Trend Analysis LLC

Ford follows the market today and closes a bit lower, but still remains in a very close proximity to a short term low. Aggressive traders can purchase call options and traders who have rode the stock lower on puts or short sales should definitely look to take their profits on their entire position.

USU now looks like it needs one final push lower below $6.10 before it can complete its first leg down. From that point, I would look for a counter trend rally to retrace 50 to 62% of the decline.
USU will become another shorting opportunity once a counter trend rally has been exhausted.

Oracle has finally started to move nicely with a very sharp move lower today.
The ultimate downside target remains 21.50, but taking 1/2 your position off the table with some nice profits would not be a bad idea.

First Bancorp is rapidly turning into a very nice short sale.

Yet again, another recommendation that you may want to take 1/2 to 3/4 of your position off the table with some excellent profits.

The chart shows the ultimate downside target.

Do's and Do Nots of Successful Investing

1) Buy and Hold Doesn't Always Work.
2) Cut your losers, and let your winners ride.
3) Don't fall in love with your stock; it won't fall in love with you.
4) Don't fight "the tape" (the trend).
5) Don't have more than 5% at risk in any one position.
6) Don't miss a good one by being too concerned with the exact price you pay.
7) Have patience and stick with your discipline.
8) Neglected sectors often turn out to offer good values.
9) Not selling a stock for a gain, simply because the taxes, is a bad idea.
10) Real estate cycles are not the same as stock market cycles.
11) There's usually only one reason corporate insiders buy stock.
12) Try to buy a stock when it has few friends.
13) When a stock hits a new high, it's not time to sell. Something is going right.
14) When all you're left with is hope, get out.
15) You can learn more from your bad moves than your good.

One of My Favorite Fundamental Tools

***Lets talk a little about the value measurement of earnings yield.While this measurement is being more widely followed, it remains a very key tool in obtaining the true value of a security.
***The earnings yield is nothing more that the opposite or reciprocal of the P/E ratio.It helps to put value in a more easily understandable light as it can be measured againstthe prevailing 10 year note yield.The premise is that if the earnings yield on the market or whatever stock you wish to measure is greater than the 10 year note yield then the security is undervalued.
***Now this is a gross simplification of the theory, but it gives you a reference point.Don't forget also that the 10 year T- note yield is a before tax measurement and the earnings yield is an after tax measurement. Therefore even if the earnings yield is less that the 10 year note yield, there is still a possibility of a security being undervalued.
***This gives you a very strong starting point as to where to go from here with the tool. Especially the after tax aspect of the earnings yield.Here is an example of the calculation for the earnings yield on a stock.Let us suppose a stock has a P/E ratio of 12. In order to get the earnings yield we just invert the 12/1 fraction to 1/12 and the yield comes to 8.33%. Compare this to the 4.5% 10 year note yield and you have quite the undervalued security. Maybe even more so than the 8.33% dictates as this is the after tax yield. To convert it to the before tax yield simply multiply the 8.33% by 1.33 for the 33% corporate tax bracket. The before tax yield becomes 11.08% which makes this security very undervalued.
***You can also use the earnings yield of an entire index such as the S&P 500 to get a feel for the current state of value in the market. Above this post you will see a visual of the current earnings yield model that shows the S&P 500 to be quite undervalued. This does not take into account the after tax effect which would move the target for the S&P 500 even higher.
***The earnings yield is a great tool and should be in every good investors toolbox.

Lawyers - Always in The Mix Somehow : >

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Trend Analysis LLC

Wednesday, June 11, 2008

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