New Stock selected with KUTE

Good morning,

It’s a new week and every new week is a new beginning and a new start to filter new stocks, analysis them and make some informed decisions to trade these stocks. With the US markets closing higher in the face of news that the unemployment rate climbed to a25 years high, it will be very interesting to forecast the markets’ direction this week. This week’s key data will be the trade deficit report and the University of Michigan’s report on consumer sentiment on Friday. More important will be the earnings reports which will be dominated by retailers and also reports on construction and technology. With the fundamentals factoring the higher than expected unemployment, massive budget deficits and weaker USD, the market direction should be driven by momentum and participants’ psychology by the earnings reports of the companies selling to the Americans. Let’s take a look at the Cycle Trend chart.

As we can see from the chart, DJIA has an upside potential from both its cycle formation and candle for the coming week. Since I am expecting the week’s earnings reports to be positive and together with the technical, I would expect the market to be volatile and continue its broad range trading and possible upside advancement for the week. Thus my macro strategy of buy at low and sell at target will apply again this week.

The 4 stocks I am looking at this week are Molson Coors Brewing Co (TAP), Mirant Corporation (MIR), Magellan Health Services Inc (MGLN) and National Oilwell (NOV).

National Oilwell Varco, Inc. (NOV) is a provider of equipment and components used in oil and gas drilling and production operations, oilfield services, and supply chain integration services to the upstream oil and gas industry. NOV has a market cap of about $17 billion and has raked in more than $13 billion in sales in the past 12 months. Its fundamentals are good and the company’s last 3 years operating income is positive and growing. Operating cash flows and free cash flows are consistently positive. On the technical, the cycle trend is forecasting an uptrend and a white candlestick were formed, representing normal buying pressure. The bullish harami marks a potential change in trend and a confirmation is required to confirm the stock forecasted advancement. Taking into consideration of the company’s fundamentals, cycle trend forecast and candle, I will be including this stock in my buy list.

Magellan Health Services, Inc. (MGLN) is engaged in the specialty managed healthcare business. Magellan provides services to health plans, insurance companies, corporations, labor unions and various governmental agencies. Its’ earnings report last month beat market’s expectation and the company has raised its FY EPS views. The fundamentals of the company are strong and its past operating income, operating cash flows and free cash flow are positive and consistent. However the cycle trend forecast for the company this week is downward decline and a white candlestick with a long tail shadow was formed representing normal buying pressure and possible retraction, telling me not to bother with further selling or buying until a new signal is formed.

Mirant Corporation (MIR) is an energy company that produces and sells electricity in the United States. The Company owns or leases 10, 1120 megawatt of electric generating capacity located in markets in the Mid-Atlantic and Northeast regions and in California. Mirant also operates an integrated asset management and energy marketing organization based in Atlanta, Georgia. The company post a 97% plunge for their 3rd quarter profit driven mainly by hedging losses. Fundamentally the company is not too bad. Its operating income is consistent if this one time writeoff of hedging loss is excluded and positive and operating cash flow is positive. However I am not comfortable with its free cash flow and the reported large one time hedging losses. This reminds me of the companies in Singapore that had large hedging losses causing the stocks to plunge and these stocks are still recovering from their fall today. The cycle trend is indicating a downtrend but with the candlestick showing a bullish harami cross, I may take a speculative intra day bet for a potential bullish swing when the market opens and set 10% profit target to sell. If KUTE system is fully complied, MIR will be a stock to closely watch and wait for a bullish alert before trading.

Molson Coors Brewing Company (TAP) is a holding company. The Company’s operating subsidiaries include Molson Canada (Molson), operating in Canada; Coors Brewing Company (CBC), operating in the United States prior to the formation of MillerCoors LLC (MillerCoors); Coors Brewers Limited (CBL), operating in the United Kingdom and Ireland, and other corporate entities. The company’s 3rd quarter earnings were up 37% due to higher selling price and cost cuts to beat market expectations. The bottom line earnings were better than estimates but much of it was due to tax benefits. The global beer sales were down by nearly 3% as consumers cut back on spending, causing the stock to closed down 8.5% last Friday. It seems that the conventional wisdom that alcohols were fairly recession proof is being challenged as the sales and revenue of the industry have suffered last year. I am not very comfortable with the declining operating income and operating cash flow. As for the technical, cycle trend chart is forecasting a downward decline and a black candlestick were formed. Most of the analysts are calling for moderate buy for this stock, but I would rather wait and not bother with trading this stock this week.

So what will I trade this week? I will add NOV to my portfolio, bet on MIR and leave MGLN and TAP alone. As for the stock I am still waiting to sell, PTEN, the candlestick is showing a bullish harami cross and with cycle trend indicating neutral, I believe the stock should hit my sell target this week.

By the way, since I am a computer idiot and posting cycle trend chart is quite difficult, I will not post any chart from now onward. If you are keen to see the charts, send me an email and I will be happy to send the charts to you.

Have a great week ahead.

Francies Cheng
BBus MAppliedFinance

KUTE's performance for the week

Good morning,

It’s finally the weekend and it is the day of the week that I always look forward to. It is the day that I evaluate my stock performance and fine tune KUTE’s stock selection process. Stock trading is dynamic and no system is rigidly fixed. Every day is a new learning experience to understand what causes the stock prices to advance or decline and decide if such factors should be included in or excluded from the stock selection process. Saturday is also the day that I can relax without having to read the financials early in the morning and write my summary to all my Investment Advisers. Most importantly I can sleep late on Sunday since this is the only day I take leave from writing this blog.

My friends at the gym asked me this morning if I had copied the stocks recommended by other websites and call it my own. I was sad to hear that but when they told me the reason they asked is because the writings were pretty good and they are following my blogs regularly, I am encouraged to continue. To be frank, there are occasions I thought of discontinuing the blog. After all, I have only one follower and I am not very sure if there are people reading my blog. Until my friend helped me to install the site meter and I realized the blog has many readers and some of them are from countries as far as USA. So if you are one of my readers, I would appreciate your contributions, be it agreeing or criticism since my key objective for this blog is for all traders to share their knowledge and methods so that we can all make money together.

Now let’s look at KUTE’s forecast and the selected stocks performance for the week. We will compare the prices at the beginning of the week and the closing prices last night. DJIA opened at 9712.13 at the beginning of the week and close at 10,023.12 last night to end the week at 3% higher. The lowest it went was 9647.06 and highest was 10,077.08. It traded broadly within the forecasted range. So KUTE was right with the volatility of the market its’ forecast that the market has a possibility to decline was not correct. As I mentioned last night that every trading session is a learning process and looking back at where it got wrong, I realized that Cycle Trend forecasts within the normal bell curve and special events, e.g. earnings and economic reports are outliers that will distort the forecast. Candle was right with its call for confirmation after doji for the future price direction. I will keep this in mind in future analysis.

The 2 stocks that passed through all stages of the KUTE’s selection criteria, CAH opened at $28.34 and closed at $29.50 and NBL opened at $65.63 and close at $66.74. The stocks that passed through the value filtering but did not filtered through the more stringent criteria of financial fundamentals and technical, DRIV opened at $22.83 and closed at $25.42, OSG opened at $39.25 and closed at $36.87, BHI opened $42.07 and closed $41.18, SKX opened $21.82 and closed at $22.80 and WTS opened $28.25 and closed at $30.25. So I was right for the 2 selected stocks and I missed out on DRIV, SKX and WTS but was fortunate not to buy OSG and BHI. Should I get upset with the missed opportunities? If I do I am allowing emotion to control my trade and deviate from the trading plan and rules of KUTE systems. Well, no system can be 100% accurate but if it is accurate for more than 80% of the time, it should good enough to make money consistently. Perhaps I should include stocks that both Cycle trend and Candles contradict as stocks to watch and wait for confirmation to buy. If both agree, the stocks will be a strong buy without the need for confirmation.

As for the stock that was excluded from the list and held by me, PTEN opened at $15.70 and ended the session at $15.78, and I am still holding on to the 2 positions because it has not achieved my target returns. I am not too worried because the stock’s fundamentals are sound.

Have a great weekend and I am excited looking forward to another session of KUTE’s recommendations. See you next Monday morning.

Francies Cheng
BBus MAppliedFinance

Back to above 10,000

Good morning,

My friend is happily making money trading the stock markets with CFD and I am really happy for him. He was retrenched from his job this year and since he couldn’t find another new job, he decided to turn his part-time night trading into a full time job. His target is to make at least $300 a day so that he can meet all his personal and household expenses of about $5000 a month. He was so excited of his new found career that he decided not to look for another job. My only concern is his trading capital is about 80% of his entire savings of $30,000 and he is always fully leveraged if he trades.

In my capacity as an investment adviser director, I have the opportunity to advise many clients in the region and regardless of who or how rich they are, one of the criteria I must know from them is their risk profile. It is very important to understand an investor’s risk profile before I can recommend the right asset classes and investment allocation plan. In finance, risk drives returns. To understand an investor’s risk profile, I need to understand both his ability to take risk and his risk tolerance.

During my time as a derivative broker, I came across many traders that lost all their savings and were sued for their losses for the counters they punted, hoping to make a quick buck from the volatility. These are the punters who have high risk tolerance but without the ability to take risk. Yet there are others who can lose their investment capital without losing their sleep, but chose to keep their money in money market or fixed deposits. These investors have very low risk tolerance but high risk ability. As for my friend, he probably has a very high risk tolerance but his ability to take risk is questionable. There are many financial behavior theories to explain risk tolerance and I think the reasons why he is taking risks in his CFD trading is because he has heard from many of his friends the success CFD trading stories in the current market and his desire to double his savings to support his lifestyle. Without a continuous income and using 80% of his entire savings to fully leverage on his trade, I can only hope that he will be lucky all the time.

I am glad that I do not depend on luck to make money in stock trading. I can sleep well even if the market decline since I am always applying my 30-20-50 rules for my CFD trading and my leverage principle is downward leveraged and not upward leveraged like my friend. I have explained this in my previous blog so I will not repeat again. The stocks are screened, filtered and current market and companies conditions are considered before selected to trade. So how did the selected stocks performed last night?

DJIA surged 203 points to close at 10005.96, 2.1% higher than previous session, S&P 500 rose 20.13, or 1.9 percent, to 1,066.63, its fourth straight gain and Nasdaq rose 49.80, or 2.4 percent, to 2,105.32, its biggest gain since a 2.5 percent spike on July 23. So the markets did move in broad range for the last 4 trading night as forecasted by KUTE. However, the prediction that there is a possibility of decline at the end of week and the participants were looking for direction was only half correct so far. Participants did look for direction and when the directions were clear that US economy is improving with the better than expected data, markets advanced. The decision was to buy at low and sell at target for the stocks selected and indeed these stocks did move in broader range than the markets.

CAH was up 1.72% to close at $29.63. The stock was $28.32 at the beginning of the week when KUTE made a buy signal and I suggested that CAH could be held for longer term and form part of the 30% portfolio. A 10,000 shares valued at $28,000.32 invested at 10 times leveraged of $2,800 would made $10,000.32 before commission for this stock. NBL was up 1.12% to close at $66.88.

As for the other stocks, SKX closed at $22.75 at 2.16% higher, OSG up 1.01% to close at $37.18, DRIV up 0.57% to close at $24.89 and BHI up 3.01% at $42.12. The stock I am still holding, PTEN, closed 2.1% higher at $16.07.

Have a great day!

Francies Cheng
BBus MAppliedFinance

The reasons for last minute sell down last night

Good morning,

Prior to the opening of the stock market, shares and futures around the world rose on speculation that the US Federal Reserve will hold on its’ stand that rates will stay on hold for an “extended period”. The key discussion we had was not whether the rates will be increased, but for how long it will stay at the current rates. Some of my friends who are new to stock trading asked me what has interest rates to do with the share prices. Well, those of us who are experienced in trading stocks know that it will increase operating costs if interest rates are increased and it will hurt operating profits of companies. Having less profits means there’s lesser to share amongst stock owners and the value of shares will decline. Sounds simple to us, but to the many it may be the first time they heard. What amazed me is that my friends are trading the stocks without the knowledge of fundamentals of stock trading. They are trading because they heard from their friends which stocks to buy. I suggested to them that they could be better off if they invest their money with a fund manager than to “gamble” their hard earned money.

In a volatile market such as stock trading, learning how to trade stock is crucial because there is no sure way of continually posting growths in profits for any trader year after year, stock after stock. Trading is a zero sum game, and for every winner there is a loser. The greatest myth about how to trade stock successfully is the need for the trader to be able to predict the stock price’s movements. This is grossly wrong, and the best way to make money in stock trading is to avoid approaches that rely on stock price predictions. The reason behind this is simply there is no person that can correctly predict stock price movement accurately and consistently all the time. The only way to be successful in stock trading is education and a systematic approach to select and trade the right stocks. The key to protecting yourself and be a winner in the stock market is to understand where you are putting your money, so it is important to invest in learning because knowledge is power. It seems like I am promoting my KUTE system training course, so let’s move on to my actual stock trading performance.

The US markets started the night brightly even as the markets wait for the FOMC policy statement and the new economic data. Stocks had risen ahead of the announcement as the report of rising commodity prices and labor market signaled that the pace of layoffs is slowing. However the rally fizzles after the Fed decided to leave the rates intact as correctly forecasted in my last blog. I believed the rally collapsed because many have expected Fed to keep the rates unchanged but it is not clear from the Fed’s statement how it will tighten the market to prevent inflation. Also, more than 2/3 of the House voted to accelerate the credit card reforms to 1st December that allows interest rate increases on existing balances based on limited conditions causing financial stocks to decline in the last hour of trading.

The market closed with 55% advances and 43% declines for NYSE and 38% advances and 59% declines for Nasdaq. CAH closed 1.64% higher at $29.13 and NBL closed -0.2% at $66.14. DRIV closed at $24.75, a whopping 10.89% increase; OSG was down -2.28% at $37.25, BHI down -5.85% at $40.89 and SKX down -0.98% at $22.27. So far so good for KUTE this week for the only 2 stocks the system picked, i.e. CAH and NBL.

The stock I am still waiting to offload PTEN closed at $15.74, down -0.69%. I am not too worried because of my 30-20-50 rule and that the stocks selected are fundamentally sound. It traded the day at the high of $16.10 and I sold off 1 position at $16.07 with slight profit. 2 more position to close and I look forward to another trading day.

Have a great day.

Francies Cheng
BBus MAppliedFinance

V or W?

Good morning,

I have been asked this question many times in the last few days: will there be a V recovery or W shape dip before recovering? To be honest, no one really knows. The current economy is presenting a tricky situation for the policy makers. Their policy choices, which can determine if it’s a V or W recovery, depend on the fundamental questions: Has the economy recovered? If it is, will it continue so if the stimulus are removed? Timing the tightening of the policy is crucial and they need to balance between having the economy running into hyperinflation and sending it into the feared W.

With the policy makers still combating recession, I doubt they will tighten the policy sooner. Perhaps they will only do so after the 2nd quarter of 2010. Last year’s financial and economy meltdown is like a strong earthquake. Once the big shake is over, we can continue to see after-shocks and economy growth will face sustained headwinds. We should see governments reducing their budget deficits once they believe recovery is firm and stable, but until the forecasted 2nd quarter of 2010, the market will continue to be volatile.

The market opened sharply lower last night as a wider than estimated loss at UBS overshadowed Mr. Buffet’s purchase of Burlington Northern Santa Fe Corp. Though the market reacted to the UBS report, I am slightly positive because this result will delay the policy maker’s decision to tighten their policy. I personally see this as a positive sign moving forward for the next quarter if the stimulus plans are not abruptly withdrawn. At the session close, the broader S&P 500 managed to post a modest gain of o.24%. DJIA was down only -0.18%. There were 59% advances against 39% declines in NYSE and 58% advances and 38% declines in Nasdaq.

For the stocks KUTE chose, CAH was down slightly at -0.07% to close at $28.66, NBL advanced 0.88% to close at $66.27. PTEN closed 1.34% higher at $15.85, but it has yet hit my target so I am still holding.

As for the other stocks, BHI closed at $43.43, 2.89% higher, DRIV up 0.45% at $22.32, OSG up 0.21% at $38.12, SKX up 2.18% at $22.49. These stocks performed as expected if only beta rules are applied.

So did I make money in these stocks? To be honest my exposure is already at the 50% of the 30-20-50 rule so I have yet made new trades for CAH or NBL last night. Since I am a position trader, I don’t trade every minute on intra-day signals and I don’t buy stocks that didn’t pass through all stages of KUTE system. Sometimes there could be missed opportunities but overall it is better to stick to my trading rules.

Have a great day.

Francies Cheng
BBus MAppliedFinance

Choppy start to the week

Good morning,

I read an article yesterday targeting retail investors that it is possible to make a million dollar from stock investment. It is not impossible, but it really depends on how long is the time horizon, the risk/return profile and the initial investment capital. Another article claimed that doubling the money is easy if their rules are followed. Based on the rule of 72, i.e., 72 divided by the rate of return will give you the number of period to double the initial investment amount. That is, $100,000 will take 7.2 years to double the money if the return is 10%. If it is 30%, it will take 2.4 years. So you can see that you need to have a large initial investment amount to start with and at the same time take higher risk to achieve a shorter period to double your money. Let’s assume if you have $50,000 to start with. At 10% annual returns, it will take about 31.5 years to achieve a million if it is compounded. At 20% it is 16.5 years, at 30% it is 11.5 years and at 40% it takes 9 years. To be compounded means the gains are not consumed but re-invested. If gains are realized, than it will take a much longer time.

What is troubling is that the million dollar dream is chased by most retail investors. Taking the world renown Warren Buffet’s stocks' returns as a benchmark, achieving more than 20% consistently per year is quite impossible for most professional fund managers, much less retail stock investor. I just wonder how many of these retail investors has $50,000 to start stock trading and believing they can achieve more than 30% per year consistently. I could only pray that their luck does not run dry before their dreams are fulfilled. Does it mean that we should not be trading stocks? No. We just have to be realistic and understand our ability and tolerance to take risk. The money set aside for stock trading should only form part of the total assets and the amount depends on the risk profile. So the next time you read any advertisement claiming you can double your money by investing in their seminars, think of the rule of 72 and decide if you have the money and if they can really achieve the high returns consistently.

US markets did what KUTE system had predicted last night. Stocks jumped after strong reports on manufacturing and housing but were fluctuating by the afternoon. The Dow Jones industrial average ended up 77 points after being up as much as 146 points. The stocks KUTE recommended did well on the first trading day of the week. CAH advanced 1.2% to close at $28.68. NBL closed at $65.69, up 0.09%, with the stock trading with a $3 spread during the session. Among the stocks I have decided not to buy because they do not pass through the final criteria of KUTE technical, BHI was up 0.33% at $42.21 trading around the spread of $2, DRIV was down -2.67% to close at $22.22 and OSG was down -3.08% to close at $38.04.

As for PTEN, I am still waiting for the price to hit my limits to sell. It ended the session at $15.64, up 0.39%.

Have a great day today.

Francies Cheng
BBUs MAppliedFinance

What's in for the week

Hi my friends,

It will be a very interesting week for the market. I was in my bar drinking last night and a couple of my friends asked if there is really a recovery given that the US unemployment is hovering near 10%. I am pretty sure there is, given that employment growth comes last after a recover starts. So how will the markets be this week? There are three big economic events coming up: Auto sales. The major manufacturers will report on Tuesday; the Federal Reserve meeting. The Federal Open Market Committee, the central bank's rate-making body, will decide Wednesday afternoon whether to leave the target for its key federal funds rate at 0% to 0.25%; and the monthly unemployment and payrolls report. This comes Friday before the market open and is the month's most important economic report. Also, there will be 92 S&P500 companies and 2 DJIA companies reporting their earnings this coming week.

Let’s look at the Cycle Trend and Candle technical for the market this week.

As we can see from the chart, the market is still looking for direction and will continue to trade broadly within range and will likely decline over the week. Cycle Trend is indicating a decline and the candle seems to confirm the cycle charting. While I am not expecting the Fed to increase its interest rates, I am not too optimistic with the monthly unemployment and payrolls report. With the market still sensitive to reports and looking for direction, I will continue to my buy at dip and sell at 10% target tactical plan.

The KUTE system has filtered the following fundamentally sound companies this week; SKX (Skechers USA Inc), DRIV, WTS, CAH, OSG, BHI and NBL (Noble Energy Inc). Dropped from last week’s list are PTEN, MLI, and EIX. It will be easy first decision for me, i.e. to sell PTEN when the markets open this week at my target.

Let’s look at the filtered stocks. The betas for the stocks are as follows: SKX 2.37, DRIV 1.46, WTS 1.11, CAH 0.84, OSG 1.53, BHI 1.57 and NBL 0.91. Based on the macros and the tactical plan to trade the stocks’ beta, SKX, OSG and BHI look interesting. I may consider adding CAH to the 30% of the 30-20-50 for longer term holding if the stock’s Free Cash Flow and Operating Income is in line with KUTE’s requirement. Let’s look further for the 2 new companies included in the selection this week.

Skechers U.S.A., Inc. (SKX), incorporated in 1992, designs and markets Skechers-branded contemporary footwear for men, women and children under several lines. In addition to Skechers-branded lines, the Company also offers eight uniquely branded designer, fashion and street-focused footwear lines for men, women and children. These lines are branded and marketed separately from Skechers and appeal to specific audiences. Its brands are sold through department stores, specialty stores, athletic retailers and boutiques, as well as its e-commerce Website and its own retail stores. Skechers operates 84 concept stores, 83 factory outlet stores and 37 warehouse outlet stores in the United States, and 16 concept stores and two factory outlets internationally. Most analysts are bullish with the stock amid the better than expected earnings and the drop in inventory and they are expecting the sales to increase for the near future. However, I am personally not comfortable with the decline in net income and inconsistent cash flow from operation with the company reporting a negative cash flow last year. Taking into capital expenditures, there is no free cash flow for equity owners. With both the weekly Cycle Trend showing a decline and a bearish engulfing candle, I have decided to give this stock a miss.

Noble Energy, Inc. (NBL) is an independent energy company that has been engaged in the acquisition, exploration, development, production and marketing of crude oil, natural gas, and natural gas liquids (NGLs). The Company’s activities include geophysical and geological evaluation and exploratory drilling on properties, for which it has acquired exploration rights. Most analysts have upgraded NBL to buy and the company has maintained a healthy financial and liquidity position. I am comfortable with the company’s consistent gross profit, operating income, positive operating and free cash flows. However with the company’s beta at 0.91 (with macro forecasted to decline) and with Cycle Trend showing a possible decline combined with more bears than bulls as shown in candle, I will keep the stock in my review list and will monitor closely.

BHI Cycle Trend is forecasting a decline and with the candle still bearish, I will also give it a miss. CAH’s Cycle Trend showed upside potential this week but from its candle it seems that the stock is still looking for direction confirmation with a possible decline in the coming week. With the stock beta at 0.84, I may consider to buy this stock. I am still uncomfortable with the technical of DRIV. OSG candle represents a selling pressure this week though the Cycle Trend indicates a possible advance for the week. With many analysts downgrading the stock and with its beta at 1.53, I will be careful with this stock.

So it looks like an easy week for me staying at the sideline. I will be looking at opportunity to sell PTEN and buy CAH and monitor closely the technical of NBL and OSG if it touches the first support at $35.20. I just got to remember not to trade if there is no signals at all. It's better to be safe than sorry.

Have a great week ahead.

Francies Cheng
BBus MAppliedFinance

ps. If you need the charts for the other mentioned stocks, please drop me an email...it's quite troublesome loading all here ...