected to near stunning results in some cases. Advanced Micro Devices AMD which is already up 50% off its lows for the year, has become the more nimble and perhaps even more sensitive indicator or weathervane of high tech trends, given Intel's more company specific problems of late that may belie the groundswell of underlying and emerging strength in the overall tech sector. In addition to all this, the Dow Jones Transportation Index at 3431 is fast approaching its all time record high 3797, recorded back in October of 1999.
Yesterday the market appeared to test new interim lows and held them well before rebounding later in the day to close positive almost across the board. As we said earlier in the month, we thought we might see a strong start to October, which we got and a mid to late month low-point, which now appears to be in the making and a potentially strong finish leading into November and on into December.
Some weeks back, we highlighted Microsoft at the point of its breakout from its late summer trading range just above $27 calling for a possible run through $30 in due course. Microsoft is now just $1.20 away from that number and the $30 barrier is one of potentially enormous significance because it is a multi-year threshold that has effectively restrained Microsoft's share price and therefore a break of this level in our view should produce at least a $3 price move and possibly as much as $5 fairly rapidly, especially as investors soon will begin to surmise that Microsoft is finally breaking out of an elongated basing formation that could well be enhanced by a possible buying surge caused by its proposed share buyback program.
Whilst Microsoft MSFT still could potentially break in either direction depending on its upcoming quarterly results, it is definitely not entirely inconceivable that Microsoft could actually gap through the $30 barrier adding extra verve and drama. Should this eventually happen it is very likely to have a reverberating affect throughout the entire tech sector and could lift the major horsemen of the Nasdaq in such a way that it could set the stage for a breakout back above Nasdaq 2000. Such a positive development might thereafter portend a move initially towards a retest of the 2152.83 high of January 26 of this year and possibly significantly higher numbers later.
Last week, we reiterated how we have stated for a while that we feel a tech upturn lies directly ahead and the encouraging news of the alleviation of Intel's inventory problems, which we also felt would inevitably be worked out and the somewhat better than expected Intel results bodes well as a harbinger of things to come. Apple's stunning results and Yahoo's impressive numbers on the heels of the encouraging Intel news is setting up a positive trend omen, as is Ebay potential to exceed $100 per share in due course.
This morning Ebay gapped up $6 on gravity defying expectations and now looks poised to move through $100 and likely through the 110's to the low teens, at least if our bullish scenario outlined above does in fact unfold accordingly. IBM's better than expected results have also potentially positioned Big Blue for a run through the 90's and again, given a sufficiently bullish scenario, could see a move back through the 100's.
We recently highlighted a number of issues that have performed well. In particular, ASE Test ASTSF, Lanoptics Ltd LNOP, Intervoice INTV, CATT, CMTL, AIRT, MIND, NSTK, VSEC, OPMR. IMX, BLLD and MWAV look particularly dynamic as all three of these issues ran substantially higher on significant volume earlier in the year.
Many of the stocks we like have been basing out and appear to have exceptional upside potential. For an extraordinary example of what a great elongated base can do for a stock and how and what a rapid rise off that base can be truncated into such a short time frame look no further than Isonics ISON
We're going out on a bit of a limb with a sell short on 4 of the components of the Energy sector within the following parameters
Sell short CLZ4 at 54.00 stop, HUZ4 at 1.40 stop, HOZ4 at 1.5575 stop & NGZ4 at 8.425 stop. Warning: This is a high risk trade
Keep in mind that the above ideas whilst they may actually play out, they could be subject to extreme volatility over coming weeks
In the event the Nasdaq were to lose its premium and break back down towards 1900, we would be inclined to adjust our thinking
At around $90, RIMM has been a huge performer all year and has more than doubled since its most recent stock split which occurred more or less around $75 or so at the time and reminds of one investor who was short this issue back then and inquired as to whether he should cover his position. As a general rule, people who ask those kinds of questions on high growth beta stocks should cover and get out, especially following stock splits. Sometimes splits can be the kiss of death as happened post 2000 to many issues, but in an early emerging bull trend or recovery, the opposite can be so.
Whilst we are trying to capture a downdraft in the Energy Complex and have placed sell stop contingency orders to self execute into any sudden downtrend, even though at this time the market prices are above us and so we are safe no matter how high energ prices rise, some risk of something similar going wrong if we get whiplashed into a continuingly surging energy arena most definitely still exists and would present us with some challenging risk control counter-strategies.
Sorry but we could not post earlier due to to web site congestion...
Have a Great Thursday Afternoon
Best Regards
Savant
