CTD Trading (Equity Analysis and Market Research)

A Rogue Trader and Market Turmoil

2008-01-24T16:28:00.001-05:00

Normally I don't like to comment on News stories but this one is just incredible considering how chaotic the markets have in the last few days.

Here's an Excerpt:

"It kind of begs the question now, did the Fed cut rates courtesy of a rogue trader at SocGen having to close out a massive position and sending the stock market into turmoil?"

Here's the News Story

Global Investing & Diversification - Not Always!!!

2008-01-22T02:25:00.000-05:00

Those who advocate global investing better check the following numbers which states that there is no benefit to global investing when most of the world's stocks markets are highly correlated. Maybe in the future, there will be a decoupling from US markets, but certainly right now.

The Correlation statistics below are against S&P 500 ishares (IVV) (Time Period: 3 Years)

Source: Smartmoney.com

Conclusion
There is sense of Fear and Panic surrounding the markets right now, and until it subsides world markes will continue to fall.

Hang in There!!!

Brutal Market - Next Stop 12,000

2008-01-17T13:04:00.000-05:00

You can listen to strategists, economists or market pundits and their optimistic views, but the market always tells you the truth. The truth is we are no where close to a bottom.

Critical Support at 12,000
Next stop for DJIA is 12,000. Do not put anymore money into this market until there is stability, today (Jan 17) we're witnessing a free fall. We'll see if it stablizes at 12,000. If not, the market is in real danger of a crash.

All News is Bad News
Currently, all news is bad-news. Investor psychology will be defeated in an environment like this, and you certainly need nerves of steel to hold on.

Whether it's the FED, the financials, consumers, some one must issue a piece of good news to turn this bearishness around. A rate cut will certainly help! But is 1/4 point good, 1/2 point sufficient? or are the rate cuts built into the market already. I don't know the answer to that.

Conclusion
The important thing is to watch the critical support levels and ignore "experts" who say this market is cheap, valuation have never been so attractive. The markets are telling you what they are not! It certainly looks like this is setting up to be a brutal year.
At some point (don't know when), it will be attractive to get in again. Just not right now! I've emphasized healthcare sector is the place to be going forward, I continue to believe that. Also, the gold market (although volatile) will continue to perform well.

(Not so) Happy Investing...

Stick with Healthcare Sector - Multiyear Trend

2008-01-16T12:34:00.000-05:00

All attention seems to have been given to Gold and Agri stocks since the beginning of the new year. However, the healthcare sector has quietly been moving to the upside breaking critical multiyear downtrend. My take, stick with Healthcare, this is the just the beginning of a long upward cycle.

Trendline broken to the upside:

The chart below is a ratio of the S&P healthcare sector ($SPHC) and S&P 500 index (SP500). It clearly shows the trendline has been broken to the upside

This chart below is a ratio of the S&P healthcare sector ($SPHC) and DJIA (INDU). It also shows the trendline has been broken to the upside

Conclusion
Stick to healthcare, this is just a beginning of a long upward trend. Read my previous post alluding to an imminent breakout of the healthcare sectors on a short term basis. It hasn't happened yet. However on a long term basis, the charts above clearly indicate a reversal of a multi year downturn. These moves are significant indeed!!!

Healthcare Sector Breakout Imminent

2008-01-13T23:26:00.000-05:00

YTD the S&P healthcare sector is up 3.4% while rest of the market is getting pummeled.

Healthcare Sector Breakout Imminent
Below is a chart of 4 indices: All are near the top of their trading range suggesting a breakout is imminent:
$IXV - Healthcare sector - Amex;
$NHG - Healthcare Index - Dow Jones;
$SPHC - S&P 500 Healthcare Index;
$NYP - Healthcare Index - NYSE

Within the S&P healthcare sector, the following stocks are less than 5% from their highs:

Abbot Labs (ABT)
Aetna (AET)
Allergan (AGN)
Bard C R Inc. (BCR)
Baxter International (BAX)
Becton Dickinson (BDX)
Cigna Corp. (CI)
Coventry Health Care (CVH)
Genzyme (GENZ)
Gilead Sciences (GILD)
Hospira Inc. (HSP)
Humana Inc. (HUM)
Johnson & Johnson (JNJ)
Laboratory Corp. of America (LH)
McKesson Corp. (MCK)
Merck & Company (MRK)
Varian Medical Systems (VAR)
WellPoint Inc. (WLP)

Among other healthcare stocks that have broken out:
Icon PLC (ICLR)
Covance (CVD)
BioMarin (BMRN)
Healthways (HWAY)
Acorda Thera (ACOR)

ETFs to Play
Those looking to play the healthcare ETFs could view a list on Yahoo Finance

Conclusion
While other sectors are getting pummeled healthcare stocks might offer some protection to your portfolio.

Disclosure: I do not own any shares of companies mentioned above

Goodbye US Bull Market

2008-01-08T17:41:00.000-05:00

Wow, Last September The Dow Jones was hitting new highs in the midst of the subprime mortgage crisis as if the problem was quickly contained. Of course, we now know that was just the beginning . As it sits at a critical level (12,500), it's time to examine why it's the end of a bull market.

End of the bull market
Here are the reasons for the end of the bull market in the US, I don't know how the US slowdown will reverberate across global markets. But, the trend is definitely down going forward!

Corporate Profit Growth slowing
Housing has not seen a bottom
The Credit Crunch continues - Deflating business investments
Consumption will inevitably slow
Manufacturing in Us has already showing signs of slowing

Corporate Profit Growth slowing
Operating earnings for the companies in the Standard & Poor’s 500-stock index are forecast by analysts at S.& P. to be 8 percent lower for the final three months of the year, compared with the period in 2006, after a 9 percent year-over-year drop in the third quarter.

Housing has not seen a bottom
Below is a snapshot from S&P Case/Shiller index of home prices across the nation. Notice how far prices have appreciated which should given an indication of how much further they could fall.

The Credit Crunch continues - A Deflationary event
The chart below (source: Generational Dynamics) illustrates how commercial papers' ascent to astronomical levels is now followed by a precipitous drop.

Excerpt from Dec 14 2007: "since the market [ABCP] peaked at $1,200bn in early August, it has shrunk by more than one-third." (source: FT.com). No doubt this kind of deflationary event affects business investment going forward.

Consumption will inevitably slow
Consumer Debt is at a all time high and this could be partly due to the appreciation in the housing prices. So, If housing prices have dramatically fallen, could consumer debt be next? This chart says it all...

Manufacturing in Us has already showing signs of slowing
The table below shows a trend in indicators from Nov to Dec (Source: ISM manufacturing index)

Looking at the factors mentioned above, the market has only one place to go, which is down, despite what the FED does with interest rates

Hello Mr. Bear Market
What I don't know is if this will be a 'grizzly' (vicious) bear market or a 'knut' (light) bear market. Regardless of the severity, one must be prepared for the downturn that will no doubt feel like it's the end of the world.

part 2 to follow...

Before you bathe in Gold, Consider...

2008-01-02T17:21:00.000-05:00

Ok, Gold breakout today was historic but here's how I would play it going for forward. Short Term Target is 900 and will probably retest 850 before moving beyond 900. Either way, we are in unknown territory from now on...

Strategy
1) Play the ETFs:

Buy GLD (Streettracks Gold Trust Shares) -> Play on Commodity itself! (This has broken out!!!)
Buy GDX (Market Vectors Gold Miners) -> Tracks the $GDM (gold miner sector- AMEX) This is has not broken out!!!
Buy XGD (iShares S&P TSX gold index) -> Play on Commodity itself in CDN dollar (This has broken out) - Trades on Canadian Exchange
Buy HGU.TO (Horizon's Beta Pro Gold Bull) -> Tracks S&P TSX Gold Index (This has not borken out) - Trades on Canadian Exchange

2) Play the stocks for leverage:

If you notice above, while the commodity has broken out to new highs, Gold stocks have not participated in the runup. So, Buying the stocks gets you extra returns via leverage
There are several ways to play the gold stocks. From the list below, Pick the type of stocks according to your risk tolerance. The top being least risky and the bottom being highly risky (notice I did not use the word "safe"). These are after all high beta stocks. The hierarchy looks like the following:

Gold Producers - Large
Gold Producers - Mid and Junior
In Development Stage - Mid and Junior
In Exploration - Juniors
Moose Pasture

3) Stocks to Consider

While I'm hesitant to recommend any juniors, I will stick to the Large and Mid-Sized Gold producers

Agnico Eagle Mines (NYSE: AEM)
GoldCorp (NYSE: GG)
Kinross Gold (NYSE: KGC)
NewMont Mining (NYSE: NEM)
Yamana Gold (AMEX: AUY)
Freeport (NYSE: FCX)

Conclusion
In the short term, gold should hit 900 and back off to retest the previous highs (850 or so). Just remember, Whenever you have a multi decade breakout, the move is very very significant.

Happy Investing

Disclosure: I do not own any of the securities mentioned above

MOO - The Agribusiness ETF

2007-12-30T02:11:00.000-05:00

In a previous post I discussed food inflation but didn't provide a list of agri companies.

The Easy Way
I think the easiest the way to invest in food/agriculture theme is to invest in MarketVectors ETF Called "Agribusiness ETF" (Symbol: MOO). According to the VanEck website:

"The Agribusiness ETF seeks to track as closely as possible, before fees and expenses, the total return performance of the DAXglobal® Agribusiness Index. The Index provides targeted exposure to 40 companies worldwide that are engaged in the agriculture business. As such, the Fund is subject to the risks of investing in this sector."

YTD, The ETF is up 38% vs the S&P 500 of 4.14%

The Hard(er) Way
If you want to do this the hard way (i.e. invest in individual stocks) then I suggest you look at the constituents that make up the MOO ETF mentioned above. Take a look at the website for a breakdown, and they are as follows

(Source: Vaneck.com)

Looking at the list, some companies immediately stand out: Namely Potash, Agrium, Monsanto.
Please note that individual stocks are riskier than betting on the entire sector with the ETF is safer and thus diversifying your risk.

Happy Investing

Disclosure: I do not own any of the securities mentioned above

Global Hunger, Tortialla Riots, Pasta Strikes and The Tomato Boycott

2007-12-27T03:03:00.000-05:00

Before I begin to explain the title of this post, I must warn you that you have a choice to either make money from this opportunity or feel ethically challenged by the situation. If you are a capitalist, I say no more...

Recently there have been 'tortilla riots' in Mexico, 'pasta strikes' in Italy and the tomato boycott in Argentina. Also, The United Nations’ Food and Agriculture Organisation recently warned that global hunger might worsen next year. So, why is this happening?

Food Inflation
The price of food is rising everywhere in the world. The trend has been in place for a while now but it got worse for the following reasons (source: FT.com):

Soybeans and Corn hit an all time highs to tight supply/demand conditions (source: FT.com), and increase in ethanol production
Changing diets in Developing Economies
Tariff Restrictions have created havoc all over the world, resulting in protectionist policies in the local markets
Global warming or not, adverse weather has created drought conditions in key locations around the world - main one being Australia (key exporter of wheat)
Rising Fertilizer Prices due to tight supply/demand conditions mainly skewed by china.
Transportation costs have risen since oil is in the 90s and possibly going higher

So, above are a few conditions that have contributed to the rise in food prices. The next question is, is this trend in rising prices sustainable? The answer seems to be YES!

No doubt, there are casualties of this phenomenon (i.e. poor countries). But this trend looks like it will sustain itself for the long run. If you are not convinced watch this excellent interactive presentation from FT.com - THE RISING COST OF FOOD

Conclusion
Corn, wheat, Fertilizers, Oil, Soybeans, Kerosene have all hit all time highs or near all time highs. This is not a minor trend but a serious one that looks like it will contribute to global inflation in a significant way in the next 5 years or so.

As an investor how can you profit from this?
Firstly, you need to analyze the entire industry to pick your investments, for not all investments in this arena will be good opportunities.

I'll be doing a part 2 for the best investments

Investors need an education in Peak Oil

2007-12-24T03:18:00.001-05:00

In a previous article i mentioned investors need an education in Molybdenum. Now I state that investors need an education in Peak Oil. Read the following article and all the facts you think you knew will be debunked....here's an excerpt from the excellent article by Dr. Albert Bartlett titled, "Arithmetic, Population and Energy".

"Bacteria grow by doubling. One bacterium divides to become two, the two divide to become 4, the 4 become 8, 16 and so on. Suppose we had bacteria that doubled in number this way every minute. Suppose we put one of these bacteria into an empty bottle at 11:00 in the morning, and then observe that the bottle is full at 12:00 noon. There's our case of just ordinary steady growth: it has a doubling time of one minute, it’s in the finite environment of one bottle. I want to ask you three questions. Number one: at what time was the bottle half full? Well, would you believe 11:59, one minute before 12:00? Because they double in number every minute.

And the second question: if you were an average bacterium in that bottle, at what time would you first realise you were running of space? Well, let’s just look at the last minutes in the bottle. At 12:00 noon, it’s full; one minute before, it’s half full; 2 minutes before, it’s a quarter full; then an 1?8th; then a 1?16th. Let me ask you, at 5 minutes before 12:00, when the bottle is only 3% full and is 97% open space just yearning for development, how many of you would realise there’s a problem?"

Substitute Bacterium for People and the bottle for oil

Enjoy!

More Education on Molybdenum

2007-12-24T03:04:00.001-05:00

Below is a link to Moly Outlook for 08 put together by folks at Sprott Moly ETF . It clearly explains the difficulties the industry is facing, the supply/demand imbalances and the inevitable rise in Moly Prices.

moly-outlook.pdf

Growth vs value, Styles Matter When Markets Turn

2007-12-19T01:58:00.002-05:00

Growth vs Value
I'm sure you've heard Investment managers or Analysts say growth is in value is out or value is in and growth is out!

Well, it's true! and It's important to recognize that there will be extended periods of time when one style works and the other doesn't. It makes logical sense.

For instance, we know since 1996 to late 1999, Growth was in! Growth stocks were the glamour stocks of the day. However, after the dot com crash, Growth was no longer in and Value took over. And value stocks have had the best 6 years or so in a very long time. How do I know this? Take a look at the chart below:

However, as of July of this year (2007), There was an inflection point where Growth took over and value fell out of favor. Why July? Well, with the credit crisis there was a wide belief that US was headed for a recession. The logic then was that companies that have superior growth characteristics should do well even in a slowdown.

Take a look at the chart below and you will notice the inflection point.

So, as an active investor you must be aware of these changes in styles over time. Obviously, there will always be opportunities in individual stocks regardless of growth or value. However, it's important to keep a broad perspective on how the market is doing before making individual decisions.

How to think about the current market conditions?

2007-12-17T02:22:00.000-05:00

For any investor thinking through situations that are unknowns might be a futile exercise or best left to the experts. However, it's a vitally important tool!

Before I begin, I'm reminding you not to believe in a Buy and Hold strategy, especially when we are at a cornerstone for the markets. The prudent thing to do is stay on the sidelines with 100% cash if the market turns down, don't fight it! If you are a trader, go ahead play with any of the variety of instruments the markets have to offer. But, If you are strictly a long term investor, you must ask yourself if it is worth continuing to stay invested in the current markets.

Here are the questions to Ask: Currently the DJIA and SPX are not too far off their highs, so:

1) What does the market need for it to break new highs and continue this bull market?
2) What does the market need for it to break down and enter a bear phase?

(Remember you need to factor in global markets not just US).

After you have answered these questions, assign a probability to each outcome. Remember the answers don't have to be perfect, because no one knows what will happen tomorrow. What is helpful is that you assess how you feel about the current market environment. If you are a seasoned investor you should have no trouble answering these questions. If you are a novice then I'd recommend you go to financial websites and seek out news stories, Op Eds that support both views (i.e an upmarket, or a down market).

These are my probabilities:

Market will continue to go up: 30%
Market will continue to go down: 30%
Market will continue to go sideways (directionless): 40%

My assessment is that markets will trade in a range and probably break down lower into 2008.

Now, What if I'm right! then my strategy continues. If I'm wrong and markets do go higher, I will then, in light of new information switch my strategy.

So, Remember despite what conclusion you might come to, you must be ready to take the other side. That adaptability is key to investing, trading and surviving the game long term!

Happy Investing

S&P 500 - What's really Going on???

2007-12-05T07:47:00.000-05:00

The S&p500 is up 3% as of Dec 4/07:

But to get a true sense of where the current market conditions, we need to take a look at the inner components of the index, namely the industry groups that make up the S&P 500:

Here are the YTD returns for various groups within the S&P500. You can clearly see which groups are under performing the market and which groups are still holding up.

One clear sign of an economic slowdown is the money flows into the defensive sectors (Household goods, utilities, healthcare etc).

Sectors	YTD
S&P 500 Banks Industry Group Index	-28.46%
S&P 500 Consumer Durables & Apparel Industry Group Index	-18.82%
S&P 500 Diversified Financials Industry Group Index	-17.98%
S&P 500 Commercial Services & Supplies Industry Group Index	-14.58%
S&P 500 Media Industry Group Index	-14.38%
S&P 500 Retailing Industry Group Index	-12.49%
S&P 500 Insurance Industry Group Index	-8.68%
S&P 500 Automobiles & Components Industry Group Index	-4.70%
S&P 500 Transportation Industry Group Index	3.45%
S&P 500 Telecommunication Services Index	4.72%
S&P 500 Food & Drug Retailing Industry Group Index	4.84%
S&P 500 Hotels Restaurants & Leisure Industry Group Index	5.57%
S&P 500 Pharmaceutical & Biotechnology Industry Group Index	6.34%
S&P 500 Software & Services Industry Group Index	9.35%
S&P 500 Health Care Equip & Services Industry Group Index	11.09%
S&P 500 Capital Goods Industry Group Index	11.59%
S&P 500 Household & Personal Products Industry Group Index	13.21%
S&P 500 Tech Hardware & Equipment Industry Group Index	14.10%
S&P 500 Food Beverage & Tobacco Industry Group Index	15.86%
S&P 500 Materials Industry Group Index	17.68%
S&P 500 Utilities Industry Group Index	17.73%
S&P 500 Energy Industry Group Index	22.70%

Click below to see the charts for groups mentioned above. Since we are visual creatures, a chart creates a dramatic impact on the senses

Page 1
Page 2

The best way to play this market going forward is to avoid the economic sensitive sectors until the rate cuts take effect, which will probably be well into 2008.

2 Moly Stocks to Play

2007-12-03T01:42:00.000-05:00

Read Part 1 for a background on Molybdenum

Thomspon Creek Metals (TC:NYSE, TCM:TSX) and General Moly (GMO:AMEX)

Well these are the two Moly stocks I was going to recommend but Jimmy Cramer beat me to it. So, it's better if you read his recommendation: Click here

Disclosure: I do not own either of these securites

Index Funds vs Sector Specific Funds

2007-11-28T02:21:00.000-05:00

Index funds have long been advertised as a passive way of investing in the markets with low fees. And essentially, an index fund tracks the broader index such as DJIA, S&P 500. We've all heard that majority of mutual funds are unable to beat the broader indexes over the long term.

Sector specific funds I believe is the ideal way of passive investing for someone who is unable to pick individual stocks. So, with little research, investing in a sector specific fund can beat the broader markets over the long term. These should the same or slightly higher fee structure. However, you will make it back in higher returns.

Please bear in mind the current markets are directionless and thus hard to predict if we are going higher or lower or trading sideways. Nevertheless, this example is to simply illustrate that sector specific funds can beat the broader indices over the long term.

So, let's take a look at the broader indexes with 1 year,3 year statistics. I picked vanguard funds as an example.

Index fund - S&P 500 Returns (1 year): 14%
Sector Specific Fund - Precious Metals Fund: 50%
Sector Specific Fund - Energy Fund: 42%

Please note, sector specific funds are more risky and more volatile than index funds. Also, sector specific funds need a little bit of research than index funds. But it's well worth it.

US Economy Slowing...Sectors to Avoid

2007-11-28T01:42:00.000-05:00

Most fund managers utilize a Top down Approach to investing.

Country -> Economy -> Sector -> Industry -> Companies

If we are to believe the economy is headed for a recession, then there are sectors one must avoid. What are they? And also what sectors will work even if the US economy goes into a recession.

I cannot explain every single industry and why you should invest in it or why you should avoid it.

I'm merely breaking down the sectors and industries to help you better allocate your capital given the current market conditions.

Economics 101 tells us that as the economy contracts we should invest in defensive companies (food, drugs, household products etc). But that thinking is too simple given that we are in an unprecedented era of global growth. What that means is there are industries which will do well regardless of the US economy simply because those particular industries might have better economics (supply/demand) than others. Identifying these industries is key to beating the market going forward. So, what are they?

I believe the following list should provide enough direction for you to find companies to invest in for the next 6-12 months.
Click here to download the list (.xls)

Industries To Stay Invested	Industries to Avoid

Oil & Gas	Basic Materials
Pipelines	Commodity Chemicals
Integrated Oil & Gas	Specialty Chemicals
Oil Equipment & Services	Forestry & Paper
Basic Materials	Forestry
Nonferrous Metals	Paper
Steel	Aluminum
Coal	Industrials
Gold Mining	Building Materials & Fixtures
Platinum & Precious Metals	Containers & Packaging
Industries	Diversified Industrials
Aerospace & Defense	Electrical Components & Equipment
Heavy Construction	Electronic Equipment
Marine Transportation	Commercial Vehicles & Trucks
Railroads	Delivery Services
Industrial Machinery	Transportation Services
Waste & Disposal Services	Trucking
Consumer Goods	Business Support Services
Brewers	Business Training & Employment Agencies
Distillers & Vintners	Financial Administration
Soft Drinks	Industrial Suppliers
Food Products	Consumer Goods
Durable Household Products	Automobiles
Nondurable Household Products	Auto Parts
Personal Products	Tires
Tobacco	Furnishings
HEALTHCARE	Home Construction
Health Care Providers	Consumer Electronics
Medical Equipment	Recreational Products
Medical Supplies	Toys
Biotechnology	Clothing & Accessories
Pharmaceuticals	Footwear
Consumer Services	Consumer Services
Drug Retailers	Apparel Retailers
Food Retailers & Wholesalers	Broadline Retailers
Telecommunications	Home Improvement Retailers
Fixed Line Telecommunications	Specialized Consumer Services
Mobile Telecommunications	Specialty Retailers
Utilities	Broadcasting & Entertainment
Electricity	Media Agencies
Gas Distribution	Publishing
Multiutilities	Airlines
Water	Gambling
Computer Services	Hotels
Computer Services	Recreational Services
Internet	Restaurants & bars
Software	Travel & Tourism
Computer Hardware	Financial Services
	Banks
	Nonlife Insurance
	Full Line Insurance
	Insurance Brokers
	Property & Casualty Insurance
	Reinsurance
	Life Insurance
	Real Estate Holding & Development
	Real Estate Investment Trusts
	Asset Managers
	Consumer Finance
	Specialty Finance
	Investment Services
	Mortgage Finance
	Technology Hardware & Equipment
	Electronic Office Equipment
	Semiconductors
	Telecommunications Equipment
	Computer Hardware

Investors need an education in Molybdenum

2007-11-25T23:17:00.002-05:00

Background
Molybdenum is a metal used primarily to strengthen stainless steel. However, over the years it's use has spread to wide areas of applications. Today, Moly (short for Molybdenum) is used in areas such as:

Oil and Gas Pipeline Construction
Pipes for Nuclear Power Plants
Automobile Industry
Gas Turbines

There are 3 excellent articles you can read on Growing demand for Moly:

Special Report "Growing Use of Molybdenum in Automobiles" by Denis Battrum November 20, 2007
Special Report "Expanded Uses of Molybdenum in the Energy Industry" by Denis Battrum Oct 12, 2007
Special Report: "Structural changes in molybdenum demand" by Denis Battrum March 27, 2007

World Demand for Moly

source: www.thompsoncreekmetals.com

Pricing Of Moly Critical at this Stage
The price of moly has stabilized at $33/lb this year. Given the declines in other metals this year, it is indeed a strong sign that Moly prices will likely stay at these prices. Just to given an example of how the other metals have collapsed this year, Just take a look at Copper, Nickel and Uranium.

Copper - From under $1/lb to a high of almost $4/lb. Current Price is $3.0/lb
Nickel - From under $5/lb to high of almost $25/lb. Current Price is $15/lb
Uranium - From under $10/lb to high of $135/lb. Current Price is $90/lb
Moly - From under $5/lb to a high of $40/lb. Current Price is $33.25/lb

This is part 1 on this series...Part 2 will be on "2 Moly stocks to play"