The Market Direction…

Research in Motion (RIMM) made a nice rally from its Dec-02-2009 low @ $58.13 to its Dec-11-2009 high @ $66.50 before failing to break resistance at its 200 day moving average and then retreating to form a bearish engulfing candle pattern at the close of last week’s final trading session.

Today, it ceded further ground by completing a 38.2% retracement of this upward move and now barely trades above its next key support level @ $62.74 or 50 day moving average.

Despite securing a distribution partnership with China Mobile, which allows it to tap into the Chinese smartphone market and eventually grow its top line revenue, bulls appear to be exhausted as the stock is succumbing to an overbought condition.

Volume in today’s options trading was relatively heavy for its December $60 (15,441 contracts) and $65 ($15,136 contracts) calls, in addition to the January $80 (13,746 contracts) calls. All three were down in price to suggest some selling or paring back.

Should RIMM fail to hold support at its 50 day moving average, the potential for more bearish retracements to its 50% level (@ $62.32) and 61.8% level (@ $61.33) increases.

Overall, the fundamentals are still bullish even though the smartphone landscape is becoming more competitive with Google’s Android invading the market next year.

However, this stock deserves to be monitored as it could present a buying opportunity on either a retracement pullback or successful retest and breakout above its 200 day moving average.

Author’s Disclosures: Author has bullish exposure to RIMM via long December 55 calls and short December 60 calls and short December 55 puts as of Dec-01-2009.

*Disclaimers: Hillbent does not provide individualized market advice. The information we publish regards companies in which we believe our readers may be interested and our reports reflect our sincere opinions. Nevertheless, they are not intended to be personalized recommendations to buy, hold, or sell securities. Investments in the securities markets, and especially in options, are speculative and involve substantial risk. Each individual investor should determine their respective appropriate level of risk. It is recommended that you seek personal advice from your professional investment advisor and conduct further independent due diligence research before acting on information published in any of our reports. Most of our information is derived directly from information published by the companies on which we report and/or from other sources we deem to be reliable, without our independent verification.

Therefore, we cannot assure the completeness or accuracy of information contained within these reports and we do not in any way warrant or guarantee the success of any action which you take in reliance on our statements.

Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.

Like everyone else, I too have enjoyed the stock market rally since the March-2009 lows. However, I insist upon cautiously pacing myself at the punchbowl or keg as personal experiences and observations of others’ at college fraternity parties have taught me all too well the pitfalls of overconsumption and its impact upon one’s judgment.

Despite it being almost 28 years since my animal house daze as a member of Tau Kappa Epsilon (TKE), the instincts towards fraternal love and stewardship remain with me and are partially why I write Hillbent.com’s Market Direction Blog.

Those already familiar with my work and approach to the markets know that I prefer to use both fundamental and technical analysis in my investment decision making process, but give more weight to the latter for the purposes of market timing and risk management.

Given the fact that this rally is approaching End-of-the-World or Burning Man dimensions, I decided to step back, check out the lay of the land, and share my observations with anyone (and to dispel any notions of chauvinism or sexism on my part, "anyone" includes both males and females) who may be in danger of wearing beer goggles.

The following is a list of stocks you might want to avoid, lest you find yourself having to chew off an arm or leg just to save your portfolio:

Intraday analysis as of  Dec-14-2009

On the other hand, for those of you who are still on the hunt for some Wall Street love and wanting to stay clear of momentum traps, then here are some names to consider for relatively attractive upside potential:

Intraday analysis as of  Dec-14-2009

Needless to say, I strongly encourage readers to perform their own due diligence before determining if any of the companies on these lists are suitable for long and/or short investments.

If you have any positive or negative comments on any of these stocks, please feel free to share them in a constructive manner for the benefit of other readers.

Meanwhile, I hope that I have saved you both time and remorseful afterthoughts of making a bad decision while under the influences of another one of Wall Street’s euphoric orgies.

*Disclosures: Hillbent does not provide individualized market advice. The information we publish regards companies in which we believe our readers may be interested and our reports reflect our sincere opinions. Nevertheless, they are not intended to be personalized recommendations to buy, hold, or sell securities. Investments in the securities markets, and especially in options, are speculative and involve substantial risk. Each individual investor should determine their respective appropriate level of risk. It is recommended that you seek personal advice from your professional investment advisor and conduct further independent due diligence research before acting on information published in any of our reports. Most of our information is derived directly from information published by the companies on which we report and/or from other sources we deem to be reliable, without our independent verification.

Therefore, we cannot assure the completeness or accuracy of information contained within these reports and we do not in any way warrant or guarantee the success of any action which you take in reliance on our statements.

Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.

It was reported in Mumbai that India may be ready to buy the remaining portion of IMF gold that is up for sale and bring the tally of its recent gold purchases up to 401 tons. If so, India’s purchase of gold at historically high levels speaks volumes about its perception of the Fed’s credibility to support the dollar.

In this current environment, emerging market central banks find themselves swimming in dollars and other fiat currencies to maintain their reserves.  Unlike some developed nations which have higher percentages of their reserves backed by gold, this is not the case for these fast growing countries and nor is it necessarily as convenient for them to do so.

The expansion of the monetary supply base easily outstrips the amount of new gold that is being mined on an annual basis. Mathematically, there is simply not enough of the shiny yellow stuff to go around for everyone if everyone simultaneously decides to add to their central bank reserves.

News events like this make me wonder how other countries such as Russia or China will react. Actually, we already know how China is responding. It is simply purchasing the gold that is being mined within the borders of its country.

As a side note, for all the criticism about U.S. monetary policy, it has the largest percentage as well as proportionate percentage of its reserves in gold.As far as I am concerned about the U.S.: we may be dumb, but ain’t stupid.

Here’s an excerpt from the story on India’s gold purchases which can be linked to at Commodity Online for the complete article:

 

India is still bullish on gold. This was evident when reports said India’s Reserve bank is still in talks with the International Monetary Fund (IMF) to buy another 200 tonne gold which the international body is ready to dispose of to fund its projects.

Earlier in November India had bought 200 tonnes of gold from the IMF for over $6.7 billion after which the global bullion market witnessed a bull run which lifted the yellow metal prices above $1150 per ounce.

The fresh attempt by the Indian central bank has added to the soaring prices of gold and the metal set a new record on Tuesday.
 
At the time of the purchase of the first lot of 200 tonnes, RBI had said it was part of its foreign exchange reserves management operations.

According to IMF, it has no fixed timetable for completing the sale.

RBI is on a spree to enrich its reserves and it wishes to change it to gold rather than dollar. That was evident when India first bought the 200 tonne gold. In just three weeks after it bought the gold, India benefited by $800 million on the investment of $6.7 billion it made in buying 200 tonnes from IMF.

Related securities: GLD, PTM, and SLV

*Disclosures: Hillbent does not provide individualized market advice. The information we publish regards companies in which we believe our readers may be interested and our reports reflect our sincere opinions. Nevertheless, they are not intended to be personalized recommendations to buy, hold, or sell securities. Investments in the securities markets, and especially in options, are speculative and involve substantial risk. Each individual investor should determine their respective appropriate level of risk. It is recommended that you seek personal advice from your professional investment advisor and conduct further independent due diligence research before acting on information published in any of our reports. Most of our information is derived directly from information published by the companies on which we report and/or from other sources we deem to be reliable, without our independent verification.

Therefore, we cannot assure the completeness or accuracy of information contained within these reports and we do not in any way warrant or guarantee the success of any action which you take in reliance on our statements.

Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.

Sunday morning I found myself in the family room pedaling furiously on my spinning cycle while watching John Steinbeck’s classic film adapted novel, The Grapes of Wrath, with a young Henry Fonda and slew of other Hollywood stars cutting their teeth to make a name for themselves. For the record, it is both one of my favorite novels and movies as it deals with a period in American modern economic history that chronicled the desperate times of the dust bowl and economic depression.

As I invested myself emotionally into the story and physically into my bike, I could not help but draw some parallels to today’s financial crisis:

1. cataclysmic events that trigger and facilitate enormous transfers/evaporation of wealth
2. the advent of new technologies and innovations altering demographic landscapes
3. exploitation of economically disadvantaged people by special interests business groups which are often aided by the apathy or legislative participation of government accomplices
4. the willingness of so many to accept injustice without much protestation or in some instances prone to misguided anger.

Now, I will be amongst the first to proudly acknowledge America’s social and economic progress during the post-depression era. Besides, investment ideas, which I shall eventually get to, and not critical comparisons between the past and the present is the purpose of this article, so I will refrain from doing such.

However, somewhere between my cinematic indulgence and adrenalin surged workout, I did draw some inspiration from the movie and the speeches of Ma Joad and Tom Joad. In fact, they actually helped to put things into perspective for me. Here is Ma Joad’s below:

AL: Whatsa matter, Ma? Gettin’ scared?

MA: No. Ain’t ever gonna be scared no more.

(After a pause)I was, though. For a while I thought we was beat–*good* an’ beat. Looked like we didn’t have nothin’ in the worl’ but enemies–wasn’t nobody frien’ly anymore. It made me feel bad an’ scared too–like we was lost… an’ nobody cared.

 

AL: Watch me pass that Chevvy.

 

PA: You the one that keeps us goin’, Ma. I ain’t no good any more, an’ I know it. Seems like I spen’ all my time these days a-thinkin’ how it use’ta be–thinkin’ of home–an’ I ain’t never gonna see it no more.

 

MA: Woman can change better’n a man. Man lives in jerks–baby born, or somebody dies, that’s a jerk–gets a farm, or loses one, an’ that’s a jerk. With a woman it’s all one flow, like a
stream, little eddies, little waterfalls, but the river it goes right on. Woman looks at it like that.

 

AL: Look at that ol’ coffeepot steam!

 

PA: Maybe, but we shore takin’ a beatin’.

MA:(chuckling): I know. Maybe that makes us tough. Rich fellas come up an’ they die, an’ their kids ain’t no good, an’ they die out. But we keep a-comin’. We’re the people that live. Can’t nobody wipe us out. Can’t nobody lick us. We’ll go on forever, Pa.

We’re the people.

I chewed on her words for a while and revisited my impressions from Apple’s quarterly report last week. I remember marveling at how this company seemed to be somewhat impervious to this recession. I also remember Apple being down and out in the decade of the 1990’s, (Don’t worry, this report is not about Apple. Everyone already knows or should know the Apple story by now.) But like Ma Joad, I believe that one must "keep a-comin’…" and if you are an investor then it is important to identify those companies that just "keep a-comin’…" no matter what.

And of course there is Tom Joad’s infamous "I’ll be there" speech:

"…I’ll be all around in the dark. I’ll be ever’-where - wherever you can look. Wherever there’s a fight so hungry people can eat, I’ll be there. Wherever there’s a cop beatin’ up a guy, I’ll be there. I’ll be in the way guys yell when they’re mad - I’ll be in the way kids laugh when they’re hungry an’ they know supper’s ready. An’ when the people are eatin’ the stuff they raise, and livin’ in the houses they build - I’ll be there, too."

With sincere humility, I certainly do not regard myself as the reincarnation of Tom Joad, but I do honor the spirit of the man (even if he is an idealized fictitious character) and good-willed intentions of his words. Therefore, in the spirit of altruism and the democratization of financial data and research, I share this short list of stocks that I believe to have a sufficient quantity of the tough stuff to "keep a-comin’…" no matter what.

While they may not share AAPL’s business model, they do share a consistency in delivering strong sales and earnings results. First, we identify companies with positive sales and earnings surprises that have exceeded consensus estimates by at least 5% for the last two reported quarters. On an annual basis, they must also produce positive earnings over the past 2 consecutive fiscal years and positive sales growth during the previous 3 consecutive fiscal years. Last but not least, the companies can rate no lower than neutral (i.e. C on a scale of A to E) on Hillbent’s proprietary grading system. In this environment, none of these are an easy feat to accomplish. From a universe of 3000 companies (includingADRs ) with a minimum average daily volume of 100k, the results yielded only 10 companies.

Here are the 10 companies for reader’s reference. As always, I encourage further research and due diligence as the list is merely a starting point and not intended for specific recommendations or regarded as an entire portfolio. Anyone who wishes to obtain a premium version of the report which entails more in-depth analysis and commentary may contact market-condition at hillbent dot com.

Well the movie ended and so did this report that I wrote in my head while riding my bike. The screen was originally inspired from Apple’s quarterly results last week but formulated while watching The Grapes of Wrath.

The challenges and obstacles to future economic growth in America are legitimate, but there will be viable investment opportunities on U.S. exchanges for domestic and international securities. I am optimistic that the next 50 years will propel America to even greater levels of progress. Whether we will remain the world’s largest economy in the future is not nearly as important as remaining one of the strongest.

Whether you are a bull or bear, it is time to stop worrying about what has been lost or permanently changed. Just keep a-comin’ and when you get there you just might find the ghost of Tom Joad. I will be there for my children and my children’s children and their children. That’s America and we are the people! Until then, here’s a little bit of Rage Against the Machine for more inspiration:

*Disclosures: Hillbent does not provide individualized market advice. The information we publish regards companies in which we believe our readers may be interested and our reports reflect our sincere opinions. Nevertheless, they are not intended to be personalized recommendations to buy, hold, or sell securities. Investments in the securities markets, and especially in options, are speculative and involve substantial risk. Each individual investor should determine their respective appropriate level of risk. It is recommended that you seek personal advice from your professional investment advisor and conduct further independent due diligence research before acting on information published in any of our reports. Most of our information is derived directly from information published by the companies on which we report and/or from other sources we deem to be reliable, without our independent verification.

Therefore, we cannot assure the completeness or accuracy of information contained within these reports and we do not in any way warrant or guarantee the success of any action which you take in reliance on our statements.

Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.

I do not have the time to dig into the details for this post, but the flattening yield curve and downward sloping long-term treasury rates capture my attention these days while Fed President, Richard Fisher, reminded the market on Tuesday that the central bank is ready to pounce on inflationary pressures at a moment’s notice.

Some economists speak of recovery almost as if it is already here, but the reality is central bankers still remain cautious. As a matter of fact, Russia just reduced its interest rates on Tuesday.

Perhaps, the flattening yield curve in the bond market might be telling us that deflation is a bigger concern and if so, all of the media attention directed towards inflation could be just an attempted diversion.

Meanwhile, ECB chairman, Trichet, and China’s Minister of Finance both publicly assert that it is still premature to withdraw stimulus support as their geographical regions move towards economic recovery. Reading volumes of headlines and news over the last few weeks, it is clear that no central banker is too eager to start mopping up the extra liquidity anytime soon.

Nevertheless, an end to quantitative easing has to start someplace and the ongoing purchases of mortgage securities by the Fed seems like a logical place. According to the FOMC minutes, this will be done gradually and completed by Q1 2010. All the while the Fed intends to leave its target rate within the range of 0-25 basis points for an extended period.

All of the above leads to intramarket market analyis of the relationship between treasury bonds and mortgage backed securities and the recent development of a new relative strength performance pattern between them. As proxies, I use the TLT vs. the MBB, i.e. 20 year+ Treasury ETF vs. Mortgage Backed Securities ETF.

The weekly chart below of the TLT:MBB ratio shows that treasuries are just beginning to outperform mortgage backed securities and if this trend continues, then there may be considerable upside. To gain exposure to this opportunity, anyone willing to call the Fed’s bluff on tightening should consider going long on the TLT and shorting the MBB with equal dollar amounts on each side of the trade.

Weekly Chart Analysis for TLT:MBB as of Sept-29-2009

*Disclosures: Hillbent does not provide individualized market advice. The information we publish regards companies in which we believe our readers may be interested and our reports reflect our sincere opinions. Nevertheless, they are not intended to be personalized recommendations to buy, hold, or sell securities. Investments in the securities markets, and especially in options, are speculative and involve substantial risk. Each individual investor should determine their respective appropriate level of risk. It is recommended that you seek personal advice from your professional investment advisor and conduct further independent due diligence research before acting on information published in any of our reports. Most of our information is derived directly from information published by the companies on which we report and/or from other sources we deem to be reliable, without our independent verification.

Therefore, we cannot assure the completeness or accuracy of information contained within these reports and we do not in any way warrant or guarantee the success of any action which you take in reliance on our statements.

Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.