Stock Market Thoughts

Stock Market thoughts

First Thoughtlet me give you a few short quotes from The Reitmeister Trading Alert on Thursday morning. He’s the head of Zacks right now, and runs their primary, flagship, trading newsletter.

…This is simple. We are buying more of our favorite or underweighted shares on a dip.

Plus the economic data today is good and this pullback is ridiculous, especially for small caps. So we are now actually 113% long the stock market with the extra exposure from TNA. Yes, I know that the market could stay irrational a little longer and on paper will lose more money, but soon enough… small caps should be back in favor. I am comfortable with the risk in this move. If you are not, then adjust to make it fit your sensibilities….

A) Do stocks continue going lower from here?

B) Or do we consolidate just under 1900 gaining strength for an eventual breakout above?

I think you all know that my money is riding on B coming true. Strong showings from … Jobless Claims, Industrial Production, Housing Starts and Consumer Sentiment may do the trick. Or again, it may only take the lack of negative news to keep the bull market on the rise… As I have stated repeatedly over the past couple months I think the early 2014 selloff is not based on a sound fundamental premise. And that is why I continued to be bullish.

Second thought – I think most of my stocks have now bottomed and are finished with this ridiculousness. Here’s how I look at it:

AFOP bottomed 3 months ago at $11.50 and is holding in the $18 range in spite of the sell-off, closing Friday at $18.37.

AMBA hit bottom last Friday, closing at $22.50, and finished this week up 7% at $24.05

BOFI seems to have hit bottom at $73.50 five weeks ago. With the great earnings since, they’ve been back up to $86 and the shorts have continued to push, but they closed this week at $75.25. This is one of my highest conviction stocks. If you have any question, read Fletch’s commentary on their quarter.

CALL actually closed the week at $15.07 (I even bought some at $14.76). With adjusted earnings of $2.64 that gives them a PE of 5.7!!! With a bunch of young guys enthusiastically recreating the company, if you see a lot of downside at this price, let me know what hallucinogenic you’ve been smoking.

CELG bottomed 6 weeks ago and has moved up a little every week since.

CSGP dropped from $215 to about $155 five weeks ago. It closed this week at $154. That seems like it’s been making a bottom.

HZNP is a long way down from its high of $17.37 to its current price of $12.88. It must be because its sales only quintupled(!) year over year to $52 million from $9 million, and only up 74% sequentially(!) from $30 million. (And earnings of positive 13 cents, up from a loss of 30 cents a year ago and a loss of 4 cents sequentially). Pretty mediocre!!!

JCOM, and KRED don’t seem to have been especially affected by the sell off, and are doing fine.

MTZ went from a high of $44 to a low of $38, mid-week last week, if you call that a self off? It’s now at $39.50.

P got clobbered in the sell-off getting as low as $22.20 on a daily close a week ago. (I actually bought some at $21.95). They closed this week at $23.40 but I can’t be sure they have hit bottom yet.

PFIE is doing fine. Didn’t sell off much. I’ve been buying a lot to build a position.

PSIX has been trading between $70 and $86, up and down for 11 weeks now, Moving $8 to $12 up or down each week, but not going out of the range.

SCTY is hard to tell. They closed as low as $47.75 one day last week. This week their low close was Friday, at $50.20. Hard to say if they have bottomed.

SYNA simply never went down much.

SZYM dropped all the way down to $9.09 a week ago because their factory in Brazil was delayed. (It was as high as $14.70 nine weeks ago). They have enormous potential, and I view this as incredibly shortsighted and short-term thinking. I think it’s a great price right now (closed this week at $9.21)

UBNT bottomed and bounced. I was able to buy at $32.30 last week and then $30.95 this week. It closed this week at $34.40.

WAB never really sold off. I love the company but I sold a bunch of my position to buy some of these other things.

Z never really sold off, but I bought some more this week anyway, being very impressed by their earnings report.

Third thought

From my usual 24 to 26 stocks in my portfolio, I am now down to 19. This was not a conscious decision so I had to think about how and why it happened. Here are my thoughts:

Ordinarily (8 weeks ago, for example), if I had some cash from reducing or exiting a position, and I looked around for where to put the money, most of my existing positions were full positions, or were fairly fully priced or both, so I looked for other ideas, and added other small positions to see how they felt.

These last few weeks, when I looked around, I saw some of my highest conviction stocks down to ridiculous levels after reporting great results. I therefore added to them, and even sold a handful of smaller, borderline positions, in order to do so. I had no interest in looking around for new positions when there were so many bargains that I was familiar with.

And that’s how I analyze it.

Thought Four
In my reflections on the market post I posted the following (wording slightly modified):

When the market is in EUPHORIC phase, companies can report poor or mediocre results, but the analysts and investors will find some positive slant to bid the stock up. Until it reaches ridiculous extremes, and reverses.

This, on the other hand, has been the mirror image. It’s the phase of the market where nothing is good enough, and the market is never satisfied. It has been a panicked search for safety, and only safety.

This panic phase won’t last either. Especially in a growing economy.



Thanks, Saul.

I always appreciate your moves
And musings.


You’re welcome, Jim. Nice to hear from you too.


Saul, like you I have been selectively selling out of other investments to provide funds to add to these at the attractive prices. But at this point I’m having a hard time deciding what to sell - the easier answers (at least to me) are all gone.

Do you have any general advice/opinion on what to reduce, perhaps based on sector or some other factor?

I’d be happy to list out all of my holdings as you do on occasion but I don’t want to ask for a bunch of extra work from you - nor do I want other MF folks to give you the WPRT treatment (though incidentally thanks for the previous insights on WPRT and XONE, both of which saved me a bundle). I do have 94% either MF SA, MF RB or your picks in my portfolio (50 stocks total).

Thanks in general for all of your high quality posts which I enjoy immensely. -Chris

Saul, like you I have been selectively selling out of other investments to provide funds to add to these at the attractive prices. But at this point I’m having a hard time deciding what to sell - the easier answers (at least to me) are all gone. Do you have any general advice/opinion on what to reduce

Hi UtahChris,

I’ve run out of things to sell now too. What I’ve tried to do is

(1) sell a little of stable, slower moving companies (like Westinghouse Air Brake [WAB] railroad supplies, or MasTec [MTZ} construction) which I have confidence in but which haven’t fallen hardly at all and which aren’t going to run away from me when the growth stocks start back up.

(2) sell high flying stocks with earnings growth that doesn’t warrant their high PE, and which therefore seem vulnerable. That’s why I sold out of all the 3D printing stocks before the crash, and why I was lucky enough to sell a third of my NGVC, for instance, but especially the ones losing gobs of money like XONE and WPRT which you mentioned.

(3) sell my little experimental positions in stocks which may turn out well in the future, but where I have surer places to put my money. (INBK for example).

(4) sell stocks which may not be losing money, but where earnings are disappointing and falling (even if they may have good excuses) ELLI and INVN are examples.

Hope this helps,