FED cuts by 0.25 & 0.25

Federal Reserve cut the Fed funds rate by 0.25%. This brings the Fed Funds rate to 4.5%. Last month in September the Fed had cut this rate 0.5% bringing it from 5.25 % to 4.75 %. The discount rate was also cut by 0.25% followed by a 0.50% cut in September.

The critical takeaway was the statement that showed that further rate cuts were highly unlikely. This is the best response we can get from the FED at this stage. It will REALLY help contain the Dollar slide and at the same time keep the market in bullish mode.

The market reaction though looking positive on the surface is a bit suspect. I am still having all the old longs- AAPL, BIDU, VMW, AMZN, BOOM, STV etc. Yesterday I sold DRYS, FSLR and CROX. CROX is reporting earnings after the bell today. The shippers are showing the first signs of weakness since I tagged them as trendsetters back in Aug/Sep 2007. Sold FSLR since I was holding it from the 90s and I think it was a good time to take profit.

I will be waiting on the sidelines to pick some new good longs over the next few days.

Earnings-Q3-2007

This page will report companies reporting blowout earnings and the next-day effect on price. I believe the next-day effect is more important than the earnings itself. It tells you what the market feels about the earnings and how the market participants reacted.

Company	EPS-Actual	Beat Estimate by	YoY Growth	Next-day effect
FSLR	0.58	200%	900%	35%
AMZN	0.19	6%	280%	-11%
VMW	0.18	35%	200%	12%
SNCR	0.24	41%	150%	10.20%
BOOM	0.58	16%	93%	9.90%
CRNT	0.13	8%	83%	22%
FWLT	1.78	29%	70%	8%
AAPL	1.01	17%	63%	7%
MSFT	0.45	15%	29%	9.50%

Yield Curve & SIV shocks

Credit crisis in the US with rising home foreclosures and defaults is causing a steepening of the yield curve. Such news though very important doesn't get much media attention. Here is an article from Bloomberg that captures the current scenario well. Excerpts follow:

Anxiety over the $300 billion owed by structured investment vehicles, or SIVs, is pushing investors into the relative safety of two-year notes sold by the government and the most creditworthy companies at the same time that rising consumer prices reduce the appeal of 10-year securities. The gap in yields between the bonds is getting wider, reminiscent of 2001, when the Federal Reserve began cutting its target interest rate for overnight loans between banks.
``Across 2008, sustained steepening of the yield curve will be a consistent theme,'' said Ajay Rajadhyaksha, head of fixed- income strategy in New York at Barclays, one of the 21 primary government securities dealers.
Investors seeking safety piled into short-term securities last week after Rhinebridge Plc, the SIV run by Dusseldorf, Germany-based IKB Deutsche Industriebank AG, said it may not be able to repay all its debt, and receivers said a fund run by London-based Cheyne Capital Management Ltd. will stop paying creditors. SIVs borrow in short-term debt markets to finance purchases of longer-maturity assets.

Tumbling Yields
The yield on the benchmark two-year note tumbled the most since September 2001 last week, by 45 basis points to 3.78 percent. The 10-year yield dropped 29 basis points to 4.39 percent.

Derivatives
Mortgages entering foreclosure increased to 0.65 percent in the second quarter, the highest recorded in the 35 years the Mortgage Bankers Association in Washington has tracked the data. U.S. builders broke ground at an annual rate of 1.191 million homes in September, the lowest in 14 years, the Commerce Department said last week. The same day, the government said consumer prices rose 2.8 percent last month from a year earlier, matching the biggest increase of 2007.

Nowhere is the outlook for a steeper yield curve more evident than in the derivatives market.

Inverted Curve

Longer-maturity debt typically yields more than shorter- dated securities because investors demand a bigger premium to lend for a longer period. Ten-year yields have exceeded two-year yields 80 percent of the time over the past decade, Bloomberg data show.

Between June 2006 and May 2007, the curve was inverted 82 percent of the time after the Fed lifted rates at 17 straight meetings in two years.

Investors watch the relationship between short- and long- term yields because the economy has gone into recession six of the seven times since 1960 that the relationship inverted.

Measures of investor attitudes about the outlook for credit suggest that demand for the safest of government debt will continue.

QQQQ- Where do we go from here?

The dotted lines on the QQQQ chart were broken decisively on Friday. Based on past history, it has been seen that the next stop for QQQQ would be the lower trendline. This would mean that the QQQQ would test the low 51 range. This is very simple analysis based on past data on chart. Don't worry what the talking heads on TV say. Just follow your chart -All the answers are right in front of you.

As far as my stocks are concerned, I had sold all DRYS and 1/2 FSLR over the past one week. Sold 1/2 BIDU on Friday when it did not participate in GOOG rally. Will be waiting and watching for the correction to end before entering any long positions. DRYS broke the 9EMA after a very long time, so it seems to be a good short if you want to battle with BDI.

Waiting for VMW earnings, will sell 1/2 before earnings.

Good Luck !

QQQQ Chart

The churning continues. Could go either direction. Watch the dotted lines closely.
Hate these options expiration days

GOOG earnings

GOOG posted great earnings report, 46% higher third quarter earnings in a seasonally slow quarter. This shows the massive force behind tech. I am reiterating that Tech will be the one of the main forces for the rest of the year.
Now at pre-market, GOOG is up $16 at $656. It doesn't make sense to chase GOOG on earnings day as there is not much differential between gap-up and closing price. I had picked up BIDU yesterday at 321 for the spillover effect from GOOG earnings. BIDU has hardly moved pre-market, up just $2 at 322. I am expecting BIDU to break resistance at 323. This will move very fast once this resistance breaks. My stop is at 310.

The World's Greatest Get-Rich Formula

Motley Fool discusses the Future Value formula in a very simple, easy to understand way.

My comment: Moving a step further, if you can identify the best trends in the market, you can increase the value of 'R' in step-2. When one trend has reached its peak you move onto the next trend. Currently the best trends out there are Dry Bulk Shippers, Solars and Technology.
Motley Article follows:

The formula
It is, simply:

FV = PV * (1+r) ^ n

Where:

FV = future value
PV = present value
r = rate of return
n = time (or number of years)

Compounding 101
Now, some astute finance brains will know that equation not as some mystical secret but as the "future value of money" (FVM) equation taught in college.

The FVM formula simply states that your future wealth (FV) is a function of three variables: the amount of money invested today (PV), the rate of return generated (r), and the length of time in which that money is put to work (n). So maximizing future riches requires three steps.

Step 1: Increase PV
It takes money to make money. But by actively and consistently slivering off a portion of your earnings every month to save and invest, you'll have more and more of that money working for you.

All things equal, the greater amount you invest today (PV), the greater wealth you'll build for tomorrow (FV).

Step 2: Increase r
Next, you'll need a way to grow that capital. Historically, the stock market has been the most effective wealth-building vehicle of all. Plowing your money into a low-cost index fund wouldn't be a bad idea.

But if you really want to maximize r, you'll need to allocate a portion of your portfolio to the best segment of the market over the past 50 years: small-cap value stocks. The reason is simple. Unlike behemoths such as $115 billion Merck (NYSE: MRK) and $190 billion Johnson & Johnson (NYSE: JNJ) -- whose spectacular growth days are behind them -- reasonably priced small caps have tons of room to rocket.

All things equal, the greater your rate of return (r), the greater wealth you'll build for tomorrow (FV).

Step 3: Increase n
The last ingredient in our super-simple wealth building recipe: maximum time in the market.

Look back at the equation. You'll see that n is an exponential function -- meaning that for every year you're not invested, you give up the awesome (almost magical) benefits of compounding.

All things equal, the longer you're invested (n), the greater wealth you'll build for tomorrow (FV).

Plug and chug
To get a feel for the three-step process in action, let's go back in time to see what kind of wealth would have been generated had someone:

1. Invested $40,000 in the stock market
2. Started 10 years ago
3. Divided the money among five stocks having: market caps less than $2 billion (to screen for small size), sales growth greater than 15% (to screen for above-average opportunities), and price-to-sales ratios of less than 1.5 (to screen for a good price).

Here's what it would look like:

Company	Amount Invested 10 Years Ago	AverageCompounded Return Over Past 10 Years	Total Value of Investment Today
Best Buy (NYSE: BBY)	$8,000	33.9%	$148,075
FTI Consulting (NYSE: FCN)	$8,000	27.7%	$91,892
Expeditors International of Washington (Nasdaq: EXPD)	$8,000	24.2%	$69,682
Florida Rock Industries (NYSE: FRK)	$8,000	23.7%	$66,947
Fossil (Nasdaq: FOSL)	$8,000	25.9%	$80,332
	Total amount invested (PV)	Avg. annual return of portfolio (r)	Total value of portfolio today (FV)
	$40,000	27.6%	$456,929

By having bought into five high-quality, reasonably priced companies while they were still babies, that $40,000 stake would be worth nearly $500,000 today.

Of course, you can always fiddle with the numbers to generate different levels of FV, but our objective should remain the same:

1. Maximize PV by sticking to an investment plan.
2. Maximize r by devoting a chunk of your portfolio to superior small caps at attractive prices.
3. Maximize n by investing as soon as possible and for as long as possible.

The final Foolish variable
So don't waste another "n." Start plugging whopping returns into your own real-life wealth equation today.

Massive hammer on QQQQ

Interesting to note that yesterday's reversal was seen prominently in the Q's. Shows the hot money is in Techs. INTC and YHOO reported great earnings. In contrast, check the Dow, S&P, the candle looks more like a doji. This indicates that there is still some indecision. So we are still not out of the woods. This morning Bank of America reported very ugly numbers. Most of the losses were in the corporate sector. Today after close would be GOOG earnings. The stock rose a solid 20% in the past one month. GOOG earnings are supposed to be good considering YHOO's report. Looking forward to their earnings. Will be playing BIDU based on GOOG report.

Trends- Aegean Marine Petroleulm (ANW)

Aegean Marine Petroleulm article on Barron's-Sept 24:

(ANW) supplies fuel to ships both in port and at sea, and offers an alternative vehicle to ride the shipping boom. At 31.70, shares have jumped 40% since Jefferies analyst Douglas Mavrinac first flagged the stock on Sept. 14 but still lag behind the 42 target he says they ought to be worth.

With shipyards bursting with orders, Aegean should see increased demand for its services in the years to come. The task of schlepping fuel to ships, undertaken by oil companies decades ago, increasingly is falling to independent suppliers, and Aegean -- which already has service hubs in the Mediterranean, Singapore, Jamaica, United Arab Emirates and on the west coast of Africa -- should continue to snag market share from its smaller, regional peers.

A strong balance sheet with no net debt also gives Aegean financial flexibility and the option to buy smaller, undercapitalized companies. Aegean is expected to double the number of its service hubs and nearly triple its fleet by 2010, and Mavrinac expects sales volume to rise four-fold from 2.3 million metric tons of fuel in 2006 to 9.2 million by 2010. He expects earnings per share, at about 68 cents in 2007, to reach $1.72 in 2008, $3.22 in 2009 and $4.50 in 2010.

Another catalyst: The world's supply of bunkering tankers that can deliver heavy-grade marine fuel will fall off sharply after 2008, as single-hull oil tankers are phased out in accordance with an international rule aimed at reducing pollution in an accident. But Aegean's 16-strong fleet consists of 14 double-hull bunkering tankers. And it has orders for 28 new vessels.

Market update

As of Monday-Dow down 108 points and Nasdaq down 25 points.
This is the start of the first round of retreats. More to come on the way. Also check ^VIX- showing first rounds of reversal.

DRYS keeps going up even though the market retreated. The shippers follow the Baltic Dry Index (BDI) more closely than the general US markets. It is best to stay away from shorting them. TBSI, which is in the same sector tacked on a good 6+ yesterday.

Picked up ANW yesterday at 40.90 and 43.09. 43 was the previous high. Had an excellent close at 45.07. That was a good 7% intraday return. I expect it to run to mid-45s today. If it breaks 46, this will reach 55+.
ANW-Aegean Marine Petroleum Network Inc. is a marine fuel logistics company that physically supplies and markets refined marine fuel and lubricants to ships in port and at sea.

Will markets continue to rally?

That is a very difficult question to answer. My charts indicate that the damage inflicted on Thursday is not yet over. We probably have only two more days up here near this level. What can cause volatility on each side? Tons of earnings this week. Citi reports Monday morning. INTC, YHOO report on Tuesday evening. GOOG is reporting on Thursday. Add some more volatility- Oct options expire on Friday. Be prepared to brace a wild market.

Ugly Q3 reports from Financial companies?

As the credit turmoil continues, it may be possible that we have only seen the tip of the iceberg. It would be very interesting to watch the Q3 reports from the various banks. Many of these banks would surely love to write down as many bad loans as possible. This is their best opportunity to come clean. Citi has already reported that the mortgage mess will cost them a whopping 60% of their earnings in Q3.
Earnings:
Citigroup - Oct15, before market open.
JP Morgan - Oct 17, before market opem
Bank of America- Oct 18, time not supplied

Oct 1987 crash and measures since-NY Post

BIDU finding good support

After yesterday's debacle, BIDU is finding good support at purple line.
Question remains if it can go back to 359. I am staying on sidelines to watch the action play out.

Market pullback has officially started

One slight tremor from BIDU and the stock corrects a whopping 60 points in 2 hours. I had my target set at 360 but could only sell at 345. Not bad considering where it finally closed. My entry point at 303.
The impact of BIDU was huge- it not only affected US markets but markets world over. The BIDU news was just a cut of 2 million in revenue. How does that affect world markets. Think about it. The answer lies in TA. How did I know that my target should be 360 and why did the news come out at that time. Again the answer lies in TA. The markets corrected big time because it was very very overbought and had broken the upper trendline. I am now expecting a correction to lower trendline.

As planned I picked up OCT 50 puts on QQQQ at 0.03 a piece. It closed at 0.10.
My plan today is to pick some good shorts. Anything commodity will be good. ATI came with bad numbers. Also bad news on RTP and BHP.

Chinese Stocks- JRJC, RCH, BIDU

I couldn't find an entry for STV today. Instead I picked up JRJC and RCH at morning pop.
JRJC at mid 37s and RCH at mid 16s. JRJC closed at 40.24. RCH closed at 20.35. Nice quick one-day returns. Holding them for tomorrow. If you look at the charts, all the Chinese stocks are setting up the B-waves. I will hold for the B-wave to complete and will sell before C-wave starts. They can give wild gyrations, so not for the faint at heart.

BIDU continues to rock. I have been playing since 170s. My last entry was at 303. Will continue to hold.

I am having a good plan for STV. I think I will get in this time for the ride up.

My portfolio stocks - VMW crosses 100 and DRYS is at 115s. FSLR is also good at 137. BOOM at 53. GS at an impressive 240. XLF at 35.70. Had picked up this ETF on the day FED cut the discount rate by 0.50.

As far as option trades, I am tempted to pickup some QQQQ-Oct puts this week.

STV- New Chinese IPO- Third Day IPO rule

CHINA DIGITAL TV HOLDING CO., (STV)

I will be following my third-day IPO rule and try to pick this up tomorrow. The first and second day would set some boundaries for the high and low prices for the IPO. I feel buying on first day is a gamble, you never know how low they can take it. Two days gives me enough information to do some technical analysis.
I have been successful with the last two IPOs- VMW and WX. Still holding VMW from 56s and today it closed at 95.

Cramer is going to make it difficult for me to get a good entry though. He made the following comment on the Mad Money TV show.

China Digital (STV - Cramer's Take - Stockpickr): "I gotta tell you, man, I read through the prospectus. ... This is as good as a Baidu (BIDU - Cramer's Take - Stockpickr - Rating), this is as good as a China Telecom (CHA - Cramer's Take - Stockpickr), but this thing is up. ... It does feel like VMware (VMW - Cramer's Take - Stockpickr). Could it add another 20 points? Yeah, I say BuyBuyBuy!"


So, I am going to try to get an entry tomorrow but if Risk/Reward ratio doesn't warrant an entry, then I would wait for an entry at a later date. Otherwise there is always a next cab..or should I say next rocket :)

LDK update

LDK has broken the trendline and the hammer bottom. It is prudent to stay away from this on the long side. Breaks all the criteria that listed it as a buy.
Focus on other solar stocks. FSLR is the best in the pack. Will post chart later.

Solars-LDK

LDK was one of the leading stocks in the Solar trend till last week when news broke out that its financial controller had alleging cooked financial books and inventory discrepancies.
The stock experienced a major fall from 70 to as low as 43 in just 3 days. It was a major shock if you were long the stock and had not set the proper hard stop limit or mental stops.
I have been playing this stock on the long side since mid Aug in low 40s and I am glad I exited my positions in 70s. If you look at the chart carefully, you would know why I sold it in 70- hitting of upper trendline.

I think it is a good time to buy this stock for a bounce back to 56-60 for the following reasons:
1) Nice strong hammer on Friday
2) Bounce from lower trendline
3) Fibonacci retrace of 61.8% completed
4) Slow STO oversold

This will be a technical bounce and has nothing to do with the fundamentals of the stock or inventories/financial statements.

Good Luck Everyone !!!

Article on why stocks are rallying after FED cut

Financial Times- Why stocks are still rallying

Stocks are rallying like there’s no tomorrow, emerging markets are “on fire” - and in a Wednesday analysis of market trends, the FT’s John Authers finds out why.

First, the scene: As fresh news of severe losses by financial giants UBS and Citigroup on Monday revealed even more damage inflicted by this summer’s credit squeeze, the reaction of stock markets was clear. They rallied, notes Authers.

In Monday’s trading, the Dow Jones Industrial Average, still the most widely watched gauge of the US stock market, topped the all-time peak reached on July 19. This was broadly representative of the most important developed market indices. The US S&P 500 index and Germany’s Dax index are within 1 and 2 per cent respectively of their mid-July highs.

Neither the S&P nor the Dow have closed as much as 10 per cent below their highs since July. Thus, technically, they never even suffered what analysts would call a “correction”, notes Authers.

Meanwhile, as readers may have noticed, emerging markets are “on fire”. The MSCI Emerging Markets Index is up more than 50 per cent over the past 12 months, and has leapt by more than 25 per cent since August 18, the day the Fed cut the rate at which it lends to banks. The biggest emerging markets have rallied even though they were “already in nosebleed territory”, he says; in dollar terms, China’s Shanghai Composite is up 416 per cent since the beginning of last year, India’s Sensex is up 112 per cent, and Brazil’s Bovespa is up 133 per cent.

All of this has been achieved in the face of credit market conditions that have made finance much more expensive for companies, Authers notes. Cheap credit had been seen as a key factor in supporting equities, but now this crutch has been removed nobody seems concerned.

The rally also comes amid exceptionally tight conditions in the money market, which suggest that the big banks at the heart of the world’s financial system are still anxious. Further, gold has just touched a 27-year high.

So why are equities rallying? The instinctive reaction of many in the fixed income markets is to put this down to stupidity, says Authers. “Equity traders simply do not know what they are doing, or at least do not understand the ramifications of the damage that has been done to the structured credit market”.

But there are more rational reasons for the equity rally. First, and most importantly, the Fed:

Rate cuts tend to be good, at least initially, for stocks. If they are not, it is because they tend to coincide with the start of a recession. But the Fed’s action last week was plainly inspired less by worries about the economy than by a concern to avert a crisis.

Recent history, in turn, suggests that such “emergency” rate cuts by the Fed have the effect of inflating asset price bubbles. That is potentially great news for equity investors.

In October 1998, when the Fed under Alan Greenspan was forced to cut the Fed funds rate to bring back liquidity to the markets after the near-meltdown of the LTCM hedge fund, the result was also to stimulate markets that had not needed the help, Authers reminds us.

Large technology stocks, and the growing wave of dotcoms, were the greatest beneficiaries. The Nasdaq Composite index gained 40 per cent in three months, and tripled in less than 18 months as it roared through 1999. This, he says, helps explain the current reference to stocks as “partying like it’s 1999″.

There is another example, he notes: In 1987, after Greenspan’s Fed cut rates to avert a crisis in the wake of the Black Monday stock market crash, the response was again a bubble.

Traders know that both these incidents created bubbles that eventually burst. But they also know that in both 1998 and 1987, the euphoria created by the rate cuts lasted more than a year — plenty of time to make strong short-term profits, notes Authers.

Teun Draaisma, European equity strategist at Morgan Stanley, advocated selling in June, and then aggressively re-entering the market in August, for exactly these reasons. He says another bout of ‘equity mania’ is possible, with retail investors piling in and companies indulging in strategic mergers and deals.

He also predicts that the episode will “end in tears” — but that still leaves time for investors to make fat profits in the interim.

As everyone is working on the same assumptions, gains could be limited this time, Authers warns. Tobias Levkovich, US equity strategist at Citigroup and a bull on the market for most of this year, sounds a note of caution. “As most investors are now searching for performance data on past beneficiaries of Fed actions, we suspect some ‘institutional herding’ may arbitrage away much of the opportunity fairly quickly”, notes Levkovich.

The Fed itself is also acutely conscious of what happened in 1999. If crisis in the money markets is indeed averted, the Bernanke Fed might well move much quicker than the Greenspan Fed did to raise rates and avert the risk of a big bubble.

A second, perhaps more solid reason for the equity boom comes from corporate earnings, according to Authers:

Profits made by S&P 500 companies grew at a clip of 10 per cent or more for a record 14 consecutive quarters, until that streak ended at the beginning of this year. But results for the 2007 second quarter - published to little attention as the credit crisis was intensifying - remained very robust, with an increase of 8.7 per cent, much ahead of expectations.

Now, expectations for the third quarter, just finishing, are very low indeed. According to Reuters, analysts expect a rise of only 3.3 per cent year on year for S&P 500 companies. Many are betting that it will be easy to beat those expectations and land a surprise.

However, expectations for the fourth quarter and beyond suggest that analysts are banking on the credit squeeze to blow over completely, and for the US to avoid recession. According to Reuters, they are expecting growth of more than 11 per cent both for the fourth quarter and for the first quarter of next year.

These numbers could turn out to be wildly optimistic in the event of a consumer-led slowdown in the US, which looks a real possibility. If growth is this strong, moreover, it would seem likely that the Fed would raise rates.

A third reason for optimism comes from the most popular valuation systems, says Authers . “They all suggest that stocks are cheap”.

The price/earnings ratio on the S&P 500 has dropped to its lowest level since 1996. The p/e on the UK’s FTSE 100 is similarly at its lowest level in more than a decade, he notes.

Another popular valuation system involves comparing earnings multiples on stocks with the yields on government bonds - often called the “Fed Model” because at one point Mr Greenspan himself appeared from congressional testimony to be using it.

Bond yields have dropped sharply over the past few months and so, this model makes the stock market look like a very appealing “buy”.

There are strong theoretical arguments against both these valuation models, says Authers.

Profit margins tend to be cyclical, and appear to be peaking. Earnings multiples, in turn, tend to be lowest when profit margins are high. Thus, some analysts would say current low earnings multiples simply show that the market wisely does not expect corporate profits to continue at their current heady levels.

Another reason cited for optimism is that companies have been heavy buyers of their own stock (using cash, generally, rather than debt) to boost their earnings per share. This buying picked up during the crisis.

A further driver, says Authers, is the weak dollar. “In many ways, the rally is a bet that the dollar, already at all-time lows following the rate cut, will fall further still.”

Meanwhile, for US investors, continued falls for the dollar make international investing look more profitable. For example, Germany’s Dax index is up 28.6 per cent in dollar terms this year, and only 19.2 per cent in euros.

With the Fed cutting, the dollar lost critical support. One of the simplest ways to bet on further falls for the dollars was to buy emerging market equities and switch out of smaller companies into multinationals.

This ties in with a final theme that has sustained equities, says Authers: faith in the story of secular growth in the emerging markets remains intact. According to Emerging Portfolio Fund Research of Boston, last week alone $5.53bn went into emerging markets funds, the strongest inflows in almost two years.

Mining and materials stocks, most exposed to demand from emerging markets, have performed best during the rally: consumer discretionary stocks, vulnerable to a consumer slump in the US, have done worst.

So the boom in equities is more than a rally based on the belief that cheaper money from the Fed will be enough to avert a systemic financial crisis, concludes Authers:

Equity investors are also betting that growth will come more and more from the emerging markets, which successfully “decouple” from the US, while the US economy will continue to weaken. And they are ready to pull their money out as soon as the bubble seems ready to burst.