|Written by Rob Goldman|
When Up is Really Down
Readers of this space know that we have been cautious for about a month. Since I got bored watching some of the college basketball games, I went back and did a little homework on market trading and activity. I discovered we may have become a banana republic. But more on that below. First, a review of why last week’s market action is no big deal.
Let’s not start getting excited yet, folks. Last week’s financial news was devoid of well, news. For the first time in what seemed like years, there was nary a peep about the continent across the pond.
Gas prices are still climbing and there is no real end in sight. I nearly choked at the pump myself last week and we have gas prices around $4.00 here, not $5.00 or even $6.00 as in some locales. Jobless claims, the primary driver of the market, likely declined because of the death of companies engaged in layoffs, rather than a real improvement. There tends to be seasonality to employee attrition which prognosticators conveniently forget, and the early part of the year is not one that has big numbers.
Are We a Banana Republic?
Judging by the date on the calendar it looks like it is time for a little quarterly window dressing by fund managers. That usually means buying more of the winners and selling more of the losers.
It also explains why the market, which has seemingly had little broad-based conviction, has poured in such awesome returns. This is a rally led by Apple. Look at the chart below and see how the stock’s performance correlates with NASDAQ for the past three months. As long as investors believe AAPL is cheap and continue to buy the stock, the rally could continue. But, if volume begins to subside (and isn’t everyone that wants to be in all in already?) or the stock declines, brace yourself.They say oil and water don’t mix. Neither do oil and fruit. And if oil rises and Apple’s stock declines, ouch.
Keep Buyin' 'Em
Sometimes stock defy the odds against them. We don’t usually like to take that bet but occasionally it is the right move to be a total contrarian on a certain stocks.
ABTL is down about 4% since reporting its FY11 financials and providing very favorable sentiment regarding its outlook for 2012. Nonetheless, an overhang was on the stock with respect to the stock not meeting the NASDAQ minimum bid price rule. Management addressed it and noted they were confident that NASDAQ would give them a six month window to correct it. Late Friday afternoon, ABTL announced it had in did received the notice. Since it was just before the market close, it did not materially affect the stock but we believe it will early this week. Technically, once it breaks through the $1.00 level comfortably for a few sessions, it should be on its way to a 25-50% rise, on the strength of company fundamentals.
Speaking of fundamentals, DLIA has been struggling for several quarters and after changing strategies, which have not materially changed financials, the Street wrote off any comments as verbiage akin to the boy who cried wolf. Late last week however, DLIA reported results and management provided its outlook that indicates that the new initiatives are taking hold and DLIA is in great shape for 2012. The stock is up 27% since we introduced the Company a few weeks ago and it has the legs and momentum to move higher over the next few months.
We love March Madness. It’s like the American Dream. As adults, it returns us to an age of innocence where we can believe and actually witness that anything is possible. David can beat Goliath. It gives us hope. It warms our hearts. And if we are lucky, our wallets. No cynicism is present or perhaps even allowed to rear its ugly head. There is genuine joy and camaraderie that is built around the event, regardless of whether or not one is a sports fan or a sports neophyte.
Until next week…
Analyst: Robert Goldman
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