Thursday, June 26, 2008

S&P 500 Trendline, Support and Resistance after Big Drop Today

The S&P 500 ($SPX) went down 38.82 points (-2.94%) to close at 1283.15.

Next support levels are the important 1270 and 1219 levels. (See the horizontal blue lines in chart above). The stock market could bounce on these support levels, or else these support levels could break and then we find new support levels and resistance levels.

Looking at the three year trend line (the blue diagonal trend line), we notice that that from 2005-2008, the blue diagonal trend line was support, establishing a trend. However, in 2008, we notice that the S&P 500 broke down below this trend line and remains below the trendline.

In chart analysis (also known as technical analysis), the usual rule is that support levels which have been breached now become resistance.

So now, the long three year trend line is the upper resistance of the S&P 500.

Let us first see how the S&P 500 behaves at the 1270 level, the first support level.

Today's Stock Chart

Sunday, June 22, 2008

Long Term Trends: Part 5: Consumer Debt

Here are some current trends:
  1. Gas and Energy Prices remain expensive and may remain expensive in the future.
  2. Food Prices remain high and may remain high in the future.
  3. Consumer Income may not keep up.
  4. People can no longer use their houses as ATM machines.

With consumers being squeezed, what will the consumer (the U.S. Consumer) do? Will they start saving more or will they continue to spend?

This will depend on many factors, such as culture.

In Japan, there is a greater inclination to save compared to Americans.

However, in the United States, the Savings Rates over the last decade is below 4%, a very low personal savings rate. Even during the recession of 2001, the savings rate remains low.

So Americans (and other cultures) still want to spend despite being squeezed by higher gas, energy, and food prices. This means that in order to continue spending, consumers will need to incur more consumer debt.

Ways to play this

Two obvious plays on increasing consumer debt include:
  1. Mastercard (MA)
  2. Visa (V)

Other plays include:
  1. American Express (AXP)
  2. Portfolio Recovery Associates (PRAA) - Engaged in purchase, collection, and management of portfolios of defaulted consumer receivables.

Credit Cards Used to Finance Healthcare Procedures

In the July 2008 edition of Consumer Reports, there is an article that details the increasing use of credit card to finance health care procedures. According to the article, $45 billion is spent today, and it could triple to $150 billion in 2015.

Beware of Rising Charge-Offs

Beware of Rising Charge-Offs. In the first quarter 2008, the Big Three all reported rising charge-offs. For example, the Bank of America charge-off rate increase from 4.73% to 5.19 percent.

Monday, June 16, 2008

Long term Trends: Part 4: Cleanup and Waste Management

We expect these trends to continue:
  1. Global Industrialization produces more waste by-products.
  2. High Energy Prices encourages use of Nuclear Energy. Nuclear Waste is a by-product.
  3. Waste is an alternative energy resource. There is Waste to Energy conversion and even Methane Gas Capture
  4. Recycling plays an important role as commodity prices (materials) continues to remain expensive.

There are additional current factors:
  1. There are companies in this group near their current 52 week high.
  2. This is a good area to be in at this part of the cycle and beyond.
  3. There is recent merger and acquisition activity. Allied Waste (AW) and Republic Services (RSG) are in the process.

Some of the Industrial and Environmental Cleanup Companies and Waste Management Companies
  1. American Ecology (ECOL)
  2. Clean Harbors (CLHB)
  3. Energy Solutions (ES)
  4. Waste Management (WMI)
  5. Allied Waste (AW)
  6. Republic Services (RSG)

Saturday, June 14, 2008

Oil in the Arctic and Ice Road Truckers

Gas prices are going through the roof.

One of the reasons for this is the lack of supply.

However, I was reminded recently after watching the Discovery Series "Ice Road Truckers" that there is a lot of untapped oil in the Arctic Region. Some claim that one quarter of the world's untapped oil and gas reserves lie there.

Aside from investing in integrated oil companies such as Exxon-Mobil (XOM) or Conoco-Philips (COP), investing in oil services and oil exploration companies could be profitable.

There are Oil Services and Exploration Companies such as:
  1. Schlumberger (SLB)
  2. Halliburton (HAL)
  3. Transocean (RIG)
  4. National Oilwell Varco (NOV)
  5. Nabors (NBR)
  6. Ensco International (ESV)
  7. Petroleo Brasileiro (PBR)

Canada Oil Sands

Canada also has the largest Crude Oil reserve, but much of it is in Oil Sands which may be more expensive to extract. But given today's high energy prices, it is worth it.

Canadian Natural Resources (CNQ) and Suncor (SU) might be good plays on this.

Over the long term, Canada itself, which is rich in natural resources, could be a very good country to invest in. The ETF EWC might be a good play to profit from a Canadian boom.

Ice Road Truckers

"Ice Road Truckers" is a History Channel Show (owned by A&E Networks) that features Semi Truckers driving large loads in the Arctic Circle and the Canadian North. During the winter months, the Lakes and Arctic Ocean freezes, allowing truckers to drive above the frozen lake or ocean. The main items they are transporting are either mining equipment or oil equipment. This reminded me that there is a growth area in oil exploration and services in areas such as the Arctic.

Monday, June 9, 2008

Don't Whine About Oil Prices, Profit from It (Or at least Hedge)

In today's CNBC Show "Mad Money", Jim Cramer tells viewers to try to profit from increasing oil prices rather than "freak" out over the price of gasoline.

Jim Cramer pointed out three reasons why oil prices are high:
  1. Oil Fields are Drying Up
  2. It is more difficult to find new oil and get it out of the ground.
  3. Demand for oil is growing very fast especially in China, India and the rest of the Developing World.

Jim Cramer then used this introduction as a way to introduce some wildcat companies, those companies who are looking for oil.

Hedging For the ETF Investor

Some investors may be mainly ETF investors, and choose not to spend time picking individual stocks.

One way to hedge or profit against rising oil prices is to invest in the ETF with the symbol "USO". USO has a high correlation to the price of oil. USO mainly reflects "the spot price of West Texas Intermediate (WTI) light, sweet crude oil."

For the Stock Picker

For the stock picker, there are many ways to profit from rising oil prices.

We highlighted the different ways and selected companies in Part 1 of the Long Term Trends: Energy, Oil, Coal, Nuclear, and Cleanup.

Friday, June 6, 2008

Home Entertainment Content Overload Will Keep You at Home

How can we leave the living room?

We can see that the Analog to Digital Living Room Long Term Trend is in place as people are upgrading to High Definition Digital Television, [Corning Glassware (GLW) is a play on this.] and installing Home Theater Systems [Dolby (DLB) is a play on this]. Content providers such as Comcast (CMCSA), DirectTV (DTV), and the Dish Network (DISH), also help keep people in their seats.

Now there are even more ways to keep people in their living rooms.

DVRs, or Digital Video Recorders, allow users to record and watch their favorite shows, even in high definition. These devices are very user friendly, and users of products such as Tivo (TIVO) have a cult following. The NDS Group (NNDS) is also another play on this.

Tivo has recently teamed up with (AMZN) to provide a service called Amazon Unbox, that allows movies and shows to be directly downloaded from Amazon to the Tivo DVR.

Netflix (NFLX) and BlockBuster (BBI) offer another alternative to home entertainment. These companies ship DVDs by postal mail and provide another source of home entertainment.

Netflix (NFLX) recently teamed up with Roku. Roku provides a special set-top box that allows subscribers of Netflix to stream a selection of movies directly to their television (which could be a widescreen High Definition Television). [I recently tried out the Roku system, and it is easy to setup and convenient and there are no extra service fees from Netflix. Quality at this time is close to the VHS level, but streaming is very good using broadband.]

Apple (AAPL) has attempted a similar type of Set Top Box with AppleTV but that product has not taken off.

Gaming consoles, from makers such as Nintendo (, Microsoft (MSFT), and Sony (SNE) also provide even more reasons for people to stay in their living room.

With all these forms of entertainment in the living room, how will people leave their living room?