Heyer Capital, LLC

investment management and timely advice from a local CPA (Fox Valley, Wisc.)

Archive for October 2008

AAPL – Apple Inc – – example Cup with Handle

with one comment

I sometimes get puzzled responses when I relate “Investor’s Business Daily” founder, Bill O’Neil’s, market aphorism that “All stocks are bad, until they’re ready to go up.”  A corollary saying is “Just because you like the company, doesn’t mean it’s a good stock to own.”  Case in point, Apple Inc.

In the past several years, Apple has been an enormous commercial success with its iPods, innovative computers, and iTunes. It was a tremendous cash-generating machine with outstanding earnings growth and a solid balance sheet.  In 2007, shareholders were handsomely rewarded, as the stock leapt from a ‘cup with handle’ technical pattern in April 2007 giving stock gains over 100% for the year. It culminated with a Christmas price peak over $200 that has not been overcome.

AAPL carved a deep base in the first few months of 2008, dropping over 40% from Point A to Point B.  It’s normal for high beta market leaders to correct more than the overall market, but 40% is about the maximum decline that’s acceptable in building a base digesting big prior gains.   AAPL charged up from B to C, and formed a typical consolidating handle.   The proper buy point at Point C, but only if the stock charges past C in heavier volume.  Waiting for such a movement, and not getting in too early,  puts the odds in your favor of fresh gains.

 

 

Why not try to get in earlier and try for bigger gains?  Look at any price point after C.  That, in a picture, is why.  It may indeed rally from Point D, but any price gains have to chew through all of the holders that bought in the prior two years at prices from $100 to $200 that will sell as the price advances.  Any stock gain is hindered by a flurry of orders of “Just get me out at what I paid.” That’s a textbook picture of upside resistance, particularly given the number of novice investors flocking to a brand name such as AAPL.  

Why bother buying stocks that have to fight battles through the next $100 in price?  Keep the bulk of your powder dry until the odds of success are in your favor.

Advertisements

Written by heyercapital

October 21, 2008 at 8:31 am

High Yield Bond Funds

leave a comment »

   One of my first posts on this blog  was a recession investing technique taught to me by a corporate CFO.  (The fact that I was warning investors of recession a year and a half ago ought to make you wonder if little ol’ me in the middle of Wisconsin could figure out the bubble was bursting, why couldn’t the bonus-bloated whiz kids on Wall Street? But I digress.)

   When fear is rampant in the credit markets, you’ll see the difference in yields between theoretically safe Treasuries and the low-rated “junk” bonds expand to more than 1000 basis points, or 10%.  As an example, the 10 year Treasuries might yield 3%, but the junk bond index would yield 13%.  

   Indeed, a Bloomberg article this morning described “armageddon” bond pricing, with the bond market assuming 5% of the corporate bonds outstanding will default, the highest failure rate since the first Great Depression.   That doesn’t mean prices can’t retract further, naturally, but we’re clearly suffering (or prepared to profit from) an enormous level of fear in the bond market.  

   Where to start? Find a bond fund with an indicated average credit quality of “BB” and “High yield” in the fund name.  Look at their latest statement of fund holdings, and have yourself a good chuckle at their hubris. “GMAC”?  “Fannie Mae”?  “Ford”?  Now watch the daily price of that fund. Do nothing, but watch. Is the price in a cascading waterfall?  Is the dividend yield up near 10%? Are more of their holdings defaulting?  Good. 

   Double check your risk fortitude, emotions, and time horizon.  How would you feel if the bond fund fell 20% from these already low levels?    The idea behind this method is to collect a juicy monthly dividend while riding up the price of bonds in a recovery.  You want to get paid well to wait.  You might even consider reinvesting those dividends right back into the fund, but keep good records for the taxman. 

  If your investments are at a no-load fund company itself or a 401k plan, when the time is right, consider starting to average in with price.  Consider making a small investment every week, or twice a week.    If your investments are at a brokerage firm selling high-commission mutual funds (sooooo 20th century) make him work for your business.   Mentally divide your investment into 20 equal sizes.  Tell your broker to make 15 investments over the next six months after your say “Go,” and he gets to pick 5 days to make a double-portion investment on days when the bond market is under extreme duress.  If he doesn’t know what that looks like, well…., enough said.     

   The concept is that this a one or two year investment horizon.  Watch from the sidelines as bonds default & miss interest payments and otherwise go to heck in a hand basket, buy-in gradually, collect the monthly dividends as the price of the fund improves as confidence returns to the bond market.  That is the best case scenario.

Written by heyercapital

October 17, 2008 at 10:56 am

Posted in stock ideas

A follow through day

leave a comment »

Today’s price action is a higher-volume follow through day on the rally starting after the horrendous Oct 10.  As I’ve noted previously, bear market rallies are quick, vicious, and exhilarating.  Do not fall in love with your stocks again, as the longer term down trend remains in tact.  My greatest concern is the lack of leadership in the past couple of weeks.  Which sector is going to rotate to the front of the pack?

Brian Shannon at AlphaTrends.blogspot.com has published some outstanding data to help us put perspective on this market.

Written by heyercapital

October 16, 2008 at 10:10 pm

Where is Debt’s Sting?

leave a comment »

 

The socialist cries, “Spend! Deficit! More Debt!” 
“We owe it to ourselves! No regrets!” 
Then where is debt’s sting?
Make default our victory!
Close the Fed and forfeit! 
We owe it to ourselves to be free.
[three-fold Amen!]
(To be sung in church to the tune of “Abide With Me.”)

Written by heyercapital

October 14, 2008 at 12:23 pm

Posted in Uncategorized

Patience

leave a comment »

Here are a few valuable market aphorisms: 

 

Opportunities are made up easier than losses. 

All stocks are bad, until they are ready to go up [according to their chart pattern.] 

A falling market is guilty until proven innocent. 

Don’t try to catch a falling knife. 

The trend is your friend (the down trend is your enemy.) 

“Bottoming” is a process, not a day.  It takes price and time.

Only one person gets to “invest like Warren Buffett.”

There is wisdom in multiple counselors.

Written by heyercapital

October 8, 2008 at 12:18 am

my crystal ball

leave a comment »

Since the most common question I get is, “What will happen?,” I’ll dust off my crystal ball and offer prognostications. 

1) The greatest armed robbery in the history of the world will pass the House today.

2) There will be a coordinated effort to pour kerosene on the market to ‘prove‘ governments’ effectiveness of The Deal, especially with an election around the corner. 

3) Bear markets see tremendous, wicked rallies, which of course, lead to another call of “the bottom is in” from the grinning idiots on the financial TV. 

4) Such rallies should be fed, i.e. sold into. 

5) Since the Billionaire Bailout solves nothing by not addressing the root cause of the problem (absurd asset prices vs credit deflation), yet exacerbates the problems by removing wealth from the real economy and further distorts the capital markets, the credit markets will remain dysfunctional. 

6) A retest of the 2002-2003 lows is not outside the realm of possibilities, given the greater number of zeros underlying this mess they’ve made.  That equates to an extraordinary amount of pain for America.

Written by heyercapital

October 3, 2008 at 10:25 am

Posted in Austrian Econ