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Aug 18 2013 Weekend Market comment

Aug 18 2013 - Well this week if you stayed up past midnight and looked overhead, you were treated to annual spectacle of the Perseid meteor shower. Of course this is not all that fell down "right on schedule", as I warned last week, the market sell off, as previously predicted, came right on time. This was the worst week for the US market since the summer of 2012. The DOW is down 2.3%, Cisco and Wal-Mart guided lower, manufacturing numbers came out below expectations this week.

If you followed my advice in the two prior Market Comments, you would have been out of high volatility stocks and in cash, TBT, and with tight stops in some broad stable indexes -- like EWG the German index ETF. In other-words your pain was minimal.
(click any graphic to enlarge)

No one can predict the markets but you can position yourself in anticipation of likely events. Since last November the S&P 500 is up some 25% so of course a pull back is natural and actually a good thing for the market. Oddly this sell off is not broadly based, a few super stock like Apple are keeping the index up, but some 400 of the big board stocks have hit their 12 month low. Hardest hit were Airlines and Home builders, but more concerning was a pullback in retail stocks after the warning from Wal-Mart.  A big part of what is driving this fear is the rapid rise in rates for the US 10 year treasury. For the Federal Reserve to lose control of the 10 year note is unprecedented. Of course that is exactly why we are in TBT. I would not buy most equities now but TBT continues to blaze ahead as bond price soar.

The whisper number of the street is that the sell off goes to 1600-1555. But really who cares, we don't catch falling knives but when this turns back up you will have a great buying opportunity to use your cash positions.

Here is the chart for the SPY S&P 500 ETF. Friday the sell off took us to 165.28 the 67 day average (red line). I expect there will be support about 155.50 of 1555 on the S&P 500. On the top of the graph is the 7 period RSI notice how in this recent bull market we seldom do more than kiss the RSI 30 level.

Of course this is no time to guess if this is the bottom, For that we will wait for a signal from the green arrow graph.

The Big Question?
When there is a pull back you always ask is it just a blip or a turn in the market. One Place to look is transportation.  So lets look at the company that ships all that dollar store junk from China to your local port. A.P. Møller-Maersk’s quarterly revenue fell 9% to 81 billion Danish kronor ($14.16 billion) in the second quarter.  Profits declined 13% to 4.89 billion kronor. Lower oil production at its Maersk Oil division weighed on results. The good news came out of its Maersk Line container shipping division where profits nearly doubled. The company raised its full-year earnings forecast but warned that the outlook “is subject to considerable uncertainty, not least due to developments in the global economy.”

The takeaway: While the profit at Maersk shipping division is heartening, it was driven by cost-cutting rather than rising revenues. The company spotlighted improvement in the efficiency of its vessel network and declining fuel expenses. Volumes were up 2.1%, however.

That says that things are getting better slowly for the world economy, so this is most likely a blip than a crash. For now you might go back and visit some of my stock picks in the prior Market Comments and get ready to buy on the turn.

In the last comment I mentioned that gold was nearing resistance and might retrace, well it did not. In fact if I had thought about my other comment, of how copper was breaking out and that the equity markets were weakling, I might have thought about a possible oversold bounce gold rally. In fact the setup was ripe, gold could break out and that is what happened, up 4% in a week. Still in the long run I think gold has seen its long term peak at 1800 and will one day continue down. I think the commodity trade short or long for now should be avoided. There are so many easy ways to make money right now.

Gold did well but the big pop was in miners, just look at last week for the gold miners ETF -- (ticker:GDX).

What is Working Now
One stock to consider after the pull-back is Electronics for Imaging.(Nasdaq: EFII)

Shares in TripAdvisor Inc. (Nasdaq: TRIP) fell more than 9 percent Wednesday after the CEO said a recent business model change has hurt revenue more than expected.

On Wednesday at the Canaccord Gennuity Growth Conference, Steve Kaufer, CEO of the Newton, Mass.-based travel website, said there have been fewer click-throughs to outside travel sites, and the higher price it can now charge since its model changed in June has not yet made for the lower volume, according to Reuters. Kaufer said he expects revenues to be back on track by the end of 2013, but probably not sooner.

Last month, in an interview with the Boston Business Journal about the change of model, Kaufer acknowledged it would hurt revenue in the short term, saying, “We were fairly certain when we launched it that it would hurt our revenue, and that was accurate. ... Some things help the consumer and do not help the top line. It will take us the rest of the year to regain the lost revenue momentum.”
The company’s stock fell to $73.55 over the course of the day Wednesday, but is still up 67 percent for the year. For the three months that ended in June, the company’s second quarter, revenue was $247 million, up 25 percent year-over-year, and net income was up 26 percent over the same time last year to $67 million, or 46 cents per share.

I love this company as a long term play. They will easily fix this misstep and people everywhere are hooked on TripAdvisor reviews.  Who would not want to own a company growing at 25% a year? Keep TRIP on your radar and in a few weeks/months, buy it when it bounces off the bottom.

Teck Cominco has had a great run lately, as mineral rebound a bit. Still this firm is highly tied to commodities and I am not ready to jump in at this time.

Warren Buffett Predicts His Future in 1975
In 1975, shortly after joining the board of the Washington Post Company, Warren Buffett wrote a letter to the chairman and chief executive, Katherine Graham. He had some advice as to how the company should invest its pension accounts.

All 19 pages were recently published by Fortune, and are well worth reading. Buffett, then just 44 years old, makes a succinct case against traditional stock picking and fund management.

As it turns out all he said then is coming true now. Berkshire's top 10 stock holdings are up an average of 0.7 percent for the third quarter, lagging the benchmark S&P 500 index's 4.9 percent gain.

Over 12 full months, the same story. Berkshire's stocks are up 17.7 percent (just 12.7 percent weighted) while the S&P is up 20 percent. It's true. Buffett's stocks have been falling behind the market.

Ferris Bueller's Day Off
The markets are in a summer pull back and there is not much to do but wait for the bottom. If you are thinking of taking a day off, you might want to consider taking off with the Ferris Bueller Ferrari.

One of three cars used for the '80s classic "Ferris Bueller's Day Off" will be on the block this weekend at Mecum Auctions in Monterey, Calif.

The car, one of the most famous in film history, is expected to sell for more than $250,000. But given the extravagant prices paid recently for Hollywood cars—such as $4.6 million for the Batmobile—some say Ferris' ride could fetch as much as $1 million. The Ferris vehicle is not an actual 1963 Ferrari California Spyder, but a replica produced by the specialized car maker Modena called the Modena Spyder.

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